SECTION A Answer each question and explain as per the instructions at the bottom of each question. QUESTION A.1 Ozland has closed itself off to international trade. Ozland citizens noticed that the...

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SECTION A



Answer each question and explain as per the instructions at the bottom of each question.




QUESTION A.1



Ozland has closed itself off to international trade. Ozland citizens noticed that the policy shift resulted in no change in the prices of computers, why may that be?



A. Autarky prices and free trade prices are the same.



B. Autarky prices are larger than free trade prices.



C. Autarky prices are smaller than free trade prices.



D. The absolute value of autarky prices are negatively correlated with free trade prices.


(1 mark)



Explain your answer in up to 200 words and using a diagram


(4marks)




QUESTION A.2



When Ozland closes off to trade, it notices that the number of firms in an industry doubles in size. What economic theory would help us explain this phenomenon?



A.Stolper-Samuelson.



B.Melitz.



C.Ricardian.



D.Cournot.


(1 mark)



Explain your answer in up to 200 words and using a diagram


(4marks)




QUESTION A.3



In the Pure Specific Factors model with two sectors, Cars (C) and Wheat (W), Capital (K) is specific to C and Land (A) is specific to W. If the government imposes a tariff on the imports of W then



A.Both owners of K and owners of A will benefit.



B.Owners of A will benefit.



C.Owners of K will benefit.



D.Neither owners of K nor owners of A will benefit.


(1 mark)



Explain your answer in up to 200 words and using a diagram


(4marks)




QUESTION A.4



In a Mixed Specific Factors model with two sectors, Cars (C) and Wheat (W), Capital (K) is specific to C and Land (A) is specific to W. If the government imposes a tariff on the imports of W then



A.Both owners of K and owners of A will benefit.



B.Owners of A will benefit.



C.Owners of K will benefit.



D.Neither owners of K nor owners of A will benefit.


(1 mark)



Explain your answer in up to 200 words and using a diagram


(4marks)




QUESTION A.5



A country imposing a tariff can benefit in terms of social welfare if



A.The terms-of-trade benefit exceeds the sum of production and consumption distortion loss.



B.The tariff revenue exceeds the sum of production and consumption distortion loss.



C.The consumer surplus loss is less than the producer surplus gain.



D.The terms-of-trade benefit exceeds the consumer surplus loss.


(1 mark)



Explain your answer in up to 200 words and using a diagram


(4marks)




SECTION B



Short answer questions. Answer each in up to 200 words.




Background



Imagine that you work for the World Bank and you have been called to Ghana to aid the new president to come up with a new international trade strategy.


You are told that the new government is interested in moving away from agriculture and into manufacturing. To do so, the government wants to pursuit a policy of import substitution industrialization (ISI).


You are given a brief about Ghana highlighting the following points:



  • About half of Ghana’s population depends on agriculture, but Ghana still imports some of its food.

  • The majority of Ghana's people live in rural areas and exist on a subsistence way of life.

  • Ghana has one of the highest rates of income inequality in the world.

  • Nearly half of the population is employed in agriculture.





QUESTION B.1


Ghana imports and exports food from and to neighbouring Côte d'Ivoire. The latter nation is very similar to Ghana in most ways. Can you explain what may drive two very similar nations to trade?


(5 marks)




QUESTION B.2


Ghana's parliament is debating how to undertake ISI. The debate centres on whether they should impose tariffs on imports or use quotas. Which system is better for consumers? (use a diagram to explain yourself).


(5 marks)




QUESTION B.3


Ghana's president is also very interested in banning the imports of food in order to increase nutrition in her country. What is the logic behind this? Will it work?


(5 marks)




QUESTION B.4


A representative from Ghana's agricultural organisation is very much in favour of closing borders. He argues that consumers and producers will benefit from this. Is he right? Who would benefit most, are there any losers from the policy?


(5 marks)




QUESTION B.5


After a meeting with Ghana’s president you learn that the government is also interested in repatriating migrants that went to European countries to study engineering a decade ago. Explain how this is likely to change Ghana’s comparative advantage.


(5 marks)

Answered 2 days AfterOct 26, 2021RMIT University

Answer To: SECTION A Answer each question and explain as per the instructions at the bottom of each question....

Komalavalli answered on Oct 28 2021
114 Votes
Question A1.
A.Autarky prices and free trade prices are the same.
Explanations:
Autarky refers to closed economy, In which trade between two nations doesn’t take place. The value of a commodity in an autarkic state is referred to as autarky price or autarkic pricing. In a closed market, the cost of manufacturing must be paid by the price of the commodity. If the price is higher than other countries, the autarky price means a failure for that country's economy. When evaluating a country's competitive benefits, the autarkic price is occasionally utilised as an economic indicator. Comparative advantages, on the other hand, are found through free markets rather than an economic structure in actuality. When external commercial links are severed, the prices of traded items shift dramatically. Tariffs and quotas, which restrict international commerce, have a substantial impact on the pricing of traded products. From above given situation we observe that after the implementation policy which cut off the trade between ozland and other nations, there is no impact on price of commodity. This indicates that the price for computers with trade and without trade are same .Therefore option A that indicates Autarky prices and free trade prices are the same is correct.
A2.
B. New trade theory Meiltz
It suggests that the cut in trade leads to increase in number of firms in the domestic market. Restriction on trade leads to decrease the supply of particular good in the economy. In order to overcome the shortage in the nation the firms will expand their production and there is an opportunity for new firms to enter. This contributes for increase in number of firms in the nation.
Ricardo theory suggest that the country should export the good which has comparative advantage and import the goods that has comparative disadvantage. Cournot is a competitive economic model in which competing enterprises determine a quantity to produce independently and concurrently. Stopler Samuelsson model describe about the relative price and relative output of the trading nation. Therefore option B is suited answer for this question
A3.
B. Owners of A will benefit.
A manufactured good is considered an "industry-specific". A particular factor is one that is fixed within an industry or across industries due to changes in market circumstances. For a variety of reasons, a component can be fixed across industries. Certain components, such as capital or labor, may be specially developed (in the case of capital) or specifically formulated (in the case of labor) for use in a production process. specific. Moving these items between industries can be difficult, complicated or expensive in some cases. The SF model is intended to highlight the consequences of trade in an economy where one factor of production is industry-specific. The most intriguing findings concern the changes in wealth distribution that will occur when a country transitions to free trade.Imposing tariff on W leads to shortage for the good W in domestic market this leads to expansion of production by intensively using Land (A).This increasing demand resulted in increasing price for land in the nation. Therefore owners of A will benefit.
A4.
A.Both owners of K and owners of A will benefit.
Mix factor model indicates that there is factor mobility between two industries. This indicates if there is high price for land, an industry is producing product using land can substitute for capital to land....
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