Reference no: EM133163315

Business in globalised Economy

SECTION A

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

QUESTION A.1
If a country closes off to trade and prices remain unchanged, what does that mean?
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.

QUESTION A.2
If a country closes off to trade and 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.

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.

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.

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.

SECTION B

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 Cote 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?

QUESTION B.2
Ghana's parliament is debating how to undertake 151. 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).

QUESTION B.3
Marcia Anthony, the Trade Minister, argues that the country should not adopt ISI. She asks you to help her explain the benefits of trade with a diagram. Please draw this diagram and explain its intuition.

QUESTION B.4
The Minister for Labour, John Ring, argues that closing the country's borders to international trade will create employment. Use a diagram to explain this scenario.

QUESTION B.5
Kelly Stuart, an RMIT-trained economist at the Ministry of Labour argues that the policy change will ultimately hurt consumers. Use a diagram to explain her thinking.