Economics 452 International Trade Theory and Policy Spring PDF Free Download

pink FIRST EXAM Economics 452 International Trade Theory and Policy Spring 2014 ORLD TRADE 1. The volume of trade between the United States and anada in 2009 was substantially below the level in 2008. In what year did U.S. trade with anada finally surpass 2008 levels? a. 2010 011 c. 2012 d. 2013 e. It has remained below the 2008 level each year including 2013. 2. For 2012, the trade volume of the United States with was $556 billion and with was $531 billion. a. anada, Mexico b. hina, anada c. anada, hina d. hina, Mexico 3. The third largest trading partner of the United States, with a trade volume of $451 billion in 2012 ($459 billion in 2013) is: a. Japan b. Mexico c. Germany d. hina e. anada 4. hich U.S. state exported the largest amount immediately prior to Texas taking the lead in 2002? a. alifornia b. New York c. Florida d. alifornia and Florida were essentially tied for the lead -1-

5. hy does the United States trade a lot with Mexico? a. Multinational corporations b. Historical ties c. ultural and linguistic ties d. Shared border e. All of the above 6. hich of the following would be best explained by the gravity model? That the United States a. Exports of transportation equipment total $293 billion b. Imports of electronic products total $417 billion c. Runs a $324 billion trade deficit with hina d. Runs a $10.8 billion trade surplus with Brazil e. Trades more with anada than with France and Germany combined 7. According to the gravity model, the volume of trade between the United States and another country depends on the: a. Distance between the countries b. GDP of each country c. Ratio of the GDP of the trading partner to the U.S. GDP d. Ratio of the U.S. GDP to the GDP of the trading partner e. GDP of each country and the distance between them 8. Based on 2008 data, agriculture is what percentage of world trade? a. Less than 10% b. 10-20% c. 20-40% d. 40-60% e. More than 60% -2-

RIARDIAN MODEL 9-12 Russia stops producing fewer note cards to free up enough labor to produce a paperweight than in the rest of the world (RO). Under free trade, Russia produces both note cards and paperweights. 9. The rest of the world definitely has a. An absolute advantage in producing note cards b. A comparative advantage in producing note cards c. An absolute advantage in producing paperweights d. A comparative advantage in producing paperweights e. Both a and b 10. Russia exports a. Only note cards b. Only paperweights c. Both note cards and paperweights d. Only note cards or only paperweights but not sure which e. Nothing 11. Does Russia gain from trade? a. Yes, Russia is definitely better off with trade than without b. No, Russia is indifferent between trading and not trading c. No, Russia is definitely worse off with trade than without d. Maybe, as Russia would gain from trade if exports only paperweights e. Maybe, as Russia would gain from trade if exports note cards 12. ompared to the relative price in the RO before trade, the free trade relative price of paperweights in terms of note cards is a. Higher so paperweights become more expensive in the RO due to international trade b. Lower so paperweights become cheaper in the RO due to international trade c. The exact same as before trade d. Either a or c are possible e. Either b or c are possible -3-

13-16 ars and boats are produced with labor. Under free trade with the rest of the world (RO), Germany produces only cars (no boats). 13. Germany must have comparative advantage in a. ars b. Boats c. ars and boats d. Neither cars nor boats e. annot tell from the information provided 14. Under free trade the rest of the world produces a. Only cars b. Only boats c. ars for sure and possibly boats d. Boats for sure and possibly cars e. annot tell from the information provided 15. ho can produce a car with the least amount of labor? a. Germany because they have the lower opportunity cost of cars b. The RO because they have the lower opportunity cost of cars c. The RO because they have the lower opportunity cost of boats d. Neither as Germany has the same technology as the RO cannot tell from the information provided 16. ho can produce a boat with the least amount of labor? a. Germany because they have the lower opportunity cost of cars b. The RO because they have the lower opportunity cost of cars c. The RO because they have the lower opportunity cost of boats d. Neither as Germany has the same technology as the RO cannot tell from the information provided -4-

21. The US PPF is a straight line with wine endpoint and slope (with cheese on the horizontal axis). a. 140, -1/2 b. 140, -1 c. 560, -2 d. 560, -4 22. hen drawn with cheese on the horizontal axis, the absolute value of the slope of a country s PPF indicates the a. Opportunity cost of wine in terms of cheese b. Opportunity cost of cheese in terms of wine c. How many hours of labor are required to produce a pound of cheese d. How many hours of labor are required to produce a gallon of wine 23. The RO production possibilities frontier is a. 2Q* + 8Q* = 560 b. Q* + Q* = 140 c. 8Q* + 2Q* = 560 d. Q* + Q* = 560 24. The RO maximum production of cheese and of wine is a. 260 pounds of cheese, 70 gallons of wine 80 pounds of cheese, 140 gallons of wine 40 pounds of cheese, 280 gallons of wine d. 70 pounds of cheese, 280 gallons of wine 25. The RO opportunity cost of cheese in terms of wine is -6-

