Question

Argentina is a ‘small country’ in the world car market.

A) Assume that world car price is below the price that prevails in India. Does Argentina gain by engaging in international trade in car? Does it export or import? Draw a diagram to show the gains (or losses) from trade. Who gains and who loses?

b) Suppose that a technological advance increases the domestic supply of cars in Argentina. What effect does this advance have on the domestic price of car? Discuss a scenario in which the direction of trade changes. Using your graph from part (a), show the effect on consumer surplus, producer surplus, and total surplus in Argentina. Who are the winners and losers? Does free trade provide an incentive to the domestic car makers in Argentina to innovate?

Answer 1

A) If Argentina engages in International trade, to be more competitive, it has to price its cars below than that of India.

In this case, it can export cars.

Argentina gains as long as it can supply cars to the world at a cheaper , more competitive rate.

ܐܰܘ ܒ݁ܰܪܬܐ -- - - - PwC PA <P I - - - Weeld

B) Given that the technological impact only increases the supply, keeping the quality of the cars consistent, the domestic price of cars will lower.

Winners are consumer

all remet, supply cuswe will shift towards the right ST sls (552 >ss, ) -- - .. .a (P2. (P) Pr. e) Pr. 1-7 - ddi , () Consumer surplus increases Produces surplus decreases total surphy remains unchanged.