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ECS3702 EXAM PACK ANSWERS () AND 2021 BRIEF NOTES
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ECS3702 EXAM PACK ANSWERS () AND 2021 BRIEF NOTES
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ECS3702 EXAM PACK ANSWERSi i i
(2021 - 2014) AND 2021 BRIEF NOTES
i i i i i i i
ECS3702
INTERNATIONAL TRADE i
PASTEXAMPACKQUESTIONSANDANSWERS
i i i i i
(2019–2014) i i i
SUMMARISEDNOTES i
i 2021
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EXAMINATION MEMOS i
INTERNATIONAL TRADE i
ECS3702
MEMOS FROM 2019-2016
i i i
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Question i1a
Briefly iExplain ithe iFollowing iterms
(a) Absolute iAdvantage
Absolute i advantage i is i the i ability i of i a i country i to i produce i a i greater i quantity i of i a
i goodior iservice iwith ithe isame iquantity iof i inputs iper iunit iof itime, ior ito iproduce ithe isame
iquantity iof ia igood ior iservice iper iunit iof itime iusing ia i lesser iquantity iof i inputs, ithan
ianother ientity ithat iproduces ithe isame igood ior iservice.
(b) Factor iIntensity
The irelative iimportance iof ione ifactor iversus iothers iin iproduction iin ian iindustry, iusually
icompared iacross i industries. iMost icommonly idefined i by iratios iof i factor iquantities
iemployed iat icommon i factor iprices,for i instance i we isay ithat icommodity iY i is icapital
i intensive i if ithe icapital–labor iratio i(K/L) iused i in ithe iproduction iof iY i is igreater ithan iK/L
iused i in ithe iproduction iof iX.
(c) Export iSubsidy
Export isubsidy iis ia igovernment ipolicy ito iencourage iexport iof igoods iand idiscourage
isale iof igoods ion ithe idomestic i market ithrough idirect ipayments, i low-cost iloans, itax
irelief i for iexporters, ior igovernment-financed i international i advertising. i Export
isubsidies iare idirect ipayments i(or ithe igranting iof itax irelief iand isubsidized i loans) ito ithe
ination’s iexporters ior ipotential iexporters iand/or ilow-interest iloans ito iforeign ibuyers ito
istimulate ithe i nation’s iexports.
(d) Customs iUnion
A icustoms iunion iis igenerally idefined ias ia itype iof itrade ibloc iwhich iis icomposed iof ia
i free itrade iarea iwith ia icommon iexternal itariff. iCustoms iunions iare iestablished ithrough
itrade ipacts iwhere ithe iparticipant icountries iset iup icommon iexternal itrade ipolicy i(in
isome icases ithey iuse idifferent i import iquotas).
(e) Transfer iPricing
It iis ithe iprice iat iwhich itwo irelated iparties itransact ibusiness ibetween ithemselves. iIt
io ccurs iwhen itwo irelated iparties idecide ibetween ithemselves ithe itransaction iprice,
iand isuch iparties i may iaffect ithe iprice i when iunrelated iparties itransact.
Question i1b
Question Answer
1 1
2 2
3 3
4 2
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10 1
SECTION iB: iANSWER iALL iTHREE iQUESTIONS iIN iTHIS iSECTION.
QUESTION i2(a)
i
Assume ithat ithe icurrent idiscussion iin ithe icountry icenters ion ireducing ithe iflow iof
iChinese iapparel i into iSouth iAfrica ito ithe idebate i “should ithe iSouth iAfrica igovernment
1
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decide ito iimplement ia ilimit ion ithe iimportation iof iapparels ifrom iChina, iSouth iAfrica
iapparel iproduction iwould i increase iand ithe icountry i will ibe i better ioff”
(i) Define ithe ieffective irate iof iprotection iand iexplain iwhy inominal itariff iis
isometime iconsidered ito ibe ideceptive iin iterms iof iprotection iaccorded ito idomestic
iproducers. i(5)
The ieffective itariff irate iof iprotection iis ithe ipercentage iincrease i in idomestic ivalue
iadded iper iunit iof ioutput imade ipossible i by ithe itariff istructure. iIt iis ia i measure iof ithe itotal
ieffect iof ithe ientire itariff i structure ion ithe ivalue iadded iper iunit iof ioutput iin ieach i industry,
iwhen i both iintermediate iand i final igoods iare i imported.
Sometimes iit iis iconsidered ito ibe ideceptive iin iterms iof iprotection iaccorded ito idomestic
iproducers, ibecause iof ithe i implication ithat ito iimpose itariffs i on iboth i imported iinputs
iand ithe i final iproducts iof ithe i industry iis iself
defeating ias ithe itariff ion ithe iimported iinputs ireduces ithe ieffective itariff iprotection ion
ithe ifinal igoods.
(ii) Using ithe iformula ibelow, ishow ithat iit iis ipossible ifor ithe ithe ieffective irate iof
iprotection ito ibe i(a) inegative iand i(b) iequal ito ithe inominal itariff irate ion ithe
iconsumers iof ithe ifinal icommodity iFormula ifor ithe ieffective irate iof iprotection.
(5)
g=(t-aiti)/1-ai
where ig i= ithe irate iof ieffective iprotection ito iproducers iof ithe ifinal
icommodity it i= ithe inominal itariff irate ion iconsumers iof ithe ifinal icommodity
ai i = ithe iratio iof ithe icost iof ithe iimported iinput ito ithe iprice iof ithe ifinal icommodity iinithe
iabsence iof itariffs
ti i = ithe inominal itariff irate ion ithe iimported iinput
(a) Negative
If iti i is i20%, itherefore:
(b) Equal ito ithe inominal itariff irate ion ithe iconsumers iof ithe ifinal icommodity
iIf it i i is i10% i instead
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