STUDY GUIDE FOR ECN 360 MIDTERM EXAM FALL 2004 CHAPTER 2

Calculate the relative price, or opportunity cost, of S, i.e., how much T has to be given up to get 1 unit of S? Calculate the relative price, or opportunity cost, of T, i.e., how much S has to be given up to get 1 unit of T? If the relative price of S were to increase, how would the price line change? That is, if more T has to be given up to get one unit of S, how would the line change? If the relative price of T were to increase, how would the price line change? Answer the next questions based on the following diagram

In autarky, the economy would be in general equilibrium at point (a) I. (b) D. (c) E. (d) F.

If tastes were to change so that S became more preferred relative to T, then, in autarky, production and consumption would move from their initial equilibrium to a point such as (a) C. (b) D. (c) E. (d) F. Answer questions 5 through 7 based on the information in the following table Goods X Y A 3 4 Country B 9 2

(numbers indicate hours of labor per unit of output) 5. Country A has absolute advantage in (a) Good X. (b) Good Y. (c) Neither X nor Y. (d) Both X and Y. 6. Country B has absolute advantage in (a) Good X. (b) Good Y. (c) Neither X nor Y. (d) Both X and Y. 7. If countries were to trade along the lines of absolute advantage (a) A would export X to B. (b) B would import Y from A. (c) neither country would want to trade. (d) More information is needed to determine the pattern. Answer questions 10-11 based on the information in the following table Goods Country A 3 1 B 9 2

Beer Wine

(numbers indicate hours of labor per unit of output) 10. Country A has a comparative advantage in (a) beer. (b) wine. (c) both beer and wine. (d) neither beer nor wine. 11. Country A has an absolute advantage in (a) beer. (b) wine. (c) both beer and wine. (d) neither beer nor wine.

Answer questions 16-19 based on the following diagram of a country in international trade equilibrium

This country has comparative advantage in good Z, and completely specializes in production of Z. 16. In equilibrium, this country produces at point (a) B. (b) C. (c) D. (d) E.

17. In equilibrium, this country consumes at point (a) B. (b) C. (c) D. (d) E. 18. Exports for this country equal (a) OA units of Z. (b) AB units of Z. (c) AC units of Y. (d) AD units of Y. 19. Imports for this country equal (a) OA units of Z. (b) AB units of Z. (c) AC units of Y. (d) AD units of Y.

Answer questions 26-30 based on the information in the following table, where the numbers represent the number of labor hours it will take to produce a unit of the given good. Grapes Textiles 26. Spain has comparative advantage in (a) grapes. (b) textiles. (c) both grapes and textiles. (d) neither grapes nor textiles. 27. Spain has absolute advantage in (a) grapes. (b) textiles. (c) both grapes and textiles. (d) neither grapes nor textiles. 29. If complete specialization occurs, and France has a labor force of 30,000 hours of labor, then after trade begins it will produce (a) 2000 units of grapes. (b) 6000 units of textiles. (c) 2000 units of grapes and 6000 units of textiles. (d) None of the above. CHAPTER 4 Answer questions 5-10 based on the following diagram of a country that is in international trade equilibrium. Spain 8 4 France 15 5

5. This country has comparative advantage in (a) X. (b) Y. (c) both X and Y. 6. This country's exports equal (a) CE units of X. (b) GH units of Y. (c) CD units of X. (d) DE units of Y.

7. This country's imports equal (a) CE units of X. (b) GH units of Y. (c) CD units of X. (d) DE units of Y. 9. If Y is labor intensive then according to the HO theory, this country should be (a) capital (b) labor (c) both capital and labor 10. If this country is labor abundant, then according to the HO theory good X should be (a) capital (b) labor (c) both capital and labor abundant.

intensive.

