Deck 40: International Trade

Question 1

If two nations have straight-line production possibilities curves,

A)then their trading possibilities curves must lie inside the production possibilities curves.
B)there will be no basis for mutually advantageous trade.
C)there will be a basis for mutually advantageous trade whether the slopes are equal or not.
D)there will be a basis for mutually advantageous trade provided the slopes differ.

Answer 1

there will be a basis for mutually advantageous trade provided the slopes differ.

Question 2

Which of the following statements is false?

A)In recent years, the United States has had large annual trade deficits in goods and services.
B)The United States imports some of the same categories of goods as it exports.
C)China has the largest share of world exports.
D)As a percentage of GDP, U.S.exports are the highest among the industrially advanced nations.

Answer 2

As a percentage of GDP, U.S.exports are the highest among the industrially advanced nations.

Question 3

Answer the question using the accompanying cost ratios for two products, fish (F) and chicken (C), in countries Singsong and Harmony.Assume that production occurs under conditions of constant costs and that these are the only two nations in the world.Singsong: 1F = 2C Harmony: 1F = 4C
Which one of the following would not be feasible terms for trade between Singsong and Harmony?

A)1 fish for 2½ chicken
B)1 fish for 3 chicken
C)1 chicken for 1/5 of a fish
D)1 chicken for 1/3 of a fish

Answer 3

1 chicken for 1/5 of a fish

Question 4

In terms of absolute dollar volume, the top 3 leaders in world exports are

A)Japan, China, and the European Union.
B)the United States, England, and Canada.
C)Germany, England, and the United States.
D)China, the United States, and Germany.

Question 5

In order for mutually beneficial trade to occur between two otherwise isolated nations,

A)each nation must be able to produce at least one good absolutely cheaper than the other.
B)each nation must be able to produce at least one good relatively cheaper than the other.
C)each nation must face constant costs in the production of the good it exports.
D)one nation's production must be labor-intensive, while the other nation's production is capital-intensive.

Question 6

Which country has the largest share of total world exports?

A)Japan
B)Germany
C)United States
D)China

Question 7

The United States' most important trading partner quantitatively is

A)China.
B)Canada.
C)Mexico.
D)Japan.

Question 8

The terms of trade reflect the

A)rate at which gold exchanges internationally for any domestic currency.
B)ratio at which nations will exchange two goods.
C)fact that the gains from trade will be equally divided.
D)cost conditions embodied in a single country's production possibilities curve.

Question 9

Differences in production efficiencies among nations in producing a particular good result from

A)different endowments of fertile soil.
B)different amounts of skilled labor.
C)different levels of technological knowledge.
D)all of these.

Question 10

U.S.exports of goods and services (on a national income account basis) are about

A)20 percent of U.S.GDP.
B)8 percent of U.S.GDP.
C)28 percent of U.S.GDP.
D)13 percent of U.S.GDP.

Question 11

Which of the following is an example of a capital-intensive commodity?

A)clothing
B)wool
C)sunflower seeds
D)chemicals

Question 12

In 2015, the United States

A)imported more services than it exported.
B)imported more goods than it exported.
C)traded mainly with developing nations such as Mexico and India.
D)had a small trade surplus in goods and services.

Question 13

Answer the question using the accompanying cost ratios for two products, fish (F) and chicken (C), in countries Singsong and Harmony.Assume that production occurs under conditions of constant costs and that these are the only two nations in the world.Singsong: 1F = 2C Harmony: 1F = 4C
If these two nations specialize based on comparative advantage,

A)Singsong will both produce chicken and catch fish.
B)Harmony will both produce chicken and catch fish.
C)Harmony will produce chicken and Singsong will catch fish.
D)Singsong will produce chicken and Harmony will catch fish.

Question 14

Countries engaged in international trade specialize in production based on

A)relative levels of GDP.
B)comparative advantage.
C)relative exchange rates.
D)relative inflation rates.

