INTERNATIONAL ECONOMICS

MIDTERM EXAM (Test 2)

Time allowance: 90 minutes
PART 1: MULTIPLE CHOICE QUESTIONS (20 questions with short
explanation) (0.3 point/each correct answer)
Q1. Ad valorem tariffs are collected as
a. fixed amounts of money per unit traded
b. a percentage of the price of the product
c. a percentage of the quantity of imports
d. all of the above.
Q2. represents the difference between what consumers have to pay for a
product and what they are willing and able to pay.
a. producer surplus
b. deadweight loss
c. tariff revenue
d. consumer surplus
Q3. ____________1954 study of U.S. trade patterns showed that U.S. exports
were labor-intensive compared with U.S. imports, even though the United States
was widely regarded as a relatively capital-abundant nation.
a. Paul Samuelson’s
b. Wolfgang Stolpher’s
c. Staffan Linder’s
d. Wassily Leontief’s
Q4. Which of the following is NOT the example of intra-trade industry:
a. Products in the same industry are differentiated by brand or style.
b. Firms with market power selling identical products sell into each other’s
markets.

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c. With long borders between countries, the same good may be exported across
one part of the border and simultaneously imported across another.
d. Firms first export and then import the same good in order to add to its cost and
thus increase the profit they can earn by selling it.
Q5. Which trade theory contends that a country that initially develops and exports
a new product may eventually become an importer of it, and may no longer
manufacture the product:
a. Theory of factor endowments
b. Theory of overlapping demands
c. Economies of scale theory
d. Product life cycle theory
Q6. Wassily Leontief’s results can be interpreted as
a. evidence against the Ricardian model
b. evidence against the Heckscher-Ohlin model
c. support for the Ricardian model
d. support for the Heckscher-Ohlin model
Q7. The Heckscher-Ohlin model rules out the classical model’s basis for trade by
assuming that is (are) identical between countries.
a. factor endowments
b. factor intensities
c. technology
d. opportunity costs
Q8. The comparative advantage model of Ricardo was based on
a. intra-industry specialization and trade
b. inter-industry specialization and trade
c. demand conditions underlying specialization and trade
d. income conditions underlying specialization and trade
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Q9. When a large country levies a tariff on imports, this causes the world
price of the imported good to , which is to the
importing country and to the foreign exporting country
a. Fall; beneficial; harmful.
b. Fall; harmful; beneficial.
c. Rise; beneficial; harmful.
d. Rise; harmful; beneficial.
Q10. In his empirical tests, Wassily Leontief used an input-output table to:
a. calculate the capital and labor required to produce U.S. exports and imports.
b. calculate the labor productivity of American workers relative to foreign workers.
c. calculate the capital productivity of American capital relative to foreign capital.
d. all of the above
Q11. A tariff on imports benefits domestic producers of the imported good because
a. They get the tariff revenue.
b. It raises the price at which they can sell their product on the domestic market.
c. It prevents imports from rising above a stated quantity.
d. It reduces their producer surplus, making them more efficient.
Q12. An implication of the Heckscher-Ohlin Model of international trade is that
free international trade causes
a. Consumers to have access to a greater variety of goods.
b. Countries to expand production of goods in which they have absolute advantage.
c. Owners of scarce factors of production to increase their real incomes.
d. The real wages of labor in different countries to become more nearly alike.

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Q13. According to the Heckscher-Ohlin model, the source of comparative
advantage is a country’s:
a. technology
b. advertising
c. factor endowments
d. both (a) and (c)
Q14. A main advantage of specialization results from:
a. Economics 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
Q15. Intra-industry trade theory
a. explains why the United States might export autos and import clothing
b. explains why the United States might export and import differentiated versions
of the same product, such as different types of autos
c. assumes that transport costs are very low or do not exist
d. ignores seasonal considerations for agricultural goods
Q16. The Heckscher-Ohlin assumes that are identical between countries.
a. tastes and preferences
b. technology levels
c. factor endowments
d. both (a) and (b)

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Q17. Leontief’s results were considered paradoxical because the United Stated was
believed to be
a. technologically efficient relative to the rest of the world
b. capital abundant relative to the rest of the world
c. labor abundant relative to the rest of the world
d. all of the above
Q18. According to the classical theory of international trade:
a. Only countries with low wages will export
b. Only countries with high wages will import
c. Countries with high wages will have higher prices
d. All the above are false
Q19. The classical trade theories of Smith and Ricardo predict that
a. Countries will completely specialize in the production of export goods.
b. Considerable trade will occur between countries with different levels of
technology
c. Small countries could obtain all of the gains from trade when trading with large
countries
d. All of the above.
Q20. A country’s openness to international trade can be measured by the formula
a Exports + Imports + GDP
b. Exports – Imports – GDP
c. (Exports + Imports) / GDP
d. (Exports + Imports) x GDP

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Part 2: Suppose that production in Laos and Vietnam as in following table:
(4 points)
Unit: product /hour

Vietna Laos
m
Wood 8 4
Steel 6 2

a. Which products each country should export?

b. The maximum benefits that Vietnam can gain from exporting 360 goods?
c. If Vietnam is endowed with 1200 hours and Laos is endowed with 800 hours.
Write an equation for production and consumption frontier of the two countries
when there is trade.