BA 187 Sample Final Exam – Fall 1999

Prof. John Veitch

Please make sure your NAME & ID number are on the front cover of your Blue Book.

Please start each question (but not each part) on a new page.

Answer all questions. Allocate your time according to the points assigned to each question. Bonus questions are not worth much and should be answered last.

Finally, please keep your answers brief and clear. Use diagrams or definitions where appropriate. Make sure your diagrams are clear and well-labelled.

Good Luck! The Exam is Two Hours Long!!!!!

SECTION I: Short Answer Questions - 10 points each

Marks are given only for the correct explanation not simply the correct choice.

Question 1. True, False, or Uncertain?

Higher tariffs don’t improve the trade balance; they just reduce overall world trade.

Question 2. True, False, or Uncertain?

A large country like the U.S. has a greater incentive to use trade restrictions than a small country.

Question 3. Agree or Disagree?

Developed Countries generally have low or zero tariffs on raw materials and primary products that are the principal exports of some LDC’s. Industrial countries also have fairly high tariffs or NTB’s on low technology manufactured goods that are principal exports of other LDC’s. These facts led the LDC’s to call the U.S. and E.U. “free trade hypocrites” at the WTO Meetings.

Question 4. Agree or Disagree?

“To show its support for underpaid workers in poor countries who are exploited in sweatshops and made to work in unsatisfactory conditions, the U.S. should restrict imports from countries where such conditions exist” Paraphrasing John Sweeney, Head of the AFL-CIO.

Bonus Questions

There will be three questions worth a total of 7 points on the final.

BA 187 Sample Final Exam - Fall 1998

Longer Essay/Diagram Questions - 30 points each

Question 5. Size matters After All

Recognizing that economies of scale exist in certain industries makes trade theory more “realistic” but it has a number of disturbing implications for the traditional “mutual gains from trade” argument.

  1. What do increasing returns to scale do to the ability of trade theory to predict patterns of trade between countries?
  2. Increasing returns to scale is said to introduce potential conflict between countries, since each country is better off if it can increase its production in these types of industries. Evaluate this statement for industry subject to external economies of scale.
  3. What does the specialization necessary to attain economies of scale say about the Stolper-Samuelson result? (i.e. Does trade equalize relative factor returns across countries? Do some factors win and other factors necessarily lose with trade?)

Question 6. Steeling Oneself for the Competition

This question concerns a small economy for which the world price of its import good is fixed. Determine the effects on domestic price, domestic production and consumption, the level of imports, consumer and producer surplus, and government revenue of the policies below.

  1. Show the effects of an import quota on the domestic market for the good.
  2. Show the effects of a domestic production subsidy on the domestic market for the good.
  3. Which policy do domestic consumers prefer? Why?
  4. Which policy do domestic producers prefer? Why?