ECN 607 - Seminar in Int'l Trade
Prof. Bruce Blonigen

Answer questions 1 and 2 and then either question 3 or 4. Use relevant graphs when necessary to help illustrate your answers.

1) What is the role of country size in international trade? Answer 3 of the following 4 parts. In your answers draw upon the models and results of trade theory you think are appropriate.

A) Do large countries gain more from trade than small countries?
B) How does country size affect the composition and variety of a country's exports and imports?
C) What changes in the pattern of a country's trade would be expected as a result of its growing to a larger size, either through population growth or through accumulation of other factors?
D) Do large countries have more "power" in the use of trade policies than small countries?

2) You work for the U.S. Trade Representative, Charlene Barshefsky, and she has heard that a country will gain from imports because they are goods for which other countries have a comparative advantage and thus, ones they can produce at a lower price. Because of this, she is thinking about subsidizing auto imports into the U.S. to encourage even more low-price imports into the country. Analyze the effect of the U.S. subsidizing auto imports with an ad valorem subsidy paid by the U.S. government under the following cases.

A) Perfect competition in the world auto market and the U.S. is a small country.
B) Perfect competition in the world auto market and the U.S. is a large country.
C) Bertrand duopoly game for the U.S. auto market with one U.S. firm and one foreign firm

In cases A and B, use appropriate diagrams and explain the effect on prices, domestic output, imports, and welfare effects for the home country, the foreign country and for the world. For case C, use appropriate diagrams to explain what happens to equilibrium prices and profits for the two firms.

3) Describe three arguments for why trade economists have found that there is a nonequivalence of tariffs and quotas. Detail the theoretical/graphical argument for each and give empirical evidence if appropriate.

4) Describe the advantages and disadvantages of computable general equilibrium (CGE) models relative to other methods of estimating the effects of trade policies. Use examples from the de Melo and Tarr article, "Welfare Costs of U.S. Quotas in Textiles, Steel and Autos," to argue your points. Explain why their estimates show no job losses for the auto industry when the U.S. eliminates the auto VERs.