INTERNATIONAL TRADE

Final Exam - Summer Semester 2013

Semester 4, IBA-BA
Test - 720439

Test duration

120 minutes

Maximum points

120

General instructions

Please follow the instruction to answer each question-set in the

space given. This question-pack comprises 9 sheets (18 sides)
including this and the cover sheet.
There are four sets of questions. Each set has to be answered.
You may NOT use any paper other than the 7 sheets that
follow this sheet to write in or mark your answers.
You may NOT use a pencil to write in or mark your answers

ALL THE BEST

Examiners space - do not write below the dotted line
............................................................................................................................................
Points scored
Remarks

Question Set 1
Mark the following statements as true or false in the space given next to each statement
Choose any 15 out of 20 statements: Each correct answer 2 points (MAXIMUM 30 POINTS)

Statement

True (T) or False (F)

(1)

There is still a significant number of people disaffected by trade

(2)

Trade between developed and developing countries that differ in their

factor endowments is more consistent with Heckscher-Ohlin model

(3)

With specialisation and trade the consumption possibilities are expanded

(4)

One of the basic principles of trade supported by WTO is that once a

product or seller has entered a country, it should be treated the same as

T
______

T
______

T
______

T
______

products or sellers that originated inside that country

(5)

Tariff reductions has been a major discussion point is most of the global
trade negotiations as part of GATT rounds

(6)

The Smoot-Hawley Tariff Act of 1930 reduced the tariffs on several goods
and facilitated trade in the US

(7)

With international trade, the country will export the good whose relative
price is below the world relative price

(8)

In an economy, free trade benefits the abundant factor but hurts the scarce
factor

(9)

Intra-industry trade is export and import within the same industry

T
______

F
______

T
______

T______

T
______

(10) Under the H-O model, with trade demand for the countrys abundant factor
will decrease
(11) Free trade raises the relative price, within the country, of the countrys
exports

T
______

T
______

(12) Global competition enhances productivity gains for firms and industries

T
______

(13) Free trade ensures relatively high wage levels for all domestic workers

F
______

(14) The imposition of a tariff on imported steel for the home country results in
higher steel prices and falling steel consumption

(15) Technology and international trade can raise the real income of domestic
producers and consumers
(16) Trade and specialisation can possibly increase a nations total output by
increasing the productivity of its resources

T
______

T
______

T
______

(17) With trade between two countries all people in both countries are better off

F
______

(18) A countrys overall welfare decreases when a tariff is introduced on imports

T
______

(19) Developing countries only export raw materials

F
______

(20) Governments revenue decreases when subsidies are provided to exporters

T
______

Question Set 2
Choose the correct (or best) answer from among the choices given after each statement or
question. Circle the correct answer
10 statements: Each correct answer 3 points (30 POINTS)

(1)

David Ricardo's trading principle emphasises the:

a.

Demand side of the market

b.

Supply side of the market

c.

Role of comparative costs

d.

Role of absolute costs

(2)

According to the Ricardos principle, specialisation and trade increase a nation's total
output since:

a.

Resources are directed to their highest productivity

b.

The output of the nation's trading partner declines

c.

The nation can produce outside of its production possibilities curve

d.

The problem of unemployment is eliminated

(3)

Under Heckscher-Ohlin Model, international trade can lead to increases in:

a.

Consumer welfare only if output of both products is increased

b.

Output of both products and consumer welfare in both countries

c.

Total production of both products, but not consumer welfare in both countries

d.

Consumer welfare in both countries, but not total production of both products

(4)

A main advantage of specialisation results from:

a.

Economies of large-scale production

b.

The specializing country behaving as a monopoly

c.

Smaller production runs resulting in lower unit costs

d.

High wages paid to foreign workers

(5)

A countrys workers union attempted to win the approval of legislation that would
moderate the practice of foreign sourcing on the part of auto manufacturers. Which of
the following best represents this legislation?

a.

Voluntary export quotas

b.

Export subsidies

c.

Tariff quotas

d.

Local content requirement

(6)

The movement to free international trade is most likely to generate short-term

unemployment in which industries?

a.

Industries in which there are neither imports nor exports

b.

Import-competing industries

c.

Industries that sell to domestic and foreign buyers

d.

Industries that sell to only foreign buyers

(7)

Free traders maintain that an open economy is advantageous in that it provides all of
the following except:

a.

Increased competition for world producers

b.

A wider selection of products for consumers

c.

The utilization of the most efficient production methods

d.

Relatively high wage levels for all domestic workers

(8)

A primary reason why nations conduct international trade is because:

a.

