ECON503 International Economics TEST 1

| October 3, 2018

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

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

What the value for G?

a)
0
b)
500
c)
200
d)
250

What is the value for H?

a)
-150
b)
250
c)
100
d)
-100

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

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