Deck 17: Issues in International Trade and Finance

Question 1

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, the United States has an absolute advantage in

A) beef and an absolute disadvantage in wheat.
B) wheat only.
C) both wheat and beef.
D) neither wheat nor beef.
E) beef only.

Answer 1

wheat only.

Question 2

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, Mexico has an absolute advantage in

A) beef only.
B) neither wheat nor beef.
C) both wheat and beef.
D) wheat only.
E) wheat and an absolute disadvantage in beef.

Answer 2

beef only.

Question 3

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, what is the opportunity cost of 1 pound of beef in the United States?

A) 1/2 bushel of wheat
B) 1/6 bushel of wheat
C) 2 bushels of wheat
D) 6 bushels of wheat
E) 1 bushel of wheat

Answer 3

6 bushels of wheat

Question 4

For purposes of determining comparative advantage, the cost of producing a good in each of two countries is measured in terms of

A) metric units only.
B) opportunity costs.
C) total costs.
D) the currency of the importing country.
E) the currency of the exporting country.

Question 5

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, Mexico has a comparative advantage in

A) beef only.
B) neither wheat nor beef.
C) both wheat and beef.
D) wheat only.
E) beef and an absolute advantage in wheat.

Question 6

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, what is the opportunity cost of 1 pound of beef in Mexico?

A) 1/2 bushel of wheat
B) 6 bushels of wheat
C) 2 bushels of wheat
D) 1 bushel of wheat

Question 7

Trade occurs because it

A) keeps transportation companies, such as airlines and railroads, economically viable.
B) reflects individual consumers' dollar votes in favor of imported rather than domestic goods and services.
C) meets foreign policy goals for governments.
D) justifies the many "trade missions" politicians in most countries take, which are really foreign vacations at their governments' expense.
E) makes people better off.

Question 8

According to the data in Table 17.1, Germany has a comparative advantage in producing

A) machinery.
B) food.
C) both machinery and food.
D) neither machinery nor food.
E) Cannot be determined from the information provided.

Question 9

According to the data in Table 17.1, the United States has a comparative advantage in producing

A) machinery.
B) food.
C) both machinery and food.
D) neither machinery nor food.
E) Cannot be determined with the information provided.

Question 10

Comparative advantage is based on the

A) "gains from trade" concept.
B) idea of economic superiority.
C) absolute opportunity costs of producing goods in different countries.
D) relative opportunity costs of producing any good in one country.
E) relative opportunity costs of producing goods in different countries.

Question 11

Comparative advantage is found by comparing the

A) relative costs of production in each country.
B) absolute costs of production in each country.
C) labor hours used to produce a standardized product in each country.
D) level of interest rates in each country.
E) transportation and shipping capabilities of each country.

Question 12

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, the United States has a comparative advantage in

A) neither wheat nor beef.
B) wheat only.
C) both wheat and beef.
D) beef only.
E) wheat and an absolute advantage in beef.

Question 13

Refer to Table 17.1. In the United States, producing an additional unit of machinery would require shifting ____ hour(s) of labor from food production.

A) 1
B) 2
C) 4
D) 6
E) 10

Question 14

Refer to Table 17.1. Germany's opportunity cost of producing one unit of machinery is ____ unit(s) of food.

A) 1
B) 2
C) 3
D) 4
E) 5

Question 15

According to the data in Table 17.1, Germany has an absolute advantage in producing

A) machinery, but not food.
B) food, but not machinery.
C) both machinery and food.
D) neither machinery nor food.
E) Cannot be determined from the information provided.

Question 16

A country has a comparative advantage when the opportunity cost of producing a good in terms of the

A) monetary value of other forgone goods is lower than that of other countries.
B) monetary value of other forgone goods is greater than that of other countries.
C) forgone output of other goods is higher than that of other countries.
D) forgone output of other goods is lower than that of other countries.
E) forgone output of other goods is equal to that of other countries.

Question 17

A country has an absolute advantage when it can produce a good ____ than other countries can.

A) at a greater monetary cost
B) at a lower monetary cost
C) with fewer hours of labor
D) at a greater input cost
E) at a lower input cost

Question 18

If firms in the United States can produce both airplanes and corn with a lower input cost of production compared to firms in Russia, the United States has

A) an absolute advantage.
B) a selective strategy.
C) a decreasing returns-to-scale industry.
D) an intraindustry advantage.
E) a comparative advantage.

Question 19

According to the data in Table 17.1, the United States has an absolute advantage in producing

A) machinery, but not food.
B) food, but not machinery.
C) neither machinery nor food.
D) food and a comparative advantage in producing machinery.
E) both machinery and food.

