Name:_________________________________________

Write your name above. Answer questions 1-13, and write an essay based on one of questions 14 or 15. The points total 52; your raw score will be multiplied by 0.288 to yield your score out of 15 points. You have 90 minutes.
 

1. [2 points] What would one have to assume to conclude that the revenue-maximizing location for an activity is the profit-maximizing location for the activity? Analogously, what would one have to assume to conclude that the cost-minimizing location for an activity is the profit-maximizing location for the activity?
 

2. [3 points] Distinguish "gross" versus "pure" inputs. Why is this distinction important in our industrial-location model?
 

 
3. [3 points] Distinguish "localized" versus "ubiquitous" inputs. Why is this distinction important in our industrial-location model?
 

4. [3 points] What's the materials index (MI)? What's the locational implication of MI < 1?
 

5. [8 points] Present the "three-step" cost-minimizing model of industrial location that we developed in class [an outline format, without complete sentences, is fine]. Be explicit about the nature and considerations of each step, and how each step relates to the others. You can refer to your answers to the questions above without repeating them, if that helps.

6. [8 points] Distinguish economies of urbanization from economies of localization. These are both categories of a more general type of external economies - what is the more general name? What is "external" about these concepts? What are two sources of (reasons for) economies of localization? What kinds of industries are more likely to benefit from economies of localization, and why?

7. [1 point] Define opportunity cost.

8. [1 point] Define absolute advantage.

9. [1 point] Define comparative advantage.

10. [2 points] What is the theory of factor proportions?
 

11. [4 points] Now that you've defined them, use the four terms above to answer the following question. "If we assume that a national economy is managed to maximize the goods and services available to its citizens, what determines whether a country should specialize in production of one or a few products, exporting some of that output to pay for imports of other products?"

12. [3 points] What is the economic principle of input substitution (don't worry about a formal definition; what's implied by the two words "input substitution")? How does that principle affect (a) the industrial-location framework and (b) the theory of international trade, that we studied this week?

13. [3 points] Define tariff, quota, and subsidy.
 
 

 
14. Write a brief, simple essay about four general trends that have affected the pattern of industrial location in the U.S. and around the world. Describe how each trend affects industrial location, using the cost-minimizing framework we covered in class. Note one empirical issue that is in the news a lot, and relate it to one or more of these industrial-location trends. [Note: that last sentence doesn't necessarily reflect something we discussed in class. In fact, the combination of the "general trends" and our simple industrial-location framework can be used to begin to understand quite a number of issues that are often in the news. Suggest one such newsworthy issue.]

15. Present three common economic or political arguments against trade liberalization, presenting a counter-argument for each. Then, give me your own opinion of the results of the substantial trade liberalization we've seen over the past 35 years. [This last sentence is open-ended; you can base your opinion on your own self-interest or that of others; what's important is that you make an intelligent argument and that you relate your argument at least in part to what we've studied in class.]