Deck 4: Demand and Supply, offer Curves, and the Terms of Trade

Question 1

The offer curve of a nation curves toward the axis measuring the nation's

A)import commodity
B)export commodity
C)export or import commodity
D)nontraded commodity

Answer 1

B

Question 2

If a nation does not affect world prices by its trading,its offer curve:

A)is a straight line
B)bulges toward the axis measuring the import commodity
C)intersects the straight-line segment of the world's offer curve
D)intersects the positively-sloped portion of the world's offer curve

Answer 2

C

Question 3

If the terms of trade increase in a two-nation world,those of the trade partner:

A)deteriorate
B)improve
C)remain unchanged
D)any of the above

Answer 3

A

Question 4

Suppose nation 1 is an importer of good X.In a general equilibrium framework,an increase in the demand for good Y will

A)decreased the price of good X and increase the volume of imports of good X
B)decreased the price of good X and decrease the volume of imports of good X
C)increase the price of good X and increase the volume of imports of good X
D)increase the price of good X and decrease the volume of imports of good X

Question 5

If the nation's taste for its import commodity increases:

A)the nation's terms of trade remain unchanged.
B)the nation's terms of trade deteriorate.
C)the partner's terms of trade deteriorate.
D)the partner's terms of trade improve.

Question 6

The index of relative U.S.export prices fell during the first few years of the 21ˢᵗ century.The primary cause of this was

A)the growing U.S.trade deficit
B)the rising price of commodities,such as oil
C)the persistent appreciation of the U.S.dollar
D)the introduction of the Euro as a major world currency

Question 7

If the tastes for a nation import commodity increases,trade volume:

A)increases
B)declines
C)remains unchanged
D)cannot be determined.

Question 8

In what way does partial equilibrium analysis differ from general equilibrium analysis?

A)The former but not the latter can be used to determine the equilibrium price with trade
B)the former but not the latter can be used to determine the equilibrium quantity with trade
C)the former but not the latter takes into consideration the interaction among all markets in the economy
D)the former gives only an approximation to the answer sought.

Question 9

Which of the following statements is not correct?

A)The demand for imports is given by the excess demand for the commodity
B)the supply of exports is given by the excess supply of the commodity
C)the supply curve of exports is flatter than the total domestic supply curve of the commodity
D)the supply curve for exports is more inelastic than the total domestic supply curve of the commodity.

Question 10

Suppose nation 1 is an importer of good X.In a general equilibrium framework,an increase in the cost of producing good X in nation 2 will

A)decreased the price of good X and increase the volume of imports of good X
B)decreased the price of good X and decrease the volume of imports of good X
C)increase the price of good X and increase the volume of imports of good X
D)increase the price of good X and decrease the volume of imports of good X

Question 11

If a nation's terms of trade improve,the nation's social welfare

A)will deteriorate.
B)will improve.
C)will remain unchanged.
D)might improve,deteriorate,or remain unchanged.

Question 12

If the terms of trade of a nation are 1.5 in a two-nation world,those of the trade partner are:

A)3/4
B)2/3
C)3/2
D)4/3

Question 13

The equilibrium price and quantity for a commodity traded between two nations occurs where

A)the slopes of the two offer curves are the same.
B)the two offer curves intersect
C)the slopes of the two offer curves is equal to zero
D)the price ratio of good X for good Y is equals one.

Question 14

If the nation's tastes for its import commodity increases:

A)the nation's offer curve rotates toward the axis measuring its import commodity
B)the partner's offer curve rotates toward the axis measuring its import commodity
C)the partner's offer curve rotates toward the axis measuring its export commodity
D)the nation's offer curve rotates toward the axis measuring its export commodity

Question 15

Which of the following statements regarding general equilibrium analysis is not true?

A)The demand and supply curve are derived from the nation's production frontier and indifference map
B)It shows the same basic information as offer curves
C)It shows the same equilibrium relative commodity prices as with offer curves
D)It shows the same equilibrium relative commodity prices as partial equilibrium analysis.

Question 16

Suppose Nation 1 has a comparative advantage in good X over Nation 2 and the two nations are currently engaged in equilibrium trade for good X.A decrease in the cost of producing good X in Nation 2 would cause the international price of good X to _______ and the quantity of good X traded to ______.

A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease

Question 17

Export prices must rise for a nation to increase its exports because the nation:

A)incurs increasing opportunity costs in export production
B)faces decreasing opportunity costs in producing import substitutes
C)faces decreasing marginal rate of substitution in consumption
D)all of the above

Question 18

The offer curve of a nation shows:

A)the supply of a nation's imports
B)the demand for a nation's exports
C)the trade partner's demand for imports and supply of exports
D)the nation's demand for imports and supply of exports

Question 19

At a relative commodity price above equilibrium

A)the excess demand for a commodity exceeds the excess supply of the commodity
B)the quantity demanded of imports exceeds the quantity supplied of exports
C)the world price of the commodity will fall
D)the excess demand for the commodity will increase.

Question 20

Which of the following statements regarding partial equilibrium analysis is false?

A)It relies on traditional demand and supply curves
B)It studies a single market.
C)it can be used to determine the equilibrium relative commodity price but not the equilibrium quantity with trade.
D)It can be used to show changes in prices when demand or supply changes in another country.

Question 21

Carefully explain the importance of the terms of trade to a nation.Your answer should include an explanation of how changes in the terms of trade are likely to impact social welfare.

Question 22

Draw a figure showing: (1)in Panel A a nation's demand and supply curve for A traded commodity and the nation's excess supply of the commodity(2)in Panel C the trade partner's demand and supply curve for the same traded commodity and its excess demand for the commodity,and (3)in Panel B the supply and demand for the quantity traded of the commodity,its equilibrium price,and why a price above or below the equilibrium price will not persist.At any other price,QD ≠ QS,and P will change to P₂.

Question 23

During the last decade,the nominal price of petroleum has __________,while the real price of petroleum has _________.

A)increased,increased by less than nominal prices.
B)increased,increased by more than nominal prices.
C)decreased,decreased by less than nominal prices.
D)decreased,increased.

Question 24

Carefully define and explain the meaning of "equilibrium terms of trade"

Question 25

Using a graph of offer curves,for each of the following,identify the effect of the change listed on the relative price of good X and on exports of good X by Nation 1.
a.The supply of Y increases in Nation 2.
b.The demand for X decreases in Nation 1.

Question 26

Carefully define an offer curve and explain how it is derived.

Question 27

Suppose the terms of trade for nation X rises from 100 to 110.Explain how this will impact the terms of trade for nation Y.

Question 28

All other things equal,if a nation's terms of trade deteriorate,to maintain the same quantity of imports,the nation

A)will have to export a greater quantity of goods.
B)will have to export a smaller quantity of goods.
C)could increase or decrease its exports.
D)will have to accept a lower standard of living.

Question 29

Using a graph of offer curves,for each of the following,identify the effect of the change listed on the relative price of good Y and on exports of good Y by Nation 2.
a.The demand for X increases in Nation 2.
b.The supply of Y increases in Nation 2.

Question 30

Explain the effect of changes in petroleum prices on the terms of trade and relative export prices for the United States in recent years.