ECS3702 Assignment 2 (DETAILED ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED

ECS3702 Assignment 2 (DETAILED ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references ,... Discuss the potential trade effects and subsequent channels through which the covid-19 pandemic has affected a developing economy such as South Africa. [5 marks] QUESTION 2 Explain briefly In your own words why international trade is important for a developing country. [10 marks] 2 3 QUESTION 3 Consider the following hypothetical scenario of two countries, Togo and Mali. Table 1: Output per worker hour Output Togo Mali Cheese (ton/hr) 20 10 Aircrafts (Units/hr) 60 20 (i) State the products of absolute advantage and absolute disadvantage for both countries. You must explain how you arrived at your answer. [5 marks] (ii) Determine comparative advantage and comparative disadvantage for both nations, for both goods. You must show your calculations and draw a conclusion based on your calculations. Marks will not be awarded if workings are not shown. [6 marks] 4 (iii) From your answer in (i) and (ii) above, explain whether trade is possible and the pattern of trade according to the classical theories. [6 marks] 5 Use the hypothetical scenario below to answer the questions that follow Output Togo Mali Cheese (ton/hr) 60 10 Aircrafts (Units/hr) 40 20 (iv) If Togo exchanges 60C for 60A with Mali, (a) How much does Togo gain in terms of aircrafts? And how many hours does Togo save. Explain [2 marks] (b) How much does Mali gain in terms of aircrafts? Explain [3 marks] 6 (c) What is the range of mutually beneficial trade? Explain how you arrived at your answer [4 marks] QUESTION 4 Nigeria is a labour abundant nation and Japan is a capital abundant nation, producing and consuming palm oil and computers, using both labour and capital. Palm oil is labour intensive. Both nations experience increasing costs in their production. Explain the basis of and gains from trade for both countries using well drawn diagrams. [15 marks] 7 QUESTION 5 Palm oil is produced and consumed in Nigeria. The autarky price of palm oil is N100, Nigeria producers of palm oil produce 500 tons of palm oil and consumers consume 500 tons of palm oil. The free trade price of palm oil is N20. To protect domestic production and jobs, the Nigerian government imposes a 20 percent ad-valorem tariff on imported palm oil. Using partial equilibrium analysis and a well-drawn diagram, explain the impact of this policy decision. [10 marks] International trade is an important driver of economic growth for developed and developing countries alike. There are numerous measures used to examine or measure how a country performs when it comes to trade. This question is based on one of those measures. 1. Define Terms of Trade (TOT) [1 marks] 2. How is the Terms of Trade measured [2 marks] 3. Briefly explain what an improvement or decline in the Terms of Trade means [4 marks] Use the following link to access data from the UN Trade and Development (UNCTAD) database: Collect and download (in excel) Terms of Trade Index data series for the years 2005 to 2024 for the following regions: (i) Africa (ii) Americas (iii) Asia (iv) Europe (v) Oceania 4. Plot the data obtained above in one line diagram (you will have 5 lines representing each region). The figure must be correctly labelled with Terms of Trade Index on the vertical axis and years on the horizontal axis. The title of the figure should be above the figure, and the source should be below the figure [10 marks]. 5. In no more than one (1) page, discuss briefly, but concisely, the trend in the data series for the regions in question. Your discussion must speak to the peaks and troughs in the data. In addition, speak to any differences you observe in the terms of trade index of the regions in question, i.e. in which region(s) is the TOT higher overall etc. [8 marks]. 