Understanding Trade Dynamics and Policies Impact

One of the dynamic gains from trade is the diffusion of technological advance. Can you explain this gain and the impact on domestic companies? 10 points.

The dynamic gains refer to the relationship between trade and economic growth. The economy experiences increases in its stock of productive factors because a technological innovation helps a country's existing stock of factors to become more efficient. This means in our model the PPF has a growth.

The United States has used quotas to protect its domestic sugar industry. What has been the likely impact of these quotas on the world price of sugar (relative to the price that would exist under free trade)? 10 points.

Quotas restrict the amount of foreign competition in the marketplace, so that means the world price of sugar will be down because the demand for sugar will fall.

In 1933, the federal “Buy American” act was first passed in the United States. Why did they do that? What is the impact on consumers of these policies? 10 points.

The US government agencies, except the defense department, purchase domestically produced goods and services unless the domestic price is more than 12 percent greater than the foreign price. The effect of this type of policy is to raise the cost to the government of providing public services, transferring income in the process from taxpayers to domestic producers.

Under what circumstances can commercial policy be an effective tool to solve world environmental problems? 10 points.

Commercial policy can be a very helpful tool to regulate the emission of contamination of the companies by imposing taxes.

Differences between custom union and a FTA

The basic difference between FTA and CU is how the member countries treat non-members. In particular, a custom union is an association of countries that agrees to eliminate barriers to trade among its members and to form a common barrier against non-member countries. Countries that form FTA also agree to eliminate trade barriers among themselves, but they maintain their own individual trade barriers against non-member countries.