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exam03 - Final Exam Fall 2003 EEP 131 Directions Answer the...

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Final Exam Fall 2003 EEP 131 Directions: Answer the fi rst three questions and any 2 of the subsequent 5 questions. Each question has the same weight. You have the full three hours to complete the exam, but you may not need that much time. Everyone should answer the following three questions: 1) Using a partial equilibrium model (a supply and demand function) illustrate the gains from trade for a small importing country. Using a second graph, show the welfare e ff ect of a small tari ff . (Your answer to this question should be very short. I want to see two graphs; for each, you should identify the various areas in the graph — e.g., "increase in consumer surplus".) 2) Explain the di ff erence between absolute and comparative advantage, and illustrate the gains from trade in a two-sector Ricardian model. 3) Explain the meaning of the Theory of the Second Best and of the Principle of Targeting. Use an example to illustrate the relevance of these two ideas to the trade-Versus-environment debate. Answer two of the following questions. Be sure to number the
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