Question

1. Pretend Nigeria starts as a country that does not engage in any international trade and consider three representative people: Abubakar grows cassava, a root vegetable that is not traded, for which he earns an income of N10,000 each month (about $60). Babatunde is a white-collar worker in the petroleum sector, earning N32,400 per month. Chinedu earns N48,400 interest income from renting out machines. If Nigeria chooses to open to trade, it will import machines and export petroleum. Doing so will increase the demand for petroleum as well as the productivity of the petroleum and farming sectors (because of cheaper machines), but it will lower the income earned by owners of physical capital. Abubakar’s new income will be N12,100; Babatunde will earn N40,000; and Chinedu will earn N40,000.
   1. If the goal is to maximize total GDP, should Nigeria open to trade? (Demonstrate your answer mathematically)
   2. Does the Pareto Principle indicate Nigeria should open to trade? (Explain your answer)
   3. Suppose that utility is the square root of income (measured in naira). Will trade increase or decrease total social welfare? Should Nigeria open to trade? (Demonstrate your answer mathematically)

Answer 1

The detailed explanation is pasted as follows in written, please do raise if unable to understand, otherwise I have explained all the three points in very layman language which very easy in understanding.

Page No.1. > will try then, that The provided current details care before the globalizat it we talk about. dreach to the contery, however overall development of any country then, thell be possible only with the globed nearch within the coultry to have the utilizasticen of teve produce and available ovesources. However, all those Effeers avecilerble after globalization in temy of increasing dewend's ang supply of the peoducts, services to the other courries are definitely going to have the positive impact au Nigerian economy evs the errowth in GDP. As per the deeter averitable with us is suggesting the rise of the individual incowe growth along with supply of the petroleun, products which Produced, cury the areenilable technolegry line the neechinery used for various process leading to the growth in the overall income ew because the growth of an individreul there is eise in GDP. 30, now it we talk about the first op Hon A where if the goal of the country is to increase the GDP, they must here to opt teve global trade in teams of Exchanging the resources. so it we calculeate the rise in income mathomechically then, the first person Abubakar has the rise of flo, Oro toNt 2,100) 1.e. the suge of 21% (12,100X100 10,000). second person Babertunde has a increase of 32, 400 tono, voo) l.e. suse of (23.45%) Which is cous (4 coro - 32,400 = 7600/32,400) And the third person chine du who is having interest incowe will have slight eveduction due to the globel reach within the coutery which is as of the

- Page No. 2. • 40, coo) =N8 400 30 if we calculate it then (48,400 - 40, d) = N9 400 person whose (-8400/40000 will be:-28%) so the only hewing the eveduction to the eventeel Incowe Is chinedu. & this is not reue Peenement es tlue foreigh Dineet trrest meat took plecure is thue ereason behind tue decrease in the incouve of eventl. b) The Pareto principle depicts that tue 80% of the results are often comes from the 20% causes. 30 If we talk about the current senenio then the increused income of Abubakar, and Belbertude are bers effective then that of the decreased income of Chinedu. so the Paove to Principle will not be suggesting the globellization eveach as it see frou the Bercheart then it will represent as follows, _$a Abubakat LOY. inpeect on knopy 80. Gopide, eto chin Imp in reums of economy Impeetan GoP puntraru hpour ut bwsus c) If the suggested income is the squire swot of the currently earned inconue then the trade will increase averagely at the initial Pant of time forcen excuple, there is the rise of the income of two individueets to 25% & 83% apprior, but there is the slight eveduction as well in the third's Intewest incowe which means that there is a scope in the country in terms of sharing Produced product, Machinery but it we talk about here weal estate income teren there is no rise in dewalls.