International Trade Theory and Policy
2023-2024
The assessment has five questions in total.
You need to answer the first four questions. For these, you are asked to explain whether the statements are either true, false, or uncertain. There is a strict 250-word limit for each of these four questions and each question is worth 15 marks.
The final question is an essay, with a strict 1000-word limit. This question is worth 40 marks.
You are allowed to handwrite mathematical solutions and draw diagrams where relevant, and insert these as scanned pictures in your answers. Everything else should be typed (typed an- swers cannot be inserted as pictures). Word documents and PDFs are both acceptable. Late submissions will not be accepted.
Question 1: Statement refers to the Heckscher Ohlin model of trade. Given its assumptions, the Heckscher
Ohlin model confirms the observed fact that larger countries trade more.
Question 2: Statement refers to the Neoclassical model of trade. If a country is gaining from trade, then it
must be that firms maximise their profits.
Question 3: Statement refers to the specific factors model of trade. Irrespective of which factor’s endowment
we change, outputs of both goods will change unambiguously.
Question 4: Statement refers to the partial equilibrium model of monopoly and oligopoly. In an industry with
a single domestic producer of a good, consumer welfare after opening to trade under Cournot competition would depend on the firm’s engaging in reciprocal trade.
Question 5: Consider a model with two countries, two goods and two factors of production (labour and cap-
ital), where capital initially cannot move between industries, and countries are under autarky. Discuss how return to each factor changes as the countries open to trade but capital still can- not move across industries. Now assume that rigidities in the capital markets disappear, and capital becomes mobile across industries. Discuss how return to each factor changes. Explain who would have an incentive to lobby against trade initially, and whether that would change.
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