Question 1

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 Los Angeles Times poll, the percentage of Americans who believe trade is harmful to the economy exceeds the percentage who believe trade is beneficial.

Question 2

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

Accepted Answer

This is true. Policymakers may impose trade restrictions such as tariffs or quotas to limit the amount of imported goods in order to protect domestic producers from competition and promote domestic industries.

Question 3

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

Subsidizing the production of wool blankets in Honduras and selling them at artificially low prices in Sweden could potentially benefit Swedish consumers through lower prices and increased choice, although it may negatively impact local Swedish producers who cannot compete with the subsidized prices. The overall effect on the Swedish economy would depend on the balance between consumer gains and producer losses.

Question 4

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

Accepted Answer

NAFTA (North American Free Trade Agreement) is an agreement between Canada, Mexico, and the United States to eliminate tariffs and promote free trade among the participating countries. It is an example of a multilateral approach to achieving free trade because it involves multiple countries working towards a common goal of reducing barriers to trade.

Question 5

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 increased, it means that there is now more demand for bananas in Dumexia. William, who is a seller of bananas, is able to sell his bananas at a higher price and therefore becomes better off. On the other hand, Jamal, who is a buyer of bananas, now has to pay a higher price for his bananas and becomes worse off. Therefore, William is a seller and Jamal is a buyer of bananas.

Question 6

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 entirely accurate. While some economists may have concerns about the effects of free trade on certain industries or sectors, the vast majority of economists still support the principles of free trade and view it as beneficial for overall economic growth and prosperity.

Question 7

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

Accepted Answer

Most economists do not support the infant-industry argument as it has several drawbacks and can be difficult to implement in practice. It can lead to inefficiencies, protectionist policies, and can create barriers to international trade.

Question 8

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 9

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

Accepted Answer

Economists generally believe that free trade leads to increased efficiency, competition, and specialization, which can ultimately increase economic growth and raise living standards for both domestic and foreign populations. However, there may be some disagreements or nuances in how to implement and regulate free trade policies.

Question 10

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 11

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 of a product exceeds the domestic equilibrium price in a country, it creates an incentive for domestic producers to increase production so they can sell at the higher world price. This leads to an increase in producer surplus for domestic sellers who can now sell their textiles at a higher price than they otherwise would have been able to.

Question 12

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 13

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

Accepted Answer

While economists generally support free trade, they recognize that there may be situations in which national security concerns may justify some trade restrictions. However, such justifications are often controversial and subject to political debate.

Question 14

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 allows for negotiations and agreements between multiple countries, resulting in the reduction of trade restrictions on both sides. This leads to more opportunities for trade and greater gains for all countries involved. A unilateral approach only focuses on reducing trade restrictions within one country, which limits the potential gains from trade.

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

Economists generally advocate for free trade and argue that the benefits outweigh the costs. While it is possible that some domestic jobs may be lost due to foreign competition, overall free trade leads to economic growth and efficiency. Additionally, economists often suggest government policies to assist workers who may be negatively affected by trade.

Question 16

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 may export a good even if it does not have an absolute advantage in its production. It could have a comparative advantage, which means that it can produce the good at a lower opportunity cost than its trading partner. Additionally, external factors such as government policies and market conditions can also influence a country's decision to export a certain good.

Question 17

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 based on the principle of comparative advantage, which suggests that countries should specialize in producing goods or services in which they have a lower opportunity cost compared to other countries. This can result in job losses in industries where the country does not have a comparative advantage, but it also creates opportunities for job gains in the industries where the country has a comparative advantage.

Question 18

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 statement is correct. The rules established under GATT are now enforced by the WTO, which was established in 1995 as its successor.

Question 19

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

Accepted Answer

GATT (General Agreement on Tariffs and Trade) was a multilateral agreement that involved negotiations and agreements between multiple countries, rather than a unilateral approach by one country.

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