Deck 17: International Trade: Beneficial, but Controversial

Question 1

Wages in the United States are high because worker productivity is high.

Answer 1

True

Question 2

Tariffs decrease society's welfare because resources are directed into industries that have a comparative disadvantage.

Answer 2

True

Question 3

Consumer surplus increases as a result of imports.

Answer 3

True

Question 4

A quota restricts the quantity of imports that may enter a country.

Question 5

Producer surplus increases as a result of imports.

Question 6

Free trade results in increased competition that forces domestic producers to charge lower prices.

Question 7

Like tariffs, quotas generate revenues for the federal government.

Question 8

Under a voluntary export restraint (VER), exporting nations agree to limit the amounts of a good they ship to importing nations.

Question 9

Suppose the opportunity cost of producing wheat is higher in the United States than in Brazil. This means that the United States should import wheat from Brazil.

Question 10

If a country can produce a good with fewer resources, it has a comparative advantage in production.

Question 11

The WTO uses a regional approach to lowering trade barriers.

Question 12

For the United States, exports typically exceed imports.

Question 13

A country has an absolute advantage if it can produce a good at a lower opportunity cost than its trading partner.

Question 14

Tariffs benefit all of society.

Question 15

Trade restrictions can increase the number of jobs available in the economy by maintaining jobs in the import sector.

Question 16

Net gains from international trade are positive.

Question 17

Free trade causes average costs to increase as industries expand output.

Question 18

David Ricardo, a famous English economist, developed the concept of comparative advantage.

Question 19

Prices tend to be higher under tariffs than under quotas.

Question 20

Trade between two countries is based on comparative advantage.

Question 21

Which economist developed the idea of comparative advantage:

A) John M. Keynes
B) David Ricardo
C) Adam Smith
D) Alfred Marshall

Question 22

Given that the import price of a commodity is lower than the equilibrium domestic price, international trade:

A) would not be beneficial to the society.
B) would not be beneficial to the consumers.
C) would be beneficial to the domestic producers.
D) would be beneficial to the society.

Question 23

Arguments in support of protectionist measures include which of the following?

A) decreasing cost argument.
B) increased competitiveness argument.
C) increased diversity argument.
D) cheap foreign labor argument.

Question 24

According to economists, trade is based on:

A) related advantage.
B) positive advantage.
C) absolute advantage.
D) comparative advantage.

Question 25

A country has an absolute advantage if:

A) it can produce a commodity at a lower opportunity cost than its trading partner.
B) it can produce more of a good or service with the same inputs as its trading partner.
C) it can produce a commodity at a lower average cost than its neighbor.
D) labor costs are, on average, less than the trading partner's labor costs.

Question 26

In international trade based on the principle of comparative advantage:

A) only the partner with an absolute advantage is better off after the trade.
B) both trading partners are better off after the trade.
C) only one trading partner with a comparative advantage is better off after the trade.
D) neither trading partner is better off after the trade.

Question 27

Environmentalists have generally been pleased with rulings by the WTO against the policies of the United States.

Question 28

An upper limit on the amount of goods that may be imported during any time period is knows a (an):

A) quota.
B) export tax.
C) tariff.
D) poll tax.

Question 29

Which of the following statements is correct?

A) Since World War II, barriers to international trade have increased significantly.
B) The WTO uses a regional approach to lowering trade barriers.
C) The European Union has eliminated trade barriers between the United States and member European nations.
D) NAFTA created a free-trade area for the United States, Canada, and Mexico.

Question 30

The main trading partner of the United States is:

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

Question 31

Agreements whereby exporting nations limit the amounts of goods that they ship to importing nations are known as:

A) a negotiated tariff.
B) a quota.
C) a voluntary export restraint.
D) a limiting restraint.

Question 32

A country has a comparative advantage if:

A) it can produce a commodity at a lower opportunity cost than its trading partner.
B) it can produce more of a good or service with the same inputs as its trading partner.
C) it can produce a commodity at a lower average cost than its neighbor.
D) labor costs are, on average, less than the trading partner's labor costs.

Question 33

Measured as a percentage of GDP, U.S. exports are much less important than in many other countries.

Question 34

Which of the following might be used to justify increased trade restrictions?

