# Econ 348   International Economics     Exam #1    Fall, 2006           Prof. Twomey

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## Econ 348   International Economics     Exam #1    Fall, 2006           Prof. Twomey

Please answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Please ask for clarification if any question is unclear. Time: the entire class.
1.(20 points) Identify the following with a sentence or at most two:

Product differentiation

Mercantilism

Gravity model

(What is the difference between) economies of scale that are “internal” and those that are “external”?

2. State the Heckscher Ohlin theorem.

The textbook indicates three important implications of the Heckscher Ohlin theorem. Identify and briefly describe each one with a sentence or two. (no proofs!)

3.  Consider the world market-exports and imports-for cotton textiles (as the book does in Chapter 2, without considering other products). Illustrate on a graph the gains from trade for exporters and importers, and explain what this analysis indicates about the relative sizes of those gains, for the two groups.

--Explain and indicate on a graph how a change in  consumer preferences, from cottons to synthetics, could be expected to change the world price of cotton textiles.

--Suppose technological change in agriculture leads to a decline in the cost of cotton. Explain and illustrate on another graph how that would change the world price of cotton textiles.
4. Consider now a Ricardian (one factor) world in which, before engaging in trade, in country Alpha it takes workers two hours to produce flowers and five hours to produce watches, whereas in country Beta it takes workers three hours to produce flowers and fourteen hours to produce watches.

Which country has absolute advantage in which good?

Which country has comparative advantage in which good?

What are the limits in the range of the relative price of flowers to watches, if there is free trade?

Assume Alpha has sixty workers. Draw Alpha’s production possibility frontier, illustrating pre- and post-trade positions.  Assuming a free-trade relative price between the limits indicated above, draw a possible trade triangle for Alpha, indicating the country’s ultimate consumption of each good.
5i.  What is the Leontieff paradox?

State one reason why it might matter.

State one reason why it might not matter.

ii.  In class we have used two technical terms: “one dollar one vote metric,” and “Community indifference curves.” State what each one is, and then state what relation, if any, there is between them.

iii . Consider a standard model in which we have increasing costs and community indifference curves.  Illustrate and explain briefly that in such a model, there can be gains from trade (compared to no trade) even if there is no change in production.
The median on this exam was  72; the high was 92.
Exam #2 Fall 2006 went down with the office desktop’s harddisk. The median on that exam was 75, and the high was 99.
Econ 348               Final Exam                Fall 2006              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 any question is unclear. Note that the questions have different weights. Time: one and a half hours. Good luck!

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

Countervailing duty

Montreal Protocol

Rules of origin

Common Agricultural Policy

Remittances
2. (10 points) The Argentine economist Raul Prebisch asserted that the long run trend in the terms of trade for developing countries would be a decline. Identify and explain very briefly two arguments why that might be true, and two arguments why it might not be true. (Don’t bother discussing what the actual data indicate).
3. (15 points) What kinds of countries tend to use economic embargoes? What kinds of countries tend to be objects of these embargoes?

IIdentify and discuss briefly what the book describes as political failures of embargoes, and economic failures of embargoes.

4. (15 points) Suppose NAFTA were to become a common market, with a common external tariff. Identify what is meant by trade creation and trade diversion, and suggest (i.e. make up) an example of each case, for the US or one of the other NAFTA countries.

In our textbook’s discussion of the impacts of economic integration, mention is made of other possible gains for such integration, beyond trade creation. Identify and explain real briefly two such examples that might plausibly occur in the NAFTA countries.

5. (10 points) Our textbook follows the work of John Dunning in explaining the existence of multinational enterprises (MNEs) by referring to five factors, four of which counteract the first, which is the inherent disadvantage of being foreign. Two of the bigger US MNEs are IBM and Exxon. Identify the other four factors that explain MNEs, explaining or illustrating them by reference to IBM or Exxon.
6. (15 points) Oil spills from oceangoing tankers are rare but bring huge damages to coastlines when they occur within 200 miles of shore. Unfortunately, most tanker spills do occur on or near coasts. Rank the following alternative policies according to how efficient they are in responding to the threat of oil spills. Explain your ranking, briefly.

a. Each nation with an endangered coastline should impose a tax on all imported oil, a tax that raises enough revenue to compensate for any oil-spill damages.

b.  Oil-carrying companies should be legally liable for all damages, in the courts of the countries whose national waters are polluted by the spills.

c. Each coastal nation should intercept all oil tankers in national waters and charge them a fee that will cover the estimated costs of future oil spills.

7. (15 points) Consider labor migration between the poor South and the rich North, in a context where initially migration is prohibited, and subsequently migration is unhindered. Draw parallel graphs of the labor markets in North and South, indicating pre- and post-migration wages and total labor supply.

In addition, what does the approval of do to the return to capital and national output in each country? Finally, what happens to world welfare as a result of unhindered migration?

In the U.S., another issue on migration is the empirical question, “Are Immigrants a Fiscal Burden?” If you were designing a research project, what might be three types of situations of immigrants that would have to be investigated?
The median on this exam was 77, and the high was 100
Econ 348   International Economics Exam #1 Fall, 2005 Prof. Twomey

Please answer on these sheets, using the flip sides if necessary. Questions’

weights are as indicated. Please ask for clarification if any question is

unclear. Time: the entire class.

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

b. One dollar one vote metric

c. David Ricardo

d. Mercantilism

e. (Distinguish between the) Short run and long run factor price response

2. (15 pts.) Define briefly what is meant by the term consumer surplus.

Illustrate with a graph. Does consumer surplus ignore income distribution, or does

it assume redistribution of benefits?

Consider two countries, Home and Foreign. Home imports radios at the world price.

Suppose that Foreign is now able to produce more, because of population growth or

technological change. How will this affect the world price, and Home’s consumer surplus?

Illustrate with a pair of graphs.
3. (20 points) The country of Michigandia has an endowment of 20 units of labor and

6 units of land, whereas the rest of the world has 80 units of labor and 14 units of

land. Is Michigandia land intensive or labor intensive? If wheat is land intensive and

cloth is labor intensive, what is the Heckscher Ohlin prediction for the pattern of trade

between Michigandia and the rest of the world?

Illustrate on a graph the production possibility curve of Michigandia, indicating the

pre-trade and post-trade positions of production and consumption.
(15 points) Consider the following data on some of Japan'’s exports and imports in

the year 2000, measured in billions of U.S. dollars.

Exports       Imports

Food           1.8     41.1

Metal ores     0.9     8.7

Pharmaceuticals 2.7     4.8

Iron & Steel   14.8    3.7

Computers      14.8    17.5

Automobiles    56.9    7.0

Aircraft       1.5     3.0

Clothing       0.5     19.7

Medical Instruments    1.5     2.6

For which of these products do Japan’s exports and imports appear to be consistent with the

predictions of the Heckscher Ohlin Theory, and which are inconsistent? Give a short

explanation for each answer.
(20 points) Consider a situation with two countries, Alpha and Beta, and two products,

hats and gumballs. Labor is the only factor of production, and the amount of labor needed to

produce one unit of each product in each country is shown in the table.

Alpha   Beta

Hats   10      11

Gumballs       5       6

Which country has absolute advantage in which good?

Which country has comparative advantage in which good?

Suppose Alpha has 200 workers. Draw a graph of Alpha’s production possibility curve.

On that graph, illustrate a (hypothetical) trade triangle.

6. (10 points). Suppose the world consists of two countries, China and R.o.W., and the world'’s

products are cars and textiles, and textiles are labor intensive. China has relatively more

labor, and R.o.W. has relatively more capital. Then consider an analysis of the returns to

labor and capital, before and after free trade is announced between China and R.o.W.

According to the factor price equalization theorem, what will the adoption of free trade do to:

(in terms of raise or lower--no explanation necessary).

Wages in China

Wages in R.o.W.

The median on the first exam was  78, the high was 94
Econ 348               Fall, 2005             Exam #2             Professor Twomey

Please PRINT your name on the BACK of the LAST SHEET.  If you need more space, use the flip sides of these sheets. Questions are equally weighted. Please ask for clarification if any question is unclear. Time: the entire class. Good luck!

1. Identify the following with a sentence or at most two:

a.  Free rider problem

b. MFN treatment

c. Section 301

d. Rybczynski theorem

e. Domestic content requirements

2a. Consider a small country, initially following free trade, which then imposes tariffs. Draw

a graph and explain, using the concepts of producer and consumer surplus, how this will affect the

welfare of the country’s producers, consumers, as well as the overall national welfare.

b. Explain briefly, without using another graph, why a large country might benefit from

protectionism, while a small country will not.
3. Conceptual questions How does the Heckscher-Ohlin theory predict that most research and

development (R&D) activity is done in the industrialized countries?

b. With regard to protection, how are quotas and tariffs the same, and how/when/why are

they different?

c. The standard competitive model of tariffs predicts that consumers of an exported product will be

hurt if their country opens up to free trade, while in the “external economies” mode

l (Chapter 5 of our text), consumers of exported products will be helped by the opening to trade.

Why the difference?

d. Identify and explain briefly one explanation for the prevalence of intra-industry trade.
4a. Why might it be economically logical for the sole producer and exporter of a new product to

sell that product at different prices in different markets? (graph optional).  What determines

the different prices in those markets?

b. The textbook gets into an elaborate discussion about how, in the Boeing/Airbus competition, it

might be beneficial for one of the countries involved, to subsidize production. However, there

is never a hint of that debate for, say, GM and Toyota. What is different about the Boeing/Airbus

competition?

5. In the article about agricultural trade reproduced on the previous page:

a. Are these agricultural interventions consistent with comparative advantage?

b. Who gets helped, and who gets hurt, when the U.S. ships large quantities of food as aid?

c. Is it consistent with our textbook’s theory that countries like Japan and Switzerland benefit

from free trade in industrial products, while they also benefit from restrictions on food imports?

d. Is there a valid economic case for the request that industrialized countries should do more

than developing nations in reducing trade barriers?

e. Does the article assume that any country (US, EU, Brazil, Australia, etc.) is a large country,

in terms of agriculture? If so, should this conversation be placed in the context of optimal

tariffs/subsidies? If not, then why does any country care what the others do?
The median on the second exam was 77, the high was 100
Econ 348   International Economics     Exam #3    Fall, 2005     Prof. Twomey

Please answer on these sheets, using the flip sides if necessary. The questions’ weights are as indicated. Please ask for clarification if any question is unclear. Time: 90 minutes.

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

a) Environmental Kuznets (or inverted-U) curve

b) Engel’s Law

c) Montreal Protocol

e)  Rules of origin

2.  Short answers (10 points)

i. Why does the European Union need to support prices of agricultural goods if the EU is a net

exporter of these goods?

ii. Our book states that there was more liberalization of US-Mexican trade before the NAFTA

accord, than after. Why was that so?

iii. By most everybody’s account, the European Union has been an economic success. Some of this,

undoubtedly, is due simply to the benefits of comparative advantage, following on the reduction

of trade barriers. Identify two other economic factors that have contributed to this success.

iv. State three reasons for the decline in the power of the OPEC oil cartel, after its initial

successes in the early 1970s.

