International Trade Economics Essay

2058 words - 9 pages

International Trade Economics
Assignment 1

Question 1

a. Trade in services occur when there is no physical movement which is opposite to trade in goods. Based on case study of South African citizen visiting NZ, the modes of Trade in Services that would result from the transactions and activities of this individual are:

mode1. Cross-border when South African citizen purchase a ticket online (IT services),

mode2. Consumption abroad which has result after person has moved abroad as tourists to consume the respective services

and

mode4. Movement of natural persons that has accrued when person have had attended business meeting in NZ. In other words this mode can be described ...view middle of the document...

America has more trade with its neighbour Canada than with the whole Europe and the only reason for this is close locations. This partly reflects with increase of costs of transporting. In addition, countries have Canada –United States Free Trade Agreement which allows countries to ship goods and services without tariffs or other barrier to international trade. It also has a positive effect on tangible factors as economist believes that trade is to be more intense when countries has personal contact and in case of Canada and America it is very easy to reach due to visa free excess and language. For instance, U.S. imports of agricultural products from Canada totalled $16.2 billion in 2010 and it is largest supplier agricultural imports. Leading categories: snack foods (including chocolate) ($2.7 billion), red meats, fresh/chilled/frozen ($1.8 billion), live animals ($1.5 billion), and other vegetable oils ($1.1 billion) (USTR, 2012). All estimated gravity models show a strong negative effect of distance on international trade; 1 per cent increase in distance cause a fall of 0.7 to 1 per cent in trade and why this is, it is still on-going topic of research.

No body has now doubted about the role of cultural factor in international trade. Example that support this statement could drawn from these two countries: New Zealand and United Kingdom . Distance is significant, however it does not influence trade much. The relationship between New Zealand and Britain remains strong and close. This closeness arises from our historical connection with Britain, common traditions and values, and family ties: New Zealand has enjoyed several waves of immigration from Britain, the most recent during the seventies. Beyond these personal links, Britain is still a significant trading partner and often throws its weight behind New Zealand in the EU where trade access issues are concerned.

NZ Exports (FOB): NZ$1.56 billion
Main exports: sheepmeat (45%), wine (19%), dairy products 5%, electrical machinery (3%), wool products (3%).
NZ Imports (CIF): NZ$ 958 million
Main imports: vehicles (13%), books and newspapers (9%), pharmaceutical products (7.5%), machinery (15%), electrical machinery (8%). (NZMAFT, 2012)

Question 2

a.

The production possibility frontier (PPF) of an economy shows the maximum amount of goods that can be produced for a fixed amount of resources in an economy (Krugman et al.,2012). Qv represents the quantity of cars produced and Qc represents the quantity of cheese produced.

The economy’s total labour supply n in NZ is 3000 (500 in UK) and that it takes 25 hours (25 in UK too) of labour to produce a kilogram of cheese and 2000 hours (50 in UK) to produce a car. Therefore the maximum number of cheese that can be produce in NZ is 120 kg/20 in UK and 1.5 cars in NZ /10 in UK.

Shape of the PPF in this case is downward sloping, based on these assumptions: only two countries, two goods, one input (labour),...

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