Question 1

Which of the following is true?

Accepted Answer

A)  When economies of scale are important in an industry, the domestic market of a small country may not be large enough to support cost-efficient firms. 
B)  In small countries, firms in industries where economies of scale are important will tend to export little, if any, of their output. 
C)  The size of the trade sector (exports plus imports) as a share of GDP will generally be larger in more populous countries than in smaller less-populated countries. 
D)  Countries with higher trade barriers have higher growth rates. 
A)  When economies of scale are important in an industry, the domestic market of a small country may not be large enough to support cost-efficient firms. 
B)  In small countries, firms in industries where economies of scale are important will tend to export little, if any, of their output. 
C)  The size of the trade sector (exports plus imports) as a share of GDP will generally be larger in more populous countries than in smaller less-populated countries. 
D)  Countries with higher trade barriers have higher growth rates.

Question 2

The argument that import restrictions save jobs and promote prosperity fails to recognize that

Accepted Answer

A)  there are no secondary effects of import restrictions. 
B)  import restrictions will lower prices in the protected industries. 
C)  import restrictions cannot create jobs in any industries. 
D)  U.S. imports provide people in other countries with the purchasing power required for the purchase of U.S. exports. 
A)  there are no secondary effects of import restrictions. 
B)  import restrictions will lower prices in the protected industries. 
C)  import restrictions cannot create jobs in any industries. 
D)  U.S. imports provide people in other countries with the purchasing power required for the purchase of U.S. exports.

Question 3

Fixing exchange rates and limiting the convertibility of currency will

Accepted Answer

A)  improve international trade. 
B)  increase the ability of people to gain from specialization. 
C)  lead to black markets and less trade. 
D)  increase productivity and living standards. 
A)  improve international trade. 
B)  increase the ability of people to gain from specialization. 
C)  lead to black markets and less trade. 
D)  increase productivity and living standards.

Question 4

Use the table below to answer the following question. The table outlines the production possibilities for two hypothetical countries.   Which of the following statements is true?

Accepted Answer

A)  Redland has a comparative advantage in producing oats. 
B)  Redland enjoys a comparative advantage in producing both products and could not gain from exchange. 
C)  Redland should specialize in producing mutton and should trade for oats. 
D)  In this example, Blueland has nothing to gain through trade with Redland. 
A)  Redland has a comparative advantage in producing oats. 
B)  Redland enjoys a comparative advantage in producing both products and could not gain from exchange. 
C)  Redland should specialize in producing mutton and should trade for oats. 
D)  In this example, Blueland has nothing to gain through trade with Redland.

Question 5

Nations will be able to produce a larger joint output and realize mutual gains when each specializes in the production of those items for which it is a low-opportunity cost producer and trades for those things that it could produce only at a high cost. This statement best describes the

Accepted Answer

A)  free rider problem. 
B)  infant-industry argument. 
C)  law of comparative advantage. 
D)  equation of exchange. 
A)  free rider problem. 
B)  infant-industry argument. 
C)  law of comparative advantage. 
D)  equation of exchange.

Question 6

Figure 17-10   Refer to Figure 17-10. Consumer surplus with the tariff is

Accepted Answer

A)  A. 
B)  A + B. 
C)  A + C + G. 
D)  A + B + C + D +E + F. 
A)  A. 
B)  A + B. 
C)  A + C + G. 
D)  A + B + C + D +E + F.

Question 7

The following table indicates the production possibilities of cars and clothing per worker day in the United States and Japan.   Which of the following is true?

Accepted Answer

A)  No gains from trade are possible. 
B)  Joint output would be maximized if the United States specialized in producing cars and Japan in producing clothing. 
C)  Mutual gains from trade could be realized if the United States specialized in clothing production and Japan in car production. 
D)  The Japanese are the high-cost producers of both cars and clothing. 
A)  No gains from trade are possible. 
B)  Joint output would be maximized if the United States specialized in producing cars and Japan in producing clothing. 
C)  Mutual gains from trade could be realized if the United States specialized in clothing production and Japan in car production. 
D)  The Japanese are the high-cost producers of both cars and clothing.

