HI5016 International Trade and Enterprise: Final Assessment Analysis

This assignment analyzes key concepts in international trade, including the gravity model, absolute and comparative advantage, and the role of the World Trade Organization (WTO). The student's responses address the gravity model's predictive capabilities using examples of trade between the USA and Canada, and explains absolute and comparative advantage through numerical examples. It further explores the standard trade model's relationships, the impact of import tariffs and export subsidies, and various market structures such as perfect competition and monopolies. The assignment demonstrates an understanding of how these factors influence trade patterns, economic welfare, and business strategy, and concludes with a discussion of monopolistic competition's benefits.

Exam

Table of Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................3
Question 3........................................................................................................................................4
Question 4........................................................................................................................................5
Question 5........................................................................................................................................6
Question 6........................................................................................................................................7
REFERENCES................................................................................................................................9

Question 1
This model is an empirical model in which diverse groundings within trade theory are utilized to
explain trade patterns, and it is argued that broad acceptance of this model is used to explain
trade patterns. Our two main trading partners are Canada and the United States, with the highest
amount of commerce between them. The volume of trade between the United States and Canada
is quite high. For good dealing between two countries, the amount of commerce is significantly
bigger. According to the gravity model, commerce between provinces within Canada will be
nearly 20 times the predicted volume of commerce between states in the United States in 1988.
Large housing values exist in the context of migration, knowledge transfer, and capital
accumulation. The gravity model was used in international commerce between these two nations,
and it assisted in boosting the function of trading partners' processed to generate. The number of
house purchasers for trade from the United States to Canada is substantially higher than for trade
from Canada to the United States. There are provincial house purchasers who come from the
United States' higher commerce with Columbia or Ontario. The conventional gravity model uses
a constrained form of general gravity, assuming that the equation is the same for all trade
partners and that the intercept and slope coefficients are the same. Trading pairs allow provinces
to engage in commerce that is distinct from their revenue and location.
Question 2
A
The principle of absolute advantage is defined as ability of an individual, country or an
organisation for producing a service or good in a more efficient manner than its competitors.
B
This numerical example shows the amazing finding of comparative advantage: however if one
country is more efficient in all areas and another has an extreme shortfall in all areas, both
countries may benefit from cooperation. Considering this fact that the Country has a sole control
in both equipment and agribusiness, it has an incentive to concentrate on the areas where it has a
comparative advantage. The United States will send machinery and agricultural items to
Australia..

C. The concept of comparative advantage is linked to the concept of opportunity cost. The task in
the United States requires fewer workers. Australia, on the other hand, need a greater number of
workers to complete the task. As a result, it is possible to assert that, in this scenario, the
advantage is with the United States.
Question 3
The 4 key relationships for Standard model includes:
a)The first relationship is between the PPF and relative supply
b) The second relationship is between the relative price and relative demand
c) Third one is relationship between world equilibrium and world relative demand and supply
d) The relationship between the effect of term of trade
Question 4
WTO offers a solid foundation for future trade discussions as well as the settlement of trade
disputes. Members of the World Trade Organization (WTO) agree not to take unilateral action
against other WTO members, but rather to use the WTO's dispute settlement system and follow
its rules and decisions.
Improving Communications with Trading Blocs – The World Commerce Organization (WTO)
allows trading blocs to form and develop free trade within them.
Question 5
i) Import tarrifs have a wide range of consequences.
Consumers: As a result of the duty on imports, items will become more expensive, forcing
consumers to pay a higher price, putting them in a worse position.
On Importing Country Producers: Since imports have grown more expensive, producers can now
better compete in the market and find increased demand, resulting in a stronger position.
On the government: Because the government can now collect more taxes, it may utilize these
revenues to enhance social programs. As a result, it is in a better position.
ii) If the government provides export subsidies, domestic industries can sell their products at a
lower cost. As a result, by lowering prices, the product becomes more competitive, increasing the
potential for increased demand for the country's products. This will help to develop the country's
industries and create more jobs. People will have more discretionary money as a result of
increased employment, which they may spend on other goods and services. As a result, it will

begin to promote all of the country's sectors. Furthermore, export subsidies safeguard the nation's
industry. Some countries with problematic law and order might take advantage of human
resources to maintain their rule of law.
Question 6
i) Perfect Competition: This is a market structure in which several businesses compete
against one another and no business has a significant market share. As a result, no one
business has the ability to influence the pricing, and the production is optimal. In this
market structure, the products are substantially identical, and there is no entrance
barrier. As a result, if I wish to open an Asian-themed restaurant, I can simply do it. I
will, however, face stiff competition.
Monopoly competition: In this type of market, a single person may control nearly all of the
market. A monopoly results in a lack of competition, which leads to price manipulation, lower
quality items, and so on. It would be extremely tough for me to break into the sector if I wanted
to operate a restaurant in current market structure. Oligopoly competition refers to a market
structure in which a small number of enterprises dominate the market. That is not to say that
numerous smaller enterprises cannot exist; but, the majority of the market is controlled by a few
corporations who have the capacity to affect the price. In such a market system, it would be
difficult to launch a new restaurant since larger companies may cut pricing.
Monopolistic competition occurs when there is just one player in a market. This market structure
is similar to pure competition in that it has a large number of enterprises, but the companies sell
slightly varied products rather than identical products as in perfectly competitive.
ii) Monopolistic competition benefits me since it increases my earning potential.
Without much competition, I can differentiate my offering (Asian) from other
restaurants and attract a sizable demand base. This will aid my growth since I won't
have to worry about a major competitor pushing me out of the competition by
lowering costs. As my product (Asian food) becomes more famous, I will be able to
expand my profitability.

References
Books and Journals
CFA Institute, 2020, The Firm and Market Structures,
https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/firm-
market-structures#:~:text=Economic%20market%20structures%20can%20be,competition%2C
%20oligopoly%2C%20and%20monopoly
Economicshelp, 2020, Absolute Advantage – definition and examples,
https://www.economicshelp.org/blog/glossary/absolute-advantage/
Github, 2020, Import Tariffs: Small Country Welfare Effects,
https://saylordotorg.github.io/text_international-trade-theory-and-policy/s10-08-import-tariffs-
small-country-w.html
Github, 2020, Export Subsidies: Large Country Welfare Effects,
https://saylordotorg.github.io/text_international-trade-theory-and-policy/s10-17-export-
subsidies-large-country.html#:~:text=An%20export%20subsidy%20lowers
%20consumer,country%20implements%20an%20export%20subsidy.
K. Anderson 2021, World Trade Organization. Encyclopedia Britannica
https://www.britannica.com/topic/World-Trade-Organization
KRUG, 2020, The Standard Trade Model,
http://web.pdx.edu/~ito/Krugman-Obstfeld-Melitz/Manuscripts-second%20pass/First%20pass/
M06_KRUG6654_09_SE_C06.pdf