Deck 18: International Economics

Question 1

When a country allows trade and becomes an importer of goods, producers gain more than consumers lose.

Answer 1

False

Question 2

A nation can gain from international trade when the relative domestic prices of the nation differs from that in other countries, and it imports goods for which it is a high opportunity cost producer.

Answer 2

True

Question 3

When a country allows trade and becomes an exporter of goods, producers gain more than consumers lose.

Answer 3

True

Question 4

The intended gains from U.S.tariffs and other trade restrictions can backfire if foreign governments retaliate by imposing additional trade restrictions on U.S.goods sold in their countries.

Question 5

If England uses one week's time to produce ten yards of cloth or two barrels of wine and Portugal uses one week's time to produce twelve yards of cloth or six barrels of wine, England has the comparative advantage in both goods.

Question 6

When a country allows trade and becomes an exporter of goods everyone benefits.

Question 7

Generally, restrictions limiting imports will also help domestic producers who are exporters.

Question 8

A tariff on a good increases the domestic price of the good, increases domestic production of the good, reduces the amount of the good sold, and decreases imports of the good.

Question 9

A country that is half as productive at producing some goods as another country, but is one quarter as productive at producing others, will not be able to gain from trade.

Question 10

A country has an absolute advantage over another if it can produce a good with fewer resources.

Question 11

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

Question 12

If it can be shown that a tariff on steel imports will increase employment in the steel industry, we can be sure that the effect of the tariff on U.S.employment will also be positive.

Question 13

Tariffs contribute to higher prices of textile products imported into the United States, but import quotas on textiles brought into the United States do not.

Question 14

A U.S.tariff on French wine will likely benefit U.S.wine producers and the U.S.government (by increasing tax revenue), but harm U.S.wine drinkers and French wine producers.

Question 15

The quantity supplied by domestic producers in an importing country must be less than the quantity demanded by its population.

Question 16

When a country allows trade and becomes an exporter of goods consumers gain more than producers lose.

Question 17

When a country allows trade and becomes an importer of goods everyone benefits.

Question 18

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

Question 19

Import tariffs in the United States are likely to reduce U.S.exports, both because of the resulting decrease in foreign earnings of dollars from exports to the United States and because of the likelihood of increases in other countries' import restrictions against U.S.goods.

Question 20

If two countries produce both wheat and sugar and one country has the comparative advantage in producing wheat than the other country must have the absolute advantage producing sugar.

Question 21

Import quotas generate more government revenue than a tariff that is designed to allow the same level of imports.

Question 22

With flexible exchange rates, the imbalance between debits and credits arising from shifts in currency demand and/or supply is accommodated through special financial borrowings or reserve movements.

Question 23

The balance on goods and services is the same as the balance on the current account.

Question 24

Stock in a German corporation can be purchased directly with currency from any other country.

Question 25

In 2009 the U.S.current account balance was zero.

Question 26

The exchange rate of a currency will increase if the quantity demanded exceeds quantity supplied at the current exchange rate.

Question 27

All exports of U.S.goods are considered credit items in the U.S.balance of payments.

Question 28

The dollar appreciates when U.S.demands for foreign currencies decrease.

Question 29

Import quotas contribute to higher prices of products imported into the U.S., but tariffs do not.

Question 30

If interest rates rise in the United States relative to those in the rest of the world, the exchange value of the dollar will tend to appreciate.

Question 31

In recent years the United States has run persistent deficits in its balance on the current account.

Question 32

If as a result of NAFTA the demand for American exports rises, it would tend to increase the exchange value of the U.S.dollar as a result.

Question 33

Deflation in the United States would tend to make the exchange value of the dollar depreciate.

Question 34

The current exchange rate system is effectively a dirty float system.

Question 35

Differences among nations in real economic growth rates, real interest rates, and inflation rates will each affect the exchange rates among their currencies.

Question 36

If incomes decrease in the United States, Americans will buy more goods, including foreign goods.This increase in demand for foreign goods will cause an increase in the demand for Euros.

Question 37

Prior to 1973, the world operated on a system of fixed exchange rates called the Bretton Woods system.

Question 38

The exchange rate is the price of one currency in terms of a second currency.

Question 39

It is possible for some individuals within countries to lose from reducing international trade barriers.

