E452exs2F11

E452exs2F11 - Name SECOND MIDTERM EXAM Economics 452...

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Unformatted text preview: Name SECOND MIDTERM EXAM Economics 452 International Trade Theory and Policy Fall 2011 SPECIFIC FACTORS MODEL 1-4. Furniture production uses labor and land, while clothing production uses labor and capital. Suppose that Sweden exports furniture and imports clothing from the rest of the world (ROW). 1. In Sweden, which factor owners benefit from free trade? a. Capital b. Land c. Both capital and land d. Capital, labor and land e. No one benefits In Sweden, which factor owners are hurt by free trade? a. Capital b. Land c. Both capital and land d. Capital, labor and land e. No one benefits In the ROW, which factor owners benefit from free trade? a. Capital b. Land c. Both capital and land d. Capital, labor and land e. No one benefits In the ROW, which factor owners are hurt by free trade? a. Capital b. Land c. Both capital and land d. Capital, labor and land e. No one benefits 2. 3. 4. 1 5-8. Prior to migration, the United States has a more capital per worker than the ROW. Suppose the United States begins to allow immigration with no barriers of any kind. 5. Due to the increased amount of labor in the United States, the marginal product of labor there will ____ with migration. a) rise b) rise or stay the same c) stay the same d) fall or stay the same e) fall Due to the decreased amount of labor in the ROW, the marginal product of labor there will _____ with migration. a) rise b) rise or stay the same c) stay the same d) fall or stay the same e) fall In the ROW, which factor owners benefit from the outflow of labor? a) capital b) all labor regardless of whether leaves or stays c) only labor that migrates to the United States d) both capital and all labor e) neither capital nor any labor In the ROW, which factor owners are hurt by the outflow of labor? a) capital b) all labor regardless of whether leaves or stays c) only labor that migrates to the United States d) both capital and all labor e) neither capital nor any labor 6. 7. 8. 2 HECKSCHER-OHLIN MODEL 9-12 Haiti is relatively scarce in capital to labor compared to the rest of the world (ROW). Rice production relatively intensively uses labor to capital compared to manufactures. Haiti is assumed to have the same technology and relative demand as the ROW. 9. Under free trade, Haiti produces more _____ than the ROW. a) rice b) manufactures c) rice relative to manufactures d) manufactures relative to rice e) cannot tell from the information provided Haiti exports _________ under free trade. a) rice b) manufactures c) both rice and manufactures d) neither rice nor manufactures e) cannot tell from the information provided If its labor supply grows, Haiti would produce _____ than before. a) less rice and less manufactures b) less rice and the same amount of manufactures c) less rice and more manufactures d) more rice and less manufactures e) more rice and more manufactures If its capital supply shrinks, Haiti would produce _____ than before. a) less rice and less manufactures b) less rice and the same amount of manufactures c) less rice and more manufactures d) more rice and less manufactures e) more rice and more manufactures 10. 11. 12. 3 13-16 The United States is relatively abundant in land to labor compared to the rest of the world (ROW). Pumpkin production relatively intensively uses land to labor compared to producing blankets. All countries produce both goods and have the same technology and relative demand. 13. In the United States, who benefits from free trade? a) landowners b) workers c) both landowners and workers d) neither landowners nor workers e) cannot tell from the information provided In the United States, who is hurt by free trade? a) landowners b) workers c) both landowners and workers d) neither landowners nor workers e) cannot tell from the information provided In the ROW, who benefits from free trade? a) landowners b) workers c) both landowners and workers d) neither landowners nor workers e) cannot tell from the information provided In the ROW, who is hurt by free trade? a) landowners b) workers c) both landowners and workers d) neither landowners nor workers e) cannot tell from the information provided 14. 15. 16. 4 FACTOR PROPORTIONS MODEL PROBLEMS Producing one yard of cloth requires 1 worker and 1 capital, while producing one pound of food requires 1 worker and 2 capital. Both countries have 50 workers; the United States has 70 capital, while the rest of the world (ROW) has 80. The price of food is always $18/pound; the price of cloth is $12/yard in the United States in autarky and $15/yard in all countries under free trade. 1. Compare the relative abundance of factors across countries. Compare the relative intensity of factor use across goods. Determine the pattern of comparative advantage and the pattern of trade. 2. Construct the labor constraint (same for both countries). Construct the U.S. capital constraint. Determine the U.S. production bundle that fully employs both factors. 5 3. Construct the ROW capital constraint. Determine the ROW production bundle that fully employs both factors. Compare the relative production of cloth to food across countries. Draw graph of factor constraints here, with food on the vertical axis. Indicate values for the endpoints and for the quantities produced in each country. 