A) Industry XYZ can compete with foreign firms even though it pays its workers a much higher wage because labor at XYZ is highly productive.
B) It is not vital to national security that Industry ABC is protected.
C) The New Industry should be protected until it matures.
D) All of the above are used as justifications to increase trade restrictions.

Question 35

In the future, economists expect multilateral trade negotiations to become even more complex and time consuming than they already are.

Question 36

A tax levied upon a good when it crosses a nation's border is known as a (an):

A) quota.
B) export tax.
C) tariff.
D) poll tax.

Question 37

Which of the following is used to support free trade?

A) Free trade can increase competition and thereby lower monopoly power that may exist in a nation.
B) Free trade may cause total production costs to rise.
C) Free trade limits diversity, thereby causing employees to work harder to achieve their goals.
D) Free trade can increase unemployment, thereby lowering wages as workers compete for a limited number of jobs.

Question 38

Which of the following arguments is sometimes used in support of free trade?

A) Free trade allows firms to increase output and take advantage of lower average production costs.
B) Free trade can decrease the competition faced by domestic producers.
C) Free trade can decrease the diversity of products available to consumers.
D) Free trade is necessary to national security.

Question 39

Which of the following is used as a case for protectionism?

A) Protection from free trade will allow firms to expand output and thereby lower cost.
B) Protection from free trade will allow firms to develop monopoly power and thereby earn higher profits.
C) Protection from free trade will increase domestic competition.
D) Protection from free trade will save American jobs.

Question 40

Suppose that high wages in the United States resulted in an absolute disadvantage in the production of all goods. This would mean that:

A) trade, based on comparative advantage, could still be beneficial to the economy.
B) the high price of domestic output would stifle other countries' willingness to trade with the United States.
C) trade restrictions in the form of voluntary export restraints would be beneficial to the economy.
D) government should impose a price ceiling on wages in order to control costs and make domestic goods competitive on world markets.

Question 41

A tariff is placed on cloth imported from Thailand. The most likely effect of the tariff will be to:

A) increase the price domestic producers receive for cloth.
B) increase the quantity of cloth bought by domestic buyers.
C) decrease the price domestic producers receive for cloth.
D) increase the quantity of cloth imported into the country.

Question 42

Use the following information to answer the following questions.

Refer to Steaks. Pure Water Country's opportunity cost of producing an additional steak is:

A) 3 beers.
B) 1 beer.
C) 1/3 beer.
D) 1/4 beer.

Question 43

Which statement is correct?

A) Society, in general, is better off because of quotas.
B) Free, unrestricted international trade is common.
C) Most countries, including the United States, impose barriers to international trade.
D) Quotas shift resources to industries that have a comparative advantage.

Question 44

Use the following information to answer the following questions.

Refer to Steaks. Pure Water Country's opportunity cost of producing an additional beer is:

A) 3 steaks.
B) 1 steak.
C) 1/3 steak.
D) 1/4 steak.

Question 45

Use the following information to answer the following questions.

Refer to Steaks. Big Sky Country's opportunity cost of producing an additional steak is:

A) 4 beers.
B) 2 beers.
C) 1/2 beers.
D) 1/4 beer.

Question 46

Use the following graph to answer the following questions.

A worker in France can produce 8 bottles of wine or 2 apples. A worker in Spain can produce 3 bottles of wine or 3 apples. France has the comparative advantage in:

A) apples
B) wine.
C) both goods.
D) neither good.

Question 47

Use the following graph to answer the following questions.

Refer to Cloth. Given that the domestic equilibrium U.S. price of cloth is Pb and the U.K. price is Pₐ, trade will increase the net gain of consumers by area:

A) B+D
B) B
C) A+B
D) A+B+D

Question 48

Which is not an argument for restricting trade?

A) Infant industries need to be protected.
B) Industries important to our national security need to be protected.
C) Restrictions will save American jobs.
D) Restrictions help increase competition.

Question 49

Use the following information to answer the following questions.

Refer to Steaks. Big Sky Country has a (an):

A) absolute advantage in the production of steaks.
B) absolute advantage in the production of beer.
C) comparative advantage in the production of both steaks and beer.
D) comparative disadvantage in the production of both steaks and beer.

Question 50

Use the following information to answer the following questions.

Refer to Steaks. Based on the above information, Pure Water Country should:

A) specialize in the production of steak.
B) specialize in the production of beer.
C) produce both goods for its own consumption because Pure Water will be unwilling to trade because it produces both goods more efficiently.
D) produce some of both goods to trade because it produces both goods more efficiently than Pure Water.

