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    Rucha Nimje
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    This document contains an economics midterm exam for Trent University's Economics 311 - International Trade course. The exam has two parts: Part A contains two questions worth 33.3% each, and students must answer one question. Part B contains four questions worth 33.3% each, and students must answer two questions. The exam questions cover topics related to international trade theory, including production possibility frontiers, opportunity costs, effects of trade on production and factor prices in countries with different relative factor endowments. Diagrams are provided for one of the Part A questions.

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    This document contains an economics midterm exam for Trent University's Economics 311 - International Trade course. The exam has two parts: Part A contains two questions worth 33.3% each, and students must answer one question. Part B contains four questions worth 33.3% each, and students must answer two questions. The exam questions cover topics related to international trade theory, including production possibility frontiers, opportunity costs, effects of trade on production and factor prices in countries with different relative factor endowments. Diagrams are provided for one of the Part A questions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    603 views3 pages

    International Trade Midterm Exam

    Uploaded by

    Rucha Nimje
    This document contains an economics midterm exam for Trent University's Economics 311 - International Trade course. The exam has two parts: Part A contains two questions worth 33.3% each, and students must answer one question. Part B contains four questions worth 33.3% each, and students must answer two questions. The exam questions cover topics related to international trade theory, including production possibility frontiers, opportunity costs, effects of trade on production and factor prices in countries with different relative factor endowments. Diagrams are provided for one of the Part A questions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 3

    Trent University

    Department of Economics

    Economics 311 - International Trade

    Midterm Exam: October 19, 2007

    Time: 80 minutes Instructions: Answer one question from Part A and two questions from Part B. The question

    answered in part A is worth 33.3% and the two questions answered in Part B are each worth 33.3%.
    Part A: Answer either question 1 or question 2 (33.3%)

    1. Two countries: A & B each produce two goods: X & Y in autarky. Production of each good requires input of L only. The L requirements to produce one good in each country are shown in the table below, as well as each country's labour endowment L.

    A X Y L 2 3 30

    B 2 4 40

    a. Graph each country's PPF and calculate the opportunity costs of goods production in each country. b. Graph the world total PPF, and identify each segment of the world PPF. c. Identify where (on which segment) world production could occur, and for each segment you identify i. describe what each country is producing. ii. calculate the world price ratio.

    2. Country

    K A is relatively K -abundant and country B is relatively L-abundant such that ( )A > L K w w ( )B , which implies ( )A > ( )B where w is wage or return to L and r is return on K . L r r There are two goods: X and Y . Production of good X is intensive in the use of L while production of good Y is intensive in the use of K . Both countries' PPF's are illustrated on
    page 3 (end of exam questions). Assume the following price ratios in each country in autarky: Country Country

    A: (

    px )A = 2 py px B : ( )B = 1 py

    a. Illustrate both PPF's above and draw country

    A's

    price line tangent to its PPF (ap-

    proximate - you do not need to nd the exact solution). Draw country

    B 's

    price line

    tangent to its PPF (approximate as for country A). Comment on the relative quantities of goods produced in both countries - exact numbers are not necessary, discuss only relative quantities. b. Now assume that with trade both countries now face a common world price line

    px = 1.5. py

    Illustrate the common world price line at its point of tangency with each PPF on each graph. Comment on the implied change in production of both goods in each country. c. What will happen to the ratio of factor returns, answer.

    w , r

    in each country?

    Explain your

    Part B. Answer any two of the following four questions (33.3% for each question answered).

    1. Discuss the welfare eects of a tari. Explain how quotas are similar to and how they dier from taris. 2. Explain the concept factor price equalization and comment on its relevance today. 3. Explain the impact of biased factor growth on a country's trade exposure. Can biased factor growth reduce welfare (explain)? 4. Explain what motivates trade in goods with economies of scale in production. Discuss whether factor endowment dierences are relevant.

    Figures: Question A.2. You may use these diagrams directly, or create them in your exam booklets. If you use this sheet, put your name on it and include it in your answer booklet.

    Name: ________________________________________

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