1. Regional trade agreements In the following table, indicate whether each statement about regional trade agreements is true or false. Statement True False Under regional trade agreements, several countries eliminate tariffs among themselves and lower tariffs against all other countries. Regional trade agreements are permitted under GATT. @ O The countries in the European Unicn (EU) keep their own tariffs with the countries outside the EU. @ O Products can be shipped duty-free between Canada and Mexico only if most of their production occurred within North America. O Rules of origin specify the types of goods that can be shipped duty-free within a free trade area. @ O Rules of origin are not needed in a customs union. @ O 4. Effects of a regional trading arrangement Consider a hypothetical world consisting of only three countries: Liechtenstein, Canada, and France. Each country produces grain. Liechtenstein is a small economy compared to Canada and France and thus cannot influence foreign prices. On the following graph, the supply and demand schedules of Liechtenstein are shown as Such and Dich . Foreign supply schedules of grain are perfectly elastic: Canada is a more efficient supplier of grain than France because its supply price is $1.00 per bushel (Scan ), whereas France's supply price is $2.00 per bushel (SF).\fCalculate the quantity of bushels Liechtenstein imports when the three nations engage in free trade. Enter this value in the first row of the following table. Also indicate which country Liechtenstein imports from. Imports Scenario (Thousands of bushels) Imports from... Free trade :] v With tariff ] v With customs union :] v At some point in time, Liechtenstein decides to protect its domestic grain producers and imposes a tariff of $2.00 per bushel of grain on imports from both Canada and France. Scan + T and Sg. + T represent the after-tariff prices for both countries. In the second row of the previous table, enter the quantity of bushels Liechtenstein imports with the tariff and the country it imports from. Later on, Liechtenstein and France form a customs union as part of a trade liberalization agreement, while the trade between Liechtenstein and Canada continues with the previous terms. In the last row of the previous table, enter the quantity of bushels Liechtenstein imports with the customs union and the country it imports from. Complete the following table by identifying which trade effect of the customs union formation is represented by each of the shaded areas on the previous graph. Check all that apply. Area Effect A B C Consumption effect O O O Favorable production effect d O O Trade creation effect O O O Trade diversion effect O O O True or False: Relative to a global tariff, the effect of creating a customs union in Liechtenstein is negative. O True O False Welfare effects of a regional trading arrangement are not always static. There are also dynamic gains that influence growth rates over the long run and offset unfavorable static effects due to trade diversion. Which of the following represent dynamic gains from creating a customs union? Check all that apply. (J Market enlargement (J Higher tariff revenues (J The trade-creation effect U Greater competition Identify whether each attribute in the following table is an advantage or disadvantage of sharing a currency across country boundaries. Attribute Advantage Disadvantage Price stability O O Lower transaction costs O O Limited scope for fiscal policy O O Protection from monetary disturbances and speculation O O Speculative attacks during currency transition O O Which of the following are reasons the United States is considered W currency area? Check all that apply. 0 Wage rigidity (J Limited use of fiscal policy O a single monetary policy that is equally effective across borders () Labor mobility 6. Modernizing NAFTA: USMCA In 1994, the United States, Canada, and Mexico formed the North American Free Trade Agreement (NAFTA), which was designed to provide each member nation better access to the markets, labor, and technology of the others. This agreement was updated in 2020 to become the U.S.-Mexico- Canada Agreement (USMCA), which contains about 90% of the original provisions of NAFTA, with several updates. Complete the following table by indicating whether each property represents an element of the 1994 North American Free Trade Agreement (NAFTA), or an update unique to the 2020 U.S. -Mexico-Canada Agreement (USMCA). Property NAFTA USMCA Elimination of tariffs on digital products O O Concerns over Mexico's ability to compete with more productive U.S. farmers O O 40% of a car's value must be produced in a North American factory in which workers earn at least $16 per hour O O 45% of a light truck's value must be produced in a North American factory in which workers earn at least $16 per hour O O