Question 8

When foreigners export goods to the United States

Accepted Answer

A)  they reduce the ability of the U.S. to export products abroad. 
B)  they acquire the dollars that are necessary to purchase goods, services, and assets from Americans. 
C)  they reduce the living standards of Americans. 
D)  they cause the dollar to depreciate. 
A)  they reduce the ability of the U.S. to export products abroad. 
B)  they acquire the dollars that are necessary to purchase goods, services, and assets from Americans. 
C)  they reduce the living standards of Americans. 
D)  they cause the dollar to depreciate.

Question 9

Suppose the United States exports cars to France and imports cheese from Switzerland. This situation suggests that

Accepted Answer

A)  the United States has a comparative advantage relative to Switzerland in producing cheese, and France has a comparative advantage relative to the United States in producing cars. 
B)  the United States has a comparative advantage relative to France in producing cars, and Switzerland has a comparative advantage relative to the United States in producing cheese. 
C)  the United States has an absolute advantage relative to Switzerland in producing cheese, and France has an absolute advantage relative to the United States in producing cars. 
D)  the United States has an absolute advantage relative to France in producing cars, and Switzerland has an absolute advantage relative to the United States in producing cheese. 
A)  the United States has a comparative advantage relative to Switzerland in producing cheese, and France has a comparative advantage relative to the United States in producing cars. 
B)  the United States has a comparative advantage relative to France in producing cars, and Switzerland has a comparative advantage relative to the United States in producing cheese. 
C)  the United States has an absolute advantage relative to Switzerland in producing cheese, and France has an absolute advantage relative to the United States in producing cars. 
D)  the United States has an absolute advantage relative to France in producing cars, and Switzerland has an absolute advantage relative to the United States in producing cheese.

Question 10

Dumping

Accepted Answer

A)  is the sale of a good abroad at a cheaper price than what the good is sold for in the producer's domestic market. 
B)  generally hurts consumers of the nation receiving the "dumped" goods. 
C)  is generally encouraged by domestic producers of the product being dumped since they are the primary beneficiaries of the dumping. 
D)  is the sale of a good that is illegal in the producing country to another country. 
A)  is the sale of a good abroad at a cheaper price than what the good is sold for in the producer's domestic market. 
B)  generally hurts consumers of the nation receiving the "dumped" goods. 
C)  is generally encouraged by domestic producers of the product being dumped since they are the primary beneficiaries of the dumping. 
D)  is the sale of a good that is illegal in the producing country to another country.

Question 11

Figure 17-1     In Figure 17-1, in the absence of trade, the domestic price of shoes would be Pn. If the United States moved from a no-trade situation to free trade, which of the following would happen?

Accepted Answer

A)  The domestic price of shoes would rise, and domestic consumption would fall. 
B)  Both the domestic price of shoes and domestic consumption would rise. 
C)  Both the domestic price of shoes and domestic consumption would fall. 
D)  The domestic price of shoes would fall, and domestic consumption would rise. 
A)  The domestic price of shoes would rise, and domestic consumption would fall. 
B)  Both the domestic price of shoes and domestic consumption would rise. 
C)  Both the domestic price of shoes and domestic consumption would fall. 
D)  The domestic price of shoes would fall, and domestic consumption would rise.

Question 12

The law of comparative advantage explains why a nation will benefit from trade when

Accepted Answer

A)  it exports more than it imports. 
B)  its trading partners are experiencing offsetting losses. 
C)  it exports goods for which it is a high-opportunity cost producer, while importing those for which it is a low-opportunity cost producer. 
D)  it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer. 
A)  it exports more than it imports. 
B)  its trading partners are experiencing offsetting losses. 
C)  it exports goods for which it is a high-opportunity cost producer, while importing those for which it is a low-opportunity cost producer. 
D)  it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer.

