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Page 1Page 2Page 3Page 4Page 5Page 6Page 7Page 8E452es3.pdfPage 1Page 2Page 3Page 4Page 5Name FINAL EXAMEconomics 452 International Trade Theory and Policy Spring 20101INTERPTEMPORAL TRADE1-4 With intertemporal trade, the United States and China have identicalratios of current to future consumption, while the ratio of current tofuture production is higher in China than in the United States.1. Prior to intertemporal trade, the interest rate in the United Statesmust be _______ than in China.a) higherb) higher or the samec) the samed) lower or the samee) lower2. Intertemporal trade causes the interest rate in the United States toa) riseb) rise or remain unchangedc) remain unchangedd) fall or remain unchangede) fall3. Intertemporal trade causes the interest rate in China toa) riseb) rise or remain unchangedc) remain unchangedd) fall or remain unchangede) fall4. Who gains due to intertemporal trade?a) Chinab) the United Statesc) both countriesd) neither countrye) only lenders in the United States and borrowers in China2MIGRATION5-8 The United States and Mexico produce oats using labor and land andshare the same technology. Initially, the U.S. ratio of labor to land islower in than in Mexico. Consider the effects of allowing labor tomove freely between the two countries, with no barriers to migration.5. Before migration occurs, how must the real wage in the United Statescompare to that in Mexico?a) higher in the United Statesb) higher in the United States or the same as in Mexicoc) the same as in Mexicod) lower in the United States or the same as in Mexicoe) lower in the United States6. After migration occurs, how will the real wage in the United Statescompare to that in Mexico?a) higher in the United Statesb) higher in the United States or the same as in Mexicoc) the same as in Mexicod) lower in the United States or the same as in Mexicoe) lower in the United States7 How does allowing immigration affect the marginal product of labor inthe United States?a) risesb) rises or remains unchangedc) remains unchangedd) falls or remains unchangede) falls8 How does allowing immigration affect the ratio of labor to land in theUnited States?a) risesb) rises or remains unchangedc) remains unchangedd) falls or remains unchangede) falls3TRADE POLICIES9-12 The United States removes a binding quota on imports of textiles.9. The quantity demanded of textiles in the United Statesa) rises due to the US price of textiles risingb) rises due to the US price of textiles fallingc) remains the samed) falls due to the US price of textiles risinge) falls due to the US price of textiles falling10. Consumer surplus in the United Statesa) rises due to the US price of textiles risingb) rises due to the US price of textiles fallingc) remains the samed) falls due to the US price of textiles risinge) falls due to the US price of textiles falling11. The quantity supplied of textiles in the United Statesa) rises due to the US price of textiles risingb) rises due to the US price of textiles fallingc) remains the samed) falls due to the US price of textiles risinge) falls due to the US price of textiles falling12. Producer surplus in the United Statesa) rises due to the US price of textiles risingb) rises due to the US price of textiles fallingc) remains the samed) falls due to the US price of textiles risinge) falls due to the US price of textiles falling413-16 Haiti, a small country, removes a specific tariff on imports of rice.13. The quantity demanded of rice in Haitia) rises due to the price of rice in Haiti risingb) rises due to the price of rice in Haiti fallingc) remains the samed) falls due to the price of rice in Haiti risinge) falls due to the price of rice in Haiti falling14. The quantity supplied of rice in Haitia) rises due to the price of rice in Haiti risingb) rises due to the price of rice in Haiti fallingc) remains the samed) falls due to the price of rice in Haiti risinge) falls due to the price of rice in Haiti falling15. Welfare in Haiti rises because removing the tariff eliminatesa) consumption distortion from the tariffb) production distortion from the tariffc) both a) and b)d) consumer surpluse) producer surplus16. Which area is the largest in magnitude? How mucha) producer surplus fallsb) consumer surplus risesc) government revenue lostd) producer surplus falls plus how much government revenue loste) cannot tell from the information provided5TRADE POLICY PROBLEMSIn the United States (US), inverse demand for tires is , whileinverse supply is . In the rest of the world (ROW), inversedemand for tires is , while inverse supply is .1. Derive the US autarky price and quantity. Derive the US import demand (including slope-intercept form).Derive the ROW autarky price and quantity. Derive the ROW export supply (including slope-intercept form).62. Derive the free trade price and US imports under free trade. Derive US quantity demanded and quantity supplied under free trade.3. Derive the US tariff-ridden import demand for a specific tariff t = 8(including slope-intercept form). Derive the ROW price, the US price, and US imports with the tariff.Derive US quantity demanded and quantity supplied with the tariff. How large of a tariff would the United States need to impose toprohibit all imports?74. Derive the change in consumer surplus, producer surplus, andgovernment revenue in the United States due to the tariff (startingwith the general equations and being sure to indicate the areascorresponding to each on the US graph).5. Define and derive the US consumption distortion and productiondistortion.Define and derive the US efficiency loss and terms of trade gain.6. Derive the change in welfare in the United States due to the tariff. Confirm that the net welfare calculation yields the same answer. Is the United States better or worse off with the tariff and why?8DRAW WORLD MARKET GRAPH HERE: US IMPORT DEMAND, ROWEXPORT SUPPLY, US TARIFF-RIDDEN IMPORT DEMANDIndicate US and ROW autarky prices, free trade price, US imports underfree trade, US tariff-ridden price, ROW tariff-ridden price, and US tariff-ridden imports. 0DRAW US MARKET GRAPH HERE: US DEMAND, US SUPPLYIndicate free trade price, US quantity demanded and quantity suppliedunder free trade, US tariff-ridden price, US quantity demanded and quantitysupplied with the tariff, and ROW tariff-ridden price. Label areascorresponding to change in consumer surplus, change in producer


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TAMU ECON 452 - E452exs3S10

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