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Flashcards in Jamey paper 2 mistakes Deck (8)
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Explain why Mexican producers might choose to dump their sugar in the US market.

The intention is to undercut rivals with low prices in the short-term and prices will then be increased in the long-run once domestic producers have been forced out of the market and competition has been removed (idea of predatory dumping)


Consider how an economist would decide whether the accusation that Mexican producers were dumping sugar in the US was justified

- For an explanation that low prices are because of relative factor endowments, i.e. Mexico is better at producing sugar than the US
- For an explanation that suggests that the costs of production would need to be examined and whether the price is below cost or whether the low prices are a reflection of factor endowment


Consider who, if anybody, in the US and Mexico might benefit from a trade war despite the advantages of free trade.

- For an explanation of the benefits of free trade based upon comparative advantage.
- For a consideration of those who might benefit from a trade war for example domestic producers, workers and consumers in the short-run.


Explain two factors, other than India’s ban on US agricultural products, that could explain the change in the US balance of trade that you have identified.

A growth in the deficit could be caused by a number of factors. These include:
• A decline in India’s exchange rate against the US dollar.
• A change in tastes away from US goods in favour of India’s goods.
• An improvement in the efficiency of Indian industry that means that the price of Indian goods is lower than the price of American goods.
• The imposition of tariffs on US goods by the Indian government.


Explain a possible reason why China imposed export quotas on tungsten and molybdenum.

The effect would be to raise the export price (1 mark) and as a result raw material costs for the production of a range of American products would rise giving an advantage to Chinese producers of these goods (1 mark)

There are a number of other possible reasons that could be explained by the candidate.
• e.g. to preserve declining/scarce resources and ensure a supply for domestic producers
• to increase revenue from exports due to the increase in price.
• to reduce production of tungsten and molybdenum because of the environmental impact of their production.


Explain the difference between Nominal and Real exchange rate

Nominal - one that is expressed without taking into account the effects of inflation

Real - The nominal exchange rate has been adjusted, taking into account the effects of inflation on the value of a currency in terms of purchasing power / reflects the purchasing power of money at constant prices


How did decreasing price of oil in Russia lead to depreciation of the Rouble?

- shift of demand curve to left
- Russia’s exports are heavily dependent on oil; the oil price has tumbled from its mid-2014 peak of over US$100 a barrel to only about US$40 a barrel
- This has meant that other countries needed fewer roubles to buy oil from Russia, causing a shift of the demand curve to the left with a resulting fall in the price and in the quantity traded


How does the principle of comparative advantage benefit New Zealand's economy?

- The principle of comparative advantage is when a country produces a good / service at a lower opportunity cost than another country
- Comparative advantage is determined by factor endowment
- Allows for better allocation of resources through specialisation and trade