Question 13

If labor-intensive textile products could be produced more cheaply in low-wage countries than in the United States, the United States would gain if it

Accepted Answer

A)  levied a tariff on the goods produced by the cheap foreign labor. 
B)  subsidized the domestic textile industry so it could compete in international markets. 
C)  used its resources to produce other items while importing textiles from foreigners. 
D)  levied a tax on the domestic textile products to penalize the industry for inefficiency. 
A)  levied a tariff on the goods produced by the cheap foreign labor. 
B)  subsidized the domestic textile industry so it could compete in international markets. 
C)  used its resources to produce other items while importing textiles from foreigners. 
D)  levied a tax on the domestic textile products to penalize the industry for inefficiency.

Question 14

Compared to a no-trade situation, if Italy imported wine,

Accepted Answer

A)  the price of domestic Italian wine would decline. 
B)  Italian wine producers would increase their prices. 
C)  Italian wine producers would increase their profits. 
D)  domestic wine production in Italy would expand. 
A)  the price of domestic Italian wine would decline. 
B)  Italian wine producers would increase their prices. 
C)  Italian wine producers would increase their profits. 
D)  domestic wine production in Italy would expand.

Question 15

As a result of a tariff on an imported good,

Accepted Answer

A)  domestic producers are better off because they sell more goods at the same price. 
B)  domestic producers are better off because they sell more goods at a higher price. 
C)  domestic producers are better off because they sell the same quantity of goods at a higher price. 
D)  domestic consumers are better off because there are more domestically produced goods available. 
E)  domestic consumers are neither better off nor worse off because imports do not change. 
A)  domestic producers are better off because they sell more goods at the same price. 
B)  domestic producers are better off because they sell more goods at a higher price. 
C)  domestic producers are better off because they sell the same quantity of goods at a higher price. 
D)  domestic consumers are better off because there are more domestically produced goods available. 
E)  domestic consumers are neither better off nor worse off because imports do not change.

Question 16

Figure 17-6 The domestic country is China.
  Refer to Figure 17-6. With no international trade,

Accepted Answer

A)  the equilibrium price is $12 and the equilibrium quantity is 300. 
B)  the equilibrium price is $16 and the equilibrium quantity is 200. 
C)  the equilibrium price is $16 and the equilibrium quantity is 300. 
D)  the equilibrium price is $16 and the equilibrium quantity is 450. 
A)  the equilibrium price is $12 and the equilibrium quantity is 300. 
B)  the equilibrium price is $16 and the equilibrium quantity is 200. 
C)  the equilibrium price is $16 and the equilibrium quantity is 300. 
D)  the equilibrium price is $16 and the equilibrium quantity is 450.

Question 17

An import quota on a product protects domestic industries by

Accepted Answer

A)  reducing the foreign supply to the domestic market and, thereby, raising the domestic price. 
B)  increasing the foreign supply to the domestic market and, thereby, lowering the domestic price. 
C)  increasing the domestic demand for the product and, thereby, increasing its price. 
D)  providing the incentive for domestic producers to improve the efficiency of their operation and, thereby, reduce their per-unit costs of production. 
A)  reducing the foreign supply to the domestic market and, thereby, raising the domestic price. 
B)  increasing the foreign supply to the domestic market and, thereby, lowering the domestic price. 
C)  increasing the domestic demand for the product and, thereby, increasing its price. 
D)  providing the incentive for domestic producers to improve the efficiency of their operation and, thereby, reduce their per-unit costs of production.

Question 18

International trade and competition from abroad

Accepted Answer

A)  provide domestic producers with a strong incentive to improve the quality of their products and keep their costs low. 
B)  will make it more difficult for domestic producers to realize fully the potential gains from economies of scale in production. 
C)  will make it more difficult for domestic consumers in small countries to purchase from large scale producers. 
D)  do all of the above. 
E)  do none of the above. 
A)  provide domestic producers with a strong incentive to improve the quality of their products and keep their costs low. 
B)  will make it more difficult for domestic producers to realize fully the potential gains from economies of scale in production. 
C)  will make it more difficult for domestic consumers in small countries to purchase from large scale producers. 
D)  do all of the above. 
E)  do none of the above.

