IR 213: Spring 2016
Midterm Study Guide
This is your midterm study guide. All key terms and questions on the exam will
come from this study guide or will closely match a question from one of the first two
homework assignments.
Note: I will post this study guide with two lectures still remaining before the exam.
Thus, there are a few terms/questions you won’t have the material to answer until
the Wednesday before the exam.
The midterm exam will include 4-6 key terms, for which you will be asked to define
the term, state its significance, and give an example. The terms on the exam will be
drawn from this study guide. Terms not on these lists will not be on the exam.
Definition: 1 sentence. Self-explanatory. Make sure this is sufficiently detailed to
distinguish the term from other similar terms on the list.
Significance: How does this term relate to the core material we are covering? i.e.
how does trade create wealth, how are the gains from trade distributed, who wins
and who loses from trade openness, etc. It is also correct to relate this term to
similar terms, or opposite terms covered in the course.
Example: Give me an example of the term. This does not need to come from lecture
or the book, but those are the easiest place to look for examples. There is no specific
example we are looking for – any appropriate example will be considered correct.
Sample correct exam answer:
Term: Autarky
Definition: The complete absence of trade.
Significance: Autarkic states do not engage in any international trade, and
therefore cannot exploit comparative advantage or reap the gains from trade.
Example: North Korea, in addition to being communist, also does not permit trade
of most products, making their economy almost entirely autarkic.
There will also be 2-3 mini-essay questions requiring answers of 3-4 sentences and
5-6 short answer questions. As with the key terms, I will only ask questions that
come directly off of the study guide.
Sample correct exam answer:
Short-Answer Question: According to the factor-endowment model, if a country is
labor-abundant and capital-scare and land-scarce, who in that country benefits from
free trade?
Answer: Unskilled workers (i.e. owners of labor)
Note: On exam day, bring your bluebook, several pens/pencils, and not much else.
Everything except writing instruments and bluebooks will need to be placed down
at the front of the class. This includes bags, books, etc. and especially PHONES. No
phones at your seat, so if you have a fancy smartphone, you might want to leave it at
home, along with your laptop and other valuables.
No trick questions. No surprises. The midterm is on Thursday, October 2. Good
Luck!
Key Terms
Complement
Substitute
Autarky
Mercantilism
Absolute Advantage
Comparative Advantage
Opportunity Cost
Factor of Production
Commodities
Terms of Trade
Marginal Rate of Transformation
Race to the Bottom
Importance of Being Unimportant
Law of One Price
Arbitrage
Most Favored Nation
Dumping
Countervailing duties
Smoot-Hawley Tariff (no example needed)
Normal Good
Inferior Good
Concentrated vs. Diffuse Interests
Social Dumping
Trade adjustment assistance
Specialization
Containerization (No example needed)
Short Answer Questions:
Any questions from the homework are also fair game for the midterm. I will change
the questions slightly, but if you’re comfortable with the homework questions, you’ll
be fine on the midterm. In particular, be ready to describe the effects of tariffs,
quotas, or subsidies on domestic consumption, domestic production, prices, and
imports. I guarantee a set of questions on this topic.
1. Name two things that would cause the demand curve for apples to shift (specify
the cause and the direction of the shift).
*Note: I may ask this question about supply curves or demand curves for any
product.
2. Name two things that would cause the quantity of apples demanded to shift
(specify the cause and direction of the shift).
*Note: I may ask this question about quantity supplied or quantity demanded
for any product.
3. For each of the following groups, who wins and who loses from a tariff on the
import of lumber from Canada to the US? (Note: I may ask a question like this about
any product).
A. An owner of timberland in Canada
B. An owner of timberland in the US
C. Loggers in Canada
D. Loggers in the US
E. Furniture manufacturers in the US
F. Consumers in the US
G. Manufacturers of faux-wood flooring in the US
4. What type of countries tend to export commodities, poor countries or rich
countries? What is the problem with being economically dependent on commodity
exports?
5. Who loses from the imposition of a subsidy? Who loses from the imposition of a
tariff?
6. List one benefit and one cost for each of the following strategies:
Total trade openness
Subsidizing/protecting key industries
Big government safety net
7. What was the purpose of the GATT?
8. Who supported the corn laws in Britain? Who opposed them?
9. In 2016, what type of products have higher tariffs globally, agricultural products
or manufactured goods?
10. Did global tariff levels increase or decrease during the great depression? Did
this increase or decrease the severity of the great depression?
11. Why did tariffs and subsidies NOT increase dramatically during/following the
global financial crisis?
12. Rogowski offers an explanation for why factory owners (capital owners) and
land owners allied politically in late 19th-century Germany to oppose free trade
while factor owners (capital owners) in Britain allied with laborers against landowners to support free trade.
Three related questions:
A. Is this story more consistent with Stolper-Samuelson or Ricardo-Viner?
B. Why? (1-2 sentences)
C. Shifting political power toward labor induced trade openness and what
other political change in Britain?
13. List three factors that contributed to the first wave of globalization (1870-1914)
Mini-Essay Questions:
1. What is the difference between the Ricardo-Viner model and the StolperSamuelson models?
2. Why do rich countries that are more open to trade tend to have larger welfare
states (i.e. more government spending) than rich countries that are more closed to
trade?
3. Why does volatility have more negative effects on poor countries (and poor
individuals) than on rich countries (and rich individuals)?
5. Sometimes countries pass laws requiring imported goods to meet certain
environmental or labor standards in order to be imported. Sometimes they do this
because they want to protect foreign workers and the environment. Why else might
a country do this?
6. How do political institutions determine the areas in which a country enjoys
comparative advantage (i.e. in both the long run and the short run, how to political
institutions cause a country to be efficient or inefficient in producing certain types of
goods)?
7. What are the key factors that prevent an agreement in the Doha round of trade
negotiations? What do developing countries want? What do rich countries want?
8. Please address the following three questions in 1-2 sentences each. How do
agricultural subsidies in the US affect American consumers and taxpayers? How do
they affect farmers in developing countries? Why does the US continue to subsidize
agriculture?
9. If the WTO finds that a country has violated its rules, it allows the country harmed
by that violation to impose retaliatory tariffs. What is the downside of this system?
Give an example.
10. Tariffs were once 95% of U.S. government revenue. They are now about 1%.
Why did we rely so heavily on tariffs early in our history? What challenges do low
tariffs pose for governments in developing countries?
11. The Doha round of WTO negotiations is stalled, so many countries are
negotiating bilateral and free trade agreements instead. What are some implications
of this?