Question 40

Major U.S.exporters would be likely to oppose the sort of protectionist policies favored by domestic producers that compete with imports.

Question 41

What is producer surplus? How is it different from consumer surplus?

Question 42

"Tariffs are necessary for reasons of national security." Discuss the validity of this statement.

Question 43

What factors will shift the supply and demand for currency?

Question 44

How do subsidies distort trade patterns and lead to inefficiencies?

Question 45

Fixed exchange rates give countries too much freedom over their monetary policies, thereby threatening higher rates of inflation.

Question 46

Trade restrictions will stop foreign imports, which will increase American employment and protect American jobs.Most economists realize this argument is wrong.Can you explain why?

Question 47

Classify each of the following as debits or credits in the U.S.balance of payments.

Question 48

Why is the demand for foreign currencies known as a derived demand?

Question 49

What are the effects of a tariff, and who benefits and who loses when tariffs are imposed? What are the effects of a quota, and who benefits and who loses when quotas are imposed?

Question 50

What is the law of comparative advantage, and why is it important in international trade?

Question 51

What benefits are to be gained from countries producing according to the law of comparative advantage? What if a country is absolutely more productive in all goods?

Question 52

Steve and Lee have been shipwrecked on a deserted island in the Hawaiian chain.Their economic activity consists of either gathering pineapples or fishing.We know Steve can catch four fish in one hour or harvest two baskets of pineapples.In the same time Lee can reel in two fish or harvest two baskets of pineapples.If they each spend four hours a day fishing and four hours a day harvesting pineapples, how many of each will Steve produce? How many will Lee produce? What will their total production be? If Steve and Lee don't trade with each other, who is better off? Why?
Assume Lee and Steve both operate on straight-line production possibilities curves.What is Steve's opportunity cost of producing a basket of pineapples? Of a producing a fish? What is Lee's opportunity cost of producing a basket of pineapples? Of a producing a fish? If Steve and Lee traded, who has the comparative advantage in fish? Pineapples?
If Lee and Steve specialize in and trade the good in which they have a comparative advantage, how much of each good will be produced in an eight hour day? What are the gains from trade?

Question 53

Explain how an increase in the American demand for German goods leads to a change in the Euro relative to the U.S.dollar.

Question 54

What will happen to the supply of dollars, the demand for dollars, and the equilibrium exchange rate of the dollar in each of the following cases?
a.Americans buy more European goods.
b.Europeans invest in U.S. stock market.
c.European tourists flock to United States.
d.Europeans buy U.S. government bonds.
e.American tourists flock to Europe.

Question 55

The U.S.has committed itself to creating a free trade zone between the U.S., Canada and Mexico.Why might this be important? Relative to imports and exports to other nations, what is the size of these two North American trading partners trade relationship with the U.S.?

Question 56

Explain how each of the following will affect the relative values of the dollar and the French franc:

Question 57

Suppose that in the absence of trade, the U.S.price for bicycles was higher than the world price for bicycles.Would allowing international trade, mean that the U.S.would import or export bicycles? Who in the U.S.would benefit and who would lose with a free trade policy, and would the gains be greater than the losses?

Question 58

What are the commonly used arguments for the use of tariffs?

Question 59

Ceteris paribus, if the dollar appreciated in relation to a foreign currency, would the U.S.sell more goods or fewer goods to consumers in that foreign country? Why?

Question 60

Since the advent of flexible exchange rates, world trade has not only continued but also expanded.

Question 61

What are the main arguments presented against flexible exchange rates?

Question 62

Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 24 units of food per year or 12 units of clothing.Which of the following is true?

A)Iceland has both a comparative and absolute advantage in producing food.
B)Iceland has a comparative advantage, but not an absolute advantage in producing food.
C)Lavaland has both a comparative and absolute advantage in producing clothing.
D)Lavaland has a comparative advantage, but not an absolute advantage in producing clothing.
E)None of the above are true.

Question 63

If the United States could produce 4 tons of potatoes or 2 tons of wheat per worker per year, while Ireland could produce 2 tons of potatoes or 3 tons of wheat per worker per year, the country with the comparative advantage in producing potatoes is ____ and the country with the absolute advantage in producing potatoes is ____.

