1.
a. Briefly explain why Hume and Smith were critical of the views of the Mercantilists. (250 words)
b. The following Ricardian model provides the units of labour that are utilised to produce a unit of the following products. The wages paid in France is 7 Euros per hour whilst the wages paid in the USA it is $6.00 per hour.
Cloth Cheese Butter Wheat Sugar
USA 5hr 6hr 10hr 14hr 4hr
France 3hr 5hr 4hr 7hr 3hr
If the exchange rate is 1 Euro =US $1.50, which products will the USA export? Which products will France export? Explain how trade will be affected if there is a rise in wage rate in the USA to $8.00 per hour. With the original wage rates how is trade affected if the exchange rate changes to 1 Euro = US $1.40. (250 words)
c. The five largest global traders are China, the USA, Germany, Japan and France. Discuss the importance of comparative advantage to these nations and support your answer with examples. Explain how relatively lower wages in China give it a great advantage in trade over others. What do you regard as the main weaknesses of the Ricardian model as an explanation of trade patterns? (800 words)
2. Discuss the Leontief paradox and provide a summary of the work by Keesing and Baldwin on the importance of human capital in helping to resolve the paradox. (300 words)
3. Differentiate between inter –industry and intra -industry trade and discuss why an increasing proportion of world trade today involves the exchange of differentiated products. (500 words)
4. With the usage of a partial equilibrium approach, explain the real income loss from a tariff imposition by a small country. What is the consumer welfare loss? Why might consumers prefer a production subsidy rather than a tariff? (300 words) (400 words for FN5006T)
5. Discuss why Import Substitution Industrialization policies are a necessary step to the adoption of Export Oriented strategy for developing economies. (300 words)
6. Discuss the usefulness of FDI in determining the growth and development of less developed countries. (300 words)