ECON 1269 INTERNATIONAL TRADE

EXAM STRUCTURE (for the October Semester 212! RMIT "#et$%m S&S
The exam consists has 15 minutes reading time and 2 hours writing time. In the time
allowed students must answer 6 questions from a choice of 10 questions. The
questions require answers in essay form. Each answer should be allocated 20 minutes
of writing time. tudents should be conscious of !lanning essays that can be !resented
in the time allowed. The essays need to be analytical and to focus on the question as
as"ed. #a"ing correct statements is not enough. tudents need to be able to ex!lain
why they are correct.
The fo''o(#$) #s % '#st of the e*%m#$%b'e %re%s from the co+rse,
-+est#o$ 1 will be drawn from topic 1 and will focus on the con$ersion from
!roducti$ity to !rice in terms of determining the !attern of com!arati$e ad$antage and
the monetary distortion material including the exchange rate boundaries.
-+est#o$s 2 will be drawn from topics 3 and 4 and will focus on the free trade model
that was de$elo!ed in class and the gains from trade.
-+est#o$s . %$/ 0 will be drawn from topics 5 and 6 and will focus on %ffer &ur$es
and'or the ()% #odel and long run income distribution and'or the !ecific *actors
#odel and short run income distribution. Two of these three areas will be on the
exam.
-+est#o$ 1 will be drawn from topic 7 and will focus on tariffs $ersus subsidies.
-+est#o$s 6 will be drawn from topic 8. The examinable areas are the broader
consequences of the tariff or nominal $ersus effecti$e rates of !rotection.
-+est#o$s 23 4 %$/ 9 will be drawn from topics 9 and 10. The !otentially examinable
areas are the externalities argument and'or the large country case and'or tariffs $ersus
quotas and'or the mono!oly argument. Three of these four areas will be on the exam.
-+est#o$ 1 will be drawn from topic 11. The examinable areas are ex!ort
inter$ention or customs unions.
S%m5'e -+est#o$s
+ttached is a list of sam!le exam questions co$ering the areas indicated in the list
abo$e. ,lease note that the sam!le exam questions are only sam!les. The questions
a!!earing on the exam will co$er the areas indicated but may $ary substantially in
focus. To get strong mar"s a student must answer the question that is as"ed on the
exam and not sim!ly regurgitate an answer to a sam!le exam question.
,age 1 of .
1. -.hen loo"ing at international trade in monetary terms there is the !ossibility of
monetary distortions. These will ty!ically/ howe$er/ be automatically o$ercome and
so we are able to concentrate on trade in real goods and ser$ices as long as the
exchange rate is within its acce!table boundaries.0 1iscuss.
2. -.hen a country mo$es from autar"y to free trade the resulting gains from trade are
generated because of the mo$ement to a new efficient !roduction outcome and a new
efficient consum!tion outcome.0 Ex!lain this statement.
2. -The world !rice ratio is the most im!ortant money $ariable in international
economics. Its determination is best ex!lained by using %ffer &ur$es.0 Ex!lain this
statement.
3. 4The (ec"scher)%hlin #odel suggests that the basis of com!arati$e ad$antage lies
!rimarily in a difference in factor endowments between countries/ and that if
countries enter into international trade based on that com!arati$e ad$antage they will
be better off in real terms.4 Ex!lain the meaning and the im!lications of this
statement.
5. The 5elati$e *actor ,rice Equalisation Theorem suggests that when mo$ing from
autar"y to free trade there will be a redistribution of income away from the scarce
factor and towards the abundant factor.0 Ex!lain this statement.
6. The short run income distribution consequences of the trade !rocess are ambiguous
for both the abundant and the scarce factor of !roduction.0 1iscuss.
6. 4Tariffs generate deadweight losses on society and therefore should not be used if the
ob7ecti$e is to !rotect domestic !roducers of the im!ortable commodity.0 1o you
agree with this statement8
9. -+ tariff to !rotect the im!ortables industry will be a tax on ex!ortables !roducers.0
Ex!lain this statement.
:. .hy do economists refer to the effecti$e rate of !rotection when discussing the
im!act of a tariff8
10. + !ositi$e externality in the !roduction !rocess of a domestic im!ort com!eting
industry !ro$ides a case for increasing domestic !roduction but does it !ro$ide a
defensible argument for tariff inter$ention8
11. 4.hen discussing tariff inter$ention as a first best !olicy for achie$ing a stated target
the argument is only economically $alid in a large country setting.4 1o you agree with
this statement8
12. -;uantitati$e restrictions are not as harmful as !rice restrictions when com!ared
!ro!erly.0 1iscuss.
12. -The arguments in fa$our of free trade and against inter$ention are strengthened when
we allow there to be a mono!oly in the domestic im!ort com!eting industry.0 Ex!lain
,age 2 of .
this statement.
13. 4Ex!ort subsidies benefit the subsidised !roducer but im!ose welfare costs on the
country as a whole. There is ty!ically a better way of achie$ing the same outcome.4
Ex!lain this statement.
15. 1o you thin" that +ustralia should acti$ely see" to obtain membershi! of an
international trading bloc8
ECON 146 INTERNATIONAL TRADE
Some %//#t#o$%' 6#$%' E*%m -+est#o$s from RMIT Me'bo+r$e,
. Me'bo+r$e7
4&ountries trade in international mar"et !laces because they ma"e gains from that trade.4
.here do these gains from trade come from and what decides the distribution of those
gains between countries8
0 Me'bo+r$e7
-&ountries cannot ma"e gains from trade if they ha$e common su!!ly sides.0 1iscuss.
12 Me'bo+r$e7
4.hen discussing tariff inter$ention as a first best !olicy for achie$ing a stated target the
argument is much stronger in a large country setting than in a small country setting.4 1o
you agree with this statement8
,age . of .