26. The RO PPF is a straight line with wine endpoint and slope (with cheese on the horizontal axis). a. 280, -2 b. 140, -1 c. 280, -1/2 d. 280, -1/4 27. The US PPF is than the RO PPF because the opportunity cost of cheese in terms of wine is in the United States. a. Flatter, lower b. Flatter, higher c. Steeper, lower d. Steeper, higher 28. The United States has comparative advantage in and the RO has comparative advantage in. a. ine, cheese b. heese, wine c. ine & cheese, nothing d. Nothing, wine & cheese 29. In autarky (prior to trade), the relative price of cheese in terms of wine in the United States is and in the RO is. a. 1, 4 b. 1, 1, 1/2, 1 30. hat is the world relative supply of cheese to wine if each country produces only its comparative advantage good? -7-

31. orld relative supply has a first step at P /P equals 32. orld relative supply has a second step at P /P equals 33. The jump in world relative supply occurs along the horizontal axis at 34. orld relative demand has points such as (RD, P /P ): a. (2, 2), (3, 3) and (4, 4) b. (1/2, 1/2), (1/3, 1/3) and (1/4, 1/4) c. (1, 1), (2, 1/2) and (4, 1/4) d. (2, 1/3), (3, 1/4) and (4, 1/12) 35. The relative price of cheese in terms of wine under free trade is -8-

36. Its interpretation is how many gallons of wine is needed to a. Produce a pound of cheese b. Buy a pound of cheese in autarky in the United States c. Buy a pound of cheese in autarky in the RO d. Buy a pound of cheese under free trade 37. Under free trade, the United States produces a. 140 pounds of cheese, 0 gallons of wine b. 0 pounds of cheese, 70 gallons of wine 40 pounds of cheese, 140 gallons of wine d. 280 pounds of cheese, 70 gallons of wine 38. Under free trade, the RO produces a. 140 pounds of cheese, 0 gallons of wine b. 0 pounds of cheese, 70 gallons of wine 40 pounds of cheese, 140 gallons of wine d. 280 pounds of cheese, 70 gallons of wine 39. The United States imports and exports a. ine, cheese b. heese, wine c. ine & cheese, nothing d. Nothing, wine & cheese 40. The RO imports and exports a. ine, cheese b. heese, wine c. ine & cheese, nothing d. Nothing, wine & cheese -9-

41. The US trade possibilities frontier (TPF) is a. 2D + D = 140 b. D + 3D = 280 c. 3D + D = 140 d. D + 2D = 280 42. The US maximum consumption of cheese and of wine under free trade is a. 140 pounds of cheese, 140 gallons of wine b. 70 pounds of cheese, 280 gallons of wine c. 280 pounds of cheese, 140 gallons of wine d. 140 pounds of cheese, 280 gallons of wine 43. ith cheese on the horizontal axis, the absolute value of the slope of the US TPF indicates the a. US opportunity cost of cheese in terms of wine b. US opportunity cost of wine in terms of cheese c. RO opportunity cost of cheese in terms of wine d. RO opportunity cost of wine in terms of cheese 44. The US TPF is a straight line with wine endpoint and slope (with cheese on the horizontal axis). a. 280, -1/2 b. 140, -1 40, -2 d. 280, -4 45. The RO trade possibilities frontier is a. 2D* + D* = 140 b. D* + 3D* = 280 c. 3D* + D* = 140 d. D* + 2D* = 280-10-

46. The RO maximum consumption of cheese and of wine under free trade. a. 140 pounds of cheese, 140 gallons of wine 80 pounds of cheese, 280 gallons of wine 40 pounds of cheese, 280 gallons of wine d. 70 pounds of cheese, 280 gallons of wine 47. The RO TPF is a straight line with wine endpoint and slope (with cheese on the horizontal axis). a. 280, -4 80, -2 40, -1 d. 70, -1/2 48. The US TPF is than the RO TPF. a. Always flatter b. Always steeper c. Initially steeper then flatter d. Initially flatter then steeper 49. ho gains from trade? a. Only the United States b. Only the RO c. Neither the United States nor the RO d. Both the United States and the RO 50. The source of any gains from trade is that the a. United States has an absolute advantage in producing cheese. b. RO has an absolute advantage in producing wine. c. United States has an absolute advantage in producing both goods. d. RO has an absolute advantage in producing both goods. -11-

