final exam

TRUE FALSE UNCERTAIN: For questions 1-10 just answer with the quick assertion “true” or “false” and justify your answer. Do not spend too much time answering any of these questions: 1-2 sentences at most will suffice. (5 points each)

1. To extract monopoly profits from a foreign firm a home country should use a voluntary export restraint (VER) instead of tariffs.

2. In a two country, two good, Ricardian model under free trade, if the MPL in the industry you are not specialized in increases, without changing patterns of comparative advantage, real wages will not change.

3. Similar to the H-O and Richardian models, in a monopolistic competition model trade between two identical countries cannot be welfare enhancing.

4. A quota used to protect a domestic monopolist from international competition will result in higher deadweight losses than a tariff imposed on the same amount of imports.

5. The Feenstra Hanson model cannot explain the increase in wages paid to skilled labor in both Mexico and the US.

6. The U.S., a large exporter of cotton, experiences a terms of trade gain as a results of its subsidies of cotton production.

7. If there are no externalities associated with an infant industry, then there must be capital market imperfections in order to justify infant industry protection.

8. The optimal tariff increases as the foreign elasticity of supply increases.

9. Other things equal, welfare losses will be greater for a large country giving an X dollar export subsidy than for a small country giving an X dollar export subsidy.

10. In horizontal models of multinational activity, foreign direct investment flows between neighboring countries are particularly appealing, whereas vertical FDI is more beneficial when countries are farther away.

SHORT ANSWER QUESTIONS: For questions 11-14 read the questions completely before answering. When you are asked to “briefly explain” a few well written sentence is sufficient.

11. (10 points) Why might a foreign monopoly lead to small countries imposing positive optimal tariffs against imports? Briefly explain with the aid of a diagram.

Econ 160A Summer 2013 International Trade Philip Luck

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12. (12 points) Assume a country face fixed world prices. Suppose that there are two goods (airplanes and bicycles). In the long run there are two factors of production: labor (L) and capital (K). Suppose that the Home country has an influx of new labor through migration, which increases total labor force,