INTERNATIONAL TRADE

Final Exam - Summer Semester 2013

Semester 4, IBA-BA
Test - 720439

Test duration

120 minutes

Maximum points

120

General instructions

Please follow the instruction to answer each question-set in the

space given. This question-pack comprises 9 sheets (18 sides)
including this and the cover sheet.
There are four sets of questions. Each set has to be answered.
You may NOT use any paper other than the 7 sheets that
follow this sheet to write in or mark your answers.
You may NOT use a pencil to write in or mark your answers

ALL THE BEST

Examiners space - do not write below the dotted line
............................................................................................................................................
Points scored
Remarks

Question Set 1
Mark the following statements as true or false in the space given next to each statement
Choose any 15 out of 20 statements: Each correct answer 2 points (MAXIMUM 30 POINTS)

Statement

True (T) or False (F)

(1)

There is still a significant number of people disaffected by trade

(2)

Trade between developed and developing countries that differ in their

factor endowments is more consistent with Heckscher-Ohlin model

(3)

With specialisation and trade the consumption possibilities are expanded

(4)

One of the basic principles of trade supported by WTO is that once a

product or seller has entered a country, it should be treated the same as

T
______

T
______

T
______

T
______

products or sellers that originated inside that country

(5)

Tariff reductions has been a major discussion point is most of the global
trade negotiations as part of GATT rounds

(6)

The Smoot-Hawley Tariff Act of 1930 reduced the tariffs on several goods
and facilitated trade in the US

(7)

With international trade, the country will export the good whose relative
price is below the world relative price

(8)

In an economy, free trade benefits the abundant factor but hurts the scarce
factor

(9)

Intra-industry trade is export and import within the same industry

T
______

F
______

T
______

T______

T
______

(10) Under the H-O model, with trade demand for the countrys abundant factor
will decrease
(11) Free trade raises the relative price, within the country, of the countrys
exports

T
______

T
______

(12) Global competition enhances productivity gains for firms and industries

T
______

(13) Free trade ensures relatively high wage levels for all domestic workers

F
______

(14) The imposition of a tariff on imported steel for the home country results in
higher steel prices and falling steel consumption

(15) Technology and international trade can raise the real income of domestic
producers and consumers
(16) Trade and specialisation can possibly increase a nations total output by
increasing the productivity of its resources

T
______

T
______

T
______

(17) With trade between two countries all people in both countries are better off

F
______

(18) A countrys overall welfare decreases when a tariff is introduced on imports

T
______

(19) Developing countries only export raw materials

F
______

(20) Governments revenue decreases when subsidies are provided to exporters

T
______

Question Set 2
Choose the correct (or best) answer from among the choices given after each statement or
question. Circle the correct answer
10 statements: Each correct answer 3 points (30 POINTS)

(1)

David Ricardo's trading principle emphasises the:

a.

Demand side of the market

b.

Supply side of the market

c.

Role of comparative costs

d.

Role of absolute costs

(2)

According to the Ricardos principle, specialisation and trade increase a nation's total
output since:

a.

Resources are directed to their highest productivity

b.

The output of the nation's trading partner declines

c.

The nation can produce outside of its production possibilities curve

d.

The problem of unemployment is eliminated

(3)

Under Heckscher-Ohlin Model, international trade can lead to increases in:

a.

Consumer welfare only if output of both products is increased

b.

Output of both products and consumer welfare in both countries

c.

Total production of both products, but not consumer welfare in both countries

d.

Consumer welfare in both countries, but not total production of both products

(4)

A main advantage of specialisation results from:

a.

Economies of large-scale production

b.

The specializing country behaving as a monopoly

c.

Smaller production runs resulting in lower unit costs

d.

High wages paid to foreign workers

(5)

A countrys workers union attempted to win the approval of legislation that would
moderate the practice of foreign sourcing on the part of auto manufacturers. Which of
the following best represents this legislation?

a.

Voluntary export quotas

b.

Export subsidies

c.

Tariff quotas

d.

Local content requirement

(6)

The movement to free international trade is most likely to generate short-term

unemployment in which industries?

a.

Industries in which there are neither imports nor exports

b.

Import-competing industries

c.

Industries that sell to domestic and foreign buyers

d.

