# KOÇ UNIVERSITY ECON INTERNATIONAL TRADE

Size: px
Start display at page:

Transcription

1 KOÇ UNIVERSITY ECON INTERNATIONAL TRADE Mid-term Exam (100 points; 90 minutes) Answer all 5 questions. In providing answers to the questions in this section algebra or graphs might be helpful. State your reasoning precisely and briefly. 1. (12 pts) Suppose that the United States produces software and textiles using skilled and unskilled labor. Both kinds of labor are freely mobile between industries, and all producers, workers, and consumers take prices as given. It takes 3 units of unskilled labor and 1 unit of skilled labor to make one unit of textiles. It takes 2 units of unskilled labor and 2 units of skilled labor to make one unit of software. The US is a skilled-labor abundant country, and has a policy of free trade. Assume that there are no transport costs. Suppose that initially the world price of textiles is \$1.50 per unit, and the world price of software is \$1.00 per unit. Now, suppose that the unskilled-labor-rich Chinese economy, previously cut off from the world economy, begins to trade actively with the rest of the world, exporting large amounts of textiles. As a result, while the world price of software remains at \$1.00, the world price of textiles falls to \$1.00 per unit. Compute US wages for skilled and unskilled workers before and after this change occurs. (Don t worry if one of them turns out to be zero.) Denote the wage of skilled-labor and unskilled-labor as S and U, respectively. Then, the zero-profit condition for the textile sector is 3U+S=\$1.50, while the zero profit condition for the software sector is 2U+2S=\$1.00, before the price change caused by the shift in supply of textiles in China. Solving these gives U=\$0.50, S=\$0. After the price change, the zero profit condition for the textile sector becomes 3U+S=\$1.00. Thus, solving the same system of equations gives U=\$0.25 and S=\$ (20 pts) Using a Ricardian model in which Turkey and France have comparative advantages in clothing and wine respectively, work out the effects in both countries on the world relative price of clothing and on outputs and real wages in both countries of the following changes (one at a time). Assume that in the initial equilibrium, both countries are completely specialized. a) The labor supply in Turkey expands. (6pts) Let p=p c /p w be the relative price of clothing, and q=q c /q w the relative quantities supplied and demanded on the world market. Then the world market looks like the solid lines in the following graph: The initial equilibrium price is p 0, assumed to be between the two countries autarky prices p T and p F. When the Turkish labor supply expands, this increases the maximum Turkish output of clothing, shifting the relative supply curve to the right, as shown. This lowers the equilibrium relative price of clothing toward, and in this case to, the Turkish autarky price. Outputs in France are unchanged. Output of clothing in Turkey rises, and output of wine there may also rise above 1

2 zero, as it does in the case shown. The real wage in France rises, since workers there benefit from the reduced price of clothing (assuming of course that they want to wear any of them). The real wage in Turkey falls, since the Turkish wage in units of clothing is unchanged but its value in terms of wine falls. b) The Turkish technology for producing wine improves, but not enough to reverse comparative advantage. (7pts) This means a fall in the Turkish unit labor requirement for producing wine, and thus a fall in the Turkish relative autarky price of wine. Thus the Turkish portion of the world relative supply curve shifts up, but remains below the French autarky price. If the shift is small, nothing at all will happen, since the Turkish will remain specialized in producing clothing and the new technology will not be used. More interesting is the case shown below, where the shift is large enough to push up the world relative price of clothing and cause Turkey to start producing some wine. 2

3 Here, then, the relative price of clothing increases, though not all the way to the French autarky price. Output in France is unchanged, while output of wine in Turkey rises above zero and output of clothing falls. The Turkish workers are again made worse off (to the extent that they use clothing), the same as in part (a). The French workers are better off, also as in part (a). c) The French technology for producing wine improves. Now it is the French portion of the relative supply curve that shifts up, while also shrinking horizontally since the French are now able to produce more wine. In this case, the world relative price of clothing again increases. Output of wine in France expands, while output in Turkey does not change. Price of wine decreases, no change in the price of clothing. No change in the nominal wage rate in Turkey, hence Turkish real wages are higher. As labor becomes more productive in wine production, French real wages in terms of wine will increase. As the price of clothing stays the same, The French real wage will go up.. 3

