18ECC031 International Trade
Generic Feedback on January 2019 Exam
By and large, students did a good job at connecting the exam questions to relevant
module material. Really good or excellent answers tended to be distinguished from
OK/good ones by a greater focus on addressing the specific question set (as
opposed, for example, to providing a general overview of a relevant economic
model).
Questions 1 to 3 were by far the most popular on the paper, so I will concentrate my
specific comments on them.
Q1(a): Most candidates correctly concluded that the italicised statement (“To gain
from trade, it is necessary to have a trade surplus”) was wrong. The best answers
explicitly stated that the Ricardian model shows that it’s wrong by demonstrating
gains from trade under balanced trade – hence, a trade surplus can’t be necessary.
(As some answers highlighted, the necessary condition for gains from trade in the
Ricardian model is a difference between the countries’ autarky prices.)
Q1(b): Most answers were fine on the real-wage effects of productivity growth (which
matter for welfare) but much less clear on the associated money-wage and unit-cost
effects.
Q2: While most answers correctly realised the importance of FPE, few explained
why FPE obtains in the cone of diversification. (The point here is that the cone of
diversification represents the set of factor endowments that can be fully employed at
industry capital:labour ratios 𝑘 ∗ and 𝑘 ∗ , where the latter are determined by the FPE
factor prices. Equivalently, it is impossible for any factor endowment outside the CoD
to be fully employed using 𝑘 ∗ and 𝑘 ∗ .) Some answers correctly highlighted the
importance for FPE of the production of both goods (i.e. diversification).
Q3: The distributional part of the Q (Stolper-Samuelson/Jones Magnification) was
generally well-answered, but the overall/terms-of-trade effect (i.e. ToT improvement
= potential Pareto improvement) was rarely considered.
Ben Ferrett
February 2019
Generic Feedback on January 2019 Exam
By and large, students did a good job at connecting the exam questions to relevant
module material. Really good or excellent answers tended to be distinguished from
OK/good ones by a greater focus on addressing the specific question set (as
opposed, for example, to providing a general overview of a relevant economic
model).
Questions 1 to 3 were by far the most popular on the paper, so I will concentrate my
specific comments on them.
Q1(a): Most candidates correctly concluded that the italicised statement (“To gain
from trade, it is necessary to have a trade surplus”) was wrong. The best answers
explicitly stated that the Ricardian model shows that it’s wrong by demonstrating
gains from trade under balanced trade – hence, a trade surplus can’t be necessary.
(As some answers highlighted, the necessary condition for gains from trade in the
Ricardian model is a difference between the countries’ autarky prices.)
Q1(b): Most answers were fine on the real-wage effects of productivity growth (which
matter for welfare) but much less clear on the associated money-wage and unit-cost
effects.
Q2: While most answers correctly realised the importance of FPE, few explained
why FPE obtains in the cone of diversification. (The point here is that the cone of
diversification represents the set of factor endowments that can be fully employed at
industry capital:labour ratios 𝑘 ∗ and 𝑘 ∗ , where the latter are determined by the FPE
factor prices. Equivalently, it is impossible for any factor endowment outside the CoD
to be fully employed using 𝑘 ∗ and 𝑘 ∗ .) Some answers correctly highlighted the
importance for FPE of the production of both goods (i.e. diversification).
Q3: The distributional part of the Q (Stolper-Samuelson/Jones Magnification) was
generally well-answered, but the overall/terms-of-trade effect (i.e. ToT improvement
= potential Pareto improvement) was rarely considered.
Ben Ferrett
February 2019
