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TAMU ECON 452 - E452exs2S11

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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 20111HECKSCHER-OHLIN MODEL1-4 Japan is relatively scarce in land to labor compared to the UnitedStates. Agricultural production relatively intensively uses land tolabor compared to manufactures. Japan is assumed to have thesame technology and relative demand as the United States. 1. Under free trade, Japan produces less _____ than the United States.a) agricultural outputb) manufacturesc) agricultural output relative to manufacturesd) manufactures relative to agricultural outpute) cannot tell from the information provided2. Under free trade, Japan importsa) agricultural outputb) manufacturesc) both agricultural output and manufacturesd) neither agricultural output nor manufacturese) cannot tell from the information provided3. If loses land, Japan would produce _____ than before.a) less agricultural output and less manufacturesb) less agricultural output and the same amount of manufacturesc) less agricultural output and more manufacturesd) more agricultural output and less manufacturese) more agricultural output and more manufactures4. If loses labor, Japan would produce _____ than before.a) less agricultural output and less manufacturesb) less agricultural output and the same amount of manufacturesc) less agricultural output and more manufacturesd) more agricultural output and less manufacturese) more agricultural output and more manufactures25-8 The United States is relatively scarce in less skilled to more skilledlabor compared to China. Clothing production relatively intensivelyuses less skilled labor to more skilled labor compared to electronics.Both countries produce both clothing and electronics and have thesame technology and relative demand.5. As China moves from autarky to free trade, the wage paid to moreskilled 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. Who in China is hurt by trade?a) less skilled workersb) more skilled workersc) both less skilled and more skilled workersd) no onee) cannot tell from the information provided7. As the United States moves from autarky to free trade, the wage paidto less skilled 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 goods8. Who in the United States, who is hurt by trade?a) less skilled workersb) more skilled workersc) both less skilled and more skilled workersd) no onee) cannot tell from the information provided3STANDARD TRADE MODEL9-12 Free trade prevails between Japan and the ROW. Suppose Japanexperiences negative economic growth (a contraction), while theROW has no growth. Suppose the contraction causes Japan toproduce less food relative to manufactures than before.9. In world markets, the relative supply of manufactures to food:a) risesb) fallsc) stays the samed) rises, if Japan imports foode) falls, if Japan imports food10. In world markets, the relative price of manufactures to food:a) risesb) fallsc) stays the samed) rises, if Japan imports foode) falls, if Japan imports food11. The secondary effect of the contraction on Japan is a terms of trade:a) improvementb) deteriorationc) unchangedd) improvement, if Japan imports foode) deterioration, if Japan imports food12. The secondary effect of Japan’s contraction on the ROW is a termsof trade:a) improvementb) deteriorationc) unchangedd) improvement, if Japan imports foode) deterioration, if Japan imports food413-16 Free trade prevails between the ROW and Japan. Supposethe ROW transfers twenty billion dollars in aid to Japan. Japanexports manufactures and imports food.13. The international transfer will cause world relative demand formanufactures to food toa) riseb) fallc) stay the samed) rise, if Japan spends less of each dollar on food than the ROWe) fall, if Japan spends less of each dollar on food than the ROW14. In world markets, the transfer will cause the relative price ofmanufactures to food to:a) riseb) fallc) stay the samed) rise, if Japan spends less of each dollar on food than the ROWe) fall, if Japan spends less of each dollar on food than the ROW15. The transfer will cause the terms of trade for Japan toa) deteriorate, if Japan spends less of each dollar on food thanthe ROW would haveb) improve, if Japan spends less of each dollar on food than theROW would havec) improve for sured) stay unchangede) deteriorate16. The transfer will cause the terms of trade for the ROW toa) deteriorate, if Japan spends less of each dollar on food thanthe ROW would haveb) improve, if Japan spends less of each dollar on food than theROW would havec) improve for sured) stay unchangede) deteriorate5FACTOR PROPORTIONS MODEL PROBLEMSProducing one yard of cloth requires 3 worker and 1 acres of land, whileproducing one pound of food requires 1 worker and 4 acres of land. Bothcountries have 130 workers; the United States has 80 acres of land, whileROW has 168. The price of food is always $80/pound; the price of cloth is$42/yard in the United States in autarky and $75/yard in both countriesunder free trade.1. Compare the relative abundance of factors across countries. Compare the relative intensity of factor use across goods. 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. Determine the U.S. production bundle that fully employs both factors.63. 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)


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