6. Briefly discuss some of the main factors that drive the differences in the TOT indexes observed between the regions [ 5 marks] 7. Include your data set on a new page in a table form. Do not copy and paste from the source. Create the table. [5 marks] NB: Your answer must NOT exceed 3 pages (single pages or 1.5 pages if writing back and front) QUESTION 2 [10 marks] Tariffs are known to cause redistribution of income from consumers to producers and government. Use the figure below to show these redistribution effects numerically in terms of how much is lost and gained by the three groups of economic players mentioned. QUESTION 6 (i) Compute the total consumer surplus in the absence of the tariff. [3 marks] (ii) Compute the consumer surplus after the tariff. [3 marks] 10 (iii) Compute the producer surplus [3 marks] QUESTION 7 Assume South Africa imports cement from Nigeria and Ghana at the free trade prices of R30 and R20 per ton of cement respectively. In autarky, South Africa’s domestic price of cement is R70 and 40 tons of cement are produced and consumed per annum. Use this information, and with the aid of a diagram, explain the concept of trade diversion. [10 marks]. South Africa imports beef from Egypt and Morocco who are two of the largest beef producers in Africa. The autarky price of a kg of beef in South Africa is R400 and the equilibrium quantity is 200kg of beef. The free trade price of beef imported from Egypt is R100 and R150 from Morocco. Assume that South Africa imposes a tariff of R60 per kg on imports of beef from both 3 Egypt Morocco. Assume also that South Africa later forms a custom union with Morocco only. Use this information and explain with the aid of a well-drawn diagram, the economic effects of this form of a customs union QUESTION 1 Discuss the potential trade effects and subsequent channels through which the covid-19 pandemic has affected a developing economy such as South Africa. [5 marks] 4. Plot the data obtained above in one line diagram (you will have 5 lines representing each region). The figure must be correctly labelled with Terms of Trade Index on the vertical axis and years on the horizontal axis. The title of the figure should be above the figure, and the source should be below the figure [10 marks]. 5. In no more than one (1) page, discuss briefly, but concisely, the trend in the data series for the regions in question. Your discussion must speak to the peaks and troughs in the data. In addition, speak to any differences you observe in the terms of trade index of the regions in question, i.e. in which region(s) is the TOT higher overall etc. [8 marks]. 6. Briefly discuss some of the main factors that drive the differences in the TOT indexes observed between the regions [ 5 marks] 7. Include your data set on a new page in a table form. Do not copy and paste from the source. Create the table. [5 marks] NB: Your answer must NOT exceed 3 pages (single pages or 1.5 pages if writing back and front) QUESTION 2 [10 marks] Tariffs are known to cause redistribution of income from consumers to producers and government. Use the figure below to show these redistribution effects numerically in terms of how much is lost and gained by the three groups of economic players mentioned. Explain briefly In your own words why international trade is important for a developing country. [10 marks] 4. Plot the data obtained above in one line diagram (you will have 5 lines representing each region). The figure must be correctly labelled with Terms of Trade Index on the vertical axis and years on the horizontal axis. The title of the figure should be above the figure, and the source should be below the figure [10 marks]. 5. In no more than one (1) page, discuss briefly, but concisely, the trend in the data series for the regions in question. Your discussion must speak to the peaks and troughs in the data. In addition, speak to any differences you observe in the terms of trade index of the regions in question, i.e. in which region(s) is the TOT higher overall etc. [8 marks]. 6. Briefly discuss some of the main factors that drive the differences in the TOT indexes observed between the regions [ 5 marks] 7. Include your data set on a new page in a table form. Do not copy and paste from the source. Create the table. [5 marks] NB: Your answer must NOT exceed 3 pages (single pages or 1.5 pages if writing back and front) QUESTION 2 [10 marks] Tariffs are known to cause redistribution of income from consumers to producers and government. Use the figure below to show these redistribution effects numerically in terms of how much is lost and gained by the three groups of economic players mentioned. QUESTION 3 Consider the following hypothetical scenario of two countries, Togo and Mali. Table 1: Output per worker hour Output Togo Mali Cheese (ton/hr) 20 10 Aircrafts (Units/hr) 60 20 (i) State the products of absolute advantage and absolute disadvantage