International Economics: Car Tariff Analysis Question 1
The supply (S) and demand (D) for electric cars in country X are given as: QD = 80,000 – 0.5P
QS = 25,000 + 0.5P
where P is the price of electric car in $/unit, and Q is the quantity in units.
Country Y sells the electric car at $28,000/unit and country Z sells the electric car at
$32,000/unit. (Assume country X, Y and Z are small countries)
Calculate country X autarky equilibrium price and quantity. In an open economy, if country X imposes a 20% import duty on all its electric cars imports, calculate country X’s welfare effects between the free trade and tariff scenarios using an appropriate diagram. (30 marks)
Using the European Union–China electric car tariff dispute as an example, evaluate the risks of retaliatory trade measures and the long-term implications for international trade relations if Country X imposes a tariff on electric car imports. (Word limit: 300 words) (10 marks)
Suppose Country X and Country Z form a customs union. Examine the changes and implications of trade creation and diversion and the welfare changes, compared to the tariff scenario without a customs union, with an appropriate diagram. (Note: for this part of the question, students do not need to calculate mathematically the changes in the welfare effects) (Word limit: 300 words) (15 marks)
Question 2
Retrieve Singapore’s annual Balance of Payments (BoP) for year 2024. Interpret the structure of Singapore’s annual BoP for year 2024 (11 marks)
Discuss the components of the current account, capital and financial account, and evaluate the implications of Singapore’s current account position. (Word limit: 400 words)
(10 marks)
Discuss the role of official reserves in Singapore’s BoP. (Word limit: 400 words)
(9 marks)
Assume that the foreign exchange market is entirely determined by the market forces. Suppose there are only two countries trading with each other, Brazil and Singapore. Assuming Brazil is experiencing an economic recession and Singapore’s economy is in an expansionary phase. Using the demand and supply for Singapore Dollars (SGD) in one diagram and Brazilian Real (R$) in another diagram, discuss the likely effects on the foreign exchange market between their two currencies.