Deck 18: International Economics

Question 1

When U.S. exports are greater than U.S. imports, the U.S. economy is said to have a balance-of-trade deficit.

Answer 1

False

Question 2

The value of imports and exports of goods and services, net investment income, and net transfers is included in the balance of trade, while foreign purchases of assets in the domestic economy and domestic purchases of assets abroad is included in the balance of payments.

Answer 2

False

Question 3

A nation can gain from international trade when it exports goods that it can produce at a higher opportunity cost than others.

Answer 3

False

Question 4

With free trade and imports, domestic producers gain more than domestic consumers lose.

Question 5

Subsidies do not distort trade patterns and lead to overall inefficiencies.

Question 6

An imposition of a tariff results in lower prices and revenues to domestic producers and higher sales and revenues to foreign producers.

Question 7

With free trade and exports, domestic consumers gain more than domestic producers lose.

Question 8

Trade occurs when a country has an absolute advantage and not just a comparative advantage over another country.

Question 9

Margaret, who lives in Des Moines, has been saving for years in order to make a trip to England. She would be happy if the dollar suddenly depreciates in value against the pound.

Question 10

The current account records foreign purchases of assets in the United States and U.S. purchases of assets abroad.

Question 11

As the price of the euro decreases relative to the dollar, European products become relatively more expensive to U.S. consumers.

Question 12

Subsidies are barriers to international trade as they distort trade patterns and lead to inefficiencies.

Question 13

A depreciation in the U.S. dollar would discourage foreigners to buy American goods.

Question 14

Domestic exporters prefer a stronger dollar and domestic importers prefer a weaker dollar.

Question 15

When the U.S. gives foreign aid to another country, a credit occurs in the U.S. balance of payments.

Question 16

The inevitable cost of protecting domestic industries from foreign competition will be higher prices for domestic consumers.

Question 17

If fewer British tourists visit the Grand Canyon, the supply of foreign exchange in the U.S. will increase.

Question 18

The net loss in welfare from a tariff is larger than for a quota.

Question 19

The U.S. dollar appreciates when the U.S. demand for foreign currencies decreases.

Question 20

Dumping occurs when a foreign country sells its products at prices higher than the price for which it is sold in their domestic market.

Question 21

Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. The opportunity costs of producing 1 ton of apples in Alpha and Omega are _____, respectively.

A)0.25 tons of oranges and 0.5 tons of oranges
B)9 tons of oranges and 3 tons of oranges
C)2 tons of oranges and 4 tons of oranges
D)4 tons of oranges and 2 tons of oranges
E)10 tons of oranges and 20 tons of oranges

Question 22

Mutually beneficial trade will occur whenever the terms of trade between the trading partners is set at a level where:

A)each country can export a good at a price above the opportunity cost of producing the good in the domestic market.
B)each country can import a good at a price above the opportunity cost of producing the good in the domestic market.
C)each country can export a good at a price below the opportunity cost of producing the good in the domestic market.
D)each country will specialize in the production of those goods in which it has an absolute advantage.
E)each country will specialize in the production of those goods that it can produce at the lowest average cost.

Question 23

Which of the following countries was one of the major trading partners of the Unites States in 2011?

A)China
B)Brazil
C)India
D)Russia
E)Italy

Question 24

Consumer surplus is:

A)the difference between quantity demanded and quantity supplied.
B)the sum of quantity demanded and quantity supplied.
C)the ratio of the price of a good to the proportion of income spent on the good.
D)the difference between the most a consumer would be willing to pay for a quantity of a good and what a consumer actually has to pay.
E)the difference between the income and expenditure of a consumer in the current time period.

Question 25

Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. The opportunity costs of producing 1 ton of oranges in Alpha and Omega are _____, respectively.

A)20 tons of apples and 30 tons of apples
B)9 tons of apples and 3 tons of apples
C)2 tons of apples and 4 tons of apples
D)0.5 tons of apples and 0.25 tons of apples
E)10 tons of apples and 20 tons of apples

Question 26

Suppose the United States can produce either 10 million cell phones or 20 million picture frames per worker per year, while Canada can produce either 2 million cell phones or 6 million picture frames per worker per year. Based on this information, identify the correct statement.

A)The U.S. has a comparative advantage in the production of cell phones.
B)The U.S. has a comparative advantage in the production of picture frames.
C)Canada has a comparative advantage in the production of cell phones.
D)Canada has an absolute advantage in the production of picture frames.
E)Canada has an absolute advantage in the production of cell phones.

