fit's

λ customis
anian
Examine the potential benefits of membership of a
trading bloc such as the
TPP (25).

app

A trading bloc is a group of countries who allow trade without

restrictions within the group but impose tariffs on goods from
outside the bloc. The main benefit of membership of a trading bloc
is the larger market that can be accessed without tariffs. for
example, the Trans-Pacific Partnership, with members such as
Japan and Canada represents roughly 40% of the world's
economic output (when the US is included), so the access of
member states to such a large marker without large barriers
to entry allows economies of scale to be exploited. In a
larger market, countries can produce more of goods with
 large minimum. efficient scales and access purchosing
economies of scale (bulk buying raw marcnials) and technical
economics of scale (iwest in expensive capital mochinery),
which may laver costs of production and lower prices
to make a country's goods efficiency more competitive
and the prices for that good become lover for consumers within
the trading bloc, causing an increase in consumer surplus
because there are more consumes who would have been
willing to pay a wigher price for the good.
+
and
productive

Acheid
inflati
o

D
goo
d
However, trading blocs cause trade diversion,
which may lead consumers within trading blocs to pay more
for a good than they would have if there was completely free
trade. for example, ha a consumer in the EU may want to
buy bananas, which are produced at the lavest price have
not countries such as Ecuador, who hold a comparative
advantage. However, because of the EU's Common
External Tanff, the bananos from Ecuador may be brene price
competitive than the bananas produced in an expensive
artificial greenhouse in Germany, which has higher costs
of production than Ecuador but faces no tanff.
Therefore the EU consumer may pay more to buy
those bananas than they would have if they were not
in a trading bloc and if they did not have to pay a tariff
for goods from outside the EU. This means that the
consumer can purchose fewer goods for the same
amount of money (if trade diversion occurs for
many goods) and
consumer surplus will
fall.
Bananas/
Ecuador
 Less

-Germany
possesses
absolute
advantage
for beer but
Ecubor
possesses it for Germany bananos Deer

good
Another benefit of trading blocs is that firms who are domestic
monopolies now face competition from within the
trading bloc. Monopolies who face little competition
domestically may have built up large X-inefficiencies
because a lack of Competition creates a lock of
incentive to innovard and reduce costs of
production. However, in a trading bloc themed markets
became highly contestable because of low barriers to entry
such as a lack of tariffs. The extra competition may
lead to large corporations investing more in un
 research and development to increase dynamic
efficiency and reduce X-inefficiency, so that the
goods and services remain price competitive, which
meadoes produtors gives consumes better quality
products at lover prices, so more goods can be purchased
an the same amount of money and living standards
rise. Poon.
swplu
with the

On the other hand, a drawback of trading blocs is that

subsidies within the bloc distort the maket
forces and may cause overproduction of a good.
For example. the EU's Common Agricultural Policy (which
constitutes around 43% of the rotal tu budger and is
arguably a waste of resouces), subsidises farmers
in the ED, which lowers their costs of production, lowering
price from I, to P2 and increasing
quantity from Q, to Q2. This
incentivises farmers
Ince
 P
Subsidy

D
$2

12 Quantity to
produce
more than is actually needed so overproduction occurs and
around 30% of the EU's agricultural produce is wasted.
Free market economists would arque that the intervention
of subsidies interferes with Adgam Smith's invisible hand and
market forces and instead maket forces alone should lead to the
most efficient allocation of resources where marginal
cost equals average revenue. Therefore a drawback of
trading blocs is the misallocation of resources that
then go to
waste.