Question 15

The primary gain from international trade is

A)increased employment in the domestic export sector.
B)more goods than would be attainable through domestic production alone.
C)tariff revenue.
D)increased employment in the domestic import sector.

Question 16

Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X.By devoting all of its resources to Y, Alpha can produce 60Y.Comparable figures for nation Beta are 60X and 40Y.We can conclude that

A)the terms of trade will be 3X equals 1Y.
B)Alpha should specialize in Y and Beta in X.
C)Alpha should specialize in X and Beta in Y.
D)there is no basis for mutually beneficial specialization and trade.

Question 17

As a percentage of GDP, U.S.exports are

A)greater than U.S.imports.
B)about 20 percent.
C)considerably lower than in several other industrially advanced nations.
D)higher than in Canada but lower than in Germany.

Question 18

In the theory of comparative advantage, a good should be produced in that nation where

A)the production possibilities line lies further to the right than the trading possibilities line.
B)its cost is least in terms of alternative goods that might otherwise be produced.
C)its absolute cost in terms of real resources used is least.
D)its absolute money cost of production is least.

Question 19

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that

A)the production possibilities curves of any two nations are identical.
B)a nation's production possibilities and trading possibilities lines coincide.
C)a nation's trading possibilities line lies to the right of its production possibilities line.
D)a nation's production possibilities line lies to the right of its trading possibilities line.

Question 20

Which of the following is an example of a land-intensive commodity?

A)chemicals
B)autos
C)watches
D)wool

Question 21

Suppose the United States sets a limit on the number of tons of sugar that can be imported each year.This is an example of a(n)

A)protective tariff.
B)revenue tariff.
C)voluntary export restriction.
D)import quota.

Question 22

Which is an example of a nontariff barrier (NTB)?

A)an export subsidy
B)an excise tax on the physical volume of imported goods
C)box-by-box inspection requirements for imported fruit
D)an excise tax on the dollar value of imported goods

Question 23

A protective tariff will

A)increase the sales of foreign exporters.
B)increase the price and sales of domestic producers.
C)increase the welfare of domestic consumers.
D)create an efficiency gain in the domestic economy.

Question 24

Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel.Assuming no transportation costs, the United States will

A)have a domestic shortage of wheat.
B)export wheat.
C)import wheat.
D)neither export nor import wheat.

Question 25

Country A limits other nation's exports to Country A to 1,000 tons of coal annually.This is an example of a(n)

A)protective tariff.
B)export subsidy.
C)import quota.
D)voluntary export restriction.

Question 26

Other things equal, economists would prefer

A)free trade to tariffs and tariffs to import quotas.
B)free trade to import quotas and import quotas to tariffs.
C)import quotas to tariffs and tariffs to voluntary export restrictions.
D)import quotas to free trade and free trade to tariffs.

Question 27

Which of the following statements is false?

A)Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies.
B)The U.S.Constitution forbids individual states from levying tariffs.
C)The high tariffs of the Smoot-Hawley Act of 1930 and the retaliation they caused worsened the Great Depression.
D)The European Union has enhanced prosperity in Western Europe.

Question 28

In effect, tariffs on imports are

A)special taxes on domestic producers.
B)subsidies to domestic consumers.
C)subsidies to foreign producers.
D)subsidies for domestic producers.

Question 29

In comparing a tariff and an import quota, we find that

A)the tariff and quota both generate the same amount of revenue for the U.S.Treasury.
B)the tariff generates revenue for the U.S.Treasury, but the quota does not.
C)the quota generates revenue for the U.S.Treasury, but the tariff does not.
D)neither the tariff nor the quota generates revenue for the U.S.Treasury.

Question 30

A high tariff on imported good X might reduce domestic employment in industry Y if

A)X is an input used domestically in producing Y.
B)X and Y are substitute goods.
C)X is an inferior good.
D)Y is an inferior good.

Question 31

Export supply curves are ; import demand curves are .

