Summer 2023

International Trade & Finance

Midterm exam 2

Exam date: 22/06/2023

Student’s name: Elgun Mammadli
 1. A small company in Portugal makes toy cars. The company currently sells its toy cars
only in Portugal. How can this company lower its costs by expanding to other markets
such as Spain or Morocco?
With the help of economies of scale, this company can lower its costs.

2. For most countries and most industries, complete specialization on a single product is not
feasible because of which economic principle?
Comparative advantage principle.

3. Explain Staffan Linder’s theory of overlapping demands

The theory says that when a domestic demand is met, the country exports or we can say that
domestic demand determines the international trade.

4. What is factor mobility? Explain and provide an example.

It is about the switch of the factors of production to alternative ones without the lose in
efficiency. For instance, when A production company closes for certain reason, in that scenario
they can sell this factor inputs to another company.
 5. What would be a reason(s) for a government to limit its exports on certain goods?
For example, meeting the demand in domestic market or maintaining the competition in the
country can be stated.

6. If you invented the first ever mobile phone with a camera, what kind of an intellectual
property protection would you get so that only you can sell such phones?
In that scenario you can get Patent.

7. Which groups of people are typically against immigration and why?

Since immigrants can work for low-amount of salary, domestic workers can be against
immigration. They can live difficulty to find job or finding job with high salary

8. What kind of activities you can do only in a foreign-trade zone but not in a bonded
warehouse?
You cannot manufacture in the bonded warehouse and only can keep the goods while you can
manufacture your goods in FTZ.
 9. What is the key difference between a tariff and a quota?
Tariffs are less restrictive and generate revenue for the government while quota is mainly about
full restriction.

10. As an example of anti-dumping measures, a news article was presented in class showing
how the EU recently renewed its anti-dumping measures against China. Explain the idea
of circumvention of anti-dumping measures as shown in the article. Provide an example.

As example, we can say that The European Commission renewed the anti-dumping
measures on imports of stainless steel tube and pipe butt-welding fittings('SSTPF') from
China and Taiwan for another five years. Since China sells its product in a cheap price, it
is not good for European producers. However, European consumers can benefit from this.
In addition, while anti-dumping measures actions are taken against China, Chine attempts
to use Taiwan and Indonesia by sending its products via these countries so EU also
started to do anti-dumping measures against these countries.

11. Why is that you cannot start a company called IKEA?

IKEA can have the Trademark on that name.

12. What is the difference between a trade barrier and an economic sanction?
Trade barrier is about economic reasons while sanctions are result of wrong-doing.

13. Aysell Apples is a local business in Quba region of Azerbaijan. They grow local apples
and sell them to local apple juice factories.
a. Government imposing a tariff on importing apples would be economically beneficial
for Aysell Apples company. True or False
b. Explain why
 14. a. True or False
Many studies have concluded that the burden of import tariffs falls more heavily on low-
income households
c. Explain why it is true/false
It is true, because it leads to increase in the price of goods and services which low-
income households mainly pay attention to buy cheaper goods.

15. a. True or False

By limiting its imports with a trade partner, a country can potentially lower the amount of
its exports to that trade partner.
b. Explain why
Due to the fact that there is a global interdependence within the countries, lower number of
imports leads to lower amount of export.

16. How and why did the war in Ukraine negatively affect the economy in Lebanon?

Due to war, oil and gas prices in the Lebanon started to rise so it negatively affected the Lebanon
economy.
 17. Which groups of people usually benefit from immigration?
Mainly the companies or suppliers benefit from low spending on salary of the workers.

18. State three factors that link world economies, as observed in the process of globalization.
Business enterprise, Technology, movement of goods and services

19. Russian government imposes a tariff-rate quota on coconuts imported to the country.
Only a single company called CR LLC imports coconuts to Russia. Given the
information below, calculate the amount of taxes that CR company has to pay to import
10,000 kg coconuts into the country. Show your calculations
Within quota rate - $0.2 per kg
Over-quota rate - $0.5 per kg
Import-quota threshold – 9,000 kg

9000*0.2= 1800
1000*0.5=500
1800+500=2300

20. Assume that current market for laptops is in equilibrium in a small country and the
domestic market is closed to foreign trade. Market price for a laptop is $1,000. Now the
government decides to open the domestic market to foreign trade and impose a customs
duty of $100 per laptop. The price of a laptop in foreign markets is $800 (fixed price and
unlimited supply of laptops). Given the information below, what is the tax revenue
collected by the government from the tariff on laptops? Show your calculations
Consumer demand for laptops Supply of laptops by local producers
Price ($) Quantity Price ($) Quantity
1,000 800 1,000 800
900 850 900 750
800 900 800 700
800+100=900 (Price)
850-750=100
100*100 = 10 000 (Tax revenue collected by the government from the tariff on laptops)