(1 point) a) Name, b) Student ID. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

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1 Midterm Exam Econ 355 Time allowed: 70 minutes (1 hour and 10 minutes) Read all questions carefully and encircle the right answer or write when ever needed. Each question is worth two point s unless otherwise indicated; Answers to Essay question should be written in the booklets provided to you; At the end of the exam you need to return this question booklet back; You should not have your cell phones with you. In case they are found to be switched on, your exams would be taken from you; When you finish the exam hand in your exam and leave the exam hall. If you are found talking in the exam hall your exam will be cancelled. (1 point) a) Name, b) Student ID MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The Ricardian model is based on all of the following except A) only two nations and two products. B) product quality varies among nations. C) labor is the only factor of production. D) no diminishing returns. 2) The principle benefit of tariff protection goes to A) domestic consumers of the good produced. B) foreign consumers of the good produced C) domestic producers of the good produced D) foreign producers of the good produced. Home Foreign Unit Labor Requirements Cloth Widgets ) Given the information in the table above, A) neither country has a comparative advantage. B) Home has a comparative advantage in cloth. C) Foreign has a comparative advantage in cloth. D) Home has a comparative advantage in widgets. E) Home has a comparative advantage in both products. 4) Trade between two countries can benefit both countries if A) each country exports that good in which it has a comparative advantage. B) each country enjoys superior terms of trade. C) each country has a more elastic demand for the imported goods. D) each country has a more elastic supply for the supplied goods. E) both C and D 1

2 5) In HOM with food and manufacturers as two goods; If the price of manufactures rises, then A) the price of food also rises. B) the quantity of food produced falls. C) the quantity of both manufactures and food falls. D) the purchasing power of labor in terms of food falls. 6) If Australia has more land per worker, and Belgium has more capital per worker, then if trade were to open up between these two countries, A) Australia would export the land-intensive product. B) Belgium would import the capital-intensive product. C) both countries would export some of each product. D) trade would not continue since Belgium is a smaller country. 7) A tax of 20 percent per unit of imported garlic is an example of a(n) A) specific tariff. B) ad valorem tariff. C) nominal tariff. D) effective protection tariff. 8) The main redistribution effect of a tariff is the transfer of income from A) domestic producers to domestic buyers. B) domestic buyers to domestic producers. C) domestic producers to domestic government. D) domestic government to domestic consumers. 9) If a good is imported into (large) country H from country F, then the imposition of a tariff in country H A) raises the price of the good in both countries ("the "Law of One Price"). B) raises the price in country H and cannot affect its price in country F. C) lowers the price of the good in both countries. D) lowers the price of the good in H and could raise it in F. E) raises the price of the good in H and lowers it in F. 2

3 ESSAY. Write your answer in the space provided or on a separate sheet of paper. 10) Only answer one of the following parts. Answer part A or part B Part A (7 points) Explain Rybczynski's theorem and Stolper Samuelson Theorem ( in no more than 30 words for each theorem- we'll ignore words after the first 30). OR Part B (7 points) Explain using a diagram what happens in the exporting country, when a small exporting country gives export subsidy. Is this welfare improving or welfare reducing policy for the country? - show the welfare change on your graph. 11) ( 6 points) Fill in the following blanks ( each blank is worth two point) *Corn is one of the top (rank) commodities planted around the world. * (which product) is the most valuable commodity after oil. * (which country) is the largest trading partners of Canada in the Agriculture Sector 12) Canada can be described as a Capital abundunt country and Mexico as a Labor abundunt country. Since NAFTA has been signed both countries have observed an increase in trade (free trade ) with each other. Both countries produce two kinds of goods Computers (capital intensive) and Vegetables (labor intensive). Assume for simplicity that these are the only goods produced by the two contries. (just like the Hecksher-ohlin model) a) (2 point) Which good does Canada import and which good does it export (since the signing of NAFTA) and why? b) (2 point) What do you think happend to the relative prices of computers in Canada when Canada opened up to trade with Maexico? c) (2 point) Would the relative price be same in the two countries after free trade? d) ( 5 points) Show with the help of a diagram what happend to the following once Canada opened up to trade with Mexico i) wage/rental ratio in Canada ii) and the factor intensities in the two industries in Canada, 13) ( 5 points) You discussed BT technology in the context of Corn. In 50 words explain what it is and what are the key changes in adapting BT technology 3

4 14) U.S. Plays Politics with Western Canadian Farmers' Livelihoods A cry of disappointment went out from the Canadian Wheat Board (CWB) today. The U.S. Department of Commerce (DOC) released a final determination today that increases tariffs for Canadian spring wheat and durum exports into the United States. Tariffs of 5.29 on spring wheat and durum were imposed under the countervailing duty case and 8.87 for spring wheat and 8.26 for durum under the anti-dumping investigation "It is devastating to western Canadian farmers to see this trade action continue. If the U.S. International Trade Commission bases its ruling on the facts - not on politics - the tariffs will be overturned," stated Ritter. Camille DePutter 2006 Contact Questions: part 1) (2 points) What is antidumping? (in no more than 30 words) part 2) Are the following statements true or false ( 4 points) a)this would lead to an increase in the price of wheat in the US domestic market, benefitting the US producers of wheat. b)this would lead to a decrease in the world price of wheat, benefitting the Canadian consumers of wheat. 15) (7 points) Refer to the figure above. : The level of imports before tariff is ( 1pt). Level of imports after tariff is (1 pt). The govt. Revenue (in dollar amount) due to the tariff equals (2 pt). The net welfare change from free trade to the tariff is ( 2pt). Is the trade policy of imposing this tariff beneficial for this large country.(yes/no). ( 1pt) The above answers should be in numbers Hints: (area of a rectangle: width * height; area of a triangle: 1/2 base *height) 4

5 Answer Key Testname: FRE306MIDTERM.TST MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) B 2) C 3) B 4) A 5) B 6) A 7) B 8) B 9) E ESSAY. Write your answer in the space provided or on a separate sheet of paper. 10) Part A How do the outputs of the two goods change when the economy s resources change? Rybczynski Theorem (effect): If a factor of production (T or L) increases, then the supply of the good that uses this factor intensively increases and the supply of the other good decreases for any given commodity prices. The reverse is also true. Factor Prices and Goods Prices Stolper-Samuelson Theorem (effect): If the relative price of a good increases then the return to the factor used intensively in the production of that good increases, while the return to the other factor decreases. Holding factor supply constant Return is nominal and real in terms of both the goods The reverse is also true. PART B Please check the graphs for small country (tariff) same will apply here - that is no change in world price from this policy change. Other than that it's the export subsidy graph. 11) third, coffee, US 12) a) Canada is capital abundunt and hence would export capital intensive good, computers and imports Vegetables.. b) The relative prices of Computers increases after trade. (think about it - this is why they export computers because they get a higher relative price in mexico - so after they open up to trade relative price of computers would increase - check out the slide 19 from lecture 5 and lecture 6 : c) yes d) wage/rental ratio decreases. e) both become more capital intensive 14) WTO system allows protection in specific cases by means of trade remedy measures called Anti-Dumping - Additional import duties. These are duties (basically triffs) imposed on imports coming into the country that are determined to be dumped, and is equivalent to the amount of the dumping margin. 2 a) true, b) true 1

6 Answer Key Testname: FRE306MIDTERM.TST 15) 90; 40; 120; the net welfare change is the two triangles (efficiency loss) = -75; No 2