final-eco101-06-solution

final-eco101-06-solution - NAME: S’I‘UDENT II): 1 Trade...

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Unformatted text preview: NAME: S’I‘UDENT II): 1 Trade of Multiple Goods: 10 minutes , Unit labor requirements for Home (no asteriSk) and Foreign (asterisk) are given by A A vormlos T B Bron 7.9 \ I (-1 N 7. C .-om put-em .I D Diamonds 1 0 Rank the goods in terms of Home’s cmnparative advantage. A, (flag 7 . 0 Let. the inLernatiorml wage ratio w/-u.'*' vary iwtwonn .75 and [.25. Which goo(l(H) (loos Home import. over the whole range, whinh go<'ir1(s) docs Hon'ie import in the high range close Lo 1.25? O 7 Q'Ka *‘ 1- 9.. (A i‘ L. / *0 or 7 L, W L. W “\ mac .__...« 3 * . 9. . CH“ . N , , .93.: M 1; 1 C ?. c I. ~-M‘(\f\fo(¥3 RCA) “x )ir‘diRW-J‘Vr- m 0 Now suppose i-mde costs arid 50% to the Lost of such good when shipped. Let. the (Y4 C international wage ratio iii/11f“ vaijv [wtweel'i .75 am] 1.25 again. Which g00(.](5-3) does "J Home import over the whole range. which good(s) does Home import in the. high range closet0125? L50”. 7, (1+ “($be (ELK ((1 ,v _. L a“ _ .. \_. a Q _ tl‘VVflC‘i‘ ,2!U.\.'C)(3§ A ,2. o '\ NAME: S’l‘tle-EN’i‘ ll): 2 Gains from Trade and Specialization: 10 minutes The diagram bolow shows an undownlont (':(':('}110n'zy in anturky. The point labelled A is the (:oimtry’H (‘Il(l()\thl(',‘llt with goods (' and F. A Autarky. Depict the relative consumption price ratio of Lhe Lwo goods in autarky. / fl, Gains from trade. Choose any relative world price ratio that (lii’fors from the (:(nl'l'ltry’s b5 autzu‘ky price ratio and depict- tliaJ; world prior,- ratio. Sln'iw that. there are gains from R5 trade. ‘1- Gains from specialization. Now draw a production possibility frontier consistent with b autorky consumptimi. Choose the same relative world price ratio as above and show the (‘hangv in the country's production patwrn nl’ror trade. Are the gains from trade for this pnnluoliou economy lurgvr oi' smnllor than for tho endowment. OCT-01101le both??? \osger 65th Car o—«xiofion ' "oiling A . (3‘95 90M Mate \‘ Wenchio an; a. 6 (mm W} \j \e— PPF l 5. Home computer output 0 Qt- Home food output NAM-1: S'I‘Lroic-N'r ll): 3 Labor Productivity Change: 10 minutes There arc two countries, 1101110 (no :‘istcriskl and Foreign (asterisk). Labor is the only [E'IC'l-OI' of production and can bc allocated to tho pmduciiou of chccsc or wine. The relative demand and relatiw-a supply of cheese and wine are dcpicmerl in the following graph (an denotes unit iabor requiremean in producing good i, L and L“ are Home and Foreign labor forces). PJP. Kaela-Saul 2 ------------------ -- ‘ Relative world price of cheese 312 1 % Mm. : _ Po) 9 1 flaw/0 =2 3 4 257+2‘i- “aw we} Relative supply and demand of chi-3636 The two mummies are equally largo, L : L“. Suppose Lrudc is drivmi purely by Ricarilian productivity (liilerences and you observe (-2"- : (i0 and {2"} : 30 under free trade. 9 “That is the rclatiw world equilibrium price “Ca/PW? infer QE‘, and Qua P“ '2 fl 7 I ‘ \ éx '1': QC; “ O Gr “K llw'l'ilyal) a How large are the opportunity costs of manufactures in terms of food (EILC/Grtufl in the Home (mint-1‘3"? ( Iqu, C. “K ‘ 0:9— \ C‘LC a: 7 (fi_ 3 L'- fllf‘i‘fi SEIKLM qu‘bil'j («cg re) (Turn) a "‘ w. o SuJ)J_)ose labor proclLu-Livity in Home cheese [)I‘OtlLlCl-iGH doubles, cutting, Home labor rcquircnu-énts per unit of chccsc in half. [low large is the now rclativo worlcl supply Qt,- [621}? What is the new equilibrium pricc ratio 1J('/PH.'