ACJC International Trade Answers Essay Qn 3

1 2024 International Trade Tutorial – Essay Q3 Suggested Responses [2022 A Level Question 6] Singapore’s Prime Minister has stated that Globalization will be under pressure but it is imperative for countries to cooperate, for business to operate across many geographies, to tap resources, to bring skills and talents and experiences together, and then serve markets all around the world. a) Explain the benefits and costs of globalisation to Singapore. [10] Question Analysis: Command Explain • Start: Globalisation • End: Singapore’s macroeconomic aims , benefits and costs to economic agents such as consumers Concepts Globalisation, benefits and costs, AD/AS analysis, macroeconomic aims Context Singapore Introduction: Globalization refers to the development of an increasingly global economy. It is characterised by free trade of goods and services, free flows of capital, and labour mobility. As a small and open economy, Singapore has greatly benefited from globalisation but there has also been costs incurred as a result. R1: Benefits – Higher Economic Growth and Employment Globalization allows countries to exploit their comparative advantage. Comparative advantage refers to the ability of a country to produce a specific good or service at a lower opportunity cost than others. As a small economy, it is necessary for Singapore to tap on external demand to boost its economic growth. By specializing in producing tech-intensive and capital-intensive goods and services, Singapore can exploit its comparative advantage to export those goods and services to other countries and import goods that others produce more efficiently. Recoginising the benefits from specialisation and trade, countries such as Singapore have actively signed more from Free Trade Agreements which allow for free trade to take place without tariffs being imposed. As shown in the diagram below, compared to when tariffs are imposed, free trade requires domestic producers to sell at a lower price, Pworld, which brings about a larger quantity demanded at Q 4. Domestic consumers benefit from their ability to enjoy imported goods priced at a lower price (Pworld compared to Ptariff), hence raising their consumer surplus.

2 The increase in Foreign Direct Investment facilitated by globalization also raises capital flow into Singapore. Singapore’s Aggregate Demand (AD) thus increases. Assuming that spare productive capacity is available, producers are prompted to increase production when faced with an unplanned fall in their inventory of stocks, in turn increasing the employment of workers, given that labour is a derived demand. This triggers the onset of the multiplier process where households earning higher income will consume more goods and services, raising AD further, and firms again experience an unplanned fall in their inventory of stocks. All in all, Singapore’s real national income increases by a multiplied extent, coupled wit