Question

Which of the following is not an advantage of being in a trading bloc?

Group of answer choices

Trade creation for low-cost producers within the trading bloc

Benefits of economies of scale

Individual countries cannot have full control over their monetary and fiscal policies

Free movement of labor would boost productivity

Answer 1

1. Option c is correct. Under Hotelling model with two firms and street length 1 mile .The firms are both forced to charge a fixed price ,but they are able to freely choose their location. So one firm locates in the center and one locates at an endpoint. Under this model, firms chose a location and after selling price of their products. In order to set the best location to maximize profit ,the firms will have to evaluate three key variables : competitor's location ,customer distribution and transportation costs. All other options are wrong .Because firms locates at different location 2. Option c is correct. Under Cournot model with product differentiation will leads to increase in the q1 causes p1 to decrease . Because if firms want to increase the quantities of commodities they have to reduce their prices. Product differentiation leads to goods are gross substitutes. 3. Option c is correct. Firms having nearly homogeneous products in forming cartel leads to low organisational cost for firms. All other options are wrong . Because low market concentration and having many firms involved will not leads to low organizational costs of forming cartel