? Do llaiiic‘s terms of trade improve. women or rcnmin constant"? .a . f r i l .- "\ ' .4 om ismm , law ‘5 8mm) 50 332* : Lf Q t) (1/ :: ‘ ‘T‘ pm 1 1 lo \ mi cm a If Home cheese productivity grows further" (it) Home‘s tcrius of mulv improvm won-3011 or remain constant? To T an'g‘E‘Q NAME: S'I.‘L:I.)i-:N'r II): 4 Terms of Trade and Factor Reallocation: 10 minutes The graph below depicts a countrfs allocation of labor and capital to computer numufa‘ctur— lug (C) and food production ( .1") under free trade". The (:(‘nniiry is relatively capital-abLindant r-ompm‘erl to its trading partners. 0 Which senior is tin-i exports sector"? @‘Pwfi (Sim oMPJlQfl‘" (WC &4-lCll§\Ql"j Cfiiifililfil o The (-rmntr); Experiences-3 :1 favoralilv terins—nf—trade Shock relative increase in the prim of its exports good). Which se'(.'€;or(s) will expand? Which soctofls) will shrink? 7% T J {Konrklj} local \ndorm swam a Depict the capital and labor allocation to actors after the favorable tornis—of—trado shock. Did rho (:apitail—intensity of the food sector increase, rlrop, or remain constant? @Dic’l the capitail—intermin of the computer sr‘clor increase, drop or remain constant? .. r PF fro @ 1L}; ..- o Given the changes to relative capital-intonsiry in the two sectorsr what can you i11- f'or about the equilil'n'ium wago-rcntui ratio? Did the equilibrium wagerent-al ratio increaseE drop9 or remain 003151 ant? (Labor earns a wage, (‘a‘pillal :1 rent.) V“? l; (Sfiéfimfiqmp‘m Labor allocation to computers and food Capital allocation to computers and food C," Wm we \g limiter-air \3 r f if q NAME: S'rlmlcwr ll): 5 Immiserizing Growth: 10 minutes The Home country is a computer exporter and rose importer. Home l:‘Xpfi:‘l'i{-'li(E(-JS unbalanced growth that favors its (exports HUCLUI'. The (iingrmn helow (it-;'[.)i(tts pmrlunzricm and tho world equilibrium price ratio before growth (rm prime) and alter grim-fill (prime). 0 Do the Home country’s terms of trade improve or wiiirsen with unimlanc-ed growth iii the exports sector? Why? a On what segment of which trade line. [isomvahw line) does the Home :Tountl'y consume for it to be a. computer exporter huforo growih'? Dwict the. range of oonmmption points {hut make ilonu-E' a (:oIIIIMer oxportor before growth. i. o 011 what segment of which trade lino (ism-vale line) {1005 the Home onimtry (.‘lelS'lJllK‘ for growth to be irrrmisenziiw (welfare reducing)? Depict a SElIiEplE consumption pom! on the Hoguwut WlK‘H‘ growth is immisol‘iz-ing. o On what SanlCHl ol‘which curvo would tho Home (:oLmIry (.‘(.)l]$l.l.llif:i ifiti slopde Hauling after its growth (‘XlJCI'lCH('€‘? Dcpitrt a sample (‘t’t-ilfiillllplloll point on the segment with no trade after growth. ls llllH choice welfare imljn‘oving'? QM 9'94 Rose growing b 0 . qumpuwm Computer manufacturing 0' NAME: S‘I‘UIJICN'T II"): 6 Intra~industry Trade: 10 minutes (ilonsider an lnti'a'i-industry Trade model. Varieties of coiziputer chips are produced under economies of scale but with constant. marginal cost c. o [*ixplain 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. toga LA\\\ E’C‘i\3<3\ meccg‘mx WET (he; 31w: (YUPth Smug, {W12 1 (Wife, 0 Explain. in one sentence why free entry implies that average cost equals price in equi- librium. Identify the average—ct‘ist—Variet)’ relationship (CC) in the figure below. it" (NHL, Gin-18'mmemilr‘rji?