International Trade - Previous Exam Questions


From Dec 7 2009 Final – Long Problem 2 – Trade with Identical Populations

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From Nov 22 2010 Mid-Term 4 – Long Problem 1 – Trade & Differing Populations

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Fall 2009 Final TFU 6:

If workers were allowed to move freely across countries, wage differences would increase.


See International Trade Chapter, Section called “Trading Capital vs Trading Labor” and book problem


False. A simple example: suppose there are two places where software engineers work; India and the US Suppose the US has high wages for these engineers and India has low wages. If workers could freely move across borders, low-wage Indians engineers will be inclined to move to the US, pushing wages there down. And engineers in India could induce higher wages from firms there by noting the ease of garnering a higher US wage. 


Through this mechanism (obviously simplified greatly for the sake of this solution), wages between countries would equalize.




Fall 2010 Final 5: If country one has an absolute advantage in producing both goods over country two then there are no gains from trade.


Winter 2010 Final 5:  If country one has an absolute productivity advantage in producing both goods over country two then there are no gains from trade.


See International Trade Chapter, absolute and comparative advantage.


False. Quoting the book “One of the deep insights of economics is that even when one economy has an absolute advantage in producing all goods … there may still be gains from trade…” so long as a comparative advantage exists.


Maybe mention that you could show this with a 2-by-2 labor productivity matrix example, but that would take too much time.



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