Question 1

The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began
A) exporting almonds and the price per pound in Uruguay remained at $3.00.
B) exporting almonds and the price per pound in Uruguay increased to $4.50.
C) importing almonds and the price per pound in Uruguay remained at $3.00.
D) importing almonds and the price per pound in Uruguay increased to $4.50.

Accepted Answer

When Uruguay began allowing trade in almonds with other countries, it joined the global almond market. As a result, it should now charge the world price of $4.50 per pound to keep up with the competition. Therefore, Uruguay would begin exporting almonds and the price per pound in Uruguay would increase to $4.50.

Question 2

Assume, for Colombia, that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that
A) other countries have a comparative advantage over Colombia in producing coffee.
B) Colombia has an absolute advantage over other countries in producing coffee.
C) Colombia will export coffee if international trade is allowed.
D) Colombian coffee buyers will become worse off if international trade is allowed.

Accepted Answer

The answer of Assume, for Colombia, that the domestic price...

Question 3

When a country allows international trade and becomes an importer of a good,
A) domestic producers of the good become better off.
B) domestic consumers of the good become worse off.
C) the gains of the winners exceed the losses of the losers.
D) All of the above are correct.

Accepted Answer

When a country becomes an importer of a good due to international trade, domestic producers of the good may become worse off because of the increased competition. However, domestic consumers of the good become better off because they now have access to a larger variety of goods at lower prices. The gains of the winners (domestic consumers) exceed the losses of the losers (domestic producers). Therefore, the correct answer is C.

Question 4

Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began
A) importing televisions and the price of a television in Paraguay decreased to $300.
B) importing televisions and the price of a television in Paraguay remained at $350.
C) exporting televisions and the price of a television in Paraguay decreased to $300.
D) exporting televisions and the price of a television in Paraguay remained at $350.

Accepted Answer

Before Paraguay allowed trade in televisions, the price in Paraguay was higher than the world price. This meant that there was a shortage of televisions in Paraguay. Once Paraguay began allowing trade, it could import televisions from other countries at the world price of $300. This would increase the supply of televisions in Paraguay, causing the price to decrease to the world price of $300. Therefore, the correct choice is A.

Question 5

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. With free trade, this country will
A) import 50 calculators.
B) import 100 calculators.
C) export 50 calculators.
D) export 100 calculators.

Accepted Answer

The answer of Figure 9-2
The figure illustrates the market for...

Question 6

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. The world price for calculators represents
A) the demand for calculators from the rest of the world.
B) the supply of calculators from the rest of the world.
C) the level of inefficiency in the domestic market caused by trade.
D) the gap between domestic quantity demanded and domestic quantity supplied and the resulting shortage.

Accepted Answer

The answer of Figure 9-2
The figure illustrates the market for...

Question 7

Suppose a country begins to allow international trade in steel. Which of the following outcomes will be observed regardless of whether the country finds itself importing steel or exporting steel?
A) The sum of consumer surplus and producer surplus for domestic traders of steel increases.
B) The quantity of steel demanded by domestic consumers increases.
C) Domestic producers of steel receive a higher price for steel.
D) The losses of the losers exceed the gains of the winners.

Accepted Answer

Allowing international trade in steel will increase the competition in the domestic steel market, leading to lower prices for consumers and higher profits for domestic producers. This will result in an increase in the consumer surplus (extra satisfaction consumers receive from buying steel at a lower price) and the producer surplus (extra revenue producers receive from selling steel at a higher price), which will jointly cause an increase in the total surplus in the domestic steel market. The direction of trade (importing or exporting) does not affect this outcome. The other options are not necessarily true in all cases.

Question 8

Suppose Iceland goes from being an isolated country to being an importer of coats. As a result,
A) consumer surplus increases for consumers of coats in Iceland.
B) producer surplus increases for producers of coats in Iceland.
C) total surplus remains unchanged in the coat market in Iceland.
D) it is reasonable to infer that Iceland has a comparative advantage over other countries in coat production.

Accepted Answer

When Iceland becomes an importer of coats, the market for coats in Iceland will expand, giving consumers access to a wider variety of coats at lower prices. As a result, consumer surplus will increase. Producer surplus, however, will decrease as domestic coat producers face increased competition from foreign producers. Total surplus will increase in the coat market in Iceland as the gains in consumer surplus will outweigh the losses in producer surplus. It is not reasonable to infer that Iceland has a comparative advantage over other countries in coat production solely based on the fact that they became an importer of coats. Comparative advantage is determined by the opportunity cost of producing a good relative to other countries, and the facts given do not provide enough information to infer this.

Question 9

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. With free trade, consumer surplus is
A) $320.
B) $640.
C) $845.
D) $1,690.

Accepted Answer

The answer of Figure 9-2
The figure illustrates the market for...

Question 10

Within a country, the domestic price of a product will equal the world price if
A) trade restrictions are imposed on the product.
B) the country allows free trade.
C) the country chooses to import, but not export, the product.
D) the country chooses to export, but not import, the product.

Accepted Answer

When a country allows free trade, it means there are no trade restrictions such as tariffs, import quotas, or subsidies. Under these circumstances, the domestic price of a product will equal the world price. This is because if the domestic price was higher than the world price, consumers would switch to cheaper imports, which would increase supply and lower the domestic price. Conversely, if the domestic price was lower than the world price, producers would switch to exporting, which would reduce supply and raise the domestic price. Therefore, free trade allows for efficient allocation of resources and benefits consumers with lower prices and greater variety.

