EC3024 – International Economics Session 2017/2018
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EC3024 – International Economics
Session 2017/2018
SECTION A
1. Use the information in the table below to answer the following questions.
(a) Does either country have an absolute advantage in the production of wheat or beef? Explain your answer.
(b) What is the opportunity cost of wheat in each country? Explain your answer.
(c) What is the opportunity cost of beef in each country? Explain your answer.
(d) Analyze comparative advantage and opportunities for trade between the U.S. and Argentina.
2. There are two countries, Home and Foreign, producing two goods, Snowboards and Bicycles. Assume that each country has 100 workers. Labour is the only factor of production and can move freely across sectors. Use the diagram given below to answer the following questions.
(a) Does either country have an absolute advantage in the production of bicycles or snowboards? Explain your answer.
(b) What is the opportunity cost of snowboard in each country? Explain your answer.
(c) What is the opportunity cost of bicycles in each country? Explain your answer.
(d) Between which values would be the international prices if trade was free between these two countries? Explain your answer.
3. Consider the following example: Norway is abundant in human capital (K) and Malaysia has an abundance of palm oil plantations (O). High tech goods (H) are intensive in human capital and biofuel (B) is intensive in palm oil.
(a) Graphically demonstrate the pre-trade and post trade equilibria between these two countries.
(b) Find and label the ‘trade triangles’ for each.
(c) Explain carefully which factors gain and which factors lose when trade arises between these countries.
4. The government of a small country considers levying a quota on imports. Illustrating your arguments with graphs, explain how the quota will affect the domestic price, the demand for and the supply of the good. What would be the welfare effects of the quota? Briefly explain who will benefit from the quota. Is there any alternative policy which would have the same results?
SECTION B
5. What are the two key ‘motives’ a firm has in trying to internationalise? What are the options it faces in pursuing each of these ‘motives’? Explain how the choice a firm faces under each ‘motive’ is affected by ‘distance’ .
6. Explain the difference between ‘international outsourcing’ and ‘off-shoring’ . What are the relative advantages and disadvantages of these two options for a firm that is considering sourcing an intermediate input of production abroad? How does the technological complexity of the input affect the choice between these two modes of operation?
7. “Trade liberalisation and the fall in transport costs imply that exporting is the only rational way to penetrate a foreign market and exploit its consumer base.” Discuss.
8. The monopolistic competition ‘revolution’ in international trade theory is thought to have ‘solved’ a major ‘trade puzzle’ highlighted by empirical evidence and which could not be explained by comparative advantage theories of trade. Carefully answer the following questions:
(a) What is the nature of the ‘trade puzzle’ that emerged from the empirical evidence and why could this puzzle not be explained by comparative advantage theories of trade?
(b) How can the monopolistic competition model offer an explanation for this puzzle?
(c) What are the new sources of gain from trade identified by the ‘new’ trade theory that is based on this theoretical framework?
2022-12-06