Deck 9: Application: International Trade

Question 1

In principle, trade can make everyone better off, since the gains to the winners exceed the losses to the losers.

Answer 1

True

Question 2

When a government imposes a tariff on a product, the domestic price will equal the world price.

Answer 2

False

Question 3

A country is likely to import a good if its domestic price is high, relative to the world price.

Answer 3

True

Question 4

Policymakers in Australia are increasingly considering trade restrictions in order to protect domestic producers from foreign competitors.

Question 5

If a tariff is placed on clocks, the price of both domestic and imported clocks will rise by the amount of the tariff.

Question 6

Since losers from international trade are always compensated for their losses, international trade increases the size of the economic pie and the size of the pieces such that everyone is better off.

Question 7

If Colombia exports coffee to the rest of the world, Colombian coffee sellers benefit from higher producer surplus. Colombian coffee buyers are worse off because of lower consumer surplus, but total surplus in Colombia increases because of trade.

Question 8

If Peru exports coffee to the rest of the world, Peruvian consumers of coffee are worse off as a result of trade, but Peruvian producers of coffee are better off.

Question 9

The decrease in total surplus that results from a tariff or quota is called the gains from trade.

Question 10

Suppose that Tonga, a small country, imports apples at the world price of $4 per kilogram. If Tonga imposes a tariff of $1 per kilogram on imported apples, the price of apples in Tonga will increase, but by less than $1, ceteris paribus.

Question 11

If the domestic price of a good is low relative to the world price, the country has a comparative advantage in producing that good.

Question 12

The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive in a market.

Question 13

Trade among nations is ultimately based on absolute advantage.

Question 14

A tariff decreases the quantity of imports.

Question 15

New Zealand is a large exporter of dairy products. This means that NZ dairy exporters are better off as a result of this trade but domestic customers are worse off.

Question 16

In general, if a country allows trade and becomes an importer of a good, domestic producers of the good are worse off, domestic consumers of the good are better off, but the economic wellbeing of the country increases.

Question 17

One of the important outcomes of international trade is that countries specialise in the output of things they are best at.

Question 18

Suppose France imposes a tariff on imported US computers. The tariff will raise the price of computers and will make both French producers and consumers of computers worse off.

Question 19

Without free trade, the domestic price of a good must be equal to the world price of a good.

Question 20

If Australia imports toys from other countries, Australian producers of toys are better off as a result of trade, but Australian consumers of toys are worse off.

Question 21

If Japan subsidised the production of rice and then exported the rice to Australia at artificially low prices, then the Australian economy would be worse off.

Question 22

An import quota increases domestic producer surplus and the surplus of import licence holders, reduces domestic consumer surplus, and creates deadweight loss.

Question 23

Sometimes countries suffer a net loss of jobs due to free trade, because they do not have a comparative advantage in producing anything.

Question 24

While tariffs raise the domestic price of a good, a quota has no effect on the domestic price of a good.

Question 25

A quota can potentially cause an even larger deadweight loss than a tariff.

Question 26

Import quotas increase the domestic price of the product to at least the world price.

Question 27

Import quotas and tariffs both cause the quantity of imports to fall.

Question 28

If free trade means that domestic jobs might be lost because of foreign competition, then economists agree that free trade must be restricted.

Question 29

It is not necessary for a young industry to be protected in order to grow and succeed in international markets.

Question 30

Economists contend that imposing trade restrictions in order to protect industries for national security reasons is never justified.

Question 31

Suppose that Australia imposes a tariff on imported computer chips. If the increase in producer surplus is $100 million, the increase in tariff revenue is $200 million and the reduction in consumer surplus is $500 million, then the deadweight loss of the tariff is $800 million.

Question 32

If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue and domestic consumers will gain consumer surplus.

Question 33

Import quotas make domestic buyers better off and domestic sellers worse off.

Question 34

In practice, it has proven to be extraordinarily difficult for governments to pick the right infant industries to protect.

Question 35

Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium price without trade, thus reducing the gains from trade.

Question 36

Benefits from free trade include increased variety of goods and increased competition.

