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ECO304: International Trade

Tutorial 7

SECTION A

Indicate whether the statement is true or false and give an explanation for your answer. Answer all questions.

A1. A country will be able to consume a combination of goods that is not attainable solely from domestic production if the world terms of trade differ from its domestic relative costs. True or False? Explain.

A2. Suppose that a country experiences growth strongly biased toward its export, this will tend to improve the country's terms of trade. True or False? Explain.

A3. If Country A is a large country in world trade, then if it imposes a large set of tariffs on many of its imports, this will improve its terms of trade. and decrease the internal price of  imports below the world market rate. True or False? Explain.

A4. If you observe that Country A was traditionally a net foreign lender, you can conclude that relative to its international trade and financial partners, Country A's intertemporal       production possibilities are biased toward future consumption. True or False? Explain and draw the figure.

SECTION B

Please give a short answer. Answer all questions.

B1. In some economies, relative supply may be unresponsive to changes in prices. For             example, if factors of production were completely immobile between sectors, the production   possibility frontier would be right-angled, and the output of the two goods would not depend  on their relative prices. What will happen to the country’s welfare if there is a rise in the terms of trade? Analyze graphically.

B2. Describe the nature of trade between two countries based on intertemporal comparative advantage.