Question 1

Which of the following policies would not improve the terms of trade from the point of view of import-competing industries in the United States?
A) Freer trade.
B) "Buy American" campaigns.
C) Placing tariffs on imports of foreign goods.
D) Restricting imports of foreign goods.

Accepted Answer

Freer trade would lead to more imports, which would not improve the terms of trade for import-competing industries in the United States.

Question 2

If trade is mutually beneficial, then increasing trade
A) Increases the welfare of producers that compete with importers.
B) Makes countries less interdependent.
C) Leads to increased output in export industries.
D) Reduces income for workers in export industries.

Accepted Answer

Increasing trade leads to increased output in export industries, which in turn boosts economic growth and facilitates consumption in importing countries. It also often leads to lower prices and a wider variety of goods for consumers, further increasing welfare. However, the other options noted are not necessarily true. Increasing trade may hurt producers that compete with importers (A), increase interdependence between countries, and/or bring reduced income for workers in export industries (D) - depending on the context and specific circumstances.

Question 3

Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. From the information in Table 35.1, it is clear that
A) China has a comparative advantage in computers.
B) China has both an absolute and comparative advantage in soybeans.
C) The United States has a comparative advantage in both goods.
D) The United States has an absolute advantage in both goods.

Accepted Answer

The answer of  Based on the information in Table...

Question 4

If we add together all the gains from specialization and trade and then subtract all the losses, the net result would be
A) Zero: the gains and losses would cancel out.
B) Positive: a net gain for the world and each country.
C) Negative: a net loss for the world and each country.
D) Impossible to tell: the net result could be zero, positive, or negative.

Accepted Answer

The concept of gains from specialization and trade is based on comparative advantage. Each country specializes in producing the goods and services for which they have a comparative advantage, and then trades with other countries to obtain goods and services that they cannot produce efficiently themselves. This results in a more efficient use of resources, higher productivity, and increased output, leading to a net gain for the world and each country involved in the trade. Although there may be some losses for certain sectors or individuals, the overall gains are positive.

Question 5

The infant industry argument can be justified because
A) A new industry may never develop in a protected, noncompetitive environment.
B) The government may not be able politically to end protectionism even when protectionism is no longer justified.
C) Government may choose to protect industries, which places heavy import burdens on the economy.
D) A new industry may be difficult to start in the face of existing foreign competition.

Accepted Answer

The infant industry argument can be justified because a new industry may be difficult to start in the face of existing foreign competition. Protectionism may help to create a level playing field and allow the industry to develop to a point where it can compete on its own. However, this argument is often criticized for leading to inefficiencies and creating a long-term dependence on protectionism.

Question 6

Protectionism achieves which of the following goals?
A) Greater consumption possibilities through greater specialization.
B) Protection of infant industries.
C) Protection of comparative advantage.
D) Protection of absolute advantage.

Accepted Answer

Protectionism is a policy of protecting domestic industries from foreign competition through methods such as tariffs, quotas, and subsidies. One of the goals of protectionism is to protect infant industries, which are new domestic industries that are not yet able to compete with established foreign competitors. This protection allows them to grow and eventually become competitive on their own, which can lead to job creation and economic growth. Protectionism does not necessarily promote greater consumption possibilities through greater specialization, nor does it protect comparative or absolute advantage.

Question 7

Which of the following groups has an interest in encouraging free trade?
A) Workers in import-competing industries.
B) Producers in import-competing industries.
C) Neither workers nor producers in any industry are in favor of trade.
D) Workers in export industries.

Accepted Answer

Workers in export industries benefit from free trade because it allows them to access foreign markets and increase their sales. Free trade also increases competition, which can lead to more efficient production and lower prices for consumers, ultimately benefiting workers in all industries.

Question 8

Which of the following is not a reason to restrict trade?
A) Preservation of national security.
B) Protection of infant industries.
C) Concerns about dumping.
D) Concern about high prices for consumers.

