International Trade Essay assignment 1. Explain what the term \"balance of trade

Question

International Trade Essay assignment

1. Explain what the term "balance of trade" refers to from a macroeconomic perspective and include a brief description of how exports and imports influence the balance of trade.

2. What benefits are to be gained from countries producing according to the concept of comparative advantage? What if a country is absolutely more productive in all goods?

3. What are the effects of a tariff, and who benefits and who loses when tariffs are imposed? What are the effects of a quota, and who benefits and who loses when quotas are imposed?

Explanation / Answer

1) Balance of Trade

Influence of exports and imports on BOT

2. Comparitive Advantage

When trade between two countries happen with comparitive advantage law the consumption possibilities expand for all countries involved. If a country follows the law of comparitive advantage that means there is less opportunity cost, thus the funds can be used for producing more goods.
If a country is absolutely more productive in all goods still it will gain from the trade because of low opportunity cost and it is comparitive advantage that determines which countries should produce which goods.

3. Tariff

The government benefits from tariffs as it gets funds in form of trarrifs to develop and produce more goods. Whereas the consumers are at a loss due to tariffs as they have to pay more in form of tariffs for the goods purchased.

Quota
In a given timeframe, when government puts a limit on the goods and services to be imported or exported to regulate the numbers is called as Quota.
Imposing a quota will benefit the importing contry as it encourages domestic production so more and more industries or firms will benefit out of this as they can produce more goods and services within the country and this in turn will benefit the governement because it will get goods and services produced inside the country which will be cheaper and of good quality and in turn will solve the issues of unemployment. On the other hand the exporting country will be at a loss due to quota because their exports will decrease and this will in turn affect their balance of trade and economic growth.

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