Deck 26: International Trade

Question 1

In recent years, the United States has

A) exported more services abroad than it has imported.
B) had a small goods trade surplus with Japan.
C) had a large goods trade surplus with the rest of the world.
D) maintained an overall trade surplus (goods and services combined) with the rest of the world.

Answer 1

exported more services abroad than it has imported.

Question 2

The accompanying tables give production possibilities data for Gamma and Sigma. All data are in tons. Gamma's production possibilities
$\begin{array}{c|c|c|c|c|c} & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Tea } & 120 & 90 & 60 & 30 & 0 \\\hline \text { Pots } & 0 & 30 & 60 & 90 & 120 \\\hline\end{array}$ Sigma's production possibilities
$\begin{array}{c|c|c|c|c|c} & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Tea } & 40 & 30 & 20 & 10 & 0 \\\hline \text { Pots } & 0 & 30 & 60 & 90 & 120 \\\hline\end{array}$ Assume that before specialization and trade, Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be

A) 40 tons of pots.
B) 20 tons of tea and 20 tons of pots.
C) 20 tons of tea.
D) 40 tons of tea.

Answer 2

40 tons of tea.

Question 3

U.S. exports of goods and services (on a national income account basis) are about

A) 20 percent of U.S. GDP.
B) 8 percent of U.S. GDP.
C) 28 percent of U.S. GDP.
D) 13 percent of U.S. GDP.

Answer 3

13 percent of U.S. GDP.

Question 4

In terms of absolute dollar volume, the top 3 leaders in world exports are

A) Japan, China, and the European Union.
B) the United States, England, and Canada.
C) Germany, England, and the United States.
D) China, the United States, and Germany.

Question 5

In 2015, the United States

A) imported more services than it exported.
B) imported more goods than it exported.
C) traded mainly with developing nations such as Mexico and India.
D) had a small trade surplus in goods and services.

Question 6

The accompanying tables give production possibilities data for Gamma and Sigma. All data are in tons. Gamma's production possibilities
$\begin{array}{c|c|c|c|c|c} & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Tea } & 120 & 90 & 60 & 30 & 0 \\\hline \text { Pots } & 0 & 30 & 60 & 90 & 120 \\\hline\end{array}$ Sigma's production possibilities
$\begin{array}{c|c|c|c|c|c} & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Tea } & 40 & 30 & 20 & 10 & 0 \\\hline \text { Pots } & 0 & 30 & 60 & 90 & 120 \\\hline\end{array}$ On the basis of this information,

A) Gamma should export both tea and pots to Sigma.
B) Sigma should export tea to Gamma, and Gamma should export pots to Sigma.
C) Gamma should export tea to Sigma, and Sigma should export pots to Gamma.
D) Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

Question 7

Which of the following is an example of a labor-intensive commodity?

A) digital cameras
B) beer
C) aspirin tablets
D) gasoline

Question 8

Answer the question on the basis of the accompanying production possibilities tables for two countries, Latalia and Trombonia. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Latalia's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 4 & 3 & 2 & 1 & 0 \\\hline \text { Beans (Tons) } & 0 & 5 & 10 & 15 & 20 \\\hline\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Trombonia's production }$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { possibilities }$
$\begin{array}{c|c|c|c|c|c}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 8 & 6 & 4 & 2 & 0 \\\hline \text { Beans (Tons) } & 0 & 6 & 12 & 18 & 24 \\\hline\end{array}$ The given data indicate that production in

A) both Latalia and Trombonia is subject to constant opportunity costs.
B) Trombonia is subject to decreasing costs, but production in Latalia occurs under increasing opportunity costs.
C) Latalia is subject to increasing costs, but production in Trombonia occurs under constant opportunity costs.
D) both Latalia and Trombonia are subject to the law of increasing opportunity costs.

Question 9

The United States' most important trading partner quantitatively is

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

Question 10

Differences in production efficiencies among nations in producing a particular good result from

A) different endowments of fertile soil.
B) different amounts of skilled labor.
C) different levels of technological knowledge.
D) all of these.

