INSTITUTE OF FINANCE MANAGEMENT
DEPARTMENT OF ECONOMICS AND TAX MANAGEMENT
International Trade and Investment ECU – 07412
QUESTIONS FOR PRESENTATIONS
TOPIC 1: INTERNATIONAL TRADE THEORIES
Question 1
a) Explain the doctrine of mercantilism and discuss its criticisms
b) Illustrate absolute advantage theory showing clearly how countries can gain from
trade
c) Illustrate comparative advantage theory showing clearly how countries can gain from
trade
d) Critically analyze the limitations of the Ricardian model in explaining real-world
trade patterns.
Question 2
a) Analyse the concept of factor endowments and factor intensities in the Heckscher-
Ohlin model and show how the two concepts help to explain the basis for trade
b) Explain the Leontief Paradox and its implications for the Heckscher-Ohlin model
c) Explain why the Leontief paradox does not nullify the H-O Theory
d) Critically analyze the limitations of the Heckscher-Ohlin model in explaining real-
world trade patterns.
Question 3
a) Discuss the factor price equalization theorem: when does factor price equalization
fail?
b) Explain the Rybczynski theory
c) Explain the main implications of slolper Samuelson theorem
Question 4
a) What are the key differences between traditional trade theories (such as the Ricardian
and Heckscher-Ohlin models) and new trade theories based on economies of scale and
imperfect competition?
b) Explain the concept of economies of scale and how it influences international trade
according to new trade theories
c) Explain the role of product differentiation and monopolistic competition in shaping
trade patterns under new trade theories
d) Critically analyze the strengths and limitations of new trade theories based on
economies of scale and imperfect competition in explaining real-world trade patterns
and policy implications
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TOPIC 2: INTERNATIONAL TRADE POLICIES
Question 5
a) Explain what protectionist policy is
b) Discuss the arguments for and against protectionist policy
Question 6
a) Using appropriate illustrations and examples analyze how tariffs affect international
trade, and what are their potential advantages and disadvantages?
Question 7
a) Explain the potential negative and positive effects of an export subsidy
b) With examples describe the following the non-tariff instruments of trade policy
i. Voluntary export restraints
ii. Local content requirements
iii. Embargo
iv. Antidumping policies
v. intellectual property rights
vi. Environmental regulations
TOPIC 3: INTERNATIONAL CAPITAL MOVEMENTS
Question 8
a) Analyse the theories of foreign direct investment
b) Analyse the theories of multinational corporations
Question 9
Multinational corporations have a significant role in enhancing economic growth of host
countries. Discuss
TOPIC 4: ECONOMIC INTEGRATION AND GLOBALIZATION
Question 10
Explain the stages of economic integration
Question 11
a) Explain the meaning and types of economic globalization
b) Explain the challenges and opportunities faced by developing countries in the era of
economic globalization.
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TOPIC 5: EFFECT OF TRADE ON ECONOMIC GROWTH, PRICES AND WAGE
INEQUALITY
Question 12
a) Analyze the role of international trade and investment in promoting economic growth
using Tanzania as a case study
b) Analyse the effect of international trade on prices and wage inequality
TOPIC 6: INTERNATIONAL MACROECONOMIC POLICY
Question 13
a) Explain the meaning of the balance of payment
b) Explain why most developing countries like Tanzania face balance of payment problems
c) Explain macroeconomic policy goals in an open economy
Question 14
a) Explain how the fixed exchange rate system works
b) Explain how the flexible exchange rate regime works
c) Discuss short-term, medium-term, and short-term determinants of exchange rates
Question 15
d) Explain the pros and cons of monetary union or single currency regime
e) Explain the preconditions for a successful currency union
TOPIC 7: INTERNATIONAL TRADE INSTITUTIONS
Question 17
Explain the Breton Woods international monetary system
Explain the goals and structure of the IMF
Question 18
Discuss the WTO membership and its implications
Question 19
Explain the key issues in Doha negotiations
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QUESTIONS FOR CLASS EXERCISES /ASSIGNMENT
Question 1
Assume that the Home country has a total supply of labor hours of 1000 and the foreign
country has a total supply of labor hours of 1200. Each country can produce two goods:
bicycles and skateboards. The unit labor requirements in Home production are 5 hours per
bicycle and 2 hours per skateboard. Foreign requirements for both bicycles and skateboards
are 3 hours per unit.
