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Multiple Choice Quiz
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1

When several countries jointly establish common external tariffs, remove tariffs on each other, but stop short of removing barriers to the movement of capital and labor among themselves, they have established a(n)
A)economic union.
B)common market.
C)customs union.
D)free trade area.
2

In which of the following might transshipment be a problem?
A)economic union
B)common market
C)customs union
D)free trade area
3

Trade creation occurs when
A)economic integration leads to a shift in product origin to a lower-cost member country.
B)a country moves from free trade to autarky.
C)economic integration leads to a shift in product origin from a lower-cost non-member country to a member country with higher costs.
D)a movement to a common market lowers trade costs through standardization.
4

Trade diversion occurs when
A)economic integration leads to a shift in product origin to a lower-cost member country.
B)a country moves from free trade to autarky.
C)economic integration leads to a shift in product origin from a lower-cost non-member country to a member country with higher costs.
D)a movement to a common market increases trade costs through standardization.
5

Which of the following is not a general rule regarding trade creation/diversion?
A)Trade creation is more likely to outweigh trade diversion when there is a large number of participating countries.
B)Trade creation is more likely to outweigh trade diversion when the initial tariff is higher.
C)Trade creation is more likely to outweigh trade diversion when the supply and demand curves are relatively inelastic.
D)All of the above are true about trade creation/diversion.
6

Which of the following is a possible dynamic effect of integration?
A)increased economic efficiency resulting from increased mobility of capital and labor
B)economies of scale
C)increased investment because of a reduction in risk and uncertainty
D)all of the above
E)a and c
7

At present, the European Union
A)has low unemployment rates relative to the U.S.
B)is a free trade area only.
C)has a common currency.
D)all of the above.
8

The Single European Act provided for
A)the convergence of member countrys' unemployment rates at around 10%.
B)"Eurosclerosis."
C)monetary union.
D)the removal of internal barriers to factor movement within Europe.
9

Suppose Canada set up industrial parks in Canadian provinces bordering the U.S. These would
A)lead to transshipment.
B)be equivalent to the Mexican maquiladoras.
C)be equivalent to the free trade zones recently set up in Slovenia.
D)likely lead to immigration from Canada to the U.S.
10

Which of the following is not a criticism of NAFTA?
A)The environment is not adequately protected.
B)U.S. jobs will be lost.
C)Wages in the U.S. may increase.
D)All of the above are criticisms of NAFTA.





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