Question 1

The gains from trade are divided in proportion to the price changes that trade brings to the trading countries.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 60 + 3 P \
Q ^ { D } = 390 - 2 P
\end{array}$$ In the absence of international trade in skateboards, what will be the equilibrium price of skateboards in the United States?

Accepted Answer

A) $66 
B) $90 
C) $45 
D) $150 
A) $66 
B) $90 
C) $45 
D) $150

Question 3

Which of the following events would lead to a decrease in demand for air travel?

Accepted Answer

A) A decrease in the number of people who are afraid to fly 
B) A decrease in oil prices 
C) A decrease in rail fares 
D) An increase in income levels 
A) A decrease in the number of people who are afraid to fly 
B) A decrease in oil prices 
C) A decrease in rail fares 
D) An increase in income levels

Question 4

Country A produces shoes at a lower cost than the country B. As a result, most of the shoes purchased in the country B are made in country A. Explain how trading with country A results in a net gain for country B?

Accepted Answer

As a result of the free trade between co

Question 5

To maximize profit a perfectly competitive firm supplies a good up to the point at which:

Accepted Answer

A) the marginal revenue is higher than the marginal cost. 
B) the marginal cost of producing the good is zero. 
C) the price of the good equals marginal cost. 
D) the average revenue equals average cost. 
A) the marginal revenue is higher than the marginal cost. 
B) the marginal cost of producing the good is zero. 
C) the price of the good equals marginal cost. 
D) the average revenue equals average cost.

Question 6

Which of the following is an example of arbitrage?

Accepted Answer

A) A firm sells a box of cereal at $10 when the average cost of producing it is $6. 
B) Thomas buys a new stock issued by a firm on the stock exchange. 
C) A local salon charges 5 percent more for all its services than a competing salon in the same locality. 
D) Romi buys a DVD from Walmart at $10 and sells it on eBay for $20. 
A) A firm sells a box of cereal at $10 when the average cost of producing it is $6. 
B) Thomas buys a new stock issued by a firm on the stock exchange. 
C) A local salon charges 5 percent more for all its services than a competing salon in the same locality. 
D) Romi buys a DVD from Walmart at $10 and sells it on eBay for $20.

Question 7

Suppose the domestic supply (QSU.S.) and demand (QDU.S)for bicycles in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { \mathrm { S } } \mathrm { U.S } . = 2 \mathrm { P } \
\mathrm { Q } _ { ^\mathrm { D } U . S } = 200 - 2 \mathrm { P } .
\end{array}$$ Demand (QD) and supply (QS) in the Rest of the World are given by the equations: $$\begin{array} { l } 
Q ^ { S } = P \
Q ^ { D } = 160 - P .
\end{array}$$ Quantities are measured in thousands and price in U.S. dollars. After the opening of free trade with the Rest of the World, if the world price of the bicycles settles at $60, the U.S. will:

Accepted Answer

A) export 40,000 bicycles. 
B) export 60,000 bicycles. 
C) import 60,000 bicycles. 
D) import 40,000 bicycles. 
A) export 40,000 bicycles. 
B) export 60,000 bicycles. 
C) import 60,000 bicycles. 
D) import 40,000 bicycles.

Question 8

Which of the following groups is most likely to be benefitted when a country engages in free trade?

Accepted Answer

A) All the domestic producers of the country 
B) The manufacturers of exportable goods 
C) The producers in the import-competing industries 
D) The workers employed in the import-competing industries 
A) All the domestic producers of the country 
B) The manufacturers of exportable goods 
C) The producers in the import-competing industries 
D) The workers employed in the import-competing industries

Question 9

When free trade begins, producers in the importing nation gain while producers in the exporting nation are worse off.

Accepted Answer

A) True 
 B)False

Question 10

Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 25 + 10 P \
Q ^ { D } = 875 - 5 P
\end{array}$$ In the absence of trade with the rest of the world, the consumer surplus in the United States' MP3 player market is _____.