a) Graph the production possibilities frontiers for the Home and Foreign economies (put
bicycle production on vertical (y) axis and skateboards production on horizontal (x)
axis) (2 marks)
b) In the absence of trade, what is the relative price of bicycles in terms of skateboards in
each country? Explain your answer (2 marks)
c) Based on your answer in “b” above, what trade pattern that is expected to emerge
when these two countries decide open for trade(2 marks)
d) if these countries deicide to open up for trade, explain the changes in demand and
supply conditions in both countries which will lead to establishment of post trade
equilibrium relative prices (TOT) (3 marks)
e) Trade is said to make each country better off by enlarging the range of consumption
choices available to residents. Graph the expanded consumption opportunities
available to Home and foreign consumers after trade (put bicycle production on
vertical (y) axis and skateboards production on horizontal (x) axis). (3 marks)
f) Calculate the gains of trade if the relative price of skateboards in terms of bicycles
under free trade is 4/5. (3 marks)
Question 2
Tanzania has 1200 hours of labor available. Tanzania can produce two goods, oranges and
bananas. The unit labor requirement in orange production is 3 hours, whereas in banana
production it is 2 hours.
a) Graph Tanzania’s production possibility frontier (PPF).
b) What is the opportunity cost of oranges in terms of bananas?
c) In autarky, what would the price of oranges in terms of bananas be?
d) Explain the logic behind your answer in C above
Suppose now there is another country, Uganda with endowment of 800 labor hours available.
Uganda’s unit labor requirement in orange production is 5 hours, while in banana production
it is 1 hour.
e) Which country has a comparative advantage in the production of bananas and why
f) Where will the free trade price of oranges settle post trade?
g) Using appropriate diagrams, show how both countries gain from trade.
Question 3
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Think about the two Ricardian economies that have the resources and technologies listed
below. With the given constant labor amounts per unit of output, each can produce two
goods, X and Y, given its fixed endowment of labor, which is its only factor of production:
Endowment Per-unit labor requirement
of Labor
for producing
X Y
Country A 60 1 2
Country B 120 2 3
a) Draw the production possibility frontiers for each of these countries.
b) Calculate their autarky relative prices of good X, px/py.
c) Which country has an absolute advantage in good X? Which in good Y? Which has
a comparative advantage in good X? Which in good Y?
d) Calculate wages of labor in each country in units of both X and Y.
e) Assume for the moment that these nations' free trade results in a global equilibrium
price of px/py = 0.60. Determine the new labor wages in each nation using both X
and Y units. Are these workers better off, worse off, the same, or is it impossible to
tell?
Question 4
Both Switzerland and the United States manufacture watches and cars. The following table
displays the amount of labor needed to make one unit of each product.
Automobile watches
United states 5 50
Switzerland 20 60
a) Which country has an absolute advantage in the production of watches? In the
production of automobiles?
b) Which country has a comparative advantage in the production of watches? In the
production of automobiles?
c) Suppose each country has 1200 labor hours per week available and currently splits
labor force evenly between the two industries. explain who countries will achieve
trade gains if they decide to specialize and trade according to comparative advantages
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Question 5
Suppose two countries United Kingdom (UK) and Germany use only capital and labor for
production. Factor endowments of the nations are presentated in the table below
UK Germany
Capital 2200 880
Labor 800 220
Which country is labor-abundant? Which country is capital abundant?
