International Trade, Comparative Advantage and Protectionism

Group D INTERNATIONAL TRADE, COMPARATIVE ADVANTAGE AND PROTECTIONISM 1. agree to the table above determine which rural has the overbearing favour in corn and which in soybeans. In addition, determine which surface bea has the comparative degree utility in corn and which in soybeans. Make sure to support your suffice by deriving the opportunity costs of each. Ans. A producer with absolute return over the other in the exertion of a reliable or service is if it so-and-so produce that harvest-feast using fewer resources. Therefore Canada has absolute advantage in Corn and Mexico in Soybean.Comparative advantage is the producer with the lowest opportunity cost. Opportunity cost is thecost of an secondary that must be forgone in order to pursue a sure action or the proceedss you could have received by taking an alternate action. For example, the opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four yea rs of salary while acquiring your degree on the other hand, you hope to earn more during your c arer, convey to your education,to offset the lost wages. Canada O/C for corn 8/2 = 4 soybeansCanada O/C for Soybean8/2 = 0. 25 Corns Mexico O/C for corn2/10 = 0. 2 Soybeans Mexico O/C for Soybean10/2 = 5 Corns Canada has comparative advantage in soybean and Mexico has comparative advantage in corn. 2. correspond to the table above, would thither be address flows in both(prenominal) directions if the commuting rate were $1 = 1 peso? Ans. The USA would gain by exporting flexible and importing pesos from Mexico. At an permutation rate of 11, it now only has to give up $1 worth of plastic to obtain 1 pesos, whereas before trade it had to give up $4 for 8 pesos.On the other hand the USA would non attain from trade on paper because at the inception USA was getting a levelheaded rate on paper at $1 to 3 pesos. 3. If a lower modify rate spurs exports then why wouldnt it be a good idea of indemnitymakers to intervene to push the exchange rate as low as they can? Ans. It is not a good idea for constitution makers to intervene to push the exchange rate as low as they can because importers sometimes would not benefit or get value for their money. The exchange rate would also profess the quantity of goods received. . What is protection as it refers to international trade? Ans. Protectionism is restraining trade amidst countries through methods such as responsibilitys through import goods, restrictive quotas, and a assortment of other disposal regulations designed to allow fair emulation mingled with imports and goods and services produced municipalally. 5. Explain the law of comparative advantage and why it is master(prenominal) in international trade? Ans. The concept of comparative advantage is an integral part in achieving incrementd gains in international trade.The concept, commencement ceremony introduced by David Ricardo in 1817 states comparative advantage exist when a country has a margin of superiority in the production of a good or service, where the marginal cost of production is lower. He explained how trade can benefit all parties such as individuals, companies, and countries involved, as long as goods are produced with different relative costs. The net benefits from such activity are called gains from trade. This is one of the most important concepts in international trade.According to the principles, benefits of trade are dependent on the opportunity cost of production. Opportunity cost is mensural in terms of what you give up of another other. A country with no absolute advantage in any product, i. e. the country is not the most competent producer for any goods, can still be benefited from focusing on export of goods for which it has the least opportunity cost of production. When countries tell and trade based on comparative advantage consumers pay less(prenominal) and consume more and resources are used more ef ficiently.Countries which are founder to trade grow faster over the long run that those that proceed closed. Increased trade benefits consumers and producers, through lower hurts and access to a wider variety of goods. This is due to specialization which lowers cost and competition. Trade helps countries in allocating resources as efficiently as possible it also allows countries to accumulate resources more quickly. 6. Distinguish between a tariff and quota? Explain the effect of tariff/quota on house servant consumption, prices and output. Ans. Tariffs and quotas are tools implemented to protect municipal industries.To distinguish between both we need to explain what a tariff and a quota is. A tariff is a tax or duty placed on merchandise goods by a house servant government and does not apply to gross sales of domesticatedally produced goods and a quota is a limit on the quantity of imported products. Base on the explanations above we can note that tariff is oblige to make goods imported from foreign countries more expensive as it raises the price of an imported good, making it more expensive than similar domestic goods which protects domestic producers from dumping by foreign countries.As outlines on businessdictionary. com dumping is exporting goods at prices lower than the home mart prices. The rational is to increase demand for domestic products while reducing the quantity of imports. Tariffs are a benefit to domestic producers who faces reduced competition in their home market. The reduced competition causes prices to rise. gross revenue of domestic producers should also rise, all else being equal. With the increase in production and prices this go forth cause increase employment and a rise in consumer spending.The tariffs also increase government revenues that can be used to the benefit of the economy. Once the price of the good with the tariff has increase the consumer is forced to either buy less or of some other good. The price increase wil l cause a reduction in consumer in make out. A quota sets a limit on the quantity of goods that can be imported during a particular period. Quotas are employed to protect new industries and keep market entry costs low for domestic producers. They also protect domestic jobs by ensuring that foreign products are not imported in competent numbers to meet current demand.This will ensures a percentage of the subsisting market share is retained by domestic companies. Once there is an increase in imports quotas are more protective than tariffs. Quotas benefit the government by protecting domestic corporations to keep people employed. 7. Economists have present that imports benefits consumers while causing losings to producers and exports benefit producers while causing losses to consumers. In the balance then international trade neither benefits nor hurts a nations as a whole. Evaluate this statement. Ans.International trade is the exchange of capital, goods, and services across inter national borders territories. The international trade accounts for a good part of a countrys gross domestic product. It is also one of important sources of revenue for a developing country. The trade which exists between countries consists of buying goods that are produced at a lower cost elsewhere. Individual and countries have different abilities in producing their goods taking the advantage of these differences in order to have capacity will enable each to experience gains from trade. . If the Bank of Jamaica suddenly switches to a more expansionary policy, explain the effects it will have on the exchange rate and balance of payments of Jamaica. According to investopedia (2012),an expansionary policy is a macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflation (price increases). One form of expansionary policy is fiscal policy, which comes in the form of tax cuts, rebates and increased government spending.Expansionary policies can also come from central banks, which focus on increasing the money supply in the economy. The bank of Jamaica cab increase money supply in both ways. These are * By reducing the policy vex rate * clear-cut Market Operations due to the purchase of certificate of deposits Reducing the policy interest rate and Impact A reduction in the interest rates will result in Commercial banks and other bewilder taking institution extending more funds to individuals and businesses.In other words the increased ability to borrow funds due to a reduction in policy interest rates will cause more Jamaica dollars to be in circulation. The excess supply of money will result in pressure on the Jamaican dollar resulting in a depreciation of the Jamaican dollar. The pressure that is exerted on the Jamaica dollar due to an expansionary policy will cause a widening of the balance of payment deficit. The Jamaica economy is intemperately dependent on imports and therefore it would cost more to import pr oduct and services ******