Benefits and Cost of Trade

What are possible benefits of trade?

• Increase material SOL (Consume beyond PPC)

• engine of growth

• Wider product variety

• Increased foreign competition

Answer explanation

Increase foreign competition (by itself) is still vague. How do you think this factor could be beneficial to consumers of the importing country?

Why would countries having CA in land & labour intensive products aim to produce more income-elastic goods?

• YED<1 --> means when Y increase, DD increase --> higher X revenue

• YED>1 --> means when Y increase, DD increase --> higher X revenue

• YED<1 --> means when Y decrease, DD decrease --> lower X revenue

• 0<YED<1 --> means when Y increase, DD increase --> higher X revenue

Trade allows firms in increase their scale of production and hence reap internal EOS. This cost LRAS to shift rightwards.

• True

• False

Answer explanation

Correct answer should be SRAS instead of LRAS

The following are possible cost of trade (more than 1 ans).

• structural unemployment

• worsening income gap

• unfair trade practices

• increase in BOT

Dumping refers to the situation where an imported good is sold below its (a)   cost of production

Using one example, explain one reason why trade is costly to an economy.