11. One of the predictions of the HO model is that (a) countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other. (b) countries will tend to specialize, but not completely, in their comparative advantage good. (c) reciprocal demand leads to an equilibrium terms of trade by inducing changes in both demand and supply. (d) All of the above. 12. According to the Rybczynski theorem, at constant world prices, if a country experiences a gain in its capital stock it will produce (a) more of the capital intensive good and less of the labor intensive good. (b) more of both goods. (c) less of the capital intensive good and more of the labor intensive good. (d) less of both goods. 13. According to the factor price equalization theorem, if A is labor abundant, then once trade opens (a) wages and rents should fall in A. (b) rents and rents should rise in A. (c) wages should rise and rents should fall in A. (d) wages should fall and rents should rise in A. 14. According to the factor price equalization theorem, if B is labor abundant, then once trade begins with A (a) wages and rents should fall in A. (b) rents and rents should rise in A. (c) wages should rise and rents should fall in A. (d) wages should fall and rents should rise in A. 15. According to the factor price equalization theorem, the any given country. (a) abundant (b) scarce (c) neither factor should oppose free trade policies in

16. Let Kj and Lj denote the capital and labor stocks of country j (j=A,B), then A is said to be capital abundant relative to B if (a) KA > KB. (b) KA/LA > KB/LB. (c) LA < LB.

17. Let Kj and Lj denote the capital and labor inputs in the production of good j (j=S,T), then S is said to be capital intensive relative to T if (a) KS > KT. (b) KS/LS > KT/LT. (c) LS < LT. (d) All of the above.

CHAPTER 6 3. Ad valorem tariffs are collected as (a) fixed amounts of money per unit traded. (b) a percentage of the price of the product. (c) a percentage of the quantity of imports. (d) All of the above. 4. Specific tariffs are collected as (a) fixed amounts of money per unit traded. (b) a percentage of the price of the product. (c) a percentage of the quantity of imports. (d) All of the above. 5. Most tariffs have (a) only revenue effects. (b) only protective effects. (c) both protective and revenue effects. (d) neither protective nor revenue effects. 6. If Canada imposes a tariff on bananas and if none are grown in Canada, this tariff has (a) only revenue effects. (b) only protective effects. (c) both protective and revenue effects. (d) neither protective nor revenue effects. 7. A prohibitive tariff has (a) only revenue effects. (b) only protective effects. (c) both protective and revenue effects. (d) neither protective nor revenue effects. Answer questions 8-14 based upon the following diagram.

8. With free trade, calculate the total units of consumption, total domestic production, and the total quantity of imports. 9. With free trade, calculate the total value of imports. 10. With the tariff, calculate the total units of consumption, total domestic production, the quantity of imports, and the government revenue and the deadweight cost of the tariff. 13. Domestic producers gain __________ because of the tariff. (a) $15 (b) $55,000 (c) $120,000 (d) $150,000 14. A tariff of __________ would be prohibitive (no imports). (a) $5 (b) $8 (c) $10 (d) $15 19. If a tariff on bikes causes domestic bike prices to rise by 20% and domestic value added in the domestic bike industry to rise by 30%, then (a) the nominal rate of protection of bikes is 20%. (b) the effective rate of protection of bikes is 30%. (c) the effective rate of protection is higher than the nominal rate. (d) All of the above. CHAPTER 7 Answer questions 9-14 based on the following diagram.

9. The quota shown in the diagram equals (a) 200 units. (b) 500 units. (c) 1000 units. (d) 1200 units.

10. The quota restricts trade by the same amount as a tariff of (a) $20. (b) $30. (c) $50. 11. Quota rents equal (a) $2000. (b) $5000. (c) $6000. (d) $10000. 12. If the government was to auction quota licenses competitively, it could earn up to (a) $2000. (b) $5000. (c) $6000. (d) $10000. 13. The quota generates deadweight costs of (a) $10,000. (b) $12,000. (c) $30,000. (d) $50,000. 14. If this were a voluntary restraint agreement, the welfare costs to the importing country would be (a) $14,000. (b) $18,000. (c) $38,000. (d) $60,000.