examfall2004key

# examfall2004key - Exam ARE 201 Fall 2004 Answer all...

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Fall 2004 Answer all questions. The value of each question is shown in parentheses next to the question number. 1. (20 points) Use a two country trade model, and graphical methods. Suppose that Home’s preference for its import good increases. (In other words, for any relative price and nominal income, Home wants to consume more of its import good.) Home and Foreign allow free trade. Show how this change in preferences a f ects world price and Foreign’s level of aggregate welfare. Brie f y explain the role of the Marshall-Lerner condition in your answer. 2. (20 points) State (without proof or discussion) the e f ects of a small tari f on aggregate welfare within a country and on the distribution of welfare within that country in the following three models: (i) Ricardian, (ii) Ricardo- Viner, and (iii) HOS. 3. (25 points) Consider the following partial equilibrium model. The Home and the Rest-of-World (ROW) supply functions are positively sloped. The Home demand function is negatively sloped. The ROW demand func- tion is in F nitely elastic at all "relevant" prices. Production of each unit of the good anywhere in the world creates γ units of environmental damage in Home. Home has the option to use either a tari f or a production tax/subsidy. (a) Which of these two policies gives Home a higher level of welfare — or is the comparison ambiguous? (Explain your answer.) (b) Either graphically or mathematically, determine the optimal levels of the two policies. Explain why the levels of the two polices are di f erent. 4). (25 points) Use the two-sector HOS model with food and cloth. A large country exports cloth, which is capital intensive. There is an exogenous increase in the domestic stock of labor. Brie f y describe (using only words) the e f ect of this increase on national income and on real factor returns within the country. If you use any theorems, state them. 5 (10) What is "dumping"? Brie f y describe how anti-dumping cases are decided within the US? 1

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examfall2004key - Exam ARE 201 Fall 2004 Answer all...

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