Question 1

When Canada and the United States moved to reduce tariffs, which of the following occurred?

Accepted Answer

When Canada and the United States reduced tariffs, employment fell in Canadian industries that were most directly competing with imports from the United States. There is no evidence to support options A or B.

Question 2

Suppose Nation X gave goods to the United States for free and asked for nothing in return. This most likely would make most people in the United States

Accepted Answer

Nation X giving goods to the United States for free would increase the supply of goods in the U.S. market, leading to a decrease in prices and making consumers better off. This would also benefit businesses that use these goods as inputs, as their cost of production would decrease. Since there is no cost incurred by the United States in receiving these goods, there is no downside to this scenario. Choice D is incorrect as it assumes that the United States would require Nation X to buy an equivalent amount of goods, which would negate the benefit of receiving goods for free.

Question 3

Opening a nation to international trade will likely

Accepted Answer

Opening a nation to international trade increases competition and the need for firms to adjust more rapidly to market changes, which can increase the elasticity of demand for labor as employers seek more flexibility in hiring and wages.

Question 4

The wage rates of Southerners have been slow to converge to the higher wage rates of Northerners. Which of the following is a likely reason for this?

Accepted Answer

Moving production from the North to the South is likely to be costly due to factors such as transportation, retraining of workers, and infrastructure development. This makes it harder for Southern wages to catch up to Northern wages. The other options (A, B, C) do not directly address why Southern wages have been slow to converge with Northern wages.

Question 5

Meta-analysis of Active Labor Market Policies found that the most effective method of helping displaced workers was

Accepted Answer

The answer of Meta-analysis of Active Labor Market Policies found...

Question 6

Nation X can produce with one unit of resource either 8 units of food or 4 units of cloth. Nation Y can produce with one unit of resource either 3 units of food or 2 units of cloth. If Nation X and Y freely trade goods, and if these are the only two goods they consume, Nation X will likely consume ________ food and will consume ________ cloth.

Accepted Answer

Nation X has a comparative advantage in producing food (can produce 8 units compared to Nation Y's 3 units) while Nation Y has a comparative advantage in producing cloth (can produce 2 units compared to Nation X's 4 units). Therefore, if they trade, Nation X will trade their excess food for Nation Y's excess cloth. This will result in Nation X consuming more food and more cloth.

Question 7

Mr. X, an American, loses his job due to foreign competition. Mr. Y, an American, loses his job because other Americans shifted their demand to other goods produced in America. Both lose when these events occur. Excluding the utility of foreigners from consideration, these events are Pareto optimal when

Accepted Answer

The answer of Mr. X, an American, loses his job...

Question 8

In industry X, all of its output is made in America. But then a foreign nation's workers can produce at least part of the industry X's good at a lower wage. The reduction in American jobs in industry X will be smaller when

Accepted Answer

When the elasticity of supply of American workers is more inelastic, it means that the quantity of labor supplied does not decrease significantly with a decrease in wages, leading to a smaller reduction in American jobs.

Question 9

When trade takes place and there are no externalities or fraud, then

Accepted Answer

In a situation where there are no externalities or fraud, both parties involved in the trade would benefit. Each party has something the other wants and by trading, they are able to obtain something they value more than what they gave up. This creates mutual gains from trade, as both parties end up better off than they were before the trade took place.

Question 10

Wage convergence is an example of

Accepted Answer

The answer of Wage convergence is an example of
...

Question 11

With differing comparative advantages, nations who trade (compared to when they did not trade)

Accepted Answer

With trade, nations can specialize in producing the goods they have a comparative advantage in and import the goods they do not. This leads to an increase in efficiency and productivity, allowing nations to produce more of all goods and ultimately benefit from a greater variety of goods at a lower cost. Therefore, choice D is the correct option.

