Deck 5: Free Exchange: Individual and International Trade

Question 1

The process of making the best of our limited resources by doing the things we are best at and hiring other people to do the things we are not particularly good at is called

A) absolute advantage.
B) comparative advantage.
C) specialization.
D) protectionism.

Answer 1

specialization.

Question 2

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. Does either Andrea or Hector have an absolute advantage and if so, in what product?

A) Andrea only has an absolute advantage in producing bracelets.
B) Hector only has an absolute advantage in producing bracelets.
C) Andrea has an absolute advantage in producing both products.
D) Hector only has an absolute advantage in producing tiaras.

Answer 2

Andrea has an absolute advantage in producing both products.

Question 3

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. What is Hector's opportunity cost of producing one tiara?

A) 1/5 of a bracelet
B) 1.5 bracelets
C) 4 bracelets
D) 5 bracelets

Answer 3

5 bracelets

Question 4

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. What is Andrea's opportunity cost of producing one tiara?

A) 1/6 of a bracelet
B) 2/3 of a bracelet
C) 3 bracelets
D) 6 bracelets

Question 5

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. What is Hector's opportunity cost of producing one bracelet?

A) 1/5 of a tiara
B) 1.5 tiaras
C) 5 tiaras
D) 6 tiaras

Question 6

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. What is Andrea's opportunity cost of producing one bracelet?

A) 1/6 of a tiara
B) 2/3 of a tiara
C) 6 tiaras
D) 7.5 tiaras

Question 7

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. Hector has a comparative advantage in the production of

A) bracelets.
B) tiaras.
C) both products.
D) neither product.

Question 8

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. Andrea has a comparative advantage in the production of

A) bracelets.
B) tiaras.
C) both products.
D) neither product.

Question 9

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. Hector should specialize in the production of

A) bracelets.
B) tiaras.
C) both products.
D) neither product.

Question 10

Table 5.1: Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one bracelet and one tiara.

-Refer to Table 5.1. Andrea should specialize in the production of

A) bracelets.
B) tiaras.
C) both products.
D) neither product.

Question 11

The amount Jacqueline receives for selling cupcakes beyond the minimum she would be willing to sell the cupcakes for is called

A) consumer surplus.
B) producer surplus.
C) cooperative surplus.
D) deadweight loss.

Question 12

The sum of all the net benefits received by the parties to a transaction is called

A) consumer surplus.
B) producer surplus.
C) cooperative surplus.
D) deadweight loss.

Question 13

If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a cupcake, and they negotiate a price of $2 for a cupcake, the cooperative surplus is

A) $1.
B) $2.
C) $3.
D) $4.

Question 14

If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a cupcake, the consumer surplus will ________ if the negotiated price is $1.50 as opposed to $2.00.

A) increase
B) decrease
C) not change
D) All of the above are possibilities.

Question 15

If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a cupcake, the producer surplus will ________ if the negotiated price is $1.50 as opposed to $2.00.

A) increase
B) decrease
C) not change
D) All of the above are possibilities.

Question 16

Globalization has given U.S. consumers a wider variety of gourmet food products from which to choose and has lowered the prices of these products in general. This, in turn, has encouraged consumers to buy more gourmet food items, which has ________ the amount of cooperative surplus for the buyers and sellers of gourmet food products.

A) increased
B) decreased
C) not changed
D) reduced to zero

Question 17

If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a cupcake, the cooperative surplus will ________ if the negotiated price is $1.50 as opposed to $2.00.

A) increase
B) decrease
C) not change
D) All of the above are possibilities.

Question 18

If Carla can pick more oranges in one hour than Benjamin, then Carla definitely has a comparative advantage in picking oranges.

Question 19

Producer surplus is the amount a seller receives for a good or service.

Question 20

Consumer surplus is the difference between the maximum amount a buyer is willing to pay for a product and the price he actually pays.

Question 21

For any transaction, the sum of consumer surplus and producer surplus is cooperative surplus.

Question 22

Table 5.2 :
-Refer to Table 5.2. This table shows the number of labor hours required to produce a bicycle and a harmonica in Germany and Sweden.
a. Which country has an absolute advantage in the production of bicycles?
b. Which country has an absolute advantage in the production of harmonicas?
c. What is Germany's opportunity cost of producing one bicycle?
d. What is Sweden's opportunity cost of producing one bicycle?
e. What is Germany's opportunity cost of producing one harmonica?
f. What is Sweden's opportunity cost of producing one harmonica?
g. If each country specializes in the production of the product in which it has a comparative advantage, who should produce bicycles?
h. If each country specializes in the production of the product in which it has a comparative advantage, who should produce harmonicas?

