Three countries enter into an agreement to remove all tariffs and trade barriers between them.They decide on a common trade policy with regard to nonmembers.Faced with political backlash,the countries stop short of allowing mobility of factors of production such as labor and capital.Which of the following levels of economic integration best describes this arrangement?
A) Political union.
B) Customs union.
C) Common market
D) Economic union
E) Political union

Question

Quizplus · Accepted Answer

This arrangement describes a customs union, where tariffs and trade barriers are removed between member countries and a common trade policy is established for nonmembers, but there is no free movement of factors of production like labor and capital. A common market would include free movement of factors of production while an economic union would have a higher degree of integration, including coordination of economic policies and a single currency. A political union would involve not just economic integration but also political integration, such as a shared government or parliament. However, this arrangement only involves economic integration, not political integration.

Three Countries Enter into an Agreement to Remove All Tariffs