Accepted Answer

A) $22,562.50 
B) $30,062.50 
C) $33,062.50 
D) $19,500.00 
A) $22,562.50 
B) $30,062.50 
C) $33,062.50 
D) $19,500.00

Question 11

The difference in the prices of a good in two countries creates opportunities for arbitrage: traders buy the good at a low price in one country and sell it at a higher price in the other. When the difference in the prices vanishes, and the world price is established in both countries, there is no scope for trade anymore because no trader will be willing to buy the good in one country and sell it in another. Discuss the validity of this statement.

Accepted Answer

This is not a valid statement. Consider

Question 12

Refer to Figure 2.1 below. At a price of $70, the consumer surplus equals:

Accepted Answer

A) $6,000,000. 
B) $8,000,000. 
C) $5,000,000. 
D) $10,000,000. 
A) $6,000,000. 
B) $8,000,000. 
C) $5,000,000. 
D) $10,000,000.

Question 13

Suppose the domestic supply (QSU.S.) and demand (QDU.S)for bicycles in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { \mathrm { S } } \mathrm { U.S } . = 2 \mathrm { P } \
\mathrm { Q } _ { ^\mathrm { D } U . S } = 200 - 2 \mathrm { P } .
\end{array}$$ Demand (QD) and supply (QS) in the Rest of the World are given by the equations: $$\begin{array} { l } 
Q ^ { S } = P \
Q ^ { D } = 160 - P .
\end{array}$$ Quantities are measured in thousands and price in U.S. dollars. After the opening of free trade between the U.S. and the Rest of the World:

Accepted Answer

A) neither the U.S.nor the Rest of the World gain from trade. 
B) both countries gain from trade, but the U.S.gains more than the Rest of the World. 
C) both countries gain from trade, but the Rest of the World gains more than the U.S. 
D) the net change in total surplus in the U.S.is zero but the Rest of the World gains. 
A) neither the U.S.nor the Rest of the World gain from trade. 
B) both countries gain from trade, but the U.S.gains more than the Rest of the World. 
C) both countries gain from trade, but the Rest of the World gains more than the U.S. 
D) the net change in total surplus in the U.S.is zero but the Rest of the World gains.

Question 14

An increase in individual income will lead to an inward shift of the demand curve for a commodity.

Accepted Answer

A) True 
 B)False

Question 15

If a 1% increase in the price of DVD players leads to a 3% reduction in its sales, we can conclude that:

Accepted Answer

A) the supply of DVD players is perfectly inelastic. 
B) DVD players are inferior goods. 
C) the demand for DVD players is relatively elastic. 
D) the demand for DVD's is relatively inelastic. 
A) the supply of DVD players is perfectly inelastic. 
B) DVD players are inferior goods. 
C) the demand for DVD players is relatively elastic. 
D) the demand for DVD's is relatively inelastic.

Question 16

Which of the following factors can lead to an increase in demand for coffee at Starbucks?

Accepted Answer

A) An increase in household income 
B) An increase in the price of sugar 
C) An increase in the price of coffee beans 
D) A 10 percent decline in local population 
A) An increase in household income 
B) An increase in the price of sugar 
C) An increase in the price of coffee beans 
D) A 10 percent decline in local population

Question 17

Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 25 + 10 P \
Q ^ { D } = 875 - 5 P
\end{array}$$ If the United States can import MP3 players from the rest of the world at a per unit price of $50, what will be the total demand for MP3 players in the United States?

Accepted Answer

A) 625 
B) 475 
C) 925 
D) 550 
A) 625 
B) 475 
C) 925 
D) 550

Question 18

Why would winter clothing be produced in countries whose residents have very little demand for such clothing?

Accepted Answer

A country might be interested in the pro

Question 19

Assume that there are only two countries in the world, Pacifica and Atlantica. Both countries produce and consume surfboards. The pre-trade price of surfboards in Atlantica is lower than the pre-trade price of surfboards in Pacifica. Draw a three-graph diagram to depict the Pacifica, Atlantica, and international markets for surfboards illustrating the pre-trade price difference. Now assume that free trade opens up between Pacifica and Atlantica. Depict a plausible world price in the graphs. What happens to overall economic welfare in the two countries? Be sure to label and refer to the graphs in your answer.

