Deck 18: Income Distribution and Poverty

Question 1

The basis for international trade is ____.

Answer 1

International trade:
The international trade refers to the activity of economic transaction like buying and selling of goods and services between two or more nation at the period of time.
A basis for international trade is that a nation can import goods and services at a lower cost compared to the cost it was produced domestically.
Specialization is the basis for international trade.
Therefore, the correct answer is

Question 2

Our balance of trade ____.

A) has always been positive
B) turned negative in the mid-1970s
C) turned negative in the mid-1980s
D) has always been negative

Answer 2

Balance of Trade:
A country can be said to have balance of trade when the country's value of exports are equal to the value of imports.
The balance of trade of a country shows various current and capital nature receipts and payments made during a year.
Balance of trade was positive until 1970s in the 20 th century. It has turned negative in the mid-1970s.
Hence, the options (a), (c) and (d) are not correct.
Therefore, the correct option is

Question 3

Assume Bolivia and Chile use the same amount of resources to produce tin and copper. Figure 2 represents their production possibilities curves.

F igure 2
Bolivia has a comparative advantage in the production of which metal?

Answer 3

The opportunity cost is the cost of next best alternative or the cost of missed opportunity.
Comparative advantage tells the ability of one country to produce goods at a lower opportunity cost as compared to other countries. For a beneficial trade, countries should produce those products in which they have a comparative advantage for their national welfare. The benefit that one country accrues from trade is called gains from trade.
Country B
Country B can produce either 10 tons of tin or 12 tons of copper.
Hence, the opportunity cost of 1 ton of tin is
Similarly, opportunity cost of 1 ton of copper is
Country C
Country C can produce either 8 tons of tin or 15 tons of copper.
Hence, the opportunity cost of 1 ton of tin is
Similarly, opportunity cost of 1 ton of copper is
Since, the opportunity cost of 1 ton of tin is lower in Country B.
Hence, Country B has comparative advantage in production of
.

Question 4

Explain what comparative advantage is. Make up an example to illustrate this concept.

Question 5

Brazil is better at producing ____ than at producing ____.
Argentina is better at producing ____ than at producing ____.

F igure 1

Question 6

Which makes the most sense economically?

A) Individual self-sufficiency
B) National self-sufficiency
C) National specialization
D) None of these

Question 7

Assume Bolivia and Chile use the same amount of resources to produce tin and copper. Figure 2 represents their production possibilities curves.

Chile has a comparative advantage in the production of which metal?
F igure 2

Question 8

What is wrong with having tariffs and quotas? Which is the lesser of the two evils, and why?

Question 9

If 1 ton of steel could be traded for 1 ton of wheat, Brazil would trade its ____ for Argentina's ____.

F igure 1

Question 10

Which statement do you agree with?

A) There are several problems causing our huge trade deficit; there are no easy solutions to these problems.
B) We could quickly eliminate our trade deficit by raising tariffs.
C) The main reason we have a large trade deficit is that foreigners refuse to buy American goods and services.
D) The main reason for our large trade deficit is our relatively low rate of economic growth.

Question 11

Assume Bolivia and Chile use the same amount of resources to produce tin and copper. Figure 2 represents their production possibilities curves.

F igure 2
Bolivia will trade ____ for ____.

Question 12

Explain why globalization is good for the United States. What are the drawbacks of globalization for our economy?

Question 13

____ is the country with which we have the largest trade imbalance.

Question 14

The Chinese economic expansion since the early 1980s and the Japanese economic expansion from the late 1940s through the 1980s were ____.

A) virtually identical
B) both dependent on the American market
C) based in the economic principles of Karl Marx
D) based on closing their domestic markets to American goods and services

Question 15

Assume Bolivia and Chile use the same amount of resources to produce tin and copper. Figure 2 represents their production possibilities curves.

F igure 2
Chile will trade ____ for ____.

Question 16

What would you suggest we do to reduce our trade deficit?

Question 17

It would greatly reduce our trade deficit the most if we could curb our import of ____.

Question 18

Which statement is false?

A) No nation will engage in trade with another nation unless it will gain by that trade.
B) The terms of trade will fall somewhere between the domestic exchange equations of the two trading nations.
C) Most economists advocate free trade.
D) None of these statements is false.

Question 19

We run huge trade imbalances with two countries. Explain the cause of the imbalances.

Question 20

Our trade deficit in 2007 was $ ____.

Question 21

Our largest trade deficit is with ____.

A) Japan
B) Canada
C) China
D) Mexico
E) Germany

Question 22

Should we be worried about our trade deficit? Explain why or why not.

Question 23

If our trade deficit with China and Japan were 0, our total trade deficit would be reduced by almost ____ percent.

Question 24

Which one of the following does NOT contribute to our huge trade deficit?

A) Our failing educational system
B) Our high defense spending
C) Our high saving rate
D) Our huge oil imports

Question 25

What is the economist's case for free trade?

