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International Trade Exam January 2017 for Loughborough University
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ECC031 International Trade Exam January 2017 for Loughborough University
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INTERNATIONAL TRADE(16ECC031)
January 2017 3 Hours
Answer FOUR questions in total, including at least TWO questions from SECTION A and
at least ONE question from SECTION B.
All questions carry equal marks.
Calculators are not permitted.
SECTION A
1. Countries A and B produce two goods, X and Y, using a single factor of production,
labour. Productivity levels are as follows:
Output per worker in
Industry X Industry Y
Country A 1 1
Country B 2 4
(a) Describe the process through which trade liberalisation leads to specialisation
according to comparative advantage, paying particular attention to how goods
prices change between autarky and free trade. (60 marks)
(b) “Price and wage movements following trade liberalisation ensure that the unit cost
of producing a given good ends up being lower in the country with the
comparative advantage.” Explain this statement in the context of the above
example. (40 marks)
2. (a) By comparing the production possibility frontiers in the Ricardian and Heckscher-
Ohlin-Samuelson (HOS) models, explain why complete specialisation in
production is necessary for a country to gain from trade in the former model but
not in the latter. (60 marks)
(b) “In the Ricardian model, a large country is less likely to gain from trade
liberalisation than a small one.” Explain why this statement is true. (40 marks)
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