Economics Assignment: International Trade and Economic Analysis

This economics assignment delves into various core economic principles and concepts. It begins with questions on basic supply and demand dynamics, including the impact of price changes on consumer behavior and the effects of aggregate supply and demand shifts on inflation and GDP growth. The assignment then explores international trade, calculating opportunity costs, comparative advantages, and the effects of trade between countries like the US and India, considering the impact of labor requirements and specialization. Further, it examines the impact of tariffs on domestic markets, analyzing consumer and producer behavior in the presence of tariffs and their effects on trade. The assignment also touches upon the impact of various economic events on Rome's economy, discussing the effects of technological advancements, changes in human capital, and external shocks. Finally, it covers basic economic terms like opportunity cost, marginal product, and deadweight loss, along with investment strategies based on risk tolerance and market outlook. The assignment references several academic sources to support its analysis.

PNG-1
Price of Burger $181.25
Question-2: No.of Workers unemployed= 200
PNG-2
The substitutes of apple oranges for a consumer, if the price of apples increases, the consumer
will buy less apples and more oranges.
PNG-3
Part-1
a. Aggregate demand curve
b. Aggregate supply curve

c. The rate of inflation is increasing; The rate of GDP growth is decreasing
d. Short run aggregate supply curve
PNG-4

Part-2
a. Demand
b. The rate of inflation increases; the rate of GDP growth decreases.
c. Short Run Aggregate supply curve
Part-3
a. Demand
b. AD = C + I + G + (X – M).
c. Decreases; Increases
PNG-5
Question-4
a. The SUPPLY curve will shift to find an equilibrium. As the supply curve shifts the
demand will be fulfilled and the new equilibrium will be met.
b. The rate of inflation is -1; The rate of GDP growth is 1.8
c. Short run aggregate supply curve

Question-5
a. No, as directly they fall in the supply and demand paramount. It affects the entire
economy and the growth and inflation
b. No, because the money supply also affects the human capital in a way so everything boils
down to the economy.
PNG-6
Part-1
a) The US has 600 workers. If 1 unit of A requires 10 workers and 1 unit of T requires 30
workers in the US. Then, the US can either produce 60 units of A and 0 units of T or 0 units of A
and 20 units of T.
Then, PPF curve for US will be 10A+30T = 600
Similarly, India has 1,200 workers. If 1 unit of A requires 30 workers and 1 unit of T requires
150 workers in India. Then, India can either produce 40 units of A or 8 units of T.
Then, PPF curve for India will be 30A+150T = 1,200

b) The opportunity cost of T in US = Units of A sacrificed to produce one unit of T = 60/20 = 3.
The opportunity cost of T in India = Units of A sacrificed to produce one unit of T = 40/8 = 5.
These two opportunity costs are written in units of A given up for one unit of T.
c) As the opportunity cost of producing T is lower for the US, the US has a comparative
advantage in the production of T.
Similarly,
The opportunity cost of A in US = Units of T sacrificed to produce one unit of A = 20/60 = 0.33.
The opportunity cost of A in India = Units of T sacrificed to produce one unit of A = 8/40 = 0.2.
These two opportunity costs are written in units of T given up for one unit of A.
As opportunity cost of producing A is lower for India, India has a comparative advantage in the
production of A.
d) Terms of trade must lie in the range : 3 units of A per unit of T<TOT <5 units of A per unit of
T. Lets assume that trade takes place at a rate of 4 units of A per unit of T.
e) If they trade, India will only produce A while the US will only produce T. Thus, India will
produce 40 units of A only whereas, US will produce 20 units of T only.
PNG-7
Part-2