Accepted Answer

Concern about high prices for consumers is not a reason to restrict trade. In fact, unrestricted trade can often result in lower prices for consumers due to increased competition in the market. The other options (preservation of national security, protection of infant industries, and concerns about dumping) are all legitimate reasons to restrict trade in certain circumstances.

Question 9

Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. Which of the following groups would be worse off if these countries specialize and trade?
A) Mexican coffee producers.
B) Brazilian coffee producers.
C) Mexican tomato producers.
D) All groups are better off when specialization and trade take place.

Accepted Answer

Mexican coffee producers would be worse off if Mexico specializes in tomatoes and trades with Brazil for coffee, as Mexico would likely reduce its coffee production in favor of tomatoes, in which it has a comparative advantage. This would negatively impact Mexican coffee producers due to decreased domestic production and increased competition from imported Brazilian coffee.

Question 10

International trade
A) Causes prices of products to rise because of the transportation costs.
B) Benefits the domestic industries that compete with the imported products.
C) Redistributes income from import-competing industries to export industries.
D) Reduces the level of income for export industries.

Accepted Answer

International trade redistributes income from import-competing industries to export industries. This means that export industries benefit from increased income, while import-competing industries may suffer as they face increased competition. However, international trade does not necessarily cause prices of products to rise due to transportation costs or benefit domestic industries that compete with imported products. It can also increase the level of income for export industries rather than reducing it.

Question 11

The elimination of import restrictions will
A) Alter the mix of output from export industries toward domestic industries.
B) Redistribute income from import-competing industries to export industries.
C) Alter the mix of output from export industries to import-competing industries.
D) Redistribute income from domestic to foreign producers.

Accepted Answer

The answer of The elimination of import restrictions will
A) Alter...

Question 12

Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 ton of soybeans will exchange for
A) More than 3 computers but less than 5.
B) More than 1/5 of a computer but less than 1/3.
C) Less than 3 computers.
D) Zero computers.

Accepted Answer

The answer of  Based on the information in Table...

Question 13

As trade restrictions are eliminated, increased imports
A) Lower competition in product markets.
B) Leave the composition of the GDP unchanged.
C) Shift the allocation of resources away from import-competing industries.
D) Redistribute income out of import-using industries.

Accepted Answer

Increased imports due to elimination of trade restrictions will lead to a shift in the allocation of resources away from the import-competing industries. This happens because the imported goods will now be available at a lower price than the domestically produced goods, making it difficult for the domestic industries to compete. As a result, resources will get shifted to the industries which have a comparative advantage in producing those goods for which imports have increased. This will lead to a more efficient allocation of resources, but it may also result in job losses in the import-competing industries.

Question 14

Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. The output of computers and soybeans would be greatest if
A) China specialized in producing soybeans, and the United States specialized in producing computers.
B) Both countries prohibited trade.
C) China specialized in producing computers, while the United States specialized in producing soybeans.
D) The United States produced both goods and exported them to China.

Accepted Answer

The answer of  Based on the information in Table...

Question 15

Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 computer will exchange for
A) More than 3 tons of soybeans but less than 5.
B) More than 1/5 of a ton of soybeans but less than 1/3.
C) Less than 1/5 of a ton of soybeans.
D) Zero soybeans.

Accepted Answer

According to Table 35.1, China can produce 4 tons of soybeans or 1 computer with one unit of resources (presumably labor or capital). Similarly, the United States can produce 2 tons of soybeans or 1 computer with one unit of resources.

For trade to be mutually beneficial, each country should specialize in the production of the good in which they have a comparative advantage (i.e. they can produce at a lower opportunity cost).

Assume that China specializes in producing soybeans and the United States specializes in producing computers. China could produce 8 tons of soybeans (2 units of resources x 4 tons) and the United States could produce 2 computers (2 units of resources x 1 computer).

Now, the terms of trade (the exchange rate between soybeans and computers) would need to be such that both countries are willing to trade. Let's assume that the terms of trade are such that one computer trades for X tons of soybeans.

