Deck 14: Comparative Advantage and the Gains From International Trade Macro

Question 1

Which group benefits most from the Egyptian tariff on the importation of cars?

A) Egyptian consumers
B) Korean producers
C) Egyptian producers of car parts
D) Korean consumers

Answer 1

Egyptian producers of car parts

Question 2

Which of the following is NOT a privilege given to Arab countries under GAFTA?

A) Preferential treatment is given to the least developing Arab countries.
B) Tariff barriers are to be maintained for technical products.
C) Goods of Arab origin are traded between GAFTA members fully exempted from customs duties.
D) GAFTA members should treat goods imported from each other the same as domestically imported goods.

Answer 2

Tariff barriers are to be maintained for technical products.

Question 3

As major oil exporters, the GCC countries depend heavily on exports, which made up more than 50% of their incomes in 2007.

Answer 3

True

Question 4

The fact that merchandise exports in major Arab countries have grown significantly, reflects decreases in both the volume of exports and the prices of major exports.

Question 5

-Refer to Table 14 -1. Select the statement that accurately interprets the data in the table.

A) Basem has an absolute advantage in picking berries and Ramy has an absolute advantage in catching fish.
B) Ramy has an absolute advantage in picking berries and catching fish.
C) Basem has an absolute advantage in picking berries and catching fish.
D) Ramy has an absolute advantage in picking berries and Basem has an absolute advantage in catching fish.

Question 6

-Refer to Table 14 -1. Select the statement that accurately interprets the data in the table.

A) Ramy has a comparative advantage in catching fish.
B) Basem has a comparative advantage in catching fish.
C) Basem has an absolute advantage in catching fish.
D) Ramy has a comparative advantage in picking berries and catching fish.

Question 7

If Sweden exports cell phones to UAE and UAE exports oil to Sweden, which of the following would explain this pattern of trade?

A) Sweden has a lower opportunity cost of producing cell phones than UAE and UAE has a comparative advantage in producing oil.
B) Sweden has a higher opportunity cost of producing cell phones than UAE, and UAE has a higher opportunity cost of producing oil.
C) Sweden must have an absolute advantage in producing cell phones and UAE must have an absolute advantage in producing oil.
D) The opportunity cost of producing oil in UAE is higher than the opportunity cost of producing oil in Sweden.

Question 8

If country A has an absolute advantage in the production of two goods compared to country B, country A can still benefit from trade with country B.

Question 9

Automobiles and many other products are differentiated. As a result

A) the quality of imported automobiles is less than it could be.
B) different countries may each have a comparative advantage in producing different types of automobiles.
C) consumers of automobiles have difficulty deciding what type of imported automobile to buy.
D) we see countries specializing completely in the production of automobiles.

Question 10

"Trade is a win-win situation for all countries that participate." This statement is

A) true because all consumers and workers benefit from international trade.
B) false since it ignores the workers who lose their jobs as result of international trade.
C) false since not all countries participate in international trade.
D) true because it refers to countries; individuals may be losers as a result of international trade.

Question 11

Which of the following statements best describes the predicted gains made by Saudi Arabia as a result of the GCC Common Market?

A) Labor exports will decrease and import of national investments will increase.
B) Labor exports will increase and import of national investments will decrease.
C) Labor exports will increase and import of national investments will increase.
D) Labor exports will decrease and import of national investments will decrease.

Question 12

Suppose in Vietnam a worker can produce either 16 units of cloth or 2 bicycles while in China a worker can produce either 20 units of cloth or 5 bicycles.
a. Which country has an absolute advantage in cloth production? In bicycle production?
b. What is the opportunity cost of 1 unit of cloth in Vietnam? In China?
c. What is the opportunity cost of 1 bicycle in Vietnam? In China?
d. Which country has a comparative advantage in cloth production? In bicycle production?
e. Suppose each country has 1,000 workers. Currently, each country devotes 40 percent of its labor force to cloth production and 60 percent to bicycle production. What is the output of cloth and bicycles for each country and what is the total output of cloth and bicycles between the two countries?
f. Suppose each country specializes in the production of the good in which it has a comparative advantage. What is the total output of cloth and bicycles in the two countries?
g. Provide a numerical example to show how Vietnam and China can both gain from trade. Assume that the terms of trade are established at 6 units of cloth for 1 bicycle.

Question 13

In the 1980s Japan agreed to limit the quantity of automobiles it would export to the United States. Why did the Japanese government agree to this trade restriction?

A) Japanese automobile producers lobbied for the restrictions in order to increase the price of their exports to the U.S.
B) The Japanese government wanted more automobiles to be available for export to countries other than the United States.
C) The Japanese government feared that the alternative would be a tariff or quota on imports of Japanese automobiles imposed by the U.S. government.
D) The Japanese government wanted to limit sales to the United States in order to make more automobiles available for Japanese consumers.

Question 14

Which of the following is the best example of a quota?

A) a limit imposed on the number of sport utility vehicles that Jordan can import from Japan
B) a $5,000 per -car fee imposed on all sport utility vehicles imported into Jordan
C) a subsidy granted by the Jordanian government to domestic garment manufacturers so they can compete more effectively with foreign garment manufacturers
D) a tax placed on all sport utility vehicles sold in the domestic market

Question 15

Which of the following best explains why the Egyptian economy was less successful that then the Korean economy in the 1960s?

A) Egypt rejected its earlier policy of complete import substitution.
B) Egypt adopted a policy of complete import substitution.
C) Egypt adopted a policy of selective import substitution.
D) Egypt did not aim for import substitution.

Question 16

What is the main benefit to Arab countries of the Qualified Industrial Zones (QIZ) policy?

