Homework answers / question archive / Arizona State University ECN 306 1)What effect does a trade bloc have on scales of production?   •             When the markets of the various countries in the trade bloc are joined, firms within those countries are presented with larger markets than they had before the trade bloc was created, and those larger markets present opportunities for firms within the trade bloc countries to expand to take advantage of additional scale economies

Arizona State University ECN 306 1)What effect does a trade bloc have on scales of production?   •             When the markets of the various countries in the trade bloc are joined, firms within those countries are presented with larger markets than they had before the trade bloc was created, and those larger markets present opportunities for firms within the trade bloc countries to expand to take advantage of additional scale economies

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Arizona State University

ECN 306

1)What effect does a trade bloc have on scales of production?

 

•             When the markets of the various countries in the trade bloc are joined, firms within those countries are presented with larger markets than they had before the trade bloc was created, and those larger markets present opportunities for firms within the trade bloc countries to expand to take advantage of additional scale economies.

•             When the markets of the various countries in the trade bloc are joined, there is more competition within the countries in the trade bloc, and that competition discourages firms from taking advantage of scale economies.

•             Scale economies are not affected by trade blocs because trade blocs focus on affairs internal to the

countries that are part of the trade bloc.

•             As trade blocs exclude firms from outside of the trade bloc countries from trading with trade bloc countries, scale economies actually are lessened within the trade bloc countries.

 

 

2. One of the primary concerns in the United States about entering into NAFTA was that:

•             U.S. jobs would be lost to Mexico because wage rates in Mexico were so much lower than in the United States.

•             substandard products manufactured in Mexico would be imported and sold in the United States.

•             U.S. revenues from import tariffs would be reduced.

•             the agreements between the United States, Canada, and Mexico would violate the MFN principle of the WTO.

 

 

3. When countries band together and agree that they can import from each other freely while imposing import barriers against countries that are not part of the group, those countries have formed a:

 

•             trade embargo.

•             full economic union.

•             customs union.

•             trade bloc.

 

4. Through the 1980s, the European Common Market (now known as the European Union) was not truly a common market because:

 

•             it had barriers to trade among member nations.

•             it did not have a unified economic policy among member nations.

•             it had substantial barriers to the international movement of labor and capital.

•             it did not allow free movement of labor and capital among member nations.

 

5. If a firm has a monopoly in the market in its country, what happens to that monopoly when that country becomes part of a trade bloc?

 

•             Because the trade bloc maintains trade barriers that apply to countries that are not part of the trade bloc, prices in the trade bloc countries remain high and the firm with the monopoly retains its monopoly power.

•             The trade bloc agreement protects the positions of firms within the trade bloc countries, so the firm with the

monopoly power would maintain that power.

•             The competition from firms in other countries that are part of the trade bloc reduces the monopoly's power.

•             Because one of the purposes of a trade bloc is to reduce prices within the trade bloc, the firm with the monopoly power would lose some of that power as prices within the trade bloc were reduced.

 

6. When a country imposes economic sanctions in the form of discriminatory restrictions on economic exchanges with a specific country, those economic sanctions are called:

 

•             an embargo.

•             import tariffs.

•             national product standards.

•             rules of origin.

 

 

7.            is the most prominent trade bloc of developing countries.

•             MERCOSUR

•             NAFTA

•             LAFTA

•             WTO

 

8. Trade blocs can attract more foreign direct investment into member countries because:

 

•             the market within the trade bloc is larger than the market in any of the member countries and foreign firms often seek to establish locations on the basis of market size.

•             the trade bloc countries offer export subsidies to firms producing within the bloc.

•             production costs within the trade bloc countries are lower than outside of the trade bloc because of technology sharing.

•             the WTO allows firms that make foreign direct investments in trade bloc countries to avoid import quotas and tariffs imposed by non–trade bloc countries.

 

 

9. The primary difference between a free trade area and a customs union is that:

 

•             members of a free trade area adopt a common set of barriers for trade between the members.

•             a free trade area is considered a trade bloc and a customs union is not.

•             members of a customs union adopt a common set of external trade barriers.

•             a free trade area can include parts of a country and a customs union includes entire countries.

 

10. A basic WTO principle is that trade barriers:

 

•             can be imposed by any country that believes it will benefit from the trade barriers.

•             should be lowered equally and without discrimination for all member countries.

•             can be imposed if a majority of the members of the WTO agree.

•             should be the same in all member countries so that the result is equivalent to free trade.