SURNAME ........................................... NAME ....................................... SERIAL No ......................

(UPPERCASE) (UPPERCASE)

Sign .................................................... ERASMUS (YES/NO) ..............................

Each multiple-choice question will be awarded 1.5 points in case of correct answer, 0 points in
case of no answer and -0.5 points in case of wrong answer.

Note: The students who developed the country report can indifferently choose to answer question
5 or 6.

Enter the letter corresponding to the answer selected in the table below:

1 2 3 4

1. In a Ricardian comparative advantage model, in free trade, Italy and Germany have the same
resources. Italy can either produce 100 bushels of wheat or 20 yards of Cloth, and Germany can
either produce 120 bushels of wheat or 20 yards of Cloth.
Who has an absolute advantage in each thing?
a) Italy has an absolute advantage in both things
b) Germany has an absolute advantage in producing wheat; nobody has an absolute
advantage in producing Cloth
c) Germany has an absolute advantage in producing wheat and relative advantage in producing
Cloth
d) There are not enough details to answer the question

2. Country A and Country B are potential trading partners who can produce boats and umbrellas, as
illustrated in the Production Possibilities Curves below.
Suppose the terms of trade are one boat for one umbrella.
Who would want to sell boats based on these terms of trade, and who would want to buy boats
based on these terms of trade?
 a) Neither country would be willing to buy or sell boats given these terms of trade because the
prices of these goods are not given in money
b) Country A would want to buy boats, and Country B would want to sell boats
c) Country A would want to sell boats, and Country B would want to buy boats
d) Both countries would want to sell boats given these terms of trade, so there will be no
exchange

3. The figure below shows the costs and benefits of a tariff for the importing country. What would
be the net effect of a tariff on welfare?:
 a) The sum (a + b+ c + d)
b) The sum (a + b+ c + d) – a + (c + e)
c) The sum b + d – e
d) The sum c + e

4. Which of the following statements is FALSE ?:

a) Depreciation of a currency means that it becomes less valuable and goods denominated in it
are less expensive: exports are cheaper and imports more expensive.
b) Rates of return on currency deposits in the foreign exchange market are influenced by
interest rates and expected exchange rates.
c) An increase in the interest rate on a currency’s deposit leads to a decrease in its
expected rate of return and to a depreciation of the currency.
d) Appreciation of a currency means that it becomes more valuable and goods denominated in
it are more expensive: exports are more expensive and imports cheaper.

5. (Open Question):
State and explain the Heckscher-Ohlin theorem and its implication for international trade.

6. (Open Question):
Describe the trade costs