Midterm Key B

Midterm Key B - ‘Kev B m allow ha 906% L M > \...

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Unformatted text preview: ‘Kev B m allow ha 906% L M > \ Section A 10 multiple choice @ 10 pts. each = 100 pts. Section B 6 problems @ 50 pts. each = 300 pts. Total possible points = 400 pts. B SECTION A. 10 points each 1. Suppose two countries each produce electronics (3 labor-intensive good) and food (a land-intensive good) under autarky. Country A has relatively more abundant labor, and Country B has relatively more abundant land. 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 d. Workers in country B e. a and b i. a, b, c and d will all support free trade. 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. b. Country B will produce only wheat, and trade with A to obtain its beef. th 3 and b. d. Neither 3 nor b. 3. 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. Copper .Shrimp 4. 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. ®Democrats supported freer trade, Republicans advocated protection of domestic industries. c. Both parties generally supported freer trade. d Both parties generally supported increased protectionism. 5. Imagine 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. (L US consumers would prefer the quota, while US producers would prefer the tariff. 6. US opponents of flee 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 not b 7. Based on the actual fruit and vegetable tariffs that we looked up for homework 2, what appears to be the United States' main goal in setting these commodities' import tarifl rates? é.) Protecting domestic producers b. Improving our terms of trade 0. Both a and b d. Neither 3 nor b 8. 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 least-developed 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. 9. Country X is a small importer of cinnamon. Ifyou 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 0 could be possible gpals. e. a, b, and c could all be possible goals. 10. Imagine a region produces two goods, milk and apples, using two factors of production, farmland and labor. Production of milk is relatively land-intensive, while apple production is more labor- intcnsive. 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? @utput of milk will rise, and output of apples 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. SECTION B. 50 points each Partial credit given for correct steps, so show your work! 1. Suppose US demand and supply functions for cobalt are: DUS = 1000 - 4 P“ S“ = -200 + 2 P“ a. (12) Find price, quantity, consumer surplus and producer surplus under autarky. Du; z gug 2—7 ‘000- W“: -2.oo +2 P‘“ “75‘ Zao bio 200 I200 1‘ l " Cs: (21732“ffr003 T : Pus‘ [$200 (06 —4 o)(200 ' ‘ P5 :Q‘EEL— :, loloao a: [ooo~‘l(100)3@ g—q b. (24) Now suppose that trade is allowed, and the world price is below the US autarky price. Write the US import demand function (Dm) for cobalt, specifying what price ranges it applies to. Now sketch this function, labeling the price and quantity where the “kink” occurs. {you i: I) 613200 Dm: D‘usk—SU$ )finf FWI—q 5 I) ~ Q000—%P5~(’Zoer2P)=l L206 49?, law looépl: Zoo 6 m'.’ WM” {)m ‘2 Dug $0 DIM”; Q (0 woo—LI 000420.31 / 64' Ion/dc ,, (JAM); [word/00): éoo ' (goo 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? mm: [200 ~20?» : é @391 qu9: “loot/1052334E31 {NC/ng/UO, @519: loco—\{Cts—o) suit—6a V gag; d.(6) How much will the US import, if world supply is perfectly elastic at Pw = $80? How much does the US produce? How much does it consume? DW:IOOO~%(8’OS: [(2660 620%“: @ smut P w 4 WW 4W0“ Qougzm\ ac;th l) HVMPN'I; 2. Let Brazil's import demand for a good be: DmB = 1,000 - 50 PB The rest of the world’s export supply for this good is: SXROW = 150 PROW a. (20) Under free trade, find the world price PW , the quantity Brazil's net gains from trade, and the ROW's net gains fiom trade. W t , d \ ‘20 A @i sx’W Smells— figi‘e" QOK—fi”$')c7‘DZ/f§ezs] M » 7., - 4“ W‘ (Me timoqu = (Sig—7P; [31m] A 07 79> 0/600 b. (20) Now, suppose Braznl Imposes a specific tariff of $4 on imports of this good. Find the new Brazilian price, P ; the new test-of-World price, PROW; and the new amount imported. Also find Brazil's net gains from trade, and the ROW's net gains fiom trade. 