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Question;DEPARTMENT OF ECONOMICS;ECON 3110H - INTERNATIONAL TRADE;Final Exam December 17, 2013;Time: 2 hours;Instructions: Answer any four (4) of the following six;questions. Each question answered is;worth 25%. Where questions have several parts, the value of;each part is listed.;Use diagrams where appropriate, and be sure to label and;discuss your diagrams.;Unexplained and poorly-labeled diagrams will not receive;high marks.;1. China is one of the largest foreign markets for;U.S.-grown pecans. China does not grow any;pecans, they are native to North America. This year due to;bad weather, the pecan harvest;was smaller than usual. As a consequence pecan prices;increased by about 50%.;(a) Illustrate the effect of the poor pecan harvest on the;increase in pecan prices both in the;U.S. and in China. [40%];(b) One possible policy response to the rise in pecan prices;would be the imposition by the;U.S. government of an voluntary export restraint on pecans.;Illustrate the results of this;policy both in the U.S. and in China using a diagram, and;show the resulting welfare;effects. Who gains and who loses by this policy? [40%];(c) The WTO prohibits voluntary export restraints. What do;you expect the consequences;of the price rise to be in the short term? in the longer;term? [20%];2. The use of subsidies are commonplace in agriculture in;the U.S. and the E.U.;(a) Using a well-labeled diagram, illustrate the impact of;the use of an export subsidy on an;agricultural product market by a large economy like the U.S.;Note the welfare effects;and indicate who gains and who loses. [50%];(b) If agriculture was liberalized and subsidies to;agriculture were removed;(i) Would world welfare rise or fall? Why or why not? [10%];(ii) A group of agricultural exporting nations?The Cairns;Group?which includes;Australia, Brazil, Canada, Indonesia, Thailand are pushing;for the removal of subsidies;in agriculture. Explain in terms of the welfare effects of;the subsidies why;they take this position. [20%];(iii) Would all individuals gain by the removal of;agricultural subsidies in the U.S. and;E.U.? Would all countries gain? Why or why not? [20%];3. Tariffs are commonly used, export taxes are somewhat less;common;(a) For a large country, identify the welfare effects of a;tariff. You must use a wellexplained;labeled diagram.[40%];(b) For a large country, identify the welfare effects of an;export tax. You must use a wellexplained;labeled diagram.[40%];(c) Provide at least three examples of cases where an export;tax would be used, and explain;why. [20%]ECON 3110H - FINAL EXAM;4. In the past, countries tended to apply tariffs to protect;domestic import-competing sectors.;(a) Explain why a small country might apply welfare-reducing;tariffs in the past. [33.3%];(b) Explain why the establishment of bilateral and;multilateral negotiations moved these;same small countries to pursue trade liberalization and;lower tariffs. [33.3%];(c) Discuss three aspects of the WTO that make it relevant;to the establishment of the;current liberal trading regime. [33.3%];5. Answer both parts below;(a) Under the WTO, countries may not discriminate based on;the production and process;methods used.;(i) Explain the significance of this restriction. [25%];(ii) Explain when exceptions to this restriction are;possible. [25%];(b) 200 years ago there were no high-wage and low-wage;countries, and per capita GDPs;were more or less similar around the world.;(i) Can the growth of trade over the last 200 years explain;the divergence in average;wages and in per capita GDPs among countries of the world?;[25%];(ii) What are the future prospects for the influence of;trade on per capita GDP differences;and for wage differences? [25%];6. (a) Are preferential trade arrangements (PTA?s) welfare;improving or welfare reducing;both for the countries within the arrangement and for those;outside? You should incorporate;diagrams in your answer. [60%];(b) Describe how PTA?s are managed within the WTO, and;explain how the presence of;the WTO restricts the trade policy options available for;members of PTA?s. [40%];2


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