# Midterm 1 - answer keys - 1 1st Midterm exam C181 Fall 2016...

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1 1 st Midterm exam, C181 Fall 2016, Instructor: Thibault Fally Answer keys XX
2 Part 1: Multiple choice questions. 1) In the Ricardian model, suppose that Foreign has a MPL = 4 in Cloth and MPL = 8 in Wheat. Home has a MPL=2 in Cloth and MPL=3 in Wheat. When the two countries trade and fully specialize, we can deduce that the new relative price of Cloth satisfies:
2) When prices change in the specific-factor model (where capital is only used in Manufactures and land in Agriculture), which outcome is possible? Notation: R T and R K rental rate of land and capital; W: wages, P A and P M : prices in Agriculture and Manufacturing. 3) In the Heckscher-Ohlin model, suppose that we have two countries, Home and Foreign. Suppose that Home has a larger capital stock than Foreign and that Home is relatively abundant in labor. If we plot the two production possibility frontiers (PPF) on the same graph, which situation is possible? T T A A R R P P W W b )
3 4) Which one is false? The “sign test” of Heckscher -Ohlin-Vanek model:
5) In the Heckscher-Ohlin model with free trade, the slope of the production possibility frontier at the optimal equilibrium production does NOT equal: a. The ratio of marginal product of labor (MPL) b. The ratio of marginal product of capital (MPK) c. The ratio of prices d. The ratio of marginal utility e. It equals all of them!
6) In the specific-factor model with free trade, suppose that the Home country has a comparative advantage in sector A and a comparative disadvantage in sector M. We can conclude that: M M M M
7) Suppose that Russia imports automobiles, which is a capital-intensive good. We can conclude that: