Economics 452 International Trade Theory and Policy Fall 2015

Transcription

1 blue A FINAL EXAM Economics 452 International Trade Theory and Policy Fall 2015 FOREIGN DIRECT INVESTMENT 1. Historically, the countries have been the biggest recipients of inward FDI. Those inflows are much volatile than the FDI going into the remaining countries. a) non-oecd, more b) non-oecd, less c) richest OECD, more d) richest OECD, less 2. Which country has more outward FDI than France, Japan and Germany combined (based on yearly average )? a) Canada b) China, including Hong Kong c) United States d) United Kingdom 3. That Toyota replicates the production process for its most popular car model, the Corolla, in assembly plants in many countries is best described as: a) horizontal FDI b) vertical FDI c) diagonal FDI d) circular FDI e) export platform FDI 4. That Intel locates wafer production in countries where skilled labor is relatively abundant while locating chip assembly in other countries is best described as: a) horizontal FDI b) vertical FDI c) diagonal FDI d) circular FDI e) export platform FDI 1

2 TRADE POLICIES 5. The quantity demanded of peanuts and consumer surplus in the United States a) rises due to the US price of peanuts rising b) rises due to the US price of peanuts falling c) remains the same d) falls due to the US price of peanuts rising e) falls due to the US price of peanuts falling 6. The quantity supplied of peanuts and producer surplus in the United States a) rises due to the US price of peanuts rising b) rises due to the US price of peanuts falling c) remains the same d) falls due to the US price of peanuts rising e) falls due to the US price of peanuts falling 7. Relaxing the US quota on peanuts improves US welfare through the US consumption and production distortions, and the quota rents transferred to foreign peanuts producers. a) increasing, increasing b) reducing, reducing c) eliminating, eliminating d) increasing, reducing e) reducing, increasing 8. Relaxing the US quota on peanuts improves world welfare through the US consumption and production distortions, and the foreign consumption and production distortions. a) increasing, increasing b) reducing, reducing c) eliminating, eliminating d) increasing, reducing e) reducing, increasing 2

3 9-12 Suppose Bangladesh increases its export subsidy on potatoes. Bangladesh is too small to affect the world price for potatoes. 9. Bangladesh increasing the export subsidy causes the quantity demanded of potatoes and consumer surplus in Bangladesh to a) rise due to the Bangladeshi price of potatoes rising b) rise due to the Bangladeshi price of potatoes falling c) remains the same d) fall due to the Bangladeshi price of potatoes rising e) fall due to the Bangladeshi price of potatoes falling 10. Bangladesh increasing the export subsidy causes the quantity supplied of potatoes and producer surplus in Bangladesh to a) rise due to the Bangladeshi price of potatoes rising b) rise due to the Bangladeshi price of potatoes falling c) remains the same d) fall due to the Bangladeshi price of potatoes rising e) fall due to the Bangladeshi price of potatoes falling 11. Bangladesh increasing the export subsidy causes the quantity demanded of potatoes and consumer surplus in the ROW to a) rise due to the ROW price of potatoes rising b) rise due to the ROW price of potatoes falling c) remains the same d) fall due to the ROW price of potatoes rising e) fall due to the ROW price of potatoes falling 12. Bangladesh increasing the export subsidy causes the quantity supplied of potatoes and producer surplus in the ROW to a) rise due to the ROW price of potatoes rising b) rise due to the ROW price of potatoes falling c) remains the same d) fall due to the ROW price of potatoes rising e) fall due to the ROW price of potatoes falling 3

4 POLITICAL ECONOMY OF TRADE POLICY 13. The argument that special interest groups are likely to promote protectionist policies that decrease national economic welfare leads to a presumption that a) in practice free trade policy is likely to be better than alternatives b) trade policy should be decided by Non-Governmental Organizations c) free trade should be avoided if alternatives are available d) free trade is the likely equilibrium solution if the government allows special interest groups to dictate trade policy e) protectionist policies better serve the country as a whole than free trade 14. A trade policy designed to alleviate a domestic economic problem by harming foreign countries is know as policy. a) an international dumping b) a countervailing tariff c) a beggar-thy-neighbor d) a trade adjustment assistance 15. The Smoot-Hawley Tariff Act of 1930 has generally been associated with a) falling tariffs and freer trade b) converting non-tariff barriers into equivalent tariffs c) intensifying the worldwide depression d) recovery from the worldwide depression 16. The game-theory explanation of the paradox that even though all countries would benefit if each were to chose free trade, in fact each tends to follow protectionist policies is called a) trade war b) collective action c) prisoner's dilemma d) benefit-cost analysis e) rent seeking 4