Question 27

The table below shows the maximum possible combinations of computers and shoes that each of Cambria and Bodoni can produce. Suppose the data in the table is converted into production possibilities curves with constant opportunity costs for both the countries. The number of computers produced is measured along the vertical axis, and the pairs of shoes produced is measured along the horizontal axis. Which of the following is true in such a case?Table 18.1:

A)The slope of Cambria's production possibilities curve equals 2, and the slope of Bodoni's production possibilities curve equals 1/2.
B)The slope of Cambria's production possibilities curve equals −1/2, and the slope of Bodoni's production possibilities curve equals −2.
C)The slope of Cambria's production possibilities curve equals 1/2, and the slope of Bodoni's production possibilities curve equals 2.
D)The slope of Cambria's production possibilities curve equals −2, and the slope of Bodoni's production possibilities curve equals −1/2.
E)The slope of Cambria's production possibilities curve equals 1/3, and the slope of Bodoni's production possibilities curve equals 3.

Question 28

Comparative advantage exists when a person or a country can produce a good or service at a lower _____ than others.

A)fixed cost
B)variable cost
C)opportunity cost
D)total cost
E)marginal cost

Question 29

Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. Which of the following statements is true?

A)Because Alpha has a comparative advantage in producing both goods, no mutual gains from trade are possible.
B)Because Alpha has an absolute advantage in both goods, no mutual gains from trade are possible.
C)If Alpha specializes in growing apples and Omega specializes in growing oranges, they could both gain from specialization and trade.
D)If Alpha specializes in growing oranges and Omega specializes in growing apples, they could both gain from specialization and trade.
E)Omega has an absolute advantage in the production of apples.

Question 30

Suppose the opportunity cost of producing 1 coconut in Samoa is 4 pineapples, while the opportunity cost of producing 1 coconut in Guam is 5 pineapples. This implies that:

A)Guam has a comparative advantage over Samoa in the production of coconuts.
B)Guam will be better off if it exports coconuts and imports pineapples.
C)Samoa will be better off if it exports pineapples and imports coconuts.
D)Samoa has a comparative advantage over Guam in the production of coconuts.
E)Samoa has an absolute advantage over Guam in the production of coconuts.

Question 31

In 2011, U.S. exports of goods and services amounted to _____ percent of its gross domestic product (GDP).

A)14
B)50
C)40
D)60
E)30

Question 32

Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples. Which of the following is true in this case?

A)Adam has an absolute advantage in oranges.
B)Karl has a comparative advantage in oranges.
C)Karl has an absolute advantage in apples.
D)Karl has a comparative advantage in apples.
E)Adam has a comparative advantage in oranges.

Question 33

Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples. If there are only two goods in the world-apples and oranges-and the exchange rate between apples and oranges in international markets is 1 ton of apples per 3 tons of oranges, which of the following is likely to be true?

A)Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export oranges to other countries.
B)Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export apples to other countries.
C)Karl has a comparative advantage in oranges and will specialize in only oranges.
D)Adam has a comparative advantage in oranges and will specialize in only oranges.
E)Karl has an absolute advantage in apples and will specialize in only apples.

Question 34

Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples. Which of the following is true in this case?

A)Adam has an absolute advantage in oranges.
B)Karl has a comparative advantage in apples.
C)Karl has an absolute advantage in oranges.
D)Karl has an absolute advantage in apples.
E)Adam has a comparative advantage in oranges.

Question 35

Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples in a year. Which of the following terms of trade would allow both Karl and Adam to gain from specialization and trade?

A)1 ton of apples per 2.5 tons of oranges
B)1 ton of apples per 1.5 tons of oranges
C)1 ton of apples per 0.25 ton of oranges
D)1 ton of apples per 0.5 ton of oranges
E)1 ton of apples per 3 tons of oranges

Question 36

According to Ricardo's theory of international trade, a country should:​

A)import goods in which it has an absolute advantage.
B)export goods in which it has an absolute advantage.
C)export goods in which it has a comparative advantage.
D)import goods in which it has a comparative advantage.
E)import goods which it can produce at the lowest marginal cost.

Question 37

The United States is the world's leading grain-producing nation. Exporting grains results in a(n):

A)increase in the domestic consumption of grains.
B)decrease in the domestic prices of grains.
C)increase in the domestic prices of grains.
D)decline in the standard of living of foreigners importing grains.
E)decrease in the domestic production of grains.

Question 38

Which of the following is true of U.S. international trade?

A)U.S. international trade represents about 50 percent of U.S. GDP.
B)Italy was one of the major trading partners of the U.S. in 2011.
C)U.S. exports include crude oil and refined petroleum.
D)The U.S. economy is a closed economy.
E)U.S. imports of goods and services in 2011 amounted to 18 percent of GDP.