3. 15 points) Let us consider foreign direct investment by US firms into China, in terms of

our book'’s theoretical discussion of such FDI. One point not needing illustration is that

this FDI will be inherently  more difficult than domestic investment, because of cultural

differences. Beyond that, the book talks about four considerations, or factors determining

such FDI. Identify each one, illustrating them with examples taken from the US-China context.
4. The textbook’s discussion of trade embargoes distinguishes between political and economic

failures. Explain briefly that distinction. (10 points)

5 (15 points). Let’s consider the issue of environmental pollution, caused by logging companies

producing newsprint in Arkansas for export. As the book notes, one government response to the

pollution would simply be to forbid exports. There are at least two other approaches for the

reduction of that pollution, one focusing on taxes, and the other on property rights. What

concretely would be the proposals of those advocating taxes, and of those pushing property rights?

b. How are these positions modified if the pollution is created in one country, and affects

another, —as would be the case of pollution from Michigan affecting Canada.
6. 15 points) Consider migration of low wage Algerians into high wage France. Draw a graph

of the labor markets in the two countries, indicating the level of wages before and after

migration is allowed. Explain  the effect of that migration on wages, the return to capital,

and total output, in each country.

b. In class we discussed several modifications of that analysis in real world situations.

Identify and explain briefly two of them.

7. (15 points) The textbook’s discussion of trade policy in developing countries focuses on

the impact of ISI (or its opposite) on growth of income per capita. What is meant by ISI?

What is its opposite?

For the period after the early 1960s, did ISI work? Why, or why not? Discuss briefly.

The median on this exam was 66, the high was 96.
Econ 348        Exam #1     Fall, 2004         Professor Twomey

Please PRINT your name on the back of the last sheet. Answer on these sheets, using the flip sides if necessary. Questions are equally weighted. Be sure to label the axes on the graphs. If any question is unclear, please ask for a clarification.  Good luck!

1. Identify the following with a sentence or at most two:

a) Opportunity Cost

c) Arbitrage

d) Internal Economies of Scale

e) (State the) Stolper Samuelson Theorem

What is the theoretical problem with using community indifference curves in the analysis

of international trade. Identify and explain briefly two theoretical justifications for the

use of community indifference curves in this context.

b. Our textbook's response to this problem is what it calls the "one dollar one vote metric."

What does this mean, and explain how it relates if at all to the two justifications you mentioned

above in part (a).

Consider trade between Japan and Indonesia, in the context of the Heckscher-Ohlin model in

which Japan has relative abundance of capital, and Indonesia has relatively more labor. In true

Heckscher Ohlin style, they are the only two countries, and the only two products are automobiles

and cloth, with automobiles being capital intensive and cloth labor intensive.

A) Draw the production possibility curves for both countries,

indicating pre- and post-trade equilibrium production and consumption.

B). If the countries move from no trade to free trade,  what will happen to (relative) wages in

Indonesia?

4a. The textbook discusses whether or not U.S. trade patterns are consistent with the Heckscher

Ohlin model, in terms of the U.S. being a net exporter (which we'll write NX) or a net

importer (NM). Some examples are given below. For each of these products, explain

briefly the author's labeling of them, using simple "common sense" or "conventional wisdom"

interpretations or applications of Heckscher Ohlin.

Consistency:

wheat (NX),

coffee (NM),

aircraft (NX)

clothing (NM).

Inconsistency:

pharmaceuticals (NM)

automobiles (NM).

B. Inter-industry trade is an important phenomenon in today's world markets.

- What is meant by inter-industry trade?

- Identify and explain briefly two explanations for inter-industry trade. (Graphs not necessary)

Consider trade between Alphaville (A) and Zetaburg (Z), where each economy has one factor

of production, labor, which has constant level of labor inputs, and produce two products,

Wiggies (W) and Yonklers (Y). Assume no differences in wages across industries. The

labor inputs are:

Countries

A                Z

Products               W        4                3

Y       13              11

Which country has comparative advantage in which good?

What are the limits of free trade relative price PW/PY ?

If A has 104 units of labor, draw a graph of A's production possibility curve, indicating

The median on this exam was 66: the high was 91

Econ 348          Exam #2              Fall, 2004                   Professor Twomey

Please PRINT your name on the back of the last sheet. Questions are equally weighted. Time: 75 minutes. Please ask for clarification if the question is not clear. Good luck!

1. Identify the following with a sentence or at most two:

a. Section 301

b. Free rider problem

c. Persistent dumping

d. Domestic content requirement

e. Rybczynski theorem
2. Draw a graph illustrating the effects of a tariff, including a demonstration and brief

description of the costs of protectionism in terms of producer and consumer surplus.

Explain--using a graph only if necessary how that analysis is affected by:

Consideration of large vs. small country

Tariff vs. subsidy

Static versus dynamic model

3. What is the infant industry argument for protection? Explain, illustrating your answer

with a graph.

The textbook's discussion of infant industry has a section on why "a tariff may or may not

be good." State and explain briefly one argument in favor of using tariffs for infant industries,

and one argument against.

(On a different subject) Suppose a bicycle costs \$100 in the world market, and that its

production requires \$20 worth of steel, which is the only purchased input. If there is a ten

percent tariff on bicycles, and a twenty percent tariff on steel, what is the effective

rate of protection?
4. What is meant by immiserizing growth?  Explain and illustrate with a graph

b. Why, or in what way, is US anti-dumping policy biased toward finding dumping?

c. The WTO has three categories for export subsidies. Identify each one, giving a concrete example

of a government policy that would fit into each category.

5a. Why should a domestic monopoly prefer protectionism using a quota, over protection using a

tariff? Explain briefly, illustrating with a graph.

The median on this exam was 74: the high was 93
Econ 348               Final  Exam              Fall 2004            Professor Twomey

Please PRINT your name on the BACK of the last sheet. Answer the questions on these sheets, using the back sides as necessary. Please ask for clarification of any unclear question. Questions are equally weighted. Time: ninety minutes.  Good  luck.

1. Identify the following with a sentence or two:

a) PEMEX

b) Common Agricultural Policy

c) Transfer Pricing

d) Environmental Kuznets Curve

e) Rules of origin

2. In discussing embargoes, our textbook distinguishes between two kinds of failures, economic

failure and political failure. Explain briefly this distinction, and suggest what conditions might

lead to each of these outcomes.
3a. The potential entry of Turkey into the European Union has been a topic of discussion. There

are immediate economic impacts, and a set of broader social considerations. Discuss these, from

the point of view of current members of the EU producers, consumers, taxpayers, voters, etc.

b) President Bush is considering allowing greater immigration from Mexico to the United States.

What would be the effects of such a move on US workers and employers, in terms of producer and

consumer surplus? What would be the net national impact on welfare? What would happen to national

income?
4a. What is meant by the Kyoto Protocol? What is its current status?

b. With regard to environmental actions and NTBs, which of the following government actions probably

violates the rules of the WTO? Explain each answer real briefly:

i A country's government places a tax on domestic production to reduce pollution caused by

this production

ii A country's government restricts imports of goods produced using production methods that would

violate the importing country's environmental protection laws

iii. A country's government places a tax on domestic consumption of goods (both imported and

domestically produced) to reduce pollution caused by this consumption.

iv. A country's government restricts imports of a good, to reduce pollution caused by consumption

of this good.

5a. Several primary product exporting countries tried import substitution industrialization during

the twentieth century, most noticeably after 1929 for countries that were then independent, or

shortly after independence for those who had been colonies. Nevertheless, after about 1970 the

attraction of ISI has almost disappeared.  Why?

b. With regard to the transition economies of eastern Europe and the former USSR, our book

distinguishes between reforms regarding protectionism and other reforms. Which countries had

quicker recoveries, those that had sharp reforms, or those that had gradual reforms?

5a.There are three broad groups of European transition economies; the central European

countries, the Baltic countries, and the other countries which had been part of the USSR.

Setting aside the Baltic countries, which group of countries has fared better, the central

European countries or the former USSR? Beyond trade reforms, what other reforms are judged to

be necessary in these countries?

b. Why does an export subsidy raise domestic prices at least in a small country?

Explain and illustrate with a graph.

What is the effect of an export subsidy on domestic prices, in a large country?

The median on this exam was 82: the high was 93
Econ 348      Fall, 2003        International Economics    Exam #1   Professor Twomey
Please write your name on the back of the last sheet. Answer on these sheets, using the backs of these sheets if necessary.  Please ask

for clarification if any question is unclear. Time: 80 minutes.

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

a) Rybczynski Theorem

b) Monopolistic competition

c) Factor content of exports

d) Mercantilism

2. (10 points) Consider the situation of two countries (Alpha (A) and Zeta (Z)  producing two products glass (G ) and rakes (R) with

constant productivity of the one factor of production, labor. The levels of labor input needed per unit of output (are as indicated in

G R

A  8 5

Z  7 6

I) Which country has comparative advantage in which good?  II) Suppose A has 60 workers. Draw A's production

possibility, illustrating on it pre-trade and post-trade production and consumption.
3a. (20 points) In its discussion of the effects of free trade, our textbook distinguishes between the short run and the long run. What

is the difference? b) What is the Stolper Samuelson theorem?  To which of the above situations does it apply, short run or long run? c)

It has been the case that automobile workers in the U.S. have opposed free trade in autos. Is this political position explained by

Stolper Samuelson? Is this short run, long run, or both? Explain.

4. (20 points) Consider world trade of a particular product (hats - [H]), and in free trade Canada exports hats and the rest of the

world (RoW) imports hats.  a) Draw graphs illustrating the change in producer and consumer surplus in both countries, if there is a

move from no trade to free trade. b) What happens to world prices, and producer and consumer surplus in Canada, if the rest of the

world there is a decline in its demand for hats? Explain and illustrate with a graph.

5 (20 points) Our book discusses two strands of empirical work relating to the Heckscher Ohlin theorem; the Leontieff Paradox, and

Intra-Industry trade. a) Explain what is meant by each one, and how/why they relate to Hechscher Ohlin. b) If the Leontieff paradox

were "true," how would that make things different for somebody who lives in the real world? c) Our textbook author indicates more

interest in the prospect of government interventionist policies in the world of Intra-Industry trade, at least as compared to the

classical world of Heckscher Ohlin. Why?
6 (10 points)  [Must have been an easy question]
The median on this exam was 53. The high was 89
Econ 348 Exam #2 Fall, 2003 Professor Twomey Please PRINT your name on the back of the last sheet. Answer on these sheets, using the flip sides if necessary.

Questions are equally weighted. Be sure to label the axes on the graphs. If any question is unclear, please ask for a clarification.

