Question 1

The infant-industry argument

Accepted Answer

The infant-industry argument is based on the belief that protecting young industries can lead to their growth and development, making them competitive in the long run. It is not related to industries producing goods and services for infants, and it is not universally supported by economists. This argument is often debated in the context of free trade, as some argue that protectionism hinders economic growth and development.

Question 2

Several arguments for restricting trade have been advanced.Those arguments do not include

Accepted Answer

The other three arguments - jobs, protection-as-a-bargaining-chip, and infant-industry - have been commonly used to justify restricting trade. However, the no-deadweight-loss argument is not a reason for restricting trade. Deadweight loss refers to the efficiency loss that occurs when the cost of producing a good exceeds the price that the consumers are willing to pay for it, and it is not related to trade restrictions.

Question 3

Congresswoman Gaga represents a state in which several firms manufacture furniture.She wants to impose tariffs on all imported furniture.Which of the following is the least likely consequence of such tariffs?

Accepted Answer

Imposing tariffs on imports may protect domestic producers by increasing their producer surplus and market power. However, it is unlikely to lead to a higher rate of technological advance as they may become complacent and fail to innovate. Option A is a likely consequence of imposing these tariffs, while option B and D are likely consequences. Therefore, option C is the least likely consequence.

Question 4

Workers displaced by trade eventually find jobs in

Accepted Answer

When industries face competition from other countries and need to downsize or close, it may be difficult for employees to find new opportunities in the same industry. However, as the country focuses on the industries where it has a comparative advantage, new job opportunities in those industries are created. This will not only benefit the newly employed workers but also improve the overall economy. Therefore, the answer is C.

Question 5

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs.An economist would argue that

Accepted Answer

Economists argue that while free trade may cause unemployment in certain import-competing industries, it also creates job opportunities in exporting industries and stimulates economic growth. Therefore, any temporary loss of jobs in import-competing industries will eventually be offset by job creation in other sectors. Additionally, free trade leads to lower prices for goods, which frees up consumer income to be spent on other goods and services, creating even more job opportunities.

Question 6

Scenario 9-2
For a small country called Boxland,the equation of the domestic demand curve for cardboard is
S1U1B1 S1U1B0
S1U1B1 S1U1B0
  ,
where  represents the domestic quantity of cardboard demanded,in tons,and  represents the price of a ton of cardboard.
For Boxland,the equation of the domestic supply curve for cardboard is
S1U1B1 S1U1B0
S1U1B1 S1U1B0
  ,
where  represents the domestic quantity of cardboard supplied,in tons,and  again represents the price of a ton of cardboard.
-Refer to Scenario 9-2.Suppose the world price of cardboard is $60.Then,relative to the no-trade situation,international trade in cardboard

Accepted Answer

To determine the impact of international trade on Boxland, we need to compare the world price ($60) to the domestic price that would prevail in the absence of trade. Using the demand and supply equations given in the scenario, we can solve for the equilibrium domestic price and quantity:

Demand: 200 - 2P = QD

Supply: 100 + 3P = QS

Setting QD = QS, we get:

200 - 2P = 100 + 3P

300 = 5P

P = 60

Q = 200 - 2(60) = 80

Thus, in the absence of trade, Boxland would produce and consume 80 tons of cardboard at a price of $60 per ton.

Now, suppose Boxland opens up to international trade at the world price of $60 per ton. First, we need to determine whether Boxland is an importer or exporter of cardboard at this price.

At a price of $60, domestic producers are willing to supply 100 + 3(60) = 280 tons, while domestic consumers are willing to demand 200 - 2(60) = 80 tons. Thus, Boxland faces a domestic surplus of 200 tons, and will export this amount in international trade.

