ECON503 International Economics TEST 1

ECON503 – International Economics

TEST 1

8F

E

9H

10L

1A

B

S

O

L

U

T

E

A

D

V

11A

N

T

A

G

E

R

M

I

U

12

O

2T

E

R

M

S

O

F

T

R

A

D

E

F

S

A

3

G

B

O

N

D

S

E

R

O

Z

K

13Z

14P

O

F

Y

E

R

D

A

P

R

I

4S

M

I

T

H

5R

I

C

A

R

D

O

C

R

I

S

E

E

C

U

S

E

M

P

R

G

E

6C

O

M

P

A

R

A

T

I

V

E

C

B

T

M

I

7P

O

S

I

T

I

V

E

S

U

M

G

A

M

E

R

O

F

L

O

W

3 Across: They were punished because they violated the requirement of a hard-working population.

12 Down: Concept referring to the fact that nations should specialize and not try to produce all goods.

The following table shows the hours of labor required to produce 1 unit of each commodity in each country:

	Clothing	Wheat
United States	9 hr	3 hr
United Kingdom	4 hr	4 hr

If trade takes place between the United States and the United Kingdom at terms of trade of 1 cloth­ing for 2 wheat

a) The United States will save 2 hours of labor on each unit of wheat imported.

b) The United States will not be able to save any labor since it doesn’t any absolute advantage, and doesn’t export anything.

c) The United States will save 3 hours of labor on each unit of clothing imported.

d) The United States will save 6 hours of labor since it takes 6 more hours to produce one unit of clothing than it takes to produce one unit of wheat.

Using standard Ricardian assumptions:

	Labor Hours per Bottle of Wine	Labor Hours per Kilogram of Cheese
Vintland	15	10
Moonited Republic	10	4

Vintland has 3000 hours of labor in total per year. Moonited Republic has 2000 hours of labor per year.

Also suppose the following:

• the two countries exchange goods at the terms of trade of 1W:2C
• Vintland produces 100 bottles of wine and 150 kilograms of cheese before specialization and trade.
• Moonited Republic produces 100 bottles of wine and 250 kilograms of cheese.
• 100 bottles of wine are exchanged after specialization.

Vintland

	Today’s Situation (units)	Output After Specialization according to its comparative advantage (units)	Output Gains
Wine	100	A	B
Cheese	150	C	D

Moonited Republic

	Today’s Situation (units)	After Specialization according to its comparative advantage (units)	Output Gains
Wine	100	E	F
Cheese	250	G	H

1. What is the value of A?

a) the value for A is 0

b) the value for A is 500

c) the value for A is 200

d) the value for A is 100

1. What the value for G?

a) 0

b) 500

c) 200

d) 250

1. What is the value for H?

a) -150

b) 250

c) 100

d) -100

1. How many hours of labor will be saved by Moonlighted Republic on its imported goods?

a) 200 hours

b) 100 hours

c) 500 hours

d) none