Question 1

-The above figure shows the market for rice in Japan. S₂ represents the domestic supply curve, and S₁ represents the world supply curve. If imported rice is banned, the loss in social welfare is

Accepted Answer

The answer of 
-The above figure shows the market for...

Question 2

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 5 rand/US$, then

Accepted Answer

If we buy the wine in the U.S. for US$250 and sell it in South Africa for 2500 rand, we will receive 12,500 rand (2500 x 5) for each bottle of wine (assuming there are no transaction costs). This is significantly more than the price of 2500 rand that the wine is sold for in South Africa. Therefore, there is an arbitrage opportunity by buying the wine in the U.S. and selling it in South Africa. As a result, the demand for the wine in South Africa will increase, and the price will eventually drop as the market corrects itself.

Question 3

Compared to free trade, a ban on imports of a good

Accepted Answer

A ban on imports of a good increases the domestic price of the good, as domestic producers face less competition and can charge a higher price. This decrease in supply also decreases consumer surplus, as consumers now must pay a higher price for the same product. Finally, a ban on imports results in a deadweight loss, as some trades that would have been mutually beneficial for both the foreign and domestic producers are prevented.

Question 4

Your U.S.-based company is selling parts to a company in Bangladesh. If you require payment in US$

Accepted Answer

If the U.S.-based company requires payment in US$, it means that the Bangladeshi company will have to convert its local currency into US$, and therefore bears the exchange rate risk. Any fluctuation in the exchange rate between the Bangladeshi currency and the US$ will affect the cost of the parts in local currency terms for the Bangladeshi company. Therefore, the Bangladeshi company will have to factor in the exchange rate risk in its decision to purchase from the U.S.-based company.

Question 5

Which of the following can reduce the number of cars imported?

Accepted Answer

All three options can reduce the number of cars imported. 
- Tariffs are taxes imposed on imported goods, which make them more expensive and therefore reduce demand. 
- Quotas set a limit on the quantity of goods that can be imported, which can reduce the overall number of cars being imported. 
- A ban would completely prohibit the importation of cars from a particular country. Therefore, all three options can help reduce the number of cars imported.

Question 6

The imposition of a quota on an imported good

Accepted Answer

Imposing a quota on an imported good limits the quantity of the good that can be imported, effectively reducing the supply of the good in the market. This is represented by a leftward shift of the supply curve, which can be interpreted as the supply curve moving up when considering a graph where price is on the vertical axis and quantity on the horizontal axis. It does not directly affect the demand curve for the good.

Question 7

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are transaction costs of US$50, and the exchange rate is 20 rand/US$, then

Accepted Answer

To determine if there is an arbitrage opportunity, we need to compare the cost of buying and selling the wine in both markets.

In the U.S.:
Cost of the wine: US$250 + US$50 transaction costs = US$300
Converted cost in rand: US$300 x 20 rand/US$ = 6,000 rand

In South Africa:
Cost of the wine: 2,500 rand
Converted cost in US$: 2,500 rand / 20 rand/US$ = US$125

If we were to buy in South Africa and sell in the U.S., we would make a profit of US$125 - US$300 = -US$175, which means we would make a loss.

However, if we were to buy in the U.S. and sell in South Africa, we would make a profit of 6,000 rand - 2,500 rand = 3,500 rand. Therefore, there is an arbitrage opportunity by buying the wine in South Africa and selling it in the U.S., and the price in the U.S. will drop.

Question 8

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 20 rand/US$, then

Accepted Answer

If we convert the South African price of 2500 rand to U.S. dollars, we get:
2500 rand / 20 rand/US$ = US$125

This means that the wine costs half the price in South Africa than it does in the U.S. Therefore, there is an arbitrage opportunity by buying the wine in South Africa and selling it in the U.S. This will result in the price in the U.S. dropping.

Question 9

Your U.S.-based company is selling parts to a company in Chile and the company will pay you 9.8 million pesos in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

Accepted Answer

When the exchange rate changes from 490 pesos/US$ to 510 pesos/US$, it means you get more pesos for each dollar. However, since you are receiving a fixed amount of pesos, when you convert these pesos back to dollars at the higher exchange rate, you will end up with fewer dollars than initially anticipated, thus earning less profit.

