Assignment 4

Syeda Tasbeeh e Fatima

Sec G
Q1. What are the benefits arising from international trade? Are they the same for
industrial goods as for consumer goods? What costs to consumers arise from
international trade?
Ans1. There are many benefits of international trade. First of all it gives firms an opportunity to
grow. There’s a broader market so that firms can capture a larger market share. Moreover,
there’s a more variety to choose from for consumers as well as the frim. Firms can get their
supplies at a lower price and better quality. Countries can also specialize, they can produce
what they are best at and import the rest. International trade also increases employment
opportunity which then results in an increase in purchasing power of the people. Lastly,
advance technology comes into the country from more technological advanced countries. Yes,
the benefits for consumer and industrial are quite the same. However, Imported goods have
sometimes higher prices due to import duty and taxes, and this higher price is then paid by the
consumer. Moreover, international competition forces domestic firms out of business if they
are unable to fight the competition.
Q2. Discuss how exports and imports help to increase productivity and efficiency.
Ans. Imports and exports is a way to increase productivity and efficiency. New methods
of production and advance technology migrates from one country to another which
helps companies to produce more with minimum wastage. Technology advancement
sometimes also results in an entirely new industries. Competition also increases for the
domestic firms which pushes them to become more efficient. Countries also benefit
from comparative advantage where a country produces only the good in which they
specializes and exports it. It imports the good which is advantage is less.

Q3. Find an example of a country that is exporting a product for which it has an absolute
disadvantage with a trading partner but where there is a comparative advantage.
Explain the nature of this trading relationship.
Ans. If country A has an advantage in producing batteries and phones and country B
has disadvantage in producing both the products. Country A will specialize in producing
batteries because it has greater advantage in producing it and country B will focus on
only producing phones so it can specialize in it. This is called comparative advantage
trade.