Midterm Exam -

Part I: Multiple Choice Questions

1) The US has a comparative advantage in all of the following areas except:

a) oil.

b) movies.

c) internet.

d) airplanes.

e) steel.

2) The terms of trade:

a) show us who loses from trade.

b) are typically smaller than one (i.e. < 1) for the industrial nations.

c) are getting rapidly worse for China and other emerging-market economies.

d) tend to favor countries which are richly endowed with capital and/or skilled labor.

e) relate export volumes and import volumes.

3) Which of the following statements concerning trade is incorrect?

a) Ricardo's concept of comparative advantage applies best to intra-industry trade.

b) It makes both countries involved better off than not trading.

c) The majority of countries are becoming steadily more dependent on foreign trade.

d) Mercantilists stressed the need for large trade surpluses.

e) The U.S. is less dependent on trade than other industrial nations.

4) Which of the following non-tariff barriers to trade is most likely used by the US Pentagon?

a) quotas.

b) preferential procurement.

c) health and safety regulations.

d) anti-dumping duties.

e) safeguards against a sudden flood of imports.

5) All of the following statements about the US trade policy are correct except:

a) Protectionist interests are politically over-represented in the US.

b) NAFTA did not have much of an impact on the US economy one way or another, compared to its effects on Mexico or even Canada.

c) Americans still support globalization wholeheartedly.

d) It's shaped by the president, subject to tightly defined controls by US Congress.

e) Obama will try to pass the TPP after the elections as perhaps his last great legislative battle.

6) Which of the following GATT-sponsored global trade deals introduced an international code for intellectual property rights?

a) Dillon Round.

b) Kennedy Round.

c) Tokyo Round.

d) Uruguay Round.

e) Doha Round.

7) Which of the following statements is incorrect?

a) Since the Uruguay Round many quotas have been turned into tariffs.

b) The US makes active use of anti-dumping duties.

c) Duties against predatory dumping are more justified than against sporadic or persistent dumping.

d) VERs leave revenue gains in the hands of the government of the exporting nation.

e) Super 301 is a good example of regional trade policy.

8) The GATT principle embodying non-discrimination is:

a) reciprocity.

b) the "most-favored nation" clause.

c) binding commitments.

d) voluntary compliance. e) dispute settlement.

9) Regional economic-integration projects:

a) do not need prior approval by the WTO.

b) in the form of free-trade areas will have more trade diversion than customs unions.

c) have been rejected by both current presidential candidates.

d) in Asia are from now on more likely to be centered on the US rather than China.

e) have comparative-static effects that are more powerful than their dynamic effects.

10) The European Union started out as a:

a) free-trade area.

b) customs union.

c) common market.

d) economic and monetary union.

e) political union.

Part II: True/False-Explain Questions

1) A country has a comparative advantage with regard to a product when it produces that product more efficiently than another country.

TRUE

FALSE

2) Economies of scale are a key concept in explaining inter-industry trade.

TRUE

FALSE

3) Product-cycle theory explains why imitators take over from innovators.

TRUE

FALSE

4) US trade policy is a model of simplicity, consistency, and cohesion.

TRUE

FALSE

Part III: Definitions

1) Openness of a (national) economy:

2) Hecksher-Ohlin theorem:

3) GATT/WTO:

4) European Union:

PART IV: Prepared Essay Questions

1) Identify the major fallacies of international trade.

2) "The net effect of a tariff, looking at its impact on consumers, domestic producers, government, and the economy at large, is generally considered negative." Explain this statement, not least by including the relevant graph! What is the difference concerning the tariff's impact if it is imposed by a large country rather than a small country.

PART V: New Essay Question

1) Discuss all the likely consequences which may occur (e.g. in terms of resource redeployment, factor prices, income distribution) when a hitherto closed labor-abundant country suddenly opens up to trade. (HINT: Resource redeployment => Hecksher-Ohlin; factor prices => Samuelson; income distribution => Samuelson/Stolper).