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Unformatted text preview: Name: Student ID: Economics 101 — Spring 2006 International Trade Second Midterm Exam May 16, 2005 Time: 70 minutes Total score: 70 points 1 Standard Trade Theory: 10 minutes Consider a standard classic trade model with varying opportunity costs. The production possibility frontier of the Home country is depicted below. • What good does the home country export? • Show in the diagram that an improvement in the home country’s terms of trade will improve the home country’s welfare (utility). [ Hint: The slope of the world trade line is P F /P C .] Home food output H o m e c l o t h s o u t p u t Q C Q F PPF Utility 1 Name: Student ID: 2 Intra-industry Trade and Policies: 10 minutes Consider an Intra-industry Trade model. Varieties of the goods are produced under economies of scale but with constant marginal cost c . • Explain in one sentence what profit maximization implies for the relationship between price and marginal cost. Identify the resulting price-variety relationship (PP) in the figure below. • Explain in one sentence why free entry implies that average cost equals price in equi- librium. Identify the average-cost-variety relationship (CC) in the figure below. • East Asia’s past export promotion policies can be viewed as equivalent to reducing marginal cost c , whereas Latin America’s past choice of import substitution indus- trialization (ISI) can be viewed as raising marginal cost c . What are the effects on....
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This note was uploaded on 10/27/2011 for the course ECON 101 taught by Professor Jacobson during the Fall '03 term at UCSD.
- Fall '03
- Opportunity Cost