FIRST EXAM SOLUTIONS (PINK) Economics 452 International Trade Theory and Policy Spring 2014 1c 2c 3b 4a 5e 6e 7e 8a In 2012 U.S. trade with anada finally surpassed 2008 levels. For 2012, the trade volume of the United States with anada was $556 billion and with hina was $531 billion. The third largest trading partner of the United States, with a trade volume of $451 billion in 2012 ($459 billion in 2013) is Mexico. alifornia exported the largest amount immediately prior to Texas taking the lead in 2002. Multinational corporations, historical ties, cultural and linguistic ties and a shared border are all reasons why the United States trades a lot with Mexico. That the United States trades more with anada than with France and Germany combined would be best explained by the gravity model. According to the gravity model, the volume of trade between the United States and another country depends on the GDP of each country and the distance between them. Based on 2008 data, agriculture is less than 10% of world trade. 9b The rest of the world definitely has a comparative advantage in producing note cards. 10b Russia exports only paperweights. 11b No, Russia is indifferent between trading and not trading. 12b ompared to the relative price in the RO before trade, the free trade relative price of paperweights in terms of note cards is lower so paperweights become cheaper in the RO due to international trade. 13a Germany must have comparative advantage in cars 14d Under free trade the rest of the world produces boats for sure and possibly cars. 15e annot tell from the information provided who can produce a car with the least amount of labor. 16e annot tell from the information provided who can produce a boat with the least amount of labor. -1-

PROBLEMS (Ricardian Model) In the United States (US), producing one pound of cheese requires one hour of labor, while producing one gallon of wine requires one hour of labor. In the rest of the world (RO), producing one pound of cheese requires eight hours of labor, while producing one gallon of wine requires two hours of labor. The United States has 140 hours of labor and the RO has 560 hours of labor. orld relative demand for cheese to wine is 17b The US production possibilities frontier (PPF) is Q + Q = 140 18c The US maximum production of cheese and of wine is 140 pounds of cheese, 140 gallons of wine 19c The US opportunity cost of cheese in terms of wine is 1. 20c To produce one additional pound of cheese, the United States must stop producing 1 gallon of wine. 21b The US PPF is a straight line with wine endpoint 140 and slope -1 (with cheese on the horizontal axis). 22b hen drawn with cheese on the horizontal axis, the absolute value of the slope of a country s PPF indicates the opportunity cost of cheese in terms of wine. 23c The RO production possibilities frontier is 8Q* + 2Q* = 560 24d The RO maximum production of cheese and of wine is 70 pounds of cheese, 280 gallons of wine. 25a The RO opportunity cost of cheese in terms of wine is 4 26e The RO PPF is a straight line with wine endpoint 280 and slope -4 (with cheese on the horizontal axis). 27a The US PPF is flatter than the RO PPF because the opportunity cost of cheese in terms of wine is lower in the United States. 28b The United States has comparative advantage in cheese and the RO has comparative advantage in wine. 29a In autarky (prior to trade), the relative price of cheese in terms of wine in the United States is 1 and in the RO is 4. 30d hat is the world relative supply of cheese to wine if each country produces only its comparative advantage good? 1/2 31c orld relative supply has a first step at P /P equals 1-2-

32a orld relative supply has a second step at P /P equals 4 33d The jump in world relative supply occurs along the horizontal axis at 1/2 34c orld relative demand has points such as (RD, P /P ): (1, 1), (2, 1/2) and (4, 1/4) 35b The relative price of cheese in terms of wine under free trade is 2 36d Its interpretation is how many gallons of wine is needed to buy a pound of cheese under free trade 37a Under free trade, the United States produces 140 pounds of cheese, 0 gallons of wine 38e Under free trade, the RO produces 0 pounds of cheese, 280 gallons of wine 39a The United States imports wine and exports cheese 40b The RO imports cheese and exports wine 41e The US trade possibilities frontier (TPF) is 2D + D = 280 42d The US maximum consumption of cheese and of wine under free trade is 140 pounds of cheese, 280 gallons of wine 43e ith cheese on the horizontal axis, the absolute value of the slope of the US TPF indicates the relative price of cheese in terms of wine 44e The US TPF is a straight line with wine endpoint 280 and slope -2 (with cheese on the horizontal axis). 45e The RO trade possibilities frontier is 2D* + D* = 280 46c The RO maximum consumption of cheese and of wine under free trade 140 pounds of cheese, 280 gallons of wine. 47b The RO TPF is a straight line with wine endpoint 280 and slope -2 (with cheese on the horizontal axis). 48e The US TPF is the same slope as the RO TPF. 49d Both the United States and the RO gain from trade 50e The source of any gains from trade is that the free trade relative price of cheese in terms of wine differs from the opportunity cost of cheese in terms of wine for each country. -3-