Question 1
Consider a simplified and hypothetical example of two countries – Singapore and Malaysia – trading in two goods – electronics (E) and food products (F).

Using all of its resources (i.e., labor and capital), Singapore can produce either 50 (units of) electronics, or 20 food products.

Using all of its resources, Malaysia can produce either 50 electronics or 100 food products.
There are increasing opportunity costs of production.

(a) Solve for the comparative advantages of both countries and the mutually beneficial Terms of Trade.

(b) Using the Heckscher-Ohlin theory of trade, analyse the patterns of trade in detail. Draw a graph (with electronics on the y-axis, food products on the x axis) to illustrate. Explain the graph. You are also expected to discuss the specialisations, gains from trade, and other relevant inferences and implications of the H-O theory. (Note: There is no need to use numerical numbers to assume the exact quantities of trade in the graph. Instead, label the initial, specialisation, and after trade points.)

(c) The Russian-Ukraine war has affected global supply chains. In particular, the cost of chicken feed increased sharply. To curb rising prices, Malaysia imposed a ban on chicken exports to Singapore in 2022.

Food products comprise chickens amongst other goods. Suppose that as a result of the ban, Singapore’s import of food products from Malaysia fell. One can argue that Malaysia’s imposition of an export ban on chicken is similar (at least, simplistically) to Singapore imposing a quota on Malaysia’s food products, and that the chicken ban can be shown to benefit Singapore’s domestic poultry farms.

Discuss the economic effects of Malaysia’s ban of chicken exports on Singapore.

In reality, how did these effects differ from your theoretical framework? What are some limitations of the trade restriction framework covered in class? Substantiate with news articles where appropriate.

(Note: For this question, there is no need to present a graph in your response. References should be made in APA format.)