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8 Trade and its Potential Effects on Growth State three main sources of growth. Which of the three is arguably the most lasting source? There are several mechanisms by which trade may affect productivity change. [You may use numeric examples, graphs, or clear verbal arguments for any of your answers.] 1. Suppose there are external economies of scale, driven by free entry into industrial clusters. Explain how comparative advantage changes over time as entrants join a cluster. 2. Suppose there is learning by doing in a model with multiple goods and productivity differences across countries. Explain how the pattern of comparative advantage changes over time as each trading partner learns by doing. 3. Define the Balassa (1965) measure of comparative advantage. Applying it to Latin American economies, does there appear to be lock-in of comparative advantage? 4. What is the impact of adjustment costs and temporarily idle production factors after trade reform on growth?

9 Trade and Incentives for Efficiency and Innovation State the principal-agent problem when there is uncertainty over both a project's return and an agent's effort. In which ways can foreign trade affect competition, product-market shares and a project's return? How can foreign trade therefore alter incentives for efficiency and innovation?

True or false (explain)answer all 6 questions. Each question is worth 4 points. 1. T/F (4 points) One of the reasons that health care is different from other sectors of the economy is that the public sector is not very involved with health care.

2. T/F (4 points) We evaluate new technologies in health by comparing the sum of consumer and producer surplus when using the technology and when not using it. If the difference is positive, we adopt the new technology.

3. T/F (4 points) The Grossman model of health is a model predicting that people consume more medical care if they have a taste for health care.

4. T/F (4 points) The RAND Health Insurance Experiment showed us that the generosity of health insurance coverage does not affect use of medical care

5. T/F (4 points) The RAND Health Insurance Experiment showed us that the generosity of health insurance coverage does not affect overall health on average

6. T/F (4 points) We think that demand for treatment of lung cancer will be more price elastic than demand for treatment of acne.

7. (15 points) Which of the following factors if any affect health? Write two or three sentences for each contributor about how it affects health/how we know it affects health.

8. (15 points) In which of the following ways is cost-benefit analysis different from cost-utility (cost-effectiveness) analysis for evaluating health interventions or public programs? If one of these is not a way in which they differ, explain what is wrong with the statement. a. Cost-benefit analysis compares societal costs and benefits whereas cost-utility analysis looks only at gains to specific people

b. Cost-benefit analysis is worse than cost-utility analysis in settings where there are externalities (for example, price signals do not work).