A group of countries who have joined together in attempt to gain from increased
trade. There are four main types of trading
blocs:-
Free trade area - Tariffs between members are reduced while each country is free to set it's individual tariffs to non-memebers. Therefore customs points are still necessary to prevent goods entering via the lowest tariff point.
Customs union - Members not only remove internal trade restrictions but also set common import restrictions (i.e. common external tariff), eliminating the need for internal customs points.
Common market - Like a customs union but also permits the free movement of factors of production.
Economic and monetary union - Introduction of a single currency and convergence of monetary policy.
There are major benefits to a member of a trading bloc. The increased trade allows greater specialisation and therefore more efficient allocation of resources. Due to specialisation there is also the possibility of benefitting from economies of scale. It should reduce prices for consumers and can result in greater choice of goods.