# Don’t print all pages – there are about 90 pages. Econ 448 International Economics Exam #1 Fall, 2013

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Don’t print all pages – there are about 90 pages.
Econ 448 International Economics Exam #1 Fall, 2013 Professor Twomey

Please PRINT your name on the BACK of the last sheet. Please answer on these sheets, using the back sides if you need more space. Please ask for clarification if a question is unclear. The weight of each question is indicated. Time: the entire class. Good luck!

1. Identify the following with a sentence or at most two (20 points):

1. Consumer Surplus

3. (What does this mean?) “Trade is a positive sum activity”

4. Gravity model of international trade

5. Community indifference curve

1. You are given the following input cost shares in the corn and vehicle industries in the country of Michigandia (10 points):
 Each Dollar of: Corn output Vehicle Output Overall National Income Total labor input 0.60 0.59 0.60 Total land input 0.15 0.06 0.10 Total capital input 0.25 0.35 0.30 \$1.00 \$1.00 \$1.00

Suppose changes in demand conditions in the rest of the world raise the price of corn relative to vehicles, so producers in Michigandia try to expand production of corn, in order to export more.

1. if all factors are immobile between the corn and vehicle sectors, who gains from this change? Who loses?

2. If all factors are mobile between the corn and vehicle sectors, who gains from this change? Who loses?

1. (15 points) Consider a Ricardian world of two countries Nowhere (N) and Somewhere (S), where two goods are produced, Honey (H) and Yogurt (Y), according to the (constant) labor input/output coefficients in the table. Population is also included.
 Labor input/ unit output Nowhere Somewhere Honey 40 30 Yogurt 50 60 Population 200 300

If these two countries engage in trade, which country will export which good?

Draw a rough pair of production possibility curves for the countries, indicating for

What are the numerical limits of the free-trade relative price PH/PY?

1. “Once we recognize that product differentiation is the basis for much international trade, there are likely to be more winners and fewer losers in a country when the country shifts from no trade to free trade.” Identify and explain two distinct reasons why this statement might be true. (10 points)

2. The country of OhlinBurg has an endowment (total supply) of 20 units of labor and 3 units of land, whereas the rest of the world has 80 units of labor and 7 units of land. Is OhlinBurg labor-abundant? Is Ohlinburg capital-abundant?

If wheat is land-intensive and cloth is labor-intensive, what is the Heckscher-Ohlin prediction of the pattern of trade between OhlinBurg and the rest of the world? (10 points)

1. (15 points) Consider the single industry steel in Brazil and the rest of the world; suppose Brazil exports steel. Draw the graph illustrating the relationship between Brazil’s domestic supply and demand for steel, the corresponding graph for the rest of the world, and the entire world market’s supply and demand for trade in steel.

The median on this exam was 63; the high was 92.