Midterm Key A

Midterm Key A - ARE 138 Winter 2011 Name[D Section A 10...

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Unformatted text preview: ARE 138 Winter 2011 Name: [D#: Section A 10 multiple choice @ 10 pts. each = 100 pts. Section B 6 problems @ 50 pts. each = 300 pts. Total possible points = 400 pts. SECTION A. 10 points each. 1. Based on the actual fi‘uit and vegetable tariffs that we looked up for homework 2, what appears to be the United States' main goal in setting these commodities' import tariff rates? @ Protecting domestic producers b. Improving our terms of trade c. Both a and b d. Neither a nor b 2. Suppose Country A can produce 30 bushels of wheat, or 300 lbs. of beef, per acre. Country B can produce 25 bushels of wheat, or 200 lbs. of beef, per acre. Under the standard Ricardian model assumptions, which of the following is true, if free trade is allowed? a. Country A has an absolute advantage in producing both goods. . CountryB will pmduceonlybeefiandtrade withAtoobtainitswheat. c. Both a and b. d. Neither a nor b. 3. Country X is a small importer of cinnamon. If you observe that the government imposes an import tariff of $.50/lb on this good, what is your likely conclusion? a. Country X's goal is to improve its terms of trade b. Country X's goal is to protect its domestic cinnamon industry. c. Country X's goal is to raise government revenues. @Both b and c could be possible goals. e. a, b, and c could all be possible goals. 4. Under the US Harmonized Tariff Schedule, what is the meaning of the “A+” category? a. The country is eligible for preferential tariff rates as a developing nation, except in certain goods markets where it is already considered to be competing successfully. ® The country is eligible for the most preferential tariff rates, as a leastdeveloped nation. c. The country is eligible for regular tariff rates, as a normal trading partner. d. The country is subject to unfavorable high tariff rates, as a non—member of the World Trade Organization. 5. lrnagine a region produces two goods, milk and apples, using two factors of production, farmland and labor. Production of milk is relatively landcintensive, while apple production is more labor-intensive. Now suppose the government constructs a system of canals to drain a large swampy area, thus increasing the available farmland. What does Rybczynski's Theorem predict will occur? @Output ofmilk will rise, and output ofapples will fall. b. Output of both milk and apples will rise, but milk output will increase more. c. Output of milk will rise, while apple production will remain constant. d Output of apples will rise, and output of milk will fall. 6. Suppose the United States has decided to impose either an import tariff, or an equivalent quota, on a good, to assist its domestic producers. Regardless of which policy instrument is used, the goal is to establish a new US price of $5.00, higher than the rest-of-world price. How, if at all, will US welfare differ, depending on whether the tariff or the quota is used? a. US total social welfare will be equal, with either the tariff or the quota. US total social welfare will be higher with the tariff, assuming the quota rights are given away to various importing countries of our choice. c. US total social welfare will be higher with the quota, assuming the quota rights are given away to various importing countries of our choice. (1 US consumers would prefer the quota, while US producers would prefer the tariff. 