Page 1Page 2Page 3Page 4Page 5Page 6Page 7Page 8E452es2.pdfPage 1Page 2Page 3Page 4Page 5Name SECOND MIDTERM EXAMEconomics 452 International Trade Theory and Policy Spring 20101HECKSCHER-OHLIN MODEL1-4 Haiti is relatively scarce in land to labor compared to the ROW. Foodproduction relatively intensively uses land to labor compared to cloth.Haiti is assumed to have the same technology and relative demandas the ROW. 1. Under free trade, Haiti produces more _____ than the ROW.a) foodb) clothc) food relative to clothd) cloth relative to foode) cannot tell from the information provided2. Haiti has comparative advantage ina) foodb) clothc) both food and clothd) neither food nor clothe) cannot tell from the information provided3. Under free trade, Haiti exportsa) foodb) clothc) both food and clothd) neither food nor clothe) cannot tell from the information provided4. An decrease in labor in Haiti causes their production ofa) food to fallb) cloth to fallc) food to rise and cloth to falld) cloth to rise and food to falle) both food and cloth to fall25-8 Haiti is relatively scarce in land to labor compared to the ROW. Haitiand the ROW produce both cloth and food. They are assumed tohave the same technology and relative demand. Cloth is relativelyintensive in labor. As move from autarky to free trade, the relativeprice of cloth to food rises in Haiti and falls in the ROW. 5. In Haiti, the wage paid to 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 Haiti, the rent paid to landowners: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. Under free trade, the rent paid to landowners in Haiti isa) higher than the rent in the ROWb) lower than the rent in the ROWc) the same as the rent in the ROWd) the same as the wage in the ROWe) the same as the wage in the Haiti8. In Haiti, who is hurt by free trade?a) workersb) landownersc) both workers and landownersd) no one - both workers and landowners gain in Haitie) depends on how workers and landowners spend their income3STANDARD TRADE MODEL9-12 Free trade prevails between the United States and Haiti. SupposeHaiti experiences a contraction (negative economic growth due to theearthquake) that causes their production of food to shrink relative totheir production of cloth, while the United States has zero economicgrowth.9. The primary effect of the contraction on Haiti is aa) benefitb) burdenc) noned) benefit, if the United States has comparative advantage in foode) burden, if the United States has comparative advantage in food10. In world markets, the relative supply of cloth to food:a) risesb) fallsc) stays the samed) rises, if the United States has comparative advantage in foode) falls, if the United States has comparative advantage in food11. In world markets, the relative price of cloth to food:a) risesb) fallsc) stays the samed) rises, if the United States has comparative advantage in foode) falls, if the United States has comparative advantage in food12. The secondary effect of the contraction on Haiti is a terms of trade:a) improvementb) deteriorationc) unchangedd) improvement, if the United States has comparative advantagein foode) deterioration, if the United States has comparative advantagein food413-16 Free trade prevails between the United States and Haiti. Supposethe United States transfers one hundred million dollars in aid to Haiti.The United States has comparative advantage in food and Haiti incloth.13. The primary effect of the transfer on Haiti is aa) benefitb) burdenc) noned) benefit, if Haiti spends more of each dollar on food than the USe) burden, if Haiti spends more of each dollar on food than the US14. Due to the transfer, world relative demand for cloth to food:a) risesb) fallsc) stays the samed) rises, if Haiti spends more of each dollar on food than the USe) falls, if Haiti spends more of each dollar on food than the US15. In world markets, the relative price of cloth to food:a) risesb) fallsc) stays the samed) rises, if Haiti spends more of each dollar on food than the USe) falls, if Haiti spends more of each dollar on food than the US16. The secondary effect of the transfer on Haiti is a terms of trade:a) improvementb) deteriorationc) unchangedd) improvement, if Haiti spends more of each dollar on food thanthe USe) deterioration, if Haiti spends more of each dollar on food thanthe US5FACTOR PROPORTIONS MODEL PROBLEMSProducing one yard of cloth requires 4 workers and 1 acre of land, whileproducing one pound of food requires 1 worker and 2 acres of land. Bothcountries have 80 workers; the United States has 90 acres of land, whileROW has 125. The price of food is always $24/pound; the price of cloth is$26/yard in the United States in autarky and $40/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). Construct the U.S. land constraint.6Determine 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.Draw graph of factor constraints here, with food on the vertical axis. Indicate values for the endpoints and for the quantities produced ineach country. 074. 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.5. 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.8Draw graph of pricing equations here, with rent on the vertical axis. Indicate values for the endpoints and for the factor prices before andafter trade. 06. Calculate and compare the proportional changes in the wage, rent,price of cloth, and price of food. In the United States,