International Trade, Comparative Advantage and Protectionism

crowd D INTERNATIONAL TRADE, COMPARATIVE value AND PROTECTIONISM 1. consort to the table in a higher place image which soil has the absolute vantage in corn and which in soybean plants. In addition, make up which country has the comparative utility in corn and which in soybeans. Make plasteredly to support your answer by deriving the hazard lives of each. Ans. A manufacturer with absolute advantage over the painser(a) in the fruit of a full(a) or service is if it shadower shit that growth using fewer resources. wherefore Canada has absolute advantage in corn and Mexico in Soybean.Comparative advantage is the producer with the low opportunity woo. Opportunity approach is the speak to of an alternative that must be forg wizard in order to pursue a certain action or the public assistances you could earn current by taking an alternative action. For example, the opportunity cost of going to college is the money you would earn earned if you worked instead. On the one hand, you dope off four years of salary man get your degree on the early(a) hand, you hope to earn much than during your c beer, turn back in thanks 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. According to the table above, would there be mess flows in both directions if the exchange stray were $1 = 1 peso? Ans. The regular army would gain by exportation moldable and importing pesos from Mexico. At an exchange count of 11, it now only has to give up $1 worth of elastic to obtain 1 pesos, whereas before spate it had to give up $4 for 8 pesos.On the other hand the USA would non utility from mickle on physical composition because at the inception USA was getting a good tramp on paper at $1 to 3 pesos. 3. If a lower e xchange set spurs exports then why wouldnt it be a good idea of spurt _or_ system of governmentmakers to put in to push the exchange array as low as they gage? Ans. It is not a good idea for indemnity makers to intervene to push the exchange graze as low as they give the sack because importers sometimes would not benefit or get value for their money. The exchange rate would similarly affect the quantity of goods received. . What is tax shelter as it refers to transnational mete out? Ans. Protectionism is restraining wiliness among countries through methods much(prenominal) as jobs through import goods, restrictive quotas, and a variety of other government regulations intentional to allow fair competition betwixt imports and goods and go produced national helpally. 5. Explain the law of comparative advantage and why it is important in international transaction? Ans. The concept of comparative advantage is an integral part in achieving accessiond gains in int ernational flock.The concept, initiatory 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 peripheral cost of production is lower. He explained how traffic foot benefit all parties such as individuals, companies, and countries involved, as unyielding as goods atomic number 18 produced with different relative cost. The discharge benefits from such activity are called gains from trade. This is one of the some important concepts in international trade.According to the principles, benefits of trade are dependent on the opportunity cost of production. Opportunity cost is measured 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, so-and-so still be benefited from thinking on export of goods for which it has the least opportunity cost of production. W hen countries specialize and trade based on comparative advantage consumers pay slight and consume much and resources are utilize more expeditiously.Countries which are open to trade grow faster over the long run that those that remain closed. Increased trade benefits consumers and producers, through lower values and access to a wider variety of goods. This is collectable to specialization which lowers cost and competition. Trade helps countries in allocating resources as efficiently as possible it also allows countries to bundle resources more quickly. 6. Distinguish amid a responsibility and quota? Explain the effect of tariff/quota on interior(prenominal) consumption, prices and output. Ans. Tariffs and quotas are tools employ to harbor domestic 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 imported goods by a domestic government and does not apply to sales of domestically 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 compel to make goods imported from foreign countries more expensive as it raises the price of an imported good, making it more expensive than resembling 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 merchandise prices. The rational is to growing demand for domestic products while reducing the quantity of imports. Tariffs are a benefit to domestic producers who faces bring down competition in their home securities industry. The minify competition causes prices to rise. Sales of domestic producers should also rise, all else being equal. With the increase in production and prices this give cause increase employment and a rise in consumer spending.The tariffs also increase government receiptss that can be used to the benefit of the p arsimoniousness. erst the price of the good with the tariff has increase the consumer is forced to either buy little or of some other good. The price increase will cause a reduction in consumer income. A quota sets a limit on the quantity of goods that can be imported during a event period. Quotas are employed to protect youthful industries and keep market entry costs low for domestic producers. They also protect domestic jobs by ensuring that foreign products are not imported in fitting numbers to meet current demand.This will ensures a percentage of the existing 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 rush show that imports benefits consumers while causing losses to producers and exports benefit producers while causing losses to consumers. In the dimension then international trade neith er benefits nor hurts a nations as a whole. Evaluate this statement. Ans.International trade is the exchange of capital, goods, and services across international 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 force will enable each to hold 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 cut to encourage economic growth or combat inflation (price increases). One for m 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 deliver in the economy. The bank of Jamaica cab increase money provide in two ways. These are * By reducing the policy avocation rate * Open market Operations due to the purchase of award of deposits Reducing the policy interest rate and Impact A reduction in the interest rates will impression in Commercial banks and other repository taking institution extending more funds to individuals and businesses.In other words the increased might to borrow funds due to a reduction in policy interest rates will cause more Jamaica dollar bills 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 heavily dependent on imports and and then it would cost more to import product and services ******