PRACTICE2:EFFECTS CUSTOM

OF
UNION.
EU Economy 1

1. Formation of CU:

a) price elasticity of 5 and D increases.

P P
S S
BE TRADE CREATION:Substitu-
SE

rd
tion of domestic inefficient
·...... PARTNER supplier byimports from

- row.
PitT -

PT the efficient partner.

Row
+

Q
Q Q Q*Q ·
supply and
If demand
You will trade with the Rest M TRADE DEVIATION elasticity is higher, the
of
the world even the tariff. trade creation is bigger.

TRADE DEVIATION:Substitution of imports from efficientsupplier

by inefficient partner.

b)
Ou partner reduces prod costs.

S
TRADE CREATION INCREASES

ER
C) The ROW is now our
partner.

P
S

NO TRADE DEVIATION

*
TRADE CREATION IS MAXIMIZED.

Younee Q
 2
2.Fill the table 2.

CR non-metallic minerals 266,15

=

as 1. Non-metallic Minerals
RTB =
-
46,63 2. Art. vehicles
RCA 236,39
=
3. Wood Furniture
GLi 84 = 4. Other transport vehicles

Ratio (intra-eEU comput) 56 =

5. Metallurgy

Ratio (Extra-EU food) 5,62 =

b) 1. Electronic
Enginering C) Advantage:
2. Computers and office suppliers -non-metalic min.

Autom. vehicles
-

3. Chemistry.
4. Mechanical
engineering.
5. Electric engineering. Disadvantage:
Electronic engin.
-

d 1. Non-metallic minerals
-

Comp. and office sup.

2. Chemistry
3. Mechanical
eng. e) The costs
adjusting
of are less if there is
7. Comp. and office sup. more
intra-industry commerce. It is easier to
5. Electr. engin. produce a similar product rather than changing
the production sector.

f) Mechanical engineering and Computer

and office supplies

9) Production effect takes place:A National production (substituted by cheaper M

from a partner). National products substituted bycheaper external products.

3. Definitions:
 3
4. Fill the table: