ECO 364 L0201 (Winter 2021)
International Trade Theory
Midterm Exam
Tuesday, February 23rd
2:10pm-4:10pm
SOLUTIONS
Last Name: First Name:
Student ID Number:
1. There are 18 pages to this exam including the cover sheet. Make sure you have all of
them.
2. This exam has 100 points and is in two parts: Multiple Choice (11 questions @ 4 points
each=44 total points) and two Long Questions (56 total points). For all questions,
there is no penalty for guessing.
3. For the long questions, clearly mark your final answer.
4. You are allowed to use simple (non-programmable) calculators. Programmable cal-
culators are forbidden. Cell phones, smartphones, and all devices that can contain
programmable information are forbidden.
5. Do not cheat. If you are caught cheating, I will penalize you to the greatest extent
allowed by the University. Possession of any forbidden item will be construed as
cheating.
1
,When you submit your exam, also submit a photo of yourself holding your
exam turned to page 7 in your right hand and your student ID in your left
hand. If you do not do this, you will have 10 points deducted.
2
, 1. Which of the following is NOT true about the Specific Factor model?
(a) Some factors of production are not perfectly mobile across sectors.
(b) There can be winners and losers generated by the movement from autarky to
free trade.
(c) All factors of production must be employed in the same proportion in
all sectors.
(d) The model distinguishes between mobile factors that can be used in any sector,
and factors that are specific to sectors.
(e) Some factor of production can be reallocated across sectors.
2. Assume that the Ricardian model holds with two countries: Brazil and Uruguay.
A farmer in Brazil can produce 10 bushels of sugarcane or 8 bushels of soybeans.
A farmer in Uruguay can produce 7 bushels of sugarcane or 6 bushels of soybeans.
Which of the following statements is false?
(a) Brazil has a comparative advantage in sugarcane.
(b) Brazil has absolute advantage in both.
(c) Uruguay has absolute advantage in neither.
(d) The marginal product of labor for Brazilians in the sugarcane industry is 10.
(e) Uruguay has a comparative advantage in sugarcane.
3. Consider the Gravity Model. Suppose that trade between countries A and B can be
modelled in the following way where a “hat” represents a fitted value:
bAB ) = 2 ln(YA ) + 2 ln(YB ) − 2 ln(dAB ).
ln(X
Yi is GDP of country i and dAB is distance between A and B. Assume YA = YB = 1.
Suppose that better shipping technology decreases dAB from 5 to 2.5 but that the size
of B changes such that trade between A and B remains constant. What must be the
new GDP of B? Assume that YA is constant.
(a) 1/2
(b) 2
(c) 1/4
(d) 1
(e) 4
3
International Trade Theory
Midterm Exam
Tuesday, February 23rd
2:10pm-4:10pm
SOLUTIONS
Last Name: First Name:
Student ID Number:
1. There are 18 pages to this exam including the cover sheet. Make sure you have all of
them.
2. This exam has 100 points and is in two parts: Multiple Choice (11 questions @ 4 points
each=44 total points) and two Long Questions (56 total points). For all questions,
there is no penalty for guessing.
3. For the long questions, clearly mark your final answer.
4. You are allowed to use simple (non-programmable) calculators. Programmable cal-
culators are forbidden. Cell phones, smartphones, and all devices that can contain
programmable information are forbidden.
5. Do not cheat. If you are caught cheating, I will penalize you to the greatest extent
allowed by the University. Possession of any forbidden item will be construed as
cheating.
1
,When you submit your exam, also submit a photo of yourself holding your
exam turned to page 7 in your right hand and your student ID in your left
hand. If you do not do this, you will have 10 points deducted.
2
, 1. Which of the following is NOT true about the Specific Factor model?
(a) Some factors of production are not perfectly mobile across sectors.
(b) There can be winners and losers generated by the movement from autarky to
free trade.
(c) All factors of production must be employed in the same proportion in
all sectors.
(d) The model distinguishes between mobile factors that can be used in any sector,
and factors that are specific to sectors.
(e) Some factor of production can be reallocated across sectors.
2. Assume that the Ricardian model holds with two countries: Brazil and Uruguay.
A farmer in Brazil can produce 10 bushels of sugarcane or 8 bushels of soybeans.
A farmer in Uruguay can produce 7 bushels of sugarcane or 6 bushels of soybeans.
Which of the following statements is false?
(a) Brazil has a comparative advantage in sugarcane.
(b) Brazil has absolute advantage in both.
(c) Uruguay has absolute advantage in neither.
(d) The marginal product of labor for Brazilians in the sugarcane industry is 10.
(e) Uruguay has a comparative advantage in sugarcane.
3. Consider the Gravity Model. Suppose that trade between countries A and B can be
modelled in the following way where a “hat” represents a fitted value:
bAB ) = 2 ln(YA ) + 2 ln(YB ) − 2 ln(dAB ).
ln(X
Yi is GDP of country i and dAB is distance between A and B. Assume YA = YB = 1.
Suppose that better shipping technology decreases dAB from 5 to 2.5 but that the size
of B changes such that trade between A and B remains constant. What must be the
new GDP of B? Assume that YA is constant.
(a) 1/2
(b) 2
(c) 1/4
(d) 1
(e) 4
3
