Exam 6: The Standard Trade Model

An export subsidy has the opposite effect on terms of trade to the effect of an import tariff. Domestically a tariff will raise the price of the import good, deteriorating the domestic terms of trade. A production subsidy for the export product will lower the local price of the export good, lowering the domestic terms of trade for the country. Hence the export subsidy and the import tariff have the same effect. This analysis seems to contradict the first sentence in this paragraph. Discuss this paradox.

If the ratio of price of cloth (PC) divided by the price of food (PF) increases in the international marketplace, then

The intertemporal tradeoff between present and future consumption is measured by the

Other things being equal, a rise in a country's terms of trade increases its welfare. What would happen if we relax the ceteris paribus assumption, and allow for the law of demand to operate internationally?

If Slovenia were a large country in world trade, then if it imposes a large set of tariffs on its imports, this must

If one observes that Japan was traditionally a net foreign lender, one could conclude that relative to its international trade and financial partners

Terms of trade refers to

-Refer to above figure. Albania refused to engage in international trade for ideological reasons. To maximize its economic welfare it would choose to produce at which point in the diagram above? Suppose the PA/PB at point a was equal to 1. Given this information, in which good (A or B) does Albania enjoy a comparative advantage? Now that the Cold War is over, Albania is interested in obtaining economic welfare gains from trade. The relevant international relative price is PA/PB = 2. Albania would therefore choose to produce at which point (a, b, or c)? Given this additional information, in which good does Albania enjoy a comparative advantage?

An increase in a country's net commodity terms of trade will

-Refer to above figure. Now, suppose that the relative price of A is actually not higher than Albania's autarkic level of 1, but quite the opposite (e.g., PA/PB = 0.5). Would Albania still be able to gain from trade? If so, where would be its production point? Given the information in this question, where is Albania's comparative advantage?

It may be argued that theoretically, international capital movements

What is intertemporal comparative advantage?

-Suppose that a country experiences growth strongly biased toward its export, cloth,

-Refer to the figure above, which shows a country's possible production possibility frontiers and indifference curves. If the country is producing at ________, then moving to ________ will cause utility to ________.

If the U.S. (a large country) imposes a tariff on its imported good, this will tend to

-Refer to the figure above, which shows a country's possible production possibility frontiers and indifference curves. If the country is producing at ________, then moving to ________ will cause utility to ________.

A fall in the real interest rate, all other things held constant, will cause a country's ________ to ________.

Rapidly growing developing countries tend to be borrowers on the international capital markets. From this information we may surmise that they have a comparative advantage in

An increase in the real interest rate, all other things held constant, will cause a country's ________ to ________.

Tastes of individuals are represented by