ECON 401 Assignment 2, version E
1. (a) Explain the new trade theory. What is the role of economies of scale in this theory?
The new trade theory specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms. So a country’s pattern of trade may be a reflection of the ability of firms in that nation to capture first-mover advantages.
Two important points:
• Impact on economies of scale, trade can increase the variety of good available to consumers and decrease the average cost of those goods.
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National data systems
Social Welfare programs
Changes in order to achieve benefits associated with outsourcing
1. Rich countries will have to specialize more in delivery of services where personal presence is either imperative or highly beneficial.
2. Rich nations will have to transform their educational systems, prepare workers for the jobs that will actually exist in their societies.
3. Rethink the currently inadequate programs for trade adjustment assistance such as unemployment insurance, job retraining, health insurance, pensions and public assistance.
4. Increase the safety net
3. Why are producer interests likely to outweigh consumer or citizen interests when it comes to the setting of trade policies?
Trade policies, such as tariffs, subsidies, anti-dumping regulations, and local content requirements tend to be pro-producer and anti-consumer. Gains accrue to producers who are protected from foreign competitors. Consumers lose because they must pay more for imports.
4. List and discuss political and economic reasons for governments intervening in the markets.
Two types of arguments for government intervention in international trade
1. Political arguments: intervention is concerned with protecting the interests of certain groups, often at the expense of other groups, or with promoting goals with regard to foreign policy, human rights, and...