Question

1. Consider a country that is an exporter. What is the condition required for a country to be an exporter and why? If a country is an exporter can the government impose a tariff and if so will it be effective in changing consumption or production methods?

2. We've come to know the model of GDP as Y= C + I + G + [X-M]. Discuss what each of these variables means and give an example of something that would be classified in one of these variables

3.Consider a market of supply and demand in equilibrium. Let's say this is the market for sweaters. Now consider what happens to the demand curve if there is sudden news that these sweaters are made of a fiber that causes everyone who wears it to get a rash. Would this cause there to be a movement along our demand curve for sweaters or would this cause a shift in the curve? If a shift happens is it a rightward or leftward shift? What does that mean about demand for the good overall?

4.We have learned that in a market showing supply and demand there is a natural market equilibrium but sometimes this equilibrium does not always reflect what is going on in the marketplace. If for example the market price is above the equilibrium there is excess supply and if the market price is below the equilibrium there is excess demand. Choose one of the above (excess supply or demand) and discuss in detail how competition eliminates the excess. What price does the good end up settling at? This question of course assumes there is no government intervention.

Answer 1

1.International trade refers to the exchange of goods and services across international borders.

To be an exporter :

• A country has to produce goods and services that is needed worldwide.
• The cost of product in international market should be comparitively less that the cost of production in domestic market.
• International relations between two countries.
• Geographical location of trading countries.

Free market economy is ideal but not real. A tariff is a tax imposed on imports or exports between soveign states.

Often the Government of a country imposes tariff on imports from other nations to protect it's domestic market or because of some political conflicts. Eg. In 2019 US imposed 15% tariffs on $112 billion on Chinese products.

Tariff introduction provides protection to domestic manufacturers, they don't face threat or competition from foreign exports. Their production capacity increases, sometimes also leads to inflation and complete monopoly of domestic suppliers, conumers being at the receving end start to consume less, spend less to buy products at an inflated price. Historical evidences shows that tariff raises prices and reduces available quantities of goods and services for U.S buisnesses and consumers which result in lower income, reduced employment and lower economic growth.

Eg. India's economy could grew only after 1991 LPG ( Liberalisation, Privatisation and Globalisation) reforms.

2. Gross Domestic Product(GDP), total market value of goods and services produced by a country's economy during a specified period of time. It is used throughout the worls as the main measure of output and economic activity.

GDP = C+I+G+[X-M]

where C = Consumer spending on durable goods( items with a lifespan greater than three years eg. television, laptop etc) and non-durable goods(food and clothing) and services.

I = Investment

G = Government spending

X = exports

M = imports

3. Demand curve shows the relation between product price(on vertical axis) and quantity of products demanded( on horizontal axis)

When people gets news about the sweaters causing rashes , the demand for it would reduce and we could see a leftward shift in demand curve which takes place when demand for goods decreases.

4.On one hand monopolies eliminates consumer's right of choice and on other hand competition eliminates excess of demand or supply.

In a monopoly firms produces as per their wish, supply side deficit, excess demand from consumer side and this causes inflation. Whereas when there is cometition there is no supply side deficit, company's could produce as per demand and continuously try to improve their product, even if one firm fails to fulfill consumer demand there are always others to fulfill this supply side gap thus eliminating excess demand and controlling inflation.