Another benent of being a member of a trade bloc is the

aidemaan that there is a wider market for labour
as well as goods. The EU has a free movement of
labour policy for its members, which can benefit
employes because "immigrants from countries such as
Poland, who may have laver standards of living, are
 UK
Common
Makets
C

meshar
Current
accomk
willing to be employed in jobs that are less
favourable to the UK population
(e.q. cleaners) and UK employers may be able
to pay these workers less than they would pay a
national, reducing costs of production and lowering
prices for the good. However to evaluate this, some
of the immigrants' income may be sent home to families
as remittances, causing a leakage in the circular flow of
income for that country, which may be a drawback of
trading blocs. As a benefit, migrant workes pay
increase the tax revenue of the countries they have
migrated to, which increases the
country's capability to
improve services such as healthcare and
education, to increase the productivity of the
workforce and increase economic growth.
Additionally EU migrants help to support the NHS;
around 26% of NHS doctors are foreign and many come from
the EU, showing a benefit of trading blocs to be that when
there! is a labour shortage in one country, workers from
other countries will fill it, so there is a more efficient
allocation of resa human resources.

go
od
od point.

On the other hand, a main disadvantage of being a

member of a trading block is the lack of control over
spending and the strict regulations. In the bad obrious
case of Britain leaving the EU, the EU
contributions and regulations played a large role. The
UK's estimated net contribution in 2015 was £8.5 bn,
which could instead have been spent on improving
healthcare, infrastructure and education to raise living
standards and cause economic growth (investment
 increques AD, increasing. real (DP). Additionally, ok
law is extremely affected by EU/ Legislation in areas. such
as agriculture, external trade and the environment, so
from an economic perspective, being in a trading bloc
constrains the way in which the uk spremeta inverts and this
may not be the most efficient allocation of resources.
Though a law may not always take precedent over UK law,
comes in the national laws rend to not be incompatible with EU
law. na companies in the UK must then be aware of
EU
Merger regulation as well as uk merger
requlation, which may reduce in the dynamics the
opportunities to access economies of scale and
productive efficiency and requlations in general can be a
waste of time and resources for companies. Therefore the
major drawback of trading blocs for members is the
level of bureaucracy and
in comimibutions that it involves.

great,
technic
al
し

Pant
Acosts
naugh
companies

In conclusion, though the free trade within trading

blocs may be beneficial to member countries in reaching
economies of scale, the contributions and disruption to
market forces lead to a misallocation of resources, so the
negatives outweigh the positives.

KAA
Ev

24/25
15/16
9/9
 This was a brillent ensuer, with
technical
points and
good app
Would
diff
(just like to see
knowledge of
types
.
trade bloc
21:12.

12:05 mins

CIW
53.

TPP - trading block

12 countries, in 2017. evaluate benefits
09-02.17_
 A

mading, block is a group of countries.

within the blow Dia
Who
14

may.be
GOKOLLOI
The removal of taxus and
coming from univerally to imports workin
quotas, a
Common

agree to trade freely-

>customs umon
external tarth

outside the blot block....

-An advantage of trading blocs is

that
there is. increased

ncreased
competition and

products.
which they have
а

from
>

decreasing

Output

consumer' wants
with

consume
surplus.
 In
So
counties
‫النيا‬

specialize

comparatine. advantage, according to

ficarola's theay. As a result, meir

production costs will

be lower
oundi

cout

Linflat
ion
for each. product and-

comes improved
the
moot
competitive
price within
that counting. will be

the
block. Overay, outent
aste to
export

will increase

cous such

costs and prices.

‫بعید میں عراق‬

economies of skare_yull.be benefitted

if passed on. With increased gutput is closer to where AR: MC.
^

allocative essiciency, as
mee
 global mamers are fusilling.

exports at lever princes; there

addition, productive
is a higher global

essiciency will be
hight due to

mcreated

facign
comperitia

Asean trading block

and

with

Ching
Rogers will
and
were
neover the -MES.
The

ELY
Cavedor
10
southeast

enabled
On

grown in. mamet (+ opportunities), being the

with
1.9 billion
people in !! counties.
As a

$60bn in
2003 to
$190 bn in
2009
ƒ

Asian nahou

3rd largest trade block,

result, trade increased from

due to

free were
 developed
well
wony orced

In

addition, trading blocks may

‫حالة من‬
countries to
shore

Free movement of
labow world,
allow
comnies to
hie

Mingl
ating
employees pa

mability would

Commies
jobs
mey
naud
filling. This
word
reduce

cost
and
improve the
have
quality of
te

product
The
the most productive.

