In May 2004 the EU was expanded beyond the EU15 to include 10 more countries in order to become the EU25. There were and are many costs and benefits to this enlargement and they fall under micro and macro economic issues which affect every country within the EU. Thus it was important that the EU took every aspect into consideration when deciding whether or not to allow enlargement of the EU. One of the most obvious gains from the extension of the EU is the benefit of having access to a much larger market, the Single European Market, which aims to create free trade between the member states by way of economic integration and the removal of barriers such as tariffs and quotas; this is enforced by the European Parliament and the EU Commission. The Single Market can be considered an advantage and a disadvantage. It allows for increased competition between foreign companies and in order for the businesses to win over consumers they need the lowest prices. This benefits consumers because they no longer have to pay high prices for domestic goods; in addition, it ensures the consumer can obtain a greater variety of goods and services within the market. Free trade also leads to increased production which enables the countries to specialise in the production of those goods in which it has a comparative advantage. A country is said to have a comparative average over another when it can produce a certain good at a lower opportunity cost. With this specialisation countries are able to take advantage of economies of scale resulting in lower average costs and an increase output. Also Free trade improves the efficiency of resource allocation (allocative efficiency). The more efficient use of resources leads to higher productivity and increasing total domestic output of goods and services, resulting in lower prices for the consumers. This is productive efficiency, where production is at the lowest point on the lowest average cost curve, avoiding x-inefficiency. Furthermore increased competition promotes innovative production methods, the use of new technology, marketing and distribution methods in order to again, lower costs for the company and prices for the consumers. The enlargement of the EU, increases the size of the single market and thus there is greater competition and, in theory, leading to greater efficiency and lower costs/prices. However, free trade has some disadvantages as well, some countries with surpluses may distribute their goods in the world markets below cost to eradicate competition because industries may find it difficult to compete for long periods under such conditions; this is known as ‘dumping’. Additionally many domestic goods may struggle to compete with low prices elsewhere due to lower wages in different countries; as a result internal economies may suffer. This has led to the creation of policies such as CAP (Common Agriculture Policy) which all members of the EU must comply to, it gives support to farmers who are struggling with low prices and it also pays farmers to not produce anything on some of their land in order to regulate the amount of certain goods in an economy to keep prices higher. Unfortunately the CAP drains 50% of the EU’s budget and also part of each participating country’s as well. This of course produces an opportunity cost, that money could have been spent elsewhere, for example on merit goods such as education or health services. This creates a problem with the expansion of the EU because much more monetary support will be needed to be given to the new countries joining, this creates an even larger opportunity cost. In order to solve the problem many policies the EU had created for the EU15 may need to be revised in the light that they have 10 countries joining who are not particularly well-off. Furthermore, with the removal of trade barriers structural unemployment may occur in the short term because many industries fold in the competitive environment and infant industries may find it difficult to become established in a competitive environment. Also it will lead to increased frictional unemployment because many people will be in between jobs, searching for a better job, better pay in the larger market. However, the extent of the unemployment depends on the labour market’s flexibility and migration between countries. The enlargement of the EU would undoubtedly lead to more immigration as the citizens of the new member states wish to find better paid jobs elsewhere but immigration poses problems as well as benefits. The movement of people from one economy to another could potentially benefit the receiving country because they will gain a larger workforce, skilled workers will fill holes in the labour market and unskilled workers will fill low-paid jobs that many nationals wouldn’t want to do. This increase in labour and thus in production should shift long-run aggregate supply to the right, it should also increase consumer spending because more people have disposable incomes, thus leading to a shift in aggregate demand to the right as well. A negative side effect may be a raise in the rate of inflation, governments may then tackle this by raising interest rates which would be especially hard for home owners as their repayments increase. Another problem is that Immigrants may move to a country and not work but claim benefits, which costs the government. Also, the loss of labour from one country may have a very negative effect on their economy and quality of life as they lose desperately needed workers, for example doctors. A way of solving this would be to put in place a restriction on the number of immigrants, however within the EU this is not allowed as it is a single market so it allows for free movement of labour between the member countries. Thus as the EU enlarges there is the potential for a lot more migration. In conclusion I think that the enlargement of the EU is a good idea because of the gains from free trade, this trade allows Europe to be competitive world-wide against economies like America, Japan and China. Businesses within the EU can sell their goods to over 390 million relatively high-income consumers without trade barriers like tariffs; it promotes competition and efficiency. However, without every country being a part of the single currency, businesses are still at a disadvantage through exchange rates and also the fact that tax rates vary as well and so there is a possibility that areas in the EU will see no industries setting up and others will be ‘hot-spots’.