The Economics and Ideology of Free Trade - Assignment Example

Macroeconomics Name College Course Date Quiz 1 a) If new oil fields start up in production, the supply curve will shift to the right. This is because a startup of new oil fields will lead to increased supply of oil for central heating, this increase in supply is mainly due to increase in capacity, each oil field will be producing according to its own capacity. The prices will also fall due to increased supply, what will push the prices downwards is the decreased demand due to excesses in supply, when new firms enter a market; supply increases and causes downward pressure on the market price. Sometimes producers may decide to deliberately limit supply by controlling production through the use of quotas. More firms’ increases market supply and expand the range of choice available. b) The fall in price of gas will result to movement along the supply curve in downward direction. This is because the fall in price of the gas which is a substitute will force people to go for gas which is cheaper and serve the same purpose .this reduction in price of gas will compel or rather put a downward pressure on the price of oil for central heating.if prices are not reduced then any rational consumer can not opt for expensive products with other products which can supplement them being available in market. c) Anticipation for an upsurge in demand for central cooking oil will lead to a shift in supply curve upward and to the left. This is due to the fact that anticipation for increase in prices will force the firms to safe for the future production in anticipation for higher profits which will come together with higher demand. The decision to sell a good today depends on expectations of future prices. Sellers seek to sell the good at the highest possible price. If sellers expect the price to decline in the future, they are inclined to sell more now. If they expect the price to rise in the future, they are inclined to sell less now. d) If demand for petrol increase the supply curve will shift to the right. This is due to the fact that petrol is a complement in production of heating oil hence increased demand for petrol will lead to production of same petrol in large quantities, in the process there will also be increased production of heating which in extension implies that there is increased supply and therefore forcing prices downward. A change in the price of a complement good induces sellers to supply more or less of both goods. An increase in the price of a complement motivates sellers to sell more of this good as they sell more of the complement good. e) If there is new technology to decreases the costs of oil refining then there will be a shift in the supply curve to the right, A fall in the costs of production leads to an increase in the supply of a good because the supply curve shifts downwards and to the right. Lower costs mean that a business can supply more at each price. With advancement in technology and introduction of new technology to decrease cost of oil refining the company will also be making profit and that is what is motivating every other business and also the reason why people start business. The information available concerning production techniques affects the ability to supply a good. Technology is what producers know about the ways to combine inputs into the production of outputs. An advance in technology makes it possible to sell more of a good. A decline in technology means producers can sell less of a good. f) If all oil products become expensive then there will be a shift in the supply curve to the left. If production costs increase, a business will not be able to supply as much at the same price - this will cause an inward shift of the supply curve with the higher prices, production cost rises and the ability to produce the good is diminished. As such sellers sell less of the good. If resource prices increase, then production cost is higher and the sellers are inclined to offer less of the good for sale. QUESTION 2 a) 2009 2010 2011 Chile 172,590,595,086 216,308,875,370, 248,585,243,788 Mexico 882,354,745,911 1035870880242 1,155,316,052,667 France 2,619,685,000,757 2549,027,263,158 2,773,032,125,000 Canada 1,337,577,639,752, 1,557,040,082,218 1,736,050,505,051 Chile The top income tax rate is 40 percent. July 2010 tax amendments temporarily increased the 17 percent corporate tax rate to 20 percent for 2011. The rate will come down to 18.5 percent for 2012 and return to 17 percent for 2013. Other taxes include a value-added tax (VAT) and a property tax, with the overall tax burden equal to 16.1 percent of GDP. Government spending is 24.4 percent of total domestic output, and public debt is under 10 percent of GDP. Chile enjoys the highest degree of economic freedom in the South and Central America/Caribbean region. Regaining its status as one of the world’s 10 freest economies, Chile continues to be a global leader in economic freedom. The economy benefits greatly from its solid foundations of economic freedom, which have been further strengthened in recent years. Recognizing the importance of limited government, the government has adhered to prudent public finance management