5 TRADE POLICY PROBLEMS In the United States (US), inverse demand is, while inverse supply is. In the rest of the world (ROW), inverse demand is, while inverse supply is A The US autarky price is P a) 30 b) 25 c) 20 d) US quantity demanded is Q D a) P b) P c) 45 + P d) 45 - P 19. US quantity supplied is Q S a) P b) P c) 25 + P d) 25 - P 20. US import demand is M a) -70-2P b) P c) P d) 70-2P 21. US import demand has price intercept and slope. a) 35, -1/2 b) 35, 1/2 c) -35, 1/2 d) -35, -1/2 5

6 22. A* The ROW autarky price is P a) 30 b) 25 c) 20 d) ROW quantity demanded is a) 25 + P* b) 25 - P* c) P* d) P* 24. ROW quantity supplied is is. a) 5 - P* b) -5 + P* c) 5 + P* d) -5 - P* 25. ROW export supply is X* a) 30-2P* b) P* c) P* d) -30-2P* 26. ROW export supply has price intercept and slope. a) 15, -1/2 b) 15, 1/2 c) -15, -1/2 d) -15, 1/2 6

7 27. The free trade price is P a) 30 b) 25 c) 20 d) US imports under free trade are M a) 25 b) 20 c) 15 d) US quantity demanded under free trade is D 1 a) 25 b) 20 c) 15 d) US quantity supplied under free trade is S 1 a) 25 b) 20 c) 15 d) The US tariff-ridden import demand for a specific tariff t 10 is M T a) 50-2P* b) P* c) -50-2P* d) P* 7

8 32. It has price intercept and slope. a) 25, -1/2 b) 25, 1/2 c) -25, -1/2 d) -25, 1/2 33. The ROW price with the tariff is a) 30 b) 25 c) 20 d) The US price with the tariff is a) 30 b) 25 c) 20 d) US imports with the tariff are a) 25 b) 20 c) 15 d) US quantity demanded with the tariff is D 2 a) 25 b) 20 c) 15 d) 10 8

9 37. US quantity supplied with the tariff is S 2 a) 25 b) 20 c) 15 d) How large of a tariff would the United States need to impose to prohibit all imports? a) 25 b) 20 c) 15 d) The change in US consumer surplus due to the tariff is a) -100 b) c) -25 d) The change in US producer surplus due to the tariff is a) 100 b) 87.5 c) 25 d) The government revenue collected in the United States due to the tariff is a) 100 b) 87.5 c) 25 d)

10 42. The US consumption distortion created by the tariff is a) 100 b) 87.5 c) 25 d) The US production distortion created by the tariff is a) 100 b) 87.5 c) 25 d) The US efficiency loss is a) 100 b) 87.5 c) 25 d) The US efficiency loss occurs because the United States produces and consumes due to the tariff. a) too much, too much b) too much, too little c) too little, too much d) too little, too little 46. The US terms of trade gain is a) 100 b) 87.5 c) 25 d)

11 47. The US terms of trade gain occurs because the United States due to the tariff. a) buys imports cheaper b) buys more imports c) buys fewer imports d) has no effect on the ROW price 48. The change in welfare in the United States due to the tariff is a) 100 b) 87.5 c) 25 d) Compared to free trade, is the United States better or worse off with this tariff? a) better with this tariff b) worse with this tariff c) the same with this tariff as with free trade d) none of the above e) cannot tell from the information provided 50. Why? Because the outweighs the for a large country (able to affect world prices) adopting a small tariff starting from free trade. a) terms of trade gain, efficiency loss b) efficiency loss, terms of trade gain c) production distortion, consumption distortion d) consumption distortion, production distortion 11

