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midterm1-eco101-10

midterm1-eco101-10 - Name Student ID Economics 101 Fall...

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Name: Student ID: Economics 101 — Fall 2010 International Trade First Midterm Exam October 19, 2010 Time: 70 minutes Total score: 70 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. Permissible objects during the exam: pencils, pens, one ruler, one eraser. All other objects must be outside your immediate reach at all times during the exam. 1
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Name: Student ID: 1 Ricardo: 10 minutes There are two countries: Home (no asterisk) and Foreign (asterisk). Both countries have equally large labor forces L = L * . Initially, there are two sectors: agriculture (A) and mining (M). Productivities in the two sectors are given by the following constant unit labor requirements: Home Foreign Agriculture a LA = 2 a * LA = 4 Mining a LM = 1 a * LM = 2 State the autarky prices of manufactured goods in terms of agricultural goods at Home ( P M /P A ) and abroad ( P * M /P * A ). The two countries open to free trade. Is the pattern of trade determinate? Why ? Compute the relative incomes between the two countries, w/w * . Both countries collaborate on research in industrial production. As a result, there is now a third sector that could potentially produce in both countries: Home Foreign Industrial production a LI = 3 a * LI = 3 What is the pattern of production in the Home country under free trade if w/w * = 1 . 5? What is the pattern of trade in the Home country under free trade if w/w * = 1 . 5? 2
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Name: Student ID: 2 Ricardian Gains from Trade: 10 minutes There are two countries (Home and Foreign) and two sectors: food production (F) and manufacturing (M). Wages differ between the Home (no asterisk) and Foreign (asterisk) country. Labor productivities are constant, and differ across industries and across countries. The countries production possibilities are depicted below. 0 Q F ,Q F Home and Foreign food production Home and Foreign manufacturing L /a * * LM =50 Q M ,Q M * * L /a * * LF =50 L/a LF =40 L/a LM =20 What are the opportunity costs of food goods in terms of manufactured goods for the Home country, and what are they for the Foreign country? State
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