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exam2001 - Exam ARE 201(Trade module Fall 20001 Attempt to...

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Exam ARE 201 (Trade module), Fall 20001 Attempt to answer all questions. For all questions below, assume a two-commodity model. Provide a brief explanation for your answers. (For example, “It increases” is not a su cient answer, even if the direction is correct; but do not write essays. In some cases you need only state a theorem or draw a graph and provide a very short explanation. If you use a graph, be sure to label axes and curves. ) 1) (30 points) A country moves from autarky to trade. The world relative commodity price is di ff erent than the country’s autarkic price. How does this opening to trade a ff ect workers’ welfare in the (a) Ricardian model, and (b) sector-speci fi c (Ricardo-Viner) model? (Workers own only labor.) 2) (40 points) Use the H-O-S model. Under free trade, a small coun- try produces both commodities, food and cloth, and imports food. Cloth production is relatively capital intensive, and production of cloth creates a negative externality for workers. Capital owners do not experience the ef- fects of this externality. There are no factor intensity reversals.
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