Question 23

Explain the concepts of consumer surplus, producer surplus, and cooperative surplus.

Question 24

What three factors that were critical to economic prosperity did Adam Smith observe, and later publish in The Wealth of Nations?

Question 25

A compulsory payment to government that is generally linked to engaging in some activity is referred to as a

A) tax.
B) subsidy.
C) deadweight loss.
D) quota.

Question 26

If a tax is imposed in a bargaining game, the players' cooperative surplus

A) increases.
B) declines.
C) remains unchanged.
D) increases for one player and decreases for the other.

Question 27

When a government taxes the sale of beer, cooperative surplus ________ and society gets ________.

A) increases; richer
B) increases; poorer
C) decreases; richer
D) decreases; poorer

Question 28

Sammy has a drone that he values at $1,500. Dean values the same drone at $2,000. Sammy decides to sell the drone to Dean for $1,800. What is the total cooperative surplus gained as a result of this trade?

A) $0
B) $200
C) $300
D) $500

Question 29

Sammy has a drone that he values at $1,500. Dean values the same drone at $2,000. Sammy decides to sell the drone to Dean for $1,800. If the government imposes a $250 tax on the sale of drones,

A) Sammy and Dean would not be able to complete the transaction.
B) Sammy and Dean would still be able to complete the transaction.
C) the tax would cause a deadweight loss of $500.
D) Both A and C are correct.

Question 30

Sammy has a drone that he values at $1,500. Dean values the same drone at $2,000. Sammy decides to sell the drone to Dean for $1,800. If the government imposes a $350 tax on the sale of drones,

A) Sammy and Dean would not be able to complete the transaction.
B) Sammy and Dean would still be able to complete the transaction.
C) the tax would cause a deadweight loss of $500.
D) Both A and C are correct.

Question 31

Surplus value that is lost because something is keeping the market from functioning as well as it can is called

A) a tax.
B) a subsidy.
C) rent seeking.
D) deadweight loss.

Question 32

Attempts to influence the law for your own private economic advantage is called

A) tax imposition.
B) subsidizing.
C) rent seeking.
D) creating a deadweight loss.

Question 33

If rent-seeking behavior reduces competition in a market, cooperative surplus in that market will

A) increase.
B) decrease.
C) remain unchanged.
D) All of the above are equally likely to occur.

Question 34

A market where goods are sold in violation of governmentally-imposed restrictions is a(n)

A) black market.
B) export market.
C) rent-seeking market.
D) deadweight market.

Question 35

If black markets help people meet their needs, they will tend to ________ created by the restrictive government policies.

A) increase the absolute advantage
B) reduce the deadweight losses
C) reduce the cooperative surpluses
D) increase the tax revenues

Question 36

A payment that a person receives from the government for engaging in a particular activity is called a

A) bribe.
B) subsidy.
C) consumer surplus.
D) tariff.

Question 37

When a government subsidizes the sale of milk, cooperative surplus ________ and society gets ________.

A) increases; richer
B) increases; poorer
C) decreases; richer
D) decreases; poorer

Question 38

Sammy has a drone that he values at $1,500. Dean values the same drone at $2,000. Sammy decides to sell the drone to Dean for $1,800. The government offers a subsidy of $800 to the buyers of drones. Producer surplus is ________ and consumer surplus is ________.

A) $300; $200
B) $300; $1,000
C) $1,100; $800
D) $1,100; $600

Question 39

Sammy has a drone that he values at $1,500. Dean values the same drone at $2,000. Sammy decides to sell the drone to Dean for $1,800. The government offers a subsidy of $800 to the buyers of drones. When the gains and losses to all parties are netted out, cooperative surplus for Sammy and Dean will be ________ it would have been without the subsidy, and the subsidy ________ produce additional wealth.

A) greater than; would not
B) the same as; would not
C) greater than; would
D) less than; would not

Question 40

Sammy has a drone that he values at $1,500. Frank values the same drone at $1,000. The government offers a subsidy of $800 to the buyers of drones, and Sammy and Frank agree on a price of $1,600. Producer surplus is ________ and consumer surplus is ________.

A) $100; $200
B) $700; $600
C) $200; $1,400
D) $300; $100

Question 41

Sammy has a drone that he values at $1,500. Frank values the same drone at $1,000. The government offers a subsidy of $800 to the buyers of drones, and Sammy and Frank agree on a price of $1,600. The cooperative surplus for Sammy and Dean will be

A) $200.
B) $300.
C) $600.
D) $800.