India can produce one unit of A with 30 workers while for T it requires 150 workers.
The US can produce one unit of A with 10 workers and it needs 30 workers for a unit of T.
a) India has the equation for producing a unit T
150 -10t
So after 1st year
150 - ( 10 * 1 ) = 140
The opportunity cost is the benefits forgone for choosing the next best option.
140 / 30 = 4.67. The opportunity cost for India is 4.67 units of A for producing a unit of T after
year 1.
b) We have been given the equation for producing T in India and the US has comparative
advantage in T.
30 = 150 - 10t*
10t* = 120
t* = 12
After 12 years, the US and India will require the same labor for producing a unit of T.
c) The data in the question mentions the change in production of T.
It has not mentioned any change in the production of A in either country.
t = t* + 1
12 + 1 = 13
150 - ( 10 * 13 ) = 20
In the year 13th, India requires 20 workers for producing a unit of T.
The opportunity cost for T

India,
30 / 20 = 1.5
A unit of T has an opportunity cost of 1.5 units of A
US,
10 / 30 = 0.33
The opportunity cost of A
India,
20 / 30 = 0.67
30 / 10 = 3
Absolute advantage is the situation where a country can produce more output of a given product
compared to its peers in the same level of resources.
Here, India has an absolute advantage in production of T but comparative advantage in A
because it has lower opportunity cost for A. The US will specialize in the T because it has a
lower opportunity cost and so comparative advantage.
Part-3
If India experiences a rising worker for producing a unit of A then its comparative advantage will
definitely change. The comparative advantage is the situation in which a country can produce a
product at a lower opportunity cost. Initially, India has a lower opportunity cost for production of
A. However, if the workers required for that rises then its comparative advantage will be lower
over the period of time.
PNG-9
Part-1

a) 3 domestic consumers will buy avocados i.e, El Palomar, Olita's and Vim.
b) Two domestic producers will sell avocados ie, Fambrini and JSM because two consumers
have the willingness to pay as their cost ($9, $10)
c) Price paid by domestic consumers is $10 per avocado .
d) Santa Cruz will import 1 avocados.
Part-2
a) No. of consumers buying avocados is 3
b) Number of producers selling avocado is 2 as explained above.
c) Price paid by the domestic consumer is $10.
Reason: world price is $5. Tariff is $5. So 5+5 = $10.
d) Santa Cruz will now export avocado
Reason: After tariff, there are now 3 sellers and 2 buyers. So, 1 avocado is in surplus. It will be
exported.
e) The cost of tariff to Santa Cruz is $5
Reason: Cost of tariff = excess avocado * amount of tariff = 1 * 5 = $5.
PNG-10
a. 5; 10
b. 2
c. After tariFF there are more sellers than buyers, hence the production has to be curtailed
and hence there will be job loss.

PNG-11
Due to the discovery of steel , depreciation rate will be lower from now on for Rome thus is has
both immediate and long term impact on Rome's economy.
Increase in the stock of human Capital means population has increased and those human capital
can be used after some years when those capital are ready to be the part of production thus is has
long term impact bt no immediate impact
Invasion of vandal has immediate impact as half of the physical capital has been destroyed but
no long term impact cause eventually Rome will recover from this loss
Opening a trade route which increases productivity will obviously have both immediate and long
term impact.
Arrival of caravan of wealthy persian has both immediate and long term impact
PNG-12
(a) opportunity cost. It refers to the cost of alternatives foregone, here a movie is the opportunity
cost for visiting the grandmother.
(b).Marginal Product. It refers to the changes in output as a result of change in one unit of input,
in the given case, 9 months is one additional unit of input to produce a research paper.
(c).Marginal Cost. It implies the cost added by producing one additional unit of output, here the
marginal cost of grading an additional exam for Bhavya is $2.

(d).deadweight loss, it is a situation of market inefficiency created by price controls, wage
controls etc. In the given case $100 is the deadweight loss due to price controls.
PNG-13
(a)RobertI should buy US treasury bonds since they are the least risky investment across the
globe.
(b)Yifei should purchase US equities as they have great long term prospects.
(c)Miguel should consider investing in a broad set of equities and bonds from outside the oil
industry as they provide better hedging against market risk while providing moderate to high
returns.
PNG-14
(B) On net Botswana is buying more foreign assets and accumulating more foreign currency
than vice versa. The reason being that the capital account deficit fundamentally implies that the
nation is on the path of acquiring more of foreign assets.

References
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