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Review Questions for Midterm Exam International Trade Theory (2nd Semester, 2012) I.

. Explain the following concepts (2 points each)


1. Globalization 2. Production possibility frontier 3. Opportunity cost 4. Community Indifference curve 5. Comparative advantage 6. Offer curve 7. Terms of trade 8. Factor abundance vs. factor intensity 9. Economies of scale 10. Measure of intra-industry trade 11. Outsourcing vs. offshoring

II. Essay type questions (10 points each, total 20 points)


1. Using Ricardian model, explain how both countries can gain from trade. That is, compare notrade equilibrium and free-trade equilibrium. ( Sections 2.4, 2.5, and 2.5) 2. Assuming increasing opportunity cost, use production possibility frontier and community indifference curve to show how both countries can gain from trade. ( Sections 3.4 and 3.5) 3. Derive offer curves of two nations from the diagram of production possibility frontier and community indifference map, and show graphically how the international equilibrium-relative commodity price can be determined after trade. (Sections 4.3 and 4.4) 4. Explain the major assumptions of the Heckscher-Ohlin model. (Sections 5.2 and 5.3) 5. In addition to the usual assumptions of the H-O model, assume that the economic size of foreign country is far larger than that of home country. Graphically and intuitively explain the Heckscher-Ohlin Theorem. (Sections 5.3 and 5.4)

6. Explain intuitively and graphically the Factor-Price Equalization theorem. What does the theorem suggest regarding the effect of trade on the distribution of income. (Section 5.5) 7. Explain what Leontiefs Paradox is. Explain the possible reasons for the paradox. (Section 5.6) 8. Explain the mutually beneficial trade, assuming the economies of scale. Also assume that the maximum production units of X is only half of the maximum production units of Y. (Section 6.3) 9. What are the implications of intra-industry trade based on differentiated products. (Section 6.4A) 10.Show how intra-industry trade based on differentiated products can lead to the mutually beneficial trade. (Section 6.4D) 11. Explain trade based on dynamic technological difference. (Section 6.5)