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UNIVERSITI SAINS MALAYSIAMaster of Business AdministrationSecond Semester ExaminationAcademic Session 2007 12008April 2008AKU617 - International TradeDuration: 3 hoursPlease check that this examination paper consists of FIVE page$ of printedmaterial before you begin the examination.Answer FIVE questions.[AKU617l-2-Ouestion 1(a) Consider the following data on some of US's exports and imports in 2004,measured in billions of US dollars:Product Exports lmportsAircraftAutomobilesClothing & accessoriesCoalCoffeeCornCrude petroleumElectronic microcircuitsMedical instrumentsPrimary plastic materialsPharmaceuticalsPerfumes and cosmeticsShoes and other footwearSoybeansWheat38.s222.825.062.340.405.648.8638.599.1018.5123.983.830.6s5.744.8116.48122.7775.731.022.270.13136.0022.389.779.0735.373.76t7.400.0s0.16(i) For which of these products do US's exports and imports appeil to beconsistent with the predictions of the Hecksher-Ohlin theory? Explain.(ii) Which appear to be inconsistent? Explain.[ 12 marks ]Consider the following data on some of China's exports and imports in 2003,measured in billions of US dollars.Product Exports ImportsAudio equipmentComputersCornElectronic microcircuitsSoybeansVesetables10.541.01.86.40.13.40.8tr.40.04t.l5.40.3Which of these products appear to be inconsistent with Hecksher-Ohlin theory?Explain.[ 8 marks ](b)...31-[AKU6l7l-3-Question 2(a) You are given the information (in US dollars) shown in the following table.Banzai (Japan) Tipper (UK) B ee 0talv)Average unit costPrice charged at the brewery fordomestic salesPrice charged at the brewery forexport salesPrice when delivered to the USport1010l1T210t211l3l0910Which of the above three beverage exporters is dumping in the US market? Which isnot? Explain.[ 8 marks ](b) Suppose that the US currently imports 1.0 million pairs of shoes ftom China atUS$20 each. With a 50 Yo tariff, the consumer price in the US is US$30. The priceof shoes in Mexico is US$25. Suppose that as a result of NAFTA, the US imports1.2 million pairs of shoes from Mexico and none from China. what are the gainsand losses to:(i) the US consumers?(iD the US producers?(iii) the US government?(iv) the world as a whole?[ 12 marks ]Ouestion 3(a) What is the specificity rule?(b) The United States demand and supply for grain are:[ 6 marks ]DD=150-0.6PSS:-40+0.5PWhere DD and SS are in millions of tons and P is US$ per ton. The world price ofgrain is US$200 per ton.(i)(iDIn a situation of free trade, how much grain would be produced, consumed,and traded in the United States?As a result of foreign grain subsidies, US farmers successfully lobby for a20% subsidy on US grain production. Assume that the United States is a"small countr5/" in world grain markets. Illustrate the US grain subsidy andcalculate the impact on US prices, consumption, production, and exports ofgrain. Also calculate the welfare effects on producers, consumers, the cost ofthe subsidy to the government, and the overall welfare effect on the US.[ 14 marks ]...4/-lAKU6l7l-4-Ouestion 4(a) A mall be mmarized folls S can D  su as r lows:The Wpical tariff rate is 50 percentThe absolute value of the price elasticity of demand for imports is 1Imoorts would be 20 percent of the counbry's GDP with free tradeThe orotected industries represent 15 percent of GDP(c)Using triangle analysis, what is the approximate magnitude of the economic costsof the tariff protection:(i) as a percentage of the country's GDP?(ii) as a percentage of the gain of producer surplus in the protected sectors?[ 8 marks ]What are voluntary export restraint (VER) agreements? Why do somegovernments force foreign exporters into VER agxeements instead of just usingquotas or tariffs to restrict imports by the same amount?[ 8 marks ]US is considered as a skilled-labor abundant country. However, why does USemerge as one of the world exporter of socks? Explain.[ 4 marks ]Ouestion 5(a) Yor(b)(i) Which country has an absolute advantage in wine and cheese?(iD Which country has a comparative advantage in wine and cheese?(iii) Graph each country's production possibility curve. By assuming that withno hade, US consumes 63 unit of wine and UK consumes 150 unit ofcheese, show the no-trade production point for each country.(iv) When trade is opened, which country exports which good? If theequilibrium international price ratio is 0.5W lC, what happens toproduction in each country?(v) Does each country gain from trade? Explain.[ 20 marks ]u are siven the following information on labor productivity.Wine (W\ Cheese (C) Hour availableUS 0.7 1.0 100UK 1.0 2.0 100...5/-[AKU6l7l-5-Ouestion 6(a) Explain why constant costs of production result in complete specialization and whyincreasing costs of production result in partial specialization.[ 8 marks ](b) A country whose trade has almost no impact on world prices is at great risk ofimmiserizing growth? Do you agree or disagree? Explain.[ 6 marks ](c) According to the Rybczynski theorem, an increase in the country's labor force willresult in an increase in the quantity produced of the labor-intensive good, with nochange in the quantity produced of the other good. Do you agree or disagree?Explain.[ 6 marks ]-oooOooo-

AKU 617 - INTERNATIONAL TRADE APRIL 08.

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AKU 617 - INTERNATIONAL TRADE APRIL 08.

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