Introduction to the Single Market
Free Trade
Overall higher productivity as a result of specialisation – comparative advantage.
David Ricardo (1772-1823).
Britain – good at producing clothes.
Portugal – good at producing wine.
Britain should focus on clothes, Portugal should focus on wine – focus on
what they do best.
With free trade, no restriction so they would all be better off.
Britain can buy the wine from Portugal in exchange for selling clothes
to them.
Problems:
Conditions of perfect competition do not exist in any market.
Ease of purchasing internally.
Hard to know which is ‘best’.
Responsiveness to national concerns – neglect of externalities.
Protect their own products and producers.
Neglect of environmental consequences by transportation.
Stages of Economic Integration
Free Trade Area (FTA) – removal of customs duties and trade quotas between
Member States but autonomy to regulate trade with non-Member States.
Customs Union (CU) – FTA + common external policy in respect of non-Member
States.
Internal Market – CU + free movement of persons, services, and capital.
Monetary Union – Internal Market in which a single common currency operates, the
euro.
Economic Union – MU + single monetary and fiscal policy controlled by a central
authority.
Political Union – EU + central authority sets not only monetary and fiscal policies but
is also responsible to a central parliament with the sovereignty of a nation’s
government.
Full Union (FU) – complete unification of the economies involved and a common
policy on matters such as social security and income tax.
The Single Market – Basic Aims
Optimal allocation of resources for the EU as a whole through the free movement of
production factors (labour and capital) and products.
Avoid local crisis.
Can move people to those opportunities.
Balancing the market.
Ease competition.
Minimises state control.
Increased efficiency.
Eliminate discrimination.
Lasting and sustainable peace.
Free Trade
Overall higher productivity as a result of specialisation – comparative advantage.
David Ricardo (1772-1823).
Britain – good at producing clothes.
Portugal – good at producing wine.
Britain should focus on clothes, Portugal should focus on wine – focus on
what they do best.
With free trade, no restriction so they would all be better off.
Britain can buy the wine from Portugal in exchange for selling clothes
to them.
Problems:
Conditions of perfect competition do not exist in any market.
Ease of purchasing internally.
Hard to know which is ‘best’.
Responsiveness to national concerns – neglect of externalities.
Protect their own products and producers.
Neglect of environmental consequences by transportation.
Stages of Economic Integration
Free Trade Area (FTA) – removal of customs duties and trade quotas between
Member States but autonomy to regulate trade with non-Member States.
Customs Union (CU) – FTA + common external policy in respect of non-Member
States.
Internal Market – CU + free movement of persons, services, and capital.
Monetary Union – Internal Market in which a single common currency operates, the
euro.
Economic Union – MU + single monetary and fiscal policy controlled by a central
authority.
Political Union – EU + central authority sets not only monetary and fiscal policies but
is also responsible to a central parliament with the sovereignty of a nation’s
government.
Full Union (FU) – complete unification of the economies involved and a common
policy on matters such as social security and income tax.
The Single Market – Basic Aims
Optimal allocation of resources for the EU as a whole through the free movement of
production factors (labour and capital) and products.
Avoid local crisis.
Can move people to those opportunities.
Balancing the market.
Ease competition.
Minimises state control.
Increased efficiency.
Eliminate discrimination.
Lasting and sustainable peace.
