Page 1Page 2Page 3Page 4Page 5Page 6Page 7Page 8E452es1.pdfPage 1Page 2Page 3Page 4Page 5Page 6Name FIRST EXAMEconomics 452 International Trade Theory and Policy Spring 2012-1-WORLD TRADE1. Of the major trading partners listed below, the United States tradesthe least (has the lowest volume of trade) with a. China b. Canadac. Franced. Mexicoe. Japan2. Total value of US imports from and exports to Mexico (trade volume)has been around ______ in 2008-2010.a. $28-36 millionb. $280-360 millionc. $28-36 billiond. $280-360 billione. $28-36 trillion3. Compared to the United States as a whole, Texasa. Exports a larger share of its outputb. Depends on exports for fewer of its jobsc. Sends less sophisticated products overseas d. Employs higher skilled workers in export-related jobse. Both a and d4. U.S. exports in 2009 were _______ compared to 2008.a. 53% lowerb. 18% lowerc. Virtually the samed. 21% highere. 52% higher-2-5. According to the gravity model, countries trade more with largereconomies because larger economies: a. Became large due to being engaged in international tradeb. Spend more on government promotion of trade and investmentc. Produce more goods and services, so have more to export d. Generate more income, so able to afford more importse. Both c and d6. That U.S. trade with Canada is many times larger than U.S. tradewith a European country of similar size (such as Spain) is due to:a. Canada being closer to the United States than Europe isb. Majority of Canadians living near the US borderc. Canadian-US Free trade agreement promoting traded. Sharing a common language and heritagee. All of the above7. Services such as shipping, insurance, legal fees, and spending bytourists currently account for about ___ of the volume of world trade.a . 2 %b . 7 %c. 20%d. 55%e. 80%8. Over the last 60 years, world exports as a share of would output hasa. Decreased steadilyb. Stayed roughly the same with little variationc. Fluctuated widely with no clear trendd. Increased substantiallye. Increased slightly then decreased substantially-3-RICARDIAN MODEL9-12. Cheesecake and ice cream are produced with labor. Under freetrade, the wage earned when making cheesecake is more than thewage earned when making ice cream in the United States.9. Under free trade, the wage earned when making cheesecake mustbe _______ the wage earned when making ice cream in the rest ofthe world.a. Higher thanb. Lower thanc. The same asd. Higher than or the same ase. Lower than or the same as10. What does the rest of the world produce under free trade?a. Only cheesecakeb. Only ice creamc. Cheesecake and maybe ice creamd. Ice cream and maybe cheesecakee. Definitely both cheesecake and ice cream11. In the move from autarky to free trade, the relative price ofcheesecake to ice cream in the United Statesa. Risesb. Rises or stays the samec. Stays the samed. Falls or stays the samee. Falls12. In the move from autarky to free trade, the relative price ofcheesecake to ice cream in the rest of the worlda. Risesb. Rises or stays the samec. Stays the samed. Falls or stays the samee. Falls-4-13-16 Cookies and root beer are produced with labor. Suppose that underfree trade Canada produces both goods but exports root beer andimports cookies from the rest of the world.13. Does the rest of the world gain from trade?a. Yes for sureb. No for surec. Possibly but only if produces just cookies d. Possibly but only if produces just root beere. Possibly but only if produces both cookies and root beer14. The opportunity cost of cookies in terms of root beer in Canada mustbe _____ the opportunity cost of cookies in terms of root beer in therest of the world.a. More thanb. Equal toc. Less thand. Less than or equal toe. Cannot tell from the information provided15. The opportunity cost of root beer in terms of cookies in Canada mustbe _____ the opportunity cost of root beer in terms of cookies in therest of the world.a. More thanb. Equal toc. Less thand. Less than or equal toe. Cannot tell from the information provided16. Is production efficient under free trade?a. Definitely yes because at least one country always producesonly its comparative advantage goodb. Definitely yes because both countries always produce bothgoodsc. Definitely no because both countries always produce bothgoodsd. Possibly, but only if at least one country produces only itscomparative advantage goode. Possibly, but only if both countries produce both goods-5-PROBLEMS (Ricardian Model)In the United States (US), producing one pound of cheese requires twohours of labor, while producing one gallon of wine requires one hour oflabor. In the rest of the world (ROW), producing one pound of cheeserequires 16 hours of labor, while producing one gallon of wine requires onehour of labor. The United States has 160 hours of labor and the ROW has960 hours of labor. World relative demand for cheese to wine is1. 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 and itsinterpretation?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. What is its interpretation?Draw graph of world relative supply and world relative demand here: 04. Determine the optimal production bundle for each country under freetrade - how much does each country produce of each good?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