MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS
2018/2019 ACADEMIC YEAR
THIRD YEAR FIRST SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELOR OF SCIENCE IN
ECONOMICS/ECONOMICS AND STATISTICS/FINANCIAL ECONOMICS
COURSE CODE: ECO 3104
COURSE TITLE: INTERNATIONAL ECONOMICS I
DATE: 11TH DECEMBER, 2018 TIME: 0830 – 1030 HRS
INSTRUCTIONS TO CANDIDATES
Answer Question ONE and any other THREE questions
This paper consists of TWO printed pages. Please turn over.
ECO 3104 – International Economics I
QUESTION ONE
(a)While the H-O model can explain Brazil’s world leadership in producing
steel and sugar, it does not explain Japan’s leadership in producing
automobiles (vehicles). Discuss this statement in relation to H-O theory
and current trade patterns. (10marks)
(b) Using graphs show how community indifference curves or marginal
rate of substitution represent aggregate tastes or preferences of society,
which in turn send signals to producers of goods and services in a
country. (7marks)
(c)Discuss the weaknesses in mercantilism doctrine that David Hume
identified that laid basis for free trade (8marks)
QUESTION TWO
(a)Explain how mercantilists achieved their objectives (8marks)
(b) What are the six assumptions of the Ricardian model and explain
what each assumption implies. (7marks)
QUESTION THREE
(a)Use graphs to show how, from a point of specialization, country A can
transform its production of good Y into good X through domestic
production and trade the surplus good X with supplies of good Y from
country B. (8marks)
(b) Explain the two main sources of gains from trade that allow both
country A and B to be better off with trade. (7marks)
QUESTION FOUR
(a)Use consumer tastes as a major factor in influencing trade patterns to
show deficiencies in H-O theory (8marks)
(b) Explain the product cycle theory and show how Vernon arrived at
his conclusion for his theory (7marks)
QUESTION FIVE
(a)Import substitution industrial has failed as economic development
option for developing countries. Discuss. (9marks)
(b) Explain the disadvantages Kenya may suffer by joining the East
African Cooperation (6marks)
