MBA (BE) – II Semester Examination 2021

Paper Title : International Economics

Paper code: 424801202
Time: 4 hours Total Marks: 70

Attempt any 4 questions

All questions carry equal marks

Instructions;
1) Use Pencil for drawing diagrams
2) Attempt parts of a question all together
3) Mark the question number clearly

Q1. The labour units available in home and in foreign countries are 1200 units and 800 units
respectively. The unit labour requirement for the production of oranges is 6 in home and 10 in
foreign, while for pears it is 4 in home and 2 in foreign. Answer the following questions from
above information;

(i) Which Country has an absolute advantage in which commodity and why?
(ii) Derive the production possibility curve in both the countries from the above
information and calculate the slope of the curve as well.

(iii) Is there any exception to Comparative Cost theory? Write the condition.

Given that world relative demand takes the following form: Demand for Oranges /
Demand for the Pears = Price of Pears / Price of Oranges.

(iv) Construct the world relative supply curve and demand curve.
(v) What is the equilibrium relative price and supply of oranges?
(vi) Describe the Pattern of trade?
(vii) Prove that both countries gain from trade.
(viii) How will comparative advantage be identified in case of “N” number of goods.
(17.5)

Q2. Consider the table below and answer the following questions:

Country Wage rates Cutlery Wheat

 U.S.A 2 Dollar / hr 60hr / unit 30hr / bu
England 3 Pound / hr 30hr / unit 20hr / bu
a) What would be pattern of trade if the exchange rate is 1pound / 1.25 dollar?
b) What are the limits to the wage rate in each country? What will happen to pattern of trade if
the wage limit is broken, illustrate your answer from the above information.
c) What are the exchange rate limits? What will happen to pattern of trade if exchange rate limit
is broken, illustrate your answer from above information.
d) What will happen to trade if the exchange rate is 1pound/1dollar? (17.5)

3 (a) How is the H-O model superior to the Ricardian and Smith’s theory? Verify your
answers giving examples.
(b) What is Offer Curve? Applying offer curve explain the general equilibrium in
international trade. (17.5)

4(a) “Economic Growth in the developing countries would be self defeating if the growth
takes place in export commodity, ”explain. Under what conditions the ‘Immiserzing growth’
theory can be proved right.
(b) “There is no economic rationale behind the export subsidy”, Explain and substantiate
your answer. (17.5)

5(a)“A considerable part of modern trade is explained by the economies of scale.” Explain
how economies of scale, especially the internal economies of scale give rise to trade.
(b) “Learning Curve is function of cumulative output” explain. (17.5)

6(a) Explain Heckcher – Ohlin – Samuelson ( Factor Price Equalization) Theory? Why has
the prediction of the theory, not materialized in the real world?

b) Prove, that when a small nation levies tariff, the country in question is at the receiving end.
(17.5)