FACULTY Economics and Management Science

DEPARTMENT Economics

SUBJECT International Trade

SUBJECT CODE cEtT377t

DATE May 2015

DURATION 3 hours Marks 100

REGULAR EXAMINATION

Examiner: Dr. Bernie Zaaruka (UNAM)

Moderator: Dr. Esau Kaakunga (UNAM)

This question paper consists of4 pages including this cover page

fnsfiuctions
o Read all instructions carefully before you start writing.
. This paper consists of two sections A and B.
o Answer only TWO questions in each section.
o Total marks for each question are indicated at the beginning of each
question.

UNIVERSITY OF NAMIBIA EXAMINATIONS

Page 1 of4
Section A

Please answer the following questions. Points are awarded for the succinctness,
consistency and clarity of your answer. Attempt only TWO questions from this section.

Question 1 [25 marks]

1.1 (10 marks) What does the Rybc4mski theorem postulate?

1.2 (10 marks) Explain the difference between ad valorem, specific and compound
tariffs?
1.3 (5 marks) What is trade diversion?

Question 2 [25 marks]

2.1 (10 marks) Under the Heckscher-Ohlin framework, how does trade affect relative
earnings (income)?

2.2 (10 marks) Discuss the difference between import substitution and export orientation?

2.3 (Smarks) Is there such thing as an optimum tariff for a small nation?

Question 3 [25 marks]

3.1 (10 marks) The Heckscher-Ohlin model demonshates that wage-rental ratio can be
used to determine input choices. With the aid of a graph, show how this is done.

3.2 (10 marks). What are basic motives for international portfolio investments?

3.3 (5 marks) Define and explain economies of scale

Question 4 [25 marks]

4.1 (10 marks) Discuss vertical integration and how it is related to direct foreign investment.

4.2 (10 marks) What is a quota and how does it compare to the economic effects of a tariff?

4.3 (5 marks) Who was the first to test the theory of comparative advantage and what were to results?

Section B

Please answer the following questions. Feel free to use graphs (as they apply) to help
elucidate your answer. Attempt only TWO questions from this section.

Question I [25 marks]

1.1 Describe a trade theory that could explain hade between identical countries.
a) (10 marks) To what type of commodities does it apply?

b) (8 marks) Does the theory imply gains to trade?

c) (7 marks) If no, why not? If yes, what is the source of these gains?

Question 2 [25marks]

2.1 (a) (15 marks) Show graphically the effect of an export tax on South Africa, a large
country, using partial equilibrium analysis.

(b) (10 marks) Could the South Africa gain from the export tax? Explain intuitively why.

Question 3 [25 marksl

3.1 (a) (7 marks) Explain why the Heckscher-Ohlin trade model needs to be extended.
 (b) (8 marks) Indicate in what important ways the Heckscher-Ohlin trade model can be
extended.

(c) (10 marks) Explain what is meant by differentiated products and intra-industry trade.

Question 4 [25 marks]

4.1(25marks) According to the Linder theory, trade will occur in goods that have
overlapping demand. Illushate this theory and its implications.