ECO520- International Business Economics
Submitted by: Arun Verma Roll No. 26 (MBA- IB)
Q1. Suppose that the autarky price of commodity x is $ 10 in Nation A, $8 in Nation B, and $ 6 in Nation C, and that Nation A is too small to affect prices in Nation B or C by trading. If nation A initially imposes a nondiscriminatory ad valorem tariff of 100 percent on its imports of commodity X from Nations B and C, will Nation A produce commodity X domestically or import it from Nation B or Nation C?
Ans: Autarky is the quality of being self-sufficient. Autarky exists whenever an entity can survive or continue its activities without external assistance.
Autarky price of commodity X in:
Nation A: $10
Nation B: $8
Nation C: $6
Now since it is said that the Nation A is so small that it could not affect the prices in nation B or C, it means that if it stops or starts importing the commodity from them it would hardly affect them. So, why should not it begin to manufacture the commodity itself?
But if we will see the figures, then it shows that if A will produce X on its own, it will cost around $10 and if it will import it from Nation B or C, then it will cost it around $16 and $12 respectively (including the ad-valorem tax levied by A on Imports from B and C).
Q2. The Karma computer company has decided to open a Brazilian subsidiary. Brazilian import restrictions have prevented the firm from the selling into that market, while the firm has been unwilling to sell or lease its patents to Brazilian firms because it fears this will eventually hurts its technological advantage in the US market. Analyze the Karma’s decision in terms of the theory of multinational enterprise.
Ans: The unwillingness of Karma Computers of selling or leasing its patients to the Brazilian firms is very well and is in the favour of the Company, since it will otherwise responsible for the loosening of the comparative advantage of the company over others, which is its technological... [continues]
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(2010, 11). Custom Union and Fdi Assignment Questions to Be Understood... by Arun Verma. StudyMode.com. Retrieved 11, 2010, from http://www.studymode.com/essays/Custom-Union-And-Fdi-Assignment-Questions-483187.html
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