ECS4865
Assignment 2 (COMPLETE ANSWERS) 2024 -
DUE 3 September 2024
ECS4865 Assignment 2 2024
SECTION A
, 1. High tariffs and quotas can result in trade wars between nations.
This statement is valid as high tariffs and quotas often provoke retaliatory
measures from other countries, leading to escalating trade restrictions, reduced
international trade, and economic tensions, which are characteristic of trade
wars.
2. Effects of export subsidies and tariffs on producers and consumers:
Export subsidies benefit domestic producers by making their goods cheaper
abroad, increasing exports, but they may lead to higher prices for domestic
consumers. Tariffs protect domestic producers by making imports more
expensive but can result in higher prices and reduced choices for consumers.
3. Assumption of the imperfect capital market justification for infant industry
promotion:
The assumption is that new industries in developing countries lack access to
sufficient capital due to imperfect capital markets, making it difficult for them to
compete with established foreign industries without temporary protection.
4. Main reason governments devalue their currencies:
Governments sometimes devalue their currencies to make their exports cheaper
and more competitive in global markets, boost economic growth, and reduce
trade deficits.
5. Assumptions for EZAR/ $ = PSA/PUS under purchasing power parity:
The principle of purchasing power parity assumes no transportation costs,
identical goods and services in both countries, and no trade barriers, ensuring
that exchange rates adjust to equalize the price levels of identical goods.
6. Imports-substituting industrialization strategy:
This strategy focuses on reducing dependency on imported goods by promoting
domestic production of goods that were previously imported. It often involves
protective tariffs, subsidies, and government support to develop local industries
and reduce foreign influence on the economy.
Assignment 2 (COMPLETE ANSWERS) 2024 -
DUE 3 September 2024
ECS4865 Assignment 2 2024
SECTION A
, 1. High tariffs and quotas can result in trade wars between nations.
This statement is valid as high tariffs and quotas often provoke retaliatory
measures from other countries, leading to escalating trade restrictions, reduced
international trade, and economic tensions, which are characteristic of trade
wars.
2. Effects of export subsidies and tariffs on producers and consumers:
Export subsidies benefit domestic producers by making their goods cheaper
abroad, increasing exports, but they may lead to higher prices for domestic
consumers. Tariffs protect domestic producers by making imports more
expensive but can result in higher prices and reduced choices for consumers.
3. Assumption of the imperfect capital market justification for infant industry
promotion:
The assumption is that new industries in developing countries lack access to
sufficient capital due to imperfect capital markets, making it difficult for them to
compete with established foreign industries without temporary protection.
4. Main reason governments devalue their currencies:
Governments sometimes devalue their currencies to make their exports cheaper
and more competitive in global markets, boost economic growth, and reduce
trade deficits.
5. Assumptions for EZAR/ $ = PSA/PUS under purchasing power parity:
The principle of purchasing power parity assumes no transportation costs,
identical goods and services in both countries, and no trade barriers, ensuring
that exchange rates adjust to equalize the price levels of identical goods.
6. Imports-substituting industrialization strategy:
This strategy focuses on reducing dependency on imported goods by promoting
domestic production of goods that were previously imported. It often involves
protective tariffs, subsidies, and government support to develop local industries
and reduce foreign influence on the economy.
