Examination paper
International Economics (6 pages)
Muhammad Adrian Fathan (Esa4uv)
…………………………………………
name
I. Multiple choice questions. Write the right letter in the cell. (20 points)
1. b 6. b 11. a 16. c
2. c 7. b 12. d 17. c
3. b 8. b 13. a 18. a
4. d 9. a 14. d 19. a
5. c 10. b 15. b 20. a
1. Approximately what percent of all world production of goods and services is
exported to other countries?
a. 10%
b. 30%
c. 70%
d. 100%
2. Which is the the GDP for an open economy
a. Y=C+I+G
b. Y=C+S+G+X-M
c. Y=C+I+G+X-M
d. Y=C+I+G+M-X
3. A country’s openness to international trade can be measured by the formula
a. Exports + Imports + GDP
b. Exports–Imports –GDP
c. (Exports + Imports) / GDP
d. (Exports + Imports) X GDP
4. Suppose that labour can produce flowers or candy in the US and Sweden.
Below is the chart that indicates how much 1 hour of labor can produce if it
specializes in a particular good.
country Flowers Candy
United States 20 120
Sweden 10 30
Which of the following is true?
a. US has an absolute advantage in flowers.
b. Sweden has a comparative advantage in flowers.
c. Sweden has a comparative advantage in candy.
d. Both (a) and (b).
5. Both countries would benefit if
a. US produced both commodities and did not trade with Sweden.
b. Sweden produced both commodities and did not trade with the US.
c. the United States exported candy and imported flowers.
d. the United States exported flowers and imported candy.
6. In the classical model of Ricardo, the direction of trade is determined by:
a. absolute advantage
b. comparative advantage
c. physical advantage
d. which way the wind blows
7. The Heckscher-Ohlin theory explains comparative advantage as the result of
differences in countries’:
a. Economies of large-scale production.
b. Relative abundance of various resources.
c. Relative costs of labor.
d. Research and development expenditures.
8. Intra-industry trade theory
a. explains why the United States might export autos and import clothing
b. explains why the United States might export and import differentiated versions of
the same product, such as different types of autos
c. assumes that transport costs are very low or do not exist
d. ignores seasonal considerations for agricultural goods
9. The comparative advantage model of Ricardo was based on
a. intraindustry specialization and trade
b. interindustry specialization and trade
c. demand conditions underlying specialization and trade
d. income conditions underlying specialization and trade
10. Quotas are government imposed limits on the ________ of goods trade
between countries.
a. prices
b. quantity
c. revenue
d. costs
11. Similar to import tariffs, import quotas tend to result in
a. higher prices and reduced imports
b. increased government revenue
c. increased consumer surplus
d. decreased producer surplus
12. If a tariff and import quota lead to equivalent increases in the domestic price
of steel, then:
a. the quota results in efficiency reductions but the tariff does not
b. the tariff results in efficiency reductions but the quota does not
c. they have different impacts on how much is produced and consumed
d. they have different impacts on how income is distributed
13. Import quotas tend to result in all of the following except: (Which is false?)
a. domestic producers of the imported good being harmed
b. domestic consumers of the imported good being harmed
c. prices increasing in the importing country
d. prices falling in the exporting country
14. The welfare effects of a quota depend to a considerable extent upon
a. who has the quota license
b. the size of the quota
c. elasticities of domestic demand and supply
d. all of the above
15. The migration of employable workers from low-paying nations to high-paying
nations tends to decrease
a. total wage income in the world
b. wage disparities
c. business or capitalist income in the world
d. the productivity of labor
16. According to economic theory, when labor migrates from a low-wage country
to a high-wage country
a. Wages in both countries rise.
b. Wages in both countries fall.
c. Wages rise in the low-wage country and fall in the high-wage country.
d. Wages fall in the low-wage country and rise in the high-wage country.
17. Which of the following is not an example of foreign direct investment?
a. the construction of a new auto assembly plant overseas
b. the acquisition of an existing steel mill overseas
c. the purchase of bonds or stock issued by a textile company overseas
d. the creation of a wholly owned business firm overseas
18. When a parent company begins a new venture by constructing new facilities
in a country outside of where the company is headquartered called
a. Green-field investments
b. Brown-field investments
c. Merger
d. Acquisition
19. Multinational corporations:
a. increase the transfer of technology between nations
b. make it harder to nations to foster activities of comparative advantage
c. always enjoy political harmony in nations where their subsidiaries operate
d. require governmental subsidies in order to conduct worldwide operations
20. Which of the following is a definition of multinational enterprises?
a. A company headquartered in one country but having operations in other countries.
b. A company employing foreign nationals.
c. A company operating in emerging economies.
d. None of the above.
II. Answer the next six questions based upon the following diagram for Hungary,
assumed to be a small country in the world calculator market. (5 points)
With free trade, the total quantity of imports would equal 50 000 .
With free trade, the total value of imports would equal 500000 .
.
With the tariff, the quantity of imports falls to 30000 .
With the tariff, the government collects 150000 .
Domestic producers gain 2000 units because of the tariff. (amount of
producers surplus)
III. Compare the effects of tariff to the effects of quota. Write in the table the
proper letters (A, B, C or D). (10 points)
Tariff Quota
(Domestic-allocated)
SEE BELOW.
III. Compare the effects of tariff to the effects of quota. Write in the table the
proper letters (A, B, C or D). (10 points)
Tariff Quota
(Domestic-allocated)
Tariff Quota (Domestic-allocated)
consumer surplus A+b_+c+d A+b_+c+d
producer surplus A A
government revenue Receives revenue ( C ) none
quota rent C C
net welfare N = A + C − (A + B + C + D) N = A − (A + B + C + D) = −(B +
= −(B + D) C + D)
IV. Write an example for each international economic term. (5 points)
International economic term example
closed economy North Korea
external economics of scale A Tesco or Spar store can buy supplies in
bulk and lower its cost per unit
horizontal intra-industry trade Indonesia both exports clothes to Sweden
and Imports them too
small country Singapore
multinational firm Coca Cola