practices that have kept public debt and recent budget deficits under control. Canada The top federal income tax rate remains at 29 percent. The 16.5 percent top corporate tax rate is scheduled to decline further to 15 percent in January 2012. Other taxes include a value-added tax (VAT) and a property tax, with the overall tax burden amounting to 31.1 percent of total domestic income. Government spending has increased to over 40 percent of total domestic output. Budget deficits have widened, and public debt has risen. Canada continues to be the freest economy in the North America region, though it has dropped just below the cutoff for characterization as a “free” economy. The foundations of economic freedom are very strong in Canada, and the economy has emerged from the global economic slowdown relatively unscathed. ` France The top income tax rate is 41 percent, and the top corporate tax rate is 34.4 percent. Other taxes include a value-added tax (VAT), and the overall tax burden corresponds to 41.9 percent of total domestic income. Government spending has increased to a level equivalent to 55 percent of total domestic output. The deficit remains more than 6 percent of GDP, pushing public debt up to more than 80 percent of GDP. France is ranked 30th out of 43 countries in the Europe region, and its overall score is slightly higher than the world average. The French economy remains diversified and relatively resilient, with entrepreneurial activity generally facilitated by such institutional strengths as strong protection of property rights and a fairly efficient regulatory framework. Various reform measures have been adopted to increase the economy’s competitiveness and flexibility, but overall progress has been marginal. The state dominates major sectors of the economy and remains a large shareholder in many semi-public enterprises. Government spending accounts for more than half of total domestic output, and the budget has been chronically in deficit. Various stimulus measures have resulted in a deterioration of public finance, increasing the fiscal burdens imposed on French taxpayers. A politically contentious pension system reform that increased the retirement age was passed in late 2010. Mexico The top income and corporate tax rates were temporarily raised from 28 percent to 30 percent starting in 2010 and will be lowered to 29 percent in 2013 and 28 percent in 2014. Other taxes include a value-added tax (VAT), and the overall tax burden is about 18 percent of GDP. Government spending has risen to a level equivalent to 26.9 percent of total domestic output, with budget deficits widening. Public debt is 42.9 percent of GDP. Mexico’s record on economic freedom, as charted over the life of the Index, is one of considerable ups and downs. b) A) True To begin with, gross domestic product excludes a great deal of production that has econmic value. Neither volunteer work nor unpaid domestic services (housework, child rearing, do-it-yourself home improvement) make it into the accounts, and our standard of living, our general level of economic well-being, benefits mightily from both. Nor does it include the huge economic benefit that we get directly, outside of any market, from nature. A mundane example: If you let the sun dry your clothes, the service is free and doesn't show up in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable -- and give G.D.P. a bit of a bump. These points to the larger, deeper flaw in using a measurement of national income as an indicator of economic well-being. In summing all economic activity in the economy, gross domestic product makes no distinction between items that are costs and items that are benefits. If you get into a fender-bender and have your car fixed, G.D.P. goes up. A similarly counterintuitive result comes from other kinds of defensive and remedial spending, like health care, pollution abatement, flood control and costs associated with population growth and increasing urbanization -- including crime prevention, highway construction, water treatment and school expansion. Expenditures on all of these increase gross domestic product, although mostly what we aim to buy isn't an improved standard of living but the restoration or protection of the quality of life we already had. References Australian Trade Commission (ATC), 2011, International Agreements on Trade & Investment, Available at http://www.austrade.gov.au/Free-Trade-Agreements/default.aspx Edge, Ken, 1999, Free Trade and Protection: Advantage and Disadvantages of Free Trade, Available at http://hsc.csu.edu.au/economics/global_economy/tut7/Tutorial7.html Graham, Dunkley, 2004, Free Trade: Myths, Realities and Alternatives, Zed Books, Harvard Kerr, William & Perdikis, 1998, Trade Theories and Empirical Evidence, Manchester University Press, Manchester. Leonard Gomes, 2003, the Economics and Ideology of Free Trade: A Historical Review, Edward Elgar Publishing, Chicago. Shaikh, 2007, Globalization and the Myths of Free Trade, Taylor & Francis, New York Yang, Xiaokai, 2005, an Inframarginal Approach to Trade Theory, World Scientific, Gent Zhang, Wei-Bin, 2002, A Theory of International Trade: Capital, Knowledge and Economic Structures, Springer, London. Read More