4 3. (25 pts) Consider the two Ricardian economies whose endowments and technologies are those described below. Each has a fixed endowment of labor its only factor of production and can produce two goods, X and Y, using the indicated constant amounts of labor per unit of output: Endowment of Labor Per-unit labor requirement for producing X Y Country A Country B a) Draw the production possibility frontiers for each of these countries. Calculate their autarky relative price of good X, P x /P y. A: autarky px /py = 30/60 = 0.50 B: autarky px /py= 40/60 = 0.67 b) Which country has an absolute advantage in good X? Which in good Y? Which has a comparative advantage in good X? Which in good Y? Absolute advantage in X: A Absolute advantage in Y: A Comparative advantage in X: A Comparative advantage in Y: B c) What are the autarky wages of workers in country A, in units of good X per unit of labor? In units of good Y per unit of labor? What are the autarky wages of workers in country B, also in units of good X and in units of good Y? Can you tell which country s workers are better off in autarky? In A 60 people produces 60 unit X so 1 worker produces 1X therefore his wage; wa/px (in units of X) = 1.0 By the same reasoning wa/py (in units of Y) = 30/60=0.5 In B wb/px(in units of X) =60/120= 0.5 wb/py (in units of Y) =40/120= 0.33 A s workers are better off in autarky because they can consume more of both goods. d) Suppose now that free trade between these countries leads to a world equilibrium price of P x /P y = 1/1.75=0.57. Calculate the new wages of labor in each country in units of both X and Y. Are these workers better off, worse off, or is it impossible to tell? 4

5 At this price, which is strictly between the two autarky prices, the countries both completely specialize in the good in which they have comparative advantage, A in X and B in Y. In units of the good that they still produce, wages are the same as in autarky: wa/px (in un its of X) = 1.0 wb/py (in units of Y) = 0.33 In units of the good they don t produce, wages depend on the price ratio wb/px=(wb/py)/(py/px)=0.33*(1.75)=0.5775>0.5(before) wa/py==(wa/px)/(px/py)=1*0.57=0.57>0.5(before) Comparing these to the autarky wages in part (c), A s workers are better o ff because they can buy the same amount of X and more Y ( vs. 0.50), and B s workers are also better off because they can buy the same amount of Y and more X (0.57 vs. 0.5). e) Suppose that these two countries actually both trade with a much larger world, in which the relative prices of goods takes on the various values listed below. For each price, indicate which good each country will export ( X, Y, 0 if neither, and? if it is ambiguous). A B i) P x /P y = 1.0 X X ii P x /P y =0.66 X? iii) P x /P y = 0.5? Y iv) P x /P y = 0. Y Y Since they are trading with a larger world, there is now no need for these two countries to export and import different goods. When the world price of a good is below their autarky price, they will import it and not produce it; when it is above they will produce only it and export it, as the table shows. A special case is px /py= 0.5, which is the same as country A s autarky price. At that price, producers are indifferent between producing X and Y, since they break even on both. If they were trading only with country B, which imports X at that price, A would have to export it. But trading with the larger world, A can produce more, less, or the same as its own consumers demand, and its direction of trade is ambiguous. (Same for B at price ratio=0.66) 5

