European Economic Integration

A series of flashcards covering key concepts and theories related to European Economic Integration, including arguments for and against trade, and technical barriers to trade.

What is the Ricardian theory of comparative advantage?

A country should specialize in producing and exporting goods where it has a comparative advantage and import goods where its comparative advantage is lower.

What does the Heckscher-Ohlin theorem suggest about trade?

A country should specialize in the production of goods that use its relatively abundant factors of production.

What is intra-industry trade?

Trade between countries that occurs in similar but slightly different products.

How do economies of scale benefit firms in free trade?

Free trade allows firms to operate on a larger scale, improving efficiency and capturing learning effects.

Define 'infant industry' in economic protection.

A new industry that cannot compete with established firms and needs protection until it becomes competitive.

What is a second-best argument for trade protection?

If perfect competition is violated, it may be welfare improving for some countries to impose protection.

What is an optimal tariff?

A tariff that lowers consumption of an imported good, causing the world price to fall and benefiting the home country.

What is the strategic trade theory?

Countries can create comparative advantages through active trade policies and investments.

What distinguishes an import quota from tariffs?

An import quota is a quantitative restriction on the amount of a product that can be imported.

What are technical barriers to trade (TBT)?

Specifications that must be met for products to enter markets, often including safety and regulatory standards.

What is the Grubel-Lloyd index?

A measure of intra-industry trade which indicates the degree of trade in similar products.

What is the impact of a tariff on consumer and producer surplus?

A tariff generally reduces consumer surplus and can increase producer surplus within the domestic economy.

What are voluntary export restraints (VERs)?

Agreements between exporting and importing countries where the exporter agrees to limit the amount of goods exported.

What is dumping in international trade?

When an exporter sells goods in a foreign market at a price lower than its domestic market price.

What did the Cassis de Dijon case establish?

The principle of mutual recognition regarding product standards within the European Union.

What is meant by 'trade diversion'?

The phenomenon where cheaper imports from outside a free trade area are replaced by more expensive imports from within the area.

What was the role of common external tariffs (CET) in customs unions?

CETs standardize tariffs for all countries within the customs union, creating a unified trade policy towards non-member countries.

What is the main argument in favor of customs unions?

Customs unions create larger economic units with common policies and stronger negotiating powers.

What are the welfare effects of removing technical barriers to trade?

Removing TBTs typically increases welfare by lowering prices and increasing market access.

How did the EU approach Technical Barriers to Trade (TBT)?

Through harmonization of standards, mutual recognition principles, and minimizing minimum standards.