for both countries. You must explain how you arrived at your answer. [5 marks] (ii) Determine comparative advantage and comparative disadvantage for both nations, for both goods. You must show your calculations and draw a conclusion based on your calculations. Marks will not be awarded if workings are not shown. [6 marks] South Africa imports beef from Egypt and Morocco who are two of the largest beef producers in Africa. The autarky price of a kg of beef in South Africa is R400 and the equilibrium quantity is 200kg of beef. The free trade price of beef imported from Egypt is R100 and R150 from Morocco. Assume that South Africa imposes a tariff of R60 per kg on imports of beef from both 3 Egypt Morocco. Assume also that South Africa later forms a custom union with Morocco only. Use this information and explain with the aid of a well-drawn diagram, the economic effects of this form of a customs union (iii) From your answer in (i) and (ii) above, explain whether trade is possible and the pattern of trade according to the classical theories. [6 marks] Differences in relative prices of commodities reflect nations comparative advantages. A nation will have a comparative advantage in producing the commodity that has the lower relative commodity price. As countries specialise in their commodity of comparative advantage, they experience increasing opportunity costs. Assume the following: (i) There are two countries, Sunveld and Moonveld (ii) There are two commodities, beef and leather (iii) In autarky, the equilibrium relative price of leather is Pb = 1/8 in Sunveld and Pb = 8 in Moonveld. Use the information provided above and well-drawn diagrams to explain the gains from trade for both Sunveld and Moonveld. South Africa imports beef from Egypt and Morocco who are two of the largest beef producers in Africa. The autarky price of a kg of beef in South Africa is R400 and the equilibrium quantity is 200kg of beef. The free trade price of beef imported from Egypt is R100 and R150 from Morocco. Assume that South Africa imposes a tariff of R60 per kg on imports of beef from both 3 Egypt Morocco. Assume also that South Africa later forms a custom union with Morocco only. Use this information and explain with the aid of a well-drawn diagram, the economic effects of this form of a customs union Use the hypothetical scenario below to answer the questions that follow Output Togo Mali Cheese (ton/hr) 60 10 Aircrafts (Units/hr) 40 20 (iv) If Togo exchanges 60C for 60A with Mali, (a) How much does Togo gain in terms of aircrafts? And how many hours does Togo save. Explain [2 marks] (b) How much does Mali gain in terms of aircrafts? Explain [3 marks] 6 (c) What is the range of mutually beneficial trade? Explain how you arrived at your answer [4 marks] QUESTION 4 Nigeria is a labour abundant nation and Japan is a capital abundant nation, producing and consuming palm oil and computers, using both labour and capital. Palm oil is labour intensive. Both nations experience increasing costs in their production. Explain the basis of and gains from trade for both countries using well drawn diagrams. [15 marks] 7There are two hypothetical countries, Sunveld and Moonveld. In one hour, Sunveld can produce 8 tons of beef or 6 tons of leather and Moonveld can produce 4 tons of beef or 5 tons of leather. Using the information provided above, answer the questions that follow. (i) In which commodities do Sunveld and Moonveld have an absolute advantage and disadvantage? Explain. [4 Marks] (ii) From your answer in (i) above, explain whether trade is possible and explain the pattern of trade according to the theory of absolute advantage. [3 marks] (iii) Compute and indicate the commodity of each nation’s comparative advantage and disadvantage. No marks will be awarded if you do not show your workings. QUESTION 5 Palm oil is produced and consumed in Nigeria. The autarky price of palm oil is N100, Nigeria producers of palm oil produce 500 tons of palm oil and consumers consume 500 tons of palm oil. The free trade price of palm oil is N20. To protect domestic production and jobs, the Nigerian government imposes a 20 percent ad-valorem tariff on imported palm oil. Using partial equilibrium analysis and a well-drawn diagram, explain the impact of this policy decision. [10 marks] There are two hypothetical countries, Sunveld and Moonveld. In one hour, Sunveld can produce 8 tons of beef