Establishment of the Euro as a single currency Question Answer 2022

EXAM QUESTIONS 1
Exam questions
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EXAM QUESTIONS 2
Question 1
Establishment of the Euro as a single currency will lower transaction costs incurred while
changing currency, create price transparency, and eliminate exchange rate uncertainty. Besides, a
single currency also facilitates transparency in the pricing of goods and also boost the expansion
of markets across different countries (Delavan et al., 2017 p. 32).
The cost of a single currency includes; the cost of operation used in system adjustment towards
the adopted money and the cost incurred in redefining competition and in the emergence of
specific risks.
Question 2
Transport costs can eliminate trade since an increase in the cost of transport will lead to an
increase in the cost of goods. Excessive increase in this cost will at certain levels make the trade
unpractical hence its elimination.
Multinational corporations will go for direct foreign investment instead of licensing local firms
to protect the quality of their products. (Hopkin & Blyth, 2019 p.76) .Also, these firms will earn
higher income since they will avoid division of revenue with the local firms, which would be
transacting on their behalf.
Question 3
The main difference is that tariff works through prices while quotas restrict quantity. The effects
of tariff and quota differ in that while both reduce the volume and increase the rate, in tax, the
government gathers revenue in the quantity of the tariff time’s quantity sold (Etro, 2015 p.87).

EXAM QUESTIONS 3
Falling barriers to international trade do not destroy manufacturing jobs in first world countries,
and on the contrary, it promotes business hence promoting manufacturing. Goods produced in
one country can be transported to the other country without much delay as there are no many
bounder limitations.
Question 4
The theory of absolute advantage explains the ability of one firm to have a higher production of
goods or services than the competitors.
A country with no absolute advantage can benefit in trade by specializing in the production of
goods which the competitors with Absolut advantage don't have hence ensuring it remains
relevant in the business. Such countries can work towards the production of farm exports while
those with absolute power dwell in the manufacturing sector (Timmer. et al 2015 p.103).
Question 5
Labour theory of value explains the economic importance if a product is set by the total amount
if required labor in the production. This theory assumes that the amount of work needed for the
production of certain goods and products will finally affect the value of these goods; hence it's
true.
Differences in opportunity costs of production enable a country to produce goods at a lower price
due to the low cost of labor and production (Los. et al 2015 p.77). Products manufactured at a
lower cost will often be cheap hence encouraging other countries to buy goods from them.
Question 6