Question 10

-The above figure shows the market for rice in Japan. S₂ represents the domestic supply curve, and S₁ represents the world supply curve. Currently 10 units are imported. The loss from shifting production from foreign to domestic producers equals

Accepted Answer

The answer of 
-The above figure shows the market for...

Question 11

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 10 rand/US$, then

Accepted Answer

Given the exchange rate of 10 rand/US$, the price of the wine in both countries is effectively the same (US$250 = 2500 rand), meaning there is no arbitrage opportunity as buying and selling would result in no profit.

Question 12

-The above figure shows the market for rice in Japan. S₂ represents the domestic supply curve, and S₁ represents the world supply curve. Currently 10 units are imported. The Consumption distortion loss is equal to

Accepted Answer

The consumption distortion loss refers to the welfare loss to consumers due to the imposition of a tariff or other trade barrier. It is represented by the area between the domestic price without the tariff (world price) and the domestic price with the tariff, over the quantity consumed domestically. In this case, it includes areas c, g, and i, which are the areas above the world supply curve and below the demand curve, over the quantity consumed domestically after the imposition of the tariff.

Question 13

International price discrimination for a good is possible if

Accepted Answer

International price discrimination for a good is possible if the price difference between two countries is less than the transaction costs in arbitrage. This condition prevents buyers from profitably buying the good in a lower-priced country and selling it in a higher-priced country, allowing sellers to maintain different prices in different markets.

Question 14

The larger the U.S. imposed per unit import tariff on a good imported and that is also produced in the U.S.

Accepted Answer

When the U.S. imposes a per unit import tariff on a good imported and produced in the U.S., it reduces the quantity demanded of the imported good, making the domestic good more attractive to consumers. This leads to a smaller U.S. consumer surplus (choice A) and a larger U.S. producer surplus (choice B). As for government revenue (choice C), it depends on the price elasticity of demand for the imported good. If demand is elastic, the tariff will reduce revenue, and if demand is inelastic, the tariff will increase revenue. Overall, all of the above choices apply.

Question 15

A ban on imports, a tariff, or a quota raise the price to domestic consumers creates a deadweight loss. This loss is composed of

Accepted Answer

The deadweight loss from a ban on imports, tariff, or quota is composed of consumption distortion loss (which arises because domestic consumers have to pay a higher price than they would in a free market), and production distortion loss (which arises because domestic producers may artificially increase output, causing inefficiencies and a misallocation of resources). Option A is incorrect because it does not include any loss associated with consumption distortion. Option B is incorrect because it includes unrecognizable terms. Option D is incorrect because it includes irrelevant terms.

Question 16

Your U.S.-based company is selling parts to a company in Chile and the company will pay you US$10,000 in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

Accepted Answer

The answer of Your U.S.-based company is selling parts to...

Question 17

Your U.S.-based company is doing business internationally. One way to mitigate exchange rate risk is to

Accepted Answer

All the options listed are methods to mitigate exchange rate risk. Requiring payment in US dollars eliminates the need to convert foreign currency. Forward and futures contracts allow a company to lock in exchange rates for future transactions, thus avoiding unexpected fluctuations.

Question 18

Your U.S.-based company is selling parts to a company in Bangladesh. If the Bangladeshi company purchases a futures contract,

Accepted Answer

By purchasing a futures contract, the Bangladeshi company locks in an exchange rate for a future date, effectively eliminating the exchange rate risk for both parties involved in the transaction.

Question 19

A ban on imports, a tariff, or a quota raise the price to domestic consumers. This means that consumers will buy less of the product at a higher price. The loss associated with this is called

Accepted Answer

A ban on imports, a tariff, or a quota all create a distortion in the market, leading to a reduction in consumer surplus and/or producer surplus. The loss associated with this reduction is called deadweight loss. This is because there is now a difference between the price that consumers are willing to pay and the price that producers are willing to sell at, leading to a net loss in economic welfare.

Question 20

Levying a tariff on an imported good

Accepted Answer

Levying a tariff on an imported good effectively increases the cost for importers, which is reflected as a decrease in supply or an upward shift in the supply curve, as it becomes more expensive to supply the good at any given price. It does not directly affect the demand curve.

Quiz 17: Global Business

-The above figure shows the market for rice in Japan. S₂ represents the domestic supply curve, and S1 represents the world supply curve. If imported rice is banned, the loss in social welfare is