Question 1

The ability to produce an item at a lower opportunity cost compared with other producers is known as

Accepted Answer

A)  competitive dominance. 
B)  productive dominance. 
C)  comparative advantage. 
D)  absolute advantage. 
A)  competitive dominance. 
B)  productive dominance. 
C)  comparative advantage. 
D)  absolute advantage.

Question 2

Which of the following is NOT a true statement regarding free trade?

Accepted Answer

A)  Free trade promotes specialization and efficient production. 
B)  Free trade generally reduces the domestic prices of imports. 
C)  Free trade may stimulate economic growth through export sales. 
D)  Every individual in a country gains short-term benefits from free trade. 
A)  Free trade promotes specialization and efficient production. 
B)  Free trade generally reduces the domestic prices of imports. 
C)  Free trade may stimulate economic growth through export sales. 
D)  Every individual in a country gains short-term benefits from free trade.

Question 3

Groups of nations that grants members trade privileges are called

Accepted Answer

A)  local trade protectionists. 
B)  trade settlements. 
C)  regional trade blocs. 
D)  allies. 
A)  local trade protectionists. 
B)  trade settlements. 
C)  regional trade blocs. 
D)  allies.

Question 4

If the infant industry argument is used to protect an industry that has already matured, then

Accepted Answer

A)  consumers lose because they will pay a price for a product that is above the world price. 
B)  consumers lose because they will pay a price for a product, which is less than the world price. 
C)  stockholders lose because the firm cannot compete with other firms. 
D)  no one loses. 
A)  consumers lose because they will pay a price for a product that is above the world price. 
B)  consumers lose because they will pay a price for a product, which is less than the world price. 
C)  stockholders lose because the firm cannot compete with other firms. 
D)  no one loses.

Question 5

Import restrictions due to the imposition of tariffs by the U.S. government

Accepted Answer

A)  will ultimately cause inefficient resource allocation in the United States. 
B)  will lead to lower incomes in the economy of U.S. trade partners. 
C)  will lead to a decline in the quantity of the product consumed in the United States. 
D)  all of the above are likely to occur 
A)  will ultimately cause inefficient resource allocation in the United States. 
B)  will lead to lower incomes in the economy of U.S. trade partners. 
C)  will lead to a decline in the quantity of the product consumed in the United States. 
D)  all of the above are likely to occur

Question 6

Comparative advantage is defined as

Accepted Answer

A)  producing all goods at lower opportunity costs than other countries can. 
B)  producing more output of all goods than anyone else can. 
C)  producing one good at a lower opportunity cost than another country can. 
D)  the ability to produce more output from given inputs than anyone else can. 
A)  producing all goods at lower opportunity costs than other countries can. 
B)  producing more output of all goods than anyone else can. 
C)  producing one good at a lower opportunity cost than another country can. 
D)  the ability to produce more output from given inputs than anyone else can.

Question 7

Given two economic systems, A and B, if economy A has a comparative advantage in the production of widgets, then

Accepted Answer

A)  the inputs necessary to produce widgets in economy A cost less than in economy B. 
B)  economy A must give up less of all other goods to produce widgets than economy B. 
C)  economy A is less efficient in the production of some goods than economy B. 
D)  economy A would not benefit from the specialization of production. 
A)  the inputs necessary to produce widgets in economy A cost less than in economy B. 
B)  economy A must give up less of all other goods to produce widgets than economy B. 
C)  economy A is less efficient in the production of some goods than economy B. 
D)  economy A would not benefit from the specialization of production.

Question 8

The World Trade Organization

Accepted Answer

A)  was set up to increase tariffs among nations. 
B)  was set up to negotiate exchange rates between countries. 
C)  was set up to decrease tariffs among nations. 
D)  handles trade disputes among its member nations. 
A)  was set up to increase tariffs among nations. 
B)  was set up to negotiate exchange rates between countries. 
C)  was set up to decrease tariffs among nations. 
D)  handles trade disputes among its member nations.

Question 9

Suppose a new EU member begins substituting its imports from non-EU members to other EU members. This is an example of

Accepted Answer

A)  trade diversion. 
B)  trade deflection. 
C)  free trade. 
D)  trade detection. 
A)  trade diversion. 
B)  trade deflection. 
C)  free trade. 
D)  trade detection.

Question 10

An official agreement with another country to restrict the quantity of its exports to the U.S. is

Accepted Answer

A)  a regional trade bloc. 
B)  the quota system. 
C)  a voluntary import expansion. 
D)  a voluntary restraint agreement. 
A)  a regional trade bloc. 
B)  the quota system. 
C)  a voluntary import expansion. 
D)  a voluntary restraint agreement.

Question 11

Mason and Chloe each produce two goods. According to the principle of comparative advantage, the total output produced by these individuals will be greatest

Accepted Answer

A)  if Chloe produces both goods and Mason produces nothing. 
B)  if each good is produced by the individual who has the lower opportunity cost of producing that good. 
C)  if each good is produced by the individual who has the higher absolute cost of producing that good. 
D)  if Mason produces both goods and Chloe produces nothing. 
A)  if Chloe produces both goods and Mason produces nothing. 
B)  if each good is produced by the individual who has the lower opportunity cost of producing that good. 
C)  if each good is produced by the individual who has the higher absolute cost of producing that good. 
D)  if Mason produces both goods and Chloe produces nothing.

Question 12

Dumping occurs when, in a foreign market, a good is sold

Accepted Answer

A)  below its cost of production or below the price in that market. 
B)  at a discount below the list price. 
C)  below its nominal price. 
D)  at a price above the equilibrium price. 
A)  below its cost of production or below the price in that market. 
B)  at a discount below the list price. 
C)  below its nominal price. 
D)  at a price above the equilibrium price.