Question 37

While it is true that some jobs may be lost in the short run because of free trade, jobs are also created because of trade and free trade allows a country as a whole to enjoy a higher standard of living.

Question 38

Economists fear that national security arguments are used too quickly by producers at consumers' expense.

Question 39

Free trade causes job losses in industries in which a country does not have a comparative advantage but it also causes job gains in industries in which the country has a comparative advantage.

Question 40

Many economists oppose the infant industry argument because it is difficult to remove.

Question 41

A quota is:

A) a type of tax imposed on imports
B) a physical limit on the quantity of internationally traded goods
C) a physical limit on the tax level on internationally traded goods
D) a tool to encourage imports into a country

Question 42

A multilateral approach to free trade can sometimes win political support when a unilateral approach cannot.

Question 43

The main justification for imposing restrictions on free international trade is:

A) to protect foreign producers
B) to support foreign consumers
C) to protect domestic producers
D) to support domestic consumers

Question 44

The economic consequences of opening trade and permitting increased imports are:

A) both domestic consumers and domestic producers are better off
B) domestic consumers are better off and domestic producers are worse off
C) domestic consumers are worse off and domestic producers are better off
D) both domestic consumers and domestic producers are worse off

Question 45

Tariffs and import quotas have the following differing outcomes:

A) import quotas do not create deadweight losses but tariffs do
B) tariffs help domestic consumers and import quotas help domestic producers
C) tariffs raise revenue for the government but import quotas create a surplus for import licence holders
D) tariffs increase prices but import quotas do not.

Question 46

If a country allows trade and the domestic price of a good is higher than the world price:

A) the country will become an exporter of the good
B) additional information about demand is needed to determine whether the country will export or import the good
C) the country will neither export nor import the good
D) the country will become an importer of the good

Question 47

A country is deemed to have a comparative advantage in a product if:

A) the world price is lower than its domestic price
B) the world price is higher than its domestic price
C) the world price is equal to its domestic price
D) none of the above

Question 48

If a country allows trade and the domestic price of a good is lower than the world price:

A) the country will become an exporter of the good.
B) the country will become an importer of the good
C) the country will neither export nor import the good
D) additional information about demand is needed to determine whether the country will export or import the good

Question 49

If New Zealand exports wool to China, and imports cameras from China, then it is likely that:

A) New Zealand has a comparative advantage in producing cameras and China has a comparative advantage in producing wool.
B) New Zealand has a comparative advantage in producing wool and China has a comparative advantage in producing cameras.
C) New Zealand and China would both be better off if they each produced wool and cameras.
D) New Zealand subsidises the production of wool.

Question 50

Which of the following is not a benefit of trade?

A) an increased variety of goods
B) an ability to control domestic and world prices
C) lower costs through economies of scale
D) increased competition

Question 51

The Closer Economic Relations agreement between New Zealand and Australia is designed to ensure that Australia can exercise its absolute advantage.

Question 52

A multilateral approach to free trade has the potential to increase the gains from trade more than a unilateral approach does, because the multilateral approach can reduce trade restrictions abroad as well as at home.

Question 53

Trade among nations is ultimately based on:

A) absolute advantage
B) international trade treaties
C) comparative advantage
D) exploitation of weaker countries by more powerful countries

Question 54

Trade is beneficial because it:

A) creates jobs for middlemen
B) creates jobs for shippers
C) allows each nation to apply economic pressure on other nations
D) allows each nation to specialise in doing what it does best

Question 55

When Ford and General Motors import automobile parts from Mexico at prices below those they must pay in the US:

A) workers who assemble Ford and General Motors vehicles become worse off
B) US consumers, taken as a group, become worse off
C) Mexican consumers, taken as a group, become worse off
D) American companies that manufacture automobile parts become worse off

Question 56

The Closer Economic Relations agreement between New Zealand and Australia is designed to ensure both Australia and New Zealand can exercise their own comparative advantage.

