Question 1

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 the price of bananas increased, it means that the sellers of bananas, like William, benefited from the new trade policy while buyers like Jamal were worse off because they now have to pay more for bananas.

Question 2

How does an import quota differ from an equivalent tariff?

Accepted Answer

The answer of How does an import quota differ from...

Question 3

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

Comparing the world price of aluminum and the domestic price of aluminum before trade does not necessarily indicate the demand for aluminum in a particular country. Factors such as domestic production costs and trade barriers can also affect the domestic price of aluminum.

Question 4

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

The Swedish economy would benefit from being able to buy wool blankets at lower prices, which can help lower the cost of living for Swedes. However, the domestic wool producers in Sweden may suffer due to competition from the cheaper imported wool blankets.

Question 5

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 concept of free trade, believing it leads to increased efficiency and economic growth by allowing countries to specialize in the production of goods and services in which they have a comparative advantage.

Question 6

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

Accepted Answer

NAFTA, the North American Free Trade Agreement, was signed by three countries: Canada, Mexico, and the United States, making it a multilateral approach to achieving free trade.

Question 7

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 8

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, which can result in a reduction of trade restrictions not only in one's own country but also in other participating countries. This can lead to increased gains from trade for all countries involved. In contrast, a unilateral approach only focuses on reducing trade restrictions in one's own country, which may not have as significant an impact on overall trade and gains.

Question 9

Most economists support the infant-industry argument because it is so easy to implement in practice.

Accepted Answer

Most economists actually do not support the infant-industry argument as it can lead to protectionism, inefficiency, and a lack of competition in the long run. It can also be difficult to determine which industries should be given preferential treatment and can lead to a temptation for political favoritism.

Question 10

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

Accepted Answer

This is a widely accepted belief among economists, as free trade allows for countries to specialize in producing goods where they have a comparative advantage and can produce them more efficiently, ultimately leading to lower prices and more choices for consumers. It also allows for countries to access new markets and increase their exports, leading to economic growth and job creation. However, there may be potential drawbacks and criticisms of free trade, such as job displacement in certain industries and potential exploitation of labor in developing countries.

Question 11

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 is higher than the domestic equilibrium price, sellers in Country A can sell their textiles at a higher price on the world market. This allows them to experience greater producer surplus than they would if they only sold domestically.

Question 12

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 the production of goods and services in which they have a comparative advantage, which leads to increased efficiency and productivity. However, it also causes job losses in industries where the country does not have such an advantage, as those industries may struggle to compete with cheaper imports. Overall, free trade can lead to both job gains and losses, but the net effect is often positive for the economy as a whole.

Question 13

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 information provided, 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. Therefore, the statement is true.

Question 14

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 15

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 the idea of free trade and argue that while some domestic jobs may be lost due to foreign competition, overall economic growth and benefits outweigh the costs. They also point out that restricting trade could lead to retaliatory measures by other countries, leading to a net loss of jobs and economic growth.

Question 16

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 17

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

Accepted Answer

GATT was a multilateral agreement with the aim of lowering trade barriers between participating countries. It was successful in achieving its goals, but it was not a unilateral approach as it involved negotiations and agreements between multiple countries.

Question 18

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

Accepted Answer

Policymakers may consider trade restrictions such as tariffs or quotas on imported goods in order to shield domestic producers from intense competition and protect their interests.

Question 19

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

Accepted Answer

While some economists may argue that national security concerns should not be used as a blanket justification for trade restrictions, others acknowledge that there may be situations where national security considerations warrant restrictions. For example, in the case of critical technologies with military applications or goods and services that are essential to national defense, trade restrictions may be deemed necessary to protect national security interests. Therefore, the statement that economists feel that national security concerns never provide a legitimate rationale for trade restrictions is false.

Question 20

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) was established in 1995 to replace the General Agreement on Tariffs and Trade (GATT) and it enforces the rules established under GATT.

Quiz 9: Application: International Trade