1. how can international trade theory explain intra-industry trade? 2. why might
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1. how can international trade theory explain intra-industry trade?
2. why might we except intra-industry trade based on scale economies to be less politically controversial than intra-industry trade based on comparative advangate?
3. This question asks you to analyze the effects of removal of a tariff on imported oranges. The following table summarizes the situations in the orange market with and without the tariff. The first column describes the situation with a $4.00-per-bushel tariff on oranges. The second column represents the situation after the tariff is removed. You may assume that transportation costs are zero and that the supply and demand curves are straight lines. With $4.00 Tariff With Free Trade World Price of Oranges ($/Bushel) $12.00 $12.00 Tariff Per Bushel ($/Bushel) $4.00 $0.00 Domestic Price of Oranges ($/Bushel) $16.00 $12.00 Oranges consumed domestically 24 8 (million bushels/year) Oranges produced domestically 8 6 (million bushels/year) a. Illustrate the effects of removal of the tariff. Label the free-trade and tariff equilibria in terms of consumption, domestic production, imports, and domestic and world prices. b. Estimate the amount domestic consumers gain from removal of the tariff. Show and explain your work. c. Estimate the amount of the net effect on the country’s welfare from removal of the tariff. Show and explain your work. d. In this case, would the optimal import tariff on oranges be negative, zero, or positive? Why? Under what assumptions is the “optimal” tariff really optimal?
Figure 5 External Scale Economies and Comparative Advantage Firm's AC ACB AC3 AC ACI ACA 0 X X X2 X, Industry Output In autarky, country A produces X% at cost ACA and country B produces Xatcot ACB. International trade will be mutually beneficial if the country with comparative advantage (here, A) gets a head start in the industry; firms in country A would produce X, at cost AC,. However, if the comparative-disadvantage country (B) gets a head start, firms in the comparative- advantage country may not be able to enter because of their high initial costs (AC), and country B firms will produce X2 at cost ACExplanation / Answer
Multiple questions asked.
Q1 is answered below.
Intra-industry trade refers to the trade of goods and services belonging to the same industry. E.g. import and export of cars, computers etc.
It is a type of international trade where countries exchange the same good with each other.
This can be explained with the help of Heckscher-Ohlin-Ricardo model which states that countries having similar factor endowments would still trade due to differences in technology, as this would encourage specialization and therefore trade.
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