A)the United States; the United States
B)the United States; Ireland
C)Ireland; the United States
D)Ireland; Ireland

Question 64

If the United States could produce 4 tons of potatoes or 2 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, the country with the comparative advantage in producing potatoes is ____ and the country with the absolute advantage in producing potatoes is ____.

A)the United States; the United States
B)the United States; Ireland
C)Ireland; the United States
D)Ireland; Ireland

Question 65

If the United States could produce 1/2 ton of potatoes or 1 ton of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, the country with the comparative advantage in producing wheat is ____ and the country with the absolute advantage in producing potatoes is ____.

A)the United States; the United States
B)the United States; Ireland
C)Ireland; the United States
D)Ireland; Ireland

Question 66

Columbia produces coffee with less labor and land than any other country; it therefore necessarily has

A)an absolute advantage in coffee production.
B)a comparative advantage in coffee production.
C)both a comparative and absolute advantage in coffee production.
D)an absolute advantage and comparative disadvantage in coffee production.

Question 67

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

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

Question 68

From which of the following countries does the U.S.import the largest dollar value of goods?

A)Canada
B)Mexico
C)Great Britain
D)Japan

Question 69

Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 24 units of food per year or 12 units of clothing.Which of the following is true?

A)Iceland has both a comparative and absolute advantage in producing food.
B)Iceland has a comparative advantage, but not an absolute advantage in producing food.
C)Lavaland has both a comparative and absolute disadvantage in producing clothing.
D)Lavaland has an absolute disadvantage, but not a comparative disadvantage in producing clothing.
E)None of the above are true.

Question 70

Economists sometimes say that the current exchange rate system is a dirty float system.What does this mean?

Question 71

Why would a new limit on trade in goods with the United States by Canada be more important to the U.S.economy than the same type of policy in Italy?

A)Canadians speak English so U.S. citizens are more interested in what they do.
B)Canada ranks behind only the United Kingdom as our second most important trade partner.
C)Canada is the U.S.' largest trading partner.
D)Canada exports most of the hockey players who play for the National Hockey Leagues.

Question 72

Say that Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 24 units of food per year or 12 units of clothing.Which of the following is true?

A)Iceland has both a comparative and absolute advantage in producing food.
B)Iceland has a comparative advantage, but not an absolute advantage in producing food.
C)Lavaland has both a comparative and absolute advantage in producing clothing.
D)Lavaland has a comparative advantage, but not an absolute advantage in producing clothing.
E)None of the above are true.

Question 73

If the United States could produce 4 tons of potatoes or 2 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, the country with the comparative advantage in producing wheat is ____ and the country with the absolute advantage in producing potatoes is ____.

A)the United States; the United States
B)the United States; Ireland
C)Ireland; the United States
D)Ireland; Ireland

Question 74

Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 36 units of food per year or 18 units of clothing.Which of the following is true?

A)Iceland has both an absolute and a comparative advantage in producing food.
B)Iceland has an absolute but not a comparative advantage in producing food.
C)Lavaland has both an absolute and a comparative advantage in producing clothing.
D)Lavaland has an absolute but not a comparative advantage in producing clothing.
E)None of the above are true.

Question 75

Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 36 units of food per year or 18 units of clothing.Which of the following is true?

A)Iceland has both a comparative and absolute advantage in producing food.
B)Iceland has a comparative advantage, but not an absolute advantage in producing food.
C)Lavaland has both a comparative and absolute advantage in producing clothing.
D)Lavaland has a comparative advantage, but not an absolute advantage in producing clothing.
E)None of the above are true.

Question 76

Which of the following is correct?

A)U.S. International trade represents about 50 percent of U.S. GDP.
B)Less than 5 percent of world output is sold in a country different from the one in which it is produced.
C)Without tariff protection the number of jobs available to domestic workers would decline.
D)The volume of international trade has grown rapidly.

Question 77

Which of the following is not a major trading partner of the U.S.?

A)Canada
B)Mexico
C)Russia
D)China
E)Japan

Question 78

Under a system of fixed exchange rates, what will happen if the price of a currency is set above market equilibrium? How can this be remedied?

Question 79

What will happen to a country that fixes the price of foreign exchange below equilibrium?

Question 80

What matters most in determining the efficient distribution of production over the world is

A)absolute advantage.
B)efficiency.
C)the stock of resources.
D)comparative advantage.