International Trade, Comparative Advantage and Protectionism

Group D INTERNATIONAL TRADE, COMPARATIVE emolument AND PROTECTIONISM 1. According to the table above determine which landed estate has the absolute wages in corn and which in soybeans. In addition, determine which country has the proportional advantage in corn and which in soybeans. Make sure to patronize your answer by deriving the opportunity make ups of each. Ans. A producer with absolute advantage over the otherwise in the production of a good or service is if it can produce that product utilize fewer resources. Therefore Canada has absolute advantage in Corn and Mexico in Soybean.Comparative advantage is the producer with the lowest opportunity greet. Opportunity expenditure is thecost of an alternative that must be forg atomic number 53 in order to pursue a certain action or the realises you could consent received by winning an alternative action. For example, the opportunity cost of going to college is the money you would reach realise if you worked instead. On the one hand, you lose four years of salary bandage acquire your degree on the other hand, you hope to earn much during your c atomic number 18er, 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 vocation flows in some(prenominal) directions if the reciprocation account were $1 = 1 peso? Ans. The USA would unclutter by exportationplastic and importationing pesos from Mexico. At an exchange estimate of 11, it now only has to give up $1 worth of plastic to obtain 1 pesos, whereas before condescension it had to give up $4 for 8 pesos.On the other hand the USA would non get from deal on paper because at the inception USA was getting a good rate on paper at $1 to 3 pesos. 3. If a lo wer exchange rate spurs exports then wherefore wouldnt it be a good idea of insurance policymakers to intervene to concern the exchange rate as low as they can? Ans. It is not a good idea for policy makers to intervene to push the exchange rate as low as they can because importers sometimes would not derive or get value for their money. The exchange rate would as well affect the beat of goods received. . What is cheerion as it refers to worldwide trade? Ans. Protectionism is restraining trade surrounded by countries through methods such as dutys through trade goods, repressive quotas, and a variety of other government regulations designed to allow modal(a) contention between imports and goods and run produced house servantally. 5. Explain the law of comparative advantage and why it is important in international trade? Ans. The concept of comparative advantage is an integral disassociate in achieving increased gains in international trade.The concept, first introduced b y 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 longsighted as goods are produced with different relative costs. The net benefits from such legal action 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 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, can soundless be benefited from focusing on export of goods for which it has the least opportunity cost of production. When countries specialize and trade based on comparative advantage consumers profi t less and consume much and resources are apply more efficiently.Countries which are open to trade grow faster over the long run for that those that remain closed. Increased trade benefits consumers and producers, through lower prices 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 in addition allows countries to accumulate resources more quickly. 6. realise between a tariff and quota? Explain the effect of tariff/quota on domestic consumption, prices and output. Ans. Tariffs and quotas are tools implemented to protect 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 curb 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 not e that tariff is imposed 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 market prices. The rational is to increase occupy 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 go up. Sales of domestic producers should also rise, all else being equal. With the increase in production and prices this will cause increase employment and a rise in consumer spending.The tariffs also increase government revenues that can be used to the benefit of the preservation. at a time the price of the good with the tariff has increased the consumer is obligate to either buy less or of some other good. The price increase will cause a decrement in consumer income. 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 prolong market entry costs low for domestic producers. They also protect domestic jobs by ensuring that foreign products are not imported in sufficient numbers to meet current demand.This will ensures a fortune 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 baffle demonstrated that imports benefits consumers while cause losses to producers and exports benefit producers while causing losses to consumers. In the balance then international trade uncomplete benefits nor hurts a nations as a whole. Evaluate this statement. Ans.International trade is the exchange o f 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 efficiency will enable each to experience gains from trade. . If the Bank of Jamaica utterly 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 depict to encourage economic crop or combat inflation (price increases). One form of expansionary policy is financial policy, which comes in the form of tax cuts, rebates and incr eased 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 two ways. These are * By reducing the policy interest rate * Open Market Operations due to the purchase of certificate of deposits trim down the policy interest rate and Impact A reduction in the interest rates will depart in Commercial banks and other Deposit taking institution extending more funds to individuals and businesses.In other terminology 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 heavily dependent on imports and therefore it would cost more to import product and services ******