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Final Exam Q&A Review - International Trade and Finance

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BUS73000

This document contains both multiple choice and short answer questions designed to help guide students when studying for their international trade and finance FINAL exam.

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BUS73000 -- International Trade & Finance
Final Exam
Practice Questions

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

,Chapter 1:

Multiple-Choice Questions

1. If the U.S. allowed the export of significant amounts of natural gas, what would be the
economic effect?
a. There would be no net economic effect on international trade because increased
exports from the U.S. would be offset by increased imports to the U.S. of other goods.
b. The economic effect on international trade would be negative because increased
amounts of natural gas in the importing countries would drive down the price of
domestically produced natural gas in the importing countries.
c. The foreign demand for natural gas from the U.S. would increase the price of natural
gas in the U.S., production of natural gas in the U.S. would increase, and
consumption of natural gas in the U.S. would decrease.
d. Increased demand for natural gas form the U.S. in foreign countries would increase
the price of natural gas world-wide and result in many countries not being able to
afford the price of natural gas.
Answer: C

Essay Questions

1. “Job-seeking immigration brings net economic benefits not only to the immigrants, but also to
the receiving country overall.” Justify the statement.

POSSIBLE RESPONSE: Immigration leaves some better off and some worse off in the
receiving country. The winners include the firms that employ the immigrants and the
consumers who buy the products that the immigrants help to produce. The losers are the
workers who compete with the immigrants for jobs. For the industrialized countries, the real
wages of low-skilled workers have been depressed by the influx of low-skilled workers from
developing countries. However, it has been observed that the net effect of immigration on the
receiving country is positive. The economic benefits have been higher than the economic and
social costs of immigration.

Chapter 2:

Multiple Choice Questions
1. The value of price elasticity of demand for a normal commodity is negative because it
indicates:
a. the inverse relationship between the price and the quantity demanded for the commodity.
b. that the value of the consumer surplus is negative for a normal good.
c. that the changes in quantity demanded are much less compared to the changes in price for
a normal good.
d. the direct relationship between price and consumer surplus from the commodity.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

,Answer: A

2. Which of the following is true of consumer surplus?
a. It is graphically represented as the area under the equilibrium price and above the supply
curve of a good.
b. It is the net gain in economic well-being associated with producing and selling the
equilibrium quantity of a good.
c. It is used to measure the impact of a change in price on the economic well-being of the
producers.
d. It is the difference between the value that one places on a good and the price paid for the
good.
Answer: D

Essay Questions
1. In a two-country world, the opening of free trade does not make everyone in the two
countries better off. What assumption(s) must be made in order to make the claim that both
countries do in fact benefit from the free trade?

POSSIBLE RESPONSE: It is true that free trade does not benefit everyone within a country.
However, if we accept the one-dollar-one-vote metric, and measure the national well-being of a
country, we will find that there are net national gains from trade. That means that the gainers are
gaining more than the losers are losing. Among the gainers are the consumers in the importing
country, who enjoy lower prices, and possibly a wider variety of the product, and the producers
in the exporting country, who are expanding their production as they are receiving a higher price
by accessing foreign demand through free trade. Among the losers are the consumers of the
product in the exporting country and the import-competing producers.

2. Assume that there are only two countries in the world, Pacifica and Atlantica. Both
countries produce and consume surfboards. The pre-trade price of surfboards in Atlantica is
lower than the pre-trade price of surfboards in Pacifica. Draw a three-graph diagram to depict the
Pacifica, Atlantica, and international markets for surfboards illustrating the pre-trade price
difference. Now assume that free trade opens up between Pacifica and Atlantica. Depict a
plausible world price in the graphs. What happens to overall economic welfare in the two
countries? Be sure to label and refer to the graphs in your answer.

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

, POSSIBLE RESPONSE:

Atlantica Pacifica World
Sp Atlantica
Dp
Price Price Price (supply of exports)
D Sa 70
a Exports P
60 C
Imports
40
Pacifica

(demand for imports)
0 30 40 60 0 45 60 75 0 30
Quantity Quantity Quantity

The above graph illustrates a possible international price. The graph to the left represents
demand and supply in Atlantica, the graph in the middle the market in Pacifica, and the graph to
the right the World market. Da and Sa are the demand and supply curves for Atlantica
respectively. Dp and Sp are the demand and supply curves for Pacifica respectively. The
international price of 60 is between the no-trade prices of 40 and 70. The international price is
such a price that the excess supply in Atlantica matches the excess demand in Pacifica – trade is
balanced. As a result, Atlantica exports 30 units to Pacifica at a price of 60. Both countries gain
from international trade. Atlantica gains area C in the right graph, and Pacifica gains area P.

Chapter 3:

Multiple Choice Questions

1. Consider a two-country, two-commodity model. The table given below shows the units of
good X and good Y produced in country A and country B per labor hour. The number of
labor hours required to produce 1 unit of good Y in country B is:

Productivity Country A Country B
Good X 1.00 0.50
Good Y 0.20 0.70

a. 0.5.
b. 1.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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