Good luck!
1. Identify the following with a sentence or at most two: a) One dollar one vote metric b) Countervailing Duty c)

Specificity rule d) Domestic Content Requirement e) Section 301

2a. Explain the infant industry argument for protection, illustrating your answer with a graph (from the book or from class notes)  b.

One way of arguing in favor of infant industry protectionism is to assert that it is a case of second best. What is meant by second

best?  Identify two plausible situations in which the second best argument might be applied.
3a. It is argued that a large country can gain from protection. Draw a graph of the effects of a tariff on a large country, identifying

and indicating on the graph the gains and losses to the importing country. b. Consider the production of shoes, where the only primary

input is leather. At world prices, the cost of a pair of shoes is \$100, and the cost of leather is 20 percent of the cost of the shoes.

Suppose that tariffs on imported shoes are 10%, and tariffs on imported leather are 30 %. What is the effective rate of protection? 4.

What is meant by the product cycle? Graph optional In what way(s) is the theoretical world of the product cycle different from that of

standard trade models? What role, if any, does the product cycle model assign to government policy? Finally, on a different topic:

Identify and explain briefly two ways that the effects of an import quota are different from those of a tariff.
5. This section of our textbook has given a lot of attention to discussions of practical details of trading

arrangements, especially those referring to ways of avoiding free trade. A) What is meant by an NTB? Identify and explain real briefly

three examples. B) In discussing WTO rules on export subsidies, the book discusses three types of subsidies prohibited, actionable, and

non-actionable. Identify what these three terms mean. C) Part of the discussion of VER's involves ways to allocate import licenses.

Identify two such ways. D) What is the difference between predatory dumping and persistent dumping?
The median on this exam was 62. The high was 95
Econ 348 Final Exam Fall, 2003 Professor Twomey Please PRINT your name on the back of the LAST sheet.  Answer on these

sheets, using the flip sides if necessary. Questions are equally weighted. Please ask for clarification of any question that is

unclear. Time: 90 minutes, or until they throw us out.
1. Identify the following with a sentence or at most two:  a) Rules of origin b)

Kyoto Protocol c) Outward oriented policy d) Transfer pricing e) Foreign Portfolio investment

2. In the 1950s Raul Prebisch (and eventually others) argued that developing countries were destined to suffer from a downward trend in

the prices of their exports, which were basically raw materials.  - State and explain briefly two reasons why those prices were

expected to fall - State and explain briefly two reasons why one might have expected that those prices would not fall - Was Prebisch

right?
3. Distinguish between trade creation and trade diversion, giving an example set in the context of countries involved in one of the

expansions of the European Union.
-In the context of NAFTA, which is expected to be larger, trade creation or trade diversion. Explain
-Finally, the book makes an interesting distinction between economic embargoes that are political failures, and those that are economic

failures.  What is that distinction? The U.S. has had an embargo on Cuba for several decades; without any appreciable effect. is this

an example of political or economic failure?
4. Our textbook's preferred model of foreign direct investment involves Dunning's factors OLI. What do these three letters O, L, and I,

stand for? Give an example of each. Our textbook states that the predictions of the standard theory of international migration are in

fact supported by several empirical studies. The U.S. is a labor importer. Explain with words (graph optional) how that migration flow

should affect US wages, profits, and output. Our textbook also has the honesty to acknowledge the possibility of positive and negative

externalities associated with migration. Give an example of each.
5.Oil spills from oceangoing tankers are rare but bring huge damages to coastlines when they occur within 200 miles from shore.

Unfortunately, most taker spills do occur on our near coasts. The following are alternative policies that might be considered by a

country with a coastline. Rank these alternatives according to how efficient they are in responding to the threat of oil spills.

A) Each nation with an endangered coastline should impose a tax on all imported oil, a tax that raises enough revenue to compensate for

any oil-spill damages.

B) Each coastal nation should impose a tax on all domestically purchased oil, a tax that raises enough revenue to compensate for any

oil-spill damages.

C) Oil-carrying companies should be legally liable for all damages, in the courts of the countries whose national waters are polluted

by the spills

D) Each coastal national should intercept all oil tankers in national waters and charge them a fee that will cover the estimated costs

of future oil spills.

E) We might as well save ourselves the expense of trying to prevent spills.  They are just accidents beyond the control of the shipping

companies; they are part of the cost of having coasts.

The median on this exam was 65. The high was 94
Econ 348      First  Exam               Fall 2002            Professor Twomey

Please PRINT your name on the BACK of the last sheet. Answer the questions

on these sheets, using the back sides as necessary. Please ask for

clarification of any unclear question. Time: one hour.  Good  luck.

1. Identify the following with a sentence or at most two:

a) Industrial trade policy

b) Opportunity cost

c) CAP

d) Washington Consensus

e) European Commission

2a. There is a large Free Trade Zone (FTZ) in McAllen, Texas, just on this

side of the border with Mexico.  Arrangements have been made so that

Mexican workers pass freely in both directions across the border. If you

were organizing a firm, what factors would you consider in deciding

whether to operate inside the FTZ, as opposed to operating across the

border--in Mexico itself?

b. On the graph to the right (taken from another textbook) of a

country's production possibility curves before and after growth, points S1

and S7 represent production before and after growth, and C1 and C7

represent the indifference curves for consumption before and after growth.

For this country, which product (wheat or cloth) does it export, and which

does it import?

Does the relative price of wheat rise or fall after the country

experiences growth? How can you tell?

3. Consider the following labor input conditions, for countries Alpha (A)

and Zeta (Z), and products goggles (g) and radios (r):

Which country has absolute advantage in which good?

A      Z

g    6      15

r    15     30

Which country has comparative advantage in which good?

If country Z has 600 workers, draw its production possibility curve. On

this PP curve, illustrate a potential trade triangle, identifying exports

and imports.

If scientists introduced a third product, TVs, and the labor inputs in

this industry were 10 for A and 12 for Z, what would be the new set of

comparative advantage predictions of who exports what?
4. Consider U.S. imports of cars. Suppose we had an initial situation of

free trade, and then we decided to use tariffs. Draw a graph of the

domestic supply and demand for cars, and explain using that graph the

major impacts of the tariff, on production, consumption, imports and so

on. One frequently used measure of the cost of protectionism is derived

from the concepts of producer and consumer surplus. Explain and show on a

new graph the changes in producer and consumer surplus, and the net change

for the country as a whole. Why is the use in international trade theory

of the concept of an indifference curve different from the use of that

curve in a standard microeconomics class? Identify two justifications for

the use of community indifference curves in the analysis of the effects of

foreign trade on an entire country.

5a. The article by William Cline of the IIE addresses the issue of the

causes of the increasing inequality of the distribution of income, and

specifically of labor income, in the US over the last three or four

decades.  What are the major alternative explanations he considers?  Are

these hypotheses consistent with economic theory? Which one does his

empirical work support?

b. The chapter on European labor markets in the book edited by Hansen

argues that the natural rate of unemployment, called NAIRU, is higher in

Europe than in the U.S. or Japan, due to labor market rigidity in Europe.

-- What is meant by the natural rate of unemployment?

Discuss briefly two of the explanations that are given for the higher

European labor market rigidity.  What government policies could lessen

that rigidity?

c. In the fifteen countries of the European Union, which

country has the largest total GDP?  Which country has the smallest total

GDP? Luxembourg has the largest GDP per person. Which country has the

smallest? How does the combined GDP of the EUR15 compare to the GDP of

Japan, and to that of the U.S.?

The median on this exam was 68: the high was 92.
Econ 348   Exam #2     Fall, 2002                   Professor Twomey
Please PRINT your name on the back of the last sheet. YOU WILL LOSE CREDIT

IF YOUR NAME APPEARS ANYWHERE ELSE. Answer on these sheets, using the flip

sides if necessary. If any question is unclear, please ask for

clarification. Be sure to label the axes! Questions are equally weighted.

Time: 1 hour.

1. Identify the following with a sentence or at most two:

a) EFTA

b) Rent seeking protectionism

d) Structural Funds

e) Optimal tariff
2a.  Suppose the large country A exports mangos (M) and imports seashell

(S). Draw the offer curve for country A.

b. On that same graph, show what happens if there is bad weather in A, and

their supply of mangos declines. What happens to the terms of trade of

mangos? Explain very briefly

c . Speaking more generally of large countries, why is it easier for

cartels to form on primary products like oil and copper, rather than on

manufactured goods or traded services?

3a. When discussing economic integration, economists distinguish between

trade creation and trade diversion. Explain briefly what the distinction

is, and what is the standard evaluation by economists of which is

beneficial and which is harmful.

b. According to the authors in the Hansen book, which of those two changes

(creation or diversion) has characterized the European Union? Explain

briefly.

c. Finally, the chapter's authors claim that the intra-EU trade has been

characterized by much intra-industry trade. Should this lead to major

"gains from trade" and/or sectoral re-adjustments of the factors of

production? Explain briefly.
4a. Consider the model our book labels the factor proportions model,

a.k.a. the Heckscher-Ohlin model. Suppose the two factors of production

are land (T for terra) and Workers (W).  Suppose the two products are

coffee (c) and shirts (s), that the production of coffee is land

intensive, and that the home country has a relative abundance of workers.

Draw the graph that uses unit value isoquants for the two products to

illustrate the factor price equalization theorem.

b. The "proof" (illustration) of the price/payment theorem (Stolper

Samuelson theorem) uses that picture of the two isoquants, and then

changes one of them, to indicate what happens when the home country

implements a tariff. Draw the corresponding graph, and explain the change.

c. Explain what is meant by the phrase "free trade substitutes for factor

movements."
5. The Hansen book has a lengthy analysis of economic growth.

A) In that book's discussion of the growth of the countries of the

European Union, the basic perspective that is adopted is to compare the

growth of Europe with that of the U.S. and Japan. According to the book,

has there been convergence in income per capita? Explain briefly.

B) According to basic economics, what factors (besides trade policy)

contribute to the growth of a country's income per capita?

C) How well do the factors listed in part (B) explain the results you

describe in part (A)? Elaborate briefly. D) Finally, should be expect the

EU's trade policy to accelerate growth? Has it?

The median on this exam was 63; the high was 88
Econ 348 Exam #3 Fall, 2002 Professor Twomey
Please PRINT your name on the BACK of the last sheet. You will lose credit

if it appears anywhere else. Please answer on these sheets, using the flip

sides if necessary. Questions are equally weighted. Ask for clarification

if a question is unclear. Time: whatever's necessary, which should be 60

to 90 minutes. Good luck!

1. Identifications: Please identify the following with a sentence or at

most two:

a) Brain drain

b) TRIPs

c) The Single Market

d) EBRD

e) Exchange rate peg

f) Convergence criteria

h) Optimum currency area

i) CMEA

j) Copenhagen Criteria
2. The Hansen book argues that the Central and East European (CEE)

countries that used to have socialist economies, would go through three

phases in their transition to capitalist economies. What are those phases?

