Deck 16: The Labor-Market Effects of International Trade and Production Sharing

Question 1

When trade takes place and there are no externalities or fraud,then

A) the more powerful party benefits and the other loses.
B) both parties benefit.
C) both parties are worse off as they could have made the goods themselves, assuring themselves of full employment.
D) both parties benefit only if the price is a just price.

Answer 1

B

Question 2

Which of the following is NOT part of the Trade Adjustment Assistance program?

A) To get aid, it must be shown that the job loss occurred because of increased imports or offshoring.
B) Eligible employers of the displaced workers get up to half of the worker's first year salary paid for by the government.
C) Eligible workers can get up to 104 weeks of training or remedial education.
D) Eligible workers can get up to a certain amount of dollars to reimburse them for job search costs.

Answer 2

B

Question 3

Mr.X,an American,loses his job due to foreign competition.Mr.Y,an American,loses his job because other Americans shifted their demand to other goods produced in America.Both lose when these events occur.Excluding the utility of foreigners from consideration,these events are Pareto optimal when

A) Mr. X is compensated for his loss.
B) Mr. Y is compensated for his loss.
C) Both Mr. X and Mr. Y are compensated for their loss.
D) Both events are optimal without any compensation to either Mr. X or Mr. Y.

Answer 3

C

Question 4

With differing comparative advantages,nations who trade (compared to when they did not trade)

A) get more of the good that they have the comparative advantage in but less of other goods.
B) get less of all goods, but are better off because they can get the mix of goods they want.
C) will only be better off if they export more than they import.
D) can get more of all goods.

Question 5

The wages of workers displaced by international trade will fall less when

A) the substitution effect is larger.
B) the scale effect is larger.
C) workers are close substitutes with foreign workers.
D) unemployment benefits are made less generous.

Question 6

The size of the substitution effect when companies substitute foreign labor for domestic labor,will be greater (on domestic labor)when

A) the supply of domestic labor is more elastic.
B) the goods produced are easily transported between nations.
C) the ability to produce the goods are shared by all nations.
D) all of the above

Question 7

Nation X can produce with one unit of resource either 8 units of food or 4 units of cloth.Nation Y can produce with one unit of resource either 3 units of food or 2 units of cloth.If Nation X and Y freely trade goods,and if these are the only two goods they consume,Nation X will produce ________ food and will produce ________ cloth.

A) more; less
B) more; more
C) less; more
D) less; less

Question 8

Mr.X is a total loser.He is worse at doing everything than anyone else.According to the law of comparative advantage,

A) he will not be able to compete with others and will remain unemployed.
B) others will be worse off dealing with Mr. X as he is comparatively inferior.
C) he will be able to get a job but at such a low wage that he will be, on net, worse off.
D) he will be able to compete with others by doing what he is comparatively less worse at.

Question 9

Which of the following has NOT usually been found to occur when international trade increases?

A) Wages of low skilled workers are dramatically reduced.
B) Relative wages of high skilled workers are significantly increased.
C) Total employment increases or, at a minimum, does not fall.
D) Poorer nations become even more poor.

Question 10

The wage rates of Southerners have been slow to converge to the higher wage rates of Northerners.Which of the following is a likely reason for this?

A) Tariffs by Northern states on goods made in the South remain high.
B) Displaced Northern workers have been not been able to find other well-paying jobs.
C) Southerners find it hard to understand the Northern accent.
D) It is costly to move production from the North to the South.

Question 11

Mr.X values a good at $100 and buys it from Mr.Y at $80 (who produces it at a cost of $70).Mr.Z then offers Mr.X the same good at $60.Mr.X buys the good from Mr.Z,and stops buying it from Mr.Y.Which of the following makes this event Pareto optimal?

A) Mr. X gives Mr. Y $11.
B) Mr. X gives Mr. Y $30
C) Mr. X pays Mr. Z $80.
D) Mr. X and Mr. Z join to give Mr. Y $70.

Question 12

Nation X can produce with one unit of resource either 8 units of food or 4 units of cloth.Nation Y can produce with one unit of resource either 3 units of food or 2 units of cloth.If Nation X and Y freely trade goods,and if these are the only two goods they consume,Nation X will likely consume ________ food and will consume ________ cloth.

A) more; less
B) more; more
C) less; less
D) less; more

Question 13

All of the output of industry X is made in America.Suppose now that a foreign nation's workers can produce at least part of industry X's good at a lower wage.The reduction in American jobs in industry X will be smaller when

A) American workers, while getting a wage twice that of foreigners, are 50% more productive.
B) the supply of labor supply is highly elastic.
C) the elasticity of supply of American workers is more inelastic.
D) American workers are excellent substitutes for foreign workers.

