Page 1Page 2Page 3Page 4Page 5Page 6Page 7Page 8E452es2.pdfPage 1Page 2Page 3Page 4Page 5Name SECOND MIDTERM EXAMEconomics 452 International Trade Theory and Policy Fall 20111SPECIFIC FACTORS MODEL1-4. Furniture production uses labor and land, while clothing productionuses labor and capital. Suppose that Sweden exports furniture andimports clothing from the rest of the world (ROW).1. In Sweden, which factor owners benefit from free trade?a. Capitalb. Landc. Both capital and landd. Capital, labor and lande. No one benefits2. In Sweden, which factor owners are hurt by free trade?a. Capitalb. Landc. Both capital and landd. Capital, labor and lande. No one benefits3. In the ROW, which factor owners benefit from free trade?a. Capitalb. Landc. Both capital and landd. Capital, labor and lande. No one benefits4. In the ROW, which factor owners are hurt by free trade?a. Capitalb. Landc. Both capital and landd. Capital, labor and lande. No one benefits25-8. Prior to migration, the United States has a more capital per workerthan the ROW. Suppose the United States begins to allowimmigration with no barriers of any kind.5. Due to the increased amount of labor in the United States, themarginal product of labor there will ____ with migration.a) riseb) rise or stay the samec) stay the samed) fall or stay the samee) fall6. Due to the decreased amount of labor in the ROW, the marginalproduct of labor there will _____ with migration.a) riseb) rise or stay the samec) stay the samed) fall or stay the samee) fall7. In the ROW, which factor owners benefit from the outflow of labor?a) capitalb) all labor regardless of whether leaves or staysc) only labor that migrates to the United Statesd) both capital and all labore) neither capital nor any labor8. In the ROW, which factor owners are hurt by the outflow of labor?a) capitalb) all labor regardless of whether leaves or staysc) only labor that migrates to the United Statesd) both capital and all labore) neither capital nor any labor3HECKSCHER-OHLIN MODEL9-12 Haiti is relatively scarce in capital to labor compared to the rest of theworld (ROW). Rice production relatively intensively uses labor tocapital compared to manufactures. Haiti is assumed to have thesame technology and relative demand as the ROW. 9. Under free trade, Haiti produces more _____ than the ROW.a) riceb) manufacturesc) rice relative to manufacturesd) manufactures relative to ricee) cannot tell from the information provided10. Haiti exports _________ under free trade.a) riceb) manufacturesc) both rice and manufacturesd) neither rice nor manufacturese) cannot tell from the information provided11. If its labor supply grows, Haiti would produce _____ than before.a) less rice and less manufacturesb) less rice and the same amount of manufacturesc) less rice and more manufacturesd) more rice and less manufacturese) more rice and more manufactures12. If its capital supply shrinks, Haiti would produce _____ than before.a) less rice and less manufacturesb) less rice and the same amount of manufacturesc) less rice and more manufacturesd) more rice and less manufacturese) more rice and more manufactures413-16 The United States is relatively abundant in land to labor compared tothe rest of the world (ROW). Pumpkin production relatively intensivelyuses land to labor compared to producing blankets. All countriesproduce both goods and have the same technology and relativedemand.13. In the United States, who benefits from free trade?a) landownersb) workersc) both landowners and workersd) neither landowners nor workerse) cannot tell from the information provided14. In the United States, who is hurt by free trade?a) landownersb) workersc) both landowners and workersd) neither landowners nor workerse) cannot tell from the information provided15. In the ROW, who benefits from free trade?a) landownersb) workersc) both landowners and workersd) neither landowners nor workerse) cannot tell from the information provided16. In the ROW, who is hurt by free trade?a) landownersb) workersc) both landowners and workersd) neither landowners nor workerse) cannot tell from the information provided5FACTOR PROPORTIONS MODEL PROBLEMSProducing one yard of cloth requires 1 worker and 1 capital, whileproducing one pound of food requires 1 worker and 2 capital. Bothcountries have 50 workers; the United States has 70 capital, while the restof the world (ROW) has 80. The price of food is always $18/pound; theprice of cloth is $12/yard in the United States in autarky and $15/yard in allcountries under 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. capital constraint. Determine the U.S. production bundle that fully employs both factors.63. Construct the ROW capital 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) underfree trade to autarky.8Draw graph of pricing equations here, with rent on the vertical axis. Indicate values for the endpoints and for the factor prices before andafter trade. 06. Calculate and compare the proportional changes in the wage, rent,price of cloth, and price of food. In the United States, owners of which factor would oppose a freetrade agreement?How can this group be identified, even in autarky?On my honor as an Aggie, I have neither given nor received unauthorized aid on this exam.Signature __________________________1 SECOND MIDTERM EXAM SOLUTIONSEconomics 452 International Trade Theory and Policy Fall 2011MULTIPLE CHOICE1b In Sweden, landowners benefit from free trade.2a In Sweden, capital owners are hurt by free trade.3a In the ROW, capital owners