(a) What is a customs union?
(b) State three advantages and two disadvantages of a customs union.
Explanation
(a)Customs Union is an agreement among nations to eliminate trade barriers such as tariffs, quotas etc, among themselves or members and to adopt common barriers to imports from non-member countries.
(b) Advantages of Customs Union are:
(i) Enhanced welfare for the citizens.
(ii) Improved efficiency and stimulation of faster economic development.
(iii) Lower costs per unit due to internal economies reaped by producing for a large market.
(iv) A larger internal market for members and increased trading activities between member countries.
Disadvantages of Customs Union are:
(i) Possible death of some industries resulting in some degree of frictional unemployment.
(ii) Loss of revenue that would have accrued as a result of abolition of tariffs.