Question 39

Suppose one unit of labor in England can produce either 20 units of cloth or 2 bottles of wine, while one unit of labor in Portugal can produce either 24 units of cloth or 12 bottles of wine. If England transfers 2 units of labor from wine to cloth and Portugal transfers 1 unit of labor from cloth to wine, the net increase in combined output will be:

A)8 units of cloth and 18 bottles of wine.
B)16 units of cloth and 16 bottles of wine.
C)12 units of cloth and 12 bottles of wine.
D)16 units of cloth and 8 bottles of wine.
E)20 units of cloth and 10 bottles of wine.

Question 40

Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples in a year. Which of the following terms of trade would allow both Alpha and Omega to gain from specialization and trade?

A)1 ton of apples for 3 tons of oranges
B)1 ton of apples for 2 tons of oranges
C)1 ton of oranges for 0.5 tons of apples
D)1 ton of oranges for 0.2 ton of apples
E)1 ton of apples for 4 tons of oranges

Question 41

The food processing industry in Warzoa has just started developing, and there is potential for the industry to flourish in the near future. However, there is stiff competition from foreign producers who supply processed food in the domestic market. Which of the following arguments would justify the imposition of a tariff on the import of processed food in Warzoa?

A)The antidumping argument
B)The infant industry argument
C)The jobs and income argument
D)The declining industries argument
E)The national defense argument

Question 42

The graph shows the market for wheat in an economy. The equilibrium price and quantity of wheat bought and sold in the domestic market in the absence of international trade are P₂ and Q₂, respectively. If the world price of wheat is P₃, the change in producer surplus due to free trade will be equal to area _____.Figure 18.1

A)C + D
B)A + E +F
C)B + C + D
D)E + F
E)A

Question 43

The imposition of a tariff on widgets by the U.S. government is likely to:

A)increase the consumer surplus for domestic consumers.
B)result in higher prices and revenues to foreign producers
C)result in higher prices and revenues to foreign producers.
D)increase the quantity of widgets demanded.
E)decrease the total quantity of widgets sold.

Question 44

In a two-country framework, at the world price of a good, _____.

A)the supply of and the demand for the good are equal within each country
B)the excess demand in the importing country is just equal to the excess supply in the exporting country
C)the excess demand in the exporting country is equal to the excess demand in the importing country
D)there is no excess demand in the exporting country
E)there is no excess supply in the exporting country

Question 45

If the United States opens its wine market to wine producers from countries with a comparative advantage in wine production, _____.

A)there will be a decrease in the consumption of wine in the United States
B)the production of wine in the United States will increase
C)the price of wine in the United States will increase
D)the price of wine in the United States will decrease
E)there will be a decline in the standard of living of the citizens in the United States

Question 46

A U.S. import tariff imposed on steel is likely to:

A)increase employment in the U.S. steel industry.
B)decrease the quantity of steel supplied by U.S. producers.
C)decrease the cost of production of steel-using American firms.
D)increase U.S. imports of steel.
E)increase consumer surplus for domestic consumers.

Question 47

The imposition of an import quota on steel by the U.S. government is likely to:

A)increase the cost of production of steel-using American firms.
B)generate tax revenue for the government.
C)decrease the production of steel in the U.S.
D)increase the production of steel-using American firms.
E)increase U.S. imports of steel.

Question 48

Which of the following would likely be a result of a tariff on a particular good?

A)It results in greater revenues to foreign producers.
B)It increases the price of the good to domestic consumers.
C)It redistributes income from domestic producers to domestic consumers.
D)It results in lower sales and revenues to domestic producers.
E)It increases the quantity of the good demanded.

Question 49

With free trade and imports, _____.

A)domestic consumers benefit from paying a lower price for goods
B)domestic producers benefit from selling their goods at the higher world price
C)the world supply to the domestic market curve is perfectly inelastic
D)domestic consumers lose a significant percentage of their surplus
E)the world supply to the domestic market curve is perfectly elastic

Question 50

Which of the following arguments does not favor tariffs?

A)Tariffs help infant industries grow.
B)Tariffs increase consumer surplus for domestic consumers.
C)Tariffs reduce domestic unemployment.
D)Tariffs are necessary for national security reasons.
E)Tariffs increase the quantity of goods sold in the market.

Question 51

When exports are subsidized, _____.

