Please Choose One Question From Each Section The Maximum Num

Please Choose One Question From Each Section The Maximum Number Of Bon

Please choose one question from each section. The maximum number of bonus questions that can be answered is 2. Questions are divided into three sections: Section A – Ricardian Model & Specific Factors Model; Section B – Heckscher-Ohlin Model & Standard Trade Model; Section C – International Trade Policies & Intra-Industry Trade Model. For each section, you must select one question to answer, with a maximum of two bonus questions in total. Carefully review the questions provided in each section and choose accordingly.

Paper For Above instruction

In this paper, I will analyze selected questions from each of the three sections related to international trade theories and policies. The analysis will include application of core economic models such as Ricardian, Heckscher-Ohlin, and intra-industry trade theories, along with discussions on trade policies including tariffs and free trade agreements. The aim is to demonstrate understanding of how these models explain international trade dynamics, the potential impacts on various economic agents, and the policy implications associated with trade liberalization and protectionism.

Section A – Ricardian Model & Specific Factors Model

The Ricardian model emphasizes comparative advantage driven by technological differences across countries, leading to mutually beneficial trade. Consider the given data where Nepal produces 4 kg of rice and 8 meters of cloth per hour, while Bangladesh produces 2 kg of rice and 8 meters of cloth per hour. Opportunity costs are key to determining trade patterns; Nepal’s opportunity cost of producing one kg of rice is 2 meters of cloth (since for each hour, it can produce 4 kg of rice or 8 meters of cloth), while Bangladesh’s opportunity cost of rice is 4 meters of cloth (2 kg rice vs. 8 meters cloth). Therefore, Nepal has a comparative advantage in cloth, and Bangladesh in rice. Consequently, Nepal will export cloth, and Bangladesh will export rice, aligning with Ricardian principles of comparative advantage.

The principle borrowed from Ricardo here is the concept of comparative advantage — countries should specialize in the production of goods for which they have the lowest opportunity cost, leading to gains from trade. This principle underscores the benefits of trade based on technological differences, rather than absolute productivity. If Nepal and Bangladesh engage in trade, they can both benefit by focusing on their comparative advantages, leading to increased overall efficiency and resource allocation.

The second question involves a country producing barley and wheat, where the labor productivity conditions are described by the equality MLPb x Pb = MLPw x Pw = w, indicating the marginal product of labor times price equals the wage. When the prices of wheat increase by 15% and barley by 8%, the wage change depends on the relative shifts in the value of marginal products. If wages are proportional to the value of marginal products, then wages could increase by approximately the average of these percentage changes, around 11.5%, depending on how the marginal products respond. Income distribution is affected as farmers and laborers in each sector experience gains or losses, with those producing the more valuable crop seeing relative income increases.

If a bonus question is considered where the market wage is not the competitive wage, the presence of unemployment implies that wage changes may not fully transmit to all workers. Price changes resulting from trade can lead to redistribution effects — some workers may benefit while others may lose, depending on their sector’s exposure and bargaining power. Unemployment can dampen the adjustment process, creating a lag or friction in income redistribution, potentially leading to increased inequality or social tensions.

Section B – Heckscher-Ohlin Model & Standard Trade Model

In the context of Slovenia and Sweden, analyzing capital abundance involves comparing the capital-to-labor ratios. Slovenia has a capital stock of $46 billion and a population of 2 million, while Sweden’s figures are $544 billion and 10 million. Calculating capital per capita shows Slovenia’s ratio as $23,000 per person, and Sweden’s as $54,400 per person, indicating Sweden is more capital-abundant. To become labor-abundant, Slovenia would need to lose enough capital to reduce its capital-per-capita ratio below that of labor, which involves a significant capital reduction.

Regarding the trade of labor-intensive versus capital-intensive goods, since cloth production is labor-intensive relative to computers, the model predicts that the capital-abundant country (Sweden) will export computers, which are capital-intensive, while Slovenia will export cloth. The use of the standard trade model suggests that relative prices determine the pattern of trade; after opening trade, the country specializing in the abundant factor will export the good that intensively uses that resource. The labor employed in the production of computers is likely to increase in the capital-abundant country because trade allows resources to be reallocated efficiently.

The bonus question addresses the potential losses for import-competing sectors after opening trade. Governments can implement policies such as transitional assistance, retraining programs, or export subsidies aimed at sectors negatively impacted by trade liberalization. These measures can help offset some of the income losses, ensuring that the benefits of trade are more widely shared, leading to a net increase in societal wealth. Such policies can mitigate the negative distributional effects, fostering broader political support for trade openness.

In another scenario involving Malaysia and Taiwan, both having similar resources and technology but engaging in trade of cloth and fish, the pre-trade relative prices are determined by domestic supply and demand conditions. The relative price of cloth to fish reflects their relative scarcity and value. Trade triangles graphically depict each country’s production possibilities frontier (PPF) and social indifference curves, illustrating gains from trade. An increase in demand for cloth raises its world price relative to fish, leading Malaysia to specialize increasingly in cloth, shifting its trade triangle outward in the direction of higher prices. If cloth is an inferior good for Malaysia, then as income rises, demand for cloth might decrease, which would alter the trade pattern, potentially narrowing the scope of specialization and affecting the magnitude of gains from trade.

Section C – International Trade Policies & Intra-Industry Trade Model

The impact of tariffs depends on whether the country is small or large relative to the world market. For a small country unable to influence world prices, tariffs increase domestic prices and reduce consumer welfare without affecting global prices directly — typically resulting in deadweight losses. Conversely, a large country can influence world prices; imposing tariffs could lead to retaliations, affecting international relations and possibly reducing trade flows, diminishing gains for both nations.

If the government provides income transfers to consumers of the taxed good, the welfare implications shift. Such transfers can offset the negative impact of higher prices, partially restoring consumer income and possibly increasing overall welfare despite higher consumer prices. However, since the good represents a small share of the consumer budget, the direct effect on welfare may be minimal, though redistribution policies can still play a critical role in social equity considerations.

Regarding automobile industry competition, when fixed costs are $5 million and marginal costs are $17,000, the equilibrium number of firms in a market with price P = 17,000 + (150/n) can be found by setting the entry price equal to the marginal cost plus fixed cost considerations. Without trade, in the U.S., with a market size of 300 million, calculations suggest a specific equilibrium number of firms. Introducing free trade with Europe, adding 533 million consumers, expands the market, leading to more firms and potentially lower prices. The new equilibrium involves adjusting the number of firms to meet the combined demand, with the market price falling as the scale increases, illustrating economies of scale and competitive dynamics in global markets.

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