Question 14

Which of the following is NOT a common effect of more trade in the United States?

A) The relative wages of skilled workers are increased a significant amount.
B) The wages of low-skilled workers are decreased by a significant amount.
C) Overall employment remains unchanged or increases.
D) Recessions are common after an increase in trade.

Question 15

Opening a nation to international trade will likely

A) decrease the elasticity of demand for labor.
B) cause the demand for labor in industries not facing international competition to shift leftward.
C) increase the elasticity of demand for labor.
D) cause the wages of all workers to fall.

Question 16

Suppose Nation X gave goods to the United States for free and asked for nothing in return.This most likely would make most people in the United States

A) better off.
B) worse off.
C) no better nor no worse off.
D) better off but only if the United States could get Nation X to buy an equivalent amount of U.S. goods.

Question 17

When Canada and the United States moved to reduce tariffs,which of the following occurred?

A) Canada's overall employment rate fell.
B) Canadian workers displaced by U.S. trade found it difficult finding new jobs.
C) Employment fell in the Canadian industries most directly competing with imports from the United States.
D) All of the above

Question 18

Meta-analysis of Active Labor Market Policies found that the most effective method of helping displaced workers was

A) reducing unemployment benefits when displaced workers do not put sufficient effort into searching for a new job.
B) retraining programs to help workers to find new jobs.
C) laws that make it more costly for employers to fire workers.
D) employment subsidies to employers (and not to displaced workers) to hire displaced workers.

Question 19

Which of these displaced workers is likely to be most harmed by losing their job due to foreign trade?

A) Worker A who has firm-specific skills.
B) Worker B who has general skills.
C) Worker C who has a very elastic supply curve of labor.
D) Worker D who spends a large fraction of her income on imported goods.

Question 20

Wage convergence is an example of

A) the law of one price.
B) the compression of wage rates across skill levels within a firm.
C) the propensity of wages to converge to marginal productivities.
D) all of the above

Question 21

In one hour,Mr.X can produce 50 cans of tuna or 100 bags of potato chips.In one hour,Mr.Y can produce 20 cans of tuna or 30 bags of potato chips.Mr.________ has the lower opportunity cost of producing cans of tuna and Mr.________ has the lower opportunity cost of producing bags of potato chips.

A) Y; X
B) X; Y
C) X; X
D) Y; Y

Question 22

Lana is a freelance computer consultant who earns $500 per day for her services.Larry is a handyman who could earn $15 per hour at the local hardware store.Lana needs her house painted.She can paint the house in 5 days.Larry could paint Lana's house in 3 days' time ?(8 hours per day).What is Lana's opportunity cost of painting her own house? What is Larry's opportunity cost for painting Lana's house? Should Lana paint the house herself?

Question 23

Studies have shown that government retraining programs

A) usually cost more than the benefit they create or, at best, have benefits modestly above costs.
B) have been cost effective methods of retraining workers.
C) are cost effective methods of retraining younger workers, but not workers over age 45.
D) work best when training workers in firm-specific skills .

Question 24

Mr.X works in the warehouse of a large textile firm located in the United States.The firm outsources the production of its textiles to another nation.Which of the following is an example of the possible substitution effect of this event on Mr.X?

A) The lower price of the textiles causes his firm to sell more textiles, increasing its demand for warehouse workers.
B) The outsourcing of production reduces the company's demand for warehouse workers in the United States and increases its demand for warehouse workers in the other nation.
C) Both of the above.
D) Neither of the above.

Question 25

Which of the following is the least Pareto optimal tool for offsetting the job displacement caused by international trade?

A) Place a tariff on imported goods to reduce the job loss.
B) Compensate displaced workers for their losses.
C) Provide cost-effective retraining to workers.
D) Give bonuses to employers hiring displaced workers.

Question 26

When companies outsource jobs to foreign countries,the price of the outsourced inputs is effectively reduced.The cross-wage effect on the demand for other workers will be positive

A) if the substitution effect dominates the scale effect.
B) only if the substitution effect is positive.
C) if the scale effect dominates the substitution effect.
D) only if the reduction in prices increases the real wage of all workers.

Question 27

A nation is more productive when

A) more jobs are needed to produce any given level of output.
B) workers stay in their current job.
C) it takes fewer jobs and resources to produce a given amount of goods.
D) consumers cannot change which goods they buy when this results in the loss of some jobs.

