eco364april2021examsolutions

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University of Toronto, Mississauga *

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364

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Economics

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Jan 9, 2024

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pdf

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6

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ECO364H5S page 1 of 4 University of Toronto Mississauga Eco364H5S International Trade Theory April 2021 Final Examination Duration: 2 hours Aids: Non-programmable calculator Professor Gregory Gagnon Name (Print): Last Name: First Name: Student Number: Signature: There are 4 pages in the exam including this cover page The University of Toronto Mississauga and you, as a student, share a com- mitment to academic integrity. You are reminded that you may be charged with an academic offence for possessing any unauthorized aids during the writing of an exam. Clear, sealable, plastic bags have been provided for all electronic devices with storage, including but not limited to: cell phones, smart watches, SMART devices, tablets, laptops, and calculators. Please turn off all devices, seal them in the bag provided, and place the bag under your desk for the duration of the examination. You will not be able to touch the bag or its contents until the exam is over. If, during an exam, any of these items are found on your person or in the area of your desk other than in the clear, sealable, plastic bag, you may be charged with an academic offence. A typical penalty for an academic offence may cause you to fail the course. Please note, once this exam has begun, you CANNOT re-write it. Submit a pdf file of the answers to the Quercus Drop Box by April 13 at 3:00pm EST
ECO364H5S page 2 of 4 Part A: Multiple Choice. 15 marks. Each question is worth 3 marks . 1. Western Europe exports manufactures to Russia and imports oil from Russia. This might be viewed as a. validation of the Heckscher-Ohlin model. b. validation of the Ricardian model. c. both (a) and (b). 2. Consider the Specific Factors model and suppose the foreign economy is capital abundant while the domestic economy is labour abundant. Suppose investment brings domestic capital up to foreign levels then trade in M should a. fall. b. rise. c. be unchanged. 3. Suppose foreign demand for F falls in the Specific Factors model then domestic nominal wages will a. rise in manufacturing. b. fall in agriculture but not manufacturing. c. fall in both agriculture and manufacturing. 4. Econometric analysis of US-China trade relations suggests a. developed economies suffer higher unemployment immediately from trade liberalization. b. developed economies may benefit from trade liberalization in early stages. c. developed economies lose high tech industries as a result of free trade. 5. Suppose the US joins the Trans Pacific Partnership then Factor Price Equalization predicts a. a rise in US wages because of faster economic growth. b. a fall in US wages only if labour is completely mobile between the US and Asia. c. the combination of growth and competition will leave US wages un- changed. solution: 1.a 2.a. 3.c 4.b. 5.b
ECO364H5S page 3 of 4 Part B: Numerical Problems. 20 marks 1. Consider the Specific Factors Model. Let RS d , RS * and RS be the domestic, foreign and world relative supply curves. M is capital specific and F is land specific. The foreign economy is K abundant and the domestic economy T abundant. Let the curves be as follows: RS d : P d M P d F =600+0.8 Q r RS * : P * M P * F =800+0.8 Q r RD: P M P F =1200-0.3 Q r (5) a. Find equilibrium Q r . (5) b. Find equilibrium P M P F . solution: 1. a. 700 + 0 . 8 Q = 1200 - . 03 Q so Q = 454 . 5 b. P M P F = 700 + 0 . 8(454 . 5) = 1064 2. Consider the standard trade model with goods C and F . The PPC curve is given by 2 Q 2 F + 5 Q 2 C = 8. The utility of the agent is U ( q C , q F ) = q 1 2 F + q 1 2 C . Let p C = 2 and p F = 3. (5) a. Find the optimal consumption bundle ( q C , q F ). (5) b. Find whether trade occurs. a. Q F = 1 . 84 and Q C = 0 . 497 and q F = 0 . 87 and q C = 1 . 95 b. the economy imports C and exports F . Part C: Theoretical Problems. 65 marks. 1. In the Specific Factors Model RD-RS diagram analyze the effect of following shock on p M p F . The domestic economy is land abundant, the foreign economy capital abundant, F is the land specific good and M the capital specific good. Let M be manufactured goods and F food. (5) a. Pesticides used by domestic farmers depress land fertility. (5) b. For the shock in (a) explain the effect on world trade of M in a sentence.
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