Some nations prefer to produce one thing while others produce other things

b.

Resources are not equally distributed among all trading nations

c.

Trade enhances opportunities to accumulate profits

d.

Interest rates are not identical in all trading nations

(9)

In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in:

a.

military capabilities

b.

labor productivities

c.

relative availabilities of factors of production

d.

tastes

(10) A closed economy is one in which:

a.

Imports exactly equal exports, so that trade is balanced

b.

Domestic firms invest in industries overseas

c.

The home economy is isolated from foreign trade

d.

Saving exactly equals investment at full employment

Question Set 3
Supply the correct (or best) answer to complete the statement - write in clearly the answer in
the space provided
Choose any 8 out of 10 statements. Each correct answer 4 points (MAXIMUM 32 POINTS)

(1)

With international trade, the country will export the good whose relative price is below
the world relative price, which may differ from the domestic price because of differences

technologies

in ____________
(2)

simplistic

Ricardian model of trade is a ___________ model for the analysis of reasons and effects

potentially suffer

of international trade. However, it doesnt tell that some people could __________ from
specialisation

(3)

World Trade Organisation

WTO, which stand for ____________________ stipulates procedures for the settlement of
international trade disputes

(4)

A quota
______________________
is the maximum amount of a foreign produced good that will
be allowed to enter a country over a given time period.

(5)

intensive country, exported __________

labour
In 1947 US, presumably a capital ___________
intensive
Leontief Paradox
products. This observation is known as ___________

(6)

container
From its invention in 1956, the ______________
has transformed global trade

(7)

export goods that are

According to Heckscher-Ohlin theorem, an economy will ________
import
relatively intensive in using its relatively abundant factors of production; and will _______
goods that are relatively intensive in using its relatively scarce factors of production

(8)

World price of a good may differ from the domestic price because of differences in
technologies or resources, such as __________________.
raw materials
____________

Text

(9)

increase
An elimination of non-tariff barriers on apples tends to ________________
apple
decrease profits of import-competing apple producers.
imports, __________

trade balance / net exports

(10) The difference between exports and imports is called the ____________.

Question Set 4
Choose any 4 out of 10 questions: 28 POINTS
In multiple-choice questions, if you only mark the correct answer without an explanation only 2
points will be awarded. If you answer more than 4 questions, you will get points for best 4 and
may also be considered for bonus points. (Question 9 carries 14 points)

(1)

The movement to free international trade is most likely to generate short-term

unemployment in which industries?

a.

Industries in which there are neither imports of exports

b.

Import-competing industries

c.

Industries that sell to domestic and foreign buyers

d.

Industries that sell to only foreign buyers

State and explain your choice

Imports will be cheaper and the import-competing industries will face competition
and will have to cut wages or lay-off people to survive.

(2)

In Germany, automobiles are

a.

Imported, but not exported

b.

Exported, but not imported

c.

Imported and Exported

d.

Neither imported not exported

State and explain your choice

consumer preferences for different car brands etc. means Germany imports
and exports cars intra-industry trad

10

capital intensive

(3)

The figure above shows the input choices (labour and capital) in making two products
A and B. If product A is relatively capital intensive which of the two graphs represents
it? Explain

L/ K in Graph 1 is more than L/K in Graph 2

(4)

Is there is an ongoing discussion in international trade on ethical issues concerning

labour standards ? Provide an example which was recently in news.

Yes, this is indeed an ongoing discussion think of Bangladesh

and also your own role in the value chain

11

(5)

Figure above plots the production possibility frontier (PPF) of two products A and B:
QA and QB are the quantities of products A and B made by the country. What
determines the quantity of each product the country will produce? Explain

Refer to classroom slides

12

(6)

What are the common arguments for restricting trade? Explain any two arguments.

Refer to classroom slides

(7)

Does the principle of comparative advantage explain well the modern international
trade? Why or why not?

No increasing return of scale, consumer preferences etc. are not explained well

(8)

Increased foreign competition tends to:

a.

Intensify inflationary pressure at home

b.

Induce falling output per worker-hour for domestic workers

c.

Place constraints on the wages of domestic workers

d.

Increase profits of domestic import-competing industries

Text

State and explain your choice

13

(9)

Who gains from tariffs? Use the above diagram to show the effects of tariff

Refer to classroom slides

14

(10) Define or explain any three of the following terms:

a.

Heckscher-Ohlin Model

b.

Quota

c.

Ad valorem tariff

d.

GATT

e.

WTO

f.

Doha Round

Refer to classroom slides and your own notes

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