7. US opponents of the trade sometimes cite Samuelson's Factor Price Equalization theorem as an argument against reducing trade barriers. What does this theorem suggest might occur if free trade is allowed? a US wages will decline as a result of legal or illegal immigration. @ US wages will decline as goods are imported from countries with lower wages. c. Both a and b d. Neither a nor b 8. In the period between the US Civil War and World War I, what was the typical attitude toward free trade of the major US political parties? a. Republicans supported freer trade, Democrats advocated protection of domestic industries. G) Democrats supported fieer trade, Republicans advocated protection of domestic c. Both parties generally supported fieer trade. d Both parties generally supported increased protectionism. 9. Suppose two countries each produce electronics (a labor—intensive good) and food (a land-intensive good) under autarlcy. Country A has relatively more abundant land, and Country B has relatively more abundant labor. Given standard Heckscher—Ohlin model assumptions, who is likely to support opening free trade between these countries? a Landowners in country A b. Landowners in country B c. Workers in country A (1. Workers in country B e. a and b (bar and d g. b and c h c and d i. a,b,canddwillallsupportfi'eetrade. 10. A number of commodities have experienced periods of unusually high prices in the last few years. Which of the commodities below has NOT shown this pattern? a Cotton b. Rice c. C0pper Shrimp SECTION B. 50 points each. Partial credit given for correct steps, so show your work! 1. Suppose US demand and supply flmctions for cobalt are: I)US = 1000 — 4 PUS s”S = -200 + 2 PUS 5‘15 a. (12) Find price, quantity, consumer surplus and producer surplus under autarky. -- a 0- “US-19.06 “5 L9 Dugggug ‘7 O Z Zoo Q8: (2W0? [ZOO : P fifim £00 0‘” Z {we 5 ug m zoo Loco (200—400)(200 . Pg : 2 : /0,000 a : (ooo~\((zoo);l200l \——7 b. (24) Now suppose that trade is allowed, and the world price is below the US autarky price. Write the US import demand function (Dm) for cobalt, specifying what price ranges it applies to. Now sketch this fimction, labeling the price and quantity where the "kink" occurs. floo é P $3100 Dm: Dusk—SUs )F‘SY ff ,5- 1) : Qooo—L{P5~(/200t’ll3):[ lZOCS ch9 {lap [00éP& 203 0 VW ‘. (3) CO [00041 (IOOHE 0(- luvdc .. / (Mot Mama/00)”— W c.(6) How much will the US import, if world supply is perfectly elastic at Pw = $150? How much does the US produce? How much does it consume? 0m: [Zoo ~é(lgz>) : 2991 quéz flan-20573) :(m 5 OZQLAWO” no“: moo—kitten 470—100 ‘g (33:; d.(6) How much will the US import, if world supply is perfectly elastic at Pw = $80? How much does the US produce? How much does it consume? DW:IOOO~%(%3: [(9060 l. (323%: Q 9M“). P w 4 Wm WM” QQUS:W\ ~7 all W Ca FW'Mpmj'b 2. Let Brazil's import demand for a good be: DmB = 1,000 - 50 PB The rest of the world’s export supply for this good is: SxROW = 150 PROW a. (20) Under free trade, find the world price PW , the quantity Brazil's net gains from trade, and the ROW's net gains from trade. w . , a ma sx’w Emits" 9%“? 1' (2.911(7‘03/ €4,252 4W” M. (g )7 ’7’ ‘ ‘ . g, : ,0 ._ 4 {Low or We {lo—ruqouua {:52}; “[8775 } & 793 (000 b. (20) Now, suppose Brazil imposes a specific tan‘fi‘ of $4 on imports of this good. Find the new Brazilian price, P ; the new rest-of-world price, PROW; and the new amount imported. Also find Brazil's net gains from trade, and the ROW's net gains from trade. If Y‘sY (um! looo~§OCPRW+ Ln 2: (so 1’ 1000 -— S‘o PW” 200 = (SD Pa: (600 00 I :- -' ( , 5 W t (ZOE-L6 i953 :P “MAE/:13 m 5/925 3MB: *‘ WW «a» El P659 quflk (sugar/i0: (4/4))00: c. (10) Suppose that, instead ofa $4 specific tarifi‘as in part b, Brazil had imposed a 20% ad valorem tariff instead. What would the rest-of-world price have been in that case? What would Brazil‘s price be? (no need to solve for quantities or gains fiom trade) r1 om) {000~ go PEM(‘OZ) ‘2. l) W Qtt) 1000 1 (601-663 PW ,louom ? PW- 3704x491 FM?“ _. 