Question 20

Comparative advantage is an advantage derived from

A) a country's potential military superiority over another.
B) diplomatic initiatives, not economic theory.
C) a lower absolute input cost of producing a particular good than that of another country.
D) comparing the opportunity costs of production in two countries.
E) a country that exports more than it imports.

Question 21

The Ricardian model of international trade is named after the nineteenth-century English economist who first explained and analyzed the idea of productivity-based comparative advantage. The name of this economist was

A) Ricardo Friedman.
B) Ricardo Marx.
C) Ricardo Maynard Keynes.
D) Ricky Ricardo.
E) David Ricardo.

Question 22

Comparative advantage due to productivity differences between countries is known as the

A) factor abundance model of comparative advantage.
B) human skills model of comparative advantage.
C) Adam Smith model of comparative advantage.
D) Ricardian model of comparative advantage.
E) Obama model of comparative advantage.

Question 23

Workers in industrial countries earn much higher wages than workers in developing countries because of the

A) differing political regimes in developing countries.
B) differing social norms in developing countries.
C) progressive tax structure in developing countries.
D) lower productivity of labor in industrial countries.
E) higher productivity of labor in industrial countries.

Question 24

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, what is the opportunity cost of 1 bushel of wheat in Mexico?

A) 1 pound of beef
B) 1/2 pound of beef
C) 1/6 pound of beef
D) 2 pounds of beef
E) 6 pounds of beef

Question 25

We benefit from trade if we can obtain a good from a foreign country by

A) military force.
B) giving up less than we would have to give up to obtain the good at home.
C) giving up more than we would have to give up to obtain the good at home.
D) diplomatic initiatives.
E) eliminating domestic surpluses of other goods.

Question 26

The standard interpretation of the Ricardian model is that differences in labor productivity among countries are due to

A) different quantities of labor.
B) the amount of skilled labor a country possesses.
C) geographic location.
D) technological differences.
E) different quantities of capital.

Question 27

The comparative advantage in production of a specific good can shift over time from one country to another because

A) goods experience a product life cycle.
B) skilled labor tends to "follow the market."
C) resources, especially natural resources, are eventually used up; therefore, production must shift.
D) capital stocks depreciate, thus shifting production to countries with more modern plants and equipment.
E) of changing international trade agreements.

Question 28

Countries export goods in which they have

A) a tremendous surplus.
B) a comparative advantage.
C) an absolute advantage.
D) national pride.
E) a comparative disadvantage.

Question 29

In recent years, Chinese manufacturers have duplicated or acquired manufacturing technology that meets global standards. Combined with very low-cost labor, these Chinese manufacturers

A) utilized subsidies to create a value quota.
B) have an absolute advantage over international competitors.
C) have created a decreasing returns-to-scale industry.
D) used increasing returns-to-scale to offset tariff restrictions.
E) simulated an intraindustry advantage.

Question 30

Scenario 17.1
The data in the table tell us that both the United States and Mexico produce wheat and beef. The United States can make 6 bushels of wheat or 1 pound of beef in a day. Mexico can make 2 bushels of wheat or 4 pounds of beef in a day.

In the table in Scenario 17.1, what is the opportunity cost of 1 bushel of wheat in the United States?

A) 1/6 pound of beef
B) 1 pound of beef
C) 6 pounds of beef
D) 2 pounds of beef
E) None of these

Question 31

With regard to those goods that can be produced most efficiently with modern technology, the countries with a comparative advantage will be those with the

A) largest stock of natural resources.
B) most favorable trade policies.
C) largest labor force.
D) most advanced technology.
E) strictest adherence to "tried and true" manufacturing processes.

Question 32

Which of the following concepts is irrelevant in making international trade decisions?

A) Absolute advantage
B) Comparative advantage
C) Relative opportunity cost
D) Domestic surpluses and shortages
E) Opportunity costs

Question 33

The basic idea behind the human skills theory of comparative advantage is that countries with a relatively abundant stock of highly skilled labor have

A) high wages and thus suffer a comparative disadvantage.
B) low wages and thus suffer a comparative disadvantage.
C) an absolute advantage in producing goods that require relatively large amounts of skilled labor.
D) a comparative advantage in producing goods that require relatively large amounts of skilled labor.
E) so much productivity relative to other countries that they have a comparative advantage in everything they produce.