Question 11

The accompanying tables give production possibilities data for Gamma and Sigma. All data are in tons. Gamma's production possibilities
$\begin{array}{c|c|c|c|c|c} & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Tea } & 120 & 90 & 60 & 30 & 0 \\\hline \text { Pots } & 0 & 30 & 60 & 90 & 120 \\\hline\end{array}$ Sigma's production possibilities
$\begin{array}{c|c|c|c|c|c} & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Tea } & 40 & 30 & 20 & 10 & 0 \\\hline \text { Pots } & 0 & 30 & 60 & 90 & 120 \\\hline\end{array}$ What are the limits of the terms of trade between Gamma and Sigma?

A) 1 tea = 2 pots to 1 tea = 6 pots
B) 1 tea = 3 pots to 1 tea = 6 pots
C) 1 tea = 2 pots to 1 tea = 3.5 pots
D) 1 tea = 1 pot to 1 tea = 3 pots

Question 12

Countries engaged in international trade specialize in production based on

A) relative levels of GDP.
B) comparative advantage.
C) relative exchange rates.
D) relative inflation rates.

Question 13

The terms of trade reflect the

A) rate at which gold exchanges internationally for any domestic currency.
B) ratio at which nations will exchange two goods.
C) fact that the gains from trade will be equally divided.
D) cost conditions embodied in a single country's production possibilities curve.

Question 14

As a percentage of GDP, U.S. exports are

A) greater than U.S. imports.
B) about 20 percent.
C) considerably lower than in several other industrially advanced nations.
D) higher than in Canada but lower than in Germany.

Question 15

In order for mutually beneficial trade to occur between two otherwise isolated nations,

A) each nation must be able to produce at least one good absolutely cheaper than the other.
B) each nation must be able to produce at least one good relatively cheaper than the other.
C) each nation must face constant costs in the production of the good it exports.
D) one nation's production must be labor-intensive, while the other nation's production is capital-intensive.

Question 16

Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that

A) the terms of trade will be 3X equals 1Y.
B) Alpha should specialize in Y and Beta in X.
C) Alpha should specialize in X and Beta in Y.
D) there is no basis for mutually beneficial specialization and trade.

Question 17

Which of the following is an example of a land-intensive commodity?

A) chemicals
B) autos
C) watches
D) wool

Question 18

Which of the following statements is false?

A) In recent years, the United States has had large annual trade deficits in goods and services.
B) The United States imports some of the same categories of goods as it exports.
C) China has the largest share of world exports.
D) As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

Question 19

Which country has the largest share of total world exports?

A) Japan
B) Germany
C) United States
D) China

Question 20

Which of the following is an example of a capital-intensive commodity?

A) clothing
B) wool
C) sunflower seeds
D) chemicals

Question 21

The primary gain from international trade is

A) increased employment in the domestic export sector.
B) more goods than would be attainable through domestic production alone.
C) tariff revenue.
D) increased employment in the domestic import sector.

Question 22

The tables give production possibilities data for two countries, Alpha and Beta, which have populations of equal size. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Alpha's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Fish (Tons) } & 80 & 60 & 40 & 20 & 0 \\\hline \text { Chips (Tons) } & 0 & 5 & 10 & 15 & 20 \\\hline\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Beta's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|} \hline& \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Fish (Tons) } & 240 & 180 & 120 & 60 & 0 \\\hline \text { Chips (Tons) } & 0 & 10 & 20 & 30 & 40\\\hline\end{array}$ Assume the production possibilities in Beta double at alternatives A through E, while remaining as shown in the table for Alpha. As a result, Beta should

A) continue to specialize in producing chips.
B) continue to specialize in fishing.
C) no longer specialize and trade.
D) specialize both in fishing and in producing chips and sell the surplus to Alpha.

Question 23

The tables give production possibilities data for two countries, Alpha and Beta, which have populations of equal size. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Alpha's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Fish (Tons) } & 80 & 60 & 40 & 20 & 0 \\\hline \text { Chips (Tons) } & 0 & 5 & 10 & 15 & 20 \\\hline\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Beta's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|} \hline& \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Fish (Tons) } & 240 & 180 & 120 & 60 & 0 \\\hline \text { Chips (Tons) } & 0 & 10 & 20 & 30 & 40\\\hline\end{array}$ The domestic opportunity cost of

A) producing a ton of chips in Alpha is 1/5 of a ton of fish.
B) producing a ton of chips in Beta is 6 tons of fish.
C) catching a ton of fish in Alpha is 5 tons of chips.
D) catching a ton of fish in Beta is 6 tons of chips.

