Tutorial Questions on Topic 3

Chap. 6:- Alternative Theories of Trade

2. Scale economies are important in markets that are not

perfectly competitive. What is the key role of scale
economies in the analysis of markets that are
monopolistically competitive? What is the key role in
oligopoly?

3. Once we recognise that product differentiation is the

basis for much international trade, there are likely to be
more winners and fewer losers in a country when the
country shifts from no trade to free trade. There may
be several reasons why this statement is true. What are
the reasons? Explain each briefly.

7. A monopolistically competitive industry exists in both

Pugelovia and the ROW but there has been no trade in
this type of product. Trade in this type of product is
now opened.

a. Explain how opening trade affects domestic consumers

of this type of product in Pugelovia.

b. Explain how opening trade affects domestic producers of

this type of product in Pugelovia.
11a. Here are data on Japanese exports and imports, for 2012,
for the same
seven products shown for U.S. trade in Figure 6.2:

Japanese Japanese
Exports Imports
($ millions) ($ millions)

Product
Perfumes (55310) 3 234
Cosmetics (55320) 1 291 1 183
Household clothes
washing 3 967
machine (77511)
Electronic microcircuits
(77640) 27 997 17 456
Automobiles (78120) 97 276 10 882
Photographic cameras
(88111) 11 26
Books and brochures
(89219) 96 251

a. For each product for Japan, calculate the IIT

share.

12. You are the advisor to the Indian government. Until

now government policy in India has been to severely
limit imports into India, resulting also in a low level of
Indian exports. The government is considering a policy
shift to much freer trade.
a. What are the 3 strongest arguments that you can offer
to the Indian government about why the policy shift to
freer trade is desirable for India?

b. Which groups in India will be the supporters of the

policy shift toward freer trade? Which groups will be the
opponents?