Question 28

Nation X produces and consumes only one good.This good is produced only with labor and all workers are exactly alike.One worker produces one unit of this good every day.One worker in Nation Y can produce two units of the good a day (and this is the only good they consume).What will happen if there is open trade between the countries?

A) Nation X will import from Nation Y.
B) Nation X will outsource the production of the good to Nation Y.
C) Nation Y will import the good from Nation X.
D) No trade or outsourcing will take place.

Question 29

Mr.X works in the warehouse of a large textile firm located in the United States.The firm outsources the production of its textiles to another nation.Which of the following is an example of the possible scale effect of this event on Mr.X?

A) The outsourcing of production causes the firm to reduce the company's demand for warehouse workers in the United States and increase its demand for warehouse workers in the other nation.
B) The lower price of the textiles causes his firm to sell more textiles, increasing its demand for warehouse workers.
C) Both of the above.
D) Neither of the above.

Question 30

What is the substitution effect on American labor when lower wage labor becomes available in the rest of the world?

Question 31

What is production sharing?

Question 32

Suppose Santa Claus actually existed and caused all toy-making workers in America to lose their job.The Pareto optimal social policy would be to

A) even the playing field by making Santa charge the same price for toys as American toy firms.
B) require Americans to buy an equivalent amount of toys from American workers.
C) require Santa to buy an equivalent amount of American-made goods.
D) do nothing if displaced workers can quickly find jobs paying the same or more.

Question 33

Which of the following statements is NOT an implication of the law of comparative advantage?

A) With sufficiently cheap labor, a nation (say China) could have a competitive advantage in producing and selling all goods to other nations.
B) Individuals have an economic incentive to specialize in producing goods or services in which they have a comparative advantage.
C) No nation can produce all goods comparatively cheaper than other nations.
D) All persons trading goods can have more of all goods.

Question 34

Consider two countries,A and B,that can use their productive resources to produce two goods-computers and food.If country A devotes all of its resources to computer production,it produces 100 million computers.If it devotes its resources to food production,it produces 300 million units of food.Likewise,if country B devotes its resources to computer production,it produces 100 million computers.If B devotes its resources to food production,it produces 100 million units of food.In separate graphs,draw the production possibility curve for each country.What do the production possibilities curves show? Which country has comparative advantage in computer production? Which country has comparative advantage in food production? Explain.Suggest a mutually beneficial trading arrangement between these two countries.

Question 35

A study of Japan's opening to trade in 1859 showed that international trade increased the per capita income of the Japanese.Why does Japan,in this case,offer an excellent "natural experiment"?

A) Japan chose to have open trade in order to grow unlike other most other countries, so that it can be argued that the trade had the best chance to occur without being resisted by the government.
B) Japan adopted open trade because of a conversion by its Tokugawa rulers to free trade, who allowed open trade to occur naturally without government interference.
C) Japan only traded with the United States, allowing for a clear delineation of how it benefited from trade.
D) Japan moved from having almost no trade to having open trade with the world and this move was not due to economic reasons.

Question 36

Nation X's major agricultural product before trade is wheat.Nation X will be potentially better off from open trade if the world price of wheat is ________ its pre-trade price of wheat.

A) above
B) below
C) above or below
D) the same as

Question 37

The compensation principle suggested by normative economics,which says that those displaced by trade should be compensated for their losses,is based upon which of these normative principles?

A) Change is only good when some people benefit and none are made worse off.
B) The government should help the poor.
C) No individual should be coerced to help others.
D) People should act in an economically rational way.

Question 38

Domestic textile workers are more likely to lose their jobs to foreigners when

A) the marginal product of foreign workers divided by their wage is lower than the same ratio for domestic workers.
B) they are close substitutes for foreign workers.
C) the scale effect for complementary inputs is small.
D) wages are a small fraction of total costs.

Question 39

How does a country's move toward greater international trade affect labor demand through shifts in product market demand?

Question 40

Imports of goods and services from foreign countries to the United States constituted ________ percent of all American purchases in 2012.

A) 5
B) 17
C) 37
D) 62

Question 41

What is the Trade Adjustment Assistance program?

Question 42

Elimination of barriers to international transactions tends to reduce the elasticity of demand for domestic labor.True or false? Explain.

Question 43

Training subsidies may not represent a wise use of societal resources for many workers displaced by international trade.Why not?

Question 44

Does more open international trade cause the wage level in a country to converge to the wage level paid in the rest of the world?

Question 45

What does economic theory predict will be the total effect of more open international trade on employment in a country? How easy or difficult is it to isolate empirically the effects of trade on a country's employment level?