Industries that sell to only foreign buyers

(7)

Free traders maintain that an open economy is advantageous in that it provides all of
the following except:

a.

Increased competition for world producers

b.

A wider selection of products for consumers

c.

The utilization of the most efficient production methods

d.

Relatively high wage levels for all domestic workers

(8)

A primary reason why nations conduct international trade is because:

a.

Some nations prefer to produce one thing while others produce other things

b.

Resources are not equally distributed among all trading nations

c.

Trade enhances opportunities to accumulate profits

d.

Interest rates are not identical in all trading nations

(9)

In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in:

a.

military capabilities

b.

labor productivities

c.

relative availabilities of factors of production

d.

tastes

(10) A closed economy is one in which:

a.

Imports exactly equal exports, so that trade is balanced

b.

Domestic firms invest in industries overseas

c.

The home economy is isolated from foreign trade

d.

Saving exactly equals investment at full employment

Question Set 3
Supply the correct (or best) answer to complete the statement - write in clearly the answer in
the space provided
Choose any 8 out of 10 statements. Each correct answer 4 points (MAXIMUM 32 POINTS)

(1)

With international trade, the country will export the good whose relative price is below
the world relative price, which may differ from the domestic price because of differences

technologies

in ____________
(2)

simplistic

Ricardian model of trade is a ___________ model for the analysis of reasons and effects

potentially suffer

of international trade. However, it doesnt tell that some people could __________ from
specialisation

(3)

World Trade Organisation

WTO, which stand for ____________________ stipulates procedures for the settlement of
international trade disputes

(4)

A quota
______________________
is the maximum amount of a foreign produced good that will
be allowed to enter a country over a given time period.

(5)

intensive country, exported __________

labour
In 1947 US, presumably a capital ___________
intensive
Leontief Paradox
products. This observation is known as ___________

(6)

container
From its invention in 1956, the ______________
has transformed global trade

(7)

export goods that are

According to Heckscher-Ohlin theorem, an economy will ________
import
relatively intensive in using its relatively abundant factors of production; and will _______
goods that are relatively intensive in using its relatively scarce factors of production

(8)

World price of a good may differ from the domestic price because of differences in
technologies or resources, such as __________________.
raw materials
____________

Text

(9)

increase
An elimination of non-tariff barriers on apples tends to ________________
apple
decrease profits of import-competing apple producers.
imports, __________

trade balance / net exports

(10) The difference between exports and imports is called the ____________.

Question Set 4
Choose any 4 out of 10 questions: 28 POINTS
In multiple-choice questions, if you only mark the correct answer without an explanation only 2
points will be awarded. If you answer more than 4 questions, you will get points for best 4 and
may also be considered for bonus points. (Question 9 carries 14 points)

(1)

The movement to free international trade is most likely to generate short-term

unemployment in which industries?

a.

Industries in which there are neither imports of exports

b.

Import-competing industries

c.

Industries that sell to domestic and foreign buyers

d.

Industries that sell to only foreign buyers

State and explain your choice

Imports will be cheaper and the import-competing industries will face competition
and will have to cut wages or lay-off people to survive.

(2)

In Germany, automobiles are

a.

Imported, but not exported

b.

Exported, but not imported

c.

Imported and Exported

d.

Neither imported not exported

State and explain your choice

consumer preferences for different car brands etc. means Germany imports
and exports cars intra-industry trad

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capital intensive

(3)

The figure above shows the input choices (labour and capital) in making two products
A and B. If product A is relatively capital intensive which of the two graphs represents
it? Explain

L/ K in Graph 1 is more than L/K in Graph 2

(4)

Is there is an ongoing discussion in international trade on ethical issues concerning

labour standards ? Provide an example which was recently in news.

Yes, this is indeed an ongoing discussion think of Bangladesh

and also your own role in the value chain

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(5)

Figure above plots the production possibility frontier (PPF) of two products A and B:
QA and QB are the quantities of products A and B made by the country. What
determines the quantity of each product the country will produce? Explain

Refer to classroom slides

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(6)

What are the common arguments for restricting trade? Explain any two arguments.

Refer to classroom slides

(7)

Does the principle of comparative advantage explain well the modern international
trade? Why or why not?

No increasing return of scale, consumer preferences etc. are not explained well

(8)

Increased foreign competition tends to:

a.

