Economics 340Final ExamPart II: Short Answer CountryCountryCountryCountry3. (12 points) The figure shows hypothetical supply and demand curves for wine in Belgium, which is assumed here to be a small country. In the initial situation, the world price of wine is Pw1, the Belgian demand curve is the solid line labeled D, and Belgium has free trade in wine. Use the labels in the figure, or your choice of the highlighted words as appropriate, to answer the questions below:a. At the initial world price Pw1:How much wine does Belgium export?How much does it import?Does Belgium as a whole gain or lose from trading wine (compared to autarky), or can’t you tell?b. Suppose now that Belgium uses a tariff of size t that raises the price in Belgium to the level Pw1+t shown. (Indicate + or − along with the amount, where appropriate.)Is t ad valorem or specific?How much wine does Belgium now import?How much do Belgian wine suppliers gain or lose from this tariff? How much revenue does the Belgian government collect? How much does Belgium as a whole gain or lose?c. Suppose now that the Belgian taste for wine improves, shifting the demand curve to the right to position D’ as shown (parallel to D). In the continued presence of the tariff, t, record below the change due to this shift in each of the following. (Indicate + or − along with the amount, where appropriate.)Change in Belgian imports of wineChange in welfare of Belgian wine suppliersChange in the budget of the Belgian government (the tariff revenue)d.How has the shift in demand in part (c) changed the dead weight loss due to the tariff? Has it caused the dead weight loss to increase, decrease, or remain unchanged?AutarkyPollution havenImport substitutionDollarizationCountervailing dutyEcon 340 Alan Deardorff Fall Term 2007 Final Exam Page 1 of 15 NAME: ____________________________________ Student ID No.: ____________________________ Economics 340 International Economics Prof. Alan Deardorff Final Exam December 18, 2007 INSTRUCTIONS: READ CAREFULLY!!! 1. Please do not open the exam until you are told to do so. 2. PLACE YOUR NAME AND STUDENT ID NO. (THE EIGHT DIGIT NUMBER FROM YOUR M-CARD) ON THE EXAM AND ON THE SCANTRON SHEET. 3. After you are told to open the exam, find the FORM NUMBER at the top of page 2 and copy it to the scantron sheet. 4. This exam has 100 points and you have approximately 120 minutes to complete the test. Check that you have all ?? pages of the exam, including this cover sheet. 5. Part 1 consists of 48 multiple choice questions worth 1 point each. Answers to these should be marked on the scantron sheet using a #2 pencil. There are no penalties for guessing. 6. Part 2 consists of 50 points worth of short-answer questions for which you must provide written answers on these sheets. Point values for questions in Part 2 are indicated in parentheses. 7. That leaves 2 points unaccounted for. You will get these if (and only if) you put your name and ID number on both this exam booklet and the scantron sheet, and if you enter the form number (see above) on the scantron. Note that you must fill in circles on the scantron for the computer to read your name, ID, and form number, as well as your answers. 8. Good luck!Econ 340 Alan Deardorff Fall Term 2007 Final Exam Page 2 of 15 FORM 0 Economics 340 Final Exam Part 1: Multiple Choice (1 point each) Select the best answer of those given. Answers to this part should be marked on the scantron sheet using a #2 pencil. There is only one correct answer per question, and there is no penalty for guessing. 1. In the year 2006, how much did the United States export as a percentage of its GDP? a. 1% b. 3% c. 8% d. 21% e. 52% 2. The acronym ITO stands for a. International Trade Organization, which governed international trade policy for almost five decades before being replaced by the WTO. b. Interbank Transfer Operation, the mechanism overseen by the IMF to facilitate the pegging of exchange rates. c. International Tariff Office, the part of the UN within which national Customs Offices cooperate. d. International Trade Organization, which was proposed to govern trade policy but was never ratified. e. International Tariff Office, the independent agency of the US government that levies tariffs against subsidized imports. 3. During the half century since the end of World War II, a. The major currencies of the world, which initially had flexible exchange rates, have become fixed. b. The GATT has been transformed into the WTO. c. The World Bank has switched from providing assistance to poor countries to primarily settling transactions among rich countries. d. The IMF has changed from being a members-only bank to being a mutual fund for investment in emerging-economy stock markets. e. Average tariffs levied by developed countries against developing country exports have increased.Econ 340 Alan Deardorff Fall Term 2007 Final Exam Page 3 of 15 4. Suppose the world has two countries, Alpha and Beta, producing two goods, odds and ends. If Alpha has a comparative advantage in producing odds compared to Beta, then a. In autarky the relative price of ends must be higher in Alpha than in Beta. b. In autarky Beta must produce more ends than Alpha. c. In free trade, the wage in Alpha must be higher than in Beta. d. In free trade, Beta must import ends. e. In free trade, neither country will produce ends. 5. According to the theory of comparative advantage, a country will export a good only if a. It can produce it using fewer hours of labor than other countries. b. Its productivity is higher in producing the good than the productivity of other countries in producing it. c. Its wage rate in producing the good is lower than in other countries. d. Its cost of producing the good, relative to other goods, is at least as low as in other countries. e. All of the above. 6. Which of the following is not assumed in the Heckscher-Ohlin (Factor Proportions) Model of international trade? a. Increasing returns to scale. b. Perfect competition. c. Production requires more than one factor of production. d. Countries differ in their relative factor endowments. e. Industries differ in their relative factor intensities. 7. An implication of the Heckscher-Ohlin (Factor Proportions) Model of international trade is that free international trade causes a. Consumers to have access to a greater variety
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