(a) Assume a simple world with only two countries, country C and F, and two products, steel and aluminium. The maximum a

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A Assume A Simple World With Only Two Countries Country C And F And Two Products Steel And Aluminium The Maximum A 1 (50.54 KiB) Viewed 34 times

A Assume A Simple World With Only Two Countries Country C And F And Two Products Steel And Aluminium The Maximum A 2 (56.69 KiB) Viewed 34 times

(a) Assume a simple world with only two countries, country C and F, and two products, steel and aluminium. The maximum amount of steel and aluminium that country C and country F can produce if they fully use all the factor of production at their disposal with the best technology available to them is shown as below: Steel Aluminium Country C 1,500 6,000 Country F 1,000 5,000 (i) Explain the absolute and comparative advantages of country C and country F with a diagram. Locate aluminium on the horizontal axis and steel on the vertical axis. (5 marks) (ii) Assume country C's currency depreciates. How this depreciation affects country F's trade balance in short run. How about long run? (5 marks)

(b) The figure below shows a country's domestic demand and supply. Price (f) 50 40 20 30 80 115 160 230 Supply Demand Quantity (units) The price without international trade is £50, the world price with tariff is £40, and the world price without tariff is £20. (i) Calculate: The value of total import without tariff The value of total import with tariff The value of total tariff collected by government The value of total loss in surplus after tariff (i) An increase in domestic interest rate (ii) A lower domestic inflation than abroad (6 marks) (ii) Do you agree with the argument that "a nation that imposes tariff on imported goods improve its welfare"? Explain your answer. (4 marks) (c) Discuss how the below event affects a free foreign exchange market, in the direction of appreciation or depreciation. (iii) A higher domestic economic growth rate than abroad Relative investment prospects improving abroad (iv) (v) Belief by speculators that the exchange rate will appreciates (5 marks)