8.a) i) Comparative cost advantage is the ability of a country to produce a good or service at a lower opportunity cost than another country. ii) Tariffs are taxes imposed by a government on imported goods or services, increasing their price in the domestic market. iii) Balance of trade is the difference between the monetary value of a country's exports and imports of goods and services over a specific period. iv) Internal trade refers to the exchange of goods and services within the geographical boundaries of a single country. v) Exchange rate is the value of one country's currency in terms of another country's currency. 8.b)i) The formula for the Terms of Trade (TOT) is: $$ \text{Terms of Trade} = \frac{\text{Index of Export Prices}}{\text{Index of Import Prices}} \times 100 $$ Step 1: Calculate the Terms of Trade for 2019. Index of Export Prices (2019) = 70 Index of Import Prices (2019) = 98 $$ \text{TOT}_{2019} = \frac{70}{98} \times 100 \approx 71.43 $$ Step 2: Calculate the Terms of Trade for 2020. Index of Export Prices (2020) = 100 Index of Import Prices (2020) = 125 $$ \text{TOT}_{2020} = \frac{100}{125} \times 100 = 80 $$ The terms of trade for 2019 are $\boxed{\text{71.43}}$ and for 2020 are $\boxed{\text{80}}$. 8.b)ii) Step 1: Interpret the Terms of Trade for 2019. Since $\text{TOT}_{2019} = 71.43 < 100$, it means that export prices have fallen relative to import prices compared to the base year, or import prices have risen more than export prices. This implies that the country has to export more goods to obtain the same quantity of imports. Therefore, the terms of trade for 2019 are unfavourable. Step 2: Interpret the Terms of Trade for 2020. Since $\text{TOT}_{2020} = 80 < 100$, it means that export prices have fallen relative to import prices compared to the base year, or import prices have risen more than export prices. This implies that the country has to export more goods to obtain the same quantity of imports. Therefore, the terms of trade for 2020 are unfavourable. 8.c) • Differences in natural resources: Countries possess varying endowments of natural resources, such as minerals, oil, or fertile land, leading them to specialize in producing goods that utilize their abundant resources and trade for others. • Comparative advantage: Countries engage in international trade to benefit from specialization based on comparative advantage, where each country produces goods at a lower opportunity cost than others, leading to increased global output and efficiency. • Economies of scale: International trade allows firms to produce for a larger global market, enabling them to achieve economies of scale, which reduces average production costs and makes goods cheaper for consumers. 8.d) • Devaluation or depreciation of the domestic currency: Makes exports cheaper and imports more expensive, encouraging exports and discouraging imports. • Imposition of import controls: Such as tariffs or quotas, to reduce the volume of goods entering the country. • Implementation of deflationary policies: Including increasing interest rates or raising taxes, to reduce aggregate demand and thus import expenditure. • Promotion of exports: Through subsidies, marketing support, or trade agreements, to increase foreign earnings.