How long did those phases last? Overall, how well has that prediction

described the experience of the CEE counties?  One of the important

questions of the transition period is the mode of privatization of the

formerly state owned enterprises. Discuss the choice among the three major

alternatives mebo, voucher, and FDI, in terms of theoretical economic

preferability and limitations imposed by political, social, and historical

realities.

3a. In the discussion of the EMU and the process of adopting the euro, the

Hansen book argues that this was a continuation of prior monetary

integration. Sketch briefly the earlier efforts in exchange rate

integration, and describe briefly what the Delors report was, and why it

was important. In discussions about the advisability of joining the EMU,

many economists emphasize the importance of whether macroeconomic

fluctuations (shocks) are similar (correlated) or not the latter term is

asymmetric shocks Why is it important to know if economic shocks are

symmetric or asymmetric? The textbook analyzes this issue with graphs

indicating how unemployment rates have evolved in France, the U.K.,

Finland and Denmark, relative to Germany. Explain and indicate on a graph

what would be the theoretically best outcome, and comment as to what the

data show.
4. We have two major models of foreign investment, the neo-classical or

return to capital model in the Thompson textbook, and Dunning's OLI model,

preferred in the Hansen book.  Compare and contrast the theoretical bases

of those two models in terms of what factors they emphasize, what

assumptions they make, and so on. Here are some "stylized facts"

generalizations about what the data say. Are they consistent with either

or both of those models? Explain each answer briefly.
Most FDI occurs among the industrial countries Recent flows of FDI inside

Europe have been in sectors that we think of as low tech, as compared to

high tech. As China has moved away from the Marxist ideological heritage

of Mao Tse Tung, towards capitalism, it has been one of the major

recipients of new FDI inflows.
5. The Thompson textbook provides the standard model of the impact of

allowing international migration.  Illustrating your answer with a graph,

explain how permitting such migration would affect a high income country's

wages, the return to capital, population, and output. There are several

arguments that can be made to suggest that the above model is incomplete.

Identify and explain very briefly three factors that are ignored in the

standard model. In your opinion, does recent experience in the United

States support the overall predictions of the standard model? Explain

briefly.
The median on this exam was 57; the high was 92.

Econ 348 Mid-Term Exam Fall, 2001 Professor Twomey
Please PRINT your name on the back of the last sheet. Answer on these

sheets, using the flip sides if necessary. Questions are equally

weighted. Be sure to label the axes on the graphs. If any question is

unclear, please ask for a clarification.  Good luck!

1. Identify the following with a sentence or at most two:

a) Effective Rate of Protection

b) NTB

c) Smoot Hawley

d) Section 201 Escape Clause

e) Rent seeking activity

2. Consider the situation of pre-trade labor inputs in a constant cost

model for two countries Alpha (A) and Zeta (Z), producing goods corn

(c) and umbrellas (u):

A    Z

c     4    6

u     8   18

a. Which country has comparative advantage in which good?

b. What are the limits of the free trade prices Pc/Pu?

c. If A has 40 units of labor, and assuming full employment, draw a

graph of its production possibility curve, showing potential pre-trade

and post-trade points of production and consumption (illustrate

production and consumption with points on the curves, no need to

calculate where they are).
3a. What is meant by immiserizing growth?

b. Draw a graph of this phenomenon.

c. What conditions might make this more likely to occur? Try to give a

couple of concrete examples.

4a. Consider a country which both produces and imports textiles.

Suppose that initially it engages in free trade, but then raises a

tariff on imported textiles.

Define producer and consumer surplus Explain and show on a graph how

this tariff will affect producer and consumer surplus.

b. One of the arguments in favor of protectionism is that referred

to as infant industry. Explain what is meant by this,

and illustrate it with a graph.

5. The following are re-phrasings of some of the criticisms of the

World Trade Organization. Please comment on each of them, indicating

for example, whether or not you think the statement is correct

factually, if it is correct "theoretically," whether it was assumed

away in our theories, or whether it really is not a criticism but

should be considered praise, etc.

a.  The WTO and free trade are leading to lower wages in the

industrial countries

b.  The WTO prohibits environmental regulations

c.   In the U.S., the WTO was approved in an undemocratic manner

d.  The WTO undermines national sovereignty because it can enforce

elimination of protectionist policies

e.  The WTO encourages third world countries to exploit their workers

by paying them low wages

f.  The WTO facilitates the spread of low-culture consumer oriented

The median on this exam was 60, the high was 95
Econ 348   International Trade    Fall, 2001       Final Exam       Professor Twomey

Please PRINT your name on the BACK of the LAST sheet. You will lose

credit if your name appears anywhere else. Answer on these sheets,

using the flip sides if necessary. The first question is worth 20

points, and the rest are worth ten points each. Please ask for

clarification if a question is unclear. Time: unlimited, which is

1. Identify the following with a sentence or at most two:

a) Optimum tariff

b) Prisoner's dilemma

c) Factor price equalization theorem

d) Joint venture

e) Democratic deficit

f) CAP

g) Trigger price mechanism

2. Consider the following duopoly production game between Nigeria and Mexico in the international oil market.

Figures are economic profits in billions of dollars, and the first figure in parenthesis is Mexican profit. Find

the production equilibrium.  Who has the greater incentive to cheat on a collusive cartel agreement?

Nigeria

Low              High

Low     (30, 10)        (-20, 40)

Mexico

High    (40, 30)          (0, 0)

3. Borjas proposed a set of components of the "New" economics of

immigration into the U.S. Discuss three of them briefly. How might

they affect U.S. immigration policy?

4.  What is meant by intra-industry trade? Is it (IIT) growing or is

it shrinking? Is IIT more prevalent in developed countries or in

developing countries? Discuss three of the major explanations of this

phenomenon. Generally speaking, does these explanations support or

challenge the Heckscher Ohlin theory and the principle of comparative

5. Generate your own version of an example of the Heckscher Ohlin

Theorem: name the countries, factors, etc., and then state which

country will export which good, according to that theorem. Using your

example, state the factor price equalization theorem, and indicate for

each country which factor will benefit, and which will lose with free

6. Explain briefly why the US has many MNF (MNC) branch operations in

construction, business services, and oil and coal extraction.
7. Why is it easier for cartels to form on primary products like oil,

copper, minerals, coffee and tea rather than on manufactured goods or

traded services? Why was a banana cartel unsuccessful?
8. Explain and evaluate the proposition that the economic and the

political goals of the European Union are not compatible.

9a.  For either the movement of labor or that of capital, what is the

standard textbook analysis of the effects of permitting international

movement of that factor on output, the returns to labor and capital,

and the distribution of income in the sending and receiving countries?

Illustrate with a graph.

9b.  In class it was argued that there need to be important

modifications to the standard textbook treatment of the economics of

factor movements, whether it be capital or labor. Discuss those

modifications for one of the basic factors of production.
The median on this exam was 43; the high was 75.

Econ 348               Midterm Exam              Fall 2000            Professor Twomey

Please PRINT your name on the BACK of the last sheet. Answer the questions on these sheets, using the back sides as necessary. Please ask for clarification of any unclear question. Time: only one hour.  Good  luck.

1. Identify the following with a sentence or at most two:

a) Hegemony

b) Specific factor model

c) Escape clause relief

d) The Logic of Collective Action

e) International Trade Organization
2. Let's try an assessment of NAFTA in the context of the standard

international trade theory;  Heckscher Ohlin and Stolper Samuelson.

A) Considering only trade between Mexico and the United States, what

type of goods (Heckscher Ohlin framework) should each country export?

b) What would these theories predict would be the effect on the

factoral distribution of income in the U.S., of an expansion of trade

between Mexico and the U.S.? Explain briefly.

c) Is the explanation by William Cline of recent trends of the

distribution of income in the U.S.  consistent with the prediction in 2b

above? In addition to trade flows and tariffs, what is the most important

other factor that Cline includes as affecting wages?
3. Consider production and trade in computers (c) and shirts (s) between

two countries Alphaville (A) and Zetaburg (Z), where the pre-trade labor

productivities are as shown in the following table, and wages are assumed

equal in both industries inside each country.

,A,Z

c ,6,8

s ,1,2

A. Which country has comparative advantage in which good?

B. What are the limits of the free trade relative price Pc/Ps?

C.  Assume each country has five workers. Draw the production

possibility curves for each country, indicating the pre-trade and post

trade production points, and a potential free trade relative price.

4a. Distinguish briefly between the major tasks of the International

Monetary Fund, and those of the World Bank.

b. One of the major arguments supporting these organizations is that

they provide international public goods. What is meant by a public good?

Identify two examples of such international public goods that these

institutions are presumed to provide.

c. We all know that these institutions have been subject to criticism

recently in the U.S. Discuss three examples of those criticisms; for each

one, identify what is being asserted, and then argue whether the criticism

is a rejection of the public good argument, an acceptance of the public

good argument but a quarrel over degree (too much, too little) or

ineffective implementation (they don't know how to apply band-aids), or

simply an unawareness of the relevant facts (the IMF should control the

weather).

5a.  One way of calculating the cost of a tariff is to measure changes

in consumer and producer surplus. The U.S. is a net importer of steel.

Explain and illustrate with a graph the "deadweight loss" of

protectionism.

b. In what fundamental conceptual way do the Product Cycle and Infant

Industry models differ from the above view of the impact of protectionism.

c. In the particular case of steel, the following three terms are

mentioned in our readings. Define and distinguish between "escape clause

relief," "Section 301," and "countervailing duties."

d. In the co-authored article by Brink Linsey of the Cato Institute, it

is claimed "Steel protectionism is incapable of protecting steel jobs,"

even though it is also admitted that employment in this industry has

fallen by 60 % in the last two decades.  If we assume that the 60% decline

data is true, is it true (from a theoretical point of view) to assert the

incapacity of protectionism to save jobs in this industry? Explain your

The median on this Exam was 62; the high was 90

Econ 348                 Final Exam           Fall, 2000                    Professor Twomey

First of all please, PRINT your name on the back of the last sheet.

Answer on these sheets, using the flip sides as necessary. If any question is unclear, please ask for clarification.

Questions are equally weighted.  Time: 90 minutes. Good luck.

1. Identify the following with a sentence or at most two:

a) Keiretsu

b) Democratic Deficit

c) Auto Pact of 1965

d) convergence criteria

e) Heterodox stabilization policy

2a) According to the theory reviewed in class, how will international

immigration affect wages and income in the sending and receiving

countries? Explain and illustrate with a graph, being sure to label

clearly the axes.

b) A similar story can be used to explain international capital flows,

using interest rates and the return to capital as the explanatory price.

However, when considering foreign direct investment, there are several

specific considerations relating to productive sector, government

policies, etc. which dominate interest rate per se in explaining

investment flows. Identify three examples of these specific factors.