{than gr '6 9C RC: C4013 “Em/Q, Mij PUP o The Home country reduces the fixed setup cost of chip production facilities so that L r. (inch chip maker at Home new faces a. lower fixed (‘CJHt I” < 1". What happens to the C ' price for chips in (symmetric) ecpiilibriuni? What happens to the number of varieties? n T ’P \b Graph your results. ) o The intensifier] Home competition spurs technological progress, and chips are produced ,14hicq+f I} at lower (:onstz'n'it marginal cost 6’ < c (in addition to the reduced fixed costs (.ifentry). ‘ ‘- “i ' '3’ 3’\ What happens to the price for chips in (synmictric) eqiiililiriinn‘? What. happens to the C L mg. I- Clown number of‘ variole compared to the number of varieties after the fixed-cost reduction? Graph your results. n S. Ljf H C J‘v’ifv'fl _0 Price Varieties H; F._a——~ l“ (Minn. is ic-Witt ml to i"i“‘i_k«.ii2i‘1‘i“\ low it 6'" NAME: STE? [1) INT I ll): 7 Vertical FDI: 10 minutes A (.l(.i[ll(‘Htl(' nn‘n‘iupolist cmisidurs three eiitc-rrnatiw production arrangements for its donn‘stic sales. 1. Prmhlctimi at. home exhibits total cost TC] : (2'3. 2. Owning 21 foreign affiliate and proizlncing, at its lcn‘atian abroad results in TO; : 5Q? 33. lntlepentlent forvign suppliers fact: hold—up umts so that. T03 : 2 - Q. Consider the pricerqnantity diagram below (you may ihinl; ril‘quantities and prices in. their sands‘} 0 Label the marginal cost curves in the diagram with MG, ill(Y2 and 11/03. a “’liiirh mako—or-l'nly (lmzisiun above ispmiii innxhniflng'f What is the pl'olit.-:11ax.ilniz-inp, quantity? 0 Al, the pmfit—tnaxiniizing que‘nltity, infer ths- size: of tlll‘ internalization advantage or (iisntlvantage awocialxcd with the I'ni'ilte—or-hinr decision. 15 it an intorrmlization aLfli-‘i-UIA mgr-3? 6 Domestic Demand Price 0 1 3x2 2 3 Q Quantity I‘L- NAME: S'].‘L!L>E<;;\"r H): 8 Infant-industry Protection with a Quota: 10 minutes There are (*xtvrnal economics of scale from a.ggl(.>meratioil of 1T services. Today: all [T sm‘vlms for the world arr provided lay Silicon Valley (Home). The diagram below dapirts worh‘l oquilihriutn when l‘T se‘t'victC‘S are provided by Silicon Vallcv. - Suppose that, at any quantity, Banga‘iloro (Foreign) could provide IT services at lower average cost than Silicon Valley but. that. today‘s average cost. at Bangalore exceeds l ( worlrl oquilihriulu price. Dopict. Baugalore’s potsnlial forward-falling supply curvo. o Bangalore considers a quota on lT imports of zero (not permitting any .[T imports). This quota is certainly successful in that Bangalore will hmromo competitiva at world average cost. Why? ow. 5m, Hm: omen or PE: AC“ SioLLJrlrfg it hot}. kg Comoa c: to! (Won-g 3 qutjfsl'r H—e R «Jory. mm- mm Cir/ax. w spa—fl paqu a? liaise; rn-vorlitakfi a A zero-(liming does not pen-nit any other industry in Bangalore to import IT services. What is the largost possil'ilo and still successful quota. so that Bangalore will ultimately attain world average cost“? Dopiot yoar answer in the diagrsni. 0 Does the domestic price of IT services in Bangalore change during the quota regime? Is this beneficial to Bangalore a whole? Compare. your answer to (lmuestic price changes under a tariii' or subsidy. W, mec OQQQAJQJ a; HIM”)? H‘Cu‘: Gloflc we “Pod ("LIKE/3 tow a dukfifirfio‘w -H'\<~o n o?- . DIprSWM ) i_t§‘1,.r,‘eu,.-c: figv-E’fr {l pom, 1/ (ONE-tr not. 011’ Pui‘TOr Pull“ 2 World Market haw Gm, Error F311 ,1, 1., ’ L whom C b»Cli—&F€Q( (065121137 war x62, QT‘fWkl‘V-JLAI‘J bat-J no 09-0de 4 gm- 2 Qflsm WY-WKAL ------- dimrfim) PAC "ifj Price and Average Cost World Demand and Home Supply N A M 1-1: 9 S'rooI-zwr 11): Price Response to a Tariff: 10 minutes There are two countries, Home. and Foreign. The diagram below depicts aspects of their trade in l'nanufaotures. llome’s domestic: demand for manufactures is DU") 2: 14 — P. llcn'no’s dmnestic supply is : P. Foreign export supply is perfectly elastic with T” : '1. (xi-“2'2? 