production

geographical.
 dechased
people
Ove
to
wore in olisserent

without

having to
cipply

for working
Visas
which
take up

Large
around
01
Ame
Our of

essort, their rendering lasay

melastic
cwol
the

lasou
Макее
more immosile to
changes
The

•
TIP

being
discussedl

wowło
enasu
kiwa.jo) to bl
created in each

(FDI)
country if me

USA
DUNOL
LAL
were

bureaucratic
way,
Lith

legally as

reduced

++
invest.
C
‫رجعا‬
 red-tape
Oundl
Ship Matias.

bales

careful,
glob.
(in
the
Purest sense) can
be discrypted
by blocs
-Globalisation. La trading blocks - leads to
and
a_Reducho i
blocks_leads
rising living standaral
grov as individual-countries? Increase
decreasing GNI-per-capita - and

people have
More

nerdiet and
Increase their
GNI,

meaning
incomes... would increase

there lifestyle 2.q. In terms of

disposable income. bo-
improve

wellbeing. In addition,
addition, more
 developing carties such as

-Pen, Malaysia and vielman

product dependeng

dependenc
y
ther population, moves from the
would.
Movet

Bund

wand fallow ne
away from, then. pânary

-Levis
2. sector model as

factor
agricultural
secto to
the manufacturing

Che
‫السنين‬

as the longer
manus

...incentives. to. Envest_and_ develop via

R+D,
give..
in order to wing larger shore.01.

plenty of : mucila
clous. households.

The elephant chart.

:

tok

global mamet pie, which has

USA, „Comada ond

Shows thank my_13-soil of incomes.

-increase o 50-80%. Th-income, outer in BRIC

-

Ausmalia.

experience an

countries Ceversing)
 ols.

*
Customs
uniar
to specialising countries; in fact, they awe
more productive
==

subject
to

However, brading blocks

from

counties who due to being outside the trading block, ove

just
create

trade within.
>

dire

olivery.
trade
away

মcolcting-

lower productive.
competitive
than

Japp
app.
a
CET
 which.
leaves
CRASS

combits in

ne trading by co
A
Comtes.
with a
margin of supencil which is
Het

andres in trade, decreasing expats and...

paynews/ trade-balances. Some counties will

worsening
-result, somme
Bet in store!
Mique

their balance of
will see
see

not be able to.

beent from

Specialisation
dhe
to
extebal

example
Rusia in
the
fastos

WTO may have fo

such as

trow part...costs
fa

a
orporative
advantage, howe

•Shipping cost.
aves dy
the
benesits
gainter and so back to Unvicle.
 In
addition, setting-up trade blocks
may.
cause
3ocial
fichige

environmere [abow) products.

standards.
and
lows
are

Lowered and erocked,

passage of
free-tacle. For
example in
the proposed
„Ovolt/
ty
eave

TTIP
behvan

Tw
as 70%_01_USA
Products
+ USA there are large discrepencies behven food Lous

GM, which are

banned entirely in the EU.

Jvariet
y topics!
As a
result, countries may have
to
sacrifice

leaving.
consumes

as wir behavioral
inhovitoup be

In
malolitt
14

with- products of
economics, counties

‫من صعقد‬

your
Schu
standards,

-_st and ards. However,

mays be able to
nudar
their

・ with the times"

:

the
nerding

Resul
acceptance of change.
behaviour.
in terms of product changes.

wag
Kaban
w

agree with Veaciones

decisions, especially it "new" unayedge of

informatia gets
purs
cacens
Lead to mos.

Cel

infimac ead cher's

GM etc
art

giver, decreasing
 LEDCS
LEDRE, hane
Many
face
the
praxien
1.
specialisation

in
Primary products leading to.

