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

(course was renumbered to Econ 448/548 during 2013)

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(course was renumbered to Econ 448/548 during 2013)
Econ 348 Fall, 2012 Exam #1 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 of any unclear question. The weight of each question is indicated. Good luck!

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

  1. One dollar one vote metric

  2. Mercantilism

  3. Internal scale economies

  4. Gravity model

  5. Producer surplus

  1. (10 points) Consider a world in which there are only two countries, Home (H) and Foreign (F). Let us look at the international market for widgets, which H exports and F imports. On three parallel graphs, draw the domestic supply and demand for widgets, and in the middle draw the supply and demand for widgets as determined by those domestic curves.

b). In a situation initially characterized by free trade, what happens to the world price if Foreign’s supply of widgets grows, due to technological change in that country? Explain and illustrate on your graphs.

  1. Aard








    (20 points) Consider a Ricardian world consisting of only two countries, Aardvarkville (A) and Zumbatanzerin (Z), which produce two products – horses (h) and turnups (t), with the following levels of labor inputs per unit of output:

  1. Which country has absolute advantage in which good?

  1. Which country has comparative advantage in which good?

  1. What are the limits of the world relative prices if there is free trade?

  2. Assume Zumbatanzerin has 60 workers. Draw its production possibility curve, and illustrate on it pre-trade and post trade situations of production and consumption, using indifference curves.

  1. (10 points) “According to the Heckscher-Ohlin theory, countries should engage in a lot of intra-industry trade.” Should one agree with this, or disagree? Explain your answer briefly.

  2. ( 10 points) “Opening up the economy to free trade does hurt people in import-competing industries in the short run. But in the long run, when people and resources can move between industries, everybody ends up gaining from free trade.” Should one agree with this, or disagree? Explain your answer briefly.

  3. (20 points) Consider a Heckscher Ohlin world involving countries (US and Them), two factors of production (capital and labor), and two products, (bicycles and radios). Bicycles are labor intensive, and country Them has relatively more capital. Initially there is not trade, and then the countries adopt free trade.

  1. Besides being a ‘2 x 2 x 2’ model, identify three other assumptions for Heckscher Ohlin.

  2. Which country has comparative advantage in which good?

  3. Draw the production possibility curves of both countries, indicating pre-trade and free trade situations.

  4. What does the decision to open to free trade do to wages in country US? Explain briefly

  1. (10 points) Suppose a monopolistically competitive industry exists in both country Home and country Away, but that initially there is not trade in this product, called frumps. Then the decision is made to open to trade.

  1. Explain how opening to trade affects domestic consumers of frumps in Home.

  2. Explain how opening to trade affects domestic producers of frumps in Home.

The median on this exam was 71: the high was 95.

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