Question 19

Figure 17-7 The domestic country is Jamaica.
  Refer to Figure 17-7. With trade, Jamaica

Accepted Answer

A)  imports 150 calculators. 
B)  imports 250 calculators. 
C)  exports 100 calculators. 
D)  exports 250 calculators. 
A)  imports 150 calculators. 
B)  imports 250 calculators. 
C)  exports 100 calculators. 
D)  exports 250 calculators.

Question 20

Suppose that in the absence of trade, the U.S. price for peas was lower than the world price for peas. Would allowing international trade mean that the United States would import or export peas? Who in the United States would benefit and who would lose with a free trade policy, and would the gains be greater than the losses?

Accepted Answer

The United States would export peas as p

Which of the following is true?

The argument that import restrictions save jobs and promote prosperity fails to recognize that

Fixing exchange rates and limiting the convertibility of currency will

Use the table below to answer the following question. The table outlines the production possibilities for two hypothetical countries. Which of the following statements is true?

Nations will be able to produce a larger joint output and realize mutual gains when each specializes in the production of those items for which it is a low-opportunity cost producer and trades for those things that it could produce only at a high cost. This statement best describes the

Figure 17-10 Refer to Figure 17-10. Consumer surplus with the tariff is

The following table indicates the production possibilities of cars and clothing per worker day in the United States and Japan. Which of the following is true?

When foreigners export goods to the United States

Suppose the United States exports cars to France and imports cheese from Switzerland. This situation suggests that

Dumping

Figure 17-1 In Figure 17-1, in the absence of trade, the domestic price of shoes would be P_n. If the United States moved from a no-trade situation to free trade, which of the following would happen?

The law of comparative advantage explains why a nation will benefit from trade when

If labor-intensive textile products could be produced more cheaply in low-wage countries than in the United States, the United States would gain if it

Compared to a no-trade situation, if Italy imported wine,

As a result of a tariff on an imported good,

Figure 17-6 The domestic country is China. Refer to Figure 17-6. With no international trade,

An import quota on a product protects domestic industries by

International trade and competition from abroad

Figure 17-7 The domestic country is Jamaica. Refer to Figure 17-7. With trade, Jamaica

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 18: Gaining From International Trade

Which of the following is true?

The argument that import restrictions save jobs and promote prosperity fails to recognize that

Fixing exchange rates and limiting the convertibility of currency will

Use the table below to answer the following question. The table outlines the production possibilities for two hypothetical countries. Which of the following statements is true?

Nations will be able to produce a larger joint output and realize mutual gains when each specializes in the production of those items for which it is a low-opportunity cost producer and trades for those things that it could produce only at a high cost. This statement best describes the

Figure 17-10 Refer to Figure 17-10. Consumer surplus with the tariff is

The following table indicates the production possibilities of cars and clothing per worker day in the United States and Japan. Which of the following is true?

When foreigners export goods to the United States

Suppose the United States exports cars to France and imports cheese from Switzerland. This situation suggests that

Dumping

Figure 17-1 In Figure 17-1, in the absence of trade, the domestic price of shoes would be Pn. If the United States moved from a no-trade situation to free trade, which of the following would happen?

The law of comparative advantage explains why a nation will benefit from trade when

If labor-intensive textile products could be produced more cheaply in low-wage countries than in the United States, the United States would gain if it

Compared to a no-trade situation, if Italy imported wine,

As a result of a tariff on an imported good,

Figure 17-6 The domestic country is China. Refer to Figure 17-6. With no international trade,

An import quota on a product protects domestic industries by

International trade and competition from abroad

Figure 17-7 The domestic country is Jamaica. Refer to Figure 17-7. With trade, Jamaica

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

International Finance and the Foreign Exchange Market

Special Topics

Filters

Figure 17-1 In Figure 17-1, in the absence of trade, the domestic price of shoes would be P_n. If the United States moved from a no-trade situation to free trade, which of the following would happen?