Suppose that both countries produce two commodities, cars and wine. Suppose further that
capital-intensive and wine is labor-intensive, which country should specialize in the
production of cars? Which country should specialize in the production of wines? Explain why
Question 6
Suppose that France and Germany are the two countries in the world. These nations
exclusively employ labor (L) and capital (K) in their production. Germany has 816 capital
and 270 labor units, while France has 2,050 capital and 916 labor units. Both nations
manufacture cars and wine. 366 capital and 135 labor units are used in the wine wine industry
in Germany. On the other hand, 618 units of labor and 926 units of capital are employed in
the wine business in France.
a) Which nation is labour-abundant? Which nation is capital abundant?
b) Which commodity is labor-intensive in Germany? Which commodity is capital-
intensive in Germany?
c) Assume that there is no international trade between France and Germany. Which
nation would have the lower relative price of wine, assuming that both had the same
preferences?
d) Let's say that trade occurs between the two nations at this point. What is going to
happen to the relative price of wine in France?
e) What is the effect of free trade on labour in France? On capital owners in France?
f) What are the effects of free trade on wages and the rental of capital in Germany?
g) With the opening of trade, what is most likely to occur in terms of the production of
cars in France?
Question 7: Tariff analysis (small country case)
The domestic demand and domestic supply curves for apples in a small closed economy are
as follows:
Supply: P 2QS 2
6
Demand: P QD 32
a) Calculate the value of consumer surplus (CS) and producer surplus (PS) for the apple
market in this small closed economy.
b) Use the following information to answer questions i) ~ iv). Suppose that this small
closed economy is open to free trade and that the world price is $10 per apple.
i. With free trade, what is the quantity supplied by domestic producers?
ii. With free trade, what is the quantity demanded by domestic consumers
iii. With free trade, how many apples will the country import or export?
iv. Calculate the value of consumer surplus and producer surplus
c) Use the following information to answer question a) ~ i). Suppose that the
government imposes a tariff of $4 on each apple, and the world price is $10 per apple
i. What is the quantity supplied by domestic producers after the introduction of
the tariff?
ii. What is the quantity demanded by domestic consumers after the introduction
of the tariff?
iii. How many apples will the country import or export after the introduction of
the tariff?
iv. Draw a graph and shade the areas of the consumer surplus, the producer
surplus, the total tariff revenue, and the deadweight loss (DWL) after the
introduction of tariffs
v. Calculate the value of consumer surplus and the value of producer surplus for
the apple market after introducing the tariff
vi. Calculate the value of total tariff revenue.
vii. Calculate the value of the deadweight loss (DWL)
d) Use the following information to answer question i) ~ ix). Assume that rather than
imposing tariffs, the government establishes a quota that permits imports of 6 units.
Suppose that the world price is $10 per apple.
i. Determine the new supply curve's equation given the 6-unit import quota
ii. What is the quantity demanded by domestic consumers after the introduction
of the quota?
iii. What is the quantity supplied by domestic producers after the introduction of
the quota?
iv. How many apples will the country import or export after the introduction of
the quota?
v. Draw a graph and clearly show the new supply curve. On the graph, indicate
the areas of the consumer surplus, the producer surplus, the license holder
revenue (LHR), and the dead weight loss after the introduction of the quota.
vi. Calculate the value of consumer surplus and the value of producer surplus for
the apple market after imposing the quota
vii. Calculate the value of total license holder revenue (LHR)
viii. Calculate the value of the deadweight loss (DWL).
ix. What amount of quota would the government set in order to reach the
equilibrium quantity equal to the domestic quantity demanded under the $4
tariff policy in part c?
Question 8. Tariff analysis (large country case)
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Suppose you are given the following information
The demand and supply equations of a home country are given as follows
𝐷 = 100 − 20𝑃
𝑆 = 20 + 20𝑃
Whereas, demand and supply equations of a foreign country are given as follows
𝐷 ∗= 80 − 20𝑃
𝑆 ∗= 40 + 20𝑃
a) Derive the import demand equation for the home country. What would be the price of
wheat in the absence of trade?
b) Derive the export supply curve of the foreign country. What would be the price of
wheat in the absence of trade in foreign?
c) Now, suppose the two countries engage in international trade. Calculate the
equilibrium price under free trade, the world price, and the volume of trade
d) Now assume that the Home country decides to impose a specific tariff of 0.5 on each
unit of maize imports. Calculate the new price of maize in each country, the quantity
of maize supplied and demanded in each country, and as well as the new volume of
trade.
e) Draw a graph to show the above tariff effects. Calculate consumer loss, producer gain,
government revenue and the change in welfare in the home country because of tariff
imposition