Question 12

Mr. X is a total loser. He is worse at doing everything than anyone else. According to the law of comparative advantage,

Accepted Answer

According to the law of comparative advantage, individuals should specialize in the tasks they are relatively better at compared to others, and trade with others who specialize in tasks they are relatively worse at. In Mr. X's case, he may not be the best at anything, but there will always be tasks or jobs that he is comparatively less worse at than others. Thus, he will be able to compete with others by doing what he is comparatively less worse at, and potentially find a job or trade with others.

Question 13

The size of the substitution effect when companies substitute foreign labor for domestic labor, will be greater (on domestic labor) when

Accepted Answer

The size of the substitution effect will be greater when the supply of domestic labor is more elastic because firms can more easily replace domestic workers with foreign labor. Additionally, if the goods produced are easily transported between nations, it facilitates the substitution of foreign labor for domestic labor by reducing logistical costs. Finally, if the ability to produce the goods is shared by all nations, it means that foreign labor can effectively substitute for domestic labor in producing those goods, increasing the substitution effect.

Question 14

Mr. X values a good at $100 and buys it from Mr. Y at $80 (who produces it at a cost of $70). Mr. Z then offers Mr. X the same good at $60. Mr. X buys the good from Mr. Z, and stops buying it from Mr. Y. Which of the following makes this event to be Pareto optimal

Accepted Answer

Mr. X giving Mr. Y $11 compensates Mr. Y for his lost profit ($10), making Mr. Y no worse off while Mr. X benefits from the lower price.

Question 15

The wages of workers displaced by international trade will fall less when

Accepted Answer

The scale effect refers to the expansion of economic activity due to increased demand or production, which can lead to more employment opportunities and potentially higher wages. When the scale effect is larger, it can help mitigate the negative impact on wages for workers displaced by international trade, as the overall economic growth can absorb more labor, including those displaced.

Question 16

Which of these displaced workers is likely to be most harmed by losing their job due to foreign trade?

Accepted Answer

Worker A who has firm-specific skills is likely to be most harmed by losing their job due to foreign trade. This is because their specific skill set may not be in high demand in the current market and they may not easily find another job with their current level of expertise. Worker B, on the other hand, who has general skills, may be able to find employment in other industries. Similarly, worker C who has a very elastic supply curve of labor may be able to find employment in other industries. Worker D who spends a large fraction of her income on imported goods may be adversely affected by higher prices due to the foreign trade, but losing a job would not necessarily have a disproportionate impact on them compared to the other workers.

Question 17

Which of the following has NOT usually been found to occur when international trade increases?

Accepted Answer

While international trade can have complex effects on different sectors and individuals within a given economy, it has not been found to consistently and universally lead to dramatic reductions in the wages of low skilled workers. Instead, research suggests that the effects of trade on wages can vary depending on a wide range of factors, including the types of goods being traded, the skills and education levels of workers, and the structure of the economy.

Question 18

Nation X can produce with one unit of resource either 8 units of food or 4 units of cloth. Nation Y can produce with one unit of resource either 3 units of food or 2 units of cloth. If Nation X and Y freely trade goods, and if these are the only two goods they consume, Nation X will produce ________ food and will produce ________ cloth.

Accepted Answer

Nation X has a comparative advantage in producing food (8 units of food per resource unit vs. 3 units for Nation Y), and Nation Y has a comparative advantage in producing cloth (since it only sacrifices 1.5 units of food for each unit of cloth, compared to Nation X's 2 units of food for each unit of cloth). Therefore, Nation X will specialize in producing more food, and less cloth, to trade with Nation Y.

Question 19

Which of the following is NOT part of the Trade Adjustment Assistance program?

Accepted Answer

The Trade Adjustment Assistance program does not provide eligible employers of displaced workers with up to half of the worker's first-year salary. The program provides support and benefits specifically to eligible workers who have lost their jobs due to increased imports or offshoring, including financial assistance for job search costs, training or remedial education, and income support during their job search.

Question 20

Which of the following is NOT a common effect of more trade in the United States?

Accepted Answer

The answer of Which of the following is NOT a...

Quiz 16: The Labor Market Effects of International Trade and Production Sharing