Autarky

Autarky is an economic organization of self-sufficiency and reduced exchanges.

Free trade area (FTA)

  • A Free Trade Area denotes a specific region in which a group of countries signs a trade agreement that covers economic cooperation between them
  • The objectives of a FTA are:
  • Reducing barriers to trade (particularly tariffs and import quotas)
  • Encouraging free trade in goods and services between member countries
  • Tariff’s deadweight loss: the reduction in consumption coupled with the tariff creates a deadweight loss.
  • Quotas: the governments impose a physical limit on the number of imports.
  • VER, which stands for Voluntary Exports Restraint, is a self-imposed restriction on the quantity of a good that an exporting country can export to another country.

Advantages and Disadvantages of FTA

Advantage of FTA Disadvantage of FTA
  • Better quality at a lower price of goods and services
  • Higher purchaser level (because of the cut prices)
  • Countries’ specialization
  • Rise diversity
  • Less tax revenue
  • Job losses
  • Unfair competition

Customs union

  • World organizations:
  • The GATT, which stands for General Agreement on Tariffs and Trade, was created at the Bretton Woods conference in 1944, concluded in 1947 and entered in force until 1994. The objective of the GATT is to prevent the return to protectionism.
  • The WTO, which stands for World Trade Organization, was signed in April 1994 and entered in force in January 1995. WTO is the successor of the GATT.
  • Conditions for the success of a customs union:
  • More trade creation: reduction in tariffs resulting to lower prices. This implies an increase in consumer surplus
  • Reduction of trade diversion effects: trade is diverted from a more efficient exporter to a less efficient exporter by the formation of a free trade agreement or customs union
  • Geographical proximity of countries

Common market

It refers to the economic market in which economic agents can buy and sell goods and services freely with reduced or zero customs duties and with free movement.

Economic and Monetary Union (EMU)

  • EMU: type of trading bloc that combines a common market, a customs union, and a monetary union
  • Example: the Euro, a single currency among most European Union