E303: Survey of International Trade

Section B784 Ė Fall 1999





Exam #1

Value: 100 points


Put all answers in the blue books.Label each blue book with your ID number and the number of the book (i.e. Book 1 of 2, book 2 of 2, etc.). Make sure that each question is clearly labeled.


I. Multiple Choice (10 questions - 4 points each) Answer the following questions on the first page of Blue book #1.Only answers put in the blue book will be graded.


1) The H-O model rules out the classical modelís basis for trade by assuming that ___________ is (are) identical between countries.


a.        factor endowments

b.       factor intensities.

c.        technology.

d.       opportunity costs.



2) The H-O theorem states that a country will have a comparative advantage in the good whose production is relatively intensive in the _________ with which the country is relatively abundant.


a.        tastes.

b.       technology.

c.        factor

d.       opportunity costs.



3) According to the Rybczynski theorem, at constant world prices, if a country experiences a gain in its capital stock it will produce


a.        more of the capital intensive good and less of the labor intensive good.

b.       more of both goods.

c.        less of the capital intensive good and more of the labor intensive good.

d.       less of both goods.


Answer questions 6-10 based on the information in the following table, in which the numbers indicate the hours of labor per unit of output.



Country A

Country B

††† X

††††† 3

††††† 9

††† Y

††††† 4

††††† 2



6) Country A has an absolute advantage in


a.        Good X.

b.       Good Y.

c.        Neither X nor Y.

d.       Both X and Y.




7) According to Adam Smith, trade occurs in what pattern?


a.        A would export X to B.

b.       B would import Y from A.

c.        Neither country would want to trade.

d.       More information is needed to determine trade patterns.



8)According to David Ricardo, trade occurs in what pattern.


a.        A would export X to B.

b.       B would import Y from A.

c.        Neither country would want to trade.

d.       More information is needed to determine trade patterns



8) In autarky, the relative price of X (in terms of Y) in A would be


a.        3/4.

b.       4/3.

c.        3/9.

d.       $3.



9) According to the product life cycle hypothesis, comparative advantage:


a.        may move from one country to another as a product matures.

b.       always stays in the country where a product is invented.

c.        in agriculture or homogeneous manufactured goods is determined by the stage of the life cycle the product is in.

d.       both (a) and (c).



10) The existence of intraindustry trade


a.        is consistent with the H-O theory.

b.       can sometimes be explained by transportation costs.

c.        is impossible with imperfect competition.

d.       none of the above.


II. Problems (30 points) Answer the following questions.Partial credit will be given.


1)(15 points) Suppose that there are three factors: capital, labor, and land.Bread requires inputs of land and labor, and steel requires capital and labor.


a.        Suppose that in Canada, the endowment of land and capital are 10 capital and 100 land, and the U.S.ís are 50 capital and 100 land.Which good does each country export?

b.       How does trade affect the returns to land, labor, and capital in Canada and in the U.S.?


2) (15 points) In the following two-good, multi-country example of labor requirements, do all the countries stand to gain if the international terms of trade are 1 lb. fish: 0.5 bushel potatoes? If so, what commodities will each country export and why? If these commodities are not exported or imported, why not?


††††††††††††††††††††††††††††††† ††††††††††††††† ††††††††††††††† Fish††††††† ††††††††††††††† Potatoes

††††††††††††††† ††††††††††††††† Poland††† ††††††††††††††† 3 hrs./lb††††††††††††††† 5 hrs./bu.

††††††††††††††† ††††††††††††††† Denmark†††††††††††† 1 hr/lb†††† ††††††††††††††† 4 hrs./bu.

††††††††††††††† ††††††††††††††† Sweden††††††††††††††† 2 hrs/lb†† ††††††††††††††† 2 hrs/bu.



III. Short Answer/Essays(30 points)


1 (10 points) Describe the changes in production requirements and the location of production that take place over the three phases of the product cycle.


2 (10 points) Compare and contrast the differences between the classical and H-O trade models.In addition, why was the classical model replaced? Why was the H-O model eventually replaced?


3) (10 points) Policymakers today are concerned about retraining unemployed workers.Make a case for such programs as a means of increasing public support for free trade.