University of Washington                         Geography 349                             Autumn 2008

FIRST IN-CLASS TEST

 Respond to all the questions below, on these pages.  The points noted by each question total 65.  Since the test is worth 18 points (towards the quarter’s total of 100), I’ll multiply your raw score by 0.277.  Watch your spelling of words I’ve warned about.  You have 110 minutes.

 A.  SHORT ANSWER [20 points]

 1.  List the three countries that are the largest producers of agricultural products.

 2.  List the three countries that are the largest producers of manufactured goods.

 3.  List the three countries that are the largest producers of services.

 
Questions 4-7 refer to Table 1 on the next page.

 4.  Why are some of the rows in boldface in Table 1?

 5.  What’s the broadest measure of the US “trade balance” in Table 1?

 6.  Why does it make sense that (1) + (18) + (35) =  - [ (39) + (40) + (55) + (70)  + (71)] ?

 7.  In which row would you enter the:

a)      payment that Microsoft receives for shipping software to a retailer in Singapore?

b)      airfare that Air Canada receives from a group of Minnesota hockey fans flying to a game in Calgary?

c)      profit that GM-Canada returns to its shareholder (GM)?

d)      amount Wal-Mart (US) pays for a shipment of shoes made in China?

e)      interest that the US government pays on US Treasury bonds held by the Chinese government?

f)        (hypothetical) profit made by the Japanese owner of the Seattle Mariners?

g)      funds paid to US shareholders by a hypothetical United Arab Emirates’ purchase of Washington Mutual?

h)      funds received by Ford Motor Company for selling its Italian plant to Fiat?

i)        money that a Mexican immigrant in Yakima wires home to his family in Mexico?

j)        payment by a US pension fund for its purchase of a ski resort in the Canadian Rockies?

k)      money that Boeing pays its Italian contractor for interiors of a new aircraft that is assembled in Everett?

l)        tuition that UW receives from the Brazilian government for a government official getting a Master’s degree in Public Administration from the Evans School?

m)    money you spent at a restaurant in Whistler, BC last January?

 
TABLE 1

ESSAYS [45 points]

1.  [15 points] Why is the neoclassical theory of international trade a "deductive" theory?  Why is it a "normative" theory?  What basic question does it try to answer?  What are some of the key assumptions of this approach?  How does it answer its basic question? (In your explanation, please use and define "opportunity costs," "comparative advantage,"  "factor proportions," and "gains from trade.")  What trade policy is implied by the theory?  Why is that trade policy contentious?  (There are many ways to answer that last question – your response should pay at least a little attention to the extent to which the key assumptions of neoclassical trade theory are met by the real world).

 3.  [3 points]  Interpret each of the three ratios on the right side of this formula:

G₁ = (A₁/B₂)(C₂/C₁) - a₁/b₁ ,

where A & B are prices for those two products,
1 & 2 are countries,
C is a unit of currency (for Country 1 and Country 2), and
a & b are production costs of those two products.

 4.  [3 points]  Why does it make sense that the formula above describes Country 1’s gains from trading with Country 2?

5.  [4 points]  From the formula above, what are three ways for Country 1 to increase its gains from trade with Country 2?  Which one of those ways does not reduce Country 2’s gains from trade with Country 1?

 6.  [6 points]  Present three common arguments against liberalized trade, and discuss them in light of the neoclassical theory and its extensions (e.g., the product life cycle and new trade theory).

7.  [9 points]  Describe three major factors that influence changes in the value of a country’s currency relative to the currencies of its major trading partners.  How does each influence operate (in other words, why does it usually affect exchange rates, and in what direction is the influence)?