ECO203 Tutorial 3

1. What is the most important factor which contributes to competitiveness?

2. What are the challenges of the international trading system?

3. Does exposure to competition with the world leader in a particular industry improve a firm's
productivity?

4. What are the essential arguments in favor of free trade?

5. Carefully explain why nations gain from engaging in international trade. Do nations gain equally
from trade? If not, what determines which country gains more? (In your answer you can assume a
two-country world.)

6. Explain the differences between the two-country two-good model with constant costs of
production and the model with increasing costs of production. Describe production,
consumption, and the degree of specialization in each country under both cost situations.

7. With the use of graphs, explain the differences between the two-country two-good model with
constant costs of production and the model with increasing costs of production. Adequately
describe the production possibilities curves for each country in each case. Describe production,
consumption, and the degree of specialization in each country under both cost situations.