Question 51

Use the following graph to answer the following questions.

Refer to Cloth. Given that the domestic equilibrium U.S. price of cloth is Pb and the U.K. price is Pₐ, the net social gain from trade is represented by area:

A) D
B) B+D
C) A+B
D) A+B+D

Question 52

Use the following graph to answer the following questions.

Refer to Cloth. Given that the domestic equilibrium U.S. price of cloth is Pb and the U.K. price is Pₐ, trade will reduce the net gain of producer by area:

A) B+D
B) B
C) A+B
D) A+B+D

Question 53

Use the following information to answer the following questions.

Refer to Steaks. Pure Water Country has a (an):

A) absolute advantage in the production of steaks.
B) absolute advantage in the production of beer.
C) comparative advantage in the production of both steaks and beer.
D) comparative disadvantage in the production of both steaks and beer.

Question 54

Use the following information to answer the following questions.

Refer to Steaks. Based on the above information, Big Sky Country should:

A) specialize in the production of steak.
B) specialize in the production of beer.
C) produce both goods for its own consumption because Pure Water will be unwilling to trade because it produces both goods more efficiently.
D) produce some of both goods to trade because it produces both goods more efficiently than Pure Water.

Question 55

Industries that use the infant industry argument often claim that:

A) the protection is only needed on a temporary basis.
B) they will use the time during which they are protected to modernize and become more competitive.
C) industries already established in other countries have a comparative advantage.
D) All of the above.

Question 56

Suppose a tariff on cars imported into the United States is eliminated. This will result in:

A) an increase in government revenues.
B) a decrease in the price paid by domestic buyers.
C) a decrease in the number of cars imported into the country.
D) an increase in the price received by domestic producers.

Question 57

France can produce 2 bicycles or 6 units of wine. Italy can produce 1 bicycles or 6 units of wine. France is said to have:

A) a comparative advantage in the production of bicycles.
B) a comparative disadvantage in the production of bicycles.
C) an absolute advantage in the production of wine.
D) an absolute disadvantage in the production of bicycles.

Question 58

Which statement is False?

A) Tariffs and quotas are valuable tools in helping to maintain full employment.
B) Imports can cause unemployment in import-competing industries.
C) Over time, some industries lose their comparative advantage and become vulnerable to foreign competition.
D) Government may need to help some workers who lose their jobs due to international trade upgrade their skills.

Question 59

Use the following information to answer the following questions.

Refer to Steaks. Big Sky Country's opportunity cost of producing an additional beer is:

A) 4 steaks.
B) 2 steaks.
C) 1/2 steak.
D) 1/4 steak.

Question 60

Why are environmental groups critical of the World Trade Organization (WTO)?

A) The WTO sided in favor of trade restrictions imposed by the United States.
B) The WTO appears to participate in a conspiracy against the United States.
C) The WTO appears to participate in a conspiracy against third-world nations.
D) The WTO ruled against a U.S. embargo on tuna caught by foreign fishing fleets.

Question 61

Which barrier to international trade provides revenue to the federal government?

A) a quota
B) a tariff
C) a voluntary export restraint
D) all of the above

Question 62

The U.S. government has agreed with the Rubber Thread Industry of America that a 15% tax should be levied on all rubber thread that enters the United States from foreign countries. This is an example of a:

A) quota.
B) tariff.
C) voluntary export restraint.
D) global approach to international trade agreements.

Question 63

Which statement about the commercial aircraft industry is False?

A) The industry would prefer to limit its sales to the United States.
B) By producing in the international market, this industry lowers its average costs and prices.
C) Producing in an international market allows this industry to produce more.
D) The industry would prefer to sell both internationally and domestically.

Question 64

If a quota is in place, what will happen to the price of rubber thread if there is a large increase in demand for spandex clothing (a major user of rubber thread)?

A) Quantity will be limited, but price will not be affected.
B) Price will increase, but as it does so, the quantity imported will also increase. This will limit the price increase somewhat.
C) Because of the quantity restriction, the increased demand will cause prices to increase.
D) The impact on prices is not clear.

Question 65

The United States and Canada reach an agreement under which Canada volunteers to limit the number of automobile parts shipped to the U.S. This is an example of:

A) a negotiated tariff.
B) a quota.
C) a voluntary export restraint.
D) a limiting restraint.

