Professional Documents
Culture Documents
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Identify the stages of economic integration.
Discuss the static and dynamic effects of a
regional trading arrangement.
Assess the nature and operation of the EU.
Discuss the advantages and disadvantages of
the NAFTA.
Identify the reforms that the transition
economies have implemented to improve their
standard of living.
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regional trade blocs could be a complement to
multilateralism by setting a precedent which
other nations will follow
can lead to deeper integration
however regional agreements are also
discriminatory in that some nations are
treated differently than others
decreases incentives for nations to pursue
multilateral agreements
trade bloc members may not gain additional
economies of scale through multilateralism
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free-trade area ± agreement to remove trade
barriers among members
u u
customs union ± agreement to remove trade
barriers among members and impose uniform
trade restrictions against non-members
u uuu
common market ± agreement that permits (1)
free trade among members; (2) common
external trade restrictions; and (3) free
movement of factors of production
u u
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$%&
economic union ± common market agreement
with :
1) common national, taxation, fiscal, and social
policies among members
2) transfers of sovereignty to a supranational
authority
u uu
u
monetary union ± economic union with
additional characteristic of common monetary
policy and common currency
u uuu
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(
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·ith Tariff:
(before customs union)
red triangle = consumer
surplus
green triangle =
producer surplus
black rectangle = tariff
revenue
a + b = deadweight loss
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(
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·ith Customs Union:
agreement with Germany
will lower the price to SG
trade-creation effect:
welfare losses now part
of consumer surplus
a = production effect
b = consumption effect
trade-diversion effect:
area c
lost benefits from lower
cost suppliers
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economies of scale ± access to a larger
market allows producers to become more
efficient through greater specialization, better
equipment, and usage of by-products
greater competition ± increased number of
producers makes collusion less likely and
forces firms to become more efficient
stimulus of investment ± because of
increased rate of return and ability to spread
R&D costs trade makes greater levels of
investment more likely
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Treaty of Rome ± 1957 ± established European
Community ± precursor to EU
1) 1957: Belgium, France, Italy, Luxembourg,
Netherlands & ·est Germany
2) 1973: United Kingdom, Ireland & Denmark
3) 1981: Greece
4) 1987: Spain & Portugal
5) 1995: Austria, Finland & Sweden
6) 2004: Cyprus, Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland,
Slovakia & Slovenia
7) 2007: Bulgaria & Romania | ,
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6
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Benefits:
maintain status in international trade
free trade preference in U.S. market
equal access to Mexico¶s market
inclusion in future free trade area with
Central & South America
economies of scale associated with
increased output levels
Possible Cost: closer integration with U.S. as
potential threat to Canada¶s social welfare
system
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(
45!
access to additional markets increases demand
Canadian
producers can
sell more
autos
increased
consumer
surplus due to
lower price
no worse for
producers
since costs
have dropped |
6
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-%(%
Benefits:
expanded trade
increased competition and lower prices
enhanced economies of scale
decrease in illegal immigration
improved political stability in Mexico
Costs:
U.S. industries competing with imports
impact on unskilled workers domestically
potential for environmental consequences
limited benefits due to relative size of these
economies
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·ould NAFTA cause many U.S. companies to
relocate to Mexico due to lower wages?
Productivity is a major factor in determining cost
per unit of output.