20 .. ha, / . fr: 7 MW” 8 (WW 5’ iooo~§bCPW+ L” C Q 0 C ‘2. l “a .1. .73 (Q ‘7“ ,4: 1 GE - \\ <a\ C) C}. ,2) flow game 2 (11—0 00 : ’2’ c. (10) Suppose that, instead ofa $4 specific tarifl‘as in part b,vBrazil 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? (noneedtosolve for quantities orgains from trade) :2on 2:23 1000-: (em—(Sm PM 3 ,IUUOQ $’ {Wk 3704 ‘tflél 3. A small country's demand for beefsteak is D8 = 40 - 2PS_ Its domestic supply is sS = -10 + 3PS The rest-of-world supply is perfectly elastic at Pw= $4 a. (20) Imagine that the small country plans to impose a Specific tariff; T, on imports of beefsteak. Write the small country's demand for imports, as a function of T. ( (“Lu/Qt Pu) : q ) (‘8 Dg=bS—€S 41m PWMoWazs WI 6. w 0V1: (HU'Z.P)v(~/or3l’5) : 573—571” M flu p FT— DSM = €0~ NWT) = 9‘20’57': FE” £714 b. (30) Ifthe small country follows an "infant government" strategy, and chooses T such that government tariff revenues are maximized, what is the optimal tariff it should charge? What is the small counuy's price, PS ? How much is imported? How much tariff revenue (GS) does the country collect? gs: To (@flffl) : T(30~9T\ ‘3 35P§T1 Wane s — [0T: 0 3 (,9 __ fip_,\30 pg: Per—Z Ltr3=lEZl ' ’ gm: zovfi’: 3°’§(5):/E 6V -: fi~§’(7/: 15 ps 4.) , észos'r: (5‘3 .5715 4. US. demand for cedarwood is DUs = 6,000 - 100 PUS US supply ofcedarwood is s”8 = 200 P”S Foreign demand for oedarwood is DF = 12,000 - 200 PF Foreign supply of cedarwood is SF = 200 PF a. (12) Under autarky, find Pmax, Pmin, and the autarky price, in each country. cs l> $9132. F masode My PM:@ b. (12) If free trade is opened, who will import, and who will export? What is the relevant price range that the flea trade price will lie within? Mm— W - = w 00 o no ken/ed a 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) g (LS: Quibus: 200 p,(@000a[0093 : "(9000i 300 F DXF _ bF—ng; [2000» 200 P " Zoo? : ‘IZOC'O’qOOP m ’ . :7 e-éooo i 300? : WOOD "900 P «map : [8/000 QM: ncoowoizm/l émrw 1, cw, M; «6000 +50 ((25.7.1) 9 I713 .' / as F $3<=Dm 5. US. demand for a good is DUs = 4,800 - 200 PUs U.s. supply is sUS = -200 + 50 PUS a. (12) Find price, quantity produced and consumed, PS and CS, under autarky. <19: »2 0+9) F“ q 0/2009 0 V W , QWJW 57300: ZS’Ol 2‘! x (3%“ z A Pu" = 312373 ‘ ~29 20 P3: Cw: {Oz/6% Q0; T” 800 Woo ' 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. Q8: ~Zoo+svaoj SEE c. (24) US producers are very upset about the scenario in part 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 $300 « Zoo Pug: - Zoo+§o pus + m \ Wm M Mug $2ng LVireo —~ 7,0003). : “200 1' 50(5) + m . “((30 .: §§D+M W; lave ~SCO= “750. 6. Food is produced according to this production function: Qf = 10 Al“8 Lf‘2 Also, electronics are produced according to this function: Qe = 5 Ae‘l be9 A represents land (acres), and L represents labor. V 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 function, not a numerical value) 0% “6% %C—ff W .9~(l0)l\a« Lg : g 9.9.9 ” P A 5K 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 industry worker, in Japan? t’ 200 CO _ 20,000_ r. 7* \{000 ” c. (10) According to the Heckscher-Ohlin model, what general patterns of trade do you expect to see between thfiuntries? (What good will each country tend to export? Verbal answer only) Assume w e and r are: e as in part b. You don‘t need to calculate anything, you can answer by inspecfimre “7 "‘ WWW Lam ...
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Midterm Key B - ‘Kev B m allow ha 906% L M &amp;gt; \...

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