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Assignment 7 (Chapter 8)

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1. The European Union is primarily intended to permit:
  1. Countries to adopt scientific tariffs on imports
  2. An agricultural commodity cartel within the group
  3. The adoption of export tariffs for revenue purposes
  4. Free movement of resources and products among member nations
2. Which of the following represents the stage where economic integration is least complete?
  1. Free trade area
  2. Monetary union
  3. Common market
  4. Customs union
3. By 1992 the European Union had become a full-fledged:
  1. Economic union
  2. Monetary union
  3. Common market
  4. Fiscal union
4. A static welfare effect resulting from the formation of the European Union would be:
  1. Economies of scale
  2. Trade diversion
  3. Investment incentives
  4. Increased competition
5. Which organization was founded in 1957 whose objective was to create an economic union among its members?
  1. General Agreements on Tariffs and Trade
  2. Organization of Economic Cooperation and Development
  3. European Union
  4. Latin American Free Trade Association
6. NAFTA is a:
  1. Monetary union
  2. Free trade area
  3. Common market
  4. Customs union
7. The European Union has achieved all of the following except:
  1. Adopted a common fiscal policy for member nations
  2. Established a common system of agricultural price supports
  3. Disbanded all tariffs among its member countries
  4. Levied common tariffs on products imported from nonmembers
8. When the formation of a free trade area results in the reduction of trade with nonmember nations in favor of member countries:
  1. Trade devaluation occurs
  2. Trade revaluation occurs
  3. Trade creation occurs
  4. Trade diversion occurs
9. Under the common agricultural policy, exports of any surplus quantities of EU produce are encouraged through the usage of:
  1. Variable levies
  2. Export subsidies
  3. Import quotas
  4. Countertrade
10. Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit. Answer the question(s) on the basis of this information.

Figure 8.1. Effects of a Customs Union

Figure 7.1

Refer to Figure 8.1 and suppose Greece forms a customs union with France. Greece will import:
  1. 3 calculators at a per-unit price of $30
  2. 3 calculators at a per-unit price of $40
  3. 6 calculators at a per-unit price of $30
  4. 6 calculators at a per-unit price of $40
11. Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit. Answer the question(s) on the basis of this information.

Figure 8.1. Effects of a Customs Union

Figure 7.1

Consider Figure 8.1. The value of the trade diversion effect resulting from the Greece/France customs union equals:
  1. $5
  2. $10
  3. $15
  4. $20
12. Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit. Answer the question(s) on the basis of this information.

Figure 8.1. Effects of a Customs Union

Figure 7.1

Consider Figure 8.1. The value of the trade creation effect resulting from the Greece/France customs union equals:
  1. $5
  2. $10
  3. $15
  4. $20
13. Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit. Answer the question(s) on the basis of this information.

Figure 8.1. Effects of a Customs Union

Figure 7.1

Consider Figure 8.1. Comparing the trade creation and trade diversion effects, the impact of the Greece/France customs union on the welfare of Greece is:
  1. A $5 increase in economic welfare
  2. A $10 increase in economic welfare
  3. A $5 decrease in economic welfare
  4. No change in economic welfare
14. Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit. Answer the question(s) on the basis of this information.

Figure 8.1. Effects of a Customs Union

Figure 7.1

Consider Figure 8.1. Suppose Greece had formed a customs union with Germany, rather than France. The value of the trade diversion effect would be:
  1. Zero
  2. $5
  3. $10
  4. $15
15. Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy, while France and Italy maintain free trade between each other. France and Italy are therefore part of a(n):
  1. Free trade area
  2. Customs union
  3. Common market
  4. Economic union
16. Suppose that Mexico and Canada form a free-trade area. Mexicans then decrease auto manufacturing and increase imports of autos from Canada, while the Canadians decrease computer production and import more computers from Mexico. This is an example of:
  1. Trade diversion
  2. Trade creation
  3. Trade destruction
  4. Trade exhaustion
17. The North American Free Trade Agreement was expected to benefit ____ the most.
  1. Canada
  2. Mexico
  3. Greenland
  4. United States
18. The North American Free Trade Agreement was most strongly opposed by:
  1. U.S. electronics manufacturers
  2. U.S. labor unions
  3. U.S. commercial banks
  4. U.S. engineering companies
19. The transition of the former communist countries to market economies requires all of the following except:
  1. Removing domestic price controls
  2. Opening economies to international competition
  3. Establishing private property rights
  4. Terminating the convertibility of their currencies
20. Suppose that Canada has domestic firms that could supply its entire market for radios at a price of $50, while U.S. firms could supply radios at $40 and Mexico at $30. Suppose that Canada initially has a 50 percent tariff on imports of radios and then forms a free trade area with the United States. As a result, Canada realizes:
  1. Trade creation, no trade diversion, and overall welfare gains
  2. Trade creation, no trade diversion, and overall welfare losses
  3. Trade diversion, no trade creation, and potential overall welfare losses
  4. Trade diversion, trade creation, and potential overall welfare gains
21. The formation of the European Monetary Union is expected to entail benefits for member countries which include all of the following except:
  1. Greater certainty for investors within the EMU
  2. Lower costs of transactions within the EMU
  3. Independent monetary policies run by the central bank of each member country
  4. Enhanced competition among companies in member countries
22. A main disadvantage of the European Monetary Union is that:
  1. Each member country loses the use of monetary policy as to tool to combat recession
  2. There is a high degree of labor mobility among the member countries
  3. Prices are highly flexible in response to changing economic conditions
  4. Wages are highly flexible in response to changing economic conditions
23. Suppose that Mexico and Canada form a free-trade area. The Mexicans then decrease refrigerator manufacturing and increase imports of refrigerators from Canada, while the Canadians decrease auto manufacturing and import more autos from Mexico. This is an example of trade creation.
  1. True
  2. False
24. Trade creation occurs when imports from a low-cost supplier outside of a customs union are replaced by purchases from a higher-cost supplier within the union.
  1. True
  2. False
25. The potential for trade diversion is smaller when a custom union's external tariff is lower rather than higher.
  1. True
  2. False
 
Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2006, January 05). Assignment 7 (Chapter 8). Retrieved October 12, 2008, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/Economics/International_Economics/Assignment7.htm. This work is licensed under a Creative Commons License. Creative Commons License
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