Final - Name Student ID Economics 161 Fall 2010...

Name: Student ID:
Economics 161 — Fall 2010
International Integration of Latin American Economies
Final Exam
June 8, 2010
Time: 120 minutes
Total score: 120 points
Carefully read the instructions of each question.
Words in bold indicate that you need to respond to the request or question.
If you answer with “yes” or “no”, also provide an explanation.
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Signature Date
1

Name: Student ID:
1 Comparative Advantage: 10 minutes
When employing its full labor force, Peru can produce either 300,000 computers
a year or 6 million roses, or a mix of the two. When employing its full labor
force, Canada can produce either 600,000 computers or 9 million roses, or a mix
of the two.
State the equation for the production possibility frontier (PPF) of Peru.
What is the slope of Peru’s PPF?
Which country has the absolute advantage in producing computers, and
why? Which country has the absolute advantage in producing roses, and why?
Which country has the comparative advantage in producing computers, and
why? Which country has the comparative advantage in producing roses, and
why?
2

Name: Student ID:
2 Balassa Measure: 10 minutes
Explain the Balassa measure of comparative advantage
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Country
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.
Does it properly identify a country’s products or industries with the strongest
comparative advantage? Why ? State a reason why it might not properly
rank a country’s products or industries with the weakest comparative advan-
tage (strongest disadvantage).
3

Name: Student ID:
3 Multinational Firms: 10 minutes
Explain the Hold-Up problem when a supplier needs to incur a specific invest-
ment to meet a client’s product specifications.
Does the formation of multinational companies through foreign direct in-
vestment offer a solution? Do perfectly enforceable contracts in a comprehensive
court system offer a solution?