Question 1

The highest stage of economic integration is a monetary union.

Accepted Answer

A) True 
 B)False

Question 2

The common agricultural policy of the European Union supports its farmers through a system of

Accepted Answer

A)  variable levies and export subsidies. 
B)  fixed import tariffs and export subsidies. 
C)  export subsidies and import quotas. 
D)  domestic content requirements. 
A)  variable levies and export subsidies. 
B)  fixed import tariffs and export subsidies. 
C)  export subsidies and import quotas. 
D)  domestic content requirements.

Question 3

If several countries form a regional trading pact that removes tariffs between the members, implements a common external tariff structure, permits free mobility of factors of production, and integrates fiscal policies, they have formed a

Accepted Answer

A)  customs union. 
B)  economic union. 
C)  free trade area. 
D)  common market. 
A)  customs union. 
B)  economic union. 
C)  free trade area. 
D)  common market.

Question 4

For countries forming a customs union, the trade creation effect represents a welfare loss and the trade diversion effect represents a welfare gain.

Accepted Answer

A) True 
 B)False

Question 5

Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit.

Figure 8.1. Effects of a Customs Union
 
-Consider Figure 8.1.The value of the trade creation effect resulting from the Greece/France customs union equals

Accepted Answer

A)  $5. 
B)  $10. 
C)  $15. 
D)  $20. 
A)  $5. 
B)  $10. 
C)  $15. 
D)  $20.

Question 6

All of the following are factors mitigating against global trade liberalization EXCEPT

Accepted Answer

A)  regional trading arrangements may limit trade liberalization with outsiders. 
B)  a small nation might do better entering into a pact with a larger nation rather than competing globally. 
C)  trading bloc members may not realize economies of scale through global liberalization. 
D)  trading bloc members prefer competing globally rather than locally. 
A)  regional trading arrangements may limit trade liberalization with outsiders. 
B)  a small nation might do better entering into a pact with a larger nation rather than competing globally. 
C)  trading bloc members may not realize economies of scale through global liberalization. 
D)  trading bloc members prefer competing globally rather than locally.

Question 7

The figure below depicts the steel market for Portugal, a small nation that is unable to affect the world price. Assume that Germany and France can supply steel to Portugal at a price of $200 and $300, respectively.

Figure 8.2. Portugal's Steel Market
 
-Consider Figure 8.2.With free trade, Portugal produces 15 tons of steel, consumes 30 tons of steel, and imports 15 tons of steel.

Accepted Answer

A) True 
 B)False

Question 8

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest-cost world producer

Accepted Answer

A)  trade diversion occurs. 
B)  trade creation occurs. 
C)  world welfare rises. 
D)  world welfare falls to zero. 
A)  trade diversion occurs. 
B)  trade creation occurs. 
C)  world welfare rises. 
D)  world welfare falls to zero.

Question 9

Negotiating the North American Free Trade Agreement was relatively easy since it involved meshing two large industrial countries with a developing country.

Accepted Answer

A) True 
 B)False

Question 10

Following World War II, Western European nations suffered from balance-of-payments deficits that were due to reconstruction.

Accepted Answer

A) True 
 B)False

Question 11

In terms of static economic analysis, if a customs union results in a large amount of trade creation relative to trade diversion, world welfare

Accepted Answer

A)  increases. 
B)  decreases. 
C)  either increases or decreases. 
D)  neither increases nor decreases. 
A)  increases. 
B)  decreases. 
C)  either increases or decreases. 
D)  neither increases nor decreases.

Question 12

Over the long run, the formation of a customs union may yield welfare gains that are due to economies of scale, greater competition, and stimulus to investment.

Accepted Answer

A) True 
 B)False

Question 13

Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world?

Accepted Answer

A)  domestic content regulations 
B)  variable import levies 
C)  voluntary export quotas 
D)  orderly marketing agreements 
A)  domestic content regulations 
B)  variable import levies 
C)  voluntary export quotas 
D)  orderly marketing agreements

Question 14

The European Union protects its agricultural producers from import competition by the use of tariff rates that vary directly with world prices.

Accepted Answer

A) True 
 B)False

Question 15

The figure below depicts the steel market for Portugal, a small nation that is unable to affect the world price. Assume that Germany and France can supply steel to Portugal at a price of $200 and $300, respectively.

Figure 8.2. Portugal's Steel Market
 
-Consider Figure 8.2.If Portugal levies a 100 percent nondiscriminatory tariff on its steel imports, it will purchase 5 tons of steel from France at a price of $500 per ton.