Question 34

According to the factor abundance theory of comparative advantage, if a country has a long coastline relative to its area, it has a(n)

A) comparative advantage in producing maritime products such as fish.
B) comparative disadvantage in providing ocean-related tourist services.
C) comparative advantage in producing timber and other land-based natural resources.
D) absolute advantage in providing skilled seafarers to other maritime countries.
E) vested interest in maintaining free and open access to trade routes, especially those routes that end or begin in the country.

Question 35

According to the factor abundance theory of comparative advantage, countries have a comparative advantage in producing those goods that

A) use relatively large amounts of their least abundant factor of production.
B) use relatively large amounts of their most abundant factor of production.
C) use proportionately equal amounts of each factor of production.
D) are in the shortest relative supply.
E) are in the greatest demand.

Question 36

Which of the following statements is false?

A) All nations are interdependent.
B) An understanding of international trade and finance is critical to understanding the domestic economy.
C) When countries trade, everyone gains.
D) Technological differences between countries account for differences in labor productivity.
E) Trade results in countries becoming more dependent on each other.

Question 37

According to the Ricardian model, differences in labor productivity are due to

A) relative shortages of natural resources, such as oil.
B) discrimination in the hiring and training of labor.
C) technological differences among countries.
D) shortages of capital stock, which is reflected in a low capital-to-labor ratio.
E) inefficient and unproductive trade union rules.

Question 38

Which of the following emphasizes that production differences among countries are due to the availability of skilled and unskilled labor?

A) The Ricardian model
B) Preferences
C) The product life cycle theory
D) The factor abundance theory
E) The human skills approach

Question 39

According to the human skills theory of comparative advantage, developing countries would be expected to have a(n)

A) absolute advantage in industries requiring a large amount of unskilled labor.
B) absolute advantage in industries requiring a large amount of skilled labor.
C) comparative advantage in industries requiring a large amount of natural resources.
D) comparative advantage in industries requiring minimal use of entrepreneurial or managerial talent.
E) comparative advantage in industries requiring a relatively large amount of unskilled labor.

Question 40

The oldest theory on the source of comparative advantage is based on

A) factor abundance.
B) productivity differences.
C) product life cycles.
D) preferences.
E) human skills.

Question 41

Developing countries often justify tariffs as an important source of

A) government revenue.
B) national pride and identity.
C) protection for domestic industries.
D) information regarding their foreign trade.
E) additional bureaucratic jobs to administer the tariffs.

Question 42

International trade on the basis of comparative advantage maximizes

A) domestic output and allows consumers access to better-quality products at lower prices than would be available in the domestic market alone.
B) foreign output and allows consumers access to better-quality products at lower prices than would be available in the domestic market alone.
C) world output and allows consumers access to better-quality products at lower prices than would be available in the domestic market alone.
D) world output, but gives consumers access to lower-quality products at higher prices than would be available in the domestic market alone.
E) foreign output and product quality in all markets.

Question 43

Industries that are truly critical to national defense should be protected from foreign competition if

A) the cost of procuring such defense items would otherwise rise.
B) adequate trade agreements with friendly countries cannot be implemented.
C) the military-industrial complex is to thrive.
D) the country's stock of vital human capital would suffer without these defense industries.
E) that is the only way to ensure their existence.

Question 44

Which of the following is the most valid argument for restricting international trade?

A) Government revenue will be reduced.
B) Consumers will benefit at the expense of domestic producers.
C) More jobs can be created abroad in developing countries.
D) Key defense-related industries need to be protected.
E) Protection ensures a level playing field.

Question 45

It is often argued that if foreign goods are kept out of the domestic economy,

A) jobs will be lost at home.
B) jobs will be created abroad.
C) foreign consumers will enjoy product surpluses.
D) jobs will be created at home.
E) foreign consumers will suffer product shortages.

Question 46

Tariffs are a popular tax in developing countries because of the

A) long history of foreign trade in such countries.
B) incidence of the tax, which is paid by exporters but rests on importers.
C) observability of trade flows.
D) strong political message such tariffs send.
E) job creation that ensues because customs agents and inspectors are hired to collect the tariff.

Question 47

The product life cycle theory of comparative advantage predicts that a new product will be first produced and exported by the

A) country that first demanded the new product.
B) first firm to successfully copy the technology.
C) country in which it was invented.
D) countries with the most stable economies and fewest restrictions on foreign trade.
E) company with the most extensive network of international distributors for the product.

Question 48

People who call for the creation of a "level playing field" believe that

A) all workers worldwide should receive the same pay for the same work.
B) product quality should be standardized worldwide.
C) the price paid for any good or service should be the same worldwide when adjusted for currency fluctuations.
D) the domestic government should take steps to offset the perceived advantage of the foreign firm.
E) an official agency such as the World Trade Organization should standardize the quality and price of all products worldwide.