Question 24

Answer the question on the basis of the accompanying production possibilities tables for two countries, Latalia and Trombonia. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Latalia's production possibilities }$
$\begin{array}{c|c|c|c|c|c} & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 4 & 3 & 2 & 1 & 0 \\\hline \text { Beans (Tons) } & 0 & 5 & 10 & 15 & 20\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Trombonia's production }$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { possibilities }$
$\begin{array}{c|c|c|c|c|c}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 8 & 6 & 4 & 2 & 0 \\\hline \text { Beans (Tons) } & 0 & 6 & 12 & 18 & 24 \\\hline\end{array}$ Which of the following would be feasible terms for trade between Latalia and Trombonia?

A) 1 ton of beans for 1 ton of pork
B) 2 tons of beans for 1 ton of pork
C) 6 tons of beans for 1 ton of pork
D) 4 tons of beans for 1 ton of pork

Question 25

The tables give production possibilities data for two countries, Alpha and Beta, which have populations of equal size. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Alpha's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Fish (Tons) } & 80 & 60 & 40 & 20 & 0 \\\hline \text { Chips (Tons) } & 0 & 5 & 10 & 15 & 20 \\\hline\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Beta's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|} \hline& \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Fish (Tons) } & 240 & 180 & 120 & 60 & 0 \\\hline \text { Chips (Tons) } & 0 & 10 & 20 & 30 & 40\\\hline\end{array}$ The given data show that

A) Beta has a comparative advantage in producing chips.
B) Alpha has a comparative advantage in catching fish.
C) Alpha is subject to constant costs and Beta is subject to increasing costs.
D) Beta is more efficient than Alpha both in catching fish and in producing chips.

Question 26

In the theory of comparative advantage, a good should be produced in that nation where

A) the production possibilities line lies further to the right than the trading possibilities line.
B) its cost is least in terms of alternative goods that might otherwise be produced.
C) its absolute cost in terms of real resources used is least.
D) its absolute money cost of production is least.

Question 27

The law of increasing opportunity costs

A) applies to land-intensive commodities but not to labor-intensive or capital-intensive commodities.
B) results in straight-line production possibilities curves rather than curves that are bowed outward from the origin.
C) refutes the principle of comparative advantage.
D) may limit the extent to which a nation specializes in producing a particular product.

Question 28

Answer the question using the accompanying cost ratios for two products, fish (F) and chicken (C), in countries Singsong and Harmony. Assume that production occurs under conditions of constant costs and that these are the only two nations in the world. Singsong: 1F = 2C Harmony: 1F = 4C
In Singsong the domestic real cost of each chicken

A) is ½ fish.
B) is 2 fish.
C) increases with the level of fish caught.
D) decreases with the level of fish caught.

Question 29

If a nation has a comparative advantage in the production of X, this means the nation

A) cannot benefit by producing and trading this product.
B) must give up less of other goods than other nations in producing a unit of X.
C) has a production possibilities curve identical to those of other nations.
D) is not subject to increasing opportunity costs.

Question 30

In the real world, specialization is rarely complete because

A) nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.
B) production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin.
C) one nation's imports are necessarily another nation's exports.
D) international law prohibits monopolies.

Question 31

The impact of increasing, as opposed to constant, costs is to

A) intensify and prolong the comparative advantages that any nation may have initially.
B) expand the limits of the terms of trade.
C) cause the bases for further specialization to disappear as nations specialize according to comparative advantage.
D) cause nations to realize economies of scale in those products in which they specialize.