A)income is transferred from tax payers to the exporters of subsidized goods
B)the amounts of actual labor, raw material, and capital costs of production decrease
C)nations export products in which they have a comparative advantage
D)gains from trade in terms of world output increase
E)nations export products in which they have an absolute advantage

Question 52

The graph shows the market for wheat in an economy. The equilibrium price and quantity of wheat bought and sold in the domestic market in the absence of international trade are P₂ and Q₂, respectively. If the world price of wheat is P₃, the net domestic gain from trade is shown by area _____ in the graph.Figure 18.1

A)A
B)B
C)C
D)D
E)E

Question 53

The imposition of an import quota on steel by the U.S. government is likely to:

A)decrease the cost of production of steel-using American firms.
B)generate tax revenue for the government.
C)increase the production of steel in the U.S.
D)increase the production of steel-using American firms.
E)increase the quantity of steel demanded by U.S. consumers.

Question 54

The graph shows the market for wheat in an economy. The equilibrium price and quantity of wheat bought and sold in the domestic market in the absence of international trade are P₂ and Q₂, respectively. If the world price of wheat is P₃, then area _____ shows a redistribution of income from the consumers to the producers.Figure 18.1:

A)B
B)C
C)F
D)D
E)A

Question 55

A tariff differs from a quota in that a tariff:

A)is a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported.
B)is a tax imposed on imports, whereas a quota is a legal limit on the number of units of a good that can be imported.
C)increases the price of a good, whereas a quota does not increase the price of the good.
D)decreases the quantity of a good demanded in the domestic market, whereas a quota does not decrease the quantity demanded.
E)increases the quantity of a good supplied in the domestic market, whereas a quota does not increase the quantity supplied.

Question 56

The graph shows the market for wheat in an economy. The equilibrium price and quantity of wheat bought and sold in the domestic market in the absence of international trade are P₂ and Q₂, respectively. If the world price of wheat is P₃, the loss in consumer surplus is equal to area _____.Figure 18.1​

A)A + B
B)B + C
C)D
D)E + F
E)B + E

Question 57

An increase in the existing tariff on grapes from Chile will:

A)increase U.S. imports of Chilean grapes.
B)increase U.S. consumption of domestically-produced grapes.
C)decrease the tariff revenue received by the U.S. government.
D)decrease the quantity of grapes supplied by U.S. producers.
E)decrease the revenues of U.S. producers.

Question 58

Suppose the U.S. government imposes an ad valorem tariff on the import of vitamins. Which of the following would likely be a result of the tariff on the U.S. market?

A)A decrease in the total quantity of vitamins sold
B)An increase in the quantity of vitamins demanded
C)A lower price of vitamins for domestic consumers
D)An increase in the sales of foreign vitamins
E)An increase in the consumer surplus for domestic consumers

Question 59

Which of the following is a difference between an import quota and a tariff?

A)An import quota generates revenue for the domestic government, but a tariff does not.
B)An import quota generates no revenue for the domestic government, but a tariff does.
C)A tariff decreases the price of a good, but a quota does not.
D)A tariff decreases the quantity of a good demanded in the domestic market, but a quota does not.
E)A tariff increases the quantity of a good supplied in the domestic market, but a quota does not.

Question 60

The imposition of a tariff on U.S. imports of steel is likely to:

A)decrease the cost of production of steel-using American firms.
B)generate tax revenue for the U.S. government.
C)decrease the production of steel in the U.S.
D)increase U.S. imports of steel.
E)increase consumer surplus for domestic consumers.

Question 61

Which of the following transactions would be recorded as a debit in the U.S. current account?

A)The purchase of a Japanese car by an American
B)The purchase of air service from a U.S. airline by a Japanese traveler
C)A short-term loan extended to a Japanese manufacturer by a U.S. bank
D)The purchase of U.S. cheese by a Japanese bakery
E)The purchase of an American Treasury bond by a French investment company

Question 62

If the exchange rate between euros and dollars is 2 euros per dollar, a good bought by a French tourist valued at $80 would cost _____.

A)160 euros
B)80 euros
C)78 euros
D)40 euros
E)100 euros

Question 63

Which of the following would be recorded as a credit in the U.S. balance-of-payments accounts?

A)The takeover of a German automobile industry by an American investor
B)The import of Honda trucks by an American automobile distributor
C)The travel expenditures of an American college student traveling to Europe
D)The purchase of an American Treasury bond by a French investment company
E)The import of Lenovo laptops by an American electronic goods distributor

Question 64

A current account records:

A)all transactions with foreign nations that involve the exchange of merchandise goods and services or unilateral gifts.
B)the monetary value of all finished goods and services produced within a country's borders in a specific time period.
C)the total income earned by all the people and institutions within a country from the production of goods and services.
D)the additions to the existing stock of plant and equipment used in the production of goods and services.
E)all transactions with foreign nations that involve an outflow of funds from the government to the private sector.

Question 65

If one U.S. dollar is worth 0.78 euros, then _____ U.S. dollars are required to buy one euro.