or 6 tons of leather and Moonveld can produce 4 tons of beef or 5 tons of leather. Using the information provided above, answer the questions that follow. (i) In which commodities do Sunveld and Moonveld have an absolute advantage and disadvantage? Explain. [4 Marks] (ii) From your answer in (i) above, explain whether trade is possible and explain the pattern of trade according to the theory of absolute advantage. [3 marks] (iii) Compute and indicate the commodity of each nation’s comparative advantage and disadvantage. No marks will be awarded if you do not show your workings. QUESTION 6 (i) Compute the total consumer surplus in the absence of the tariff. [3 marks] (ii) Compute the consumer surplus after the tariff. [3 marks] 10 (iii) Compute the producer surplus [3 marks] QUESTION 7 Assume South Africa imports cement from Nigeria and Ghana at the free trade prices of R30 and R20 per ton of cement respectively. In autarky, South Africa’s domestic price of cement is R70 and 40 tons of cement are produced and consumed per annum. Use this information, and with the aid of a diagram, explain the concept of trade diversion. [10 marks] There are two hypothetical countries, Sunveld and Moonveld. In one hour, Sunveld can produce 8 tons of beef or 6 tons of leather and Moonveld can produce 4 tons of beef or 5 tons of leather. Using the information provided above, answer the questions that follow. (i) In which commodities do Sunveld and Moonveld have an absolute advantage and disadvantage? Explain. [4 Marks] (ii) From your answer in (i) above, explain whether trade is possible and explain the pattern of trade according to the theory of absolute advantage. [3 marks] (iii) Compute and indicate the commodity of each nation’s comparative advantage and disadvantage. No marks will be awarded if you do not show your workings. From your answer in (iii) above, explain whether trade is possible and explain the pattern of trade according to the theory of comparative advantage. [3 marks] Use the table below to answer the questions that follow. Output per hour Sunveld Moonveld Beef (tons/hr) 8 4 Leather (ton/hr) 6 5 (v) If Sunveld exchanges 8 tons of beef for 8 tons of leather, (a) How many tons of leather does Sunveld gain? Explain [2 marks] (b) How many hours does Sunveld save. Explain Discuss the potential trade effects and subsequent channels through which the covid-19 pandemic has affected a developing economy such as South Africa. [5 marks] QUESTION 2 Explain briefly In your own words why international trade is important for a developing country. [10 marks] 2 3 QUESTION 3 Consider the following hypothetical scenario of two countries, Togo and Mali. Table 1: Output per worker hour Output Togo Mali Cheese (ton/hr) 20 10 Aircrafts (Units/hr) 60 20 (i) State the products of absolute advantage and absolute disadvantage for both countries. You must explain how you arrived at your answer. [5 marks] (ii) Determine comparative advantage and comparative disadvantage for both nations, for both goods. You must show your calculations and draw a conclusion based on your calculations. Marks will not be awarded if workings are not shown. [6 marks] 4 (iii) From your answer in (i) and (ii) above, explain whether trade is possible and the pattern of trade according to the classical theories. [6 marks] 5 Use the hypothetical scenario below to answer the questions that follow Output Togo Mali Cheese (ton/hr) 60 10 Aircrafts (Units/hr) 40 20 (iv) If Togo exchanges 60C for 60A with Mali, (a) How much does Togo gain in terms of aircrafts? And how many hours does Togo save. Explain [2 marks] (b) How much does Mali gain in terms of aircrafts? Explain [3 marks] 6 (c) What is the range of mutually beneficial trade? Explain how you arrived at your answer [4 marks] QUESTION 4 Nigeria is a labour abundant nation and Japan is a capital abundant nation, producing and consuming palm oil and computers, using both labour and capital. Palm oil is labour intensive. Both nations experience increasing costs in their production. Explain the basis of and gains from trade for both countries using well drawn diagrams. [15 marks] 7 QUESTION 5 Palm oil is produced and consumed in Nigeria. The autarky price of palm oil is N100, Nigeria producers of palm oil produce 500 tons of palm oil and consumers consume 500 tons of palm oil. The free trade price of palm oil is N20. To protect domestic production and jobs, the Nigerian government imposes a 20 percent ad-valorem tariff on imported palm oil. Using partial equilibrium analysis and a well-drawn diagram, explain the impact of this policy decision. [10 marks] International trade is an important driver of economic growth for developed and developing countries alike. There are numerous measures used to examine or measure how a country performs when it comes to trade. This question is based on one of those measures. 