China should only trade if they can get more soybeans by trading than they could produce on their own. In other words, they would only trade if X > 4 (the amount of soybeans they could produce with one unit of resources). Similarly, the United States should only trade if they can get more computers by trading than they could produce on their own. They would only trade if X < 1 (the amount of computers they could produce with one unit of resources).

Therefore, the terms of trade must be such that:

1 computer trades for more than 1/4 ton of soybeans but less than 1 ton of soybeans.

Simplifying, we get:

1 computer trades for more than 1/4 but less than 1 ton of soybeans.

The only choice that fits this description is B.

Question 16

Increased trade restrictions
A) Increase a trade deficit in the short run.
B) Reduce total consumption possibilities.
C) Alter a nation's production possibilities.
D) Have a neutral impact since the losses cancel out the benefits.

Accepted Answer

The answer of Increased trade restrictions
A) Increase a trade deficit...

Question 17

Dumping is said to occur when
A) Foreign producers sell their goods abroad at prices lower than their marginal cost of production.
B) Foreign producers sell their goods abroad at prices lower than our average cost of production.
C) Foreign producers sell their goods abroad at prices lower than those prevailing in their own countries.
D) Some foreign countries have trade surpluses and others have a trade deficit.

Accepted Answer

The answer of Dumping is said to occur when
A) Foreign...

Question 18

Producers of paper products are most likely to be in favor of
A) Free trade in the paper product market and the lumber market.
B) Protectionism in the paper product market and the lumber market.
C) Free trade in the paper product market but protectionism in the lumber market.
D) Protectionism in the paper product market but free trade in the lumber market.

Accepted Answer

Producers of paper products are likely to be in favor of protectionism in the paper product market because it limits foreign competition and allows them to charge higher prices for their products. However, they may support free trade in the lumber market in order to have access to cheaper inputs for their production process.

Question 19

Trade restrictions
A) Reduce the gains from trade for the country as a whole.
B) Increase the gains from trade for poor countries.
C) Reduce the number of hours employees must work.
D) Increase the standard of living for the country as a whole.

Accepted Answer

Trade restrictions, such as tariffs and quotas, increase the cost of imported goods and reduce the competitiveness of domestic producers. This leads to reduced gains from trade for the country as a whole, as consumers are faced with higher prices and fewer choices, while domestic producers may become complacent and less efficient without competition from abroad.

Question 20

Which group is most likely to be adversely affected by the importation of foreign steel?
A) Consumers of domestic automobiles for which steel is an input.
B) Domestic steelworkers.
C) Domestic automobile workers.
D) Foreign steel producers.

Accepted Answer

Domestic steelworkers are most likely to be adversely affected by the importation of foreign steel, as it could lead to a decrease in demand for domestic steel and result in job losses for the workers in the industry. Consumers of domestic automobiles for which steel is an input could potentially benefit from lower prices of imported steel, and domestic automobile workers are not directly impacted by the importation of foreign steel. Foreign steel producers may also be negatively impacted, but this is not relevant to the question of who is most likely to be adversely affected within the domestic economy.

Quiz 21: Global Poverty Glossary Index Reference Tables

Which of the following policies would not improve the terms of trade from the point of view of import-competing industries in the United States?

If trade is mutually beneficial, then increasing trade

Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. From the information in Table 35.1, it is clear that

If we add together all the gains from specialization and trade and then subtract all the losses, the net result would be

The infant industry argument can be justified because

Protectionism achieves which of the following goals?

Which of the following groups has an interest in encouraging free trade?

Which of the following is not a reason to restrict trade?

Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. Which of the following groups would be worse off if these countries specialize and trade?

International trade

The elimination of import restrictions will

As trade restrictions are eliminated, increased imports

Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. The output of computers and soybeans would be greatest if

Increased trade restrictions

Dumping is said to occur when

Producers of paper products are most likely to be in favor of

Trade restrictions

Which group is most likely to be adversely affected by the importation of foreign steel?