BUS 515
STUDY GUIDE FOR MIDTERM EXAM
Theoretical Concepts
Understanding the Global Economy
Define the term Globalization. How is Globalization measured?
Gains from Trade
Define the concept of absolute advantage. Suppose nation A enjoys absolute advantage at
producing everything with respect to nation B. Can nation A benefit from trading with nation B?
Can the concept of absolute advantage explain current data on international trade patterns?
Define the concept of comparative advantage. Suppose two countries, A and B, exhibit the
following production patterns ( data ) Will these nations benefit from trading? Can the concept of
comparative advantage explain current data on international trade patterns?
Trade Policies and their Effects
Discuss the effects of tariffs on international trade.
Compare/contrast the following non-tariff restrictions on trade: Quota, Vertical Export Restraint.
Sources of Comparative Advantage
Discuss the Factor Proportions Model. How well does the model fit the data on international trade
patterns?
Discuss the concept of Factor Price Equalization. If the implications of this theory hold, how
would NAFTA affect the wages of unskilled workers in Mexico and those in the US?
Industrial Structure and Trade
Describe the following market structures: perfect competition, monopolistic competition,
oligopoly, and monopoly. What is the price-quantity effect of domestic dumping by a foreign
monopoly?
Describe the different types of mergers. What is antitrust law? Is there a need for global antitrust
law?
Labor Markets
Discuss and illustrate (with a graph) the effect of international trade on domestic labor markets.
Regionalism and Multilateralism
Contrast/compare the different types of regional trade agreements that prevail in the world today.
Discuss the concepts of Trade Creation and Trade Diversion
Discuss the history, characteristics, and performance of one of the following regional trade
agreements: NAFTA, MERCOSUR, European Union, ASEAN.
Describe the institutions responsible for regulating global trade today. Discuss the role of GATT
and GATS in governing international trade.
From the Reader
For each article you will be required to provide a short overall summary. In addition, be prepared
to answer specific questions similar to the following:
Rodrkick: True or False. The author finds that globalization, measured by international trade
flows, has increased significantly since the beginning of the 20th century.
Obstfeld: Discuss the position of the author with respect to the role of the IMF in international
affairs.
Feenstra: The author provides a discussion of the implications of outsourcing for the wages of
unskilled workers. Do you sympathize with his view?
Klitgaard and Schiele: How do the authors feel about the current implementation of antidumping
regulations? Do they offer an alternative?
Golub: What does the author comment about the article he quotes from the Philadelphia Inquirer?
What type of evidence does the author present to illustrate the relationship between wages,
productivity and trade?
Thorbecke and Eigen-Zucchi: Did NAFTA cause a “Giant Sucking Sound?
Hanson and Spilimbergo: What have the consequences of NAFTA been with respect to illegal
immigration to the US?
Connolly et al.: Why would developing countries sign a trade agreement among themselves?
From Stiglitz
A general question on Chapters 1-4.