Question- 1 : What are the economic basis for international trade? Explain in de

Question

Question- 1: What are the economic basis for international trade? Explain in detail the gains from mutual absolute advantage and comparative advantage with an example.                                                                                      

Question- 2: Critically explain the linkages between macroeconomic factors and stock market of a country. Also highlight the role of inflation in affecting the UAE stock market.

Question- 3: It is widely believed in the literature that oil prices can considerably influence the capital markets in general and stock markets in particular. Taking the case of oil importing countries, explain how and why the declining oil prices affect their stock markets?

Question- 4: Explain any five key factors affecting the industrial production in general. Do these factors matter in case of UAE as well? Justify your argument.   

Question- 5: Critically evaluate the role of technological advancements in the industrial growth and development of a country.

Explanation / Answer

1.

Trade between two economies takes place when it helps each other in achieving goods more efficiently than what they could get themselves. It helps economies to balance their requirement and win-win situation. It is explained by law of principle advantage and comparative advantage.

As per the law of absolute advantage, different economies produces goods that are done more efficiently than the others. Thus, absolute advantage of one economy is established over others. Similarly, it is the case of other economies also. Later on, they start trading with each other to be benefitted from the advantage of each other.

For example, an economy has a huge land area that help to produce huge quantities of agriculture produce in a most efficient manner. Though, a country with intellectual pool produces software products in the most efficient manner. Thus, both the economies will trade with each other to fulfill their requirements.

The law of comparative advantage deals with the production of goods and opportunity cost related to it. Here, economies focus on producing that good only that causes lower opportunity cost. Similarly, other economies focus on that good causing lower opportunity cost for themselves. Later on, these economies trade with each other to fulfill their requirements.

For example, following table shows the comparative advantage of country A in Fish production and comparative advantage of country B in Coconuts on the basis of opportunity cost.

Country A 's Opportunity Cost

Country B's Opportunity Cost

One fish

.75 coconut

2 coconuts

One coconut

1.5 fish

1/2 fish

Country A has lower opportunity cost of producing fish and country B has lower opportunity cost of producing coconuts. Later on, they engage in trade.

Country A 's Opportunity Cost

Country B's Opportunity Cost

One fish

.75 coconut

2 coconuts

One coconut

1.5 fish

1/2 fish

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