Question

question 5 and 6

Data on county A and Country B are as follows:

Country A: Exports (600), Imports (700), GDP (1500).

Country B: Exports (900), Imports (1200), GDP (3000).

Based on the data above, we can conclude that:

		Country A is more open than Country B.
		Country B is more open than Country A.
		None of the two countries can benefit from international trade since the sum of their exports and imports is less than the value of their GDP.
		Both countries are equally open.

6

International trade forces domestic firms to become more competitive in terms of:

		The introduction of new products
		Product design and quality
		Product price
		All of the above

Answer 1

5. In order to calculate the openness to trade, we will add export and import of both countries and then divide this sum by the country's GDP. The higher the ratio comes out, the more the economy/country is to trade.

For Country A- OPENNESS TO TRADE = (Export + Import)/GDP = (600 + 700)/1500 = 1300/1500 = 0.867

For Country B- OPENNESS TO TRADE = (Export + Import)/GDP = (900 + 1200)/3000 = 2100/3000 = 0.7

Thus, we can see that country A is more open to trade than country B. Option A is correct.

6. International trade leads to increased competitiveness of domestic terms. This competitiveness appears in the form of introduction of new products or innovation, reduction of prices to competitive levels, improvement in quality/design of products. Basically, international trade benefits the consumers even in the domestic economy with increased choices, lower prices and improved quality of products. Thus, option D is correct.