Midterm I (100 Points) AGEC 5343 Posted: Tuesday, Due Date: Wednesday, 11:00 PM, September 23, 2009

Transcription

1 Midterm I (100 Points) AGEC 5343 Posted: Tuesday, Due Date: Wednesday, 11:00 PM, September 23, 2009 Your Name Section I: The Theory of Comparative Advantage. Considering Table 1 (for the U.S. and Mexico) and Graph 1 (for the U.S.), select the correct answer for the following multiple choice questions (questions 1-15): Table 1 gives the maximum amount of Wheat or Beef that Mexico and the U.S. can produce, with full employment of their resources. The Graph is for the U.S. and shows before trade and after trade situations (price lines and social indifference curves). The after-trade (international) price ratio is one (P Beef /P wheat ) = 1. This international price applies to both countries (Mexico and the U.S.). Please note that this example does not necessarily apply to the actual (real life) trade between Mexico and the U.S. Table 1 Comparative Advantage Mexico The U.S. Wheat Beef Page 1 of 11

2 Wheat Graph I Comparative Advantage Mexico 50 K 30 A B U 2 F E 0 U 1 A G Beef 1. Pre-trade price of Beef divided by Price of Wheat(P Beef /P wheat ) in Mexico is: a. 2.00* b c. 1 d. 1/2 e. 1/ After-trade price of Beef divided by Price of Wheat(P Beef /P wheat ) in Mexico is: a b c. 1* d. 1/2 e. 1/1.5 Page 2 of 11

3 3. In Mexico (Graph 1), Before-trade Production point is: a. A b. B c. E * d. K e. G 4. In Mexico (Graph 1), After-trade Production point is: a. A b. B c. E d. K* e. G 5. In Mexico (Graph 1), After-trade Consumption point is: a. A b. B* c. E d. K e. G 6. Mexico has comparative advantage in: a. Wheat* b. Beef c. Apples d. toothpaste 7. Mexico s imports are: a. 50 units of Beef b. 20 units of Beef* c. 20 units of wheat d. 50 units of wheat e. None of the above 8. Mexico s exports are: a. 50 units of Beef b. 20 units of Beef c. 20 units of wheat* d. 50 units of wheat e. None of the above Page 3 of 11

4 9. Mexico s welfare level before trade is shown by: a. Point A b. Distance AB c. Distance FE d. Curve U 1 * e. Curve U Mexico s welfare level after trade is shown by: a. Point A b. Line AB c. Line FE d. Curve U 1 e. Curve U 2 * 11. The U.S. has comparative advantage in: a. Wheat b. Beef * c. Apples d. toothpaste 12. The U.S. imports: a. Wheat* b. Beef c. Apples d. toothpaste 13. The U.S. exports: a. Wheat b. Beef * c. Apples d. toothpaste 14. The U.S. s welfare level before trade is: a. Higher than after trade b. Lower than after trade * c. apples d. oranges Page 4 of 11

5 15. Mexico and the U.S.: a. Can both benefit from trade* b. Cannot both benefit from trade c. Are both in Asia d. Are both in Africa Section 2. Consumer and Producer Surplus and Gains from Trade (16-35). 16. Consumer surplus measures the: a. The welfare gain to the consumer from buying a product b. The welfare gain to the producer from selling a product c. The difference between what consumers are willing to pay and what they actually pay for a product d. The difference between what producers earn from selling the product (gross revenues) and what it costs them to produce a product e. a & c * 17. Producer surplus measures the: a. The welfare gain to the consumer from buying a product b. The welfare gain to the producer from selling a product c. The difference between what consumers are willing to pay and what they actually pay for a product d. The difference between what producers earn from selling the product (gross revenues) and what it costs them to produce a product e. b & d * 18. Consumer surplus is measured by: a. The area above the demand curve and below the price line b. The area under the demand curve and above the price line * c. The area above the supply curve and below the price line d. The area below the supply curve and above the price line 19. Producer surplus is measured by: a. The area under the demand curve and above the price line b. The area above the demand curve and below the price line c. The area below the supply curve and above the price line d. The area above the supply curve and below the price line * Page 5 of 11

6 20. Social Welfare in general is measured by: a. The sum of producers and consumers surplus * b. Producers surplus minus consumers surplus c. Consumers surplus minus producers surplus d. Peanuts e. Oranges 21. The Change in Social Welfare is measured by: a. The sum of producers and consumers surplus b. The change in producers surplus minus the change in consumers surplus c. The change in consumers surplus minus the change in producers surplus d. b or c * e. peanuts 22. Social Welfare improvements as a result of trade may be measured by moving to: a. A higher social welfare indifference curve * b. A lower social welfare indifference curve c. Social welfare indifference curves have nothing to do with social welfare d. A lower tree 23. Free trade (after trade) domestic price is normally the same as: a. Pre-trade price b. Self-sufficiency price c. The world price * d. a & b e. None of the above 24. If a country goes from the self-sufficiency (pre-trade) to exporting a product, most likely the domestic price for that product would be: a. Lowered (compared to pre-trade) b. Increased (compared to pre-trade)* c. The same (compared to pre-trade) 25. If a country goes from the self-sufficiency (pre-trade) to exporting a product, most likely the consumer s welfare as measured with consumers surplus would be: a. Lowered (compared to pre-trade) * b. Increased (compared to pre-trade) c. The same (compared to pre-trade) Page 6 of 11

