Problem Set _2 ANSWERS

Problem Set _2 ANSWERS - Name_ANSWERS(Last name first name...

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Problem Set #2 1/9 Name: _____ ANSWERS __________ (Last name, first name) SID: _________________________ GSI: _________________________ Econ C181/EnvEcon C181 International Trade Professor Steven Wood Fall 2010 Problem Set #2 ANSWERS Due: September 28, 2010 (at the beginning of class) Please sign the following oath: The answers on this problem set are entirely my own work. I neither copied from the work of others nor allowed others to copy from my work. _______________________________________ Signature Any problem set turned in without a signature will be assigned a grade of zero. Problem Set Instructions 1. When drawing diagrams, clearly and accurately label all axis, lines, curves, and equilibrium points. 2. Explanations MUST be word-processed. Your explanations should be succinct and to the point. 3. Graphs and equations MAY be drawn by hand.
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Problem Set #2 2/9 A. Multiple Choice Questions . Circle the letter corresponding to the BEST answer (3 points each.) 1. The reason international trade clearly benefits a country is that: a. It increases the economy’s consumption choices. b. It increases the level of consumption of everyone. c. It lowers the real income of the less productive elements in the economy. d. It raises the real income of the more productive elements in the economy. 2. Suppose that there are three factors of production: labor, capital and land. Labor is mobile between the manufacturing and agricultural sectors, capital is specific to manufacturing, and land is specific to agriculture. The United States is relatively land-abundant while Europe is relatively capital-abundant. According to the Specific Factors model: a. European landowners should support U.S.-European free trade. b. European capital owners should support U.S.-European free trade. c. Landowners in both countries should support U.S.-European free trade. d. Capital owners in both countries should support U.S.-European free trade. 3. Suppose that Japan is a relatively capital abundant country where labor is a mobile factor of production. Assume that the price of the labor intensive product is fixed. If Japan was originally in autarky, then once free international trade begins: a. Wages and the return to capital should decline in Japan. b. Wages and the return to capital should increase in Japan. c. Wages should rise but the return to capital should decline in Japan. d. Wages should fall but the return to capital should increase in Japan. 4. Suppose that steel is produced with capital and labor, sugar is produced with land and labor, and Spain is a relatively land abundant country. Assume that the price of steel is fixed. Then, according to the Specific Factors Model, if Spain engages in international trade, then: a. Workers earn less, capital owners earn less, and landowners earn less in Spain. b. Workers earn more, capital owners earn more, and landowners earn less in Spain. c. Workers earn more, capital owners earn less, and landowners earn more in Spain.
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This note was uploaded on 10/19/2010 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at Berkeley.

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Problem Set _2 ANSWERS - Name_ANSWERS(Last name first name...

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