Question 32

The tables give production possibilities data for two countries, Alpha and Beta, which have populations of equal size. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Alpha's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Fish (Tons) } & 80 & 60 & 40 & 20 & 0 \\\hline \text { Chips (Tons) } & 0 & 5 & 10 & 15 & 20 \\\hline\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Beta's production possibilities }$
$\begin{array}{|c|c|c|c|c|c|} \hline& \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} \\\hline \text { Fish (Tons) } & 240 & 180 & 120 & 60 & 0 \\\hline \text { Chips (Tons) } & 0 & 10 & 20 & 30 & 40\\\hline\end{array}$ Suppose that before specialization and trade, Alpha chose production alternative C and Beta chose production alternative B. After specialization and trade, the gains will be

A) 20 tons of fish.
B) 20 tons of chips.
C) 20 tons of fish and 20 tons of chips.
D) 240 tons of fish and 20 tons of chips.

Question 33

Answer the question using the accompanying cost ratios for two products, fish (F) and chicken (C), in countries Singsong and Harmony. Assume that production occurs under conditions of constant costs and that these are the only two nations in the world. Singsong: 1F = 2C Harmony: 1F = 4C
Which one of the following would not be feasible terms for trade between Singsong and Harmony?

A) 1 fish for 2½ chicken
B) 1 fish for 3 chicken
C) 1 chicken for 1/5 of a fish
D) 1 chicken for 1/3 of a fish

Question 34

Answer the question using the accompanying cost ratios for two products, fish (F) and chicken (C), in countries Singsong and Harmony. Assume that production occurs under conditions of constant costs and that these are the only two nations in the world. Singsong: 1F = 2C Harmony: 1F = 4C
If these two nations specialize based on comparative advantage,

A) Singsong will both produce chicken and catch fish.
B) Harmony will both produce chicken and catch fish.
C) Harmony will produce chicken and Singsong will catch fish.
D) Singsong will produce chicken and Harmony will catch fish.

Question 35

Answer the question on the basis of the accompanying production possibilities tables for two countries, Latalia and Trombonia. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Latalia's production possibilities }$
$\begin{array}{c|c|c|c|c|c} & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 4 & 3 & 2 & 1 & 0 \\\hline \text { Beans (Tons) } & 0 & 5 & 10 & 15 & 20\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Trombonia's production }$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { possibilities }$
$\begin{array}{c|c|c|c|c|c}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 8 & 6 & 4 & 2 & 0 \\\hline \text { Beans (Tons) } & 0 & 6 & 12 & 18 & 24 \\\hline\end{array}$ Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization and trade will be

A) 4 tons of beans.
B) 1 ton of pork and 2 tons of beans.
C) 4 tons of pork.
D) 2 tons of pork and 4 tons of beans.

Question 36

Answer the question on the basis of the accompanying production possibilities tables for two countries, Latalia and Trombonia. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Latalia's production possibilities }$
$\begin{array}{c|c|c|c|c|c} & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 4 & 3 & 2 & 1 & 0 \\\hline \text { Beans (Tons) } & 0 & 5 & 10 & 15 & 20\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Trombonia's production }$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { possibilities }$
$\begin{array}{c|c|c|c|c|c}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 8 & 6 & 4 & 2 & 0 \\\hline \text { Beans (Tons) } & 0 & 6 & 12 & 18 & 24 \\\hline\end{array}$ If these two nations specialize on the basis of comparative advantage,

A) Trombonia will produce beans and Latalia will produce pork.
B) Trombonia will produce both beans and pork.
C) Latalia will produce both beans and pork, and Trombonia will produce neither.
D) Latalia will produce beans, and Trombonia will produce pork.

Question 37

Answer the question on the basis of the accompanying production possibilities tables for two countries, Latalia and Trombonia. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Latalia's production possibilities }$
$\begin{array}{c|c|c|c|c|c} & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 4 & 3 & 2 & 1 & 0 \\\hline \text { Beans (Tons) } & 0 & 5 & 10 & 15 & 20\end{array}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Trombonia's production }$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { possibilities }$
$\begin{array}{c|c|c|c|c|c}\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Pork (Tons) } & 8 & 6 & 4 & 2 & 0 \\\hline \text { Beans (Tons) } & 0 & 6 & 12 & 18 & 24 \\\hline\end{array}$ In Latalia the domestic real cost of 1 ton of pork

A) is 3 tons of beans.
B) diminishes with the level of pork production.
C) is 5 tons of beans.
D) is 1/5 of a ton of beans.

