1
The
gravity trade model is most consistent with which of the following trade
models:
a
Ricardian model
b
Specific Factors model
c
Heckscher-Ohlin model
d
Intra-industry trade model
2 When
a very small country opens to trade with a very large country then domestic
prices move in
each country in such a way that the (hint: where do relative prices change
most):
a small
country suffers a decrease in economic welfare
b large
country suffers a decrease in economic welfare
c small
country typically enjoys larger gains to trade
d
larger country typically enjoys larger gains from trade
3 In
the 2-factor (labor and capital), 2 good Heckscher-Ohlin model (and assuming
product prices
remain fixed at world prices), adding capital to the economy should:
a shift
the production possibility curve outward and decrease the production of the labor-intensive
product
b shift
the production possibility curve outward, and increase the production of both goods
c shift
the production possibility curve outward and only increase the production of
the labor-intensive
product
d move
the point of production along the production possibility curve
4 In
the Specific Factors Model with mobile labor an increase in the relative price
of agricultural
goods will:
a) raise
the real wage of agricultural workers
b) raise
the real return to capitalists in the manufacturing sector
c) raise
or lower the real wage of workers depending on the importance of agricultural goods in
their consumption baskets
d) lead
to a higher wage rate in the agricultural sector compared to the manufacturing sector
5 In
the simplest intra-industry trade model with increasing returns and
monopolistic competition,
which happens
a) the
total number of varieties produced in each country increases and prices fall
b)
consumers gain from more product varieties sold, prices fall and real wages
rise so
c) real
wages rise in the larger country and fall in the smaller
d)
national income increases but income inequality worsens
6 In
the simple model of offshoring what happens to the relative wages of skilled
labor when there is
a change in the trading costs and more offshoring takes place? Assume Home is
the country
where production was originally located entirely
a) It
falls in the Home country and rises abroad
b) It
rises in the Home country and falls abroad
c) It
falls in both countries
d) It
rises in both countries
7 The
economy produces agricultural goods and manufacturing goods only Assuming no market
failures free trade is the first-best policy Which of the following production
subsidies or taxes
creates the least distortion (assume monies for subsidies as well as any
revenues from
taxes are raised or returned to citizens in non-distorting fashion):
a) A
production quota (with a 20% tariff equivalent) on good X
b) A 20%
tariff on the importation of good X
c) A 20%
production subsidy to good X
d) A 20%
production subsidy and a 20% consumption tax on good X
8 In an
economy that produces Agriculture an Manufacturing an import tariff is
equivalent to
a) A
subsidy to manufacturing production and a subsidy to manufacturing consumption
b) a
production subsidy to manufacturing and a consumption tax on manufacturing
c) a
production tax on agricultural production and a consumption subsidy on a agricultural
consumption
d) it
can be interpreted as either B or C
9 In
the offshoring model as the cost of capital and transactions falls in the
developing country certain
activities in the production value chain that had been produced in the developed country
get offshored The model predicts that the relative demand for skilled labor
will
a) Rise
in the developing country and Fall in the developed
b) Fall
in the developing country and rise in the developed
c) Fall
in both countries
d) Rise
in both countries
Section
II Short answers
1) Upon
what key assumptions about technology and markets does the neo-classical case for
free trade rest? What are the best economic arguments for industrial policies (including
the use of government subsidies and/or trade protection)? Describe at least two
cases where government interventions might improve country welfare, and be specific
about what policies would be followed Describe at least one criticism of such
types of government intervention I will reward clarity and organization, so please
plan your answer before writing
2)
Consider a relatively small country that is already open to trade Discuss the
short-run and the
long-run impacts of a large influx in new immigrants to the country What is likely
to happen to wages and rental rates in the short run and the long run What is likely
to happen to output and the pattern of trade? You may assume this is a two sector
economy
Broader Essay questions
4 Many
anti-globalization protesters have argued that trade liberalization harms the
poor yet many
economists point to the neo-classical trade model to argue exactly the
opposite: that
freer trade and factor mobility will lead to convergence or catchup of the
incomes ofthe
poor How reasonable is this prediction? On what assumptions does it stand? Who in the
poorer regions of the world stand to gain and lose the most from trade? Feel
free to express
your reasoned personal opinions but strive to explain your arguments