A)0.78
B)1.28
C)1.43
D)1.70
E)2.50

Question 66

The balance of trade is the difference between:

A)the most a consumer would be willing to pay for a quantity of a good and what a consumer actually has to pay.
B)the value of a country's merchandise exports and merchandise imports.
C)the lowest price for which a supplier would be willing to supply a quantity of a good or service and the revenues a supplier actually receives for selling it.
D)sales revenue and the costs of production.
E)income and expenditure in the current time period.

Question 67

The balance of payments of Nation Z for 2011 is represented in Table 18.2. For Nation Z, the balance of trade for the year 2011 equals:Table 18.2

A)−$97 billion.
B)−$96 billion.
C)$97 billion.
D)−$87 billion.
E)$80 billion.

Question 68

The balance of payments is a statement that records:

A)all the exchanges requiring an outflow of funds to foreign nations or an inflow of funds from other nations.
B)the monetary value of all finished goods and services produced within a country's borders in a specific time period.
C)the total income earned by all the people and institutions within a country from the production of goods and services.
D)the additions to the existing stock of plant and equipment used in the production of goods and services.
E)all the exchanges requiring an outflow of funds from the government to the private sector.

Question 69

Suppose the exchange rate between yen and dollars were 120 yen per dollar. When an American purchases a Japanese good valued at 600 yen, its cost in dollars would be:

A)$5.
B)$600.
C)$72,000.
D)$120.
E)$10.

Question 70

The balance of payments of Nation Z for 2011 is presented in Table 18.2. For Nation Z, the current account balance for the year 2011 equals:Table 18.2

A)−$97 billion.
B)−$96 billion.
C)$97 billion.
D)−$87 billion.
E)$80 billion.

Question 71

Which of the following transactions would be recorded as a credit in the U.S. current account?​

A)A U.S. consumer buying a television set made in Malaysia
B)Singapore Airlines buying a jumbo jet made in the United States
C)A U.S. investor purchasing British government bonds
D)An American citizen flying to Lithuania by Lithuanian Airlines
E)An American automobile distributor importing Honda trucks from Japan

Question 72

Which of the following transactions would be recorded as a credit in the U.S. current account?

A)The purchase of a German car by an American
B)The purchase of insurance from Lloyds of London by a U.S. resident
C)A trip to Japan by an American student
D)A short-term loan extended to a South American country by the U.S. government
E)The takeover of a German automobile plant by an American investor

Question 73

The balance of payments of Nation Z for 2011 is presented in Table 18.2. For Nation Z, the capital account balance for the year 2011 equals:Table 18.2​

A)−$87 billion.
B)−$96 billion.
C)$90 billion.
D)$97 billion.
E)$86 billion.

Question 74

As the dollar price of a peso decreases, _____.

A)U.S. consumers buy more Mexican goods
B)U.S. consumers buy more American goods
C)the quantity of pesos demanded by U.S. consumers will decrease
D)the quantity of U.S. dollars demanded by Mexican consumers will increase
E)Mexican consumers buy more of American goods

Question 75

Suppose the current account balance in Warzoa is $90 billion and the capital account balance is −$97 billion. This implies that there is a statistical discrepancy of:

A)$7 billion.
B)$97 billion.
C)$100 billion.
D)$10 billion.
E)$20 billion.

Question 76

Identify the correct statement about subsidies.

A)It decreases the gains from trade in terms of world output.
B)It is a barrier to international trade.
C)With subsidies, producers export goods in which they have a comparative advantage.
D)It transfers income from exporters to taxpayers.
E)It reduces the cost of production of goods.

Question 77

Which of the following is a barrier to international trade?

A)A tariff
B)A price ceiling
C)A price floor
D)A subsidy
E)A floating exchange rate

Question 78

When the current account balance and capital account balance of a country are $85 billion and −$80 billion, respectively, the statistical discrepancy equals _____.

A)−$165 billion
B)−$10 billion
C)−$5 billion
D)$165 billion
E)$85 billion

Question 79

The balance of payments of Nation Z for 2011 is presented in Table 18.2. For Nation Z, the statistical discrepancy for the year 2011 equals:Table 18.2

A)−$7 billion.
B)−$8 billion.
C)$90 billion.
D)−$3 billion.
E)$10 billion.

Question 80

Which of the following would increase the demand for U.S. dollars in the foreign exchange market?

A)The purchase of French perfumes by American consumers
B)The purchase of Japanese automobiles by American consumers
C)The purchase of U.S. computer equipment by a Canadian buyer
D)The purchase of a Mexican shoe factory by a U.S. investor
E)The purchase of French cheese by a U.S. bakery