Subject to
volalite
price
Mucmasions
with

dependey's
fir
worsening terms of trade,
commodity macet

according to
the
Presisca Singy
¡hypotusris,
LEDCS
wald
be stuck in

their paveros tap. Any

Any ingard industries
petevial
Comparative

advantage
wvenid
be
turate of
there
wjanol no
jose b

aus protectionism
such as
 taiffs, to degrease
foreish
competition.
In

bur
Aquec
=

trading block, there

delays in
removing tains a
smoker Asic
cercún products. în "cowchiu
saday
λ
orde
to
decrecue
the

Velming
China
provided)
win her cheap
Preduch
bers
Me to

food the
momet
+

Industries
not able to.
compare
world be
parced

to
close
Onol. 30
there
word
vout
structwal

example

slightly negative
shan by
the
elephant Chart,
inerol oynart, for

80% percentile
exprienced an
 5/. income Cramer
eames in
USA/Un)
as

they were
Ont compered
In
tems
of
chepper
dan by asia ww
conhits
etc.

great
app

To
conclude, tracking blocs
projde
opportunity
free
trads
and

increased
access to
a
lase
global narut
UNDĄ ES
make

prosit femy.
Kling

to increased
output

and productivity. However, counties

‫االني‬
lose
out in

Scume
areas
and
wih in other

Sacrifices
mcole
etc.
In
 negative
enteralit
•

to
enasle

depending on Canditia I
pollutia
Trading blocs are, overall,

Global GNI, taking inte

Hair involved the ultimate fundamental idea of
the product
solo,
z
‫ماند‬
affect all cowity

tool
to

Account
the
phota precautions neccted
shove
대
Granth
Šumat
to
DAA cannily

capitalism + inequality a
slcboul Scol·

25/
25
KAA
Ev
 16/16
9/9
Brilliant answer.
Great development and
application that really
supports you points.
Well done!
04/02/17
Examine the potential benefits of membership of a trading bloc
such as the TPP. (25).

A trading bloc is a group of countries which have negociated lower trade

bamiers between each other, such as by lowering or aborishing tariffs. This
can be beneficial since firms will be able to access a much larger market of
consumers, many of which would be very wealthy and would spend a lot
of money on imports. For example, if the TPP were to be established, countries like
Peru and Malaysia would be able to export to much richer countries, namely
be able to export to nauch noter
 countries, the USA and Canda, the first of which is the biggest economy in
the word, at much lower costs due to decreased tanffs. Demand for their
goods would increase since importing them would be cheaper due to decreased
tanffs. Therefore these countries' exports would increase, contributing to the arc
improvement in the balance of trade. Since this is a component of aggregate
demand, economic growth would consequently increase, showing how
trading blocs can benefit the countries involved.

nflata
n?

imem
ploy
goapp
.
the

good
para.
Fow

and
Can

However, the infant industry argument shows that the opening of trade
barriers harm smaller domestic firms in industries that aren't yet well established.
Incumbent
incertain markets foreign
firms are likely to have far more experience
and market knowledge, and can also exploit economies of scale more since
they have a larger share of the global market already. This makes it extremely
difficult for domestic start-ups in the same market to compete against
larger
firms in other counties of the trading bloc, rgarling that many
might have to shut down since consumers will choose to buy from the
more experienced firms. For example, -Japan exports a great deal of high
quality, fairly low cost cars. If the TPP were to be
meaning

established, s smaller car companies in countries whe Pens would be unable to

compete.....
W
like

leading to probable business failure. This shows how brading blocs can
harm economies. by restricting how much their infant industries can grow.
Another benefit of membership is that prices for consumers
will be lower, creating an increase in consumer surplus. This is because
the reduction or removal of tanffs lowers how much consumers have to pay as
import taxes are lower. Moreover, imports of raw materials and capital goods will
be cheaper so businesses' costs of production will decrease, leading to lower
market prices for the consumer as supply shifts outward Vietnam could, for
example, import
machinery" from the USA more cheaply as a
for factories

member of the TPP, leading to lower prices for both their domestic
consumers and consumers in other members of the bloc. Furthermore, a

larger international consumer base would create greater demand for goods,
causing an increased. quantity produced. Firms could therefore exploit
economies of scale and lower the prices of their goods, increasing
consumer welfare and productive efficiency.