Question 57

When Australia engages in international trade with India:

A) India reaps economic benefits and Australia loses
B) both India and Australia reap economic benefits
C) it is an equal trade-off so neither country benefits nor loses
D) India loses and Australia reaps economic benefits

Question 58

When a quota is imposed on a market, the:

A) supply curve (above the world price) shifts to the right by the amount of the quota
B) supply curve (above the world price) shifts to the left by the amount of the quota
C) demand curve (above the world price) shifts to the right by the amount of the quota
D) demand curve (above the world price) shifts to the left by the amount of the quota

Question 59

A tariff and an import quota will both:

A) increase the quantity of imports and raise domestic price
B) increase the quantity of imports and lower domestic price
C) reduce the quantity of imports and raise domestic price
D) reduce the quantity of imports and lower domestic price

Question 60

When goods that are produced in China are sold to Australia, the goods are:

A) exported by Australia and imported by China
B) imported by Australia and exported by China
C) exported by Australia and exported by China
D) imported by Australia and imported by China

Question 61

When a country allows free trade:

A) the domestic price will be greater than the world price
B) the domestic price will be lower than the world price
C) the domestic price will equal the world price
D) it does not matter what the world price is, the domestic price is the prevailing price

Question 62

Suppose the before-trade domestic price of natural gas in Australia is $15 per kg. The world price of natural gas is $30 per kg. Australia is a price-taker in the natural gas market.
According to this statement, if trade in natural gas is allowed, Australian producers of natural gas:

A) will be better off
B) will be worse off
C) will be unaffected
D) could be helped or hurt

Question 63

Use the following information to answer the following questions.
The before-trade price of logs in New Zealand is $100 per cubic metre. The world price of logs is $200 per cubic metre. New Zealand is a price taker in the world log market.
If New Zealand allows trade in logs, domestic consumers of logs will be:

A) worse off and producers of logs will be better off
B) better off and producers of logs will be better off
C) worse off and producers of logs will be worse off
D) worse off and producers of logs will be unaffected

Question 64

When a country allows trade and becomes an exporter of a good, consumer surplus:

A) and producer surplus will increase
B) and producer surplus will decrease
C) will increase and producer surplus will decrease
D) will decrease and producer surplus will increase

Question 65

When a country allows trade and becomes an importer of a good, consumer surplus:

A) and producer surplus will increase
B) and producer surplus will decrease
C) will increase and producer surplus will decrease
D) will decrease and producer surplus will increase

Question 66

Graph 9-1
This graph refers to the market for beef in Japan.

According to Graph 9-1, if trade in beef is allowed, Japan:

A) will become an importer of beef
B) will become an exporter of beef
C) could become either an importer of beef or an exporter of beef
D) will neither import nor export beef

Question 67

Suppose the before-trade domestic price of natural gas in Australia is $15 per kg. The world price of natural gas is $30 per kg. Australia is a price-taker in the natural gas market.
According to this statement, if trade in natural gas is allowed, the price of natural gas in Australia will be:

A) greater than $30 per kg
B) equal to $30 per kg
C) less than $30 per kg
D) greater than, equal to, or less than $30 per kg

Question 68

Suppose the before-trade domestic price of natural gas in Australia is $15 per kg. The world price of natural gas is $30 per kg. Australia is a price-taker in the natural gas market.
According to this statement, if trade in natural gas is allowed, total wellbeing in Australia:

A) will increase
B) will decrease
C) will be unaffected
D) could increase or decrease

Question 69

When a country allows trade and becomes an importer of a good, which of the following is NOT true?

A) the gains of domestic consumers exceed the losses of domestic producers
B) the losses of domestic producers exceed the gains of domestic consumers
C) the price paid by domestic consumers of the good decreases
D) the price received by domestic producers of the good decreases

Question 70

Suppose the before-trade domestic price of natural gas in Australia is $15 per kg. The world price of natural gas is $30 per kg. Australia is a price-taker in the natural gas market.
According to this statement, if trade in natural gas is allowed, the price of natural gas in Australia:

A) will increase
B) will decrease
C) will be unaffected
D) could increase or decrease