Question 13

Maximum Feasible Hourly Production Rates (in Tons) of Either
Cookies or Coffee Using All Available Resources
Product Country Alpha Country Beta
Cookies 3 8
Coffee 9 4
-Use the above table. If these two countries, Alpha and Beta, specialize based on comparative advantage

Accepted Answer

A)  Alpha will specialize in cookies, and Beta will specialize in coffee production. 
B)  Alpha will specialize in producing both items. 
C)  Beta will specialize in producing both items. 
D)  Alpha will specialize in coffee, and Beta will specialize in cookies. 
A)  Alpha will specialize in cookies, and Beta will specialize in coffee production. 
B)  Alpha will specialize in producing both items. 
C)  Beta will specialize in producing both items. 
D)  Alpha will specialize in coffee, and Beta will specialize in cookies.

Question 14

If the residents of a country specialize in a good in which they have a comparative advantage and trade with residents in another nation, the residents in the first country

Accepted Answer

A)  can consume more than they could without trade. 
B)  can produce more than they could without trade. 
C)  will have a lower standard of living. 
D)  will be exploited by the second nation. 
A)  can consume more than they could without trade. 
B)  can produce more than they could without trade. 
C)  will have a lower standard of living. 
D)  will be exploited by the second nation.

Question 15

Tariffs to limit imports to "protect U.S. jobs" will also

Accepted Answer

A)  stimulate exports. 
B)  limit exports. 
C)  decrease import prices. 
D)  reduce domestic production of import-threatened products. 
A)  stimulate exports. 
B)  limit exports. 
C)  decrease import prices. 
D)  reduce domestic production of import-threatened products.

Question 16

The infant industry argument suggests that

Accepted Answer

A)  a country requires tariff protection when it has no comparative advantage in the production of any good. 
B)  a country requires protection against unfair trade practices. 
C)  an industry may require temporary tariff protection until the industry matures. 
D)  the industry has no potential and must be protected to survive. 
A)  a country requires tariff protection when it has no comparative advantage in the production of any good. 
B)  a country requires protection against unfair trade practices. 
C)  an industry may require temporary tariff protection until the industry matures. 
D)  the industry has no potential and must be protected to survive.

Question 17

Maximum Feasible Hourly Production Rates of Either
Computers or Bicycles Using All Available Resources
Product United States Mexico
Computers 8 3
Bicycles 2 6
-Refer to the above table. Assuming that opportunity costs are constant, the opportunity cost of producing a computer in the United States is equal to ________, and the opportunity cost of producing a computer in Mexico is ________.

Accepted Answer

A)  4 bicycles; 0.5 bicycles 
B)  0.25 bicycle; 2 bicycles 
C)  2.67 computers; 0.33 bicycles 
D)  0.375 bicycle; 3 computers 
A)  4 bicycles; 0.5 bicycles 
B)  0.25 bicycle; 2 bicycles 
C)  2.67 computers; 0.33 bicycles 
D)  0.375 bicycle; 3 computers

Question 18

All of the following are cited as factors in explaining U.S. competitiveness EXCEPT

Accepted Answer

A)  the open U.S. financial system. 
B)  economic restructuring. 
C)  investments in information technology. 
D)  the decline of entrepreneurship. 
A)  the open U.S. financial system. 
B)  economic restructuring. 
C)  investments in information technology. 
D)  the decline of entrepreneurship.

Question 19

All of the following are reasons that trade between nations is beneficial EXCEPT

Accepted Answer

A)  gains from specialization. 
B)  exchange of ideas. 
C)  protection of domestic industries. 
D)  gains from trade. 
A)  gains from specialization. 
B)  exchange of ideas. 
C)  protection of domestic industries. 
D)  gains from trade.

Question 20

The international agreement signed in 1947 to promote world trade by reducing tariffs and other barriers to international trade was called

Accepted Answer

A)  GATT. 
B)  NAFTA. 
C)  WTO. 
D)  Bretton-Woods agreement. 
A)  GATT. 
B)  NAFTA. 
C)  WTO. 
D)  Bretton-Woods agreement.

Exam 32: Comparative Advantage and the Open Economy

The ability to produce an item at a lower opportunity cost compared with other producers is known as

Which of the following is NOT a true statement regarding free trade?

Groups of nations that grants members trade privileges are called

If the infant industry argument is used to protect an industry that has already matured, then

Import restrictions due to the imposition of tariffs by the U.S. government

Comparative advantage is defined as

Given two economic systems, A and B, if economy A has a comparative advantage in the production of widgets, then

The World Trade Organization

Suppose a new EU member begins substituting its imports from non-EU members to other EU members. This is an example of

An official agreement with another country to restrict the quantity of its exports to the U.S. is

Mason and Chloe each produce two goods. According to the principle of comparative advantage, the total output produced by these individuals will be greatest

Dumping occurs when, in a foreign market, a good is sold

Maximum Feasible Hourly Production Rates (in Tons) of Either Cookies or Coffee Using All Available Resources Product Country Alpha Country Beta Cookies 3 8 Coffee 9 4 -Use the above table. If these two countries, Alpha and Beta, specialize based on comparative advantage

If the residents of a country specialize in a good in which they have a comparative advantage and trade with residents in another nation, the residents in the first country

Tariffs to limit imports to "protect U.S. jobs" will also

The infant industry argument suggests that

All of the following are cited as factors in explaining U.S. competitiveness EXCEPT

All of the following are reasons that trade between nations is beneficial EXCEPT

The international agreement signed in 1947 to promote world trade by reducing tariffs and other barriers to international trade was called

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Exchange Rates and the Balance of Payments

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