5. (a) What are the five levels, or stages, of economic integration? What are so

Question

5. (a) What are the five levels, or stages, of economic integration? What are some of the benefits and costs of moving from each stage to the next. (10 marks) (b) Country A is a small country considering joining a free-trade area for trade in good X. The cost of importing a unit of good X from countries that would not be members of the potential group is $10 per unit. The cost of importing a unit of good X from countries that would be members of the potential group is $20 per unit. Currently, country A applies a $5 per unit tariff on imports of good X from all sources. Illustrate the following situations in the diagram provided. (i) Before the free-trade group forms, how much X does country A consume, produce, and import? (3 marks) (ii) What is the domestic price of good X? (1 marks) (ii) If the free-trade group formed, how much good X would country A consume, produce, and import (and from where)? (3 marks)

Explanation / Answer

Question 5)

There are 5 stages of economic integration given below

1) Free Trade Area 2) Custom Union 3) Common Market 4) Economic Union 5) Political Union

Free Trade Area: Ccountries involved in this stage focus on removing all the obstacles to the free flow of goods and services beside keeping their external policies independant of each other. NAFTA (North Atlantic Free Trade Area) & EFTA are couple of Free Trade Area examples

Custom Union: When Common externe etc.

al tariff against non members of Free Trade Area is added to Free Trade Area it becomes Custom Union

Common Market: This is the stage of integration in which not only free trade policies are formed but the members of Common Market focus on free movement of factors of production such as Labour, Capital

Econoic Union(EU): An EU is upgraded version of Common Market which involves custom union.These participants of EU have freedom of movement of factors of production, common policies on product regulation and common external trade policies mentioned in custom union (CU)

Political Union: In EU members having their political systems synchronised to each other make up political union.

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