Sample on International Trade Advantage & Their Management

Question: A country is less productive at making everything would not expect to enjoy gains from international trade, do you agree? Explain with reference to both theory and empirical examples where appropriate? Answer: The countries engage in the international for two reasons and both the reasons are used to gain advantage from the trade. The countries are different from each other and thus they trade with each other. According to the Ricardian theory it is seen that the countries trade in order to benefit from the differences by trying to reach an arrangement, in which the country specializes. Secondly the countries try to reach economies of scale in the production process (Dunn and Mutti, 2004). It needs to be seen that a country has specialization in the production of a particular product that country need to specialize in the production of that item and produce in abundance and trade those with which it lacks expertise. Thus it can be said that the country has a comparative advantage in the production of the goods if the opportunity cost of producing that good in terms of other goods is lower in that country, than it is in other countries. Thus a less productive country can be benefitted from t rade (Salvatore, 2001). Low economic growth is usually accompanied by rising unemployment. Explain why, in a period of low economic growth, unemployment is likely to increase It is seen that the low economic growth leads to unemployment. It is seen that the production declines when there are low economic growth in the country. When the production declines, it is seen that the labour forces are not required in the production process. The reduction in the demand of the labours in the production process leads to the rise in the unemployment rate in the country (Oner, 2013). If GDP growth of the country equals labor force growth in the presence of productivity growth, then, more people will be entering in the labor force than that are needed to produce a given amount of goods and services. Thus it is seen that the share of the labor force that is employed will fall. In other words it can be said that, the unemployment rate will rise. Only as long as GDP growth exceeds the combined growth rates of the labor force and productivity (potential output) will the unemployment rate fall in the long run. Many believe that the main objective of the government economic policy should be to increase the productivity and economic growth. Discuss the difficulties that the government is likely to encounter when attempting to boost the rate of growth of the UK economy Currently economic growth averages 2.5% a year. If the rate of growth increased it would mean that the people will see a faster increase in their financial standard of living. They would be able to consume more goods and services. There are certain problems that the government will face in order to increase the productivity as well as the economic growth of the country. It is seen that there can be problem regarding the technology as there are may be non availability of technology at the time to increase the production (Economicsonline.co.uk, 2015). The lack of raw materials can stop the country to increase the production for a while. Apart from these factors there may arise problem with the labour forces, as the lack of skilled and experienced labour can lead to low production. Thus these are some of the difficulties that the government can face while they try to increase the production. The deficit on the current account of the balance of payment was lower in 2011 than it was in 2010. Explain two factors, other than a fall in the value of the pound, which might help to reduce the size of the deficit on the current account of the UK balance of payment It is seen that the deficit in the current account can happen due to trade in the goods and services, and the income from investment and employment as well transfer. It was seen in case of UKJ was that they have negative trade in goods. From this we are able to understand that the trade was expensive as there were more imports then the exports. The imports are cheaper than the exporters thus there are increase in the imports; the people buy the cheaper import goods. It becomes difficult for the exporters as they become uncompetitive (Elwell, 2005). With the rise in the spending capacity of the people of the country, there is an increase in the imports in the country. Thus there is deterioration in the current account. Moreover the capital flow in the country is important for the current accounts. The country need to attract foreign investors so that there are increases in the foreign exchange which can reduce the deficit in the current account. Economic policy makers hope that UK trade with the rest of the world will help to rebalance the economy and boost aggregate demand. Using your economic knowledge, assess the impact on the performance of the UK economy of a significant increase in export and a reduction in imports of goods and services It was seen that UK has a deficit in the goods. Since the process of de-industrialization accelerated in the early 1980s, UK has had a large deficit in goods. UK still manufactures goods, but they have become a net importer, especially of the manufactured goods. The government can apply certain changes in the policy so that there are increase in the export and reduction in the export of the goods which will reduce the deficit in the current account (Krugman and Obstfeld, 2000). The country can reduce consumer spending, tight monetary policy and through tight fiscal. E.g. higher income tax will reduce disposable income and therefore reduce spending on imports. More over the country can devaluate the exchange rate, which will make the exports cheaper while the imports become more expensive. Thus by following such policies the country can have a significant increase in the export and a reduction in the imports of the goods and the services. It is seen that the rise in the export can mak e the country rebalance the economy and boost aggregate demand (Stepanovic-Petrac, 2008). Most people would say that the ending of the BT telephone monopoly, and competition in the telecommunications market, have been beneficial. However, Britains railways show why some monopolies should not be replaced by a number of competing firms. Evaluate the view that consumers are always better off and procedures are always worse off if monopolies are broken up to encourage as much competition as possible. It is seen that in a monopoly market are those there are only one seller and the seller sets the price of the product in the market. It is seen that the seller has the control in the market as there are no possible competitors in the market. In case if the monopoly market it is seen that the companies are the price setters. The consumers are in worse off situation as they have to pay more money in order to purchase products which have been of low prices in perfectly competitive market (Dubey and Sondermann, 2009). In a monopoly market it is seen that the companies are in better of position a they has the advantage to dictate over the prices in the market and the buyers have to purchase the goods with that rate. But the situation is different in a market where there are a large number of buyer and seller like in a perfectly competitive market. In a perfectly competitive market it is seen that the consumers are in a better off position as they have the power to set the price by bargain ing. The prices are set according to demand of the consumers in the market. Thus in a monopoly market the consumers are always at a worse off situation. References Dubey, P. and Sondermann, D. (2009). Perfect competition in an oligopoly (including bilateral monopoly).Games and Economic Behavior, 65(1), pp.124-141. Dunn, R. and Mutti, J. (2004).International economics. London: Routledge. Economicsonline.co.uk, (2015).Balance of payments. [online] Available at: https://www.economicsonline.co.uk/Managing_the_economy/Balance_of_payments.html [Accessed 7 May 2015]. Elwell, C. (2005).The U.S. trade deficit. [Washington, D.C.]: Congressional Research Service, Library of Congress. Krugman, P. and Obstfeld, M. (2000).International economics. Reading Mass.: Addison-Wesley. Oner, E. (2013). Simultaneous Effects of Supply and Demand Elasticity with Market Types on Tax Incidence (Graphical Analysis of Perfect Competition, Monopoly and Oligopoly Markets).International Journal of Economics and Finance, 5(2). Salvatore, D. (2001).International economics. New York: John Wiley. Stepanovic-Petrac, Z. (2008). Bretton Woods 2 system and US balance of payment deficit.Medjunarodni problemi, 60(1), pp.116-136.