U.Washington, Geog 349, Review 1

University of Washington
Geography 349
Autumn 2008

PREPARING FOR THE FIRST IN-CLASS TEST

Basically, everything from my online notes, as elaborated in class, and the written exercises is reasonable material for the test: if I thought it was important enough to write about it myself or to have you write about it, it's important enough for a test.

You might want to take a look at Test 1 from earlier years.

I'll ask you for a little empirical memorization, from Dicken's Chapter 2. Specifically, I think you should leave this course knowing which 3 countries are the world's largest producers of agricultural products, manufactured goods, and services; the rank of the United States in world exports and world imports of agricultural products, merchandise trade, and traded services; and which two countries have the world's largest bilateral trade flow.

Of course, a major purpose of the course is to be able to make sense of these trade flows, so I might ask you to explain -- to make sense of -- those patterns by using any (combination) of the trade "theories" (frameworks or explanations) we've studied.

I want you to be able to interpret a trade-balance table, and to understand the relationship among components of the economy (see examples of these online). Don't bother to memorize any of the numbers presented online; if I want you to work with such a table, I'll provide the table.

I have repeatedly referred to a key relationship between trade balances and capital flows; what is that relationship? How is that relationship manifested on a table of a country's international accounts?

Be very conversant with the neoclassical theory of international trade. (The online notes and the Clement chapter are especially helpful; but I've referred to other resources as well). Why is it a "normative" theory? Why is it a "deductive" theory? What basic question does it try to answer? How does it answer that question? As you explain this, make use of (and be able to define, if I ask) terms such as "opportunity costs," "comparative advantage," "factor proportions," and "gains from trade." What are some of the key assumptions of this approach? (Don't worry about the simplifying assumptions we used, such as only 2 countries, 2 products, and 2 factors; or the absence of transportation costs -- those are not the key assumptions, and we can make full use of this model without those assumptions). Understand the concept of factor price equalization, and the limits to it in practice.

What is the Leontief paradox? What was paradoxical about Leontief's findings? Understand three ways to resolve the paradox.

Have a basic understanding of the product life cycle of international trade and investment.

How does "new trade theory" modify the basic neoclassical model?

I will very likely ask you to interpret and to make use of our formula G₁ = (A₁/B₂)(C₂/C₁) - a₁/b₁. There's no need to memorize that set of letters and numbers: I'd give you that, and I'd tell you that a & b are products, 1 & 2 are countries, etc. What you're responsible for is the interpretation of these ratios, and of each term of the right-hand side -- and being able to use the formula.

Be able to define the key forms of trade barriers.

Be able to speak to the different arguments for trade barriers, from the online notes, the Kletzer reading, and the Clement et al. reading. The Davidson & Matusz reading and the Kletzer reading do a better job than the online notes in bringing together (a) economic theory, (b) political concerns, and (c) empirical findings.

Know the three key institutions of multilateral trade liberalization, and the levels of regional economic integration which are allowed by the WTO despite the MFN provision of the WTO. (Clement et al. pp. 47-54 and Dicken pp. 180-204 are very helpful). Be able to distingush trade creation from trade diversion.

What are the major factors that influence changes in the value of a currency? How does each influence operate (e.g., in what direction is the influence)?