12 blue A FINAL EXAM SOLUTIONS Economics 452 International Trade Theory and Policy Fall c 2c 3a 4b 5b 6e 7b 8b 9d 10a 11c 12c Historically, the richest OECD countries have been the biggest recipients of inward FDI. Those inflows are much more volatile than the FDI going into the remaining countries. The United States has more outward FDI than France, Japan and Germany combined (based on yearly average ). That Toyota replicates the production process for its most popular car model, the Corolla, in assembly plants in many countries is best described as horizontal FDI. That Intel locates wafer production in countries where skilled labor is relatively abundant while locating chip assembly in other countries is best described as vertical FDI. The quantity demanded of peanuts and consumer surplus in the United States rises due to the US price of peanuts falling. The quantity supplied of peanuts and producer surplus in the United States falls due to the US price of peanuts falling. Relaxing the US quota on peanuts improves US welfare through reducing the US consumption and production distortions, and reducing the quota rents transferred to foreign peanuts producers. Relaxing the US quota on peanuts improves world welfare through reducing the US consumption and production distortions, and reducing the foreign consumption and production distortions Bangladesh increasing the export subsidy causes the quantity demanded of potatoes and consumer surplus in Bangladesh to fall due to the Bangladeshi price of potatoes rising. Bangladesh increasing the export subsidy causes the quantity supplied of potatoes and producer surplus in Bangladesh to rise due to the Bangladeshi price of potatoes rising Bangladesh increasing the export subsidy causes the quantity demanded of potatoes and consumer surplus in the ROW to remain the same. Bangladesh increasing the export subsidy causes the quantity supplied of potatoes and producer surplus in the ROW to remain the same. 1

13 13a 14c 15c 16c The argument that special interest groups are likely to promote protectionist policies that decrease national economic welfare leads to a presumption that in practice free trade policy is likely to be better than alternatives. A trade policy designed to alleviate a domestic economic problem by harming foreign countries is know as a beggar-thy-neighbor policy. The Smoot-Hawley Tariff Act of 1930 has generally been associated with intensifying the worldwide depression. The game-theory explanation of the paradox that even though all countries would benefit if each were to chose free trade, in fact each tends to follow protectionist policies is called prisoner's dilemma. A 17e The US autarky price is P 35 none of the above 18d US quantity demanded is Q D 45 - P 19b US quantity supplied is Q S P 20d US import demand is M 70-2P 21a US import demand has price intercept 35 and slope -1/2. 22d A* The ROW autarky price is P 15 23b ROW quantity demanded is 25 - P* 24b ROW quantity supplied is is -5 + P* 25b ROW export supply is X* P* 26b ROW export supply has price intercept 15 and slope 1/2. 27b The free trade price is P 25 28b US imports under free trade are M 20 29b US quantity demanded under free trade is D e US quantity supplied under free trade is S 0 none of the above 31a The US tariff-ridden import demand for a specific tariff t 10 is M T 50-2P* 32a It has price intercept 25 and slope -1/2. 33c The ROW price with the tariff is 20 34a The US price with the tariff is 30 35d US imports with the tariff are c US quantity demanded with the tariff is D e US quantity supplied with the tariff is S 2 5 none of the above 38b How large of a tariff would the United States need to impose to prohibit all imports? 20 2

14 39b The change in US consumer surplus due to the tariff is d The change in US producer surplus due to the tariff is a The government revenue collected in the United States due to the tariff is d The US consumption distortion created by the tariff is d The US production distortion created by the tariff is c The US efficiency loss is 25 45b The US efficiency loss occurs because the United States produces too much and consumes too little due to the tariff. 46e 47a The US terms of trade gain is 50 none of the above The US terms of trade gain occurs because the United States buys imports cheaper due to the tariff. 48c The change in welfare in the United States due to the tariff is 25 49a Compared to free trade, the United States is better off with this tariff. 50a Why? Because the terms of trade gain outweighs the efficiency loss for a large country (able to affect world prices) adopting a small tariff starting from free trade. 3