Question 49

The notion of reciprocity means that country A imposes import restrictions on country B's products to

A) stimulate an increase in trade restrictions in country B.
B) stimulate a reduction of trade restrictions in country B.
C) eliminate trade restrictions immediately in both countries.
D) enhance government A's revenue through tariffs.
E) enforce standards of product quality.

Question 50

Governments often find that political pressures favor policies that

A) enhance existing comparative advantages.
B) partially offset existing comparative advantages.
C) complement existing comparative advantages.
D) eliminate existing comparative advantages.
E) create new absolute advantages.

Question 51

The preferences theory of comparative advantage is based on the concept of

A) product standardization and mass marketing.
B) intraindustry competition.
C) product differentiation.
D) international advertising and product positioning.
E) altering supply to meet changing demand conditions.

Question 52

Which of the following statements about international trade restrictions is true?

A) They ensure that only efficient producers survive.
B) They ensure that countries specialize in those products that they can produce most efficiently.
C) In the majority of cases, they harm consumers.
D) They typically benefit foreign producers at the expense of domestic consumers.
E) They ensure that higher-quality goods are provided at lower prices.

Question 53

The "creation of domestic jobs" argument for protection holds that domestic firms will produce the goods that otherwise would have been produced abroad, thus

A) increasing the opportunity cost of producing the good abroad.
B) decreasing the opportunity cost of producing the good abroad.
C) employing domestic workers instead of foreign workers.
D) employing foreign workers instead of domestic workers.
E) achieving full employment in domestic industries.

Question 54

Which of the following looks at the demand side of the market to explain some of the patterns observed in international trade?

A) Preferences
B) The factor abundance theory
C) The product life cycle theory
D) The Ricardian model
E) The human skills approach

Question 55

The protection of domestic workers from the competition of low-wage foreign workers is an argument put forward by

A) those who favor protection for an infant industry.
B) those who favor protection of national defense industries.
C) people who support free trade.
D) advocates of the "level playing field" trade policy.
E) those who support a strategic trade policy.

Question 56

Which of the following may be an explanation for intraindustry trade?

A) The product life cycle theory
B) Preferences
C) The factor abundance theory
D) The Ricardian model
E) The human skills approach

Question 57

Generally speaking, protection from foreign competition benefits

A) both domestic producers and foreign producers.
B) both domestic consumers and foreign consumers.
C) domestic producers and foreign consumers.
D) neither domestic producers nor foreign producers.
E) domestic producers at the expense of domestic consumers.

Question 58

Governments restrict foreign trade to

A) influence international events, such as superpower summit meetings.
B) protect foreign producers from domestic competition.
C) ease burdens on the economy caused by excessive aggregate demand.
D) improve their balance of payments.
E) protect domestic producers from foreign competition.

Question 59

Realistically, international trade is

A) rarely determined solely by comparative advantage and the free market forces of supply and demand.
B) determined solely by the theories of comparative advantage.
C) determined solely by the free market forces of supply and demand.
D) determined by the influence of exchange rates on the balance of payments.
E) determined by foreign trade ministers' negotiations.

Question 60

Government policy aimed at influencing international trade flows is called

A) most-favored-nation status policy.
B) trade embargoes.
C) commercial policy.
D) monetary policy.
E) fiscal policy

Question 61

The United States does not employ export tariffs because

A) the GATT prohibits them.
B) of producer pressures.
C) the U.S. Constitution prohibits them.
D) of consumer pressures.
E) the Smoot-Hawley Tariff Act prohibits them.

Question 62

Strategic trade policy is aimed at offsetting the

A) marketing advantage enjoyed by foreign producers.
B) legal advantages enjoyed by foreign producers.
C) decreasing-cost advantage enjoyed by foreign producers.
D) effects of reciprocal trade agreements.
E) tax advantages enjoyed by foreign producers.

Question 63

Protection of a new industry until it becomes strong enough to compete with foreign producers is based on the argument of

A) national defense.
B) government revenue creation.
C) reciprocity.
D) infant industries.
E) creation of a "level playing field."

Question 64

In 1995, a formal permanent international organization to oversee world trade, the ____, was created.

A) General Agreement on Tariffs and Trade (GATT)
B) U.S. Export-Import Bank
C) International Monetary Fund (IMF)
D) World Trade Organization (WTO)
E) World Bank (WB)

Question 65

A decreasing-cost industry is an industry in which the costs of producing

A) total output fall as more output is produced.
B) total output rise as more output is produced.
C) a unit of output rise as more output is produced.
D) for export markets decrease as imports offset shipping costs.
E) a unit of output falls as more output is produced.

