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Value: 100 Points: Exam #1
Value: 100 Points: Exam #1
Exam #1
Value: 100 points
Directions:
1)
2)
3)
4)
5)
Place your name and ID# on front page of blue book AND the top of this exam.
You must turn in the exam AND the blue book at the end of the exam.
Only answers placed in the blue book will be considered.
Please pay attention to the point values when allocating time.
You should have 4 pages to this exam.
Multiple Choice (10 questions 3 points apiece) Place your answer to the following
questions on the first page of the blue book.
Use the following chart to answer questions (1) (3).
Suppose that labor can produce flowers or candy in the US and Sweden. Below is the chart that
indicates how much 1 hour of labor can produce if it specializes in a particular good.
Flowers
Candy
United States
20
120
Sweden
10
30
3. There would be no international exchange rate that would permit mutually beneficial exchange
between the US and Sweden if the output/labor for candy in Sweden was, instead of 30:
a.
b.
c.
d.
e.
5
10
60
120
200
4. Suppose that there are two factors, land and capital, and that the US is relatively capital
abundant while Mexico is relatively land abundant. According to the H-O theory,
a.
b.
c.
d.
5. If Canada imposes a tariff on bananas and if none are grown in Canada, this tariff has
a.
b.
c.
d.
6. Many argue that there is ultimately no real difference between a tariff and quota both raise
price and lower the quantity imported. However, a domestic monopolist facing import
competition would
a.
b.
c.
d.
Short Answer Clearly label the start of each question in the blue book. You do not
have to answer these questions in order.
1. (13 points) Could two countries with identical abilities to produce (production
possibilities curves) and identical tastes (indifference curves) gain from trading with each
other? Explain how or why not. You must provide examples to defend your answer. List
all assumptions.
2. (13 points) In addition to the production and consumption deadweight losses that result
from the implementation of tariffs, what are other potential costs of tariffs? List and
define at least three examples.
3. (13 points) In the context of national welfare, prove free trade is preferred to autarky.
Provide graphical support to your answer.
Problems Clearly label the start of each question in the blue book. Answer all parts
of both problems, circling the answer to each part. Partial credit may be given for
each question, provided that your work is shown.
1. (12 points 3 points each) Suppose that both the US and Canada have the factor
endowments listed in the table below. Suppose that the production requirement for one
unit of steel is two machines and 8 workers, while the production requirement for one of
bread is one machine and 8 workers.
Capital
Labor
US
Canada
40 machines 10 machines
200 workers 60 workers
2. (18 points) Suppose that the world price for a good is 40, and the domestic demand
and supply curves are given by the following equations:
Demand:
P=80-2Q
Supply:
P=5+3Q
a. (3 points) How much is consumed? How much is produced domestically?
b. (3 points) What are the values of producer and consumer surplus?
c. (3 points) If a 10% tariff is imposed, by how much do consumption and domestic
production change?
d. (3 points) What is the change in consumer and producer surplus?
e. (3 points) How much revenue does the government earn from the tariff?
f. (3 points) What is the net national cost of the tariff?