Question 1

William and Jamal live in the country of Dumexia. When Dumexia legalized international trade in bananas, the price of bananas in Dumexia increased. As a result, William became better off and Jamal became worse off. It follows that William is a seller, and Jamal is a buyer, of bananas.

Accepted Answer

Since the price of bananas in Dumexia increased, it means that the sellers of bananas (like William) benefited from the increased prices, while the buyers (like Jamal) were negatively affected.

Question 2

GATT is an example of a successful unilateral approach to achieving free trade.

Accepted Answer

GATT (General Agreement on Tariffs and Trade) is not an example of a unilateral approach as it was a multilateral agreement between many countries.

Question 3

Most economists view the United States as an ongoing experiment that raises serious doubts about the virtues of free trade.

Accepted Answer

This statement is not accurate. While there may be some economists who question the benefits of free trade, the majority view it as a positive force for economic growth and prosperity. The United States has been a vocal proponent of free trade for decades, and has signed numerous trade agreements with other countries.

Question 4

NAFTA is an example of a multilateral approach to achieving free trade.

Accepted Answer

NAFTA (North American Free Trade Agreement) is a trilateral agreement between the United States, Canada, and Mexico, which is an example of a multilateral approach to achieving free trade.

Question 5

Economists view free trade as a way to raise living standards both at home and abroad.

Accepted Answer

Free trade allows countries to specialize in producing goods that they are more efficient at producing, which increases productivity and lowers costs. This leads to greater efficiency, lower prices for consumers, and increased economic growth. As a result, both domestic and foreign economies benefit, which ultimately leads to higher living standards.

Question 6

William and Jamal live in the country of Dumexia. As a result of Dumexia's legalization of international trade in bananas, William becomes better off and Jamal becomes worse off. It follows that William is a seller, and Jamal is a buyer, of bananas.

Accepted Answer

The statement does not necessarily follow because the impact of international trade on individuals depends on their roles in the market. William could be a more efficient producer benefiting from export opportunities, while Jamal could be a less efficient producer facing increased competition. Alternatively, Jamal could be a consumer facing higher prices due to import tariffs or supply constraints, not necessarily a buyer in the sense of a commercial purchaser.

Question 7

For Country A, the world price of textiles exceeds the domestic equilibrium price of textiles. As a result, international trade allows sellers of textiles in Country A to experience greater producer surplus than they otherwise would experience.

Accepted Answer

When the world price is higher than the domestic equilibrium price, domestic producers in Country A can sell their textiles at a higher price in the world market and gain additional producer surplus. Therefore, international trade allows for greater producer surplus for textile sellers in Country A.

Question 8

When markets open up to international trade, we know that consumer surplus will rise.​

Accepted Answer

The answer of When markets open up to international trade,...

Question 9

Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors.

Accepted Answer

Policymakers do often consider trade restrictions, such as tariffs or quotas, as a way to protect domestic industries from foreign competition. However, the effectiveness of these measures and their potential negative impact on consumers and global trade should also be taken into account.

Question 10

The results of a 2008 Los Angeles Times poll suggest that the percentage of Americans who believe trade is harmful to the economy exceeds the percentage of Americans who believe trade is beneficial to the economy.

Accepted Answer

According to the results of the 2008 Los Angeles Times poll, the percentage of Americans who believe trade is harmful to the economy was 49%, while the percentage who believe trade is beneficial was 40%. Therefore, the statement that the percentage of Americans who believe trade is harmful exceeds the percentage who believe it is beneficial is true.

Question 11

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.

Accepted Answer

This is a fundamental principle of comparative advantage in international trade. Countries will specialize in and export goods that they are relatively efficient at producing, and import goods that they are relatively less efficient at producing. This leads to job losses in industries that are less competitive, but also job gains in industries that are more competitive on a global scale. Overall, the benefits of trade are believed to exceed the costs, as countries can achieve higher levels of productivity, innovation, and economic growth through specialization and exchange.

Question 12

Economists feel that national security concerns never provide a legitimate rationale for trade restrictions.

Accepted Answer

While some economists may agree with this statement, others may argue that in certain cases, national security concerns may justify some trade restrictions. For example, restrictions on certain weapon exports or technology transfers to foreign countries may be necessary to protect national security interests.

Question 13

The results of a 2008 Los Angeles Times poll suggest that a significant majority of Americans believe that free international trade helps the American economy.

Accepted Answer

The 2008 Los Angeles Times poll actually found that a significant majority of Americans believed that free international trade was bad for the American economy, reflecting concerns about job losses and the impact on domestic industries.

Question 14

If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices, the Swedish economy would be worse off.

Accepted Answer

If Honduras were to sell wool blankets in Sweden at artificially low prices, it would likely benefit consumers in Sweden who would be able to purchase the blankets for less. However, this would hurt producers of wool blankets in Sweden who would not be able to compete with the artificially low prices. This could lead to job losses and potentially hurt the overall economy. Additionally, if Honduras were to subsidize the production of wool blankets, it would likely lead to inefficiencies in production and could lead to a misallocation of resources.

Question 15

Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

Accepted Answer

This statement is not entirely true. While some economists may argue for trade restrictions to protect domestic jobs, others believe that the benefits of free trade (such as lower prices and increased efficiency) outweigh the costs of potential job loss. Ultimately, the decision to implement trade restrictions is a political one that depends on various factors and perspectives.

Question 16

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

Accepted Answer

A multilateral approach to free trade involves negotiations and agreements with other countries to reduce trade barriers, which ultimately benefits all participating countries. In contrast, a unilateral approach only involves one country reducing its own trade barriers, which may not necessarily result in reciprocal reductions in trade barriers for that country's exports in other countries. Therefore, a multilateral approach has greater potential to increase the gains from trade.

Question 17

The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced by an international body called the World Trade Organization (WTO).

Accepted Answer

The World Trade Organization (WTO) was established to enforce the rules established under the General Agreement on Tariffs and Trade (GATT) and its successor agreements.

Question 18

If a country is exporting a good, this is because the country has an absolute advantage in the production of that good.​

Accepted Answer

A country can export a good even if it doesn't have an absolute advantage in its production. It may have a comparative advantage, which means it can produce the good at a lower opportunity cost than other countries. In this case, the country can benefit from exporting the good and importing other goods for which it has a higher opportunity cost of production.

Question 19

Most economists support the infant-industry argument because it is so easy to implement in practice.

Accepted Answer

Most economists actually do not support the infant-industry argument, as it can lead to protectionism and the inefficient allocation of resources. It is also difficult to determine which industries truly require protection and for how long.

Question 20

For Country A, the world price of soybeans exceeds the domestic equilibrium price of soybeans. As a result, international trade allows buyers of soybeans in Country A to experience greater consumer surplus than they otherwise would experience.

Accepted Answer

International trade under these conditions would lead to Country A exporting soybeans, as the world price is higher than the domestic price, benefiting domestic producers more and potentially reducing consumer surplus due to higher prices.

Quiz 9: Application: International Trade