3a Define trade creation and trade diversion, and illustrate both with

examples (real or fictitious) of trade in the NAFTA countries.

b. It was argued that NAFTA represents the solidification of recent

reversals of policies towards each other that were long held inside the

NAFTA countries. For each of the countries, pick an example of such a

policy, and explain it briefly.

c) In the case of economic links between Mexico and the United States, one

can argue that NAFTA has not broken one important historical legacy that

led to an economic policy which impeded free markets. What is that

example? Do you foresee this changing in the near future?

4. Let's consider the Transition Economies.

a) For analytical/historical purposes, what are the main groupings of

these countries, and identify some countries that belong to each group.

b) What are the important legacies from the pre-1989 era?

c) Identify some of the tasks that confronted leaders in the post-1989

period

d) In discussing countries' efforts at achieving the goals of successful

transition, it is argued that important considerations were sequencing and

speed. What is meant by these two terms? Give a couple of illustrative

examples.

e) Why was Russia's experience unique?
5a. The discussion about trade relations between the U.S. and Japan, and

in particular the U.S. trade deficit, typically divides into two schools,

one of which sees nothing unusual in the deficit. What are the names of

these two schools? For each one give two examples of phenomena that are

cited to illustrate their position that the deficit is or is not unusually

high.

b. The text contrasts shallow from deep integration. What is meant by deep

integration? In the case of the European Union, discuss two examples that

illustrate the deep integration.
The median on this exam was 70; the high was 89.
Econ 348             Mid-term   Exam                 Fall, 1999                         Professor Twomey

Please PRINT your name on the BACK of the last sheet. Answer on these sheets, using the flip sides if necessary.

Questions are equally weighted. Please ask for clarification if a question is unclear. Good luck!

1. Identify the following with a sentence or at most two:

a) Factor Intensity Reversal

b) Mercantilism

c) Compensation principle

d) Input-output table

e) Autarky
2......  Inland Outland

Cars     6     8

Consider a Ricardian world where labor is the only factor of production,

the products are cars and radios, and the two countries are called Inland

and Outland. Suppose their pre-trade labor productivities are as appear in

the accompanying Table.  Assume their demands are similar, and that

nominal wages are equalized between industries inside each country A.

Which country has comparative advantage in which good?

B. What is the range of possible free trade prices?

3a. What is meant by the Leontieff Paradox?

b. Identify and explain briefly three different standard explanations of

c. State (don't prove, don't even draw any pictures) the Heckscher Ohlin

Theorem.
4. The following names are associated with theories/approaches/models

which in some way or other differ from the standard Heckscher Ohlin model.

Identify and explain briefly what the difference is, and how they lead to

conclusions different from the Hechscher Ohlin model.

a) Differentiated Products

b) Economies of scale

c). Product cycle
5. Consider a 2 x 2 x 2 world, under the standard Heckscher Ohlin

assumptions. The countries are Italy and France, the products are Beef and

Wheat, and the factors are capital and labor. Italy is labor abundant, and

the production of Beef always uses relatively more capital.

a. In free trade, which country will export which good?

b. Draw production possibility and community indifference curves for

Italy, indicating pre- and post-trade equilibria (including the trade

triangle). Be sure to label the axes!

c. Draw reciprocal demand curves for the two countries, illustrating free

trade equilibrium consistent with the above information.

d. Draw the curve illustrating factor price equalization (prices of goods

on the vertical axes, prices of factors on the horizontal), and indicate

the pre-trade and post trade points for each country.
The median on this exam was 72 the high was 93.
There was no final that year, we all had a big party.
Economics 348         International Trade         Exam #1

Fall, 1998        Prof. Twomey

Please PRINT your name on the BACK of the LAST sheet. Answer on

these sheets, using the backs if necessary. Be careful to label

each axis and curve. Questions are equally weighted. Ask for

clarification of any unclear question. You have a full hour and a

half. Good luck.

1. Identify the following with a sentence or at most two:

a) Homotheticity

b) Compensation Principle

c) F.O.B.

d) Cardinal Utility

e) Mercantilism

2. Below are several terms that arise in the discussion of either

theoretical extensions or empirical studies of the Heckscher

Ohlin model. For each one, identify it briefly, indicating

whether it supports Heckscher Ohlin, or not.

a) Linder theory

b) Specific factor

d) Stolper Samuelson

e) Monopolistic competition

f) Leontieff

g) Increasing returns to scale

3. The product cycle model was presented as an important

alternative to the Heckscher Ohlin model. Rather than ask you to

repeat that model, here are some specific questions related to

it.

a) Discuss three assumptions of the Heckscher Ohlin model which

would not be applicable to Product Cycle.

b) Discuss two policy orientations on which the two models would

not agree.

c) Finally, what can be said about empirical attempts to "prove"

the two models?

4. Consider the case of two countries, France (F) and Denmark

(D), two goods, meat (M) and wine (W), and that there is only one

factor of production, labor, operating in a Ricardian type world.

The constant labor requirements per unit output are:

M    W

F    8    6

a. Which country has comparative advantage

in which good?                               D    7    5

b. What is the range of potential free trade

relative prices? In other words, what is

the range of autarky price ratios?

c. If France has a population of 100, what is its production

possibility curve?

5. Let's do a summary of the Heckscher Ohlin Theorem.

Suppose there are two countries, Sweden (S) and Hungary (H),

there are two factors of production, K and L, and two products,

books (b) and carpets (c). Furthermore, Sweden has relatively

more capital, and carpets are labor intensive. Assume the two

countries have similar tastes.

a). Which country has comparative advantage in which good?

b). If these two countries were to abandon autarky and adopt free

trade, how would the relative price of carpets in Sweden

change? (up or down?) Explain briefly, no graph needed.

c). How does the move to free trade from autarky affect

(relative) wages in Hungary? (up or down?) Explain briefly,

no graph needed.

d). Draw the two Edgeworth box diagrams for the two countries,

and the two production possibility curves. On the PPFs, indicate

pre-trade positions of production and consumption, and post-trade

positions of production and consumption, and their respective

e). Draw the graph indicating the relationship between relative

prices of the goods and relative prices of the factors. (Be

sure to label the two axes!) No further explanation or

derivation is necessary.
The median on this exam was 69. The high was 96
Econ 348   Final Exam   Fall, 1998        Professor Twomey
Please print your name on the back of the last sheet. Answer on

these sheets, using the flip sides if necessary. Please ask for

clarification of any unclear question. You have two hours.

1. Identify the following with a sentence or at most two:

a) Rent seeking activity

b) Section 301

c) Eurocsclerosis

d) Vent for surplus

e) Transfer pricing
2a. Consider the standard analysis of foreign investment between

two countries, which we might call countries A and B. Before

foreign investment is allowed, country A has a lower return to

capital than country B. How will the elimination of the

investment barrier affect relative wages, relative returns to

capital, and incomes in the two countries? (Capital is assumed

homogeneous throughout the economy). Illustrate your answer with

a graph.

b. In what way does this analysis suggest that foreign trade and

factor movements are substitutes?

c. Does most foreign direct investment take place between rich

and poor countries? Why, or why not?

3a. Define and illustrate on a graph what is meant by producer

and consumer surplus.

b. Using the concepts of producer and consumer surplus, indicate

how the imposition of a tariff (assuming initially free trade and

a small economy) will affect a country's overall welfare.

c. International trade economists often use the empirical results

from analyses based on the concepts above in answer (b) to argue

against tariffs. Identity and discuss briefly two or three

limitations to such arguments.
4. Do one of (a) or (b)

(a) State and prove the Rybczynski theorem

(b) Identify and illustrate with a graph immiserizing growth
5a. One of the important approaches for the analysis of economic

integration involves the identification and measurement of trade

creation and trade diversion.

-  Explain what is meant by these two terms, giving an example

from European integration.

- For each of these, would one expect it to be (relatively)

bigger in the European Union, or in NAFTA? Explain your

- In class it was argued that the experience of European

integration has progressed unequally, in terms of economic

and political union.

In what ways have those two types of integration been

different?

Does it matter? Explain.

The median on this exam was 61. The high was 94

Econ 348    Exam #1   Winter, 1997     Professor Twomey

Please answer on these sheets. Feel free to ask for

clarifications about unclear questions. You have 90 minutes.

Identify the following with a sentence or at most two:

a) Effective rate of protection

b) Mercantilism

c) Opportunity cost

d) Free trade zone

e) give three examples of non-trade barriers

2. What is immiserizing growth? Explain it, illustrating with a

graph. Describe briefly two different situations in which it

might occur.

3. Consider a artificial situation in which China shifts its

policy, from being closed off from trade, to entering into the

world market without any protectionism. Suppose that China would

export textiles and import tea.

- Using graphs of excess supply and demand, show how one would

expect the world prices of textiles and tea to change.

- How would the domestic production, inside China, change, due

to this new policy.

4. You are a whiz and can vacuum the floor in 15 minutes, and

type your term paper in 30, while your spouse takes 20 and 45

minutes, respectively. Find who has the absolute and comparative

advantage in each activity.

- Typically, young folks today tend to attempt to split

housework chores. Is this because they don't understand

comparative advantage, or because the theory omits something

important? Explain.

5a. Suppose the labor inputs for four goods are:

Country       Good 1    Good 2    Good 3    Good 4
alpha              3         5         3         7
beta               2         1         3        10
Predict the pattern of trade.

b. Show on a graph (supply and demand, not PPF) the economic cost

of a tariff on an individual item.

- What is the logic behind the statement that costs measured

this way will ultimately turn out to be small?

- Why does this same type of logic conclude that the economic

cost of a quota will be higher? Does this result correspond with

"common sense?"

Econ 348   Winter, 1997  Exam #2
1. Identify the following with a sentence or at most two:
a) L„nder

b) brain drain

d) VAT

e) Jean Monnet
2. Draw a diagram using the production possibilities frontier,

illustrating the effect of a tariff on a (small) countryþs

production, consumption, and welfare (community indifference).

Identify the production and consumption distortions.

3. The book by Dennis Swann identifies three phases of reform in

European Integration, specifically with regard to financing the

Communityþs expenditures. What are those three phases?  In

speaking of the first one, he cites the demand of the British

Prime Minister that she wanted her money back? To what does this

refer; is such a situation inevitable? Explain.

4. Using the Jevons diagram, explain and illustrate the effects

of a capital scarce country opening its borders to foreign

investment. What will happen to wages, output, and the return to

capital, in the sending and receiving countries? How does this

analysis get complicated by the consideration of more than one

type of labor, and the concepts of þfactor friends/factor

enemies?þ How does it get altered by consideration of sector

specific capital?

5. With regard to the political economy of protectionism; A) Why

are large firms and industries often more protected than small

ones? B) Why might US Senators favor protectionism less than

members of the House of Representatives? Presidents less than

Senators?

The textbook speaks of the marginal costs and marginal benefits

of migration. What would be two government policies (in the

receiving country) which would affect the MC and two which would

affect the MR?

