Sample Final Exam Answers

Sample Final Exam Answers -...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers to sample final exam questions Answers to all MCQ questions: A Short Answers: 1. Answers to Textbook Problems: Chapter 6 5. The terms of trade of Japan, a manufactures ( M ) exporter and a raw materials ( R ) importer, is the world relative price of manufactures in terms of raw materials ( p M / p R ). The terms of trade change can be determined by the shifts in the world relative supply and demand (manufactures relative to raw materials) curves. Note that in the following answers, world relative supply (RS) and relative demand (RD) are always M relative to R . We consider all countries to be large, such that changes affect the world relative price. a. Oil supply disruption from the Middle East decreases the supply of raw materials, which increases the world relative supply. The world relative supply curve shifts out, decreasing the world relative price of manufactured goods and deteriorating Japan’s terms of trade. b. Korea’s increased automobile production increases the supply of manufactures, which increases the world RS. The world relative supply curve shifts out, decreasing the world relative price of manufactured goods and deteriorating Japan’s terms of trade. c. U.S. development of a substitute for fossil fuel decreases the demand for raw materials. This increases world RD, and the world relative demand curve shifts out, increasing the world relative price of manufactured goods and improving Japan’s terms of trade. This occurs even if no fusion reactors are installed in Japan since world demand for raw materials falls. d. A harvest failure in Russia decreases the supply of raw materials, which increases the world RS. The world relative supply curve shifts out. Also, Russia’s demand for manufactures decreases, which reduces world demand so that the world relative demand curve shifts in. These forces decrease the world relative price of manufactured goods and deteriorate Japan’s terms of trade. e. A reduction in Japan’s tariff on raw materials will raise its internal relative price of manufactures. This price change will increase Japan’s RS and decrease Japan’s RD, which increases the world RS and decreases the world RD (i.e., world RS shifts out and world RD shifts in). The world relative price of manufactures declines and Japan’s terms of trade deteriorate. 2. This is would imply that equilibrium price is independent of the number of firms. Integration of the home and foreign markets in this case would not reduce the price. This is so because the number of firms in each country remains the same. So each firm continues to produce the same quantity. However, consumers still benefit since they have more varieties.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3. Answers to Textbook Problems: Chapter 9 1. The import demand equation, MD , is found by subtracting the home supply equation from the home demand equation. This results in MD 80 40 P . Without trade, domestic prices and quantities adjust such that import demand is zero. Thus, the price in the absence of trade is 2.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Sample Final Exam Answers -...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online