A)horizontal; vertical
B)vertical; horizontal
C)downsloping; upsloping
D)upsloping; downsloping

Question 32

Research studies indicate that

A)U.S.producers gain more from tariffs than U.S.consumers lose.
B)the costs of trade restrictions are proportionately higher for high-income groups than for low-income groups.
C)the revenue from tariffs equals the total cost that tariffs impose on consumers.
D)U.S.consumers lose more from tariffs than U.S.producers gain.

Question 33

Other things equal, a tariff is

A)superior to an import quota for Americans because a tariff increases the profits of foreign producers.
B)inferior to an import quota for Americans because a tariff increases the profits of domestic producers.
C)superior to an import quota for Americans because a tariff generates revenue for the U.S.Treasury.
D)inferior to an import quota for Americans because a tariff generates revenue for the U.S.Treasury.

Question 34

Suppose the United States eliminates high tariffs on German bicycles.As a result, we would expect

A)the price of German bicycles to increase in the United States.
B)employment to decrease in the German bicycle industry.
C)employment to decrease in the U.S.bicycle industry.
D)profits to rise in the U.S.bicycle industry.

Question 35

An excise tax on an imported good that is not produced domestically is called a

A)protective tariff.
B)import quota.
C)revenue tariff.
D)voluntary export restriction.

Question 36

The impact of increasing, as opposed to constant, costs is to

A)intensify and prolong the comparative advantages that any nation may have initially.
B)expand the limits of the terms of trade.
C)cause the bases for further specialization to disappear as nations specialize according to comparative advantage.
D)cause nations to realize economies of scale in those products in which they specialize.

Question 37

The law of increasing opportunity costs

A)applies to land-intensive commodities but not to labor-intensive or capital-intensive commodities.
B)results in straight-line production possibilities curves rather than curves that are bowed outward from the origin.
C)refutes the principle of comparative advantage.
D)may limit the extent to which a nation specializes in producing a particular product.

Question 38

Studies show that

A)it is impossible to estimate the benefits of trade barriers.
B)costs and benefits of trade barriers are about equal.
C)benefits of trade barriers exceed their costs in developing nations.
D)costs of trade barriers exceed their benefits, creating an efficiency loss for society.

Question 39

If a nation has a comparative advantage in the production of X, this means the nation

A)cannot benefit by producing and trading this product.
B)must give up less of other goods than other nations in producing a unit of X.
C)has a production possibilities curve identical to those of other nations.
D)is not subject to increasing opportunity costs.

Question 40

Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound.Assuming no transportation costs, the United States will

A)have a domestic surplus of copper.
B)export copper.
C)import copper.
D)neither export nor import copper.

Question 41

Which of the following arguments contends that certain industries need to be protected in the interest of national security?

A)the increased domestic employment argument
B)the cheap foreign labor argument
C)the diversification-for-stability argument
D)the military self-sufficiency argument

Question 42

Which of the following arguments for trade protection contends that new domestic industries need support to establish themselves and survive?

A)the increased domestic employment argument
B)the cheap foreign labor argument
C)the diversification-for-stability argument
D)the infant industry argument

Question 43

Which of the following was not one of the principles on which the General Agreement on Tariffs and Trade (GATT) was established?

A)the elimination of import quotas
B)equal, nondiscriminatory trade treatment for all member nations
C)the formation of international trade contracts to alleviate global poverty
D)the reduction of tariffs by multilateral negotiations

Question 44

The World Trade Organization was established as a successor to

A)GATT.
B)NAFTA.
C)the EU.
D)the Doha Development Agenda.

Question 45

The increased-domestic-employment argument for tariff protection holds that

A)domestic inflation is a desirable policy goal because it stimulates exports.
B)domestic deflation is a desirable policy goal because it stimulates imports.
C)an increase in tariffs will reduce net exports and stimulate domestic employment.
D)an increase in tariffs will increase net exports and stimulate domestic employment.

