SECTION A

Question 1

The USA imports 380,000 units of cellphones from China, and locally the USA produces 120,000 units. The world price for cell phones is $300 per unit. The USA is a large country and imposed a tariff of 25% for the importation of cellphones from China as a retaliation due to its trade imbalance with China. Due to the tariff, the world price falls by 10%, local production increases by 80% and local consumption falls by 20%.

(a) Solve for the price after the tariff was imposed, and the quantity of cellphones produced, consumed and imported in the USA. Show your answers with a proper diagram of the cellphones market.

(b) Explain the effects on the consumer surplus, producer surplus, deadweight loss and terms of trade of the cellphones market in the USA after the tariff was imposed. Explain the welfare effects of both countries.

Question 2

Examine the causes of the Asian Financial Crisis in 1997 and analyze the impacts on one of these countries which have been badly affected.

Question 3

With the establishment of the ASEAN Economic Community (AEC) in the year 2015, broadly discuss the benefits that members could gain from such regional economic cooperation through international and regional trades.

Subsequently, discuss the expected benefits through specific projects that have been realised through the AEC, using the case of one member country as an example.

Question 4

(a) Discuss with a real-world example what an optimum currency area is and explain its advantages and disadvantages.

(b) Political tensions and the Covid-19 pandemic have resulted in an 18-month economic recession in Hong Kong since 2019. In the second quarter of 2020, Hong Kong recorded a balance of payment deficit. Suppose that an expansionary monetary policy was suggested. Illustrate the effects of such a policy on Hong Kong, and assess the effectiveness of the policy (There is no need to discuss the effects on China).