European Union Worksheet

I) TRUE / FALSE 1. The European Coal and Steel Community (ECSC) consisted of the same 6 nations that later formed the European Economic Community. 2. The EEC was established by the Treaty of Rome. 3. The EU’s custom union was completed ahead of the schedule that was agreed for it in the Treaty of Rome. 4. The European Free Trade Association (EFTA) was set up in response to the ECSC. 5. The Council of Europe is part of the European Union. 6. All new EU Treaties must be ratified by each Member State according to its own constitutional provisions. 7. The European Commission now has one Commissioner from each Member State.

8. The European Parliament meets in Brussels and Strasbourg. 9. Members of the European Parliament are appointed by their national parliaments. 10. If the Lisbon Treaty is ratified, it will replace the Treaty of Rome. 11. Trade decisions are based on the concept of absolute advantage. 12. The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive in a market. 13. According to the principle of comparative advantage, all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

14. Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors. 15. If the world price of a good is greater than the domestic price in a country that can engage in international trade, that country would become an importer of that good. 16. If the domestic price of a good is low relative to the world price, the country has a comparative advantage in producing that good. 17. Without free trade, the domestic price of a good must be equal to the world price of a good. 18.

If Greece exports oranges to the rest of the world, Greece’s producers of oranges are worse off as a result of trade, but Greece’s consumers of oranges are better off. 19. If the United Kingdom imports tea cups from other countries, U. K. producers of tea cups are better off as a result of trade, but U. K. consumers of tea cups are worse off. 20. If Belgium exports chocolate to the rest of the world, Belgian chocolate sellers benefit from higher producer surplus, Belgian chocolate buyers are worse off because of lower consumer surplus, but total surplus in Belgium increases because of trade.

21. In principle, trade can make everyone better off, since the gains to the winners exceed the losses to the losers. 22. If a tariff is placed on watches, the price of both domestic and imported watches will rise by the amount of the tariff. 23. When a government imposes a tariff on a product, the domestic price will equal the world price. 24. A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade. 25. Deadweight loss measures the decrease in total surplus that results from a tariff or quota. 26.

If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue, and domestic consumers will gain consumer surplus. 27. Suppose that Australia imposes a tariff on imported beef. If the increase in producer surplus is $100 million, the increase in tariff revenue is $200 million, and the reduction in consumer surplus is $500 million, the deadweight loss of the tariff is $300 million. 28. Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade, thus reducing the gains from trade.

29. Import quotas and tariffs both cause the quantity of imports to fall. 30. Import quotas make domestic sellers better off and domestic buyers worse off. 31. An import quota increases domestic producer surplus and the surplus of import license holders, but reduces domestic consumer surplus, and creates deadweight loss. 32. Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

33. Free trade causes job losses in industries in which a country does not have a comparative advantage, but it also causes job gains in industries in which the country has a comparative advantage. 34. Most economists support the infant industry argument because it is so easy to implement in practice. 35. If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices, the Swedish economy would be worse off. II) MULTIPLECHOICE 1. In which year was the Treaty of Rome signed (not entered into force)? a) 1957; b) 1962; c) 1963; d) 1967; e) 1969 2. In which year was the Maastricht Treaty signed (not entered into force)? a) 1982; b) 1986; c) 1981; d) 1989; e) 1992.

3) In which year was the Lisbon Treaty signed (not entered into force)? a) 2003; b) 2004; c) 2005; d) 2006; e) 2007 4) The path that led to adoption of the euro was set down in the: a) Treaty of Rome; b) Single European Act; c) Maastricht Treaty; d) Amsterdam Treaty; e) Nice Treaty. 5. What are the 3 “pillars” of the European Union? a) Economics, security and justice; b) Social, military and political; c) Economics, military and justice; d) Agricultural, security and political. 6. The European Court of Justice can overrule all member states’ courts on which issues?

a) On matters involving Treaty interpretations and disputes between member states on any topic; b) On matters involving first pillar issues; c) On matters involving second pillar issues; d) On matters involving third pillar issues. 7. The real decision making body in EU is: a) The European Court of Justice; b) The European Council; c) The European Parliament; d) The European Commission. 8. The members of the European Parliament are: a) All members of their own national parliament; b) Under instruction of their own party from their home nation; c) Appointed by their national governments; d) Directly elected by EU citizens and are in office for 5 years. 9.

The two biggest items in the EU Budget are: a) Administration and research; b) Foreign policy and development assistance; c) CAP and cohesion spending; d) Foreign policy and cohesion spending. 10. Under so-called co-decision procedure for EU law making, new laws are proposed by the _________________ and must receive the approval of both the _______________ and the ___________________. a) Council of Ministers, European Commission, European Parliament; b) European Commission, Council of Ministers, European Parliament; c) European Parliament, European Commission, Council of Ministers; d) None of the above.

