Attempt any four questions:

Q1) (a)(10 Marks) Define the following

i)
ii)
iii)
iv)
v)

International economics and International Trade

Law of Comparative Advantage
Opportunity Cost
Production Possibility curve
Labor theory of Value

(b) (06 Marks) The following shows bushels of wheat and yards of cloth in
units in the US and the UK can produce within one hour of labor time. Identify
in which of the following commodity U.S. and U.K.
i) Have an absolute and comparative advantage/disadvantage
ii) Gain if they exchanged 4W for 6C

Wheat
Cloth

U.S
4
2

U.K
1
2

(c) (06 Marks) Why Ricardos Law of Comparative Advantage is

unacceptable? Which theory can be used to explain the Law?

Q2) (a) (10 Marks) Assume that initially both nations 1 and 2 on their autarky
position. Both nation produce wheat and cloth on X and Y-planes, respectively. If
nation-1 (N1) produces 40 units of wheat and 60 units of cloth with slope of
3W= C and nation-2 (N2) produces 70 units of wheat and 35 units of cloth with
slope of W= 1C, then show graphically the autarky condition for both nations,
separately.

After opening Free trade, if N1 exchange 100W for 100C with N2, then identify
the stage of production and consumption after specialization and gains from trade.

(b) (10 Marks) Sketch a community indifference curve tangent to the fairly flat
section of a concave production frontier. If nation do not specialize in the
production of commodity X with the opening of trade and continue produce at
point A where the slope Pa = and export 20X for 20Y at the world prevailing
price Pw = $1. Discuss nations gains from trade with respect to gains from
specialization and gains from exchange.
OR
(c) (10 Marks) Define Offer Curve. Derive N1 and N2 offer curve and explain
graphically how the equilibrium relative commodities prices are determine their
terms of trade.

Q3) (a) (10 Marks) Explain the following (i) Factor intensity and Factor
Abundance (ii) Hecksher-Ohlin (H-O) theorem and (iii) Hecksher-OhlinSamuelson (H-O-S) Theorem.
(b) (10 Marks) Draw a figure that is based on H-O model assumption of equal
taste. Starting from pre-trade equilibrium point N1 and N2 which is P a = and
Pb=4.
i) Why and in which commodity N1 and N2 specializes in the production?
ii) How and what would be the point production and consumption point or
equilibrium point of both nations after exchanging X for Y and Y for X? Also
explain gains from trade for both nations.

Q4) (a) (10 Marks) Explain an Ad-Valorem, a specific and a compound Tariff and
also discuss the primary function of Tariffs?

(b) (10 Marks) Draw a figure for N2 with the quantity of commodity X on
horizontal axis and price of X (Px) on Vertical axis. When equilibrium price is $15
and Quantity demanded of commodity X (Qx) is 15 units in nation 2, while free
trade price is $5 and quantity demanded of commodity X (Qx) is 35 units.
i)

Indicate the Level of Consumption, production and import of

commodity X at the free trade price.

ii)

what would be the level of consumption, production and import of

Commodity X, if nation 2 imposes 80% ad-valorem import tariff on
commodity X.

iii)

By considering the figure, measure consumer surplus, producer

surplus, government revenue and Deadweight loss.

Q5) (a) (10 Marks) Discuss (with the help of a graph, if necessary) non tariff trade
barriers (NTBs) such as:
i)
ii)
iii)

Voluntary Export Restraint (VER)

Dumping with its type
Import Quota

(b) (10 Marks) Starting with Dx and Sx, where free trade price is PX=$2, Analyze
the partial equilibrium effect of an import quota of 40X if D X shift down to Dx in
such a way that Dx is parallel to Dx and crosses SX at Px = $4.

Q6) (20 Marks) Compare an import Quota and import tariff, if demand curve D x
of commodity X shift upward, where market equilibrium price is P X = $3, QX=30
units and world price is PW= $1 as well. [Hint: Govt. Revenue is Same under quota
and Tariff]
BEST OF LUCK