What are the countries in the table on page 269?

Econ 348    Exam #1    Fall, 1997              Professor Twomey
Please PRINT your name on the BACK of the last sheet. Answer on

these sheets, using the backs if necessary. The questions are

equally weighted. Please ask for clarification if you don't

understand the question. Time: 1 hour, or until 6:00 pm.

1. Identify the following with a sentence or at most two:

a) Opportunity cost

b) Industrial Trade Policy

c) Consumer Surplus

d) Effective rate of Protection

e) Mercantilism

2. Explain what is meant by the infant industry argument for

protection. Illustrate it with a graph.

Those who support infant industry disagree with the standard free

trade position. Identify and explain briefly two reasons given by

the infant industry school in support of their position.

What would be two arguments against the infant industry position?

3. Consider a situation of two countries, Home, and Foreign

(indicated by *), producing two products, food (f) and tv's (t),

and where the (constant) labor inputs are L/f = 6, L/t = 20, and

L*/f = 18 and L*/t=45. Which country has comparative advantage in

which good?

Suppose that total labor supply in Home is 600, and the total in

Foreign is 900. Draw the corresponding production possibility

curves.  [indicate the magnitudes; graphs don't have to be to

scale]

Now, suppose these two countries engage in free trade,

specializing according to comparative advantage, and that the 35

units of food are exported for 10 of tv's. For the Home country,

what is the level of free trade consumption of both goods?

Illustrate this with a production possibility curve, being

careful to show the trade triangle.

Finally, suppose a third country enters the scene, called Other,

for whom the labor inputs are L/f = 10 and L/t = 25. Without

drawing another Production possibility curve, state how the entry

of Other might affect the previously identified pattern of free

trade flows. If it doesn't, explain why.

4. Consider the international excess supply and demand curves

represented in the accompanying graph, where the "*" indicates

the foreign country.

Explain briefly, and illustrate with a graph, what happens to the

equilibrium price, and amount traded, of M if:

a) there is inflation in the foreign country

b) The home country experiences technological change in the

production

of M

c) Wages increase very much in the home country

d) Home becomes protectionist

5. Two key themes in discussions about trade and growth are

immiserizing growth and export led growth. Identify each one,

illustrating the situation with a graph. In addition, for each

case, answer three questions: which, why, what.  Which countries

(currently or in the past, specific names or generic

descriptions) have experienced each phenomenon?  Why does each

phenomenon happen? What can a country do to encourage/discourage

each one?
The median on this exam was 61; the high was 93

Econ  348     International Trade       Exam #2

Professor Twomey

Please PRINT your name on the back of the last sheet. You will

lose credit if it appears anywhere else. Answer on these sheets,

using both sides if necessary. Please ask for clarification if a

question is unclear. Time 90 minutes. Good luck.

1. Identify the following with a sentence or at most two:

a) Nash equilibrium

b) Rent seeking behavior

c) Rybczynski line

d) Dumping

e) Backstop Resources
2. Consider a (Heckscher-Ohlin) world of two goods, Electronics

and Shoes, two countries, Home and Foreign, and two factors,

Kapital and Labor. Suppose Electronics are capital intensive, and

that Home has a relative abundance of labor.

a) Draw the Lerner-Pearce diagram

b) Illustrate on this diagram the effect of an increase in the

price of Electronics.

c) According to the factor price equalization theorem, how would

the opening up of trade affect the returns to capital in the Home

country?

3a. In our textbook's discussion of the political economy of

protectionism, there is a reference to an AFL-CIO pamphlet The

Pocketbook Issues, and how its recommendations are a good summary

of protectionist views. Some of these are obvious, such as "Enact

domestic content laws" or "reestablish the domestic television

industry." Explain why the following examples from that pamphlet

might also be protectionist, or if not, why not.

i) Prohibit Alaskan crude oil exports

ii) Discourage export of capital and technology

iii) Repeal the Foreign (free) Trade Zone Act

b) The standard prediction from the literature on the political

economy of protectionism is that in the U.S., the Senate will be

more oriented towards free trade than the House. This prediction

has been supported, once again, by recent events in Washington.

Explain briefly the rationale for this prediction.

c) Finally, the book discusses some research about which

geographical regions of the U.S. benefit from protectionism.

Those regions gaining most are North and South Carolina, Georgia,

Alabama, Rhode Island and other eastern states. Those losing most

from protectionism include the West and the Midwest, such as

Iowa, Nebraska, California, Nevada and Oregon. Why is this?

4a. Consider a situation of two countries, Home and Foreign, and

two goods, wheat and textiles. In free trade, Home exports wheat.

Draw the offer curves for both countries, identifying the free

trade quantities of exports and imports. Draw Home's production

possibility frontier, illustrating autarky and free trade. (The

two graphs have to be consistent, but not necessarily identically

to scale.)

b. What is the Nash equilibrium outcome of the following tariff

game?

5. Refer to the accompanying article. The following questions

refer to the consistency between our theories (Heckscher Ohlin,

political economy of tariffs, etc.), the information in the

article, and the world which the article reflects. The questions

refer to letters (A, B, etc.) as indicated by me on the article.

a) There is a widespread feeling that NAFTA's negative effects on

employment are due to foreign investment, as indicated in A

(badly reproduced). Is foreign investment needed for the

conclusion that imports cause unemployment, or, indeed, the

factor price equalization argument? Explain.

b)  The U.S. is a net exporter of agricultural goods. According

to the H-O theory, should Florida farmers (as in paragraph

B) be in favor of free trade, or not? Explain.

c) Are our theories consistent with the statement, in section C,

that consumers do not think of their gains from trade, while

some producers do? Explain.

d) Is there any reason to think that those hurt by import

competition will lobby more than those who will benefit by

export expansion? (paragraph D)

e) Does labor have a justification, within our theories, of

complaining about free trade agreements with countries like

Chile and Mexico? (paragraph E) Explain your answer briefly.

The median on this exam was 63, high was 91.

Econ 348  International Economics  Final Exam Fall, 1997  Prof.

Twomey
Please PRINT your name on the BACK of the LAST sheet. Answer on

these sheets, using the backs if you need space. Please ask for

clarification if a question is unclear. Time: two hours. Good

luck.
1. Identify the following with a sentence or at most two:

a) Product Differentiation

b) Escape clauses in the GATT

c) Minimum efficient scale

d) Joint venture

e) International Duopoly
2. Distinguish between "trade creation" and "trade diversion."

According to standard trade theory, should these be large or

small compared to, say, total trade or total GDP.

Distinguish between a "free trade association" and a "customs

union."

Are either or both trade creation and/or trade diversion relevant

to a free trade association, and which of them is relevant to a

customs union? Explain, illustrating with cases from Europe.

3a. According to standard theory, what are the effects of

international migration on the wages and income levels of the

sending and the receiving countries?  Illustrate with the Jevons

diagram.

b. In class, we distinguished four major international movements

of laborers. Identify them briefly by century, sending and

receiving areas, impact on populations of sending and receiving

areas, and modality of movement (i.e., free, indentured, coerced,

etc.).;
4. What is meant by intra-industry trade (IIT)?

In what geographical areas is IIT important?

Identify and explain briefly three explanations for IIT.

In what sense does the presence of IIT challenge standard trade

theory.
5a. What are the major components of Dunning's OLI model of

foreign (direct) investment (FDI)?

b). There is another model of foreign investmentþparticularly

appropriate for portfolio flowsþwhich attributes investment flows

to an entirely different factor. What is that factor?

c). In the article which was distributed in class, Markusen

argues that there are several empirical regularities of FDI and

multinational firms, which the OLI model explains better than the

model referred to immediately above in part (b). Identify and

explain very briefly two of those empirical regularities.

d). Economists have the habit of talking about the "welfare

impact" of some economic phenomenon, such as tariffs, social

security, or, in this case, foreign direct investment. Discuss

briefly two lines of argument about the welfare impact of FDI,

according to the OLI theory.
The median on this exam was 69; the high was 98

Econ 348     Exam #1    Winter, 1996   Professor Twomey

Please PRINT your name on the BACK of the LAST sheet. Use the

backs of these sheets if you need more space. Ask for

clarification if the question is unclear. Questions are equally

weighted. Good luck.

1. Identify the following with a sentence or at most two:

a) Effective protection

b) mercantilism

c) industrial policy

d) VER

e) autarky price

2a. The U.S. is an export of business services; most countries

limit these exports. Show on a graph of international supply and

demand for these services what would if other countries decided

to lower their domestic protection of those services. How will

such actions affect U.S. consumers of business services? Explain

briefly.

2b. Explain what will happen in the international market for

autos if technology for auto production improves in the United

States (a net importer of autos). Show on a graph.
3a. Distinguish between the gains from trade along the current

production possibility frontier and developmental gains from

trade. Draw a graph of each.

b. What is immiserizing growth? How does it fit into the

discussion of question 3a? Explain, illustrating with a graph.

c. The NICs (newly industrializing countries) appear to be

avoiding immiserizing growth. How, and why? Explain briefly.
4. Consider a world of two countries, Home and Foreign, and two

products, M and S. Suppose the labor input requirements in Home's

industries are L/M=4, and L/S=5. Total labor L in Home is 260.

Foreign economy has L*=300 workers, and its production structure

involve labor inputs of L*/M=6, and L*/S=5. Find the pattern of

comparative advantage and specialization.

Suppose the free trade price is 1 (book's notation is S/M=1), and

that each country exports 30 units of the good in which it has

comparative advantage. Find the percentage gains from trade for

Home.
5. The attached graph of the market for shoes was drawn for

domestic supply equation S = -20 + P, and domestic demand D = 100

- P. You can answer the questions using algebra, or simply

shading or filling in the graph. (Numbers are different from

question in the book).

-a. Find the level of imports if the world price is \$40.

-2a. Suppose a 25% tariff is put on shoe imports, and the world

price is fixed.  What is the resulting domestic price of shoes,

and the new quantity of imports?

-2b. With this 25% tariff, what is dollar value of the tariff

revenue, and the deadweight loss? Illustrate on the graph and

estimate, or find exact amount using calculations.

-3a. Going back to the initial situation, where the world price

is \$40, suppose now that a quota of 10 units is imposed. Find the

new domestic price with this quota.

-3b. Find the producer surplus and the total loss associated with

this quota. Illustrate on the graph and estimate, or find exact

amount using calculations.
median on this exam was 64; high was 90

Economics 348      International Trade       Exam #2

Winter, 1996        Prof. Twomey
Please PRINT your name on the BACK of the LAST sheet. Answer on

these sheets, using the backs if necessary. Be careful to label

each axis and curve. Questions are equally weighted. Ask for

clarification of any unclear question. Good luck.

