WHY IS THE CONCEPT OF BILATERAL TRADE BALANCE A SLIPPERY ONE?

Question 1: Explain in brief what follows;

  1. Why is the concept of bilateral trade balance a slippery one?
  2. Why has the ratio of trade (or the degree of openness) a negative relationship with the size of the economy?, give an example
  3. Fluctuations in the international trade might be referred to several reasons, what are these reasons?, give an example
  4. Justify  inconsistency between the map of international trade and the map of migration
  5. Discuss the reasons for FDI

Question 2given the following information on US and UK under autarky

Pre-trade position Production
Cloth Wheat
US    
MPL 2 4
L 25
Q ? ?
UK    
MPL 1 3
L 30
Q ? ?

Where MPL , L, and Q stand for marginal product of labor, quantity of labor, quantity of production, consecutively.

  1. Find quantities of wheat and cloth in each country? Graph PPF for each country (cloth on the vertical axis)? Find relative domestic prices in each country using PPf and explain it? And determine the patterns of specialization?
  2. Given the quantities of production and consumption at a  pre-trade position, as follows;
Pre-trade position Production Consumption
Cloth Machine Cloth Machine
       
US 25 50 25 50
UK 15 45 15 45
         

Graph pre-trade equilibrium position for each country using PPF and IC

  1. Assume that the international price of wheat is determined to be “1 bushel of wheat= 0.43 yards of cloth”,  and the country specialized in producing wheat will export 55 bushels . Find what follows;

a-      Fill the following table

Pre-trade position Production Consumption Exports Imports
Cloth Wheat Cloth Wheat Cloth Wheat Cloth Wheat
               
USA                
                 
UK                
                 
Post-trade                
US                
                 
UK                

b-      Graph international equilibrium position of both UK and US after trade (post-trade) to reflect the reached information in a

c-      Derive the international demand and supply curves of wheat

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