Question 66

Using government tariffs or subsidies to give an advantage to domestic firms in a decreasing-cost industry over foreign rivals is associated with those who

A) believe in free trade.
B) favor protection for infant industries.
C) want to create a "level playing field."
D) support a strategic trade policy.
E) favor protection of national defense industries.

Question 67

If the world price of a good is lower than its domestic equilibrium price, the country

A) imports a quantity of the good equal to the difference between the quantity demanded domestically and the quantity supplied domestically.
B) exports a quantity of the good equal to the difference between the quantity demanded domestically and the quantity supplied domestically.
C) imports a quantity of the good equal to the difference between the quantity demanded domestically and the quantity supplied by foreign producers.
D) imports a quantity of the good equal to the difference between the quantity demanded by foreign consumers and the quantity supplied domestically.
E) imports a quantity of the good equal to the difference between the quantity demanded by foreign consumers and the quantity supplied by foreign producers.

Question 68

Subsidies mean that infant industry firms can charge

A) higher prices while competing with foreign producers.
B) higher prices than foreign producers are able to receive.
C) a price equal to the world price and still earn a profit.
D) a price equal to marginal revenue.
E) the tariff to other customers of the foreign firm.

Question 69

A tariff is a tax on

A) imports only.
B) exports only.
C) domestically produced items only.
D) imports or exports.
E) shipping containers.

Question 70

Decreasing-cost industries tend to

A) stimulate competition in the domestic market.
B) stimulate competition in the foreign market.
C) employ large work forces in the domestic market.
D) concentrate production in the hands of a few very large firms.
E) spread production across many competitive firms.

Question 71

Subsidies are payments made by government to

A) foreign firms to encourage imports.
B) foreign firms to encourage exports.
C) domestic firms to encourage exports.
D) domestic firms to encourage imports.
E) domestic firms to ensure domestic consumption of their goods.

Question 72

The national defense argument could be applied to which of the following industries?

A) Textbooks
B) Shrimp
C) Oil
D) Motorcycles
E) Sugar

Question 73

The Smoot-Hawley Act increased tariffs, which many economists believe

A) contributed to the global war on terror.
B) decreased real income during the Depression.
C) expanded trade deficits experienced by the United States since 2000.
D) was a major policy mistake by the Carter administration.
E) helped balance the budget during the Great Depression.

Question 74

The infamous U.S. trade policy implemented during the Great Depression is known as the

A) Simpson's Act.
B) Carter Global Accountability Act.
C) Smoot-Hawley Tariff Act.
D) Reagan-Feingold Supply Side Tariff Act.
E) Works Project Quota Act.

Question 75

Protection is rarely withdrawn from infant industries because such firms

A) will go bankrupt in the long run without them.
B) need the protection to ensure continued domestic employment.
C) are necessary to ensure a "level playing field."
D) come to wield more political power as they grow larger.
E) are necessary to ensure that important permanent national defense goals are achieved.

Question 76

Commercial policy utilizes all of the following except:

A) Tariffs
B) Quotas
C) Health and safety standards
D) Government procurement
E) Monetary policy

Question 77

Protection of an infant industry should be withdrawn once that industry

A) charges the same price as foreign competitors.
B) goes public on the stock exchange.
C) raises a large amount of sales revenue.
D) achieves sufficient size to compete with foreign firms.
E) earns enough profit as a result of the subsidies to remain in business.

Question 78

The argument of protecting key national defense industries basically states that a country should protect them because

A) these industries will be needed in the event of a war, when international trade is not reliable.
B) these industries create many jobs.
C) military secrets cannot be traded internationally.
D) these industries represent role models for the nation.
E) military workers might not know how to work in other fields if they were to be laid off.

Question 79

What are two of the three main objectives of the World Trade Organization?

A) To help global trade flow as freely as possible and provide an impartial means of settling disputes
B) To help global trade flow as freely as possible and make loans to poor countries that are opening to trade
C) To achieve gradual reductions in trade restrictions and make loans to poor countries that are opening to trade
D) To achieve gradual reductions in trade restrictions and promote World Trade Fairs.
E) To reestablish trust in world trade agreements and provide an impartial means of settling disputes

Question 80

A quantity quota is a limit on the

A) number of foreign workers allowed to work in the country.
B) number of ships, airplanes, or trains allowed to enter the country.
C) amount of low-priced, low-value foreign goods allowed into the country.
D) physical amount of a good that may be imported or exported.
E) monetary value of a good that may be imported or exported.