Intensify inflationary pressure at home

b.

Induce falling output per worker-hour for domestic workers

c.

Place constraints on the wages of domestic workers

d.

Increase profits of domestic import-competing industries

Text

State and explain your choice

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(9)

Who gains from tariffs? Use the above diagram to show the effects of tariff

Refer to classroom slides

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(10) Define or explain any three of the following terms:

a.

Heckscher-Ohlin Model

b.

Quota

c.

Ad valorem tariff

d.

GATT

e.

WTO

f.

Doha Round

Refer to classroom slides and your own notes

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Archivierungsnummer: __________________
Fachbereich 3
Wirtschaft und Recht Prfungsamt

Klausurdeckblatt
Studiengang:
Titel des Moduls:

Bachelor- Studiengang International Business Administration

___________________________________________________________________
International Trade
___________________________________________________________________

Titel der Unit/s:

Innovation Dynamics, Trade and Growth

___________________________________________________________________
___________________________________________________________________

Themensteller/in:

___________________________________________________________________
Thakur
___________________________________________________________________
___________________________________________________________________

P_dauer:

___________________________________________________________________

Prfungsnummer:

720439
___________________________________________________________________

Semester:

4
___________________________________________________________________
14.02.2014
___________________________________________________________________

Datum der Klausur:

Beginn der Klausur:
Dauer der Klausur:

09:00
___________________________________________________________________
120
___________________________________________________________________

Von der/dem Studierenden auszufllen

Name:

P_dauer:
P_dauer:
___________________________________________________________________

Vorname:

___________________________________________________________________

Matrikel-Nr.:

___________________________________________________________________

INCOMINGS
Erasmus

Sokrates

Others

Mir ist bekannt, dass mit dem Empfang der Klausurunterlagen eine Prfung beginnt. Ich fhle mich
gesundheitlich in der Lage, die Prfung abzulegen.
Unterschrift:

___________________________________________________________________

Von der/dem Dozent/in auszufllen

Zugelassene Hilfsmittel __________________________________________________________________
Mg. Punktzahl Unit 1:

______________________ Erreichte Punktzahl Unit 1 ____________________

Mg. Punktzahl Unit 2:

______________________ Erreichte Punktzahl Unit 2 ____________________

Mg. Punktzahl Unit 3:

______________________ Erreichte Punktzahl Unit 3 ____________________

Gesamtnote der Prfungsleistung: ______________ Summe erreicht. Punkte:

Datum:
Datum:

____________________

_____________________ Unterschrift Erstkorrektur/in:

_____________________ Unterschrift Zweitkorrektur/in:

_____________
_____________

Notenskala: 1,0 / 1,3 / 1,7 / 2,0 / 2,3 / 2,7 / 3,0 / 3,3 / 3,7 / 4,0 / 5,0

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INTERNATIONAL TRADE
Final Exam - Winter Semester 2013-14
Semester 4, IBA-BA
Test - 720439

!
!
Test duration

120 minutes

Maximum points

120

General instructions

Please follow the instruction to answer each question-set in the

space given. This question-pack comprises 9 sheets (18 sides)
including this and the cover sheet.

There are four sets of questions.

You may NOT use any paper other than the 7 sheets that
follow this sheet to write in or mark your answers.

You may NOT use a pencil to write in or mark your answers

ALL THE BEST

Examiners space - do not write below the dotted line

............................................................................................................................................
Points scored
Remarks

INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

!4

INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

Question Set 1
Mark the following statements as true or false in the space given next to each statement

Choose any 15 out of 20 statements: Each correct answer 2 points (30 POINTS)

!
(You can answer more than 10 no points will be taken away for a wrong answer)
!
!
Statement
(1)

True (T) or False (F)

According to Heckscher-Ohlin theory, a country will export the commodity

in the production of which a great deal of its relatively abundant and cheap

______

factor is used
(2)

Trade between developed and developing countries that differ in their

factor endowments is more consistent with Heckscher-Ohlin model

(3)

______

To understand the politics of trade, it is necessary to look at the effects of

trade not just on a country as a whole, but on the distribution of income

______

within that country

(4)

Under the specific factors model, trade benefits the factor that is specific to
the export sector of each country

(5)

Tariff reductions has been a major discussion point is most of the global
trade negotiations as part of GATT rounds

