ECONOMICS
Section A
Answer this question.
1 Economic Integration
The world’s two best known trade groups are probably the European Union (EU) and the North American Free Trade Area (NAFTA).
In 2005, a study examined the likely impact of the proposed formation of a third major trade group, JACIK. This would be an economic community comprising Japan, the Association of South East Asian Nations (ASEAN), China, India, and South Korea. ASEAN is a free trade area of ten countries including Indonesia, Malaysia and singapore.
Exporting is an important activity for all three trade groups as shown in Table 1.
Table 1: Exports by value and world share, 2003
|
|
EU
|
NAFTA
|
JACIK countries
|
|
Exports (US$ billions)
|
3523
|
1486
|
1657
|
|
% of world total
|
46.5
|
19.6
|
21.9
|
The 2005 study produced models of three levels of economic integration and the welfare gains with each were estimated. The results are shown in Table 2.
Table 2: Estimated welfare gains from the formation of JACIK in US$ million
|
|
Model 1:
Free trade
of goods
and services
|
Model 2:
Free trade of goods
and services and
free movement of
capital
|
Model 3:
Free trade of goods and
services and free movement of
both capital and skilled workers
|
|
Japan
|
107 626
|
111 807
|
150 695
|
|
ASEAN
|
13 451
|
13 553
|
19 405
|
|
China
|
6 327
|
7 100
|
16 328
|
|
India
|
6 971
|
7 379
|
9 937
|
|
South Korea
|
13 043
|
13 317
|
14 076
|
|
JACIK total
|
147 418
|
153 156
|
210441
|
|
Rest of World total
|
-27293
|
-45306
|
109 916
|
|
World total
|
120 125
|
107 850
|
320 357
|
(a) (i) Use Table 1 to compare the export performance of the three trade groups in 2003.
(ii) How might the differences you have identified be explained?
(b) (i) State three ways in which an economic union differs from a free trade area.
(ii) Explain two problems that might make economic integration difficult.
(c) Use Table 2 to show whether the free movement of capital or the free movement of skilled workers is estimated to be more beneficial for JACIK.
(d) Discuss how the rest of the world might view the formation of JACIK.
Section B
Answer one question.
2 (a) Explain whether the factors of production are always of equal economic importance within and between economies.
(b) Discuss whether planned economies should always be replaced by free market economies.
3 (a) Explain how income elasticity of demand and cross elasticity of demand can be used to classify different types of goods.
(b) Discuss the effectiveness of government use of maximum and minimum prices to help consumers and producers.
4 (a) How does aggregate demand and aggregate supply analysis explain the existence of inflation in the short run?
(b) Discuss whether a period of inflation or a period of deflation is more economically desirable.