SSU Economics Department

Econ 303 International Economics

Professor Carlos A. Benito

MIDTERM 1 - EXAMPLE

Student Name:

Multiple Choice

1. After trade has opened up, the gains that trade brings to consumers of the imported goods are, in absolute values:

a) Exactly equal to the losses to domestic producers of that good.

b) Larger than the losses to domestic producers of that good.

c) Smaller than the losses to domestic producers of that good.

d) Immeasurable.

2. Consumer surplus is:

a) What is worth to consumers to be able to buy the product at a price lower than the price some of them would be willing and able to pay.

b) What consumers can get below the market price.

c) What consumers must pay the government to produce goods.

d) What they can get below the market price.

Example or Case: Suppose that opening up trade would make our nation export corn and import jogging pants. Let's say that it raises the price of corn from 0.25 pants/bushels to 0.33 pants/bushels (so that the relative price of jogging pants drop). Hint: draw a graph repressenting this case before answering the questions

Space for graph:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3. Based on the above example,

a) The welfare of corn consumers increases.

b) The welfare of corn consumers decreases.

c) The welfare of corn producers decreases.

d) None of the above.

4. Following with the same example,

a) The welfare of corn producers increases

b) The welfare of corn consumers decreases

c) All of the above

e) None of the above
 
 

5. Following with the same example,

a) The imports of pants increases.

b) The export of corn increases.

c) The welfare of corn producers increases.

d) All of the above.

6. The economist credited with the first systematic expression of the principle of comparative advantage was:

a) Eli Heckscher

b) John Maynard Keynes

c) Bertil Ohlin

d) David Ricardo

e) Adam Smith
 
 

7. The economist David Ricardo is credit with the first systematic expression of the theory of:

a) Comparative advantages

b) Absolute advantages

c) Factor proportions

d) Employment determination in a closed economy
 
 
 
 

8. The economist David Ricardo is credited with the proposition that free trade flows are determined by:

a) Relative productivities

b) Absolute productivities

d) Relative factor endowments

e) Government trade management
 
 
 
 

9. Key assumptions of the theory of factor proportions are:

a) Competition in all markets

b) Increasing marginal costs

c) Technology neutral

d) Al of the above

e) None of the above

10. A key assumptions of the theory of factor proportions is:

a) Two or more production factors.

b) Capital and labor exist in the same proportion in both countries.

c) Technology is more natural in one country than the other.

d) None of the above.

11. The American poet Henry Davit Thoreau wrote:

The cost of a thing is the amount of what

I will call life which is required to pay for it.

a) Thoreau's idea was similar to Adam Smith's theory of labor value.

b) Thoreau's idea was similar to David Ricardo's theory of labor value.

c) Thoreau's was an American Poet (-:

d) All of the above

e) None of the above.

12. Studies of U.S. trade and its effects on employment of U.S. labor show that on average:

a) Trade has not effect on total employment

b) Replacing imports (e.g. through protection from foreign competition) saved (or created) more jobs than an equivalent expansion of exports.

c) Expanding exports creates more jobs than an equivalent amount of import substitution.

d) Foreign competition has clearly raised the unemployment rate, particularly in the 1980s.

13. After trade open up, in the short run:

a) All groups tied to the declining sectors loose.

b) Only factors more intensively used in the declining sectors lose.

c) Only factors less intensively used in the declining sectors lose.

d) Only the most abundant factor in the country loses.

14. Mexico is an unskilled abundant country, while the United Sates is a skilled-labor abundant country. With the opening of trade you would expect in the long run wages for unskilled workers:

a) Decline in both countries

b) Decline in the United States and rise in Mexico

c) Rise in the United States and decline in Mexico.

d) Rise in both countries.

15. Factor price equalization will not hold if:

a) Factors are immobile between sectors of the economy.

b) Factors have different productivities in different countries.

c) Countries put up barriers to free trade.

d) All of the above.

16. If a nation has a comparative advantage in a capital intensively produced good, and the rate of growth of capital is greater than the rate of growth of other inputs (e.g. labor), according to trade theory, the pattern of growth which that results will be:

a) Import-replacing

b) Neutral as between capital-intensive and other internationally traded goods.

c) Export-expanding

d) None of the above.

17. If with one hour of labor nation X can produce either 3 bushels of wheat or 3 yards of cloth, while nation Y can produce either 1 bushel of wheat or 1 yard of cloth with an hour of labor, and if labor is the only input, then:

a) Nation Y has an absolute advantage in both goods.

b) Nation X has an absolute advantage in both goods.

c) Nation X has a comparative advantage in both goods.

d) Nation X has comparative disadvantage in both goods.
 
 

We know that Laborland is a labor-abundant country and Landilea is land-abundant country. We also know that textile production is labor-intensive and wheat production is a land intensive process. If these two countries open their economies to freee trade:
 

18. Using the above case:
a) the price of wheat falls in Landilea
b) the price of textiles rises in Laborland
d) all of the above
d) None of the above