Deck 16: The United States and the Global Economy

Question 1

Because international trade harms firms in exporting industries, most countries impose tariffs on the international flow of goods and services.

Answer 1

False

Question 2

Trade import restrictions tend to harm domestic consumers by increasing the prices, and reducing the availability, of the goods they purchase.

Answer 2

True

Question 3

Import tariffs introduce inefficiencies by encouraging the overproduction of goods for which a country has a comparative advantage.

Answer 3

False

Question 4

An import quota provides a minimum threshold on the amount of a good that is allowed into the country.

Question 5

Import tariffs tend to increase jobs for workers in import-competing industries, but reduce their ability to bargain for higher wages.

Question 6

It is universally agreed that import tariffs can be justified on economic grounds.

Question 7

All sectors of the domestic economy benefit from protectionist trade policies.

Question 8

Import restrictions tend to improve the welfare of producers in the import-competing industry, but worsen the welfare of domestic consumers.

Question 9

Comparative advantage depends on a variety of factors including technology, the amount of capital per worker, and the productivity of the labor force.

Question 10

Although the nation as a whole benefits from free trade, inevitably some firms and workers are harmed by trade.

Question 11

Through specialization and trade, the supply of goods increases, which forces prices up and makes goods less affordable.

Question 12

According to the principle of comparative advantage, an open trading system results in resources being channeled from their highest to their lowest productivity.

Question 13

It is possible for a high-wage country such as the U.S. to export labor-intensive goods to a low-wage country such as China.

Question 14

Comparative advantage underlies the gains from trade among countries whose opportunity costs are identical.

Question 15

According to the principle of comparative advantage, it may be efficient for a country to export a good or service for which it has an absolute disadvantage.

Question 16

If Canada and Mexico have identical opportunity costs of producing wheat and apples, then there will not be any basis for gainful specialization and trade according to the principle of absolute advantage.

Question 17

When compared to quotas, tariffs have a relatively small effect on the domestic price of the good.

Question 18

Trade restrictions tend to reduce competition and increase prices for consumers.

Question 19

To maximize its gains from trade, the U.S. should export goods and services for which it has an absolute advantage.

Question 20

Assume that wages in the U.S. are five times as high as wages in Mexico. The U.S. will export labor-intensive goods to Mexico if the productivity of its labor force is more than five times as high as the productivity of the Mexican labor force.

Question 21

According to the principle of comparative advantage, a country is realizing gains from trade when it achieves a level of consumption that lies outside of its production possibilities curve.

Question 22

If you travel in a Boeing 777 jetliner, you are traveling in a product that is assembled entirely with parts and components that are produced in the U.S.

Question 23

Canada, Japan, and Mexico are the leading trading partners of the U.S.

Question 24

When the North American Free Trade Agreement was adopted, it was predicted that higher-skill and higher-tech businesses in the U.S. would benefit from the elimination of trade barriers with Mexico.

Question 25

When the North American Free Trade Agreement was adopted, it was predicted that labor-intensive, import-competing businesses in the U.S. would likely lose from tariffs that were eliminated on competing imports from Mexico.

Question 26

Over time, the U.S. has become an increasingly open economy.

Question 27

The U.S. is a major exporter of petroleum and other energy products.

Question 28

Suppose a country produces only two types of goods. If it specializes in the production of one good, then the country will be operating at one of the endpoints of its production possibilities schedules.

Question 29

A good way for a country to develop a comparative advantage in a good is by imposing tariffs on imports of that good.

Question 30

As a result of United States quotas and tariffs imposed on imported Canadian lumber in 1996, thousands of U.S. families were unable to buy a home.

Question 31

In 2000, wages in Malaysia were 10 percent of those in the U.S., and labor productivity in Malaysia was also 10 percent of that in the U.S. This means the unit labor costs were about the same in both countries.

Question 32

The "level playing field argument" refers to an argument against free trade that is based on a desire to protect new and developing industries.

Question 33

NAFTA is an example of a regional trading arrangement.

Question 34

U.S. tariffs tend to be progressive taxes, which predominately affect wealthy consumers.

Question 35

According to the principle of comparative advantage, Canada exports those goods and services for which it has a low

A) overhead cost
B) material cost
C) wage cost
D) opportunity cost

Question 36

According to the principle of comparative advantage, France imports those goods and services for which it has a high

A) wage cost
B) material cost
C) opportunity cost
D) resource cost

Question 37

International trade yields effects similar to technological progress because they both

A) reduce unemployment for all workers in the economy
B) provide a higher standard of living for everyone in the economy
C) increase the total real income of a nation
D) increase the rate of inflation for the nation

Question 38

Of the following four choices, which country's exports of goods and services constitute the largest share of its gross domestic product?