Question 46

NAFTA

A)has increased the standard of living in the North African member nations.
B)benefits workers in the participating nations but hurts consumers by raising prices.
C)allows completely unrestricted movement of goods, services, and resources between the member nations.
D)has reduced most trade barriers between Canada, Mexico, and the United States.

Question 47

Critics of the World Trade Organization (WTO) say that liberalized world trade does all of the following except

A)produce environmental degradation.
B)allow producers to circumvent labor protections such as workplace safety, child labor restrictions, and collective bargaining rights.
C)help developing nations escape from poverty.
D)promote the interests of multinational corporations.

Question 48

Which of the U.S.industries below has not seen major shutdowns and layoffs because of free foreign trade?

A)textiles
B)financial services
C)steel
D)apparel

Question 49

The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the

A)International Monetary Fund (IMF).
B)World Trade Organization (WTO).
C)Common Market Organization (CMO).
D)International Trade Commission (ITC).

Question 50

As of 2015, how many European nations belonged to the European Union (EU)?

A)All of the nations of Europe automatically belong to the EU.
B)17
C)28
D)10

Question 51

Trade adjustment assistance

A)provides financial assistance to all unemployed workers in the United States.
B)guarantees jobs for all workers displaced by imports or plant relocations abroad.
C)provides assistance to about 20 percent of unemployed U.S.workers each year.
D)provides cash assistance for workers displaced by imports or plant relocations abroad.

Question 52

A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that

A)labor costs and product prices are not related.
B)there is no discernible relationship between wage rates and labor productivity.
C)wage rates and labor productivity are directly related.
D)wage rates and labor productivity are inversely related.

Question 53

"NAFTA" stands for

A)North African Free Trade Area.
B)North American Free Trade Agreement.
C)North Asian Free Trade Agreement.
D)New Zealand-Australia Free Trade Agreement.

Question 54

As it relates to international trade, dumping

A)is a form of price discrimination illegal under U.S.antitrust laws.
B)is the practice of selling goods in a foreign market at less than cost.
C)constitutes a general case for permanent tariffs.
D)is defined as selling more goods than allowed by an import quota.

Question 55

Dumping of goods abroad

A)constitutes a general case for permanent tariffs.
B)may be part of a firm's price discrimination strategy.
C)may be part of a nation's strategy to rectify its trade deficit.
D)drives up prices of the dumped goods.

Question 56

The number of countries belonging to the World Trade Organization (WTO), as of 2015, is about

A)161.
B)125.
C)80.
D)202.

Question 57

The World Trade Organization

A)is also known as the International Monetary Fund (IMF).
B)is also known as NAFTA.
C)was established to resolve disputes arising under world trade rules.
D)enhances world trade by providing interest rate subsidies to foreign borrowers who buy exports on credit.

Question 58

The "eurozone"

A)is another name for the European Union.
B)refers to the common currency used by all European Union members.
C)is a geographic region in Europe with no national sovereignty, where free trade between European nations is allowed to occur.
D)is the subset of the EU that uses a common currency.

Question 59

Which of the following statements about the European Union (EU) is true?

A)All members of the EU use a common currency (the euro).
B)The EU has abolished most trade barriers among participating countries and has common tariffs applied to non-EU goods.
C)The EU has eliminated most barriers to the trade of goods and services among participating nations but largely restricts the movement of labor and capital.
D)Trade within the EU is liberalized, but EU nations set most of their own policies with regard to trade with non-EU nations.

Question 60

Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary?

A)the increased domestic employment argument
B)the cheap foreign labor argument
C)the diversification-for-stability argument
D)the infant industry argument

Question 61

(Consider This) The greatest benefit to an economy from international trade is

A)greater employment in the export sector of the economy.
B)the economic power it gives a nation over other countries.
C)full employment of its labor force.
D)consumption beyond domestic production possibilities.

Question 62

In 2015, the United States had its first-ever trade surplus with OPEC.

Question 63

(Last Word) Frederic Bastiat's "Petition of the Candlemakers" most directly refutes which of the following arguments for protectionism?