Accepted Answer

@#IMG-DLM& @#IMG-DLM& The above graph illustrates a possible

Question 20

Suppose the domestic supply (QSU.S.) and demand (QDU.S)for bicycles in the United States are given by the following set of equations: $$\begin{array} { l } 
Q _{^{\mathrm { S } }    U . S } = 2 \mathrm { P } \
\mathrm { Q }_{^{\mathrm { D } }    U . S } = 200 - 2 \mathrm { P } .
\end{array}$$ Demand (QD) and supply (QS) in the Rest of the World are given by the equations: $$\begin{array} { l } 
Q ^ { S } = P \
Q ^ { D } = 160 - P .
\end{array}$$ Quantities are measured in thousands and price in U.S. dollars. In the absence of international trade, _____ thousand bicycles will be sold in the United States at a per unit price of _____.

Accepted Answer

A) 50; $50 
B) 100; $100 
C) 150; $50 
D) 100; $50 
A) 50; $50 
B) 100; $100 
C) 150; $50 
D) 100; $50

The gains from trade are divided in proportion to the price changes that trade brings to the trading countries.

Suppose the domestic supply (Q^S) and demand (Q^D) for skateboards in the United States are given by the following set of equations: =-60+3P =390-2P In the absence of international trade in skateboards, what will be the equilibrium price of skateboards in the United States?

Which of the following events would lead to a decrease in demand for air travel?

Country A produces shoes at a lower cost than the country B. As a result, most of the shoes purchased in the country B are made in country A. Explain how trading with country A results in a net gain for country B?

To maximize profit a perfectly competitive firm supplies a good up to the point at which:

Which of the following is an example of arbitrage?

Which of the following groups is most likely to be benefitted when a country engages in free trade?

When free trade begins, producers in the importing nation gain while producers in the exporting nation are worse off.

Suppose the domestic supply (Q^S) and demand (Q^D)for MP3 players in the United States are given by the following set of equations: =-25+10P =875-5P In the absence of trade with the rest of the world, the consumer surplus in the United States' MP3 player market is _____.

Refer to Figure 2.1 below. At a price of $70, the consumer surplus equals:

An increase in individual income will lead to an inward shift of the demand curve for a commodity.

If a 1% increase in the price of DVD players leads to a 3% reduction in its sales, we can conclude that:

Which of the following factors can lead to an increase in demand for coffee at Starbucks?

Why would winter clothing be produced in countries whose residents have very little demand for such clothing?

International Economics Is Different

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

Exam 2: The Basic Theory Using Demand and Supply

The gains from trade are divided in proportion to the price changes that trade brings to the trading countries.

Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations: =-60+3P =390-2P In the absence of international trade in skateboards, what will be the equilibrium price of skateboards in the United States?

Which of the following events would lead to a decrease in demand for air travel?

Country A produces shoes at a lower cost than the country B. As a result, most of the shoes purchased in the country B are made in country A. Explain how trading with country A results in a net gain for country B?

To maximize profit a perfectly competitive firm supplies a good up to the point at which:

Which of the following is an example of arbitrage?

Which of the following groups is most likely to be benefitted when a country engages in free trade?

When free trade begins, producers in the importing nation gain while producers in the exporting nation are worse off.

Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United States are given by the following set of equations: =-25+10P =875-5P In the absence of trade with the rest of the world, the consumer surplus in the United States' MP3 player market is _____.

Refer to Figure 2.1 below. At a price of $70, the consumer surplus equals:

An increase in individual income will lead to an inward shift of the demand curve for a commodity.

If a 1% increase in the price of DVD players leads to a 3% reduction in its sales, we can conclude that:

Which of the following factors can lead to an increase in demand for coffee at Starbucks?

Why would winter clothing be produced in countries whose residents have very little demand for such clothing?

International Economics Is Different

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

Suppose the domestic supply (Q^S) and demand (Q^D) for skateboards in the United States are given by the following set of equations: =-60+3P =390-2P In the absence of international trade in skateboards, what will be the equilibrium price of skateboards in the United States?

Suppose the domestic supply (Q^S) and demand (Q^D)for MP3 players in the United States are given by the following set of equations: =-25+10P =875-5P In the absence of trade with the rest of the world, the consumer surplus in the United States' MP3 player market is _____.