7 26. If a country goes from the self-sufficiency (pre-trade) to exporting a product, most likely the producer s welfare as measured with producers surplus would be: a. Lowered (compared to pre-trade) b. Increased (compared to pre-trade) * c. The same (compared to pre-trade) 27. If a country goes from the self-sufficiency (pre-trade) to exporting a product, most likely the society s welfare as measured with consumers plus producers surplus would be: a. Lowered (compared to pre-trade) b. Increased (compared to pre-trade)* c. The same (compared to pre-trade) 28. Everything else being the same, with free trade society s welfare is most likely be: a. Higher (compared to pre-trade)* b. Lower (compared to pre-trade) c. The same 29. If a country goes from the self-sufficiency (pre-trade) to importing a product, most likely the domestic price for that product would be: a. Lowered (compared to pre-trade) * b. Increased (compared to pre-trade) c. The same (compared to pre-trade) 30. If a country goes from the self-sufficiency (pre-trade) to importing a product, most likely that country has: a. Comparative advantage in the production of that commodity b. Comparative disadvantage in the production of that commodity* c. Poor natural resources d. Shortage of trained labors Page 7 of 11

8 Given Graph 3, answer the questions (31-35): Graph 3 S P w f t B M G P d a C K D O Q 31. What is P d (Graph 3)? a. Domestic price before trade b. Domestic price after trade c. Self sufficiency price d. World price e. a & c * 32. What is P w (Graph 3)? a. Domestic price before trade b. Quantity before trade c. Self sufficiency price d. World price* e. a & c 33. Does this country have comparative advantage in the production of this product (shown on graph 3)? a. Yes* b. No Page 8 of 11

9 34. What does area a measure (Graph 3)? a. Producer surplus at self sufficiency* b. Consumer surplus at free trade c. The net change in society (consumers and producers) welfare d. The change in consumer surplus as a result of moving from self sufficiency to free trade e. The change in producer surplus as a result of moving from self sufficiency to free trade 35. What does area M measure (Graph 3)? a. Consumer surplus at self sufficiency b. Producer surplus at free trade c. The net change in society (consumers and producers) welfare from self sufficiency to free trade * d. The change in consumer surplus as a result of moving from self sufficiency to free trade e. The change in producer surplus as a result of moving from self sufficiency to free trade Section 3. Other Questions (36-50). 36. Which of the following would you expect to shift the supply curve for Beef to the left? a. An increase in the price of beef b. Bad weather* c. An increased rate of economic growth d. An increase in the number of beef eaters 37. The production possibility frontier shows: a. The alternative combinations of two commodities that is available to consumers before international trade. b. The alternative combinations of two commodities that is available to consumers after international trade. c. The alternative combinations of two commodities that a country can produce, given the full employment of its resources (technology, natural resources, and human and financial) capital. d. Both a and c* 38. The consumption possibility frontier shows: a. The alternative combinations of two commodities that is available to consumers before international trade. b. The alternative combinations of two commodities that is available to consumers after international trade. c. The alternative combinations of two commodities that a country can produce, given the full employment of its resources (technology, natural resources, and human and financial) capital. d. Both a and b * Page 9 of 11

10 39. The production possibility frontier is: a. Horizontal b. Vertical c. Upward sloping d. Downward sloping* 40. The opportunity cost of producing beef in the U.S. is: a. the total spent on beef production costs b. zero for the U.S. farmer as he/she can do nothing else with his/her time and money c. zero for the farmers that have their land paid for d. the value of the best alternative agricultural commodity that can be produced in the U.S.* 41. An indifference curve shows the: a. combination of products that a consumer is indifferent to* b. combination of products that a producer is indifferent to c. absolute price of a product d. how much consumers respond to a change in income in terms of their demand 42. A rightward shift of the social welfare (indifference) curve indicates that the country is: a. better off* b. worse off c. all of the above d. none of the above 43. In order to gain competitive advantage, exporters need to know: a. In what market they are operating b. How they are competing in cost with other suppliers c. a & b* 44. A country is said to have absolute advantage in producing a commodity, if that country: a. can sell the commodity at a higher price compared to other countries b. uses more labor, but less capital to produce that commodity compared to other countries. c. can produce the commodity using less resources compared to other countries* d. can produce the commodity using more resources compared to other countries Page 10 of 11

11 45. Richardo s theory of absolute advantage, focused on: a. Labor productivity* b. Land productivity c. Water productivity d. Capital productivity 46. Comparative Advantage depends on: a. Natural resource endowments b. Technology c. a & b* 47. A country has comparative advantage in the production of a commodity, if it can: a. Produce it at a relatively lower opportunity cost in terms of the other commodity in comparison with the other country.* b. Produce it at a relatively higher opportunity cost in terms of the other commodity in comparison with the other country. c. Produce it using more resources. d. Produce it using water and financial capital. 48. According to the Chicago Fed Letter article, globalization makes it possible for low-income countries to experience: a. Loss of income because of multinationals invading their countries b. Income equality among low and high income groups c. Lower wages in the export-led industries d. Broad-based, export-led economic growth* 49. According to the Chicago Fed Letter article, the development of better markets overseas: a. Will create more jobs in the U.S.* b. Will make U.S. producers worse off c. Will make U.S. consumers worse off d. Will lead in unemployment in the U.S. export industries 50. The General Agreement on Tariffs and Trade negotiations: e. Took place during and significantly contributed to globalization.* f. Took place during and created barriers to trade. a. Had no specific dates or rules governing trade b. Did not apply to manufactured goods. Page 11 of 11