0 6 4. Construct the pricing equation for food (same always for both countries). Construct the U.S. pricing equation for cloth in autarky. Determine U.S. factor prices in autarky that allow both goods to be priced at cost. 5. Construct the pricing equation for cloth under free trade (same for both countries). Determine the factor prices under free trade that allow both goods to be priced at cost. Compare the U.S. relative factor prices (wage relative to rent) under free trade to autarky. 7 Draw graph of pricing equations here, with rent on the vertical axis. Indicate values for the endpoints and for the factor prices before and after trade. 0 6. Calculate and compare the proportional changes in the wage, rent, price of cloth, and price of food. In the United States, owners of which factor would oppose a free trade agreement? How can this group be identified, even in autarky? On my honor as an Aggie, I have neither given nor received unauthorized aid on this exam. Signature __________________________ 8 SECOND MIDTERM EXAM SOLUTIONS Economics 452 International Trade Theory and Policy Fall 2011 MULTIPLE CHOICE 1b 2a 3a 4b 5e 6a 7b 8a 9c In Sweden, landowners benefit from free trade. In Sweden, capital owners are hurt by free trade. In the ROW, capital owners benefit from free trade. In the ROW, landowners are hurt by free trade. Due to the increased amount of labor in the United States, the marginal product of labor there will fall with migration. Due to the decreased amount of labor in the ROW, the marginal product of labor there will rise with migration. In the ROW, all labor regardless of whether leaves or stays benefit from the outflow of labor. In the ROW, capital owners are hurt by the outflow of labor. Under free trade, Haiti produces more rice relative to manufactures than the ROW. 10a Haiti exports rice under free trade. 11d If its labor supply grows, Haiti would produce more rice and less manufactures than before. 12d If its capital supply shrinks, Haiti would produce more rice and less manufactures than before. 13a 14b 15b 16a In the United States, landowners benefit from free trade. In the United States, workers are hurt by free trade. In the ROW, workers benefit from free trade. In the ROW, landowners are hurt by free trade. 1 FACTOR PROPORTIONS MODEL PROBLEMS Producing one yard of cloth requires 1 worker and 1 capital, while producing one pound of food requires 1 worker and 2 capital. Both countries have 50 workers; the United States has 70 capital, while the rest of the world (ROW) has 80. The price of food is always $18/pound; the price of cloth is $12/yard in the United States in autarky and $15/yard in all countries under free trade. 1. Compare the relative abundance of factors across countries. The United States is relatively labor abundant Compare the relative intensity of factor use across goods. Cloth production is relatively labor intensive Determine the pattern of comparative advantage and the pattern of trade. The United States has comparative advantage in cloth and the ROW in food. The United States will export cloth and import food, while the ROW will export food and import cloth. 2. Construct the labor constraint (same for both countries). Construct the U.S. capital constraint. Determine the U.S. production bundle that fully employs both factors. 2 3. Construct the ROW capital constraint. Determine the ROW production bundle that fully employs both factors. Compare the relative production of cloth to food across countries. The United States produces more cloth relative to food than ROW. [Graph of factor constraints: horizontal axis labeled Cloth and vertical axis labeled Food; Labor endpoints 50 and 50; Capital endpoints 70 and 35; Capital* endpoints 80 and 40; Home produces 30 cloth and 20 food; ROW produces 20 cloth and 30 food.] 3 4. Construct the pricing equation for food (same always for both countries). Construct the U.S. pricing equation for cloth in autarky. Determine U.S. factor prices in autarky that allow both goods to be priced at cost. 5. Construct the pricing equation for cloth under free trade (same for both countries). Determine the factor prices under free trade that allow both goods to be priced at cost. Compare the U.S. relative factor prices (wage relative to rent) under free trade to autarky. The wage relative to the rent rises in the United States in the move from autarky to free trade. 4 [Graph of factor constraints: horizontal axis labeled Wage and vertical axis labeled Rent; Food endpoints 18 and 9; Cloth endpoints 12 and 12; Cloth' endpoints 15 and 15; Home autarky has wage 6 and rent 6; wage 12 and rent 3 with free trade.] 6. Calculate and compare the proportional changes in the wage, rent, price of cloth, and price of food. [In the United States, the wage rises by more than the price of either good, while the rent falls relative to the price of either good.] In the United States, owners of which factor would oppose a free trade agreement? Capital owners How can this group be identified, even in autarky? Own relatively scarce factor 5 ...
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This note was uploaded on 02/13/2012 for the course ECON 452 taught by Professor Vacaflores during the Fall '06 term at Texas A&M.

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