Chapter 9 International Business Practice

TRUE By regional economic integration we mean agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.
Explanation: The goal is to increaseeconomic efficiency and raise living standards by enabling countries to specialize in the production of goods and services for which they have a comparative advantage and totrade with other countries to obtain the goods and services they cannot efficiently produce themselves. The most well-known examples of regional economic integration are theEuropean Union and the North American Free Trade Agreement.

TRUE A major impediment to integration arises from concerns over national sovereignty.
Explanation: When countries enter into economic agreements with one another, they are essentially ceding some degree of control over their own economies. This can be seen as a loss of sovereignty, as the countries involved are no longer able to make decisions about their own economies without taking into account the other countries involved. This can be a major impediment to economic integration, as it can make it difficult for countries to reach agreements that are in their best interests.

B. common market A common market, has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.
Explanation: A(n) Economic Union has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.

B. does not result in trade diversion. In theory, WTO rules should ensure that a free trade agreement does not result in trade diversion.
Explanation: In theory, WTO rules should ensure that a free trade agreement:1. Is entered into voluntarily2. Is transparent3. Involves reciprocal concessions4. Is non-discriminatory5. Promotes competition6. Is compatible with WTO rules7. Is not used as a cover for protectionism8. Is based on mutual benefit

B. Customs union A customs union eliminates trade barriers between member countries and adopts a common external trade policy. Establishment of a common external trade policy necessitates significant administrative machinery to oversee trade relations with nonmembers.
Explanation: The highest level of economic integration is known as complete economic integration or economic union. This level of integration eliminates trade barriers between member countries and adopts a common external trade policy. In addition, member countries also coordinate their economic and fiscal policies.

D. A Free trade area In a free trade area, all barriers to the trade of goods and services among member countries are removed. Each country, however, is allowed to determine its own trade policies with regard to nonmembers.
Explanation: This is an example of free trade, which is the highest level of economic integration. Free trade is when two countries agree to remove all barriers to the trade of goods and services between them. They are free to determine their own trade policies with regard to nonmembers.

C. A common external trade policy toward nonmembers A customs union eliminates trade barriers between member countries and adopts a common external trade policy. Establishment of a common external trade policy necessitates significant administrative machinery to oversee trade relations with nonmembers.
Explanation: A customs union is a trade arrangement in which member states agree to apply the same tariffs on imported goods from non-member countries and to allow free trade among themselves. A free trade area is a trade arrangement in which member states agree to remove tariffs, quotas, and other trade barriers on most goods traded between them.

A. common market A common market has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.
Explanation: A single market is an internal market that allows free movement of goods, services, people, and capital within a single territory. A single market has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.

D. Ability of factors of production to move freely between members In a common market, labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital between member countries. This is not possible in a customs union.
Explanation: A common market is an economic union in which countries remove trade barriers and coordinate economic policies. A customs union is an economic union in which countries remove trade barriers and coordinate economic policies on trade. The main difference between a common market and a customs union is that a customs union requires member states to have a common external tariff, while a common market does not.

B. A common monetary and fiscal policy An economic union entails even closer economic integration and cooperation than a common market. Like the common market, an economic union involves the free flow of products and factors of production among member countries and the adoption of a common external trade policy, but it also requires a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.
Explanation: An economic union is a type of trade bloc which is composed of a common market with a common currency. A common market is a trade bloc in which goods, services, and labor flow freely between the member states. In contrast, a common market does not have a common currency.

D. Trade diversion Trade diversion occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.
Explanation:An economic union is a type of trade bloc which is composed of a common market with a common currency. A common market is a trade bloc in which goods, services, and labor flow freely between the member states. In contrast, a common market does not have a common currency.