EC 373 – INTERNATIONAL ECONOMICS I
PRACTICAL EXERCISES
CHAPTER 1
1. Discuss an international economic problem facing Tanzania today.
2. To what extent is Tanzania interdependent with other economies? Discuss using
practical examples, as well as key measures of interdependence.
3. What is globalisation? Does it have any negative effects on Tanzania?
CHAPTER 2
1. Consider the information given in the table below, of two countries called Mwenge
and Ilala.
Banana (units/hour)
Oranges (units/hour)
Mwenge
4
3
Ilala
1
2
Suppose the Mwenge exchanges 4 units banana for 4 units of oranges with Ilala.
Calculate the following:
(a) How much does Mwenge gain?
(b) How much does Ilala gain?
(c) What is the range of mutually beneficial trade?
(d) If the exchange rate was 4 bananas for 6 oranges instead, how much would each
country gain?
2. Discuss the main weaknesses of the early trade theory (pre-Adam Smith)
3. According to Adam Smith, what was the basis of trade, and what was the role of the
government in a country’s economic life?
4. Explain why the labour theory of value is invalid and should not used to explain
comparative advantage.
5. Explain the relationship between the opportunity cost and a country’s production
possibility frontier.
6. Illustrate key differences between a PPF under constant costs and a PPF under
increasing costs.
CHAPTER 3
1. Why do PPFs for different countries differ?
2. What does the slope of a PPF measure?
3. What does the slope of a community indifference curve measure?
B.K. Mkenda, November 2009
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EC 373 – INTERNATIONAL ECONOMICS I
4. Explain why countries having PPFs that are concave from the origin do not
completely specialise in production.
5. Illustrate using a diagram how two nations with similar production conditions but
different indifference curves can gain from engaging in trade.
CHAPTER 4
1. What is the difference between general equilibrium analysis and partial equilibrium
analysis?
2. Consider a hypothetical country called Zamunda. Derive its offer curve from its production
function, indifference map, and two relative commodity prices at which trade could take
place.
3. The table below gives Tanzania’s commodity terms of trade between 1974 and 1986;
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
TOT; 976=100
97.4
74.2
100
115.6
94
76.2
76.8
66.8
45.4
57.7
76.5
56.9
60.9
Source: BOT Economic Bulletin 2007.
(a) Graph the terms of trade between 1976 and 1986.
(b) Comment on the trend in the terms of trade.
(c) Based on your knowledge of Tanzania’s economic history, what caused the dramatic fall in
the terms of trade between 1977 and 1982?
4. Discuss the condition under which trade would take place at the internal relative
commodity price in one of the nations. Illustrate your answer using a diagram.
B.K. Mkenda, November 2009
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