3‘ P filo-le - Depict home doruesfie supva in the diagram. Show why home will be an importer of flamm- Cs 0; FM? sums-p9) P“ = ‘l which 15' MI mix, hm'fi if Hm__ \fldhwf’ c Derive and depict the home price 1’ for manufactures and Lhe home import. qual‘lLity-i‘, M “wt. \ L y)!“ A All). : _ F L’ * m9 “ (0 9‘ rte, u ‘rx, 0 Facing l-l'iO llat foreign (‘xpm't Supply schedule, {£01110 :4 small or large (‘ouulry'f five L1 \ ‘32 *3?— . fifl d- ' 4...; mas-H) \ j =3 Wm. mi ii i 0 Home imposes an ad valorem tariff 0f~25i percent. of world price; What are f'ru'eign rmpoq O Derive and depict home inlpol'l. demand HUMP”) for nunn.1l‘actures. price 1’” and home price I’ under the trade restriction? .l..)e.rive and depicL the home import quantity M D under the torifi‘. \Ll xs=P" mg(r‘°+ i xii—1n“ H ) Rm‘io prim is Chili f "'4 ’ Z?“ M 2. '~” ‘3le (we we: cox GGFC'MMM) I PW World Price L Home Import Demand Foreign Export Supply Home Demand and Supply '1 U WW”: 3 if; V ciQNr <17 q‘i i533 2006} (Tm-ix ‘ “ L-) NAh-{l‘li S'I'anxi‘ 3|): 10 Negative Export Externality: 10 minutes A small opvn economy has a L‘(J}l][')‘di"i'l-th0 advantage in :1 polluting industry. But there is a. [it‘gkltivv oxtvrm‘tlity (a marginal social (inst beyond iiieii'ginnl production cost) assoviutvd with the prmluutiml of tlw export good. 1.. (.Ji'aph domestic supply and chum-mic demand for this good in a single market diagram, and depict the autarky and the world price levels. Show the quantity of exports. 2. Supposv tlu‘ Iimrgilml social mat is must-(1.111. and slrivtly imaitivo at any level of pm— rllicliun. Depir-I. tlw umrginzil social (“us-ii lint‘ NSC in your diagm'n.. :5. The government impmes an export tax 011 this gomii. Show Lhe alibi-t ol' the export tax in your (lla-gl'fil'lh Depict net welfare 108505 to (:01151111101'5 and prmilicwrs, after sub— trm'ting tux rovcalmm and depict tlw sot'ial wvll‘arel gains from avt'JiClil'lg' the BXtCi'IMIlW- NAME: STUDENT Ii): 11 Political Economy: 10 minutes , ‘ Provide out). poiitital-economy reason for each one of the following threw-‘2 questions. 0 Why do countries timid 1r) impose tariffs rather than pay subsidic‘s in order Lo promote. domestic industries? bQCflQEC We Wflu"*‘34r“‘r‘i“ LAQMD ‘Q‘ii‘if (“‘13, (N345 Wm moo: b awe 'x’r cow 0 Why does the WTO charter permit (:mmtries to illlpmfifi‘: quotas whm; their iudusA . tries are threatened with market disrupting import ermipoiétion, hm. (loos not allow countries to impose tariffs? ' , We is LL35 (%(%mw1“4J%f +0 {’ng (“Mug in guinea CAM-{r H115 Cr Cnmcf‘xtézj r SNQ "look-cu c‘m mm Cam; A41: qufl‘xrrmr an ("’{T’xayfifiujfif 0 Why does tho WTO charter permit tiw violation of the most-favorml nations prinripie when countries outer mgiorm] Lmde agretunentis'? beam sevwr mmr remain-egg mire Limo m1 mmmj Rama, in Wade one. Pr: itW\ iS‘i’o (smug Q4653” VGCQ (QR/(f Hum} MWL infafirav .1 .1 WW: CWWEWNL (mow U be my; amperage (mm-394 ...
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This note was uploaded on 01/30/2012 for the course ECON 101 taught by Professor Jacobson during the Fall '03 term at UCSD.

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final-eco101-06-solution - NAME: S’I‘UDENT II): 1 Trade...

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