Topic: International Economics Name Professor Institution Course Date Conditions necessary for the occurrence of intra industry trade Intra industry trade is defined as the international trade that involves the import and export of goods from a common industry…
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29). For instance, Germany is considered to have a comparative advantage in the production of cars in the sense that its cars are considered to be of the highest quality in the market. This creates the opportunity for the substitution of products that have the same factor intensity. The other condition for the occurrence of intra-industry trade is that the production processes of particular products should have fixed costs. This is to ensure that an increase in the production processes is advantageous in the sense that there will be a decrease in the unit costs of the product. This condition is beneficial to both producers and consumers. Producers will be able to reduce the cost of production as they engage in mass production. They will enjoy economies of scale in times of low costs of production. Consumers on the other hand will pay less as more cars are being produced because low costs will be transferred to them. For instance, the more units Mercedes produces, the lower the unit cost of production. Possible welfare gains of intra industry trade There are two conditions that determine the occurrence of intra-industry trade and they include comparative advantage and economies of scale. ...
German citizens are able to get jobs hence improve their living standards. An economy also records an increase in the number of exports and this translates to higher revenue collection. The revenue collected is used in funding projects across the economy and the country is able to improve on its social infrastructure such as hospitals and schools. Increase in imports also reflects that the economy is recording growth in its GDP which eventually translates to higher per capita income. Citizens will be able to meet their basic wants because of the improvement in their income. Economies of scale also have the advantage of improving the social welfare of citizens in the sense that the growth of the industry will stimulate infrastructure development that will be utilized by both producers and the residents (Helpman & Krugman, 2009, p. 100). The other possible welfare gain of intra-industry trade is the provision of quality services because there is specialization in the production processes. Comparative advantages lead to the specialization of industries and this improves the productivity of such industries. Countries are able to access a wider market that makes it easy for consumers have access to quality services and goods that are of high quality from specialized countries. Criteria used to define an optimum currency area. The general definition of an optimum currency area is that it relates to a geographical area where the use of a common currency would create the greatest economic benefit. The theory is closely related to Robert Mundell whose works have made numerous contributions to issues of currency. There are a number of criteria used in defining an optimum currency
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(International Economics Eurozone Essay Example | Topics and Well Written Essays - 1000 Words)
“International Economics Eurozone Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1398225-international-economics.
Seven of these ten countries would join once they are able to meet the strict guidelines of Eurozone. Rest of the three countries, including the United Kingdom, have an opt-out exception and will not join the Eurozone until the government takes a decision through a political referendum.
This is recognized to be the initial influence for the European Union (EU). After years of evolvement, European Union was formed under its present name in 1993 by the Maastricht Treaty. With a current membership of 27 countries, the EU functions via a hybrid system of supranational self-governing institutions(Albi,2005) and international decisions negotiated by the member states.
Eurozone. Eurozone or Euro area is the name given to the economic and monetary union of seventeen countries from Europe. Their membership represents the fact that they have chosen to use euro as their sole currency for all purposes. These countries include “Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain” (Lynn, pp.
t of the European Union (EU). Further, to make certain of the proper operations related to the European Monetary Union, the involved countries settled on the Stability and Growth Pact (SGP) (Exenberger, 2004). The countries regarded as the members of the EU came together to share a common Economic and Monetary Union (EMU).
Should Greece leave the European Union, or the Eurozone? The concept of a unified Europe goes a long way in the 9th century when the Frankish emperor Charlemagne dominated over a major area of Europe. In the 19th century, the French leader Napolean Bonaparte tried to capture many regions of Europe.
The euro is a single currency arrangement that came into theoretical operation between 12 members of the European Union in January 1999 (What are the arguments 2002). Two months after the euro was introduced as a cash currency on 1 January 2002, the euro has finally become the only legal tender currency in the 12 European countries (Schifferes 2002).
In free trade, there is no tariff, factor movement and policy harmonization. Without any import duty or any other tax, trading is undertaken. In case of Economic union, there is a presence of everything:
While absolute advantage gives a nation an almost monopoly power over certain goods and services, comparative advantage ensures quality goods readily affordable at low price. According to Ricardo, economic
anaged by the European Central Bank based in Frankfurt Germany and the Euro system which comprises of the Central National Banks of the countries within the Eurozone. The adoption of the Euro brought advantages as well as disadvantages to the countries in the Eurozone; this
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