If it has a
CE
 Couston'
s
union)
&
‫سات‬
The establishment of a trading bloc could divert trade
away from countries outside the bloc, though, if prices are lower without
import taxes. For example, German cars could have a lower market price than
Japanese cars, meaning that consumers in countries like the USA and Canada
would be more likely to buy German ones. However, with Japan being in the
proposed TPP, their cars may end up being more price competitive,
since there would be lower tariffs on them than on German cars, meaning
that trade is diverted away from Germany to countries. inside the trading
bloc. This shows how trading blocs can negatively impact external
countries. and businesses, as they will lose customers and therefore revenue.
These companies will have to lower their prices in order to compete with businesses
that do not face tariffs, which could hurt profit margins and slow economic growth.

The freer trade created by trading blocs increases choice for consumers,
since they are now able to access a greater variety of goods from for more
countries. This increases allocative
efficiency since more consumer
preferences are being satisfied. Moreover, countries are led to produce
more of what they have a comparative advantage in, as firms that are most
successful at what they do/come to clominate the markets in which they're
in when competingagainst foreign firms. For example, in the
TPP, Vieman could have a comparative advantage in producing
toys, due to having cheap labour and a suitably skilled work force,
making them more competitive against other firms in other countries of the
trading bloc. This means that more rescrurces would be allocated to
boy production in Vietnam, creating greater allocative efficiency, again, as
this is where the resources would be best used.
On the other hand, if one country becomes dominant in the production of
a particular good, such as Vietnam with toys, due to having a comparative
advantage, this could create. the
boys, due to having a comparative
advantage, this could create. structural unemployment in other
countries that formery produced the same goods. This is because the
clomestically produced goods would be demanded less since another
county is
Pactories and better
at producing them, so fewer
workers are needed to manufacture them, rendering the employees'
skills useless. For example boy factories in the USA could shut down,
leaving the workers
in these factories unemployed. This type
of employment this particulary difficult to overcome, since
gaining new skills that are actually needed can be time-consuming and
expensive. Consequently trading blocs can lead to long-term
unemployment and lower incomes, for some, creating greater crequality.
A further advantage of trading blocs such as the TPP is that firms
will have to compete against more rivals, meaning that they have to be
more competitive in order to attract the most consumers. This can lead to
increased spending on research and development in order to.
to bring
are unable to beat. This increases
about more innovation and new ideas that other firs o dynamic efficiency and
provides consumers with more advanced, higher quality goods which can
improve standards of living and even productinty. For example, the USA and
Japan. in the TPP would have be be more competitive against each
other in technology, as both have... huge technology giants. This would
lead to faster advancements in goods such as laptops, making workers
who use such goods more productive, lowering costs for their employers and so
increasing their profits and benefiting economic growth. This is as
well as just improving the general quality of goods and services.

dex-inefficienc
y

However, the environment would undoubtedly be negatively impacted as a

brading blocs, due to increased trade between countries
result of
that are extremely far away from each other. In the TPP goods would
probably have to be flown between incumbent countries
h such as Canada and
mustralia, creating huge amounts of pollution - a negative extemality. Because
of this, firms may have to spend more on enviosamentally friendly production methods
or tradable pollution permits which could increase their costs by a fair amount. and could
possibly be passed on to consumers through higher prices. This shows how
not trading blocs not only have damaging environmental impacts, but also
might leaver prices by as much as expected..
Overall, the greatest benefit of membership of a trading blos like the
TPP is the increased competition, in temes of both price and san-price factors,
as this leads to lower prices and higher quality among other things, improving
consumer welfare. This outweighs the disadvantages, the most
prominent of which is structural unemployment, as everybody
benefits, while only some are affected by structural unemployment.
These same people may actually benefit the most from lower prices and
cheap imports from countries like Pers and Vietnam, showing that trading
blocs are mainly beneficial.

KAA
Ev

15/1
6
919
24/2
5
Excellent

well
deres with
good application. I'd encourage
you to demonstrate
knowledge of
different trade bloc
types
and their characteristics