Econ-4040-001 14SS International Economics Exam 1

Econ-4040-001 14SSInternational EconomicsExam 1 (Overview/Trade Theory)Name: M# Student ID:Read all of the following information before starting the exam:• This exam has two (2) sections. Be sure to follow the directions for each section.• Please keep your written answers brief; be clear and to the point. Points will be taken off forincoherent or irrelevant statements.• Show all of your work, and write legibly in order to receive full credit. Partial credit will begiven, so be sure to demonstrate how you arrived at your answer. (Points will be taken off ifyou simply write down your answer even if it is correct.)• You have 120 minutes to complete the exam. Allocate your time carefully.• Please do not write in the table below.• Good luck!Question: 1 2 3 4 5 6 7 TotalPoints: 4 4 4 4 10 10 10 46Bonus Points: 0 0 0 0 2 0 0 2Score:Exam 1 (Overview/Trade Theory)—Page 1 of 4SECTION 1: SHORT ANSWERShort-Answer Directions: (4 points each) Answer all questions in this section. Show all of yourwork in the space provided. Be sure to clearly identify the question you attempt to answer.1. (4 points) In his 2006 speech entitled, “Global Economic Integration: What’s New and What’sNot,” former Federal Reserve Chairman Ben Bernanke gives historic examples of how economicintegration is not a new phenomenon. Name one common force that drives the different episodesof integration.2. (4 points) How does the trade concept of comparative advantage differ from absolute advantage?3. (4 points) Based on the Frontline video, “Is Wal-Mart Good for America?”, should U.S. businessesbe restricted from purchasing from foreign suppliers? Briefly explain.4. (4 points) The figure below shows the share of foreign-born workers in the U.S. workforce in2008. If we extend the specific-factors model to allow for several types of labor differentiated byeducational level, then which group experiences the largest impact of immigration on wages?Exam 1 (Overview/Trade Theory)—Page 2 of 4SECTION 2: LONG ANSWERLong-Answer Directions: (10 points each) Answer all questions in this section. Show all of yourwork in the space provided. Be sure to clearly identify the part of the problem you attempt toanswer.5. Consider two countries, Home and Foreign, which produce bicycles and snowboards. Use thedata in the table below to answer the following questions.? ???(a) (3 points) Which country has an absolute advantage in the production of bicycles? Whichcountry has an absolute advantage in the production of snowboards?(b) (3 points) What is the opportunity cost of bicycles in terms of snowboards at Home?What is the opportunity cost of bicycles in terms of snowboards in Foreign?(c) (4 points) Which product will Home export and which product will Foreign export? Providea brief explanation.(d) (2 points (bonus)) Would Home engage in trade if the international relative price of bicyclesis 4/3 (i.e., (PB/PS)W = 4/3)6. Australia is considering whether to engage in the international trade of rice and furniture.Suppose that the world relative price of furniture is higher than Australia’s autarky relativeprice of furniture. Assume that land is specific to rice production, capital is specific to furnitureproduction, and that labor is free to move across industries.(a) (1 point) Write separate expressions for the production function of rice and furniture inAustralia.(b) (2 points) Use a well-labeled diagram to show how Australia gains from trade.(c) (4 points) When labor shifts from rice to furniture production, what happens to themarginal product of capital? Provide a brief explanation.(d) (3 points) Will landowners support the move to free trade? Provide a brief explanation.Exam 1 (Overview/Trade Theory)—Page 3 of 47. Consider two countries, Vietnam and China, producing two goods, textiles and televisions.Suppose that textiles are relatively labor-intensive. Vietnam has 20 units of capital and 16units of labor; China has 300 units of capital and 150 units of labor. Throughout the question,treat China as the Home country.(a) (1 point) Which country is relatively capital-abundant? Briefly explain.(b) (3 points) According to the Heckscher-Ohlin theorem, which country will export textiles?(c) (2 points) Write an expression to show that the international relative price of televisionslie between the autarky relative prices in the two countries.(d) (1 point) In Vietnam, the production of which good decreases with trade?(e) (3 points) According to the Stolper-Samuelson theorem, which group benefits from tradein China?Exam 1 (Overview/Trade Theory)—Page 4 of 4



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