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

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Econ 448 Exam #2 Fall, 2013 Professor Twomey

Please PRINT your name on the BACK of the last sheet. Answer on these sheets, using the flip sides if you need more space. Please ask for clarification if a question is unclear. Weights of each question are indicated. Good luck!

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

1. Dutch disease

2. MFN

3. Specificity rule

4. Countervailing duty

5. (Give three distinct examples of: ) non-tariff barriers

2. (10 points) Consider the motor-bike industry. Suppose that the world market price of motor bikes is \$400. Initially, our country has free trade in these items. However, the production is quite disperse, and the assembly companies purchase several inputs (tires, mirrors, iron and other raw materials) with a total cost of \$200, and import the motors at a cost of \$100. Now, suppose a nationalist comes to power and imposes several tariffs: on imported motor bikes, a tariff of 10%, on imported motors a tariff of 30%, but no tariff on other inputs. What is the effective rate of protection on motor bike assembly? Does the new tariff system help or hurt motor bike assembly industry? Explain real briefly.
3. (15 points) Let’s do a question without graphs. We have studied several models that are quite different from the standard Heckscher Ohlin model – both in their assumptions and especially in their conclusions; two examples are product cycle and strategic trade. For each of these two models, discuss how its assumptions differ from the standard Heckscher Ohlin model, what its important conclusion(s) is/are, and how those conclusions differ from ‘normal’ Heckscher Ohlin story about free trade.
4. (15 points) Consider a number of Latin American countries that export coffee and import other goods. A long-term drought now reduces coffee production in these countries. Assuming they still remain exporters, explain why this drought might lead to an increase in their well-being (welfare). Identify two different economic conditions might make this gain in well-being more likely.
5. (10 points) Which of the following foreign shirt exporters is dumping in our market? Explain your answer briefly.
 Cult Cloth Bad Boy Darling Daisy Average Cost 50 50 50 Factory price: domestic sales 45 55 50 Factory price: foreign sales 45 53 52 Delivery price in the US 50 56 54

6. (20 points) Draw the standard graph and explain the effects of a tariff (compared to initial free trade) levied on an individual product in a competitive industry in a small country. In terms of producer and consumer surplus, who gains and who loses, and what is the net cost to the country?

Explain briefly how that analysis is modified if: (separate graphs not needed)

The product is produced by one domestic firm – a monopolist

The importing country is a large country

A quota is used instead of a tariff.

7. (10 points) Elected representatives are considering enacting a quota on imports of baseball gloves, a product which we also produce. The rights to import the quota-determined amount of gloves are to be given for free to the three companies that currently distribute those gloves. Identify the groups in the country that have a direct interest in whether or not the quota is enacted. Discuss briefly how effective each group might be in lobbying their representatives.
The median on this exam was 74; the high was 87.