A) the U.S.
B) the Netherlands
C) Canada
D) Japan

Question 39

Specialization increases productivity for all of the following reasons except

A) it avoids the time it takes for workers to switch from one job to another
B) it results in diseconomies of large-scale production
C) it tends to foster invention and innovation
D) people who practice one job become a lot better than those who do not practice

Question 40

The degree to which specialization can be practiced is limited the most by the

A) size of the market
B) price elasticity of demand
C) level of market interest rates
D) amount of government expenditures

Question 41

Trade between Canada and Mexico allows both countries to gain because they can consume a combination of goods and services that lies

A) inside their production possibilities curves
B) along their production possibilities curves
C) outside their production possibilities curves
D) at the endpoints of their monetary possibilities curve

Question 42

Comparative advantage is determined by all of the following except

A) endowments of labor and natural resources
B) productivity of labor
C) knowledge and scientific know-how
D) the level of money income

Question 43

According to the theory of comparative advantage, if the U.S. has an absolute advantage over Canada in the production of all goods, then specialization and trade

A) are never beneficial
B) are always beneficial
C) may still be beneficial
D) are impossible to achieve

Question 44

Opening up a country to international trade generally results in

A) all people in the country becoming worse off
B) all people in the country becoming better off
C) some people in the country becoming worse off and others becoming better off
D) all people in other countries becoming better off

Question 45

Which one of the following groups of Americans does not benefit from free trade?

A) American workers in exporting industries
B) American consumers
C) American suppliers of inputs to exporting firms
D) American workers in import-competing industries

Question 46

The imposition of a tariff on imports tends to promote gains for all of the following groups except

A) workers in import-competing industries
B) the domestic government
C) domestic consumers
D) stockholders of firms in import-competing industries

Question 47

Seekers of trade restrictions are often

A) established firms in aging industries that have lost comparative advantage
B) domestic consumers of goods produced by import-competing industries
C) workers in relatively efficient exporting industries
D) firms that supply parts and components to exporting firms

Question 48

For the U.S., the imposition of tariffs on imported autos tends to result in

A) a decrease in auto prices in the U.S.
B) higher wages for U.S. auto workers
C) lower profits for U.S. auto companies
D) a decline in tax revenues for the U.S. government

Question 49

All of the following are justifications for import tariffs except

A) tariffs increase profits for firms in import-competing industries
B) tariffs increase the tax receipts of the domestic government
C) tariffs cause the prices of goods to decrease for the domestic consumer
D) tariffs cause employment to rise in import-competing industries

Question 50

A sudden reduction in import tariffs is most likely to result in short-term unemployment for workers of companies that

A) compete with imports
B) only export
C) export and also sell domestically
D) are not affected by trade

Question 51

The promotion of free trade among the U.S., Canada, and Mexico is the main objective of the

A) World Bank
B) United Nations
C) Agency for International Development
D) North American Free Trade Agreement

Question 52

A quota is similar to a tariff in that both

A) yield less tax revenue for the domestic government
B) increase the amount of imports for the nation
C) increase employment for workers in import-competing industries
D) result in a smaller quantity of output produced by domestic companies

Question 53

A difference between a quota and a tariff is that

A) quotas provide gains for consumers and tariffs provide gains for producers
B) quotas provide gains for producers and tariffs provide gains for consumers
C) tariffs cause the revenue of the government to increase, while quotas do not
D) quotas cause the revenue of the government to increase, while tariffs do not

Question 54

When import tariffs are imposed by the U.S., the

A) U.S. economy as a whole realizes benefits
B) exporting industries of the U.S. realize benefits
C) import-competing industries of the U.S. suffers losses
D) American consumer suffers losses

Question 55

In the U.S., quotas on the numbers of Japanese cars that may be imported into the U.S. would be viewed as being superior to import tariffs by

A) U.S. car consumers
B) U.S. car companies
C) the U.S. government as a collector of taxes
D) Japanese car companies

Question 56

Table 16.1 Production Possibilities Tables for Germany and Canada
Germany's Production Possibilities Table
Canada's Production Possibilities Table


-Refer to Table 16.1. The opportunity cost of producing an auto in Germany is

A) 2 tons of steel
B) 3 tons of steel
C) 4 tons of steel
D) 5 tons of steel

Question 57

Table 16.1 Production Possibilities Tables for Germany and Canada
Germany's Production Possibilities Table
Canada's Production Possibilities Table


-Refer to Table 16.1. The opportunity cost of producing an auto in Canada is

A) 1 ton of steel
B) 2 tons of steel
C) 3 tons of steel
D) 4 tons of steel

Question 58

Table 16.1 Production Possibilities Tables for Germany and Canada
Germany's Production Possibilities Table
Canada's Production Possibilities Table


-Refer to Table 16.1. According to the principle of comparative advantage,

A) Germany should export steel and Canada should export autos
B) Germany should export autos and Canada should export steel
C) Germany should export steel and autos
D) Canada should export steel and autos

Question 59

Table 16.1 Production Possibilities Tables for Germany and Canada
Germany's Production Possibilities Table
Canada's Production Possibilities Table


-Refer to Table 16.1. Assume that the desired product combinations prior to specialization were alternative B in Germany and alternative B' in Canada. With specialization, what are the gains in output?