11. If a country allows trade and the domestic price of a good is higher than the world price, a. the country will become an exporter of the good. b. the country will become an importer of the good. c. the country will neither export nor import the good. d. additional information about demand is needed to determine whether the country will export or import the good. 12. If a country allows trade and the domestic price of a good is lower than the world price, a. the country will become an exporter of the good. b. the country will become an importer of the good.

c.the country will neither export nor import the good. d. additional information about demand is needed to determine whether the country will export or import the good. 13. When a country allows trade and becomes an exporter of a good domestic producers a. gain and domestic consumers lose. b. lose and domestic consumers gain. c. and domestic consumers both gain. d. and domestic consumers both lose. 14. When a country allows trade and becomes an importer of a good, a. both domestic producers and domestic consumers are better off. b. domestic producers are better off, and domestic consumers are worse off.

c.domestic producers are worse off, and domestic consumers are better off. d. both domestic producers and domestic consumers are worse off. 15. When a country allows trade and becomes an exporter of a good consumer surplus a. and producer surplus will increase. b. and producer surplus will decrease. c. will increase and producer surplus will decrease. d. will decrease and producer surplus will increase. 16. When a country allows trade and becomes an importer of a good consumer surplus a. and producer surplus will increase. b. and producer surplus will decrease. c. will increase and producer surplus will decrease.

d. will decrease and producer surplus will increase. 17. The before-trade price of fish in Greece is $3. 00 per pound. The world price of fish is $5. 00 per pound. Greece is a price-taker in the fish market. If Greece allows trade in fish Greece will become an a. importer of fish and the price of fish in Greece will be $3. 00. b. importer of fish and the price of fish in Greece will be $5. 00. c. exporter of fish and the price of fish in Greece will be $3. 00. d. exporter of fish and the price of fish in Greece will be $5. 00. 18. The before-trade price of fish in Greece is $3. 00 per pound.

The world price of fish is $5. 00 per pound. Greece is a price-taker in the fish market. If Greece allows trade in fish, its consumers of fish will be a. worse off and its producers of fish will be better off. b. better off and its producers of fish will be better off. c. worse off and its producers of fish will be worse off. d. worse off and its producers of fish will be unaffected. 19. A tariff is a. a tax on imported goods. b. a tax on exported goods. c. a limit on imported goods. d. a tax on luxuries. 20. A tariff is a tax placed on a. exported goods that lowers the domestic price below the world price.

b. exported goods that keeps the domestic price the same as the world price. c. imported goods that lowers the domestic price below the world price. d. imported goods that raises the domestic price above the world price. 21. Denmark is an importer of computer chips and is also a price-taker in the chip market. The world price of these computer chips is $12. If Denmark imposes a $5 tariff on chips, the result in Denmark would be that the price of computer chips will be a. $17 and the quantity purchased will fall. b. $12 and the quantity purchased will fall. c. $7 and the quantity purchased will increase. d.

$17 and the quantity purchased will increase. 22. Turkey is an importer of goose down pillows. The world price of these pillows is $50. Turkey imposes a $7 tariff on pillows. Turkey is a price-taker in the pillow market. As a result of the tariff Turkey’s price of pillows will be a. $50 and the quantity of pillows purchased will decrease. b. $57 and the quantity of pillows purchased will decrease. c. $50 and the quantity of pillows purchased will increase. d. $57 and the quantity of pillows purchased will increase. 23. Turkey is an importer of goose down pillows. The world price of these pillows is $50.

Turkey imposes a $7 tariff on pillows. Turkey is a price-taker in the pillow market. As a result of the tariff Turkish consumers of pillows will a. gain and Turkish producers of pillows will lose. b. lose and Turkish producers of pillows will gain. c. gain and Turkish producers of pillows will gain. d. lose and Turkish producers of pillows will lose. 24. When a quota is imposed on a market the a. supply curve (above the world price) shifts to the right by the amount of the quota. b. supply curve (above the world price) shifts to the left by the amount of the quota.

c.demand curve (above the world price) shifts to the right by the amount of the quota. d. demand curve (above the world price) shifts to the left by the amount of the quota. 25. A tariff and an import quota will both a. increase the quantity of imports and raise domestic price. b. increase the quantity of imports and lower domestic price. c. reduce the quantity of imports and raise domestic price. d. reduce the quantity of imports and lower domestic price. 26. The major difference between tariffs and import quotas is that a. tariffs create deadweight losses, but import quotas do not.

b.tariffs help domestic consumers, and import quotas help domestic producers. c. tariffs raise revenue for the government, but import quotas create a surplus for import license holders. d. All of the above are correct. 27. Import quotas and tariffs have each of the following in common EXCEPT a. the domestic price of the good increases. b. consumer surplus increases. c. producer surplus increases. d. deadweight losses occur. 28. Import quotas and tariffs have each of the following in common EXCEPT a. total surplus falls. b. deadweight losses occur. c. producer surplus increases. d. revenue to government is raised. 29.

