NAME:______

THE GEORGE WASHINGTON UNIVERSITY

Department of Economics

Economics 180 Prof. Steve Suranovic

Section 10 Spring 2010

Quiz #3 - Answers

1.  (9) Write the term that is described by each of the following statements. Please write out all acronyms.

A. of developed or developing countries in the WTO, this group tends to have higher average bound tariffs. / Developing countries
B. name of the trade law that protects against a surge of imports from foreign firms. / Safeguards
or Escape clause
C. name given to the presidential authority to negotiate free trade agreements / Fast-track authority or
Trade Promotion Authority or
US Trade Representative
D. this non-discrimination principle requires equal treatment of imported goods from two separate WTO members.. / Most Favored Nation treatment
E. this 1934 US trade law authorized the US President to negotiate bilateral trade liberalization agreements with other countries. / Reciprocal Trade Agreements Act (RTAA)
F. the common name for the 1930 Trade Act / Smoot-Hawley
G. name of one new trade agreement, covering an issue not previously part of the GATT and established at the onset of the WTO. / GATS, or TRIPs, ATC, Agriculture, etc.
H. name of the round of trade negotiations that established the WTO / Uruguay Round
I. quantity of CHEESE produced if the unit labor requirement in cheese is ½ hr/kg, the unit labor requirement in wine is 3 hr/liter, the quantity of cheese work is 20 hours, and the quantity of wine work is 30 hours. / 40 kg

2. (6) Use the information in the table to answer the following questions. Assume the countries can be represented by a Ricardian model.

Cheese / Wine
US unit labor requirement / 4 hrs/kg / 8 hr/liter
France unit-labor requirement / 2 hrs/kg / 2 hr/liter

A.  (1) Which country has the absolute advantage in cheese production? Explain why.

France since 2 hr/kg < 4 hr/kg France has a lower unit labor requirement.

B.  (1) Which country has the absolute advantage in wine production? Explain why.

France since 2 hr/l < 8 hr/l France has a lower unit labor requirement.

C.  (1) What is US cheese productivity relative to French cheese productivity?

(1/4) / (1/2) = (1/4) x (2/1) = 1/2

D.  (2) What is US wine productivity relative to French wine productivity?

(1/8) / (1/2) = (1/8) x (2/1) = 1/4

E.  (2) Which country has the comparative advantage in cheese production? Explain why briefly.

US since 1/2 liter/kg (=4/8) < 1 liter/kg (=2/2).

US has a lower opportunity cost of cheese production

Or

US because its relative productivity in cheese is less worse than in wine: (1/2) > (1/4)

F.  (2) Which country has the comparative advantage in wine production? Explain why briefly.

France since 1 kg/liter (=2/2) < 2 kg/liter (=8/4).

France has a lower opportunity cost of wine production

Or

Since the US has a CA in cheese therefore France must have it in wine.

or

France because its relative productivity in wine is more better than in cheese: (4) > (2)

.