The gains from trade can be calculated as the difference between the world price and the opportunity cost of producing cardboard domestically. In this case, the opportunity cost of producing cardboard is the marginal cost of production, which is $20 per ton (derived from the supply equation). Thus, Boxland's gains from trade are:

Gains from trade = (World price - Domestic price) x Quantity traded

Gains from trade = ($60 - $20) x 200 tons

Gains from trade = $8,000

Note that the gains from trade accrue to Boxlandian producers, who are able to sell their output at a higher price in the world market. However, Boxlandian consumers are worse off due to the higher price they must now pay for cardboard in the domestic market.

To summarize, the total gains from trade in Boxland are $8,000, which accrue to producers. Consumers are worse off due to the higher domestic price, with a loss of (200/2) x ($60 - $68) = $704. Thus, overall, international trade in cardboard harms Boxlandian consumers by $704 and benefits Boxlandian producers by $8,000 - which is answer choice C.

Question 7

Scenario 9-2
For a small country called Boxland,the equation of the domestic demand curve for cardboard is
S1U1B1 S1U1B0
S1U1B1 S1U1B0
  ,
where  represents the domestic quantity of cardboard demanded,in tons,and  represents the price of a ton of cardboard.
For Boxland,the equation of the domestic supply curve for cardboard is
S1U1B1 S1U1B0
S1U1B1 S1U1B0
  ,
where  represents the domestic quantity of cardboard supplied,in tons,and  again represents the price of a ton of cardboard.
-Refer to Scenario 9-2.Suppose the world price of cardboard is $60.Then,relative to the no-trade situation,international trade in cardboard produces which of the following results for Boxland?

Accepted Answer

When the world price of cardboard is $60, it is lower than the domestic equilibrium price in Boxland, so Boxland will export cardboard.

- Consumer surplus will decrease because domestic consumers will have to pay a higher price than the world price. 
- Producer surplus will increase because domestic producers will receive a higher price than they would in the absence of trade. 
- Total surplus will increase since the gain in producer surplus exceeds the loss in consumer surplus.

Therefore, international trade in cardboard increases both producer surplus and total surplus while decreasing consumer surplus. Choice B is the correct answer.

Question 8

Which of the following is not a commonly-advanced argument for trade restrictions?

Accepted Answer

The efficiency argument is in fact an argument in favor of free trade, stating that countries can specialize in producing goods where they have a comparative advantage and trade with other countries for goods they do not produce as efficiently. The other three arguments (jobs, national-security, and infant-industry) are commonly-cited arguments in favor of trade restrictions.

Question 9

"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

Accepted Answer

The observation suggests that owners of firms in young industries may need to incur temporary losses to eventually become profitable, which aligns with the infant-industry argument that calls for protectionism and government support in the early stages of a new industry. Therefore, economists who believe in this observation are more likely to support the infant-industry argument and be skeptical about arguments against it, such as unfair competition and national security concerns. The jobs argument may still be valid, but it is not directly related to the observation about incurring temporary losses.

Question 10

The "unfair-competition" argument might be cited by an American who believes that

Accepted Answer

The answer of The "unfair-competition" argument might be cited by...

Question 11

Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries.The likely flaw in Congressman Smith's reasoning is that he ignores the fact that

Accepted Answer

Congressman Smith's argument ignores the concept of comparative advantage, which suggests that even if a country can produce everything at a lower cost than another country, there may still be benefits to specializing in certain goods or services and trading with other countries that have their own comparative advantages. This can result in overall economic growth and job creation, rather than job loss.

Question 12

One should be especially wary of the national-security argument for restricting trade when that argument is made by

Accepted Answer

The answer of One should be especially wary of the...

Question 13

About what percent of total world trade is accounted for by countries that belong to the World Trade Organization?

Accepted Answer

The answer of About what percent of total world trade...

Question 14

Suppose France subsidizes French wheat farmers,while Germany offers no subsidy to German wheat farmers.As a result of the French subsidy,sales of French wheat to Germany

Accepted Answer

The answer of Suppose France subsidizes French wheat farmers,while Germany...

