midterm4 - NAME: TA: Midterm Economics 181 International...

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NAME: TA: Midterm Economics 181 International Trade Fall 2005 Please answer all parts. Please show your work as much as possible. Part I (20 points). Short Answer. Please give a full answer. If you need to indicate whether the answer is true or false, please explain your answer. You must give an explanation to get full credit for the answer (1 point for correct answer; 1 point for the explanation). 1. (Ricardian framework). Assume that country X produces two goods, cloth and steel. Country X has an absolute advantage in the production of both goods, but only has a comparative advantage in producing steel. Assume that the free trade price is in between the two country autarky prices. With trade, consumers will have to pay a higher price for steel, but wages in country X will rise when it opens up to trade. True or False? 2. The Theorem of Factor Price Equalization (FPE) states that with trade, returns to factors should equalize throughout the world. This implies that wages should become equal across all countries. One important assumption underlying this theorem is differences in technology across countries. True or False? 3. Home and Foreign can produce cheese, wine, and tools with the following unit labor requirements: H o m e F o r e i g n Cheese 4 2 Wine 2 4 Tools 2 3 In world trade equilibrium, wages are the same in home and foreign, w = w*. What good(s) will Home Produce? What good(s) will Foreign produce?
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4. Answer and Explain. If Pc/Pf were to increase in the international marketplace, then: A. All countries would be better off B. The terms of trade of cloth exporters improve C. The terms of trade of food exporters improve D. The terms of trade of all countries improve E. None of the above 5. If the USA is abundant in skilled labor relative to unskilled labor, then the Stolper-Samuelson theorem
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This note was uploaded on 09/24/2008 for the course ECON c181 taught by Professor Harrison during the Fall '06 term at University of California, Berkeley.

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midterm4 - NAME: TA: Midterm Economics 181 International...

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