1. Identify the following with a sentence or at most two:

a) International price discrimination

b) Rybczynski theorem

c) convergence of manufacturing labor inputs

d) Product differentiation

e) Smoot Hawley Tariff

2. Consider a standard Heckscher Ohlin world (2x2x2), where the

two goods are cars (c) and vegetables (v); cars are capital

intensive, and the Home country has relatively more labor than

the Foreign country.

a) Draw the two production possibility  frontiers (PPF).

b) On Home's PPF, indicate pre- and free trade production and

consumption.

c) Draw the Lerner Pearce diagram.for the two products

d) State (don't prove) what happens to relative wages in Home

with the

3a. When the desire to consume imported manufactures increases in

a Large home country, show (and explain briefly) on a graph what

happens to its trade triangle.

b. Explain, and show using offer curves, what happens when home

consumers decrease their demand for foreign's exported goods. Is

the foreign country made better or worse off? Do the home

country's terms of trade improve or worsen?

c. Find the Nash equilibrium outcome of the tariff game

represented in the following table. [Parenthesis are dollar

values of (foreign income, home income)]

Home Tariff
0%              5%              10%

Foreign        0%        (100, 100)       (95, 102)      (90,

100)

tariff        5%        (103,  96)       (97,  98)      (94,

99)

10%       (102,  95)       (95,  96)      (90,  97)

4a. Explain in one sentence the essence of the argument

associated with the idea of the "political economy of

protectionism" about why countries do not have free trade.

b. According to this school, who would be more likely to vote for

tariffs, U.S. Senators or Representatives? Explain real briefly.

c. According to this school, would the U.S. be more likely to

protect sugar or beer industries? Explain.

d. On a slightly different note, explain what is meant by

Prisoner's dilemma.  Should this always occur in debates about

tariff policy? Explain

5. Consider the situation of a country initially in free trade,

which is labor scarce, and imports clothing, which is labor

intensive, and exports computers. In which of the following

situations would it be in the self-interest of the person

concerned to favor protectionism, and why:

i) A worker in a world characterized by the assumptions of the

standard Heckscher-Ohlin/Stolper Samuelson model;

ii) A worker in the computer industry who has special skills

which workers in other industries do not have;

iii) A worker in some government activity which is not itself

traded, but whose skills are similar to those of people in the

clothing industry

iv) What about some worker in the computer industry who had no

special skills, but the computer which s/he produces has a world

monopoly?

median on this exam was 69; high was 85

Econ 348     Final Exam      Winter, 1996         Professor

Twomey
Please PRINT your name on the BACK of the LAST sheet. You will

LOSE CREDIT if it appears anywhere else. Answer on these sheets,

using the backs if needed. Questions are equally weighted. Please

ask for clarification if the question is unclear.  Time:

unlimited, which is about 90 minutes.

1. Identify the following with a sentence or at most two:

A) Transfer pricing

b) Minimum efficient scale

c) Branch Plant

e) Joint Venture

2. Explain and show with a graph (perhaps the Jevons diagram) the

standard theoretical predictions about the effect of

international migration on wages in the host and source

countries.

How will migration affect output, the return to capital, and

income distribution in the source (sending) country?

Mainstream economists argue that migration into the U.S.

currently has no major effect on average wages. Explain briefly

two reasons for this conclusion.
3a. Consider the following "duopoly game" between Saudi Arabia

and Libya, where the different levels of

dollar "profit" to the countries (Saudi profit, Libyan profit)

correspond to "low" and "high" levels of production.

Libya

Low       High

Saudi Arabia         Low       (30, 10)  (-20, 40)

High      (40, -30) (0, 0)

ai) Find the Nash equilibrium.  Is it stable?

aii) Who has the greater incentive to cheat?

Consider now the issue of differential pricing in different

markets.

ab) Why might an international monopolist operate temporarily at

a loss?

b) Should a country be concerned if foreigners want to sell goods

for less than it costs them to produce them?  Give an example

from the European union.
4. Let's try to tell a story about the evolution of the European

Union, in the form of a set of expanded identifications. Who,

what, and when were/are the following, and what role have they

had in the development of what is now called the EU.

a) Treaty of Rome

b) Margaret Thatcher

c) Maastricht treaty

d) Eurosclerosis

e) The timing and the context of new countries entering the EU.

f) Marshall Plan

5a. What is the OLI model of international investment?

b) How does this model relate to the textbook's model of specific

capital?

c) What major predictions does this model generate about economic

impacts of foreign investment?

d) A somewhat traditional form of foreign investment is that of

automobile manufactures. The textbook notes that new investments

are taking places in services such as banking.

According to the OLI model, or the specific capital model, who

benefits in the host (or receiving country) from each of these

two types of investment? Who is hurt?

Why is there a shift from manufacturing investment to investment

in services?
median on this exam was 70; high was 92

Econ 348                Exam #1        Winter, 1995

Professor Twomey

Please PRINT your name on the BACK of the LAST sheet. Answer on

the backs of these sheets if you need space.  Questions are

equally weighted. Please ask for clarification of any unclear

question. Good Luck!

1. Identify the following with a sentence or at most two:

a) compensation principle

b) EFTA

c) homotheticity

e) name three forerunners (predecessors) of the European Union

2. Consider two countries Alpha and Zeta, that produce two goods

cars and wheat.  There is one factor of production (labor), and

the pre trade labor hours per unit in each country are:

car  wheat            a) Which country has absolute

advantage in which good?

Alpha     8      9

b) Which country has comparative

Zeta      4      3            advantage in which good?
c) What are the limits on the free trade relative price ratio of

Pcars/Pwheat?

d) Assuming Zeta has 120 workers, draw its production

possibilities curve, and illustrate its autarky and free trade

situations.

3. Consider a situation of a country producing two products,

computers and shoes, under conditions of constant returns to

scale in the two factors of production, capital (K) and labor

(L). Suppose computers are relatively capital intensive.

a) First, define (explain in words what is meant by) the

Edgeworth Box diagram and the Contract curve.

b) Draw the Edgeworth Box diagram corresponding to this

situation, illustrating where the Contract Curve would be

located.

c) Explain the argument that a country would only wish to produce

on its contract curve, illustrating the argument on a graph.

d) Draw a production possibilities frontier for this country's

production of shoes and computers, and identify with a pair of

points (call them A and B) a movement along the PPF with the

corresponding movement (between A and B) along the contract

curve.

4. Suppose you have a situation of two countries with similar

tastes and different production conditions.  There are two goods,

wood (W) and scissors (S). Consider the country which will have

comparative advantage in wood. Draw its production possibility

frontier, its autarky and free trade equilibrium points, the two

relative price ratios, and the two corresponding community

indifference curves.

Repeat next to this graph the graph of the trade triangle,

indicating exports and imports.

How does the opening of trade affect the ratio Pw/Ps for this

country?

On another graph, show the separation of the gains from trade

into its components of gains from specialization and gains from

exchange, explaining what each one means.

5. Let's talk GATT.

a) What is meant by the GATT "rounds?"
b) Which round has just been completed?

c) What were the major issues of the most recent round?

d) What's the WTO?

e) What is "fast track" and why is it relevant to this?

f) With regard to U.S. trade policy, what is Super 301?

g) What are PSE's and what empirical generalization can be made

about them for industrial countries?
The median on this exam was 69. The high was 97

Econ 348  Exam #2   Winter, 1995 Professor

Twomey
Please PRINT your name on the BACK of the LAST SHEET. Please use

the backs of these sheets if you need space. Ask for

clarification of any unclear question. Good Luck!

1. Identify the following with a sentence or at most two:

b) Stolper Samuelson Theorem

c) specific factors model

d) immiserizing growth

e) State (don't prove, just STATE) the Rybczynski theorem

2) In a Heckscher Ohlin world, consider trade between Brazil and

the U.S.; Brazil exports coffee and the U.S. exports airplanes.

Construct the offer curves for the two countries, and show how a

(proportional) growth in the U.S. will affect our offer curve,

the world relative price of coffee, and Brazilian production of

both products, and her welfare (community indifference curve).

3. Suppose in a Heckscher Ohlin type world, France and Spain are

the only two countries, that the two products which are produced

are wine and cloth, that cloth is capital intensive, and that

Spain has relatively more capital.

a) State (don't prove, just write it down) the factor price

equalization theorem for this situation, and illustrate it with a

graph.

b) How would adoption of free trade be expected to affect wages

in Spain? Explain briefly.

c) Illustrate the Edgeworth Box diagram for France, and show on

it the two points, no trade and free trade.

4a. State briefly the main conclusion of THE Heckscher Ohlin

Theorem.

b) What are some assumptions behind the Product Cycle model? How

are they consistent (or different from) those of the H-O model?

c) If the world is characterized by increasing returns to scale,

which of the conclusions of the Heckscher Ohlin theorem are still

valid, and which not?

5a. What are the important characteristics of the Krugman model

which is discussed in the text?  How does it differ from

Heckscher Ohlin in terms of:

a) assumptions

b) prediction in terms of gains from trade

c) compatibility with observed levels of intra-industry trade

d) ability to handle the case of natural resources as a factor of

production

e) Can a country with a single Krugman industry be a "small"

country? Explain
The median on this exam was 62. The high was 87

Econ 348         Third Exam            Winter, 1995

Professor Twomey
Please PRINT your name on the BACK of the LAST sheet. Answer on

the reverse sides if you need space. Please ask for clarification

if you don't understand the question.  Questions are equally

weighted. Good luck!

1. Identify the following with a sentence or at most two:

a) GSP

b) Offshore assembly

c) Transfer pricing

d) CAP

e) Effective rate of protection

2a. What is the main difference between a customs union and a

b. What is the difference between trade creation and trade

diversion?

c. In general, what are the costs and benefits to Europe of the

Airbus industry?

3. In theory, what are the effects of international labor

migration on wages and total incomes in the sending and receiving

countries? Explain, and illustrate with a graph.

b. What is return migration, and how does it effect our

understanding of migration?

c. In addition to the forced movement of Africans to the western

hemisphere as slaves, name two major migration movements since

1500, and rank them in size to each other and the movement of

Africans.

4a. What is the difference between an export tax and an export

subsidy?  Which instrument are domestic consumers likely to

prefer, and why?

b. Show on a graph how a tariff affects the offer curve of a

large country, and explain how it affects that country's terms of

5. Consider the application of strategic trade arguments to a

possible government subsidy of research and development of

automobile engines made of ceramics (which would be cheaper than

metal, and also lighter and hence get better mileage).

Would this be defensible by the following arguments? Explain each

answer in a paragraph or so.

a) infant industry

b) tariff to extract foreign monopoly profit

c) economies of scale in a duopoly situation

d) Game theoretic situation of a threat of export subsidy to

deter foreign R&D

The median on this exam was 69. The high was 98.  ECON 348   Exam

#1        Fall, 1990       Professor Twomey

Please PRINT your name on the BACK of the last sheet.  You have

one hour.  Use the backs of these sheets if necessary.  Note that

the questions have different weights.  Ask for clarification of

any ambiguous question.