1. Define Terms of Trade (TOT) [1 marks] 2. How is the Terms of Trade measured [2 marks] 3. Briefly explain what an improvement or decline in the Terms of Trade means [4 marks] Use the following link to access data from the UN Trade and Development (UNCTAD) database: Collect and download (in excel) Terms of Trade Index data series for the years 2005 to 2024 for the following regions: (i) Africa (ii) Americas (iii) Asia (iv) Europe (v) Oceania 4. Plot the data obtained above in one line diagram (you will have 5 lines representing each region). The figure must be correctly labelled with Terms of Trade Index on the vertical axis and years on the horizontal axis. The title of the figure should be above the figure, and the source should be below the figure [10 marks]. 5. In no more than one (1) page, discuss briefly, but concisely, the trend in the data series for the regions in question. Your discussion must speak to the peaks and troughs in the data. In addition, speak to any differences you observe in the terms of trade index of the regions in question, i.e. in which region(s) is the TOT higher overall etc. [8 marks]. 6. Briefly discuss some of the main factors that drive the differences in the TOT indexes observed between the regions [ 5 marks] 7. Include your data set on a new page in a table form. Do not copy and paste from the source. Create the table. [5 marks] NB: Your answer must NOT exceed 3 pages (single pages or 1.5 pages if writing back and front) QUESTION 2 [10 marks] Tariffs are known to cause redistribution of income from consumers to producers and government. Use the figure below to show these redistribution effects numerically in terms of how much is lost and gained by the three groups of economic players mentioned. QUESTION 6 (i) Compute the total consumer surplus in the absence of the tariff. [3 marks] (ii) Compute the consumer surplus after the tariff. [3 marks] 10 (iii) Compute the producer surplus [3 marks] QUESTION 7 Assume South Africa imports cement from Nigeria and Ghana at the free trade prices of R30 and R20 per ton of cement respectively. In autarky, South Africa’s domestic price of cement is R70 and 40 tons of cement are produced and consumed per annum. Use this information, and with the aid of a diagram, explain the concept of trade diversion. [10 marks]. South Africa imports beef from Egypt and Morocco who are two of the largest beef producers in Africa. The autarky price of a kg of beef in South Africa is R400 and the equilibrium quantity is 200kg of beef. The free trade price of beef imported from Egypt is R100 and R150 from Morocco. Assume that South Africa imposes a tariff of R60 per kg on imports of beef from both 3 Egypt Morocco. Assume also that South Africa later forms a custom union with Morocco only. Use this information and explain with the aid of a well-drawn diagram, the economic effects of this form of a customs union QUESTION 1 Discuss the potential trade effects and subsequent channels through which the covid-19 pandemic has affected a developing economy such as South Africa. [5 marks] 4. Plot the data obtained above in one line diagram (you will have 5 lines representing each region). The figure must be correctly labelled with Terms of Trade Index on the vertical axis and years on the horizontal axis. The title of the figure should be above the figure, and the source should be below the figure [10 marks]. 5. In no more than one (1) page, discuss briefly, but concisely, the trend in the data series for the regions in question. Your discussion must speak to the peaks and troughs in the data. In addition, speak to any differences you observe in the terms of trade index of the regions in question, i.e. in which region(s) is the TOT higher overall etc. [8 marks]. 