Page 1Page 2Page 3Page 4Page 5Page 6E452ex1.pdfPage 1Page 2Page 3Page 4Page 5Page 6Page 7Page 8Name FIRST MIDTERM EXAMEconomics 452 International Trade Theory and Policy Fall 2010-1-WORLD TRADE1. Which of the following is NOT one of the three largest tradingpartners of the United States?a. Chinab. Mexicoc. Saudi Arabiad. Canadae. b and c2. That US imports from China are $338 billion while exports from theUnited States to China are only $67 billion is called what?a. Trade balance positive so a trade surplusb. Trade balance negative so a trade deficitc. Trade balance even so neither a trade surplus nor deficitd. Both a trade deficit and surpluse. Balance of payments surplus3. About 68% of Texas imports come from – and about 32% of Texasexports go to – which country?a. Chinab. Mexicoc. Canadad. Venezuelae. Saudi Arabia4. If Texas were a nation, it would rank in the ________ exporters.a. Top 5b. Top 10c. Top 20d. Top 100e. Top 200-2-5. On the graph of country shares of EU trade with the United Statesversus their shares of EU gross domestic product (GDP), when addMexico and Canada, where do they appear?a. Both are below the line for the EU countriesb. Both are quite near the line for the EU countriesc. Both are above the line for the EU countriesd. Mexico is above the line and Canada belowe. Canada is above the line and Mexico below6. The United States trades more with countries thata. Have minimal cultural tiesb. Are smaller in terms of their GDPc. Have few ocean harbors and lots of mountain rangesd. Are closer in distancee. b and d7. Which statement about trade as a percentage of GDP with BritishColumbia (BC) is FALSE?a. Alberta trades more with BC than Washingtonb. Saskatchewan trades more with BC than Montanac. Manitoba trades more with BC than Californiad. Ohio trades more with BC than Ontarioe. Quebec trades more with BC than New York8. What brought the first wave of globalization to an end?a. Revolutionary Warb. Civil Warc. World War Id. Korean Ware. Vietnam War-3-RICARDIAN MODEL9-12. Chairs and tables are produced with labor. Suppose when movefrom autarky to free trade, the relative price of tables to chairs rises inItaly.9. The relative price of chairs to tables in the absence of trade must be________ in Italy compared to France.a. Higherb. Lowerc. The samed. Higher or the samee. Lower or the same10. France has comparative advantage ina. Only tablesb. Only chairs c. Both tables and chairs d. Neither tables nor chairs e. Cannot tell from the information provided11. Italy exportsa. Only tablesb. Only chairsc. Both tables and chairsd. Neither tables nor chairse. Cannot tell from the information provided12. If France has a better technology than Italy for both goods, the wagein France will be _________ the wage in Italy under free trade.a. Higher thanb. The same asc. Lower thand. The same as or lower thane. Cannot tell from the information provided-4-13-16 Japan and Taiwan engage in free trade in pens and paper, whichare produced with labor. Suppose under free trade that the wage inmaking pens is less than the wage in making paper in Taiwan.13. What does Japan produce under free trade?a. Only pensb. Only paperc. Definitely pens and maybe paperd. Definitely paper and maybe pense. Definitely both pens and paper14. In Taiwan, the free trade relative price of pens to paper must be______ its opportunity cost of pens to paper.a. More thanb. Equal toc. Less thand. More than or equal toe. Cannot tell from the information provided15. Does Japan strictly gain from trade?a. Definitely yesb. Definitely noc. Possibly, but only if produces just paperd. Possibly, but only if produces just pense. Possibly, but only if produces both goods16. When Taiwan opens up to free trade (from autarky), a. All workers making paper will move to making pensb. Some or all workers making paper will move to making pensc. All workers making pens will move to making paperd. Some or all workers making pens will move to making papere. Workers will not move between the sectors-5-PROBLEMS (Ricardian Model)In the United States (US), producing one pound of cheese requires threehours of labor, while producing one gallon of wine requires one hour oflabor. In the rest of the world (ROW), producing one pound of cheeserequires ten hours of labor, while producing one gallon of wine requires twohours of labor. The United States has 150 hours of labor and the ROWhas 400 hours of labor. World relative demand for cheese to wine is 1. Construct the US production possibilities frontier (all three forms).Determine the US maximum production of cheese and of wine.What is the US opportunity cost of cheese in terms of wine?Where does it appear in the equation describing productionpossibilities? Draw graph of US production possibilities frontier here: 0-6-2. Construct the ROW production possibilities frontier (all three forms).Determine the ROW maximum production of cheese and of wine.What is the ROW opportunity cost of cheese in terms of wine?Compare the slopes of the two production possibilities frontiers –which is flatter and why?Draw graph of the ROW production possibilities frontier here: 03. What is the world relative supply of cheese to wine if each countryproduces only its comparative advantage good?-7-Construct world relative supply and world relative demand.Find the relative price of cheese in terms of wine under free trade.Draw graph of world relative supply and world relative demand here: 04. Determine the optimal production bundle for each country under freetrade.Determine the pattern of trade - what does each country import andexport?Determine whether each country gains from trade and explain thesource of any gains from trade.-8-5. Construct the US trade possibilities frontier (all three forms).Determine the US maximum consumption of cheese and of wineunder free trade.Where does the free trade relative price of cheese in terms of wineappear in the equation describing trade possibilities?Draw graph of US trade possibilities frontier on the PPF graph.6. Construct the ROW trade possibilities frontier (all three forms). Determine the ROW maximum consumption of cheese and of wineunder free trade. Compare the slopes of the two trade possibilities frontiers andexplain.Draw graph of ROW trade possibilities frontier on the PPF graph.On my honor as an Aggie, I have neither given nor received unauthorized aid on this exam.Signature __________________________FIRST MIDTERM EXAM SOLUTIONSEconomics