Instructions:  This is a take home exam, therefore, please take your time to provide clear, thoughtful answers.  Remember, the goal of this assignment is for you to illustrate to me that you’ve covered the required material, that you understand it, and that you’ve thought about it enough to provide concise, thoughtful answers.

PLAGIARISM: All answers must be your own words reflecting your own understanding and knowledge of the material. All reprinted statements must be fully cited to the original author. Students may not copy statements, data, or any other information from any source, including internet websites.

Multiple Choice: Each question worth 2 points.

1)    The Mercantilist theory of free trade argued that a nation’s wealth was produced by

2)    The Mercantilist theory of free trade promoted.

3)    The Mercantilist theory of free trade is a

4)    The Absolute Advantage theory of free trade argued that a nation’s wealth was produced by

5)    The Absolute Advantage theory of free trade is

6)    The Comparative Advantage theory of free trade argued that a nation’s wealth was produced by

7)    The Comparative Advantage theory of free trade is


  Questions 8 - 10: Use the following table.

Production Possibilities:
In 1 hour, 1 worker produces either:

	USA	Canada
Cars	10	12
Computers	20	10

8)    The USA has an absolute advantage in

9)    Canada has an absolute advantage in

10)    The USA and Canada would both benefit if

  Questions 11 - 15: Use the following table.

Production Possibilities:
In 1 hour, 1 worker produces either:

	USA	Canada
Cars	10	8
Computers	20	10

11)    The USA has an absolute advantage in
    a.   computers
    b.   cars
    c.   neither
    d.   both

12)    Canada has an absolute advantage in
    a.   computers
    b.   cars
    c.   neither
    d.   both

13)    The USA has a comparative advantage in
    a.   computers
    b.   cars
    c.   neither
    d.   both

14)    Canada has a comparative advantage in
    a.   computers
    b.   cars
    c.   neither
    d.   both

15    The USA and Canada would both benefit if

            a.   they each produced their own cars and computers and did not trade

    b.   the USA produced only cars and Canada produced only computers and they trade
          with each other
    c.   the USA produced only computers and Canada produced only cars and they trade
          with each other
    d.   the USA produced both cars and computers, Canada produced only cars and trade
          the cars for US computers

16)    Efficiency is gained via free trade because

           foreign producers.
    b.    every sector of the market is effected equally.
    c.    resources are reallocated to their most efficient use.
    d.    a and c
    e.    b and c

17)    Which of the following always benefit from free trade?
    a.    consumers
    b.    producers in less competitive industries
    c.    workers in manufacturing industries
    d.    all of the above.
    e.    a and b only

18)    International free trade tends to concentrate losses on
    a.    countries that are at an absolute disadvantage in all goods
    b.    those sectors of the population that have lower education and skills, because they
           are less likely to work in industries that are internationally competitive
    c.    countries that implement free trade when their trading partners do not
    d.    the agricultural sector
    e.    None of the above. Free trade benefits all sectors equally.

19)    Since the economy as a whole benefits from free trade a nation can ensure that no sector is disproportionately affected by free trade by
    a.    subsidizing sectors that are harmed by foreign competition.
    b.    protecting vulnerable industries with high tariffs or other trade barriers.
    c.    requiring less competitive producers to merge with more competitive producers.
    d.    taxing the industries that benefit and compensating workers to become trained or
           educated in order to enter more competitive industries.

20)    Ricardo’s theory of Comparative Advantage says
    a.   trade cannot benefit everyone, so each country must try export more than it imports.
    b.   a country must produce all goods where it is more productive than its trade partners and
          trade for those goods the other countries are more efficient in producing
    c.   a country should specialize in producing those goods that is relatively most productive in producing and trade for all other goods.
    d.   a country should have free trade in those goods that it is most  efficient in, but have import taxes on those goods that it is inefficient in producing.

22)      Neo-classical free trade theory (based upon Comparative Advantage) included which of the following as conditions under which trade barriers were both justified and would benefit the domestic economy.

23)    The "traditional Protectionist" position argues that the government ought to

    b.    limit imports from a nation if that nation will not implement a similar level of labor,

           human rights and environmental standards.
    c.    limit imports in order to keep existing jobs in the domestic economy.
    d.    subsidize and protect to infant industries until they mature enough to compete globally.

24)    The "fair trade" position argues that the government ought to
    a.    subsidize and protect for declining-cost industries in global markets
    b.    limit imports from a nation if that nation will not implement a similar level of labor,
           human rights and environmental standards.
    c.    limit imports in order to keep existing jobs in the domestic economy.
    d.    subsidize and protect to infant industries until they mature enough to compete globally.

25)    Tariffs are considered
    a.    a less distortionary  form of protection than quotas because tariffs interfere with market
           pricing, production and incentives while quotas virtually eliminate them.
    b.    a more distortionary  form of protection than quotas because tariffs interfere with
           market pricing, production and incentives while quotas virtually eliminate them.
    c.    a less distortionary  form of protection than quotas because tariffs virtually eliminate
           market pricing, production and incentives while quotas only interfere with them.
    d.    a more distortionary  form of protection than quotas because tariffs virtually eliminate
           market pricing, production and incentives while quotas only interfere with them.


Short Answer Section Each questioin worth 20 points.

Answer the following questions briefly (No more than 1 page for each question).

Answer with full, complete sentences. No notes or simple lists.

Remember your goals are to learn the material because it’s fascinating and important, and to convince me that you understand the material well enough to explain it accurately and briefly.

1.  Based upon Comparative Advantage, if England produces less output per worker-hour than its trading partners in all goods, will international trade drive Englands producers out of business? (1 page)

2.  According to Comparative Advantage, is it beneficial for a country to implement free trade policies even if its trade partner imposes restrictions on the free trading country's goods? Discuss a situatuin when one country implements free trade policies and its trade partner imposes tariffs or quotas, or subsidizes its exports. Explain your answer. (1 page)

3.  What are the potential benefits of free trade? What are the potential problems of free trade? How can these potential benefits and problems be reconciled? (1 - 2 pages)