Question 1

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.

Question 2

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

Accepted Answer

Economists recognize that national security concerns can sometimes be a legitimate rationale for trade restrictions, although they caution that such restrictions should be used sparingly and only in cases where there is a clear threat to national security.

Question 3

The nation of Spritzland used to prohibit international trade,but now trade is allowed,and Spritzland is exporting wristwatches.Relative to the previous no-trade situation,total surplus in the market for wristwatches in Spritzland has increased.

Accepted Answer

When a nation allows international trade, it benefits from comparative advantage and specialization, which leads to increased production and increased total surplus in the market. Therefore, total surplus in the market for wristwatches in Spritzland has increased.

Question 4

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

Accepted Answer

GATT (General Agreement on Tariffs and Trade) was not a unilateral approach, but rather a multilateral agreement among participating countries.

Question 5

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 involves negotiations with multiple countries to reduce trade barriers, which can lead to benefits for all participating countries. On the other hand, a unilateral approach only involves one country reducing its own trade barriers, which may not have as significant of an impact on global trade.

Question 6

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 textiles exceeds the domestic equilibrium price of textiles in Country A, international trade allows sellers in Country A to export textiles and receive a higher price than they would in the domestic market. This results in greater producer surplus for these sellers.

Question 7

Free trade allows firms to realize economies of scale,resulting in higher costs of production.

Accepted Answer

Free trade allows firms to access larger markets, which can lead to greater production and lower costs per unit. This can result in cost savings, not higher costs of production.

Question 8

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

Free trade allows countries to specialize in industries in which they have a comparative advantage, leading to an increase in efficiency and global output. However, this also implies a decrease in less efficient industries, which may lead to job losses in these sectors. Overall, free trade results in a net increase in jobs if countries specialize in their respective comparative advantages.

Question 9

For a given country,comparing the world price of aluminum and the domestic price of aluminum before trade indicates whether that country's demand for aluminum exceeds the demand for aluminum in other countries.

Accepted Answer

The comparison of world price and domestic price does not necessarily indicate the level of demand for aluminum in a country. It may be influenced by other factors such as production costs, import/export regulations, and government subsidies. Therefore, this statement is false.

Question 10

Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.

Accepted Answer

Import quotas and tariffs increase the cost of imported goods, making them more expensive for domestic buyers. This benefits domestic sellers as they face less competition from foreign sellers, resulting in higher prices and profits. Therefore, domestic sellers are better off while domestic buyers are worse off.

Question 11

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

Accepted Answer

NAFTA is a trilateral agreement between the United States, Canada, and Mexico that aims to achieve free trade among the three countries. Therefore, it is an example of a multilateral approach to achieving free trade.

Question 12

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 William became better off with the increase in banana prices, it implies that he was selling bananas and benefiting from the higher prices. Conversely, Jamal became worse off, indicating that he was buying bananas and facing a higher cost. Therefore, William is a seller, and Jamal is a buyer.

Question 13

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 14

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) enforces the rules established under the General Agreement on Tariffs and Trade (GATT).

Question 15

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 often leads to protectionism and can harm the overall economy in the long run. Additionally, it can be difficult to determine which industries should receive protection and for how long, making it challenging to implement in practice.

Question 16

If a country allows free trade and imports cars,then it is the case that the gains to domestic producers outweigh the losses to domestic consumers.

Accepted Answer

If a country allows free trade and imports cars, it may lead to cheaper car prices for domestic consumers, but it may also have negative impacts on domestic car producers. Domestic car producers may face increased competition, causing some of them to lose revenue and potentially even go out of business. The gains to domestic consumers may not necessarily outweigh the losses to domestic producers.

Question 17

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 18

The nation of Cranolia used to prohibit international trade,but now trade is allowed,and Cranolia is exporting furniture.Relative to the previous no-trade situation,buyers of furniture in Cranolia are now better off.

Accepted Answer

Allowing trade and exporting furniture means Cranolia is specializing in furniture production, likely increasing prices domestically as some of the supply is now directed to international markets, potentially making domestic buyers worse off due to higher prices.

Question 19

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

Accepted Answer

Policymakers often impose trade restrictions such as tariffs or quotas on imported goods in order to protect domestic producers from foreign competitors. This is done in the belief that it will allow domestic producers to compete more effectively and prevent them from being undercut by cheaper imported goods. However, such policies can also result in higher prices for consumers and may harm international trade relations.

Question 20

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 support free trade and believe that the benefits of lower prices and increased economic efficiency outweigh any job losses. They often advocate for policies that provide assistance or retraining for workers who are negatively impacted by international trade. However, there may be some disagreement among economists on this issue.

Quiz 9: Application: International Trade.