INTERNATIONAL TRADE
(15ECC031)
January 2016 3 Hours
Answer FOUR questions in total, including at least TWO questions from Section A
and at least ONE from Section B.
All questions carry equal marks.
Calculators are not permitted.
Please answer all parts of a question unless otherwise stated.
SECTION A
1. Richland and Poorland can both produce two goods, X and Y, using only labour, and
they trade freely with each other. Initially, Poorland has a comparative advantage in
good Y. Using an appropriate diagram, illustrate and explain how productivity growth in
Poorland in industry X affects Richland’s welfare. (100 marks)
2. “In seeking to explain the large observed variation across countries in wage rates,
international differences in technology and productivity are likely to be more important
than international differences in factor endowments.” Evaluate this claim with reference
to the Ricardian and Heckscher-Ohlin-Samuelson (HOS) models. (100 marks)
3. “A rise in the world price of a country’s export good benefits both skilled and unskilled
workers.” Evaluate this claim using the Lerner diagram. (100 marks)
4. (a) Provide intuitive and diagrammatic explanations of the Heckscher-Ohlin-
Samuelson (HOS) Theorem. (80 marks)
(b) What role do assumptions on consumer preferences play in the HOS Theorem?
(20 marks)
5. “Imposing tariffs can only make a country better off to the extent that it is able to
influence its terms of trade.” Evaluate this claim with appropriate diagrammatic
analysis. (100 marks)
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(15ECC031)
January 2016 3 Hours
Answer FOUR questions in total, including at least TWO questions from Section A
and at least ONE from Section B.
All questions carry equal marks.
Calculators are not permitted.
Please answer all parts of a question unless otherwise stated.
SECTION A
1. Richland and Poorland can both produce two goods, X and Y, using only labour, and
they trade freely with each other. Initially, Poorland has a comparative advantage in
good Y. Using an appropriate diagram, illustrate and explain how productivity growth in
Poorland in industry X affects Richland’s welfare. (100 marks)
2. “In seeking to explain the large observed variation across countries in wage rates,
international differences in technology and productivity are likely to be more important
than international differences in factor endowments.” Evaluate this claim with reference
to the Ricardian and Heckscher-Ohlin-Samuelson (HOS) models. (100 marks)
3. “A rise in the world price of a country’s export good benefits both skilled and unskilled
workers.” Evaluate this claim using the Lerner diagram. (100 marks)
4. (a) Provide intuitive and diagrammatic explanations of the Heckscher-Ohlin-
Samuelson (HOS) Theorem. (80 marks)
(b) What role do assumptions on consumer preferences play in the HOS Theorem?
(20 marks)
5. “Imposing tariffs can only make a country better off to the extent that it is able to
influence its terms of trade.” Evaluate this claim with appropriate diagrammatic
analysis. (100 marks)
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