A) 20 tons of steel and 10 autos
B) 40 tons of steel and 20 autos
C) 60 tons of steel and 30 autos
D) 80 tons of steel and 40 autos

Question 60

All of the following statements about trade restrictions are true except

A) trade restrictions limit specialization and the division of labor
B) trade restrictions reduce the volume of trade and the gains from trade
C) trade restrictions make countries produce below their production possibilities curves
D) trade restrictions result in countries selling the product at a lower price to domestic consumers

Question 61

Countries that trade on the basis of comparative advantage have ______ than countries that do not.

A) more goods and services available to them
B) fewer goods and services available to them
C) higher production costs
D) higher transportation costs

Question 62

A country will gain from specialization and trade, even if it is less efficient in producing all goods, as long as it specializes in those goods that it can produce

A) with more labor and less capital
B) with more capital and less labor
C) relatively inefficiently
D) relatively efficiently

Question 63

According to the principle of ______, a country will gain from specializing in those goods that it can produce relatively cheaply.

A) absolute advantage
B) increasing costs
C) comparative advantage
D) diminishing returns

Question 64

The most vocal political pressure for tariffs is generally made by

A) exporting firms lobbying for tariffs
B) import-competing firms lobbying for tariffs
C) consumers lobbying for tariffs
D) savers lobbying for tariffs

Question 65

Figure 16.1 Import Tariff Levied by Venezuela


-Consider Figure 16.1. In the absence of trade, Venezuela produces and consumes

A) 10 calculators
B) 40 calculators
C) 60 calculators
D) 80 calculators

Question 66

Figure 16.1 Import Tariff Levied by Venezuela


-Consider Figure 16.1. With free trade, Venezuela produces ______, consumes ______, and imports ______.

A) 10 calculators, 80 calculators, 70 calculators
B) 10 calculators, 110 calculators, 100 calculators
C) 40 calculators, 40 calculators, 20 calculators
D) 80 calculators, 110 calculators, 30 calculators

Question 67

Figure 16.1 Import Tariff Levied by Venezuela


-Consider Figure 16.1. With a per-unit tariff of $3, Venezuela produces ______, consumes ______, and imports ______.

A) 40 calculators, 80 calculators, 40 calculators
B) 40 calculators, 60 calculators, 20 calculators
C) 60 calculators, 80 calculators, 20 calculators
D) 60 calculators, 110 calculators, 50 calculators

Question 68

Figure 16.1 Import Tariff Levied by Venezuela


-Consider Figure 16.1. With a per-unit tariff of $3, the Venezuelan government collects tariff revenues of

A) $80
B) $100
C) $120
D) $140

Question 69

Figure 16.1 Import Tariff Levied by Venezuela


-Consider Figure 16.1. A tariff would completely eliminate imports of calculators if it equaled

A) $2
B) $3
C) $4
D) $5

Question 70

The situation for U.S. steelmakers is

A) excessively high world steel prices that make it hard for steel companies to compete
B) steel tariffs being eliminated by President Bush starting in 2002
C) chronic world excess capacity that is reducing steel prices
D) competition from large steel companies that is driving out the small ones in the U.S.

Question 71

The dominant factor in motivating governments to impose trade restrictions is

A) to protect domestic jobs
B) to drive foreign producers out of business
C) to increase international trade
D) to take advantage of comparative advantage

Question 72

Babe Ruth was great at both pitching and hitting. He even became the best left-handed pitcher in the American League. However, he eventually gave up pitching and became a legendary hitter for the N.Y. Yankees. This was because he

A) had lost his talent and could not play as well
B) was better at pitching than batting
C) had a comparative advantage in batting
D) rarely hit home runs but was skilled at base hits

Question 73

In the U.S., sheep producers

A) faces stiff competition from producers in England and Norway
B) is a monopoly
C) relies on the government for protection from imports
D) is nonexistent

Question 74

CAFTA refers to the trade agreement that the U.S. signed in 2005 with

A) China
B) Central America
C) Chile
D) California

Question 75

In terms of production of output, having international specialization and trade is equivalent to

A) having more resources or better technology
B) raising the prices of all goods by about 10 percent
C) imposing tariffs and quotas
D) each country producing at the midpoint of its production possibilities schedule

Question 76

Japan is a major exporter of automobiles, steel, and electronics. Using the theory of comparative advantage, we can credit this to

A) inefficient resource use
B) abundant natural resources
C) specialization and efficient production
D) trade barriers

Question 77

Oranges are both produced in and imported into the United States. Suppose there had been a tariff on imported oranges, and now it is lifted. Who benefits financially from this move to completely free international trade in oranges?

A) U.S. orange producers
B) U.S. orange workers
C) U.S. orange eaters
D) U.S. government

Question 78

The difference between a tariff and a quota is that

A) a tariff is legal according to the WTO while a quota is not
B) a tariff generates tax revenue for the government while a quota does not
C) a tariff raises the price of the good while a quota does not
D) a tariff results in less output being produced domestically while a quota does not

Question 79

Supporters of tariffs and other trade restrictions believe that "infant industries"

A) include automobiles and clothing
B) must be allowed to fail so other more established industries can succeed
C) should be treated the same as any other industry
D) deserve protection frm foreign competition for a while

Question 80

A disadvantage of increased globalization and free trade is

A) job displacement and loss
B) lower prices for American consumers
C) free movement of capital between countries
D) higher wages for workers