UGBA 118: International Trade Professor Steven Wood Fall 2015 Exam #2 ANSWERS
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UGBA 118
UGBA 118: International Trade Professor Steven Wood
Fall 2015
Exam #2 ANSWERS
Please sign the following oath:
Exam Instructions
1. When drawing diagrams, clearly and accurately label all axes, lines, curves, and equilibrium points.
2. Explanations should be written in pencil...
ugba 118 international trade professor steven wood fall 2015 exam 2 answers
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Name:
(Last name, first name)
SID:
GSI:
UGBA 118: International Trade
Professor Steven Wood
Fall 2015
Exam #2 ANSWERS
Please sign the following oath:
On my honor, the answers on this test are entirely my own work. I neither gave nor received any aid while taking
this test. I will not discuss the questions on this test with any other person until after 11:00 a.m. on December 16,
2015.
Signature:
Any exam turned in without a signature will be assigned a grade of zero.
Exam Instructions
1. When drawing diagrams, clearly and accurately label all axes, lines, curves, and equilibrium points.
2. Explanations should be written in pencil or black. Legibility is a virtue; practice good penmanship.
3. Explanations should be succinct and to the point; make use of bullet points and common mnemonics.
4. If you have a question, come to the front of the class and ask me or the GSI.
5. If you need to re-draw a diagram or need more room to write your answers, use pages 2 and/or 14 – 16.
6. When time is called, STOP writing, immediately CLOSE your exam packet, and turn it into me or the
GSI. You WILL BE PENALIZED if you continue to write past the official end of the exam.
Do NOT open this test until instructed to do so.
Exam #2 (Fall 2015) 1/16
,A. Multiple Choice Questions (30 points). Highlight the best answer (3 points each).
1. Comparative advantage has mixed results when it comes to predicting a country’s trade patterns. Which of
the following statements is FALSE?
a. A large share of international trade is not based on comparative advantage.
b. Comparative advantage has proven completely incapable of predicting trade patterns.
c. There are many potential products an economy might export that use the same comparative
advantage.
d. Comparative advantage is a dynamic concept, meaning that the spread of technology,
improvement in skills, and learning-by-doing may alter a country’s comparative advantage over
time.
2. Intra-industry trade is characterized by what two features of the industry and market?
a. Government subsidies and industrial policy.
b. Economies of scale and differentiated products.
c. Diseconomies of scale and homogenous products.
d. Quota auctions and low effective rates of protection.
e. Non-tariff barriers and large-scale foreign investment.
3. Large countries can improve their welfare by imposing a tariff only if it does NOT:
a. Discourage innovation.
b. Encourage rent seeking elsewhere in the economy.
c. Lead to retaliation by the country’s trading partners.
d. All of the above.
e. None of the above.
4. High tariffs on intermediate inputs:
a. Increase the nominal rate of protection on final goods.
b. Decrease the nominal rate of protection on final goods.
c. Increase the effective rate of protection on final goods.
d. Decrease the effective rate of protection on final goods.
5. In the case of a small country, producers surplus:
a. Is not changed by either a tariff or a quota.
b. Increases more with a quota than with a tariff.
c. Increases the same with a tariff and an equivalent quota.
d. Increases more with a tariff than with an equivalent quota.
e. Increases more with a quota than with an equivalent tariff.
Exam #2 (Fall 2015) 2/16
, 6. In the exporting country, an export subsidy will:
a. Help consumers and increase the overall economic welfare of the exporting country.
b. Hurt consumers but increase the overall economic welfare of the exporting country.
c. Hurt consumers and decrease the overall economic welfare of the exporting country.
d. Help consumers but decrease the overall economic welfare of the exporting country.
7. One reason why consumers are unlikely to be too upset about most tariffs is because:
a. The gains of producers are larger.
b. Consumer losses are not real losses.
c. Most consumers benefit from protection.
d. Tariffs are an inexpensive way to create jobs.
e. The costs are so spread out that no one pays a big share of the total.
8. If a country protects an industry because it believes that there are positive externalities in the production
process, it is asserting that the free market will:
a. Produce less than is optimal from society’s point of view.
b. Produce more than is optimal from society’s point of view.
c. Produce the optimal amount from society’s point of view but charge too low a price.
d. Produce the optimal amount from society’s point of view but charge too high a price.
9. Developing countries are usually unwilling to negotiate over labor standards because:
a. They do not have a comparative advantage in any goods.
b. The WTO always tends to rule in favor of industrialized countries.
c. They fear that they may be unable to compete without some protection of their industries.
d. They fear that industrialized countries are trying to undermine their comparative
advantage.
10. The claim that lower environmental standards in foreign countries reduce industrial competitiveness for
high environmental standard countries is on solid theoretical ground because:
a. Environmental standards in most countries have been relaxed over time.
b. There will be a race-to-the-bottom competition on environmental standards.
c. Higher environmental standards raise the cost of production to a firm or industry.
d. The interests of firms that are subject to high environmental standards coincide with the country’s
environmental interests.
Exam #2 (Fall 2015) 3/16
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