on the price of toys is the same. A tariff is a “second best” policy and also affects other sectors. However, a

common standard across countries is a “first best” policy that attacks the problem at its root.

15. A free trade association offers free trade between its members, but each country can determine its own

trade policy outside the association. A common market requires a common external trade policy in

addition to free trade within the group. An economic union is a common market with coordinated fiscal

and monetary policy.

16. International agreements can serve as a political counterweight to domestic special interests, thereby

preventing stronger protectionist measures.

17. Reductions in tariffs, quotas, and other trade barriers, improved transportation, and communication

media have made people more aware of what is available in the rest of the world.

18. Competition from firms with better or cheaper products can reduce a business’s profits, and may drive it
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