Archive for January, 2011
a) Explain the reasons why countries trade with each other. Countries trade because each country would like to specialize in specific area, and they each nations have different factor endowments, the factors of production that a country has available to produce goods and services. Country specialize to keep their production efficient and lower opportunity cost. [...]
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a) Explain three factors which may cause changes to occur in a country’s exchange rate under a floating exchange rate system. b) Evaluate the likely impact on a country’s economic performance of a substantial depreciation of its exchange rate. 1 hour Definitions Exchange rate- The value of one currency expressed in terms of another currency. [...]
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Increase in Supply of Yen
This diagram shows a increase in supply of Yen in the international market. The supply curve shifts from S1 to S2 as quantity of Yen increase from Q1 to Q2. As the supply curve shifts right, depreciation, a decrease in value of currency, happens to Yen. Increase in supply happens when japanese speculators predict an [...]
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Increase in Demand of Yen
Above diagram shows an increase in demand of Yen. The demand curve shifts right from D1 to D2, and increase quantity of Yen in international market (Q1 to Q2). Increase in demand of Yen would lead to appreciation, an increase in value of currency, of Yen (P1 to P2). Demand of yen increase when holders [...]
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Exchange Rate
This diagram shows a currency that is in a floating exchange rate. The Yen in terms of dollars is at P1, and the quantity of Yen is at Q1.
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Quota Diagram
Above is a diagram of quota, a trade barrier that sets upper limits on quantity or value of goods imported. The price of foreign goods supplied in the domestic market (Sw) is Pw with out any trade barrier. The quantity of domestic goods provided in the domestic market is Q2, and the quantity of imported [...]
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Subsidy Diagram
Above is the diagram of Subsidy, an amount of money paid by the government to a firm per unit output, for improving output and supporting domestic product to compete over foreign product. The initial domestic quantity of goods provided is Q1, and the quantity of foreign goods in the domestic market is Q1-Q2. By having [...]
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