6 4. (20 pts) Consider a model with two countries, the US and Brazil, who trade in coffee. The US is a net importer of coffee, and Brazil is a net exporter. The demand curve for coffee within the US is given by: Q = 60 - P, and the supply is given by: Q = P. There is no consumer demand for coffee in Brazil. The Brazilian supply curve is given by: Q = P. a) Find the equilibrium world price and the quantity traded under free trade, and graph the equilibrium. DS The home import demand schedule: MD(P) = Q Q = (60-P)-(P)= 60-2P. In equilibrium, XS* = MD, yielding P = 60-2P. So the equilibrium world price of wheat is 20 and the quantity traded is 20. The graph is shown below. b) Suppose that Home imposes a quota that limits its imports of coffee to 18 units. Show how this changes the world price and the domestic price in Home, and graph the new equilibrium. Assume that there is no rent seeking. c) Calculate the production distortion, the consumption distortion, and the terms-of-trade benefit for Home, and show these in a graph. Is Home better off because of the quota? The import quota will shift Home s import demand curve. In addition, it will create a difference between the domestic and world prices in Home but not in Foreign. In equilibrium, QS* = 18 due to the import quota, where P is the world price. Therefore, 18= P. The equilibrium world price of wheat is 18 and the quantity traded is 18. Equating 18=MD(P) gives the new domestic price of 21 in H 5. (23 pts) Home and Foreign both produce cars and food using labor and capital. In each country, labor and capital are both freely mobile across industries. It takes 4 units of labor and 2 units of capital to produce 1 unit of food, and 3 units of labor and 3 units of capital to produce 1 car. Home has 300 units of labor and 200 units of capital, while Foreign has 200 units of labor and 150 units of capital. Each country has the same relative demand curve, given by P F /P C = 1.05 (1/6) Q F /Q C, where P j is the price of good j and Q j is the quantity of good j. a) Which country is labor rich? Labor poor? Which good is labor intensive? Capital intensive? Home is labor rich country and foreign is labor poor country. Food is labor intensive and car is capital intensive good b) How much of each good will each country produce? Qf:Quantity of food Home Foreign 4Qf +3Qc=300 4Qf +3Qc=200 2Qf +3Qc=200 2Qf +3Qc=150 Solving those equations we get Home Foreign Qf=50 Qf=25 Qc=33.33 Qc=33.33 c) For Home, find the relative price of food, the wage, and the rental price of capital in autarky. Draw the budget line for a Home worker and for the owner of 1 unit of Home capital. by P F /P C = 1.05 (1/6) Q F /Q C For home Qf/Qc=50/33.33=1.5 Then from equation Pf/Pc=1.05-(1/6)*1.5=0.80 6

7 From zero profit condition; Pf=4w +2r (1) dividing (1) by Pc we get 0.8=Pf/Pc=4w/Pc+2r/Pc (3) Pc=3w+3r (2) dividing (2) by Pc we get 1=Pc/Pc=3w/Pc+3r/Pc (4) After solving (3) and (4) we found w/pc=1/15= and r/pc=4/15=0.266 Home worker has wage w=0.066*pc, so he can buy 0.066*Pc/Pc=0.066car with his whole income or 0.066*Pc/Pf=0.066*(1/0.8)= food with his whole income. Home Capital owner has rental income r=0.266*pc, so he can buy 0.266*Pc/Pc=0.266car with his whole income or 0.266*Pc/Pf=0.266*(1/0.8)= food with his whole income. 7

### International Trade Policy ECON 4633 Prof. Javier Reyes. Test #1

International Trade Policy ECON 4633 Prof. Javier Reyes Test #1 Instructions Out of the following 10 questions you must answer only 8. You are free to choose questions from different sections. Section

Advanced International Economics Prof. Yamin Ahmad ECON 758 Sample Midterm Exam Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the

### Exercises Lecture 8: Trade policies

Exercises Lecture 8: Trade policies Exercise 1, from KOM 1. Home s demand and supply curves for wheat are: D = 100 0 S = 0 + 0 Derive and graph Home s import demand schedule. What would the price of wheat

### PPF's of Germany and France

Economics 165 Winter 2 Problem Set #1 Problem 1: Let Germany and France have respective labor forces of 8 and 6. Suppose both countries produce wine and cares according to the following unit labor requirements:

### Review Question - Chapter 7. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Review Question - Chapter 7 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) International trade arises from A) the advantage of execution. B) absolute

ECO364 - International Trade Chapter 2 - Ricardo Christian Dippel University of Toronto Summer 2009 Christian Dippel (University of Toronto) ECO364 - International Trade Summer 2009 1 / 73 : The Ricardian

### Economics 181: International Trade Homework # 4 Solutions

Economics 181: International Trade Homework # 4 Solutions Ricardo Cavazos and Robert Santillano University of California, Berkeley Due: November 1, 006 1. The nation of Bermuda is small and assumed to

### Chapter 4. Specific Factors and Income Distribution

Chapter 4 Specific Factors and Income Distribution Introduction So far we learned that countries are overall better off under free trade. If trade is so good for the economy, why is there such opposition?

