Columbia. Midterm Exam for International Trade Policy. Rodrik, 1992

This post marks the first time that I have transcribed an artifact in the near-history of economics that had been posted on Twitter. Amin Khalaf (@khalaf_amin) tweeted “Best class I took at Columbia was with @rodrikdani almost 30 years ago” and attached an image of the mid-term exam for the course he took on international trade policy. Digitized content is much more useful for the historians of economics of the present and future, so I decided to transcribe and post this one page rather than allow it to simply languish out there in the twittersphere.

Dear visitor to this page: there is always room for more such content. Send Economics in the Rear-view Mirror (c/o  irwin.collier@gmail.com) your own artifacts from your economics training

______________________

ECONOMICS G6303 MID-TERM EXAM
November 11, 1992
Prof. Dani Rodrik

This is a take-home exam. You can choose when to do it within the next 24 hours, but you should take no more than two hours to complete it. This includes the time you spend reading and thinking about the questions, and the time you use to consult your notes. Completed exams should be turned in to Hye Sun at the Economics Department by 12 noon tomorrow (November 12^th). Late exams will be marked down accordingly. This exam will be 1/3 of course grade.

1. Consider a model with three goods, an importable, an exportable, and a non-traded good. The importable is not produced domestically, and the exportable is not consumed domestically. The economy has at least three factors of production, one of which is labor. These factors of production are supplied inelastically and full employment prevails. Write down the system of equations that determines the following endogenous variables: the wage rate, the price of non-tradables, and welfare.
2. For a small open economy, the real exchange rate is defined as the inverse of a relative price of home goods to tradables. In our model, two potential indices of the real exchange rate are: (i) the price of the non-traded good relative to the exportable; and (ii) the wage rate relative to the price of the exportable. Using the model described above, determine how the imposition of a small import tariff affects these two relative prices. Does the tariff move these two relative prices in the same direction? Explain your findings intuitively.
3. Focusing on the relative price of non-tradables alone, show that the result of the previous analysis can be reversed when there is a large pre-existing tariff. (I.e., you must analyze the consequences of an increase in the tariff starting from a tariff-distorted equilibrium). Explain why this happens intuitively.
4. Now amend the model as follows. Assume that the wage rate (relative to the price of the exportable) is exogenously fixed at a level that is too high, so that unemployment results. The representative consumer/worker undertakes a labor-leisure choice, so we can write his utility function as U(c_m, c_n,
   – L), where c_m and c_n are the consumption levels of the importable and the non-traded goods,  is the total endowment of labor time, L is employment, and – L is leisure. He is constrained in the amount of labor he can supply, since employment is determined by labor demand from producers (which falls short of labor supply at the fixed wage rate). Express the appropriately amended expenditure function of the representative consumer/worker. (Hint: labor demand (employment) will not be an argument of the expenditure function.) How is this function defined? What is the interpretation of the derivative of this function with respect to employment?
5. Write down the system of equations that determines the following three endogenous variables in this amended model: the employment level, the price of the non-tradable, and welfare. Check whether the imposition of a small tariff is a welfare-enhancing policy in this model. Explain your result in intuitive terms.

Source: Photo attachment to May 11, 2021 Tweet by Amin Khalaf (@khalaf_amin).

Image Source: Institute for Advanced Study, Dani Rodrik page (archived from 5 January 2021).