A) They get free access status to each other's markets.
B) They get free access status to US markets.
C) There is free trade between all Arab countries involved in QIZ.
D) There is free trade between their country and the US.

Question 17

Suppose the Egyptian government imposes a $0.25 per kilo tariff on rice imports. Figure 14-4 shows the demand and supply curves for rice and the impact of this tariff. Use the figure to answer questions a-i.

-a. Following the imposition of the tariff, what is the price that domestic consumers must now pay and what is the quantity purchased?
b. Calculate the value of consumer surplus with the tariff in place.
c. What is the quantity supplied by domestic rice growers with the tariff in place?
d. Calculate the value of producer surplus received by Egyptian rice growers with the tariff in place.
e. What is the quantity of rice imported with the tariff in place?
f. What is the amount of tariff revenue collected by the government?
g. The tariff has reduced consumer surplus. Calculate the loss in consumer surplus due to the tariff.
h. What portion of the consumer surplus loss is redistributed to domestic producers? To the government?
i. Calculate the deadweight loss due to the tariff.

Question 18

Suppose that Kuwait currently both produces and imports almonds. The government of Kuwait decides to restrict international trade in almonds by imposing a quota that allows imports of only 10 million kilos each year. Figure 14-5 shows the estimated demand and supply curves for almonds in Kuwait and the results of imposing the quota. Answer questions a-j using the figure.

-a. If there is no quota what is the domestic price of almonds and what is the quantity of almonds demanded by consumers?
b. If there is no quota how many kilos of almonds would domestic producers supply and what quantity would be imported?
c. If there is no quota what is the dollar value of consumer surplus?
d. If there is no quota what is the dollar value of producer surplus received by producers in Kuwait?
e. If there is no quota what is the revenue received by foreign producers who supply almonds to Kuwait?
f. With a quota in place what is the price that consumers of Kuwait must now pay and what is the quantity demanded?
g. With a quota in place what is the dollar value of consumer surplus? Are consumers better off?
h. With a quota in place what is the dollar value of producer surplus received by producers in Kuwait? Are domestic producers better off?
i. Calculate the revenue to foreign producers who are granted permission to sell in Kuwait after the imposition of the quota.
j. Calculate the deadweight loss as a result of the quota.

Question 19

The World Trade Organization (WTO) promotes foreign trade and investment, or globalization. In recent years opposition to globalization has led to violent protests at meetings of the WTO. One reason for these anti -globalization protests is

A) protesters believe that globalization will result in a return to communism in developing countries.
B) protesters believe that free trade destroys the distinctive cultures of many countries.
C) foreign trade and investment are examples of zero -sum games.
D) protesters object to the loss of intellectual property (such as software programs and movies) that results from foreign trade and investment.

Question 20

Which of the following describes the infant industry argument for protectionism?

A) Domestic producers require time to gain experience and lower their unit costs; this will allow these producers to compete successfully in international markets.
B) Domestic producers in high -wage countries must be protected from foreign producers in low -wage countries to produce a level playing field.
C) An industry must be protected in its early stages of development so that firms can compete with government -subsidized foreign competition.
D) Some strategic industries must be protected to ensure adequate supplies of resources needed for national defense in emergencies.

Question 21

Economists believe the most persuasive argument for protectionism is to protect infant industries. But the argument has a drawback. What is this drawback?

A) Governments are usually too impatient and do not allow protection to remain in place long enough to allow industries to be competitive in international markets.
B) Protection lessens the need for firms to become productive enough to compete with foreign firms; this often results in infant industries never "growing up."
C) Governments usually use tariffs, rather than quotas, to protect infant industries in order to collect tariff revenue. (Quotas do not result in government revenue).
D) Governments always make the level of protection for infant industries too high.

Question 22

One reason for the success that firms have in getting the government to erect barriers to foreign competition is that jobs lost to foreign competition are easy to identify but jobs created by foreign trade are often hard to identify. Which of the following is a second reason?

A) People who benefit from foreign trade tend not to vote in elections; people who are harmed by foreign trade are much more likely to vote.
B) The benefits from free trade are less than the costs.
C) The costs that tariffs and quotas impose on consumers are large in total but relatively small per person.
D) Firms that benefit from trade barriers have more money than firms that are harmed to lobby government officials to support the barriers.

Question 23

Assume that the quota on imported sugar costs Egyptian consumers more than $2 million annually and protects very few jobs. Why does the parliament maintain a sugar quota that protects only a few thousand workers while forcing millions of people to pay higher prices for sugar products?

A) Citizens are not as involved in social and political issues as they used to be.
B) Most Egyptian citizens do not buy sugar products and want to help workers in the sugar industry.
C) The per person cost of the sugar quota is too small for many people to lobby the parliament to make their views known.
D) Voters fear that if they oppose the sugar lobby, the lobby may oppose issues that they want the parliament to support.

Question 24

One result of a bilateral trade agreement reached between the GCC and Singapore in 2008 was the phasing out of a tariff on halal meat imposed by the GCC. Which of the following is the most likely result from the elimination of this tariff?

A) The supply of halal meat produced by Singapore firms will increase.
B) The price of halal meat in Singapore will rise.
C) The Singapore economy will benefit but some workers and firms in the halal meat industry will suffer losses.
D) There will be an increase in the incomes of workers in Singapore halal meat industry.

Question 25

Some government officials argue that the success achieved by firms in the textile industry, in Egypt and Jordan, in developing a comparative advantage because of external economies can be used to justify trade barriers as a means to protect an "infant industry." After an infant industry gains experience it can compete in international markets and the trade barriers can be removed. What objections do economists make to this argument in favor of trade barriers?