Common Market Economics
A common market, also called a single market, refers to an economic agreement between two or more countries that stipulates that the signatory countries establish a free trade area, share a single currency and have the same tariffs on goods imported from non-member countries. Primary example of common markets include the European Union, or EU, and the European Economic Area, or EEA.
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Efficient Allocation of Resources
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A bigger market more efficiently allocates resources than a smaller one. As goods, services, capital and workers move across borders as if there were no borders, resources move from places of abundance to where they are needed most. A notable example is high unemployment in one country or region and a shortage of qualified labor in another. As a result of the common market, people from one place can easily move to another place, helping to boost productivity and increase their living standards.
Economies of Scale
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A common market is good for business. Selling products or services in a country of 1 million people differs greatly from operating in a market with 350 million potential customers, for example. As companies do not need to comply with a multitude of national regulators but only have to satisfy one common regulator, doing business becomes easier. Consumers benefit, too, through lower prices and higher quality as a result of greater competition between producers.
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Shared Currency
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Another important aspect of a common market is a single currency. Single currency lowers transaction costs by eliminating the exchange risks and currency conversion fees. Furthermore, a shared currency also allows easier cross-border investments and price comparisons by consumers between countries. For example, if a person in country A goes online and finds a cheaper car in country B, he can order the car from that country, without paying any additional taxes or levies.
Problems
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A common market has a number of theoretical as well as practical problems. First, as of February 2011 the implementation of a common market in its pure form has never taken place in any country. The Euro zone comes close, but it still faces many hurdles, and some states still protect their markets from foreign competition, particularly cross-border takeovers. In addition, there are also problems that would be present even in a pure common market. For example, a common market cannot be fully integrated unless people speak a common language, which is difficult provided countries' unique cultural and linguistic heritages. Technical problems also exist. As different regions of the common market may experience different stages of economic cycle, no single monetary policy, such as interest rates, can fully accommodate them. For example, Germany may have high inflation, demanding high interest rates, while Ireland can have deflation and may need low interest rates.
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