Question

please answer this question in brief with graphs.

2a. In two paragraphs, describe the sources of the gains from trade and why countries use import tariffs.

2b In two paragraphs, describe how the COVID-19 pandemic has impacted the global macro economy and multiple ways it has impacted a specific agricultural commodity market (e.g. corn, beef, wheat).

Answer 1

2a. A country can strategically gain a lot from the trade. Increased competition is one of the examples of sources of the gains from trade. As the competition increases as now even foreign firms sell their products in the domestic market, the local producers try to be innovative and increase the quality of the product so that they don't lose out in the competition. Economies of scale is another source of gain. Often, international trade increases the efficiency of the resources utilised by letting some firms leverage their economies of scale as they increase their production and eventually lower their cost of production. Differences in cost ratio are yet another source of gain. More the difference between the exchange rate and cost of production more will be the gains from trade. Finally, factor availability is another source of gain. Any country specialises on the basis of the availability of factors of production. If the domestic cost ratios are higher, the country will gain from trade.

Import Tariffs are generally used by countries to save their infant industries and domestic production. If domestic production falls, unemployment will also increase. Countries even impose import tariffs in order to retaliate to the trading country if it has not abided by certain trade rules. It is also sometimes used by countries in order to reduce the BOP deficit. Generally, import tariffs are imposed in order to safeguard a nation's self-interest.

2b. COVID-19 which has now become a pandemic has adversely impacted the global economy. Borders are closed, movement of goods and services has been seized and even tourism has come to a halt. The hospitality and aviation industry are the worst affected by this crisis. The supply chain isn't working anymore and many people across the world do not have access to basic resources. Most economies have been shut down because of the novel virus and thus, no production is taking place. The global economy which was supposed to grow by 2.5% earlier, as mentioned by the UN may now contract by 1% if appropriate fiscal measures are not taken by countries across the world. This crisis has already become worse than the 2008-09 global economic crisis.

The major issue with agricultural production is that it cannot stop. The seeds were sown months ago and now the crops are ready to be harvested. But since most economies are shut down and the global supply chain has almost broken, it is very difficult to transport the agricultural produce to the markets. Thus, most agricultural produce across the world are either decomposing at fields or are decaying in godowns. Poultry farms are also facing the same problem. Another major issue with agriculture is that most agricultural produce - be it plant-based or poultry-based are perishables and perish quickly. Thus, it is also difficult for farmers to store them for long. They are hardly earning any revenues from the produce and their storage costs are also increasing.

Please give this answer a thumbs up if you like it! :)