### The Specific-Factors Model: HO Model in the Short Run

The Specific-Factors Model: HO Model in the Short Run Rahul Giri Contact Address: Centro de Investigacion Economica, Instituto Tecnologico Autonomo de Mexico (ITAM). E-mail: rahul.giri@itam.mx In this

### Homework #5: Answers. b. How can land rents as well as total wages be shown in such a diagram?

Homework #5: Answers Text questions, hapter 6, problems 1-4. Note that in all of these questions, the convention in the text, whereby production of food uses land and labor, and clothing uses capital and

### Market for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2

Factor Markets Problem 1 (APT 93, P2) Two goods, coffee and cream, are complements. Due to a natural disaster in Brazil that drastically reduces the supply of coffee in the world market the price of coffee

### How To Calculate Profit Maximization In A Competitive Dairy Firm

Microeconomic FRQ s 2005 1. Bestmilk, a typical profit-maximizing dairy firm, is operating in a constant-cost, perfectly competitive industry that is in long-run equilibrium. a. Draw correctly-labeled

III. INTERNATIONAL TRADE A. Gains from Trade -- a history of thought approach 1. The idea of mercantilism (15-175) argued that a country s well-being is directly tied to the accumulation of gold and silver.

Chapter 7. Comparative Advantage and the Gains from International Trade Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics International Trade

### Production Possibilities Curve, Absolute and Comparative Advantage, Opportunity Cost, and Marginal Analysis

AP Macroeconomics Unit 1 Review Session Production Possibilities Curve, Absolute and Comparative Advantage, Opportunity Cost, and Marginal Analysis 1. Draw a PPC with linear opportunity cost. 2. Draw a

### Chapter 3. Labor Productivity and Comparative Advantage: The Ricardian Model

Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model Introduction There are potential gains from trade whenever there are differences in autarky prices across countries. We now explore

### MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*

Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* The Demand for Topic: Influences on Holding 1) The quantity of money that people choose to hold depends on which of the following? I. The price

### Final. 1. (2 pts) What is the expected effect on the real demand for money of an increase in the nominal interest rate? How to explain this effect?

Name: Number: Nova School of Business and Economics Macroeconomics, 1103-1st Semester 2013-2014 Prof. André C. Silva TAs: João Vaz, Paulo Fagandini, and Pedro Freitas Final Maximum points: 20. Time: 2h.

### Chapter 13 International Trade: Does it Jeopardize American Jobs

Chapter 13 International Trade: Does it Jeopardize American Jobs Multiple Choice Questions 1. In 2006, trade made up percent of the U.S. economy. a. 1.3 b. 5.0 C. 11.5 d. 22.7 2. In 2005, the U.S. experienced

### Principles of Economics

Principles of Economics LEARNING OBJECTIVES Ohio Wesleyan University Goran Skosples 3. Interdependence and the Gains from Trade Why do people and nations choose to be economically interdependent? How can

### Natural Resources and International Trade

Department of Economics University of Roma Tre Academic year: 2013 2014 Natural Resources and International Trade Instructors: Prof. Silvia Nenci Prof. Luca Salvatici silvia.nenci@uniroma3.it luca.salvatici@uniroma3.it

### Knowledge Enrichment Seminar for Senior Secondary Economics Curriculum. Macroeconomics Series (3): Extension of trade theory

Knowledge Enrichment Seminar for Senior Secondary Economics Curriculum Macroeconomics Series (3): Extension of trade theory by Dr. Charles Kwong School of Arts and Social Sciences The Open University of

### In following this handout, sketch appropriate graphs in the space provided.

Dr. McGahagan Graphs and microeconomics You will see a remarkable number of graphs on the blackboard and in the text in this course. You will see a fair number on examinations as well, and many exam questions,

### The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

### 1 Multiple Choice - 50 Points

Econ 201 Final Winter 2008 SOLUTIONS 1 Multiple Choice - 50 Points (In this section each question is worth 1 point) 1. Suppose a waiter deposits his cash tips into his savings account. As a result of only

