Question 1

Why would free trade permit greater specialization and efficiency in production than would occur if trade were restricted?

Accepted Answer

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Question 2

Briefly describe a tariff, a quota, and an embargo.

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Question 3

Why are consumers, rather than businesses, organized labor, or other groups, considered to be the main beneficiaries of free trade?

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Question 4

Briefly explain two arguments in favor of protectionism.

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Question 5

Why would you expect protectionist policies to benefit businesses or organized labor more than consumers?

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Question 6

Why might an economy be attracted to protectionism when it is slipping into a deep recession?

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Question 7

What are trade subsidies, and how would they help firms from one country increase their sales in another country?

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Question 8

What is dumping, and how might it cause a trade war between nations?

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Question 9

What are NAFTA and the EU?

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Question 10

Which of the following is FALSE concerning U.S. exports and imports?

Accepted Answer

The statement that there are no tariffs or quotas is false. The U.S. does impose tariffs and quotas on certain imports and exports as part of its trade policy.

Question 11

In 2010, the largest category of U.S. exports was ________, and the largest category of U.S. imports was ______.

Accepted Answer

In 2010, the largest category of U.S. exports was capital goods, which include items like machinery, equipment, and aircraft. The largest category of U.S. imports was industrial supplies and materials, which encompass a wide range of goods including oil, chemicals, and metals.

Question 12

A tax on the import of computer memory chips is:

Accepted Answer

A tax on the import of computer memory chips is a tariff, which is a tax imposed by a government on goods and services imported from other countries to increase their price and make domestic products more competitive.

Question 13

Comparative advantage is the:

Accepted Answer

Comparative advantage refers to the ability of an entity to produce a good or service at a lower opportunity cost than another. This concept is crucial in the theory of international trade, where it explains how and why countries engage in the exchange of goods and services.

Question 14

Country A can produce either 10 bikes or 40 pairs of inline skates with one resource unit. Country B can produce either 20 bikes or 30 pairs of inline skates with one resource unit. Which of the following statements is TRUE?

Accepted Answer

Country A has a comparative advantage in producing inline skates because it sacrifices fewer bikes (1/4 of a bike per pair of skates) compared to Country B, which sacrifices 2/3 of a bike for each pair of skates.

Question 15

Suppose that the U.S. can produce either 10 tons of corn or 10 tons of steel using 1 resource unit, and Japan can produce either 2 tons of corn or 10 tons of steel using 1 resource unit. The opportunity cost of producing 1 ton of corn in the U.S. and Japan are ______ and ______, respectively.

Accepted Answer

In the U.S., the opportunity cost of producing 1 ton of corn is 1 ton of steel, because instead of producing 1 ton of corn, the U.S. could produce 1 ton of steel with the same resources. In Japan, the opportunity cost of producing 1 ton of corn is 5 tons of steel, because instead of producing 2 tons of corn, Japan could produce 10 tons of steel with the same resources, making the cost for 1 ton of corn half of that, which is 5 tons of steel.

Question 16

Suppose that the U.S. can produce either 10 tons of corn or 10 tons of steel using 1 resource unit, and Japan can produce either 2 tons of corn or 10 tons of steel using 1 resource unit. If the U.S. and Japan each use 1 resource unit to produce corn and 1 resource unit to produce steel, what is the total output of corn (U.S. corn + Japanese corn) and steel (U.S. steel + Japanese steel)?

Accepted Answer

The U.S. produces 10 tons of corn and 10 tons of steel, while Japan produces 2 tons of corn and 10 tons of steel, leading to a total of 12 tons of corn and 20 tons of steel.

Question 17

Suppose that the U.S. can produce either 10 tons of corn or 10 tons of steel using 1 resource unit, and Japan can produce either 2 tons of corn or 10 tons of steel using 1 resource unit. If the U.S. and Japan each allocate 2 resource units to producing their comparative, what is the total output of corn (U.S. corn + Japanese corn) and steel (U.S. steel + Japanese steel)?

Accepted Answer

The U.S. has a comparative advantage in producing corn because it can produce the same amount of corn as steel with one resource unit, whereas Japan can produce five times as much steel as corn with one resource unit. Therefore, the U.S. should specialize in corn production and Japan in steel production. With 2 resource units, the U.S. produces 20 tons of corn (10 tons per unit * 2 units) and Japan produces 20 tons of steel (10 tons per unit * 2 units), making the total output 20 tons of corn and 20 tons of steel.

Question 18

If all countries specialized in producing the goods in which they have a comparative advantage and free trade existed among all countries, then:

Accepted Answer

Specializing in the production of goods in which they have a comparative advantage allows countries to produce more efficiently. This increases the total output of goods, which can help to lessen the scarcity problem by making more goods available.

Question 19

A tariff has the effect of:

Accepted Answer

Tariffs are taxes imposed on imported goods, which increase the cost of these goods to domestic buyers, making imported products more expensive compared to locally produced goods.

Question 20

Which of the following is not an argument for protectionism?

Accepted Answer

Protectionism is typically argued for on the basis of national defense, protecting domestic jobs, and sheltering infant industries, not for expanding economic efficiency and specialization. The latter is more often associated with arguments for free trade, which posits that countries should specialize in the production of goods and services they can produce most efficiently.

Quiz 16: International Trade