Explanation Every economy has their own natural resources, which are being used for the production of goods and services for the society. The economies will produce the commodities for which it has comparative advantage and imports the commodities for which it does not have comparative advantage. This leads to the exchange of goods and services between the countries, which is known as international trade. Option (a): The comparative advantage theory means that the countries should specialize in the production of a commodity in which it has the comparative advantage and import the commodity in which it has disadvantage. The imports are not desired by every economy because it leads to the outflow of currency to the foreign countries. Thus, they impose monetary and non-monetary barriers that control the imports. The World Trade Organization (WTO) was established in order to smoothen the international trade by reducing the level of all the tariffs by the member countries. Thus, option 'a' is correct. Option (b): The World Trade Organization (WTO) was established in order to facilitate the free trade between the member countries...

The objective of the WTO.

Economics For Today

10th Edition

ISBN: 9781337613040

Author: Tucker

Publisher: Cengage Learning

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Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

Chapter 28, Problem 8SQ

To determine

The objective of the WTO.

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If trade increases world GDP by 1 per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lankas GDP.
Describe a scenario in which a trade surplus benefits an economy and one in which a trade surplus is economy in an economy that performs poorly. What key factor or factors are making the difference in the outcome that results from a trade surplus?

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