### Economics. Interdependence and the Gains from Trade CHAPTER. N. Gregory Mankiw. Principles of. Seventh Edition. Wojciech Gerson (1831-1901)

Seventh Edition Principles of Economics N. Gregory Mankiw Wojciech Gerson (1831-1901) CHAPTER 3 Interdependence and the Gains from Trade In this chapter, look for the answers to these questions Why do

### Trade and Resources: The Heckscher-Ohlin Model. Professor Ralph Ossa 33501 International Commercial Policy

Trade and Resources: The Heckscher-Ohlin Model Professor Ralph Ossa 33501 International Commercial Policy Introduction Remember that countries trade either because they are different from one another or

UNIVERSITY OF COLORADO BOULDER, COLORADO Economics 4413 International Trade James R. Markusen January 14, 2007 Phone: 492-0748 Office: 216, e-mail: james.markusen@colorado.edu Office Hours: Monday, Wednesday,

### Chapter 6 Economic Growth

Chapter 6 Economic Growth 1 The Basics of Economic Growth 1) The best definition for economic growth is A) a sustained expansion of production possibilities measured as the increase in real GDP over a

### Econ 102 Aggregate Supply and Demand

Econ 102 ggregate Supply and Demand 1. s on previous homework assignments, turn in a news article together with your summary and explanation of why it is relevant to this week s topic, ggregate Supply

### (First 6 problems from Caves, Frankel and Jones, 1990)

Professor Robert Staiger Economics 39F Problem Set 1 (First 6 problems from Caves, Frankel and Jones, 1990) 1. With reference to the home country s trade triangle illustrated in Figure 2.3, suppose that

### 3. George W. Bush is the current U.S. President. This is an example of a: A. Normative statement B. Positive statement

Econ 3144 Fall 2006 Test 1 Dr. Rupp Name Sign Pledge I have neither given nor received aid on this exam Multiple Choice Questions (3 points each) 1. What you give up to obtain an item is called your A.

### Noah Williams Economics 312. University of Wisconsin Spring 2013. Midterm Examination Solutions

Noah Williams Economics 31 Department of Economics Macroeconomics University of Wisconsin Spring 013 Midterm Examination Solutions Instructions: This is a 75 minute examination worth 100 total points.

### Midterm Exam - Answers. November 3, 2005

Page 1 of 10 November 3, 2005 Answer in blue book. Use the point values as a guide to how extensively you should answer each question, and budget your time accordingly. 1. (8 points) A friend, upon learning

### Economics 101 Midterm Exam #1. February 26, 2009. Instructions

Economics 101 Spring 2009 Professor Wallace Economics 101 Midterm Exam #1 February 26, 2009 Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do

### MICROECONOMIC PRINCIPLES SPRING 2001 MIDTERM ONE -- Answers. February 16, 2001. Table One Labor Hours Needed to Make 1 Pounds Produced in 20 Hours

MICROECONOMIC PRINCIPLES SPRING 1 MIDTERM ONE -- Answers February 1, 1 Multiple Choice. ( points each) Circle the correct response and write one or two sentences to explain your choice. Use graphs as appropriate.

### Introduction to Macroeconomics TOPIC 2: The Goods Market

TOPIC 2: The Goods Market Annaïg Morin CBS - Department of Economics August 2013 Goods market Road map: 1. Demand for goods 1.1. Components 1.1.1. Consumption 1.1.2. Investment 1.1.3. Government spending

### 1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases:

1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases: a) If investment does not depend on the interest rate, the IS curve

### 14.01 Fall 2010 Problem Set 1 Solutions

14.01 Fall 2010 Problem Set 1 Solutions 1. (25 points) For each of the following scenarios, use a supply and demand diagram to illustrate the effect of the given shock on the equilibrium price and quantity

### Supply and Demand Fundamental tool of economic analysis Used to discuss unemployment, value of \$, protection of the environment, etc.

