2010 summer midterm

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Unformatted text preview: connects the Indian Ocean to the Red Sea, sees almost a third of the world's containerized cargo and 4 per cent of the world's daily oil, according to a paper by Strategic Foresight Group. Attacks off the Somali Coast almost quadrupled to 47 incidents from 12 in the same period last year, the quarterly report said. Attacks have subsided from earlier this year. The number of incidents in the third quarter was much lower than in the first and second quarter of this year as monsoons kept pirates away in the Gulf of Aden. Extra security may also be playing a role. “Enhanced security measures by vessels have also made it difficult for pirates to succeed in their attacks,” said the bureau's 10 director Captain Pottengal Mukundan. Pirate attacks have continued this month, though. Earlier this week, Somali pirates in the Indian Ocean captured a Chinese carrier, and are holding 25 sailors hostage. Chinese officials have since warned its ships to steer clear of the area. (a) The basic Ricardian and Heckscher-Ohlin models assume that there are no transportation costs required to export and import goods. What are the predictions of both of these models with regards to the prices of factors of production across countries with free-trade (wages in the Ricardian model, or the wage-rental ratio in the H.O. model)? Are the predictions regarding factor prices for either or both models supported by empirical evidence? (10 marks) 11 (b) What is a non-traded good? Explain how trade in the presence of transportation costs might give rise to non-traded goods. In lecture we have discussed the gains from trade. What are gains from trade? Suppose that gains from trade can be measured in $. Draw a graph that shows the gains from trade on the vertical axis as a function of the size of transportation costs required to export and import goods. (10 marks) 12...
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This note was uploaded on 04/11/2013 for the course ECON 355 taught by Professor Malhotra,nisha during the Fall '10 term at The University of British Columbia.

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