(a) State two features each of: (i) free trade area; (ii) common markets.
(b) outline two advantage and two disadvantage of a common market.
Explanation
(a) i. Free trade area
- Member countries remove all kinds of restrictions in trade among themselves
- Member countries have no common tariff policy in their trade with outsiders. Each country determines its own tariff policy.
ii. Common market
- Member countries remove all kinds of restrictions on trade long themselves
- Member countries have a common tariff policy against non-members.
- Free movement of factors of production
(b) Advantages
i. Existence of a large market such that firms have access to the market of member countries.
ii. Large scale production with possibility of regional specialization
iii. There is more efficient allocation of resources, since resources move about freely in the region
iv. Development may spread from more advanced countries to less developed ones
v. It fosters peace, unity and understanding among members.
vi. Consumers have a wider market to choose from, and at better prices.
Disadvantages
i. Trade from cheaper sources outside the region are diverted i.e cheaper sources are prevented from entering the union
ii. Developed members may develop at the expense of the weak and poor ones.
iii. There is loss of revenue which affects the growth of the poorer members.