Question 66

Which is true about wages in America?

A) Wages in the U.S. are no higher than in most foreign countries.
B) Wages in the U.S. are high because productivity is high.
C) Wages in the U.S. are high; therefore, U.S. firms must be operating with high costs.
D) High wages in the U.S. would mean that it would not be advantageous to the U.S. to trade with other nations.

Question 67

Suppose a quota on electronic imports from Germany is lifted. This will result in:

A) a decrease in government revenues.
B) a decrease in the price paid by domestic buyers.
C) a decrease in the quantity of electronic equipment imported into the country.
D) an increase in the price received by domestic producers.

Question 68

Suppose the country of Oz has only one firm producing bicycles. In this instance:

A) lowering trade restrictions can result in increased competition for the firm and, hence, lower prices.
B) consumers will pay a lower price for the product because it is produced under monopoly conditions.
C) government will be forced to break up the firm in order to eliminate the monopoly and encourage competition in the economy.
D) Both b and c

Question 69

Which is not a provision of the North American Free Trade Agreement?

A) Trade barriers with nonmember nations will be phased out within 25 years.
B) It is an agreement between Canada, the United States and Mexico.
C) Tariffs between the three nations will be eliminated within 15 years.
D) Members countries will open investment opportunities to other members.

Question 70

Why would Japan agree to voluntarily limit the number of automobiles it shipped to the U.S.?

A) They feared military action by the United States.
B) They feared that even more stringent import restrictions might be imposed if they did not agree.
C) GATT agreed that they should do so.
D) Japanese auto firms put pressure on their government to abide by the voluntary restriction.

Question 71

"If a country has an absolute advantage in the production of all goods, this means there is no reason for it to trade with other countries." Explain why this statement is incorrect.

Question 72

Which of the following is incorrect about the World Trade Organization (WTO)?

A) Evidence seems to indicate that the WTO is involved in a conspiracy against the United States.
B) Under the agreement, many tariffs and other barriers will be reduced or eliminated.
C) The WTO was formed as a successor to the GATT.
D) The WTO monitors trade among numerous countries.

Question 73

Congressperson Smith argues that tariffs must be passed because American labor cannot compete with cheap foreign labor. This is an example of:

A) the national defense argument.
B) the infant industry argument.
C) the save American jobs argument.
D) the cheap foreign labor argument.

Question 74

Which of the following is an example of trade negotiation on a global level?

A) The European Union
B) World Trade Organization
C) North American Free Trade Agreement
D) all of the above

Question 75

Suppose protectionist measures are passed in attempts to save jobs in the automobile industry. The most likely result of this action will be to:

A) decrease the overall unemployment rate.
B) increase household income in the economy because more people will now have jobs.
C) increase employment in the automobile industry, but decrease employment in other industries.
D) The overall effect cannot be determined as some individuals will benefit from the policy while others will be harmed by it.

Question 76

Some individuals believe that trade agreements should also contain linkages to negotiations relating to:

A) wages in less developed countries.
B) working conditions in less developed countries.
C) environmental standards.
D) all of the above

Question 77

Congressperson Jones argues that tariffs must be passed to protect the aviation industry because this industry is necessary to national defense. This is an example of:

A) the national defense argument.
B) the infant industry argument.
C) the save American jobs argument.
D) the cheap foreign labor argument.

Question 78

If Billington Company could increase production, its average cost of production would fall. Because domestic demand is so small, Billington is unable to take advantage of this opportunity. In this instance, free trade could:

A) allow Billington to increase its production and sell the additional output abroad; however, its profits will fall as a result of this action because this output will have to be sold at a lower price.
B) allow Billington to increase its production because it could sell the additional output abroad. This increased production should increase Billington's profits.
C) help the consumer because output will be sold at a lower price, but harm the producer because profits will fall.
D) harm the consumer because as output increases, Billington will charge a higher price.

Question 79

International trade increases the diversity of products that we have available. Which of the following products would be very difficult for us to purchase if there was no international trade?

A) tobacco
B) milk
C) silk
D) wheat

Question 80

Suppose the U.S. demand for Japanese cars increases. Which of the following would most likely result in the greatest increase in price?

A) tariff.
B) quota.
C) export tax.
D) voluntary import restraint.