Sample Test 2

Professor Choi, E355 E-2 Name: Last_____________, First _________________

I enjoyed teaching this class. Good luck in your career! Perhaps we might meet again.

No answers to sample test #2 are provided. Just read your notes.

1. (8 points) Evaluate the following statements.

A. "A new industry having a potential comparative advantage may not get started unless it is given a temporary protection against foreign competition.

B. "A nation dependent on foreign sources of supply is in a vulnerable position during a war."

2. (8 points) Explain the following forms of economic integration

(a) Customs Union

(b) Free Trade Area

(c) Common Market

(d) Economic Union

3. (8 points) Explain Trade diversion and trade creation

5. (8 points) The Bretton Woods era ended on August 15, 1971. What did the President Nixon do on that date?

3. The partial equilibrium effects of a tariff and an import quota can be analyzed using the figure below. The demand curve for automobile and supply of automobiles are denoted D and S, respectively.

(a) Assume that there are two countries, US and Japan. In autarky, the US would produce _________ million cars per year.
Domestic price of automobile in autarky would be $__________.
Consumer surplus would be $__________ million.
Producer surplus would be $__________ million.

(b) Suppose there are no trade barriers and that the world price of the automobile is p* = $6,000.
The US would import ________ million cars from Japan.
Consumer surplus would be $__________ million.
Producer surplus would be $__________ million.

(c) Suppose President Lincoln imposes a specific tariff of $500 on imported cars. Due to the tariff,
domestic price rises to $_________ per car, consumer surplus is $_____________ million, producer surplus is $_____________ million, total surplus is $_______________ million, and deadweight loss from the tariff is $____________ million.