Supply and emand Fundamental tool of economic analysis Used to discuss unemployment, value of \$, protection of the environment, etc. Chapter Outline: (a) emand is the consumer side of the market. (b) Supply

Business Conditions Analysis Prof. Yamin Ahmad ECON 736 Sample Final Exam Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the answers

### EC2105, Professor Laury EXAM 2, FORM A (3/13/02)

EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each

### These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key!

These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key! 67. Public saving is equal to a. net tax revenues minus

### Q D = 100 - (5)(5) = 75 Q S = 50 + (5)(5) = 75.

4. The rent control agency of New York City has found that aggregate demand is Q D = 100-5P. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured

### Pre-Test Chapter 10 ed17

Pre-Test Chapter 10 ed17 Multiple Choice Questions 1. Refer to the above diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE 1 to AE 2 would: A. move the economy from

### Econ 202 H01 Final Exam Spring 2005

Econ202Final Spring 2005 1 Econ 202 H01 Final Exam Spring 2005 1. Which of the following tends to reduce the size of a shift in aggregate demand? a. the multiplier effect b. the crowding-out effect c.

### 13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.

Name: Date: 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget

### Econ 202 Section 2 Final Exam

Douglas, Fall 2009 December 17, 2009 A: Special Code 0000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 2 Final Exam 1. The present value

### TRADE AND INVESTMENT IN THE NATIONAL ACCOUNTS This text accompanies the material covered in class.

TRADE AND INVESTMENT IN THE NATIONAL ACCOUNTS This text accompanies the material covered in class. 1 Definition of some core variables Imports (flow): Q t Exports (flow): X t Net exports (or Trade balance)

### MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*

Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Key Concepts The Demand for Money Four factors influence the demand for money: The price level An increase in the price level increases the nominal

### Chapter 4 Specific Factors and Income Distribution

Chapter 4 Specific Factors and Income Distribution Chapter Organization Introduction The Specific Factors Model International Trade in the Specific Factors Model Income Distribution and the Gains from

### GAZDASÁGI ISMERETEK ANGOL NYELVEN

ÉRETTSÉGI VIZSGA 2011. május 23. GAZDASÁGI ISMERETEK ANGOL NYELVEN EMELT SZINTŰ ÍRÁSBELI VIZSGA 2011. május 23. 14:00 Az írásbeli vizsga időtartama: 180 perc Pótlapok száma Tisztázati Piszkozati NEMZETI

### Recitation #4 Week 02/02/2009 to 02/08/2009 Chapter 5: The Market Strikes Back

Recitation #4 Week 02/02/2009 to 02/08/2009 Chapter 5: The Market Strikes Back Problems and Exercises 1. A price ceiling is implemented in the market for housing in Metropolitan City, where all housing

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 6 - Markets in Action - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The short-run impact of the San Francisco earthquake

CHAPTER 19 INTERNATIONAL TRADE Chapter in a Nutshell In the second chapter of the text, you were introduced to the concepts absolute advantage and comparative advantage that are the principles on which

### What you will learn: UNIT 3. Traditional Flow Model. Determinants of the Exchange Rate

What you will learn: UNIT 3 Determinants of the Exchange Rate (1) Theories of how inflation, economic growth and interest rates affect the exchange rate (2) How trade patterns affect the exchange rate

### ECO 352 Spring 2010 No. 7 Feb. 23 SECTOR-SPECIFIC CAPITAL (RICARDO-VINER) MODEL

ECO 352 Spring 2010 No. 7 Feb. 23 SECTOR-SPECIFIC CAPITAL (RICARDO-VINER) MODEL ASSUMPTIONS Two goods, two countries. Goods can be traded but not factors across countries. Capital specific to sectors,

### ECO 445/545: International Trade. Jack Rossbach Spring 2016

ECO 445/545: International Trade Jack Rossbach Spring 2016 Instruments of Trade Policy Many instruments available to affect international trade flows and prices. Non-exhaustive list: Tariffs: Taxes on

### Interdependence. Interdependence. Production Possibilities in the U.S. Our Example. Interdependence and the Gains from Trade

3 Interdependence and the Gains from Trade P R I N C I P L E S O F ECONOMICS F O U R T H E D I T I O N N. G R E G O R Y M A N K I W Premium PowerPoint Slides by Ron Cronovich 28 update Modified by Joseph

### Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected

Name: Solutions Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Fall 2015 Prof. Dowell Instructions: This problem set will not be collected. You should still work

### How To Find Out How To Balance The Two-Country Economy

A Two-Period Model of the Current Account Obstfeld and Rogo, Chapter 1 1 Small Open Endowment Economy 1.1 Consumption Optimization problem maximize U i 1 = u c i 1 + u c i 2 < 1 subject to the budget constraint

### 1. Various shocks on a small open economy

Problem Set 3 Econ 122a: Fall 2013 Prof. Nordhaus and Staff Due: In class, Wednesday, September 25 Problem Set 3 Solutions Sebastian is responsible for this answer sheet. If you have any questions about

### Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed.

Name: Date: 1 A measure of how fast prices are rising is called the: A growth rate of real GDP B inflation rate C unemployment rate D market-clearing rate 2 Compared with a recession, real GDP during a

### Chapter 16 THE FOREIGN EXCHANGE MARKET AND TRADE ELASTICITIES

Chapter 16 THE FOREIGN EXCHANGE MARKET AND TRADE ELASTICITIES The model presented in Chapter 16 considers trade in goods and money. Money can be thought of as a particular type of asset that earns no nominal

### Production Possibilities Frontier and Output Market Efficiency. 1 Production Possibilities Frontier

Production Possibilities rontier. Principles of Microeconomics, all hia-hui hen October, Lecture Production Possibilities rontier and Output Market Efficiency Outline. hap : Production Possibilities rontier.

### Current Accounts and Demand Transmission in a Two-Country World Econ 182, 11/17/99 Marc Muendler

Current Accounts and Demand Transmission in a Two-Country World Econ 182, 11/17/99 Marc Muendler The first thought in international economics usually is to consider a small open economy. When doing macroeconomics

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Hint: draw graphs in the margins to check your answers. And remember that an increase in

### ECO 745: Theory of International Economics. Jack Rossbach August 26, 2015 - Week 1

ECO 745: Theory of International Economics Jack Rossbach August 26, 2015 - Week 1 Course Details Time & Location: 1:15-2:35 PM Wed & Fri in BA 214 Office Hours: 3:00-4:00 PM Wed in BA 109B (or by appointment)

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 3 - Demand and Supply - Sample Questions Answers are at the end fo this file MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A relative

### Macroeconomics, 10e, Global Edition (Parkin) Chapter 26 The Exchange Rate and the Balance of Payments

Macroeconomics, 10e, Global Edition (Parkin) Chapter 26 The Exchange Rate and the Balance of Payments 1 The Foreign Exchange Market 1) The term "foreign currency" refers to foreign I. coins II. notes III.

### Name. Final Exam, Economics 210A, December 2011 Here are some remarks to help you with answering the questions.

Name Final Exam, Economics 210A, December 2011 Here are some remarks to help you with answering the questions. Question 1. A firm has a production function F (x 1, x 2 ) = ( x 1 + x 2 ) 2. It is a price

### This paper is not to be removed from the Examination Halls

This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas

### Protection and Real Wages

Protection and Real Wages Wolfgang Stolper and Paul Samuelson (1941) Presented by Group Hicks Dena, Marjorie, Sabina, Shehryar No nation was ever ruined by trade Benjamin Franklin Under a system of perfectly

### Midterm Exam #1 - Answers

Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 2 The Economic Problem Test Bank MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The production possibilities frontier A) refers to the

### CARLETON ECONOMIC PAPERS

CEP 14-14 Employment Gains from Minimum-Wage Hikes under Perfect Competition: A Simple General-Equilibrium Analysis Richard A. Brecher and Till Gross Carleton University November 2014 CARLETON ECONOMIC

### Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2

Problems: Table 1: Labor Hours needed to make one Amount produced in 90 hours: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 1. Refer to Table 1. For Carolyn, the opportunity cost of 1

### University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 25 Exch Rate & BofP 1) Foreign currency is A) the market for foreign exchange.