Question 38

Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will

A) have a domestic surplus of copper.
B) export copper.
C) import copper.
D) neither export nor import copper.

Question 39

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that

A) the production possibilities curves of any two nations are identical.
B) a nation's production possibilities and trading possibilities lines coincide.
C) a nation's trading possibilities line lies to the right of its production possibilities line.
D) a nation's production possibilities line lies to the right of its trading possibilities line.

Question 40

If two nations have straight-line production possibilities curves,

A) then their trading possibilities curves must lie inside the production possibilities curves.
B) there will be no basis for mutually advantageous trade.
C) there will be a basis for mutually advantageous trade whether the slopes are equal or not.
D) there will be a basis for mutually advantageous trade provided the slopes differ.

Question 41

A tariff can best be described as

A) an excise tax on an imported good.
B) a government payment to domestic producers to enable them to sell competitively in world markets.
C) an excise tax on an exported good.
D) a law that sets a limit on the amount of a good that can be imported.

Question 42

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}\hline\text { Ouantity }&&\text { Ouantity }\\(\text { Supplied }&&\text { Demanded }\\\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\\hline 12 & \$ 5 & 2 \\\hline 10 & 4 & 4 \\\hline 7 & 3 & 7 \\\hline 4 & 2 & 11 \\\hline 1 & 1 & 16 \\\hline\end{array}$ With a $1-per-unit tariff, price and total quantity sold will be

A) $3 and 7 units.
B) $5 and 2 units.
C) $1 and 16 units.
D) $2 and 11 units.

Question 43

In effect, tariffs on imports are

A) special taxes on domestic producers.
B) subsidies to domestic consumers.
C) subsidies to foreign producers.
D) subsidies for domestic producers.

Question 44

A nation will neither export nor import a specific product when its

A) domestic price equals the world price.
B) export supply curve lies above its import demand curve.
C) export supply curve is upsloping.
D) import demand curve is downsloping.

Question 45

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}\hline\text { Ouantity }&&\text { Ouantity }\\(\text { Supplied }&&\text { Demanded }\\\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\\hline 12 & \$ 5 & 2 \\\hline 10 & 4 & 4 \\\hline 7 & 3 & 7 \\\hline 4 & 2 & 11 \\\hline 1 & 1 & 16 \\\hline\end{array}$ With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers would be

A) 1 unit and 15 units, respectively.
B) 4 units and 7 units, respectively.
C) 7 units and 0 units, respectively.
D) 4 units and 6 units, respectively.

Question 46

Which is an example of a nontariff barrier (NTB)?

A) an export subsidy
B) an excise tax on the physical volume of imported goods
C) box-by-box inspection requirements for imported fruit
D) an excise tax on the dollar value of imported goods

Question 47

In a two-nation model, the equilibrium world price will occur where

A) one nation's export supply curve intersects the other nation's import demand curve.
B) exports are exactly twice the level of imports.
C) both nations' export supply curves are horizontal.
D) both nations' import demand curves are vertical.

Question 48

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}\hline\text { Ouantity }&&\text { Ouantity }\\(\text { Supplied }&&\text { Demanded }\\\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\\hline 12 & \$ 5 & 2 \\\hline 10 & 4 & 4 \\\hline 7 & 3 & 7 \\\hline 4 & 2 & 11 \\\hline 1 & 1 & 16 \\\hline\end{array}$ If the economy was opened to free trade and the world price of $1 prevailed, the price and quantity sold of this product would be

A) $1 and 1 unit.
B) $1 and 16 units.
C) $3 and 7 units.
D) $2 and 11 units.

Question 49

Tariffs

A) may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).
B) are also called import quotas.
C) are excise taxes on goods exported abroad.
D) are per-unit subsidies designed to promote exports.

Question 50

Excise taxes on imported goods that help shield domestic producers of the good are called

A) protective tariffs.
B) import quotas.
C) revenue tariffs.
D) voluntary export restrictions.

Question 51

Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect

A) the price of German bicycles to increase in the United States.
B) employment to decrease in the German bicycle industry.
C) employment to decrease in the U.S. bicycle industry.
D) profits to rise in the U.S. bicycle industry.