Accepted Answer

A) True 
 B)False

Question 16

A static welfare effect resulting from the formation of the European Union would be

Accepted Answer

A)  economies of scale. 
B)  trade diversion. 
C)  investment incentives. 
D)  increased competition. 
A)  economies of scale. 
B)  trade diversion. 
C)  investment incentives. 
D)  increased competition.

Question 17

A free trade area is an association of trading countries whose members agree to remove all trade restrictions among themselves, while each member country imposes identical trade restrictions against nonmember countries.

Accepted Answer

A) True 
 B)False

Question 18

The figure below depicts the steel market for Portugal, a small nation that is unable to affect the world price. Assume that Germany and France can supply steel to Portugal at a price of $200 and $300, respectively.

Figure 8.2. Portugal's Steel Market
 
-Consider Figure 8.2.If Portugal forms a customs union with France, the resulting trade creation effect equals $500.

Accepted Answer

A) True 
 B)False

Question 19

Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SG and DG. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit.

Figure 8.1. Effects of a Customs Union
 
-Consider Figure 8.1.With free trade, Greece imports

Accepted Answer

A)  three calculators from France. 
B)  five calculators from France. 
C)  three calculators from Germany. 
D)  five calculators from Germany. 
A)  three calculators from France. 
B)  five calculators from France. 
C)  three calculators from Germany. 
D)  five calculators from Germany.

Question 20

A main disadvantage of the European Monetary Union is that

Accepted Answer

A)  each member country loses the use of monetary policy as to tool to combat recession. 
B)  there is a high degree of labor mobility among the member countries. 
C)  prices are highly flexible in response to changing economic conditions. 
D)  wages are highly flexible in response to changing economic conditions. 
A)  each member country loses the use of monetary policy as to tool to combat recession. 
B)  there is a high degree of labor mobility among the member countries. 
C)  prices are highly flexible in response to changing economic conditions. 
D)  wages are highly flexible in response to changing economic conditions.

The highest stage of economic integration is a monetary union.

The common agricultural policy of the European Union supports its farmers through a system of

If several countries form a regional trading pact that removes tariffs between the members, implements a common external tariff structure, permits free mobility of factors of production, and integrates fiscal policies, they have formed a

For countries forming a customs union, the trade creation effect represents a welfare loss and the trade diversion effect represents a welfare gain.

All of the following are factors mitigating against global trade liberalization EXCEPT

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest-cost world producer

Negotiating the North American Free Trade Agreement was relatively easy since it involved meshing two large industrial countries with a developing country.

Following World War II, Western European nations suffered from balance-of-payments deficits that were due to reconstruction.

In terms of static economic analysis, if a customs union results in a large amount of trade creation relative to trade diversion, world welfare

Over the long run, the formation of a customs union may yield welfare gains that are due to economies of scale, greater competition, and stimulus to investment.

Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world?

The European Union protects its agricultural producers from import competition by the use of tariff rates that vary directly with world prices.

A static welfare effect resulting from the formation of the European Union would be

A free trade area is an association of trading countries whose members agree to remove all trade restrictions among themselves, while each member country imposes identical trade restrictions against nonmember countries.

A main disadvantage of the European Monetary Union is that

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance of Payments

Exchange Rate Systems and Currency Crises

Filters

Exam 8: Regional Trading Arrangements

The highest stage of economic integration is a monetary union.

The common agricultural policy of the European Union supports its farmers through a system of

If several countries form a regional trading pact that removes tariffs between the members, implements a common external tariff structure, permits free mobility of factors of production, and integrates fiscal policies, they have formed a

For countries forming a customs union, the trade creation effect represents a welfare loss and the trade diversion effect represents a welfare gain.

All of the following are factors mitigating against global trade liberalization EXCEPT

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest-cost world producer

Negotiating the North American Free Trade Agreement was relatively easy since it involved meshing two large industrial countries with a developing country.

Following World War II, Western European nations suffered from balance-of-payments deficits that were due to reconstruction.

In terms of static economic analysis, if a customs union results in a large amount of trade creation relative to trade diversion, world welfare

Over the long run, the formation of a customs union may yield welfare gains that are due to economies of scale, greater competition, and stimulus to investment.

Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world?

The European Union protects its agricultural producers from import competition by the use of tariff rates that vary directly with world prices.

A static welfare effect resulting from the formation of the European Union would be

A free trade area is an association of trading countries whose members agree to remove all trade restrictions among themselves, while each member country imposes identical trade restrictions against nonmember countries.

A main disadvantage of the European Monetary Union is that

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance of Payments

Exchange Rate Systems and Currency Crises

Filters