Set I.Explain your answers if necessary,5% each.
1. Intra-industry trade is most common in the trade patterns of
a.developing countries of central Asia.
b.developed countries of Pacific Rim.
c.developed countries of Europe.
d.developing countries of Africa.
2. If some industries exhibit IRS technology,them we should not expect to see
a.intra-industry trade
b.inter-industry trade
c.perfect competition in these industries
d.new substitutes developed for these industries
3. Linder's hypothesis says that countries with similarity of ___________
will trade intensively with each other.
a.consumer's taste
b.household income
c.technology
d.market size
4. Theories of comparative advantage explain trade patterns due to differences
in _____________.
a.national income level
b.consumer's preferences
c.short supply of technology innovation
d.supply conditions across countries
5. Leontief's result can be reconciled by arguing that
a.Indian labor is more efficient in raw material industry
b.different countries might use the same technology
c.tariff and subsidy may lead to changing trade patterns
d.similarity in consumer's tastes
6.According to the product life cycle model,comparative advantage
a.may shift from country to country due to changes in preference
b.always stays in the country with strong demand
c.will not change for agricultural products
d.may shift to another countries as a product matures
7.A prohibitive tariff has the effect of
a.higher revenue for government
b.limited quota
c.highest protection for domestic industrialists
d.infinite effective rate of protection
Set II.
1.Describe the effects of a tariff in the large-country case. Illustrate
with graph under general equilibrium. (25%)
2.Suppose that a (small) country is an importer of good X,for which the
current world price is $8. At that price with free trade,home products
are supplying 500 units of good X and the country is exporting 300 units.
It is now rumored that a 10 percent import duty will be imposed on good X.
Estimate the welfare impact that would occur with such a tariff,given that
the elasticity of demand by consumers for good X is 2.0 and that the
elasticity of home supply is 1.6. (20%)
3.Suppose that under free trade a final good F has a price of $1,000,that the
prices of the only two inputs to good F,goods A and B,are PA=$300 and
PB=$500,and that 1 unit each of A and B is used in producing 1 unit of good
F. Suppose also that an ad valorem tariff of 20 percent is placed on good F,
while imported goods A and B face ad valorem tariff of 20 percent and 30
percent,respectively.Calculate the ERP for the domestic industry producing
good F,and interpret the meaning of this calculated ERP. (20%)
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