6. Briefly discuss some of the main factors that drive the differences in the TOT indexes observed between the regions [ 5 marks] 7. Include your data set on a new page in a table form. Do not copy and paste from the source. Create the table. [5 marks] NB: Your answer must NOT exceed 3 pages (single pages or 1.5 pages if writing back and front) QUESTION 2 [10 marks] Tariffs are known to cause redistribution of income from consumers to producers and government. Use the figure below to show these redistribution effects numerically in terms of how much is lost and gained by the three groups of economic players mentioned. Explain briefly In your own words why international trade is important for a developing country. [10 marks] 4. Plot the data obtained above in one line diagram (you will have 5 lines representing each region). The figure must be correctly labelled with Terms of Trade Index on the vertical axis and years on the horizontal axis. The title of the figure should be above the figure, and the source should be below the figure [10 marks]. 5. In no more than one (1) page, discuss briefly, but concisely, the trend in the data series for the regions in question. Your discussion must speak to the peaks and troughs in the data. In addition, speak to any differences you observe in the terms of trade index of the regions in question, i.e. in which region(s) is the TOT higher overall etc. [8 marks]. 6. Briefly discuss some of the main factors that drive the differences in the TOT indexes observed between the regions [ 5 marks] 7. Include your data set on a new page in a table form. Do not copy and paste from the source. Create the table. [5 marks] NB: Your answer must NOT exceed 3 pages (single pages or 1.5 pages if writing back and front) QUESTION 2 [10 marks] Tariffs are known to cause redistribution of income from consumers to producers and government. Use the figure below to show these redistribution effects numerically in terms of how much is lost and gained by the three groups of economic players mentioned. QUESTION 3 Consider the following hypothetical scenario of two countries, Togo and Mali. Table 1: Output per worker hour Output Togo Mali Cheese (ton/hr) 20 10 Aircrafts (Units/hr) 60 20 (i) State the products of absolute advantage and absolute disadvantage for both countries. You must explain how you arrived at your answer. [5 marks] (ii) Determine comparative advantage and comparative disadvantage for both nations, for both goods. You must show your calculations and draw a conclusion based on your calculations. Marks will not be awarded if workings are not shown. [6 marks] South Africa imports beef from Egypt and Morocco who are two of the largest beef producers in Africa. The autarky price of a kg of beef in South Africa is R400 and the equilibrium quantity is 200kg of beef. The free trade price of beef imported from Egypt is R100 and R150 from Morocco. Assume that South Africa imposes a tariff of R60 per kg on imports of beef from both 3 Egypt Morocco. Assume also that South Africa later forms a custom union with Morocco only. Use this information and explain with the aid of a well-drawn diagram, the economic effects of this form of a customs union (iii) From your answer in (i) and (ii) above, explain whether trade is possible and the pattern of trade according to the classical theories. [6 marks] Differences in relative prices of commodities reflect nations comparative advantages. A nation will have a comparative advantage in producing the commodity that has the lower relative commodity price. As countries specialise in their commodity of comparative advantage, they experience increasing opportunity costs. Assume the following: (i) There are two countries, Sunveld and Moonveld (ii) There are two commodities, beef and leather (iii) In autarky, the equilibrium relative price of leather is Pb = 1/8 in Sunveld and Pb = 8 in Moonveld. Use the information provided above and well-drawn diagrams to explain the gains from trade for both Sunveld and Moonveld. South Africa imports beef from Egypt and Morocco who are two of the largest beef producers in Africa. The autarky price of a kg of beef in South Africa is R400 and the equilibrium quantity is 200kg of beef. The free trade price of beef imported from Egypt is R100 and R150 from Morocco. Assume that South Africa imposes a tariff of R60 per kg on imports of beef from both 3 Egypt Morocco. Assume also that South Africa later forms a custom union with Morocco only. Use this information and explain with the aid of a well-drawn diagram, the economic effects of this form of