Question 42

Sammy has a drone that he values at $1,500. Frank values the same drone at $1,000. The government offers a subsidy of $800 to the buyers of drones, and Sammy and Frank agree on a price of $1,600. The subsidy creates a deadweight loss of

A) $0
B) $200
C) $500.
D) $800.

Question 43

Taxes can adversely affect free exchange.

Question 44

A deadweight loss occurs when the market is functioning efficiently.

Question 45

Rent seeking refers to the asking prices for goods and services being sold on the black market.

Question 46

Black market transactions generally increase the deadweight losses created by restrictive government policies.

Question 47

A subsidy is a negative tax.

Question 48

Sanjay has an ATV that he values at $3,000. Marilu is looking for a similar ATV but will only pay up to $2,400. Will trade between these two occur? Is there a policy government could implement that would encourage a trade to occur between Sanjay and Marilu? If so, what is that policy and will the policy make society richer?

Question 49

Explain which of the following government policies would tend to make more sense in terms of consumer protection: The licensure of interior designers or the licensure of pharmacists.

Question 50

In 2014, tire industry lobbyists pressured the United States government to consider imposing an additional tariff of up to 86% on top of the current 4% tariff on imported Chinese-made tires. This type of behavior where industry lobbyists attempt to influence law for their own economic advantage is called

A) deadweight protection.
B) blackmail.
C) quota manipulation.
D) rent seeking.

Question 51

In 2014, tire industry lobbyists pressured the United States government to consider imposing an additional tariff of up to 86% on top of the current 4% tariff on imported Chinese-made tires. The loss that is associated with fewer transactions occurring because of the tariff is called

A) deadweight loss.
B) opportunity loss.
C) lost rent.
D) a subsidized loss.

Question 52

When a government imposes a tariff on imported beer, cooperative surplus ________ and society gets ________.

A) increases; richer
B) increases; poorer
C) decreases; richer
D) decreases; poorer

Question 53

Surplus value that is lost due to taxes imposed on imported goods which are keeping the market from functioning as well as it can is called

A) the loss of subsidy.
B) the net export deficit.
C) rent seeking loss.
D) the deadweight loss of a tariff.

Question 54

An American farmer sells produce to an individual living in Bermuda. To Americans, the produce is a(n)

A) import.
B) export.
C) quota.
D) tariff.

Question 55

An American farmer buys an irrigation system from a Norwegian irrigation company based in Oslo. To Americans, the irrigation system is a(n)

A) import.
B) export.
C) quota.
D) tariff.

Question 56

Ultimately, tariffs ________ prices for imported goods and ________ prices for domestic goods.

A) raise; raise
B) raise; lower
C) raise; do not affect
D) do not affect; do not affect

Question 57

Ultimately, tariffs ________ the ability of foreign countries to buy the domestic country's exports and therefore ________ wealth.

A) increase; create
B) increase; destroy
C) reduce; create
D) reduce; destroy

Question 58

To assist pineapple growers in Hawaii, the U.S. government decides to limit the number of pineapples allowed into the country that are grown in Central American countries. Such a restriction is called a(n)

A) import.
B) export.
C) quota.
D) tariff.

Question 59

To assist pineapple growers in Hawaii, the U.S. government decides to limit the number of pineapples allowed into the country that are grown in Central American countries. Such a restriction prevents many transactions from occurring, and results in opportunity loss which is called a(n)

A) import deficit.
B) deadweight loss of a quota.
C) rent seeking loss.
D) non-cooperative surplus.

Question 60

Ultimately, quotas ________ prices for imported goods and ________ prices for domestic goods.

A) raise; raise
B) raise; lower
C) raise; do not affect
D) do not affect; do not affect

Question 61

Ultimately, quotas ________ the ability of foreign countries to buy the domestic country's exports and therefore ________ wealth.

A) increase; create
B) increase; destroy
C) reduce; create
D) reduce; destroy

Question 62

Even when transactions are facilitated with money, imports are paid for by exports.

Question 63

Tariffs create deadweight losses and destroy wealth, whereas quotas increase cooperative surplus and create wealth.

Question 64

The World Trade Organization (WTO) is an international organization dedicated to erecting trade barriers between nations.

Question 65

Explain the difference between a tariff and a quota. What impact do tariffs and quotas have on the prices of domestic and imported goods?

Question 66

Products produced domestically and sold in foreign countries are called ________, and products produced in foreign countries and sold domestically are called ________.

Question 67

What is the "chicken tax"and why did it come into existence?