• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

I.B Economics Commentary

Extracts from this document...

Introduction

When a certain country opens its borders for free international trade and removes most of its trade barriers, we can say that this country is establishing trade liberalization. This openness to trade increases the country's welfare and encourages economic growth. On the other hand when a country regulates trade and enters into limited trade agreements, it faces significant difficulties in getting their goods into the international market and doesn't enjoy a variety of imported goods. In this case, the following assumptions will be used for the sake of explaining this case: * There are two trading entities: Country A (Asia) and Country B (international market). * There are only two commodities: clothes and computers. * Limited resources and one factor of production (labor) * Constant returns to scale. Diagram-1, 2 are the production possibilities frontier for both countries before trade. ...read more.

Middle

Opportunity cost is the cost of using a resource measured in terms of the sacrifice foregone in the next best alternative. The following table shows the calculation of the opportunity cost of producing both goods in each country using the same amount of labor. Country A Country B Clothes (yards) c 600 200 Computers (units) pc 200 600 For Country A: The cost of producing 1 yard of cloth = 200/600= 1/3 pc The cost of producing 1 unit of PC = 600/200= 3 c For Country B: The cost of producing 1 yard of cloth = 600/200= 3 pc The cost of producing 1 unit of PC = 200/600= 1/3 c Therefore, Country A has a comparative advantage in the production of clothes since it has lower opportunity cost, and in the same way Country B has a comparative advantage in the production of computers. ...read more.

Conclusion

So everyone is now better off. This conclusion comes in line with the ADB report that 'trade has long been a key driver in the Asian growth'. Country A (Asian countries) also gained further advantage from removing the trade barriers, which enabled them to reach levels of product that were not achievable in autarky. First, by specializing they gain economies of scale which means that the cost of producing additional unit will be lower, and their output will also increase. Moreover, Greater competition drives local producers to cut costs and be more efficient. Consumers also benefits from trade by Diversification of the products that a consumer can enjoy. However, these benefits can limit through transport costs that can make it more expensive to trade. Add to that, because of lack of protectionism infant industry might suffer as they need time to expand and gain economies of scale and be able to compete on an international basis. ?? ?? ?? ?? 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. World Economics assignment. The core economic issues that are focused on in this ...

    What's more, it decreases the cost of foreign investment to dedicate domestically. Analysis on Element 13 According to wikipedia, "Least Developed Country (LDC) is the name given to a country which, according to the United Nations, exhibits the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings of all countries in the world.

  2. Growth and Development Problem Set - IB Economics exam questions and answers.

    from higher income to lower income groups; with regressive taxation, inequalities become more pronounced, with serious consequences for both growth and development efforts. Property rights refer to the laws and regulations that define rights to ownership, use and transfer of property.

  1. Old IB Questions

    that they can devote to both R&D (research and development) and advertising. Whereas monopolistically competitive firms also engage in non-price competition, the resources at their disposal for these purposes are generally not as significant. * The development of new products provides firms with a competitive edge; they increase their monopoly

  2. Fair Trade

    A prime example of this is the implementation of palm plantations in territories formerly rich with wildlife and rain forests. The Malaysian government has now realized this issue and in recent years has striven to preserve their nation's environment, and tourism is playing an ever increasing role in the country's economic growth as a result to this change in mentality.

  1. LDC Essay Economics Barriers to Growth

    The Harrod-Domar model focuses upon the amount of investment on the rate of technological progress vital for the growth process. Furthermore, the replica represents economic growth depending primarily on the amount of labour and capital. As lower economically developing countries regularly have an abundant supply of labour, it is a

  2. Outline briefly- with a diagram, the key economies and diseconomies of scale, both internal ...

    Managerial economies: Larger businesses have greater scope for the specialisation of labour, employing specialist workers (e.g.

  1. Is there possibilities of war for resources?

    tropical rainforests, changes in the proportion of non-food crops to food crops may have even greater impacts on the available cropland for food production. The scarcity of other resources may prove serious as well. For example, today one in four people on the planet do not have access to safe

  2. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    Wages are believed to be determined by labor markets and not by demand. Classic economics also functions under the assumption that prices, wages, and interest-rates are flexible, this is to say that they can rise or fall to compensate and counteract market fluctuations or failures.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work