Question 52

A nation's export supply curve for a specific product

A) is upsloping.
B) shows the amount of the product it will export at prices below its domestic price.
C) lies below its import demand curve for the product.
D) depends on domestic supply of the product, but not on domestic demand.

Question 53

In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber sold to the United States. This is an example of a(n)

A) import quota.
B) export subsidy.
C) voluntary export restriction.
D) protective tariff.

Question 54

Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a(n)

A) protective tariff.
B) export subsidy.
C) import quota.
D) voluntary export restriction.

Question 55

Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will

A) have a domestic shortage of wheat.
B) export wheat.
C) import wheat.
D) neither export nor import wheat.

Question 56

Suppose the United States sets a limit on the number of tons of sugar that can be imported each year. This is an example of a(n)

A) protective tariff.
B) revenue tariff.
C) voluntary export restriction.
D) import quota.

Question 57

Export supply curves are ; import demand curves are .

A) horizontal; vertical
B) vertical; horizontal
C) downsloping; upsloping
D) upsloping; downsloping

Question 58

A nation's import demand curve for a specific product

A) is upsloping.
B) shows the amount of the product it will import at prices below its domestic price.
C) lies above its export supply curve for the product.
D) depends on domestic demand for the product, but not on domestic supply.

Question 59

An excise tax on an imported good that is not produced domestically is called a

A) protective tariff.
B) import quota.
C) revenue tariff.
D) voluntary export restriction.

Question 60

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}\hline\text { Ouantity }&&\text { Ouantity }\\(\text { Supplied }&&\text { Demanded }\\\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\\hline 12 & \$ 5 & 2 \\\hline 10 & 4 & 4 \\\hline 7 & 3 & 7 \\\hline 4 & 2 & 11 \\\hline 1 & 1 & 16 \\\hline\end{array}$ If this nation were entirely closed to international trade, equilibrium price and quantity would be

A) $5 and 2 units.
B) $1 and 1 unit.
C) $4 and 4 units.
D) $3 and 7 units.

Question 61

A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that

A) labor costs and product prices are not related.
B) there is no discernible relationship between wage rates and labor productivity.
C) wage rates and labor productivity are directly related.
D) wage rates and labor productivity are inversely related.

Question 62

As it relates to international trade, dumping

A) is a form of price discrimination illegal under U.S. antitrust laws.
B) is the practice of selling goods in a foreign market at less than cost.
C) constitutes a general case for permanent tariffs.
D) is defined as selling more goods than allowed by an import quota.

Question 63

Dumping of goods abroad

A) constitutes a general case for permanent tariffs.
B) may be part of a firm's price discrimination strategy.
C) may be part of a nation's strategy to rectify its trade deficit.
D) drives up prices of the dumped goods.

Question 64

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}\hline\text { Ouantity }&&\text { Ouantity }\\(\text { Supplied }&&\text { Demanded }\\\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\\hline 12 & \$ 5 & 2 \\\hline 10 & 4 & 4 \\\hline 7 & 3 & 7 \\\hline 4 & 2 & 11 \\\hline 1 & 1 & 16 \\\hline\end{array}$ With a $1-per-unit tariff, prices (revenue per unit) received by domestic and foreign producers respectively will be

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

Question 65

The increased-domestic-employment argument for tariff protection holds that

A) domestic inflation is a desirable policy goal because it stimulates exports.
B) domestic deflation is a desirable policy goal because it stimulates imports.
C) an increase in tariffs will reduce net exports and stimulate domestic employment.
D) an increase in tariffs will increase net exports and stimulate domestic employment.

Question 66

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}\hline\text { Ouantity }&&\text { Ouantity }\\(\text { Supplied }&&\text { Demanded }\\\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\\hline 12 & \$ 5 & 2 \\\hline 10 & 4 & 4 \\\hline 7 & 3 & 7 \\\hline 4 & 2 & 11 \\\hline 1 & 1 & 16 \\\hline\end{array}$ With a $1-per-unit tariff, the quantities sold by foreign and domestic producers, respectively, will be

A) 1 unit and 15 units.
B) 7 units and 4 units.
C) 11 units and 4 units.
D) indeterminate.