A)increased domestic employment argument
B)infant industry argument
C)cheap foreign labor argument
D)diversification-for-stability argument

Question 64

"Offshoring" refers to

A)importing goods, services, and resources.
B)stashing money in offshore accounts for the purpose of avoiding taxes.
C)shifting work overseas that was previously done domestically.
D)exporting key resources.

Question 65

Which of the following best describes economists' general assessment of the impacts of offshoring?

A)Offshoring has an overall negative impact on the U.S.economy because of the significant domestic job losses it causes.
B)Offshoring benefits the U.S.economy by promoting greater specialization and exchange of goods and services based on comparative advantage.
C)Offshoring provides some cost advantages but generally results in much-lower-quality goods for consumers.
D)Job losses from offshoring are magnified by job losses in complementary industries.

Question 66

(Consider This) Madison, the CPA, is faster than Mason, the house painter, at both accounting services and painting.This means that

A)there is no reason for them to trade services.
B)Madison should trade her accounting services for Mason's painting services, so long as Madison is relatively more efficient at accounting services.
C)Madison should trade her accounting services for Mason's painting services, so long as Madison is relatively more efficient at painting.
D)Madison has the comparative advantage in both services.

Question 67

Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X.By devoting all its resources to Y, Alpha can produce 60Y.Comparable figures for nation Beta are
60X and 40Y.The terms of trade will be at or within the 1X = 1½Y to 1X = ⅔Y range.

Question 68

Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X.By devoting all its resources to Y, Alpha can produce 60 Y.Comparable figures for nation Beta are 60 X
and 40 Y.Beta would prefer terms of trade at, or close to, 1X = 1½Y.

Question 69

(Consider This) According to Dallas Federal Reserve economist W.Michael Cox, taken to its extreme, the logic of "buying American" implies that

A)we should buy everything from abroad.
B)people should only consume what they can produce themselves.
C)consumers should only buy goods from other states.
D)the best quality goods are found in the United States.

Question 70

(Last Word) Frederic Bastiat's satirical argument against protectionism called for protecting domestic producers from

A)fire.
B)the sun.
C)other European countries.
D)invention of the electric light.

Question 71

The percentage of the United States' domestic output that is derived from international trade is higher than that for any other industrially advanced nation.Topic: The Economic Basis for Trade

Question 72

The nation that has a comparative advantage in a particular product will be the only world exporter of that product.

Question 73

Economists who criticize trade adjustment assistance argue that

A)it only benefits a small fraction of all unemployed workers.
B)money spent on the program overstimulates aggregate demand and threatens to cause inflation.
C)benefits are too low to provide unemployed workers with a livable wage.
D)it distorts patterns of foreign trade, reducing the gains from trade.

Question 74

Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X.By devoting all its resources to Y, Alpha can produce 60Y.Comparable figures for nation Beta are
60X and 40Y.Therefore, Alpha should specialize in Y and Beta in X.

Question 75

The law of increasing opportunity costs limits international specialization.

Question 76

It is impossible for a nation to have a comparative advantage in producing everything.

Question 77

International trade based on the principle of comparative advantage creates a more efficient allocation of world economic resources.

Question 78

Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X.By devoting all its resources to Y, Alpha can produce 60Y.Comparable figures for nation Beta are
60X and 40Y.If Alpha had produced 20X and 30Y and Beta had produced 30X and 20Y before specialization and trade, then we can say that the gains from specialization and trade are 10X and 10Y.

Question 79

Assume that by devoting all its resources to the production of X, nation Alpha can produce 20 units of X.By devoting all its resources to Y, Alpha can produce 30Y.Comparable figures for nation Beta are
60X and 40Y.There is no basis for trade between Alpha and Beta, because Beta has an absolute advantage in the production of both goods.

Question 80

Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X.By devoting all its resources to Y, Alpha can produce 60Y.Comparable figures for nation Beta are
60X and 40Y.Alpha would prefer terms of trade at, or close to, 1X = 1½Y.