### Who gains and who loses from an import tariff? An export tax? (Assume world prices are fixed).

Who gains and who loses from an import tariff? An export tax? (Assume world prices are fixed). Governments usually impose import tariffs, taxes levied on imports, to promote industries considered to be

### Chapter 4 Specific Factors and Income Distribution

Chapter 4 Specific Factors and Income Distribution Chapter Organization Introduction The Specific Factors Model International Trade in the Specific Factors Model Income Distribution and the Gains from

### Practice Problems on Current Account

Practice Problems on Current Account 1- List de categories of credit items and debit items that appear in a country s current account. What is the current account balance? What is the relationship between

### Economics 152 Solution to Sample Midterm 2

Economics 152 Solution to Sample Midterm 2 N. Das PART 1 (84 POINTS): Answer the following 28 multiple choice questions on the scan sheet. Each question is worth 3 points. 1. If Congress passes legislation

### Midterm Exam I: Answer Sheet

Econ 434 Professor Ickes Fall 2001 Midterm Exam I: Answer Sheet 1. (20%) Suppose that I have a short position in yen and I wish to hedge my currency risk over the next three months. Carefully explain how

### Econ 202 Section 4 Final Exam

Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys \$40

### 1 National Income and Product Accounts

Espen Henriksen econ249 UCSB 1 National Income and Product Accounts 11 Gross Domestic Product (GDP) Can be measured in three different but equivalent ways: 1 Production Approach 2 Expenditure Approach

### Problem Set for Chapter 10(Multiple choices)

Problem Set for Chapter 10(Multiple choices) 1. Because every transaction has a buyer and a seller, a. GDP is more closely associated with an economy s income than it is with an economy s expenditure.

### Problem Set #4: Aggregate Supply and Aggregate Demand Econ 100B: Intermediate Macroeconomics

roblem Set #4: Aggregate Supply and Aggregate Demand Econ 100B: Intermediate Macroeconomics 1) Explain the differences between demand-pull inflation and cost-push inflation. Demand-pull inflation results

### Problem Set #3 Answer Key

Problem Set #3 Answer Key Economics 305: Macroeconomic Theory Spring 2007 1 Chapter 4, Problem #2 a) To specify an indifference curve, we hold utility constant at ū. Next, rearrange in the form: C = ū

### Econ 202 Section H01 Midterm 2

, Spring 2010 March 16, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section H01 Midterm 2 Multiple Choice. 2.5 points each. 1. What would

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) It is efficient to produce an additional shirt if A) the marginal benefit of producing the shirt

### CH 10 - REVIEW QUESTIONS

CH 10 - REVIEW QUESTIONS 1. The short-run aggregate supply curve is horizontal at: A) a level of output determined by aggregate demand. B) the natural level of output. C) the level of output at which the

### Answers to Text Questions and Problems in Chapter 11

Answers to Text Questions and Problems in Chapter 11 Answers to Review Questions 1. The aggregate demand curve relates aggregate demand (equal to short-run equilibrium output) to inflation. As inflation

### Total Hours Revenue Open (dollars) 1 \$35 2 60 3 80 4 92 5 100 6 105

ECON 202-505, FALL 2011 Principles of Microeconomics Homework 1 Instructor: Sung Ick Cho 1) In economics, choices must be made because we live in a world of A) unemployment. B) scarcity. C) greed. D) unlimited

### 13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts

Chapter 3 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded.

### ASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2. DUE DATE : 3:00 p.m.

Page 1 of 13 ASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2 DUE DATE : 3:00 p.m. 19 MARCH 2013 TOTAL MARKS : 100 INSTRUCTIONS TO CANDIDATES

### Market Supply in the Short Run

Equilibrium in Perfectly Competitive Markets (Assume for simplicity that all firms have access to the same technology and input markets, so they all have the same cost curves.) Market Supply in the Short

### Economic Systems. 1. MARKET ECONOMY in comparison to 2. PLANNED ECONOMY

Economic Systems The way a country s resources are owned and the way that country takes decisions as to what to produce, how much to produce and how to distribute what has been produced determine the type

### QUESTION 1: SHORT VERSUS MEDIUM RUN. 30 points

QUESTION 1: SHORT VERSUS MEDIUM RUN. 30 points Consider an economy that fits the AS-AD model. The labor market equilibrium is given by the AS curve. The equilibrium in the goods market is given by the