1. Identification: Identify the following with a sentence or two

(20 points)

a). Stolper Samuelson Theorem  b). NIC

c). Producer Surplus          d). Immiserizing growth

e). Linder's Representative Demand Hypothesis

2. (15 points) Suppose there are two countries, Australia and

Belgium, (or A and B), two factors of production, Kapital and

Labor, and two products, Toys and VCR's, and, furthermore, that

toys are labor intensive, that Belgium has relatively more

capital than Australia, and that tastes are relatively

identical around the world.  For both countries, draw the

corresponding production possiblity curves and indifference

curves for both the before trade and the free trade position.  In

the free trade graphs, indicate exports and imports.

Australia

Belgium

How does the opening of trade affect wages in Belgium?

3. (20 points) In the discussion of the graph about the long run

tendency of the terms of trade, the author states: "There has

been a rough balancing of forces that would raise and forces that

would lower the terms of trade of primary producers." State and

discuss briefly two factors which might raise, and two which

might lower these terms of trade.

4.(20 points)  Consider the following matrix of labor

productivities in two countries before they permit free trade.

Assume wages are equal in each industry.

country      A. Which country has comparative advantage

good   X   Y                 in which good?

wheat  l   2

cloth  3   4

B. Which country has absolute advantage in which good?

C. How would the adoption of free trade affect the relative

price of wheat in X?

5. (30 points). The attached figure reproduces the book's

estimates of the factor content of Canada's trade.

a According to the Heckscher Ohlin theory, which factors of

production in Canada are benefited by free trade?

b)One of the major criticisms of the Heckscher Ohlin theory is

that it is static.  An alternative model is the product cycle

model. i) Explain briefly the product cycle model ii) In terms of

an application of the product cycle model to the situation of

Canada, what factors of production might be expected to improve

their relative position over, say, the next ten years, which

would lose, and which, if any, would not be affected? Explain

briefly. c). Aside from the fact that it is static, state and

explain three other criticisms of the Heckscher Ohlin model.

Econ 348    Final Exam        Fall, 1990      Professor Twomey

Please PRINT your name on the BACK of the LAST sheet.  Write on

the backs of these sheets if necesary.  Please ask for

clarification of any unclear question.  Time, up to two hours.

Good luck.

1 (20 points). The GATT talks just broke up over the issue of

protectionism on agricultural products.

a) In general terms, what is the characterization which can be

given of the overall approach towards agricultural trade policy

in developing and in the industrial countries?

b) How would you explain the differences in policy between

developing and industrial countries?

c) One of the ways this trade policy is discussed is through

calculation of the nominal protection coefficient.  Briefly, what

is this, and what does it try to measure?

2 (20 points). Sweden has just announced its interest in joining

the European common market.  Theory suggests that such a move

would involve trade creation and trade diversion, and

that there would be both short term static effects and long term

dynamic effects.  Using Sweden as your example, (and making up

production situations if you don't know too much about

that country), explain the concepts of trade creation and trade

diversion, and the difference between static and dynamic effects

of integration.
3.(20 points) Theoretical approaches to the explanation of direct

foreign investment have emphasized the Organization, Location and

Internalization factors.  Explain what is meant by

each of these, giving two examples of each one.  On the basis of

these examples, indicate when it might be in a country's best

interest to encourage foreign investment, and when it

should be discouraged.
4 (40 points). Answer part (a), and four of the six remaining

parts.

a) Explain and show on a supply and demand graph the effects on a

small country of levying a tariff. How does the country's overall

welfare get affected?

Answer four of the following:

b How is the analysis of part (a) changed if we consider the

possibility of tariff retaliations?  In what circumstances might

this be especially likely?

c) What problems exist in measuring protectionism?

d) What is the infant industry argument, and how would it be

shown in terms of the analysis of part (a)?

e) What is the "Theory of Second Best", and how does it get

applied to discussions of protectionism?

f) Why might an export tax have the same sorts of effects as a

tariff on imports?

g) Under what conditions will a quota and a tariff, which have

similar effects on imports, be in all other ways also identical,

and when will they be different?

ECON 442     EXAM #1     Winter, 1987            Professor Twomey

Please PRINT your name on the BACK of the last sheet. You will

lose credit if it appears anywhere else. The questions are

equally weighted.  You have 50 minutes. If there is any

uncertainty about what is being asked, specify how you are

interpreting the question.
l. Identify the following with a sentence or at most two:

a. Large country (as used in this course)

b. Factor intensity reversal

c. Distinguish between trade creation and trade diversion.

d. Draw the graph of an unstable equibirium with regard to offer

curves

e. Distinguish between increasing costs and decreasing costs, and

illustrate each one with a graph.

2. Consider a simple model of no-trade versus free trade, and

assume that there is only one factor of production, called labor,

which in each country is paid identically between industries.

Let the pre-trade productivities of labor be as shown in the

table.                                        Country  A     B

Product

wine     4     2

a. Which country has comparative

advantage in which good?                      cloth    6     1

b. What are the limits of the free trade relative price of wine

with respect to cloth?

c. How does free trade affect wine producers in country A?
3a. State - but don't prove - the Heckscher Ohlin Theorem.

b. What is the Leontieff paradox and how does it relate to the

Heckscher Ohlin Theorem?

c. What are some of the explanations of the Leontieff paradox

which are consistent with the Heckscher Ohlin theorem?
4. Consider the offer curve of country Y which exports food and

imports machines from country Z.

a. How does a tariff in country Y affect Y's offer curve?

Illustrate with a graph.

b. How does a tariff in country Y affect Y's welfare? How would

it affect Z's welfare?

c. What is an optimal tariff?  What are some limitations on the

use of the concept?

5. Consider trade between countries Alpha and Beta. Assume that

there are two goods, guns and butter, that guns are capital

intensive and butter is labor intensive, and that Alpha has

relatively more labor than does Beta, which has relatively more

capital.

a. According to the Heckscher Ohlin theorem, which country will

export which good?

b. Draw the Edgeworth box diagrams, and production possibility

curves, for both countries, indicating the pre-trade and free

trade positions in each diagram.

c. Illustrate (again, don't prove) with a graph the Factor Price

Equalization Theorem. That is, show on the graph the pre-trade

and free trade price ratios for each

country.

Economics 442    Final Exam     Winter, 1987     Professor Twomey
Please PRINT your name on the back of the last sheet.  You have

one hour.  The questions are equally weighted. Use the backs of

these sheets if necessary. If you are not sure what is being

1a. What were the predictions of Vernon's book Sovereignty at

Bay? To what extent were they right or wrong, and why?

1b. According to Magee and other proponents of the 'industrial

organization' school, what are the main factors determining which

industries - and which countries - engage in foreign investment?
2a. What is immizerizing growth?  Illustrate with a graph.

Mention briefly three factors which tend to make it more likely

to occur.

2b. Prove, utilizing a graph, the Rybczynski theorem, which can

be stated; "An increase in one factor of production will lead to

ultra-biased growth, favoring the industry that uses the gorowing

factor intensively."
3. In his article, Krugman states: "The conventional case for the

desirability of free trade rests, in part, on idealized

theoretical models in which free trade can be shown to be

perfectly efficient.  Economists have always known that the

conclusion that markets are efficient becomes suspect when one

abandons some of the idealizations of these theoretical cases."

(p. 11) State and discuss briefly three examples of situations

which have been suggested as justifying the abandoning of those

idealizations, in the context of strategic trade policy.

4. Take one of the following industries, and argue for or against

government assistance, along the lines of strategic  trade

policy, or some other specific (and specificed) rationale: autos,

textiles, or semiconductors.
ECON 442    MID-TERM EXAM      Winter, 1988  Professor Twomey

Please PRINT your name on the BACK of the last sheet. Ask for

clarification of any ambiguous question. Answer on these sheets.

Questions are equally weighted.

1. Identify the following with a sentence or at most two:

a) Factor Price Reversal      b) GSP

c) Metzler Paradox            d) Unequal Exchange

e) Specific Factors model

2. a. Distinguish conceptually between the argument for tariff

based on the idea of an optimal tariff, and that for for infant

industries.

b. Could Brazil tax its exports of coffee and justify that by

either of the above two arguments? Explain.

c. In general, is a tariff a second best method of raising

government revenue? Why or why not?
3.  Consider a world of two countries, Austria and Belgium, or A

and B, in which the only factor of production, labor, produces

two goods, called xylophones and zithers, or x and z. Suppose

that in A 6 man-hours of labor are needed to produce x, and 10

are needed to produce z, whereas in B, 4 units of labor produce

one unit of x, and 3 units of labor produce one unit of z. Ignore

inter-industry differences in wages.

a). Which country has comparative advantage in which good?

b). Suppose now that each country has 100 man-hours of labor.

Draw the production possibility frontiers for A, B, and the

world.

c). If the world relative price of the goods is one to one, who

exports what?

d). Going back to the original situation of (b), if everyone

always consumes one x for each unit of z, what should each

country produce, and what should the direction of trade be?

e). Now suppose that it becomes possible to move labor between

the two countries. What should be done?

4.a. Suppose (it is only somewhat true), that in nearly all

countries wages are generally higher in export industries than in

import-competing industries. What would this imply about the

empirical relevance of the human capital interpretation of the

Heckscher Ohlin model?

4b.Some commodities, because of high transportation costs, do not

enter into international trade at all. Personal services are

often of this sort. Suppose we alter the basic Heckscher Ohlin

model by adding a third, non-traded good. If non-traded goods

consist mainly of service industries, what effect would they have

on studies such as Leontieff's?
5. Using indifference curves and offer curves, show that:

a) free trade is always better for a country than autarky

b) Free trade is efficient in the sense that it is impossible to

make one country better off without harming the other

c) Limited trade may be better than, or worse than, free trade

for a single country.

ECON 442   Winter, 1988     Final Exam         Prof. Twomey
Please put your answers in a blue book. Time: two hours.
Answer all the first ..
l. (20 points) What is the OLI theory of foreign investment?

Explain its component parts, giving examples of kinds of foreign

investment where possible.
2. (10 points) On a theoretical level, explain why the standard

interventionist argument in foreign trade talks about an optimal

tariff - which is a tax, while the Strategic Trade Policy

argues for subsidies to domestic industry, or even exports.

3. (10 points) Define and give examples of trade creation and

4. (10 points) Does a high amount of intra-firm international

trade contradict the product cycle model, or the basic

comparative advantage explanation of foreign trade? Explain.
5. (10 points) How does the presence and growth of multinational

enterprises affect the factor price equalization argument?

6. (15 points) Compare and contrast Industrial Policy in the US,

Japan and France, both on a general overall level, and also with

regard to specific industries.
7. (10 points) Discuss briefly the Regional Policy of the

European Community, and its strengths and weaknesses in terms of

conception and achievements.
8. (15 points) What are the functions of the European Parliament

and the European Monetary System, and to what degree are they

furthering the goal of a united Europe?