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Economic Integration · Paper 1 — Free Economics HL Practice Questions
1FoundationSAQ-SRegional economic agreements (EU, NAFTA etc.)4 marksPaper 1~6 min
The North American Free Trade Agreement (NAFTA), established in 1994, eliminated most tariffs on goods traded between Canada, Mexico, and the United States. It did not create a common external tariff or allow free movement of labour and capital between member countries.
(a)
Define the term "free trade area" and identify NAFTA as an example of one. [2 marks]
(b)
Explain one economic consequence for Mexico of NAFTA's failure to allow free movement of labour. [2 marks]
Solutions
2FoundationSAQ-SRegional economic agreements (EU, NAFTA etc.)4 marksPaper 1~6 min
The European Union (EU) operates as both a customs union and a common market. After joining the EU, a small member state experienced a increase in trade with other EU members but also faced increased competition from firms in larger member states.
(a)
Define the term 'common market'. [2 marks]
(b)
Explain how trade creation applies to this scenario. [2 marks]
Solutions
3MasterySAQ-SFree trade areas, customs unions and common markets7 marksPaper 1~11 min
The European Union (EU) is a customs union. In 2021, the EU imposed a common external tariff of on electric vehicles (EVs) imported from non-member countries. EU member states simultaneously eliminated all internal tariffs on EVs traded between themselves. Consumers in France, an EU member, previously purchased EVs from both Germany (an EU member) and China (a non-member). Assume the pre-tariff world price of Chinese EVs is lower than the German domestic price of EVs.
(a)
State the difference between a customs union and a free trade area. [1 mark]
(b)
Explain how the EU's customs union policy affects the price French consumers pay for EVs from Germany and from China. [2 marks]
(c)
Analyse the impact of the EU's common external tariff on the welfare of French consumers of EVs, referring to consumer surplus in your answer. [4 marks]
Solutions
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