International Economics - Theory and Policy - Assignment Example

INTERNATIONAL ECONOMICS a). The Grubel-Llyod index measures trade in a particular industry by using the following formula: Where Xi denotes exports of a good i. Mi denotes imports of a good i. Let GL1 represent automotives and GL2 represent Aircraft. GL1= 1- |88.2-228.2| 88.2+228.2 = 0.5575 GL2= 1- |50.3-27.0| 50.3+27.0 = 0.6986 GL= GL1+ GL2 = 1- |138.5-255.2| 138.5+255.2 = 0.7036 The indexes for the individual sectors are less than the total sector. These results show that both the intra-industry trade and inter-industry trade do not exist. By definition, intra-industry trade arises when a country imports and exports related types of goods or services simultaneously. Considering two countries as an example, Germany and France, if Germany exports cars to France and simultaneously imports cars from England, then intra-industry trade occurs. (b). When the US imports the labor-intensive parts and not finished goods and exports the capital-intensive finished cars, then this would be a clear indication of intra-industry trade whereby the country will be acting simultaneously in the imports and exports of the same product. This scenario is similar to that of the example of Germany discussed in part (a) above. The finding that imports are labor intensive means that most individuals won’t be employed in the US as the imported goods come when they are already near finish. Nothing much is done on them. Capital intensive exports on the other hand means that we send a lot of employment opportunities outside of the country hence we create jobs outside and not inside the US. In my view, such a situation due to trade will lead to job displacement. 2. (a). A country is capital-abundant if its endowment of capital is more compared to other …. .According to the Heckscher-Ohlin model, a country is expected to export the goods that use its abundant factors intensively while at the same time importing those goods which use its scarce factors intensively. This is a two-factor case. When US is capital-abundant, it means that it will export the capital-intensive. This means that the price of all capital-intensive goods in capital-abundant country will be bid relative to the price of the commodity in the other country. Good X is labor-intensive because its price in the labor-abundant country will lead to a bid price that is lower relatively to the price of that good in the country. Therefore, a capital-abundant country will export the capital-intensive good because its capital endowment is large compared to other countries, and the labor-abundant country will export the labor-intensive good. From this illustration, US is the capital-intensive country while EA are labor-intensive. US has less workers as compared to EA. This is in line with promoting trade between countries. (b). (c). In Stopper-Samuealson is’s a heory states that a “rise in the comparative price of a good raises the relative price of the factor used intensively in its production. Opening trade between countries will increase the award to the abundant factor and lower the reward of the scarce factor.this theory clarifies one reason for the controversy about free trade (Krugman et al 75). The US is expected to be the loser as this theory advocates that the relative factor endowments ; creating incentives for owners, nothing ever happened to support free trade. The EA on the other hand, are expected to gain since they are labor-intensive. On the other hand, since production of each good involves using different proportions for individual. Changing output combination altrers relative demand for the goods produced in both countries. Trade liberalization of trade leads to more inequality. (d), when there is no free trade and labor can migrate fully, from one country to another. at intra-industry Trade, the simultaneous import and export of goods for trade. Migration of workers is based on whether a country is capital –intensive or capital extensive. If capital intensive then workers will migrate from it to the labor intensive country to rule and not workers moving in the opposite direction. If capital is mobile then the US will be interested in this move and US will lose capital by its employees moving towards the east to meet the job specifications. Evidently in this, the EA will benefit more than U SA as they are more labor-intensive (Krugman et al 75). 3. (a). The US will export the capital-intensive good and import the labor intensive good and so the group of factors of labor and capital are needed in the growth of the company. b. (i). In this case when both capital and labor are immobile there will be no winner. (ii). When labor is mobile and capital is specific then the labor-intensive country will win as it shall be able to trade with its labor-intensive products. (iii). On the other hand if labor is immobile and capital is mobile the in free trade, the labor-intensive country will benefit from this trade. Therefore, in both cases, accepting the free trade will really help in aligning the balance of trade with the current economic issues. c. When the products are differentiated it is sometimes difficult to arrive at equilibrium. In this case when the automobiles and airplanes are differentiated, then with a monopolistically competitive industry the long profits shall equal zero (Krugman et al 75). The implications of this model lie at the heart of the controversy of managed trade and industrial policy. Review of an art explanation, there is a content to Establish is English-language within my problem. 4. (a). In determining their safe place of stay, in this scenario there are free trades in the house. In determining the CEO if the house, it is normal to deviate from the normal. However, the main issue is that there is a change in price to the triangle. CS= ? Base X Height For the case of a PS, we need to find out the difference between the various supply covers that define the price of the commodity. (b). The imposition of a ‘safeguard’ tariffs by the US government, the effect will be felt across all of the sections including the government, consumers and producers. (i). In this analysis I would focus on the effects of the said tariffs on trade in America. (c). If US were a big corporation in the steel industry, then it will generally lead to the expansion of the trade market. This expansion will enhance constant growth financially and economically hence helping driving the economy during hard political and economical times. (d). If both the workers and capitalists supported this safeguard policy, then it would mean that according to the Heckscher-Ohlin model, a two-factor form of trade is formed. This will allow for free movement of goods across the country’s boarders in relation to trading with their capital or land-intensive products. (e). The welfare effects are totally different from the safeguard policy an in this context welfare policy produces more results than the previous one. (f). Imposition of a tariff rate quota will definitely hinder importation of the goods that the country lacks from the other neighboring countries. This will imply that the prices of the said goods will go up hence making it out of the reach of many people. If this happens then the trade system of the country needs to be charged so as to reflect the roles played by different sectors in promoting trade in the economy (Krugman et al 75). If the imports quota are more or less than the welfare quota, then ultimately a cause for alarm must be raised to deliver on this matter. A country should be able to trade with its partners always and if that trade is to restricted in any way by thing such as quotas, then the country should take corrective measures. (g). several changes have led to the US government choosing tariffs over VRAs in 2001. One reason is that tariffs are easy to administer than VRAs. Tariffs also lack much of multi-lateral trade issues as compared to the VRAs. Work cited Krugman, Paul R., and Maurice Obstfeld. International economics: theory and policy. 6th ed. Boston: Addison Wesley, 2003. Print. Read More