ECO 305 Week 6 Quiz – Strayer
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Quiz 5 Chapter 8
CHAPTER 8
REGIONAL TRADING ARRANGEMENTS
MULTIPLE CHOICE
1. The European Union is primarily intended to permit:
a. Countries to adopt scientific tariffs on imports
b. An agricultural commodity cartel within the group
c. The adoption of export tariffs for revenue purposes
d. Free movement of resources and products among member nations
2. Which of the following represents the stage where economic integration is most complete?
a. Economic union
b. Customs union
c. Monetary union
d. Common market
3. Which of the following represents the stage where economic integration is least complete?
a. Free trade area
b. Monetary union
c. Common market
d. Customs union
4. Customs union theory reasons that the formation of a customs union will decrease members' real welfare when the:
a. Trade diversion effect exceeds the trade creation effect
b. Trade production effect exceeds the trade consumption effect
c. Trade consumption effect exceeds the trade production effect
d. Trade creation effect exceeds the trade diversion effect
5. Which economic integration scheme is solely intended to abolish trade restrictions among member countries, while setting up common tariffs against nonmembers?
a. Economic union
b. Common market
c. Free trade area
d. Customs union
6. By 1992 the European Union had become a full-fledged:
a. Economic union
b. Monetary union
c. Common market
d. Fiscal union
7. Which device has the European Union used to equalize farm-product import prices with politically determined European Union prices, regardless of shifts in world prices?
a. Variable levies
b. Import quotas
c. Import subsidies
d. Domestic content regulations
8. Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world?
a. Domestic content regulations
b. Variable import levies
c. Voluntary export quotas
d. Orderly marketing agreements
9. Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question. Which effect could not occur for the participating countries?
a. Trade creation-production effect
b. Trade creation-consumption effect
c. Trade diversion
d. Scale economies and competition
10. Which organization of nations permits free trade among its members in industrial goods, while each member maintains freedom in its trade policies toward non-member countries?
a. European Union
b. Benelux
c. Council for Mutual Economic Assistance
d. North American Free Trade Association
11. Which of the following organizations is considered a regional trading arrangement?
a. Organization of Petroleum Exporting Countries
b. North Atlantic Treaty Organization
c. Benelux
d. International Tin Agreement
12. When products from high-cost suppliers within a customs union replace imports from a low-cost nation that is not a member of the customs union, there exist(s):
a. Dynamic welfare losses
b. Dynamic welfare gains
c. Trade creation
d. Trade diversion
13. Which form of economic integration occurs when participating countries abolish tariffs on trade among themselves, establish a common tariff on imports from nonmembers, and permit free movement of capital and labor within the organization?
a. Free trade area
b. Economic union
c. Common market
d. Monetary union
14. A static welfare effect resulting from the formation of the European Union would be:
a. Economies of scale
b. Trade diversion
c. Investment incentives
d. Increased competition
15. A dynamic welfare gain resulting from the formation of the European Union would be:
a. Trade diversion
b. Trade creation
c. Diseconomies of scale
d. Economies of scale
16. Which organization was founded in 1957 whose objective was to create an economic union among its members?
a. General Agreements on Tariffs and Trade
b. Organization of Economic Cooperation and Development
c. European Union
d. Latin American Free Trade Association
17. The common agriculture policy of the European Union has supported European farmers via:
a. Export tariffs and domestic content regulations
b. Variable levies and voluntary export agreements
c. Content regulations and export subsidies
d. Export subsidies and variable levies
18. Which nation is not a member of the North American Free Trade Association?
a. Canada
b. Greenland
c. Mexico
d. United States
19. Suppose a communist country agrees to pay for delivery of machinery with goods produced by the machinery. This arrangement refers to:
a. Countertrade
b. International commodity agreements
c. Coproduction agreements
d. Trade diversion
20. NAFTA is a:
a. Monetary union
b. Free trade area
c. Common market
d. Customs union
21. Under the European Union's common agricultural policy, a variable import levy equals the:
a. Amount by which the EU's support price exceeds the world price
b. Amount by which the world price exceeds the EU's support price
c. Support price of the EU
d. World price
22. Members of the European Union find that "trade creation" is fostered when their economies are:
a. Highly competitive
b. Highly noncompetitive
c. Small in economic importance
d. Geographically distant
23. The European Union has achieved all of the following except:
a. Adopted a common fiscal policy for member nations
b. Established a common system of agricultural price supports
c. Disbanded all tariffs among its member countries
d. Levied common tariffs on products imported from nonmembers
24. When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest cost world producer.
a. Trade diversion occurs
b. Trade creation occurs
c. World welfare rises
d. World welfare falls to zero
25. When the formation of a free trade area results in the reduction of trade with nonmember nations in favor of member countries, ____ occurs.
a. Trade devaluation
b. Trade revaluation
c. Trade destruction
d. Trade diversion
26. Which country is not a member of the European Union?
a. Spain
b. Germany
c. France
d. Iceland
27. The implementation of the European Union has:
a. Made it harder for Americans to compete against the Germans in the British market
b. Made it easier for Americans to compete against the Germans in the British market
c. Made it harder for Americans to compete against the Japanese in the British market
d. Made it easier for Americans to compete against the Japanese in the British market
28. The common agricultural policy of the European Union has:
a. Increased American farm exports to the EU
b. Decreased American farm exports to the EU
c. Lowered the price of American farm exports to the EU
d. Not affected the price of American farm exports to the EU
29. The implementation of a common market involves all of the following except:
a. Elimination of trade restrictions among member countries
b. A common tax system and monetary union
c. Prohibition of restrictions on factor movements
d. A common tariff levied in imports from nonmembers
30. Under the common agricultural policy, exports of any surplus quantities of EU produce are encouraged through the usage of:
a. Variable levies
b. Export subsidies
c. Import quotas
d. Countertrade
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.
Figure 8.1. Effects of a Customs Union
31. Consider Figure 8.1. With free trade, Greece imports:
a. 3 calculators from France
b. 5 calculators from France
c. 3 calculators from Germany
d. 5 calculators from Germany
32. Consider to Figure 8.1. Assume Greece levies a per-unit tariff of $20 on imports from both Germany and France.
Greece will import:
a. 1 calculator from Germany
b. 1 calculator from France
c. 3 calculators from Germany
d. 3 calculators from France
33. Consider Figure 8.1. Assume Greece levies a per-unit tariff of $20 on imports from both Germany and France.
As a result of the $20 tariff, Greece's consumer surplus falls by:
a. $90
b. $100
c. $110
d. $120
34. Consider Figure 8.1. Assume Greece levies a per-unit tariff of $20 on imports from both Germany and France.
The deadweight welfare loss to Greece, resulting from the $20 tariff, equals:
a. $20
b. $40
c. $60
d. $80
35. Referring to Figure 8.1, suppose Greece forms a customs union with France. Greece will import:
a. 3 calculators at a per-unit price of $30
b. 3 calculators at a per-unit price of $40
c. 6 calculators at a per-unit price of $30
d. 6 calculators at a per-unit price of $40
36. Consider Figure 8.1. The value of the trade diversion effect, resulting from the Greece/France customs union, equals:
a. $5
b. $10
c. $15
d. $20
37. Consider Figure 8.1. The value of the trade creation effect, resulting from the Greece/France customs union, equals:
a. $5
b. $10
c. $15
d. $20
38. 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:
a. A $5 increase in economic welfare
b. A $10 increase in economic welfare
c. A $5 decrease in economic welfare
d. No change in economic welfare
39. 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:
a. Z
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