Trade

Question 1

state the principle of comparative advantage

Answer 1

If each country specialize in producing the good in which the country has a lower opportunity cost the total world output will increase

Question 2

two countries have a different output of watches, with each country using the same amount of resources in their production.
why?

Answer 2

different quality of factor input
different education and training
different degree of technological advancement
different degree of division of labour
different working environment
different welfare and incentives

(factors relating to labour productivity)

Question 3

when tourist form other countries buy souvenirs in the US which was made in Hong Kong
how will this affect the US balance of payment

Answer 3

souvenirs bought form HK --A
current account(visible trade) is unfavorably affected

souvenirs bought by tourist --B
current account(invisible trade) is favorably affected

A effect < B effect (there is value-added)
its then favourable to US balance of payment

Question 4

why the imported value of garments still increased with the quota restriction

Answer 4

There was quality improvement in garments
After imposing the import quota restriction, the US imported more higher priced Hong Kong-made garments, replacing those lower-priced garments

or inelastic demand

Question 5

why import quota will increase the quality of import

Answer 5

quota only limit the amount of exports while exports of better quality can be sold at higher prices for higher profit