﻿ Ken Szulczyk's Exam 2 for International Trade HcWjnyVHiTd8hN_8STvJ2rWaXvhPz4wXYCNGvD4qDkU

These questions are from the test bank. Some questions have multiple parts.

1. What is the difference between labor abundant and labor intensive?

(a) What is the difference between capital abundant and capital intensive?

(b) What is the difference between land abundant and land intensive?

2. The United States engages in free trade with China. The United States imports laptops while it exports soybeans. Please draw the supply and demand functions for land and labor for the U.S. laptop and wheat markets. Assume the U.S. is land abundant while China is labor abundant.

(a) What is derived demand?

(b) What happens to the land rental rate and wage rate when the U.S. opens the country to trade in the short run for both industries? Describe in words and show on the graphs.

(c) What happens to the rental rate and wage rate when the U.S. opens the country to trade in the long run? Please draw new supply and demand functions. Then please describe and show on the graph.

(d) Could the supply function in both markets shift enough to bring the price of resources back to the original price before trade?

3. What is the Stolper-Samuelson Theorem?

(a) Please develop two real-world examples of the Stolper-Samuelson Theorem.

(b) Using the two equations, Pwheat = ar + bw and Pcars = cr + dw, please identify all the variables.

(c) Using those two equations, please explain how the rental rate for land increases, if the United States export wheat and import cars. Assume the U.S. is land abundant while the imported cars are from labor abundant countries.

4. What is the Specialized-Factor Pattern?

(a) Please give two real-world examples of the Specialized-Factor Pattern.

5. What is the Factor-Price Equalization Theorem?

(a) If the United States is a high-wage country, while all the U.S. trading partners are low-wage countries, what has to happen to wages in these countries?

(b) What happens to the real returns for capital (machines and equipment) for countries engaging in free trade?

(c) What happens to the real return for land for countries engaging in free trade?

6. Identify the three theorems that economists derived from the Heckscher-Ohlin Theory?

7. Does the Heckscher-Ohlin Theory explain trade patterns well?

(a) Identify examples where the theory explains trade patterns well.

(b) Identify examples where the theory does not explain trade patterns well. Why would this occur?

8. What is the difference between a specific tariff and an ad valorem tariff?

(a) Which countries have no tariffs?

(b) How do the average tariff rates between developed and developing countries compare?

(c) What are the benefits and problems of a country that imposes tariffs to protect its domestic industry?

9. Please show graphically the international trade between the United States and China using demand and supply functions for the laptop market. The U.S. imports laptops, while China exports them. Make sure you include an international market, and both countries are large and can influence the world price.

(a) Identify the consumers' and producers' welfares for both countries.

(b) Identify the economic impact of a tariff, if the United States imposes a specific tariff on laptops.

(c) Identify the price wedge. Distinguish a price wedge between a tariff and a regular tax on a product.

(d) Identify the revenue the U.S. government collects.

(e) Explain the deadweight loss of the tariff, and the impact to the world's welfare?

10. Please draw the supply and demand functions for the laptop market for Turkey. Turkey is a small country that cannot influence the world price.

(b) Please show the change in welfare, if Turkey imposes a tariff on laptops.

(c) What is the difference in economics between a large country and small country that engages in free trade?

11. What is the optimal tariff rate? You do not need to draw out the supply and demand functions for two countries. You can just draw the international market. Please explain in words why this is the optimal tariff rate.

12. Many countries actively intervene with free trade. Please distinguish and explain the following:

(a) Distinguish between an export quota and export subsidy.

(b) Judge a country's use of currency devaluation.

(d) Appraise a country's use of bureaucratic red tape to stop imports.

(e) Distinguish between dumping and countervailing trade practices.

(f) Defend a country's use of strategic trade practices.

13. Please show graphically the international trade between the Malaysia and Thailand using demand and supply functions for the rice market. Malaysia imports rice, while Thailand exports it. Make sure you include an international market, and both countries are large and can influence the world price.

(a) Evaluate the consumers' and producers' welfares for both countries.

(b) Identify the economic impact of a quota, if Malaysia imposes an import quota on rice.

(c) Identify the price wedge. Distinguish a price wedge between a tariff and a quota.

(d) Identify the party who receives the rent.

(e) Could Thailand gain economically from the quota, if it imposed Voluntary Export Restraints on the export of rice? Please explain how economists would measure the gain.

14. How does a tariff differ from an import quota economically?

(a) What is economic rent?

(b) How can government capture this economic rent?

15. What are Voluntary Export Restraints (VERs)?

(a) Why would a country impose VERs on itself?

(b) How do VERs differ from import quotas?

(c) What two methods can foreign firms use to circumvent the limits of VERs?

16. What are the General Agreement of Tariffs and Trade (GATT) and the World Trade Organization (WTO)?

(a) Was GATT successful in reducing tariffs? What happen to nontariff trade barriers?

(b) Why did WTO succeed the GATT?

(c) Why do the WTO meetings attract large crowds of protestors?

17. The World Trade Organization (WTO) is given more enforcement power than the General Agreement of Tariffs and Trade (GATT). Please explain how the following concepts apply to the WTO?