Question 67

Which of the following arguments contends that certain industries need to be protected in the interest of national security?

A) the increased domestic employment argument
B) the cheap foreign labor argument
C) the diversification-for-stability argument
D) the military self-sufficiency argument

Question 68

Which of the following arguments for trade protection contends that new domestic industries need support to establish themselves and survive?

A) the increased domestic employment argument
B) the cheap foreign labor argument
C) the diversification-for-stability argument
D) the infant industry argument

Question 69

Graphical analysis of tariffs reveals that

A) they benefit domestic consumers at the expense of domestic producers.
B) revenue gains outweigh the costs to domestic consumers.
C) they increase domestic production of the good for which imports face tariffs.
D) although the benefits are not shared equally, everyone in the domestic economy benefits from tariffs.

Question 70

In comparing a tariff and an import quota, we find that

A) the tariff and quota both generate the same amount of revenue for the U.S. Treasury.
B) the tariff generates revenue for the U.S. Treasury, but the quota does not.
C) the quota generates revenue for the U.S. Treasury, but the tariff does not.
D) neither the tariff nor the quota generates revenue for the U.S. Treasury.

Question 71

Studies show that

A) it is impossible to estimate the benefits of trade barriers.
B) costs and benefits of trade barriers are about equal.
C) benefits of trade barriers exceed their costs in developing nations.
D) costs of trade barriers exceed their benefits, creating an efficiency loss for society.

Question 72

Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary?

A) the increased domestic employment argument
B) the cheap foreign labor argument
C) the diversification-for-stability argument
D) the infant industry argument

Question 73

Which of the following statements is false?

A) Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies.
B) The U.S. Constitution forbids individual states from levying tariffs.
C) The high tariffs of the Smoot-Hawley Act of 1930 and the retaliation they caused worsened the Great Depression.
D) The European Union has enhanced prosperity in Western Europe.

Question 74

A protective tariff will

A) increase the sales of foreign exporters.
B) increase the price and sales of domestic producers.
C) increase the welfare of domestic consumers.
D) create an efficiency gain in the domestic economy.

Question 75

Other things equal, a tariff is

A) superior to an import quota for Americans because a tariff increases the profits of foreign producers.
B) inferior to an import quota for Americans because a tariff increases the profits of domestic producers.
C) superior to an import quota for Americans because a tariff generates revenue for the U.S. Treasury.
D) inferior to an import quota for Americans because a tariff generates revenue for the U.S. Treasury.

Question 76

Research studies indicate that

A) U.S. producers gain more from tariffs than U.S. consumers lose.
B) the costs of trade restrictions are proportionately higher for high-income groups than for low-income groups.
C) the revenue from tariffs equals the total cost that tariffs impose on consumers.
D) U.S. consumers lose more from tariffs than U.S. producers gain.

Question 77

Other things equal, economists would prefer

A) free trade to tariffs and tariffs to import quotas.
B) free trade to import quotas and import quotas to tariffs.
C) import quotas to tariffs and tariffs to voluntary export restrictions.
D) import quotas to free trade and free trade to tariffs.

Question 78

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. $\begin{array}{|c|c|c|}\hline\text { Ouantity }&&\text { Ouantity }\\(\text { Supplied }&&\text { Demanded }\\\hline \text { (Domestic) } & \text { Price } & \text { (Domestic) } \\\hline 12 & \$ 5 & 2 \\\hline 10 & 4 & 4 \\\hline 7 & 3 & 7 \\\hline 4 & 2 & 11 \\\hline 1 & 1 & 16 \\\hline\end{array}$ The total amount of revenue collected from a $1-per-unit tariff on this product will be

A) $22.
B) $8.
C) $7.
D) $14.

Question 79

A high tariff on imported good X might reduce domestic employment in industry Y if

A) X is an input used domestically in producing Y.
B) X and Y are substitute goods.
C) X is an inferior good.
D) Y is an inferior good.

Question 80

The World Trade Organization

A) is also known as the International Monetary Fund (IMF).
B) is also known as NAFTA.
C) was established to resolve disputes arising under world trade rules.
D) enhances world trade by providing interest rate subsidies to foreign borrowers who buy exports on credit.