Final Exam Questions for International Trade Policy - Fall 2005 | ECON 452, Exams of Economics

Download Final Exam Questions for International Trade Policy - Fall 2005 | ECON 452 and more Exams Economics in PDF only on Docsity! Final Exam, Fall 2005 TRADE POLICIES 1-4 The United States, a large country, imposes a binding quota on imports of textiles from China. 1. The price of textiles in the United States a) rises b) remains the same c) falls d) remains the same or falls e) cannot tell from the information given 2. The price of textiles in China a) rises b) remains the same c) falls d) remains the same or rises e) cannot tell from the information given 3. Consumer surplus in the United States a) rises b) remains the same c) falls d) remains the same or rises e) cannot tell from the information given 4. Welfare in the United States a) rises b) remains the same c) falls d) remains the same or rises e) cannot tell from the information given 5-8. The United States, a large country, removes a specific subsidy on agricultural exports. 5. The price of agricultural products in the United States a) falls by more than the amount of the subsidy b) falls by exactly the amount of the subsidy c) falls by less than the amount of the subsidy d) remains the same e) rises 6. The price of agricultural products in the ROW a) rises by more than the amount of the subsidy b) rises by exactly the amount of the subsidy c) rises by less than the amount of the subsidy d) remains the same e) falls 7. Consumer surplus in the United States a) rises b) remains the same c) falls d) remains the same or falls e) cannot tell from the information given 8. Welfare in the United States a) rises b) remains the same c) falls d) remains the same or falls e) cannot tell from the information given TRADE POLICY PROBLEMS In the United States (US), inverse demand for clothing is while inverse supply of clothing is In the rest of the world (ROW), inverse demand for clothing is while inverse supply of clothing is 1. Derive the US autarky price and quantity. Derive the US import demand (including slope-intercept form). Derive the ROW autarky price and quantity. Derive the ROW export supply (including slope-intercept form). 2. Derive the free trade price and US imports under free trade. Derive US quantity demanded and quantity supplied under free trade. 3. Derive the US tariff-ridden import demand for a specific tariff t = 6 (including slope-intercept form). Derive the ROW price, the US price, and US imports with the tariff. Derive US quantity demanded and quantity supplied with the tariff. How large of a tariff would the United States need to impose to prohibit all imports? 4. Derive the change in consumer surplus, producer surplus, and government revenue in the United States due to the tariff (starting with the general equations and being sure to indicate the areas corresponding to each on the US graph). 5. Define and derive the US consumption distortion and production distortion. Define and derive the US efficiency loss and terms of trade gain. 6. Derive the change in welfare in the United States due to the tariff. Confirm that the net welfare calculation yields the same answer. Is the United States better or worse off with the tariff and why? PROBLEMS 1 Derive US autarky price and quantity. Derive the US import demand (including slope-intercept form). Derive the ROW autarky price and quantity. Derive the ROW export supply (including slope-intercept form). 2. Derive the free trade price and US imports under free trade. Derive US quantity demanded and quantity supplied under free trade. 3. Derive the US tariff-ridden import demand for a specific tariff t = 6 (including slope-intercept form). , Derive the ROW price, the US price, and US imports with the tariff. Derive US quantity demanded and quantity supplied with the tariff. How large of a tariff would the United States need to impose to prohibit all imports? 4. Derive the change in consumer surplus, producer surplus, and government revenue in the United States due to the tariff. 5. Define and derive the US consumption distortion and production distortion. Consumption distortion is loss due to too little consumption (some units not consumed where value above free trade price). Production distortion is loss due to too much production (some units produced at cost above free trade price). Define and derive the US efficiency loss and terms of trade gain. Efficiency loss is size of total distortion, consumption plus production. b + d = 2.25 + 2.25 = 4.5 Terms of trade gain is degree that buy imports cheaper. 6. Derive the change in welfare in the United States due to the tariff. Confirm that the net welfare calculation yields the same answer. e-(b+d) = 30 - 4.5 = 25.5 Is the United States is better or worse off due to the tariff and why? Better. The terms of trade gain outweighs the efficiency loss for large country starting from free trade.