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Unformatted text preview: NAME: TA: Midterm Economics 181 International Trade Please answer all parts. Please show all your work to receive credit. Part I (20 points). Please indicate whether the answer is true or false and 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. Country X has an absolute advantage in the production of both goods. This implies that wages in country X will fall when it opens up to trade. 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. 3. In the specific factor model, the mobile factor may gain or lose from trade. 4. According to the Standard Trade Model, changes in relative prices will lead you to shift to a different production point along the production possibility frontier. 5. The Heckscher-Ohlin framework provides the basis for globalization critics to argue that increasing trade flows are leading to an increase in inequality in the United States. However, the evidence on whether trade is the main explanation for increasing inequality is mixed. An equally likely possibility is that technical change, which leads to greater demand for skilled labor, has led to the observed increase in inequality. Another problem is that greater inequality is observed in developing countries as well as non-traded sectors. 6. If France is abundant in skilled labor relative to unskilled labor, then the Stolper-Samuelson theorem suggests that when France increases its trade with China, wage inequality in France should fall. NAME: TA: Midterm Economics 181 International Trade Spring 2002 Please answer all parts. Please show your work as much as possible....
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This note was uploaded on 03/18/2011 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at Berkeley.
- Spring '07