(6)

The Smoot-Hawley Tariff Act of 1930 increased the tariffs on several goods
and facilitated trade in the US

(7)

With international trade, the country will export the good whose relative
price is above the world relative price

(8)

Under the specific factors model, the allocation of labour to a sector

depends on the price of output and the wage rate

(9)

Those who stand to lose from increased trade are typically better organised
than those who stand to gain

(10)

Consumer surplus is what consumer gains by paying less for a good than
he or she was willing to pay

______

______

______

______

______

______

______

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(11) Free trade raises the relative price, within the country, of the countrys
exports

______

(12) Global competition enhances productivity gains for firms and industries

______

(13) Free trade ensures relatively high wage levels for all domestic workers

______

(14) Countries tend to export goods whose production is intensive in factors

with which the countries are abundantly endowed

(15) Technology and international trade can raise the real income of domestic
producers and consumers
(16) Trade and specialisation can possibly increase a nations total output by
increasing the productivity of its resources

______

______

______

(17) With trade between two countries all people in both countries are better off

______

(18) A countrys overall welfare decreases when a tariff is introduced on imports

______

(19) If production of a good yields extra social benefit not captured as producer
surplus, a tariff can increase welfare

(20) Governments revenue decreases when subsidies are provided to exporters

______

______

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

Question Set 2
Choose the correct (or best) answer from among the choices given after each statement or
question. Circle the correct answer Choose any 10 out of 13 statements.

Each correct answer 3 points (30 POINTS)

(You can answer more than 10 no points will be taken away for a wrong answer)

!!
(1)

Bangladesh is relatively abundant in labor, while Canada is relatively abundant in capital.

In both countries the production of shirts is relatively more labor intensive than the
production of computers. According to the factor endowment theory, Bangladesh will
have a(n)

!
a.

Absolute advantage in the production of shirts and computers

b.

Absolute advantage in the production of computers

c.

Comparative advantage in the production of shirts

d.

Comparative advantage in the production of computers

(2)

The fact that Germany both imports and exports cars is an example of

a.

Intraindustry trade

b.

Interindustry trade

c.

Perfect competition

d.

Imperfect competition

(3)

Who benefits from tariff protection:

a.

Domestic consumers of the good produced

b.

Domestic producers of the good produced

c.

Foreign producers of the good produced

d.

Foreign consumers of the good produced

(4)

Which of the following policies permits a specified quantity of goods to be imported at

one tariff rate and applies a higher tariff rate to imports above this quantity?

a.

Tariff quota

b.

Import tariff

c.

Specific tariff

d.

Ad valorem tariff
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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(5)

A countrys workers union attempted to win the approval of legislation that would
moderate the practice of foreign sourcing on the part of auto manufacturers. Which of

the following best represents this legislation?

a.

Voluntary export quotas

b.

Export subsidies

c.

Tariff quotas

d.

Local content requirement

(6)

The movement to free international trade is most likely to generate short-term

unemployment in which industries?

a.

Industries in which there are neither imports nor exports

b.

Import-competing industries

c.

Industries that sell to domestic and foreign buyers

d.

Industries that sell to only foreign buyers

(7)

According to Ricardo, a country will have a comparative advantage in the product in

which its:

a.

Industries in which there are neither imports nor exports

b.

Import-competing industries

c.

Industries that sell to domestic and foreign buyers

d.

Industries that sell to only foreign buyers

(8)

A primary reason why nations conduct international trade is because:

a.

Some nations prefer to produce one thing while others produce other things

b.

Resources are not equally distributed among all trading nations

c.

Trade enhances opportunities to accumulate profits

d.

Interest rates are not identical in all trading nations

(9)

In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in:

a.

Military capabilities

b.

Labor productivities

c.

Relative availabilities of factors of production

d.

Tastes

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(10) A closed economy is one in which:

a.

Imports exactly equal exports, so that trade is balanced

b.

Domestic firms invest in industries overseas

c.

The home economy is isolated from foreign trade

d.

Saving exactly equals investment at full employment

(11) According to the theory of comparative advantage, which of the following is not a

reason why countries trade?

a.

Costs are higher in one country than in another

b.

Prices are lower in one country than in another

c.

The productivity of labor differs across countries and industries.

d.

