Answer key Spring exam one[1]

Answer key Spring exam one[1] - Exam #1 Management 328...

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Exam #1 ________________ Management 328 name February 25, 2008 This document offers insight into the range of acceptable answers. Answer 10 of 12 questions. Each question is worth 10 points. Consider the following circumstance: Your home country, located in a very peaceful part of the world, does not belong to any unit of economic integration. Your industrial sector is smaller than your agricultural sector. Your nation has a well developed furniture making industry that benefits from the fine hardwoods that grow in the forests of your nation. In this sector you can produce fine furniture 20% cheaper than other global competitors. You can produce agricultural products (especially soy, rye and various fruits) at prices that are almost globally competitive. You have a sugar cane industry that produces ethanol that, after hefty government subsidies, is globally competitive. You have a nascent automobile industry that is assembling automobiles from 50% domestically manufactured parts (i.e. wheels, tires, batteries, windshields, sheet metal, transmissions and various others) and 50% imported parts. Your nation has experienced above average growth rates in eight of the last ten years, but in the past two years the growth of per capita income has slowed. This has led to some questioning of the economic policies that the nation has pursued. Your advisors offered you the following information on the income elasticity of demand for each of the sectors that are important to your country: furniture= 1.3; soy= 0.9; rye= 0.9; fruit= 1.1; sugar cane= 1.1; autos= 1.5. Advisors are also suggesting the following… a) Join a customs union to help create larger markets for your furniture and to make it possible to buy cheaper agricultural products.
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b) Balance your efforts between, food, furniture and automobiles. This assures you will be self sufficient and you will not be beholding to any other nations. c) Focus more attention on furniture and use profits from furniture to help support the sugar cane sector. Continue to import needed parts for the automobile industry (such as motors, airbags and dashboard related electronics). 1) Identify the advantages and disadvantages of each of the three proposals a eliminate subsidies ability to buy cheaper products less self reliant b self sufficient in times of war or breakdowns on international relations loss of comparative advantage inability to capitalize of global cost advantages in furniture
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This note was uploaded on 05/10/2008 for the course INTERNATIO 328 taught by Professor Crespy during the Spring '08 term at New Mexico.

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Answer key Spring exam one[1] - Exam #1 Management 328...

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