Understanding Economic Integration: Customs Unions and Free Trade Areas

What is a key feature of complete economic integration?

• High tariffs on internal trade

• A single market and fiscal union

• No free movement of labor

• Different currencies for each country

How does a customs union differ from a free trade area?

• It allows free trade only within the union

• It imposes a common external tariff on non-member countries

• It restricts trade within the union

• It eliminates all tariffs globally

Which of the following is an example of a customs union?

• North American Free Trade Agreement (NAFTA)

• European Union (EU)

• Association of Southeast Asian Nations (ASEAN)

• World Trade Organization (WTO)

What is trade creation?

• An increase in trade within a union due to reduced tariffs

• A shift to less efficient producers

• An increase in trade with non-member countries

• A decrease in trade within a union

What can cause trade diversion in a customs union?

• Lower tariffs on external goods

• Higher efficiency of external producers

• Common external tariffs making external goods more expensive

• Increased demand for external goods