Question 26

The law of comparative advantage states that total output is greatest when each product is made by the country that has the ____.

Question 27

The least applicable argument for protecting American industry from foreign competition would be the ____ argument.

A) national security
B) infant industry
C) low-wage
D) employment

Question 28

Practical Application: Can you think of any valid reason for tariff protection? Try to make a case for it.

Question 29

A tariff is a tax on ____; a quota is a limit on ____.

Question 30

Imports would be lowered by ____.

A) tariffs only
B) import quotas only
C) both tariffs and import quotas
D) neither tariffs nor import quotas

Question 31

____ was the last year in which we ran a trade surplus.

Question 32

Of these three choices-tariffs, quotas, and free trade-economists like ____ the most and ____ the least.

A) tariffs, quotas
B) tariffs, free trade
C) free trade, tariffs
D) free trade, quotas
E) quotas, free trade
F) quotas, tariffs

Question 33

Our biggest annual trade deficit in our history was more than ____ billion.

A) $300
B) $400
C) $500
D) $600
E) $700

Question 34

Which country regularly counterfeits American goods and services, a practice which costs American industry over $200 billion a year?

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

Question 35

Which would be the most accurate statement with respect to our chemical industry?

A) It is on the decline and now contributes to our balance of trade deficit.
B) It is large and growing.
C) It generally provides a trade surplus of about $20 billion a year.
D) It will almost completely disappear by the year 2015.

Question 36

Each of the following would reduce our trade deficit except ____.

A) increasing saving
B) cutting defense spending
C) increasing investment
D) raising interest rates

Question 37

Our trade deficit with China in 2007 was ____.

A) under $100 billion
B) between $100 billion and $150 billion
C) between $150 billion and $200 billion
D) over $200 billion

Question 38

Statement 1: Our trade deficit with China is larger than our trade deficit with Japan.
Statement 2: Americans pay lower taxes on gasoline than do the citizens of most of the nations in Western Europe.

A) Statement 1 is true, and statement 2 is false.
B) Statement 2 is true, and statement 1 is false.
C) Both statements are true.
D) Both statements are false.

Question 39

Of the following, our imports of ____ contribute most to our trade deficit.

A) oil
B) clothing
C) textiles
D) consumer electronics

Question 40

Which of the following would best describe our trading relationship with China five years from now?

A) Our trade deficit will be higher and we will be importing a higher proportion of "low-skill" products.
B) Our trade deficit will be higher and we will be importing a higher proportion of "high-skill" products.
C) Our trade deficit will be lower and we will be importing a higher proportion of "low-skill" products.
D) Our trade deficit will be lower and we will be importing a higher proportion of "high-skill" products.

Question 41

Which statement is the most accurate?

A) Globalization has made some people winners and others losers.
B) Globalization has been good for everyone involved.
C) Globalization has been bad for everyone involved.
D) Virtually all economists believe that globalization has almost no downside.

Question 42

Which statement is true about how globalization has affected American workers?

A) The only jobs that have been lost or will be lost are blue-collar factory jobs.
B) Most workers who have lost their jobs because of globalization have ended up in better paying jobs.
C) Until now a relatively high proportion of Americans perform high-skill, well paying jobs, while a relatively high proportion of Chinese perform low-skill, poorly paying jobs.
D) Globalization cannot be considered a threat to the livelihoods of highly-skilled, well paid American workers.

Question 43

Which is the most accurate statement?

A) The United States can be described as a purely free trading nation.
B) The United States is one of the most protectionist nations in the world.
C) The rich nations provide hundreds of billions of dollars in agricultural subsidies to the poorer nations.
D) The United States provides smaller agricultural subsidies than does Japan and the European Union.

Question 44

Which statement is true?

A) Comparative advantage is not necessary for trade to take place, but absolute advantage is.
B) Absolute advantage is not necessary for trade to take place, but comparative advantage is.
C) Both absolute and comparative advantage are necessary for trade to take place.
D) Neither absolute nor comparative advantage are necessary for trade to take place.

Question 45

Which statement is true?

A) There are basically no arguments that can be made on behalf of trade protection.
B) The arguments for trade protection are more valid than the arguments for free trade.
C) The United States has had a record of fully supporting free trade since the early 20th century.
D) Much of what we import has been produced by "sweatshop labor."

Question 46

In order for trade between two countries to take place, ____.

A) absolute advantage is necessary
B) comparative advantage is necessary
C) both absolute and comparative advantage are necessary
D) neither absolute nor comparative advantage is necessary

Question 47

Which of the following is the most accurate statement?

A) Americans are very willing to buy domestically produced goods, even if they are more expensive than imported goods.
B) We import more foreign goods than we did 40 years ago, but merchandise imports are still about the same percentage of our GDP.
C) In the decades following World War II, the Japanese consumer has strongly favored domestically manufactured goods over imports.
D) France paid a high economic price when many Americans switched from french fries to freedom fries.