Question 1:

In free trade a country will not trade if

A. Autarky prices and free trade prices are the same.

B. Autarky prices are larger than free trade prices.

C. Autarky prices are smaller than free trade prices.

D. The absolute value of autarky prices are negatively correlated with free trade prices.

(1 mark)

Explain your answer and using a diagram

(4marks)

QUESTION 2

The reason why the most efficient firms in a Melitz industry make greater profits under free trade is due to the fact that they

A.Operate under increasing marginal costs.

B.Operate under FDI.

C.Operate under low transport costs.

D.Operate under increasing returns to scale.

(1 mark)

Explain your answer and using a diagram

(4marks)

QUESTION 3

In the Pure Specific Factors model with two sectors, Cars (C) and Wheat (W), Capital (K) is specific to C and Land (A) is specific to W. If the government imposes a tariff on the imports of W then

A.Both owners of K and owners of A will benefit.

B.Owners of A will benefit.

C.Owners of K will benefit.

D.Neither owners of K nor owners of A will benefit.

(1 mark)

Explain your answer and using a diagram

(4marks)

QUESTION 4

In a Mixed Specific Factors model with two sectors, Cars (C) and Wheat (W), Capital (K) is specific to C and Land (A) is specific to W. If the government imposes a tariff on the imports of W then

A.Both owners of K and owners of A will benefit.

B.Owners of A will benefit.

C.Owners of K will benefit.

D.Neither owners of K nor owners of A will benefit.

(1 mark)

Explain your answer and using a diagram

(4marks)

QUESTION 5

A country imposing a tariff can benefit in terms of social welfare if

A.The terms-of-trade benefit exceeds the sum of production and consumption distortion loss.

B.The tariff revenue exceeds the sum of production and consumption distortion loss.

C.The consumer surplus loss is less than the producer surplus gain.

D.The terms-of-trade benefit exceeds the consumer surplus loss.

(1 mark)

Explain your answer and using a diagram

(4marks)