'PWXii'LQw-gg‘ V 3. A small country's demand for beefsteak is D8 = 40 - 2PS Its domestic supply is s8 = -10 + 3P3 The rest-of-world supply is perfectly elastic at Pw = $4 a. (20) Imagine that the small counuy plans to impose a specific tariff, T, on imports of beefsteak. Write the small country's demand for imports, as a function of T. ( (Um (“at w = q ) (‘s g s - $(0W333 5.. to (hit: (WU'ZP)——(-/ot3/>s) : 573—5?S W F. ,0 H— DSW‘ '5 g0 ” §(Pw+T) C Q‘ZOV /30-—g7~? {/4 b. (30) lfthe small country follows an "infant government" strategy, and chooses T such that government tariff revenues are maximized, what is the optimal tarifl‘ it should charge? What is the small country's price, PS ? How much is imported? How much tarifl‘ revenue (GS) does the counuy collect? 63: To (amp) : T(3o—9T\ ’5 “Pal .W’i ‘WU’LE ‘ . (99 ' 0%: 30"/0T‘0 W943] : T PS: Fiat—T: LlVZZlEli Q ~ 30w??? go’é‘BP/i Wt‘ , 1/ or : gym): [a an) , 55:61”: me 5752 4. US. demand for cedarwood is DUs = 6,000 - 100 PUS US supply of cedarwood is SUS = 200 PUS Foreign demand for cedarwood is DF = 12,000 - 200 PF Foreign supply of cedarwood is SF = 200 PF a. (12) Under autarky, find Pmax, Pmin, andtheautarky price, ineach country. a Wire 5 Wig ~~ b. (12) If free trade is opened, who will import, and who will export? What is the relevant price range that the free trade price will lie within? Us mode WW pm, We?“ FMESVL 0026 $1; - w co We 0 no u c. (26) Find the world price PW under free trade. Also find the quantity traded (Okay to round your price to 2 decimal places, and quantity to a whole number) 3 “S: (swat—bus: 200 P-—((oooo~100l35 1‘ "£0004 300 F X}: _ DF— 3?: l’ZOOO" 200 P e zoo? : IzoooeroF 0w» , as F 3% = DWL QM: \ZOOO“L/OO(2§,7/) , Mr or: “6000 +50 Wan/5% m; ' / 5. US. demand for a good is DUS = 4,800 - 200 P“ U.S. supply is $05 = -200 + 50 P“ a. (12) Find price, quantity produced and consumed, PS and CS, under autarky. $500 «ZooPuS: "Zoo #83 Pas b. (24) Now suppose trade is opened. World supply is perfectly elastic at Pw = $10. Find the new US quantity produced, quantity consumed, PS and CS. ‘ QP: ~ZOo+SUC(OJ 35302“ Old: Woo—Zooflol‘LwO c. (24) US producers are very upset about the scenario in pm b. They lobby for protection against cheap foreign imports. In response, an import quota M is established, such that the US price will be $15. Solve for the quota amount M that will be required to achieve this result. Lleoo ~— 200 P“: “ ZOO+€O PULS 1:54- Plug in ‘gl‘S M us: W502 v 7,0008) : “200 Jr EGGS“) +> (VI. WOO :— ggb +M W; RUG ~SCO 1 l‘lgo 6. Food is produced according to this production function: Qf = 10 Afs Lf‘2 Also, electronics are produced according to this function: Qe = 5 Ae‘1Le‘9 A represents land (acres), and L represents labor. I Let the price of land be r (rent per year), and the price of labor be w (wage or salary per year) Assume the Hecksher-Ohlin model (perfect competition). a. (20) For food producers, what is the optimal land/labor ratio (AIL) , as a fimction of (w/r)? (answer is a fimction, not a numerical value) b. (20) Suppose that in the US, w is $10,000 per year, and r = $200 per year. In Japan, w = $20,000 and r = $4000. How many acres of land are used for each worker in the food industry, in the US? How many acres of land are used for each food indushy worker, in Japan? (3 . Us— w ~L+~00<><>s a» 30 £0: L/(sowéafl c. (10) According to the Heckscher-Ohlin model, what general patterns of trade do you expect to see betweenthese untries? (What good will each country tend to export? Verbal answer only) Assume w and r are'éhie e as in part b. You don't need to calculate anything, you can answer by inspecan .WCQ “7 ” WMWWQW ...
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This note was uploaded on 02/27/2012 for the course ARE 138 taught by Professor Staff during the Spring '08 term at UC Davis.

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Midterm Key A - ARE 138 Winter 2011 Name[D Section A 10...

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