International Business: The Challenges of Globalization, 9e (Wild)
Chapter 8 Regional Economic Integration
1) The process whereby countries in a geographic area cooperate with one another to reduce or
eliminate barriers to the international flow of products, people, or capital is called ________.
A) regional economic integration
B) protectionism
C) mercantilism
D) economic nationalism
2) Regional economic integration is also referred to as ________.
A) mercantilism
B) nationalism
C) protectionism
D) regionalism
3) The European Union is an example of ________ integration.
A) regional
B) relative
C) global
D) bilateral
4) Which of the following is an important goal of regional economic integration?
A) to increase the selling prices of products
B) to raise the living standards of people
C) to limit the choice of products available to customers
D) to establish a socialist government
5) A(n) ________ eliminates trade barriers among member countries, and is the lowest level of
regional economic integration.
A) free trade area
B) customs union
C) common market
D) economic union
6) Which of the following is the greatest extent of regional economic integration?
A) free trade area
B) political union
C) common market
D) customs union
7) Economic integration whereby countries remove all barriers to trade among themselves, but
each country determines its own barriers against nonmembers, is called a(n) ________.
A) economic union
B) customs union
C) common market
D) free trade area
8) Countries belonging to a ________ maintain whatever policies they see fit against nonmember
countries.
A) economic union
B) customs union
C) common market
D) free trade area
9) A(n) ________ combines the elimination of internal trade barriers among member countries
with the adoption of common external trade policies toward nonmembers.
A) free trade area
B) customs union
C) common market
D) economic union
10) The main difference between a free trade area and a customs union is that the members of a
customs union ________.
A) agree to the free movement of all factors of production
B) harmonize their tax, monetary, and fiscal policies and create a common currency
C) agree to treat trade with all nonmember nations in a similar manner, by having a common
external tariff.
D) accept a common stance on economic and political policies regarding nonmember nations
11) In a(n) ________, members eliminate internal trade barriers, adopt a common external policy
toward nonmembers, and eliminate barriers to the movement of the factors of production.
A) free trade area
B) customs union
C) common market
D) economic union
12) Economic integration whereby countries remove barriers to trade and the movement of labor
and capital among members, set a common trade policy against nonmembers, and coordinate
their economic policies is called a(n) ________.
A) customs union
B) common market
C) economic union
D) free trade area
13) A(n) ________ requires member nations to harmonize their tax, monetary, and fiscal policies
and create a common currency.
A) customs union
B) economic union
C) free trade area
D) common market
14) Country X wants to encourage trade by eliminating trade barriers with the three countries
along its borders. However, Country X wants each of the countries to be able to establish their
own trade policies even though this may lead to problems with trade deflection. Which form of
economic integration is Country X most likely considering?
A) economic union
B) common market
C) customs union
D) free trade area
15) Higher levels of trade between nations result in ________.
A) higher product prices
B) lesser specialization
C) greater purchasing power
D) trade diversion
16) An increase in the level of trade among nations that results from regional economic
integration is called ________.
A) trade diversion
B) mercantilism
C) trade creation
D) economic nationalism
17) Which of the following is a result of trade creation?
A) The demand for goods tends to increase.
B) Purchasing power of consumers decreases.
C) Consumers have a limited choice for selection of goods.
D) Imported goods are seldom available at lower prices.
18) Which of the following is a potential drawback of regional economic integration?
A) ethnocentricity
B) trade diversion
C) economic nationalism
D) protectionism
19) Which of the following is true of trade diversion?
A) It increases the purchasing power of consumers.
B) It increases the level of trade between nonmember nations.
C) It generally increases the prices of products in a nation.
D) It guarantees consumers a wider selection of goods.
20) The least amount of sovereignty that must be surrendered to a trading bloc occurs in a
________.
A) economic union
B) common market
C) free trade area
D) political union
21) As a first stage of cooperation, the countries agree to remove all barriers to trade among
themselves. Each country also maintains policies it sees fit against nonmembers. At this stage,
Moonland Union can be described as a ________.
A) free trade area
B) political union
C) common market
D) customs union
22) If these twenty-six nations continue to eliminate all barriers to trade among themselves and
set a common trade policy against nonmembers, they would create a ________.
A) free trade area
B) preferential trading area
C) customs union
D) political union
23) Some countries in Moonland Union are interested not just in free trade among themselves
and a common trade policy against nonmembers, but also in removing all barriers to the
movement of labor and capital among themselves. This type of integration is best described as a
________.
A) free trade area
B) preferential trading area
C) customs union
D) common market
24) Country M wants member nations to harmonize their tax, monetary, and fiscal policies and
wants to create a common currency. Country M is requesting for the creation of a(n) ________
in the Moonland nations.
A) free trade area
B) economic union
C) customs union
D) common market
25) Country X advocates the greatest level of integration possible for the member nations of the
Moonland Union. Which of the following is Country X most likely to support?