Question 11

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. If this country chooses to trade, the price of calculators in this country will be
A) $15 and 80 calculators will be sold domestically.
B) $15 and 130 calculators will be sold domestically.
C) $20 and 80 calculators will be sold domestically.
D) $20 and 130 calculators will be sold domestically.

Accepted Answer

If the country chooses to trade, it will import calculators at a lower price of $10 and thus the domestic price will increase to the world price of $20. At this price, the domestic quantity demanded decreases to 80 and the domestic quantity supplied increases to 80, resulting in no change in the domestic quantity sold. Therefore, the price of calculators in this country will be $20 and 80 calculators will be sold domestically. Choice C is the correct answer.

Question 12

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. Without trade, consumer surplus is
A) $423.
B) $845.
C) $1,690.
D) $3,380.

Accepted Answer

The answer of Figure 9-2
The figure illustrates the market for...

Question 13

Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of pistachios decreases to equal the world price of pistachios, then
A) that country becomes an exporter of pistachios.
B) that country has a comparative advantage in producing pistachios.
C) at the world price, the quantity of pistachios demanded in that country exceeds the quantity of pistachios supplied in that country.
D) All of the above are correct.

Accepted Answer

The answer of Suppose a country abandons a no-trade policy...

Question 14

Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of beans increases to equal the world price of beans, then
A) that country becomes an exporter of beans.
B) that country has a comparative advantage in producing beans.
C) at the world price, the quantity of beans supplied in that country exceeds the quantity of beans demanded in that country.
D) All of the above are correct.

Accepted Answer

The answer of Suppose a country abandons a no-trade policy...

Question 15

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. This country
A) has a comparative advantage in calculators.
B) should export calculators.
C) is a price taker in the world economy.
D) All of the above are correct.

Accepted Answer

The figure shows that the country is producing calculators at a lower opportunity cost compared to the rest of the world, indicating a comparative advantage in the production of calculators. This means that the country should specialize in and export calculators in order to benefit from international trade. Additionally, the fact that the country's equilibrium price and quantity are determined by external factors in the world economy suggests that the country is a price taker in the global marketplace. Therefore, all of the given choices are correct.

Question 16

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. As a result of trade, total surplus increases by
A) $50.
B) $100.
C) $250.
D) $500.

Accepted Answer

Trade allows the country to consume at a lower price and increases the quantity consumed, resulting in an increase in consumer surplus. Additionally, producers are able to sell their products at a higher price in the international market, resulting in an increase in producer surplus. The total increase in surplus is the sum of consumer surplus and producer surplus, which in this case is $250. Therefore, choice C is the correct answer.

Question 17

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. Without trade, producer surplus is
A) $423.
B) $845.
C) $1,690.
D) $3,380.

Accepted Answer

The answer of Figure 9-2
The figure illustrates the market for...

Question 18

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. At the world price and with free trade,
A) the domestic quantity of calculators demanded is greater than the domestic quantity of calculators supplied.
B) the calculator market is in equilibrium.
C) the domestic demand for calculators is perfectly inelastic.
D) both domestic producers of calculators and domestic consumers of calculators are better off than they were without free trade.

Accepted Answer

At the world price and with free trade, the domestic quantity of calculators demanded will equal the domestic quantity of calculators supplied, which means the calculator market is in equilibrium. Option A is incorrect because if the domestic quantity demanded was greater than the domestic quantity supplied, it would imply that the country is importing more calculators (which is not stated in the figure or the question). Option C is incorrect because we cannot determine whether the domestic demand for calculators is perfectly inelastic from the information given in the figure. Option D is incorrect because we do not have enough information to determine whether domestic producers and consumers will be better or worse off after free trade.

Question 19

Figure 9-2
The figure illustrates the market for calculators in a country. 
-Refer to Figure 9-2. With free trade, producer surplus is
A) $845.
B) $1,620.
C) $1,690.
D) $3,240.

Accepted Answer

The answer of Figure 9-2
The figure illustrates the market for...

Question 20

After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with other countries,
A) the domestic price of coffee will be greater than the world price of coffee.
B) the domestic price of coffee will be lower than the world price of coffee.
C) the domestic price of coffee will equal the world price of coffee.
D) The world price of coffee does not matter; the domestic price of coffee prevails.

Accepted Answer

When a country allows trade in coffee with other countries, the domestic price of coffee will eventually equal the world price of coffee through the process of arbitrage. If the domestic price of coffee is higher than the world price, then domestic producers will find it profitable to export coffee, which will increase the global supply of coffee and lower the world price. Conversely, if the domestic price of coffee is lower than the world price, then the country will import coffee, which will decrease the global supply of coffee and raise the world price. Eventually, these forces will converge to make the domestic price of coffee equal the world price.

Quiz 9: Application: International Trade

The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began

Assume, for Colombia, that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that

When a country allows international trade and becomes an importer of a good,

Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. With free trade, this country will

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. The world price for calculators represents

Suppose a country begins to allow international trade in steel. Which of the following outcomes will be observed regardless of whether the country finds itself importing steel or exporting steel?

Suppose Iceland goes from being an isolated country to being an importer of coats. As a result,

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. With free trade, consumer surplus is

Within a country, the domestic price of a product will equal the world price if

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. If this country chooses to trade, the price of calculators in this country will be

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. Without trade, consumer surplus is

Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of pistachios decreases to equal the world price of pistachios, then

Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of beans increases to equal the world price of beans, then

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. This country

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. As a result of trade, total surplus increases by

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. Without trade, producer surplus is

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. At the world price and with free trade,

Figure 9-2 The figure illustrates the market for calculators in a country. -Refer to Figure 9-2. With free trade, producer surplus is

After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with other countries,