Reference no: EM131365718

Assignment

1. PPF

Dynamic comparative advantage means that a country does not have to depend only on its natural resources or the skills that the labour force already has. Governments often take action to develop comparative advantage. This doesn't always work. A notable case was in Scotland were there was an attempt to develop a region of specialisation in high tech electronics - it was referred to as "Silicon Glen" .

In 2003 it contributed one-seventh of Scotland's gross domestic product, directly employed 45,000 workers and accounted for more than half the country's exports.

Not so any more. Most of the big companies (like Motorola) set up in Scotland to take advantage of government support (low taxers and subsidies) and left when these supports were removed. Most of the jobs have gone in this sector.

a) Sketch PPFs for Scotland's economy showing the situation before and after the collapse of Silicon Glen. Explain your PPF. Remember that you need two goods for the PPF - you could have ‘high tech electronics' and ‘other goods'.

b) What has happened to the opportunity cost of high tech goods after the collapse of Silicon Glen? Explain.

c) Explain (in terms of opportunity costs and the gains from trade) why our economic model of the PPF would say that this is a good thing.

d) What should happen to the people who have lost their jobs and why might some government intervention be justified?

e) The Port of Prince Rupert in B.C. can transport goods from Asia to the Mid- West USA at lower cost than ports in the West of the USA. What does our model say about where goods should be shipped to and why?Why did U.S ports want to put a tax on goods that go to the US from Prince Rupert?

2. Gains from trade

a)

Country A	Country B
5m cars	10m cars
3m tonnes fruit	1m tonnes fruit

According to theory, prove that there is a basis for trade. What should that trade be?

b) Put this information into PPFs and show the gains from trade.

c) The Canada-U.S.A softwood lumber dispute is one of the largest and most enduring trade disputes between both nations. This conflict was given rise in the early 1980s and its effects are still seen today. British Columbia, the major Canadian exporter of softwoodlumber to the United States, was most affected, reporting losses of 9,494 direct and indirect jobs between 2004 and 2009.[2]

The heart of the dispute is the claim that the Canadian lumber industry is unfairly subsidized by federal and provincial governments, as most timber in Canada is owned by the provincial governments. The prices charged to harvest the timber (stumpage fee) are set administratively, rather than through the competitive marketplace, the norm in the United States. In the United States, softwood lumber lots are privately owned, and the owners form an effective political lobby. The United States claims that the Canadian arrangement constitutes an unfair subsidy, and is thus subject to U.S. trade remedy laws, where foreign trade benefiting from subsidies can be subject to a countervailing duty tariff, to offset the subsidy and bring the price of the commodity back up to market rates

https://en.wikipedia.org/wiki/Canada%E2%80%93United_States_softwood_lumber_dispute

i) Why is the USA claiming that there isn't free trade with Canada for lumber?

ii) If there were free trade in lumber, what would be the gains and losses for Canada and the US?

3. GDP

a) Briefly explain why the income approach and the expenditure approach to measuring GDP give the same result.

b) Use the table to find the nominal GDP and real GDP in 2015. Show your calculations and explain the method that you have used.

Item	Quantity (billion) 2004	Quantity (billion) 2015	Price ($) 2004	Price ($) 2015
C	320	318	180	183
G	15	17	20	18
X	0.6	0.6	126	125
M	1.2	0.9	97	98

 

c) Calculate the GDP deflator for 2015 and say what it tells us.

d) If we were comparing GDP between Canada and China why might we use per capita GDP? What useful information does this give us?

e) What is household production? Give an example and if it were counted in the expenditure approach, where would it be included?