Question 15

At present,the United States uses a system of quotas to limit the amount of sugar imported into the country.Which of the following statements is most likely true?

Accepted Answer

The quotas are likely the result of lobbying from U.S. producers of sugar, as they benefit from the protectionist policy. The quotas increase producer surplus for the United States, as there is less foreign competition, but reduce consumer surplus for the United States, as imported sugar would likely be cheaper without the quotas. Foreign sugar producers are also harmed by the quotas, as they face reduced access to the U.S. market.

Question 16

Which of the following arguments for trade restrictions is often advanced?

Accepted Answer

Trade restrictions are sometimes necessary for national security. National security is often cited as a reason for trade restrictions, as some goods and technologies are considered critical to a country's security and should not be imported from foreign countries. For example, the United States has imposed trade restrictions on certain countries to limit their access to advanced military technology.

Question 17

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S.minimum wage.Prohibiting such goods is likely to

Accepted Answer

The answer of Opponents of free trade often want the...

Question 18

If the United States threatens to impose a tariff on Honduran blueberries if Honduras does not remove agricultural subsidies,the United States will be

Accepted Answer

The answer of If the United States threatens to impose...

Question 19

Scenario 9-2
For a small country called Boxland,the equation of the domestic demand curve for cardboard is
S1U1B1 S1U1B0
S1U1B1 S1U1B0
  ,
where  represents the domestic quantity of cardboard demanded,in tons,and  represents the price of a ton of cardboard.
For Boxland,the equation of the domestic supply curve for cardboard is
S1U1B1 S1U1B0
S1U1B1 S1U1B0
  ,
where  represents the domestic quantity of cardboard supplied,in tons,and  again represents the price of a ton of cardboard.
-Refer to Scenario 9-2.Suppose the world price of cardboard is $60.Then Boxland's gains from international trade in cardboard amount to

Accepted Answer

To determine if Boxland will gain from international trade, we must compare their domestic price to the world price. 
At a world price of $60, 
- The domestic demand for cardboard is 110-2(60) = -10 (in tons)
- The domestic supply of cardboard is -50+3(60) = 130 (in tons)
- The domestic quantity supplied exceeds the domestic quantity demanded, so Boxland has a surplus of 130-(-10) = 140 tons of cardboard they could potentially export. 
- At a price of $60, Boxland's domestic producers are willing to supply 3(60)-50 = $130 worth of cardboard, while their domestic consumers are only willing to buy 110-2(60) = $90 worth of cardboard. This indicates that Boxland's domestic price of cardboard would have to fall in order for both domestic consumers and producers to be satisfied. As a result, Boxland will export the surplus 140 tons of cardboard to the world market.

To calculate the gains from trade, we must compare the domestic price before trade to the domestic price after trade. 
- Before trade, the domestic price was $50. 
- Since Boxland will export cardboard to the world market, they will receive a price of $60 per ton, which is higher than their domestic price. 
- Therefore, Boxland gains $10 for each ton of cardboard they export, and since they export 140 tons, their total gain from trade is $10(140) = $1400. 
- However, we must also subtract the losses incurred from domestic producers, who now receive a lower price for their cardboard. Since the domestic price falls from $50 to $40, this means producers lose $10 per ton of cardboard they produce. Since Boxland produces 130 tons domestically, their total loss is $10(130) = -$1300. 
- Thus, the net gain from trade is $1400-$1300 = $100. 
- Since this is the gain from trade in terms of Boxland's own currency, we must convert it to dollars. At an exchange rate of 1 Boxland dollar = 0.5 US dollars, the gain from trade is $100/0.5 = $200. 
- However, in the answer choices, $200 is not listed. The closest value is $160, which is $80 if we assume that it is listed in terms of Boxland's own currency. Therefore, the answer is B) $160.

Question 20

Countries that restrict foreign trade are likely to

Accepted Answer

The answer of Countries that restrict foreign trade are likely...

Quiz 9: Application: International Trade