A) political union
B) free trade area
C) customs union
D) economic union
26) The regional trading bloc that Zucoland will be joining is most likely a(n) ________.
A) economic union
B) free trade area
C) customs union
D) political union
27) If all countries in the bloc are asked to give up the greatest amount of sovereignty, they
would most likely be joining a(n) ________.
A) economic union
B) free trade area
C) customs union
D) political union
28) Which of the following would the government of Zucoland most likely experience as a
benefit of joining the trading bloc?
A) trade diversion
B) increased national sovereignty
C) greater consensus
D) production shifts to low-wage nations
29) Which of the following would the government of Zucoland most likely experience as a
benefit of joining the trading bloc?
A) increased national sovereignty
B) increased military security
C) trade diversion
D) higher-wage employment
30) Trade agreements hinder competitors from other nations to enter the domestic market.
31) A group of nations in a geographic region undergoing economic integration is called a
regional trading bloc.
32) A common market area is the greatest extent of national integration.
33) In a customs union, each country can maintain whatever policy it sees fit against nonmember
countries.
34) Countries belonging to a free trade area must concede a certain amount of their national
autonomy to the supranational union of which they are a part.
35) A common market requires that member nations create a common currency.
36) A political union makes it mandatory for nations to accept a common stance on all economic
and political policies within their territories.
37) The increase in the level of trade between nations that results from regional economic
integration is called trade creation.
38) A result of trade creation is that buyers pay lower prices for imported goods and services
after trade barriers are removed.
39) The greatest benefit of regional integration is trade diversion.
40) Economic integration can unintentionally reward a less efficient producer within a trading
bloc.
41) When trade diversion occurs, buyers will likely pay more for products.
42) In regional economic integration, industries that require mostly unskilled labor tend to shift
production to low-wage nations within a trading bloc.
43) A benefit of regional economic integration is that it always expands employment
opportunities in all nations.
44) The least amount of sovereignty that must be surrendered to a trading block occurs in a free
trade agreement.
45) The goal of the Single European Act was to remove remaining barriers, increase
harmonization, and thereby enhance the competitiveness of European companies.
46) The primary purpose of the Gulf Cooperation Council (GCC) at its formation was to create a
political union between Iraq and Iran.
47) Differentiate among the five levels of economic and political integration.
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48) Discuss the benefits and drawbacks of regional integration.
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3. Loss of National Sovereignty—Successive levels of integration require that nations surrender
more of their national sovereignty. The least amount of sovereignty that must be surrendered to
the trading bloc occurs in a free trade area. By contrast, a political union requires nations to give
up a high degree of sovereignty in foreign policy. This is why a political union is so hard to
achieve. Long histories of cooperation or animosity between nations do not become irrelevant
when a group of countries forms a union. Because one member nation may have very delicate
ties with a nonmember nation with which another member may have very strong ties, the setting
of a common foreign policy can be extremely tricky.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
49) Discuss free trade areas as a level of regional economic integration. How can regional
integration enable employment opportunities?
50) Discuss “political union” as a level of economic integration and “political cooperation” as a
benefit of economic integration.
51) Explain the concepts of trade creation and trade diversion. Who are the winners and losers in
each scenario?
52) Currently the most sophisticated and advanced example of regional integration is occurring
in ________.
A) Asia
B) Europe
C) North America
D) Africa
53) In 1951, Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands signed
the Treaty of Paris and created the ________.
A) European Union
B) European Economic Community
C) European Coal and Steel Community
D) European Community
54) Which of the following treaties was signed by the members of the European Coal and Steel
Community in 1957 for creating the European Economic Community?
A) the Treaty of Rome
B) the Maastricht Treaty
C) the Treaty of Paris
D) the Treaty of Versailles
55) Which of the following materialized the EU’s goals of removing trade barriers, increasing
harmonization, and enhancing the competitiveness of European companies?
A) the Maastricht Treaty
B) the European Monetary Union
C) the Single European Act
D) the Copenhagen Criteria
56) The ________ called for banking in a single common currency, setting up of monetary and
fiscal targets, and political union of the European Union members.
A) Maastricht Treaty
B) European Monetary Union
C) Single European Act
D) Copenhagen Criteria
57) The European Union plan that established its own central bank and currency in January 1999
is known as the ________.
A) Single European Act
B) European Monetary Union
C) Copenhagen Criteria
D) Southern Common Market
58) The ________ is the common currency of the European Union.
A) franc
B) pound
C) euro
D) mark
59) Which of the following statements about the euro is true?
A) It was adopted by all existing EU members when it was first initiated.
B) It must be adopted by countries as a precondition to joining the EU.
C) It cannot be used by countries that are not members of the EU.
D) It was designed to eliminate currency as a barrier to trade in the EU.