Question 71

Suppose the before-trade domestic price of natural gas in Australia is $15 per kg. The world price of natural gas is $30 per kg. Australia is a price-taker in the natural gas market.
According to this statement, if trade in natural gas is allowed:

A) Australia will become an importer of natural gas
B) Australia will become an exporter of natural gas
C) Australia may become either an importer or an exporter of natural gas
D) it is impossible to determine whether Australia will become an importer of natural gas or an exporter of natural gas

Question 72

Use the following information to answer the following questions.
The before-trade price of logs in New Zealand is $100 per cubic metre. The world price of logs is $200 per cubic metre. New Zealand is a price taker in the world log market.
Suppose Australia has a free-trade treaty with the United States. As a result, Australia increases its exports of kangaroo to the USA. Which of the following statements is NOT true?

A) the price paid by Australian consumers of kangaroo increases
B) the price received by Australian producers of kangaroo increases
C) the losses of Australian consumers exceed the gains of Australian producers
D) the gains of Australian producers exceed the losses of Australian consumers

Question 73

Graph 9-1
This graph refers to the market for beef in Japan.

According to Graph 9-1, if trade in beef is allowed, the price of beef in Japan will be:

A) $ five per pound
B) $ two per pound
C) between $ two per pound and $ five per pound
D) higher than $ five per pound

Question 74

Use the following information to answer the following questions.
The before-trade price of logs in New Zealand is $100 per cubic metre. The world price of logs is $200 per cubic metre. New Zealand is a price taker in the world log market.
If Brazil has a comparative advantage in producing rubber and trade in rubber is allowed:

A) Brazil will become an importer of rubber
B) Brazil will become an exporter of rubber
C) Brazil could become either an exporter or an importer of rubber
D) it is impossible to determine whether Brazil will become an importer or an exporter of rubber without additional information about rubber prices

Question 75

Graph 9-1
This graph refers to the market for beef in Japan.

According to Graph 9-1, if trade in beef is allowed, Japanese beef:

A) consumers and Japanese beef producers will gain
B) consumers and Japanese beef producers will lose
C) consumers will gain, and Japanese beef producers will lose
D) producers will gain, and Japanese beef consumers will lose

Question 76

Use the following information to answer the following questions.
The before-trade price of logs in New Zealand is $100 per cubic metre. The world price of logs is $200 per cubic metre. New Zealand is a price taker in the world log market.
When a country allows trade and becomes an exporter of a good:

A) both domestic producers and domestic consumers are better off
B) domestic producers are better off and domestic consumers are worse off
C) domestic producers are worse off and domestic consumers are better off
D) both domestic producers and domestic consumers are worse off

Question 77

Use the following information to answer the following questions.
The before-trade price of logs in New Zealand is $100 per cubic metre. The world price of logs is $200 per cubic metre. New Zealand is a price taker in the world log market.
If trade in logs is allowed, New Zealand will become an:

A) importer of logs and the price of logs in New Zealand will be $100
B) importer of logs and the price of logs in New Zealand will be $200
C) exporter of logs and the price of logs in New Zealand will be $100
D) exporter of logs and the price of logs in New Zealand will be $200

Question 78

Suppose the before-trade domestic price of natural gas in Australia is $15 per kg. The world price of natural gas is $30 per kg. Australia is a price-taker in the natural gas market.
According to this statement, if trade in natural gas is allowed, Australian consumers of natural gas:

A) will be better off
B) will be worse off
C) will be unaffected
D) could be helped or hurt

Question 79

Use the following information to answer the following questions.
The before-trade price of logs in New Zealand is $100 per cubic metre. The world price of logs is $200 per cubic metre. New Zealand is a price taker in the world log market.
When a country allows trade and becomes an exporter of a good:

A) everyone in the country benefits
B) everyone in the country loses
C) the gains of the winners exceed the losses of the losers
D) the losses of the losers exceed the gains of the winners

Question 80

Suppose a country becomes more open to trade and imports increase. This means that:

A) everyone in the country benefits from trade
B) the losses of the losers is less than the gains of the winners
C) the losses of the losers exceed the gains of the winners
D) everyone in the country loses from the trade