a customs union Use the hypothetical scenario below to answer the questions that follow Output Togo Mali Cheese (ton/hr) 60 10 Aircrafts (Units/hr) 40 20 (iv) If Togo exchanges 60C for 60A with Mali, (a) How much does Togo gain in terms of aircrafts? And how many hours does Togo save. Explain [2 marks] (b) How much does Mali gain in terms of aircrafts? Explain [3 marks] 6 (c) What is the range of mutually beneficial trade? Explain how you arrived at your answer [4 marks] QUESTION 4 Nigeria is a labour abundant nation and Japan is a capital abundant nation, producing and consuming palm oil and computers, using both labour and capital. Palm oil is labour intensive. Both nations experience increasing costs in their production. Explain the basis of and gains from trade for both countries using well drawn diagrams. [15 marks] 7There are two hypothetical countries, Sunveld and Moonveld. In one hour, Sunveld can produce 8 tons of beef or 6 tons of leather and Moonveld can produce 4 tons of beef or 5 tons of leather. Using the information provided above, answer the questions that follow. (i) In which commodities do Sunveld and Moonveld have an absolute advantage and disadvantage? Explain. [4 Marks] (ii) From your answer in (i) above, explain whether trade is possible and explain the pattern of trade according to the theory of absolute advantage. [3 marks] (iii) Compute and indicate the commodity of each nation’s comparative advantage and disadvantage. No marks will be awarded if you do not show your workings. QUESTION 5 Palm oil is produced and consumed in Nigeria. The autarky price of palm oil is N100, Nigeria producers of palm oil produce 500 tons of palm oil and consumers consume 500 tons of palm oil. The free trade price of palm oil is N20. To protect domestic production and jobs, the Nigerian government imposes a 20 percent ad-valorem tariff on imported palm oil. Using partial equilibrium analysis and a well-drawn diagram, explain the impact of this policy decision. [10 marks] There are two hypothetical countries, Sunveld and Moonveld. In one hour, Sunveld can produce 8 tons of beef or 6 tons of leather and Moonveld can produce 4 tons of beef or 5 tons of leather. Using the information provided above, answer the questions that follow. (i) In which commodities do Sunveld and Moonveld have an absolute advantage and disadvantage? Explain. [4 Marks] (ii) From your answer in (i) above, explain whether trade is possible and explain the pattern of trade according to the theory of absolute advantage. [3 marks] (iii) Compute and indicate the commodity of each nation’s comparative advantage and disadvantage. No marks will be awarded if you do not show your workings. QUESTION 6 (i) Compute the total consumer surplus in the absence of the tariff. [3 marks] (ii) Compute the consumer surplus after the tariff. [3 marks] 10 (iii) Compute the producer surplus [3 marks] QUESTION 7 Assume South Africa imports cement from Nigeria and Ghana at the free trade prices of R30 and R20 per ton of cement respectively. In autarky, South Africa’s domestic price of cement is R70 and 40 tons of cement are produced and consumed per annum. Use this information, and with the aid of a diagram, explain the concept of trade diversion. [10 marks] There are two hypothetical countries, Sunveld and Moonveld. In one hour, Sunveld can produce 8 tons of beef or 6 tons of leather and Moonveld can produce 4 tons of beef or 5 tons of leather. Using the information provided above, answer the questions that follow. (i) In which commodities do Sunveld and Moonveld have an absolute advantage and disadvantage? Explain. [4 Marks] (ii) From your answer in (i) above, explain whether trade is possible and explain the pattern of trade according to the theory of absolute advantage. [3 marks] (iii) Compute and indicate the commodity of each nation’s comparative advantage and disadvantage. No marks will be awarded if you do not show your workings. From your answer in (iii) above, explain whether trade is possible and explain the pattern of trade according to the theory of comparative advantage. [3 marks] Use the table below to answer the questions that follow. Output per hour Sunveld Moonveld Beef (tons/hr) 8 4 Leather (ton/hr) 6 5 (v) If Sunveld exchanges 8 tons of beef for 8 tons of leather, (a) How many tons of leather does Sunveld gain? Explain [2 marks] (b) How many hours does Sunveld save. Explain