Which of the following is an argument for restricting trade? a. Trade restrictions make all Americans better off. b. Trade restrictions increase economic efficiency. c. Trade restrictions are necessary for economic growth. d. Trade restrictions are sometimes necessary for national security. 30. Which of the following is NOT an argument for restricting trade? a. the jobs argument b. the national security argument c. the infant industry argument d. the efficiency argument 31. Which of the following is the most accurate statement? a. Protection is necessary in order for young industries to grow up and be successful.

b. Protection is not necessary for an industry to grow. c. Protection is necessary because if young industries are not protected, they may suffer losses. d. Protection may not always be necessary for infant industries, but it has proven to be useful in most cases. 32. Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that consumer surplus in Aquilonia is now higher for a. steel, lower for incense, and the same for rugs.

b. incense and steel, but not rugs. c. incense and rugs, but not steel. d. incense, lower for steel, and the same for rugs. 33. Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that producer surplus in Aquilonia is now higher for a. steel, lower for incense, and the same for rugs. b. incense and steel, but not rugs. c. incense and rugs, but not steel. d. incense, lower for steel, and the same for rugs. 34.

Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that domestic producers of a. incense are now better off, consumers of incense are worse off; producers of steel are worse off, consumers of steel are better off; both producers and consumers of rugs are unaffected. b. incense are now worse off, consumers of incense are better off; producers of steel are better off, consumers of steel are worse off; both producers and consumers of rugs are unaffected.

c. incense are now worse off, consumers of incense are better off; producers of steel are worse off, consumers of steel are better off; both producers and consumers of rugs are unaffected. d. incense, steel, and rugs are worse off and consumers of incense, steel and rugs are better off. This is because trade always harms producers and helps consumers. 35. Critics of free trade sometimes argue that allowing imports from foreign countries costs jobs domestically.

An economist would argue that a.foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding. b. foreign competition may cause unemployment in import-competing industries, but the increase in consumer surplus due to free trade is more valuable than the lost jobs. c. the critics are correct, so countries must protect their industries with tariffs or quotas. d. foreign competition may cause unemployment in import-competing industries, but the increase in the variety of goods consumers can choose from is more valuable than the lost jobs.

SHORT ANSWER 1. Who were the six countries that formed the European Coal and Steel Community (ECSC)? ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 2. What was meant by forming a “common market”?

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3. According to the graph shown, answer the following questions about hammers. a. What is the equilibrium price of hammers before trade? b. What is the equilibrium quantity of hammers before trade? c. What is the price of hammers after trade is allowed? d. What is the quantity of hammers imported? e. What is the amount of consumer surplus before trade? f. What is the amount of consumer surplus after trade? g. What is the amount of producer surplus before trade? h. What is the amount of producer surplus after trade? i. What is the amount of total surplus before trade?

j. What is the amount of total surplus after trade? k. What is the change in total surplus because of trade? 4. Using the graph shown, assume that the government imposes a $1 tariff on hammers. Answer the following questions given this information. a. What is the domestic price and quantity demanded of hammers after the tariff is imposed? b. What is the quantity of hammers imported before the tariff? c. What is the quantity of hammers imported after the tariff? d. What would be the amount of consumer surplus before the tariff? e.

What would be the amount of consumer surplus after the tariff? f. What would be the amount of producer surplus before the tariff? g. What would be the amount of producer surplus after the tariff? h. What would be the amount of government revenue because of the tariff? i. What would be the total amount of deadweight loss due to the tariff? 5. Using the graph shown, assume that free trade existed in this country before the government imposed an import quota of 20 hammers. Answer the following questions given this information.

a. What is the price of hammers before the quota is imposed? b. What is the price of hammers after the quota is imposed? c. What is the quantity of hammers imported before the quota? d. What is the quantity of hammers imported after the quota? e. What is the amount of consumer surplus before the quota? f. What is the amount of consumer surplus after the quota? g. What is the amount of producer surplus before the quota? h. What is the amount of producer surplus after the quota? i. What would be the amount of deadweight loss due to the quota? 6. How does an import quota differ from an equivalent tariff?

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Consider a small country that exports steel. Suppose that a “pro-trade” government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad. How does this export subsidy affect the domestic price of steel, the quantity of steel produced, the quantity of steel consumed, and the quantity of steel exported? How does it affect consumer surplus, producer surplus, government revenue, and total surplus? Is it a good policy from the standpoint of economic efficiency? (Hint: The analysis of an export subsidy is similar to the analysis of a tariff. ) ____________________________________________________________________________