Question 1

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 signed by various countries to reduce trade barriers and promote free trade. It was not a unilateral approach as it involved negotiations and agreements between multiple countries.

Question 2

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

If the price of bananas increased, it means there was a higher demand for them and William benefited as a seller, while Jamal was negatively impacted as a buyer.

Question 3

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 4

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 and agreements among multiple countries to reduce trade barriers and increase free trade. This not only benefits a country's own trade, but also allows for increased market access and opportunities for export to other countries. On the other hand, a unilateral approach involves a single country taking action to eliminate trade barriers, but does not necessarily lead to reciprocal action abroad. Therefore, multilateralism has the potential for greater gains from trade for all involved countries.

Question 5

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 true.

Question 6

If a country is exporting a good,this is because the country has an absolute advantage in the production of that good.
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Accepted Answer

A country can export a good even if it doesn't have an absolute advantage in its production. It can have a comparative advantage, which means it can produce the good at a lower opportunity cost than other countries. This makes it more efficient to produce that good and export it while importing other goods where other countries have a comparative advantage.

Question 7

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 do not agree that trade should be restricted solely because it may result in domestic job losses due to foreign competition. While there may be short-term negative effects on certain industries and workers, the long-term benefits of free trade in terms of increased specialization, innovation, and lower consumer costs are generally viewed as outweighing these costs. Additionally, economists often advocate for policies to help support workers who are negatively affected by trade, such as training and assistance programs.

Question 8

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 9

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 job growth in those sectors. However, industries in which a country does not have a comparative advantage may experience job losses as they struggle to compete with cheaper imports. Overall, free trade can result in a net gain in jobs for the country, but it may not be evenly distributed across all industries.

Question 10

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 11

When markets open up to international trade,we know that consumer surplus will rise.
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Accepted Answer

The answer of When markets open up to international trade,we...

Question 12

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 2008 Los Angeles Times poll, the majority of Americans believed that trade is harmful to the economy.

Question 13

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

Accepted Answer

Some economists argue that national security concerns can provide a legitimate rationale for trade restrictions, particularly in industries related to defense and critical infrastructure. However, there is debate around the extent to which national security concerns should be invoked and how transparent the decision-making process should be.

Question 14

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

Accepted Answer

NAFTA (North American Free Trade Agreement) is a trilateral agreement between the United States, Canada, and Mexico, which represents a multilateral approach towards achieving free trade between these countries.

Question 15

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 16

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

Accepted Answer

Policymakers often implement trade restrictions such as tariffs or quotas to make imported goods more expensive and less competitive with domestic products. This is done in order to protect domestic producers and industries from foreign competition.

Question 17

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

Accepted Answer

Economists generally believe that free trade allows countries to specialize in producing and exporting goods and services that they are relatively more efficient at, while importing those that they are relatively less efficient at producing. This leads to increased efficiency, productivity, and economic growth, which can ultimately result in higher living standards for both the exporting and importing countries.

Question 18

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 can lead to protectionism and inefficiencies in the long run. It can also be difficult to determine which industries truly need protection, and can lead to government picking winners and losers in the market.

Question 19

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 good exceeds the domestic equilibrium price, sellers in the domestic market can sell their goods at a higher price in the international market. This allows them to experience greater producer surplus than they would have in the absence of international trade. Therefore, the statement is true.

Question 20

Most economists view the United States as an ongoing experiment that raises serious doubts about the virtues of free trade.

Accepted Answer

Most economists generally support the principles of free trade and see it as a positive force for economic growth and development. While there may be criticisms of certain trade agreements or policies, the overall view of free trade is not one of doubt or skepticism.

Quiz 9: Application International Trade: Part B