Exports give a country a political advantage over other countries that export less

(12) Which of the following statements would a mercantilist NOT agree with?

a.

Imports are desirable

b.

Trade is a zero-sum activity

c.

The purpose of trade is to amass revenues from exports

d.

Policies should promote exports and discourage imports

(13) Which of the following is one of the conclusions of the New Trade Theory?

a.

Countries as a whole must gain from trade

b.

A country can only hurt itself by using government policies to promote exports

c.

Consumers gain from the increased variety of goods that trade makes available

d.

A country may export a good or import it, but not both

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

Question Set 3
Supply the correct (or best) answer to complete the statement - write in clearly the answer in
the space provided

Choose any 8 out of 10 statements. Each correct answer 3 points (24 POINTS)
(You can answer more than 8 no points will be taken away for a wrong answer)

(1)

With international trade, the country will export the good whose relative price is below
the world relative price, which may differ from the domestic price because of differences
in ____________

(2) Foreign direct investment benefit for reasons similar to why international trade generates
gains: advantage of _____________________

(3) Trade benefits the factor that is specific to _________ sector of each country but hurts the
factor specific to the ___________ sectors, with ambiguous effects on mobile factors.

(4)

_______________________________ is a firms investment (in one country) to control or

own a subsidiary in another country.

(5)

In 1947 US, presumably a capital ___________ country, exported __________ intensive

products. This observation is known as ___________

(6)

From its invention in 1956, the ______________ has transformed global trade

(7)

According to Heckscher-Ohlin model, an economy will ________ goods that are relatively
intensive in using its relatively abundant factors of production; and will _______ goods
that are relatively intensive in using its relatively scarce factors of production

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(8)

The Heckscher-Ohlin model considers differences in______________ that countries have

(9)

A country is said to a comparative advantage in the good that has the ______________
_______________ in terms of the other good.

(10) By some estimates, about half of world trade is ____________: most significant is the
trade of manufactured goods among ______________ nations

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

Question Set 4

Provide short answers to questions (write in your answers in the given space)
(Choose questions worth 36 POINTS)

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You can earn bonus points, if you answer more questions correctly)
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Give clear arguments. Keep answers brief and legible

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(1)

The movement to free international trade is most likely to generate short-term

unemployment in which industries? (2 POINTS)

a.

Industries in which there are neither imports of exports

b.

Import-competing industries

c.

Industries that sell to domestic and foreign buyers

d.

Industries that sell to only foreign buyers

(2)

In Germany, automobiles are (2 POINTS)

a.

Imported, but not exported

b.

Exported, but not imported

c.

Imported and Exported

d.

Neither imported not exported

State and explain your choice (4 POINTS)

State and explain your choice (4 POINTS)

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(1)

When two countries trade, relative prices of goods converge, which causes
convergence of the relative prices of inputs: labour and capital. Do you agree with the

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(4)

statement? Why or why not? (7 POINTS)

Is there is an ongoing discussion in international trade on ethical issues concerning

labour standards ? Provide an example and discuss what is YOUR ROLE in the issue.
(8 POINTS)

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(5)

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(6)

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Consumers gain from the increased variety of goods that trade makes available. Do you
agree with this statement? Why or why not? (7 POINTS)

What are the common arguments for restricting trade? Explain any TWO arguments.
(7 POINTS)

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(7)

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(8)

Does the principle of comparative advantage explain well the modern international
trade? Why or why not? (7 POINTS)

Do you agree that trade plays a role in growth by expanding market size, encouraging
the development of new goods, new ideas, and new ways of doing things. Why do you

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agree or disagree with this statement? (8 POINTS)

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

(9)

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What is a trade policy? Name and explain any TWO trade policy instruments commonly
used by governments (8 POINTS)

(10) Define or explain any three of the following terms: (6 POINTS)

a.

Heckscher-Ohlin Model

b.

Quota

c.

Ad valorem tariff

d.

Stolper-Samuelson effect

e.

WTO

f.

Doha Round

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

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(11) How accurate do you think is Heckscher-Ohlin theory? To what extent does it explain the

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modern trade? What are its shortcomings? (10 POINTS)

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INTERNATIONAL TRADE (Final Exam - Winter Semester 2013-14 - Semester 4, IBA-BA)

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