Page 1Page 2Page 3Page 4Page 5Page 6Page 7Page 8Page 9E452es2.pdfPage 1Page 2Page 3Page 4Name SECOND MIDTERM EXAMEconomics 452 International Trade Theory and Policy Spring 20091HECKSCHER-OHLIN MODEL1-4 The United States is abundant in land to labor compared toGermany. Chocolate production relatively intensively uses labor toland compared to french fries. The countries have the sametechnology and relative demand. 1. Germany produces more _____ than the United States.a) chocolateb) french friesc) chocolate relative to french friesd) french fries relative to chocolatee) cannot tell from the information provided2. Germany has comparative advantage in:a) french friesb) chocolatec) french fries and chocolated) french fries and sometimes chocolatee) chocolate and sometimes french fries3. Under free trade, Germany imports:a) french friesb) chocolatec) french fries and chocolated) french fries and sometimes chocolatee) chocolate and sometimes french fries4. Opening up to trade, the price of _____ rises in the United States.a) chocolateb) french friesc) chocolate relative to french friesd) french fries relative to chocolatee) cannot tell from the information provided25-8 Mexico is abundant in blue-collar workers to white-collar workerscompared to the United States. The countries have the sametechnology and relative demand. Each country produces both goods.As move from autarky to free trade, the relative price of high-tech tolow-tech goods rises in the United States and falls in Mexico. High-tech goods are relatively intensive in white-collar workers.5. In the United States, the wage paid to blue-collar workers:a) rises by more than the price of goodsb) rises by less than the price of goodsc) stays the samed) falls by less than the price of goodse) falls by more than the price of goods6. In the United States, the wage paid to white-collar workers:a) rises by more than the price of goodsb) rises by less than the price of goodsc) stays the samed) falls by less than the price of goodse) falls by more than the price of goods7. In Mexico, the wage paid to blue-collar workers:a) rises by more than the price of goodsb) rises by less than the price of goodsc) stays the samed) falls by less than the price of goodse) falls by more than the price of goods8. In Mexico, the wage paid to white-collar workers:a) rises by more than the price of goodsb) rises by less than the price of goodsc) stays the samed) falls by less than the price of goodse) falls by more than the price of goods3STANDARD TRADE MODEL9-12 Free trade prevails between the United States and China. China hascomparative advantage in cloth and the United States in food. Suppose the United States experiences a contraction (negativeeconomic growth), while China has zero economic growth.9. The primary effect of the contraction on the United States is a:a) benefitb) burdenc) noned) benefit, if world relative supply of food to cloth falls as a resulte) burden, if world relative supply of food to cloth falls as a result10. In world markets, the relative price of food to cloth:a) risesb) fallsc) stays the samed) rises, if world relative supply of food to cloth falls as a resulte) falls, if world relative supply of food to cloth falls as a result11. The secondary effect of the contraction on the United States is aterms of trade:a) improvementb) deteriorationc) unchangedd) improvement, if world relative supply of food to cloth fallse) deterioration, if world relative supply of food to cloth falls12. The secondary effect on the United States is a:a) benefitb) burdenc) noned) benefit, if world relative supply of food to cloth falls as a resulte) burden, if world relative supply of food to cloth falls as a result413-16 Free trade prevails between the United States and Sudan.Suppose the United States transfers one billion dollars to aidorganizations in Sudan. More of the money will be spent on foodthan if the United States kept the money.13. The primary effect of the transfer on the United States is:a) benefitb) burdenc) noned) benefit, if Sudan has comparative advantage in fuele) burden, if Sudan has comparative advantage in fuel14. Due to the transfer of money, world relative demand for food:a) risesb) fallsc) stays the samed) rises, if Sudan has comparative advantage in fuele) falls, if Sudan has comparative advantage in fuel15. In world markets, the relative price of fuel to food:a) risesb) fallsc) stays the samed) rises, if Sudan has comparative advantage in fuele) falls, if Sudan has comparative advantage in fuel16. The secondary effect on the United States is a terms of trade:a) improvementb) deteriorationc) unchangedd) improvement, if Sudan has comparative advantage in fuele) deterioration, if Sudan has comparative advantage in fuel5FACTOR PROPORTIONS MODEL PROBLEMSProducing one yard of cloth requires 2 workers and 1 acre of land, whileproducing one pound of food requires 1 worker and 3 acres of land. Bothcountries have 300 workers; the United States has 300 acres of land, whileROW has 600. The price of food is always $90/pound; the price of cloth is$60/yard in the United States in autarky and $90/yard in both countriesunder free trade.1. Determine and compare the relative abundance of factors acrosscountries. Determine and compare the relative intensity of factor use acrossgoods. Determine the pattern of comparative advantage and the pattern oftrade.2. Construct the labor constraint (same for both countries).6Construct the U.S. land constraint. Determine the U.S. production bundle that fully employs both factors.3. Construct the ROW land constraint. Determine the ROW production bundle that fully employs bothfactors. Compare the relative production of cloth to food across countries.7Draw graph of factor constraints here, with food on the vertical axis. Indicate values for the endpoints and for the quantities produced ineach country. _____________________________________4. Construct the pricing equation for food (same always for bothcountries). Construct the U.S. pricing equation for cloth in autarky. Determine U.S. factor prices in autarky that allow both goods to bepriced at cost.85. Construct the pricing equation for cloth under free trade (same forboth countries). Determine the factor prices under free trade that allow both goods tobe priced at cost. Compare the U.S. relative factor prices (wage relative to rent) underfree trade to autarky.9Draw graph of pricing equations here, with rent on the vertical axis. Indicate