Econ 340 Alan Deardorff Winter Term 2011 First Midterm (with Answers) Page 1 of 14 (16) NAME: ____________________________________ Student ID No.: ____________________________ Economics 340 International Economics Prof. Alan Deardorff First Midterm Exam Form 0 Answers February 21, 2011 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 80 minutes to complete the test. Check that you have all ?? pages of the exam, including this cover sheet. 5. Part 1 consists of 25 multiple choice questions worth 2 points each. Answers to the multiple-choice questions in Part 1 should be marked on the scantron sheet using a #2 pencil. There are no penalties for guessing. 6. Part 2 consists 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. Part 2 has 48 points total. 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. 8. Good luck!Econ 340 Alan Deardorff Winter Term 2011 First Midterm (with Answers) Page 2 of 14 (16) FORM 0 Economics 340 First Midterm Exam Part 1: Multiple Choice (2 points each; 50 points total) 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. Which of the following makes up the largest portion of world exports of goods? a. Agricultural goods b. Oil c. Manufactured goods d. Textiles and apparel e. Financial capital Ans: c 2. Which of the following has been called the “voice of developing countries”? a. World Intellectual Property Organization b. United Nations Conference on Trade and Development c. World Bank d. Organization for Economic Cooperation and Development e. International Monetary Fund Ans: b 3. When the IMF was first created, one of its main functions was to a. Assist countries in devaluing their currencies so as to stimulate employment. b. Prevent countries from raising tariffs on imports as a means of stimulating employment. c. Enforce the freedom of international capital flows. d. Assure that exchange rates were freely flexible. e. Assist countries in maintaining pegged exchange rates. Ans: eEcon 340 Alan Deardorff Winter Term 2011 First Midterm (with Answers) Page 3 of 14 (16) 4. Which of the following was the name of one of the GATT negotiating rounds? a. NAFTA b. Wilbur c. Nixon d. Seattle e. Uruguay Ans: e 5. The graphs below show domestic supply and demand curves for a good in two countries, with prices measured in the same currency. If these are the only two countries in the world and if they open to free international trade, a. Demanders of the good in Country A will benefit from trade. b. Suppliers of the good in Country A will benefit from trade. c. The welfare of Country A as a whole will fall. d. The quantity of the good demanded in Country B will become larger. e. The price of the good in both countries will be the one labeled PB. Country A Country B Q Q P P P A P B S A D A D B S BEcon 340 Alan Deardorff Winter Term 2011 First Midterm (with Answers) Page 4 of 14 (16) Ans: a 6. Suppose that Austria and Belgium have the unit labor requirements for producing steel and brooms shown in the table at the right. Then a. Belgium has a comparative advantage in brooms. b. Austria has a comparative advantage in steel. c. Austria has an absolute advantage in steel. d. Belgium has an absolute advantage in brooms. e. All of the above. Ans: e 7. For two countries, Angola and Belize, the top row of the table at the right shows the wages of labor, both expressed in U.S. dollars, when they are engaged in free international trade. Below that are shown the quantities of labor that each requires, in a Ricardian model, to produce two goods, chips and ducks. In this free-trade equilibrium, what is the U.S. dollar price that consumers in Angola pay for chips? a. $36 b. $45 c. $48 d. $60 e. $100 Ans: b Country Unit labor requirements Austria Belgium Steel 3 4 Good Brooms 6 1 Country Angola Belize Wage $2 $2.50 Unit labor req: Chips 24 18 Good Ducks 30 40Econ 340 Alan Deardorff Winter Term 2011 First Midterm (with Answers) Page 5 of 14 (16) 8. According to the Heckscher-Ohlin model of international trade, countries have a comparative advantage in goods that a. Use relatively intensively their relatively abundant factors. b. Display the strongest increasing returns to scale. c. Use less labor, per unit of output, than is used to produce the same good in other countries. d. Use less labor, per unit of output, than is used in the same country in other industries. e. Have the most competition among the largest number of firms. Ans: a 9. Factor Price Equalization means that, a. All workers are equally productive. b. If a country fails to trade, its skilled workers will earn no more than its unskilled workers. c. Trade causes the return to human capital to be the same as the return to physical capital. d. For countries to trade fairly, they must tax factors of production so that firms in all countries pay the same factor prices. e. Free trade causes identical factors in different countries to be paid more nearly the same than they would be in autarky. Ans: e 10. In the game between Boeing and Airbus described by Krugman, the subsidy paid to Airbus by its government causes a. Airbus to want to produce whether or not Boeing produces. b. Boeing to cease production c. Airbus and its government, combined, to benefit. d. All of the above. e. None of the above. Ans: dEcon 340 Alan Deardorff Winter Term 2011 First Midterm (with Answers) Page 6 of 14 (16) 11. Suppose that Thailand is a small country that imports fudge, which it also produces itself under free trade. If Thailand levies a tariff on
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