Question 1

-Assuming that opportunity costs are constant, which of the following is a correct statement? (See the above table.

Accepted Answer

A)  The United States has a comparative advantage in bicycle production. 
B)  The United States has a comparative advantage in producing both goods. 
C)  Mexico has a comparative advantage in producing bicycles. 
D)  Mexico has a comparative advantage in producing both goods. 
A)  The United States has a comparative advantage in bicycle production. 
B)  The United States has a comparative advantage in producing both goods. 
C)  Mexico has a comparative advantage in producing bicycles. 
D)  Mexico has a comparative advantage in producing both goods.

Question 2

Free trade policies may lead to

Accepted Answer

A)  a decrease in world output. 
B)  price increases in world markets. 
C)  some labor sectors experiencing some short-term job loss. 
D)  none of the above. 
A)  a decrease in world output. 
B)  price increases in world markets. 
C)  some labor sectors experiencing some short-term job loss. 
D)  none of the above.

Question 3

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. If opportunity costs are constant, the two countries will gain from trade at a rate of exchange of

Accepted Answer

A)  0.1 computer for 1 bicycle 
B)  5 computers for 1 bicycle 
C)  1 computer for 1 bicycle 
D)  8 bicycles for 1 computer 
A)  0.1 computer for 1 bicycle 
B)  5 computers for 1 bicycle 
C)  1 computer for 1 bicycle 
D)  8 bicycles for 1 computer

Question 4

A tax placed on imports is known as

Accepted Answer

A)  voluntary restraint agreement. 
B)  tariff. 
C)  quota. 
D)  infant industry. 
A)  voluntary restraint agreement. 
B)  tariff. 
C)  quota. 
D)  infant industry.

Question 5

The United States is considered by the Institute for Management Development to be the most competitive economy because

Accepted Answer

A)  U.S. residents are willing to work harder than anyone else is. 
B)  of widespread entrepreneurship. 
C)  of a high saving rate. 
D)  of selected restrictions on imports from Japan and Europe. 
A)  U.S. residents are willing to work harder than anyone else is. 
B)  of widespread entrepreneurship. 
C)  of a high saving rate. 
D)  of selected restrictions on imports from Japan and Europe.

Question 6

Maximum Feasible Hourly Production Rates (in Tons) of Either
Pizzas or Donuts Using All Available Resources
Product Country Alpha Country Beta
Pizzas 10 2
Donuts 10 12
-According to the above table, Alpha has comparative advantage in producing

Accepted Answer

A)  pizzas. 
B)  donuts. 
C)  both pizzas and donuts. 
D)  neither pizzas nor donuts. 
A)  pizzas. 
B)  donuts. 
C)  both pizzas and donuts. 
D)  neither pizzas nor donuts.

Question 7

Today, the share of international trade in U.S. GDP is

Accepted Answer

A)  almost 0 percent. 
B)  about 10 percent. 
C)  close to 30 percent. 
D)  more than 99 percent. 
A)  almost 0 percent. 
B)  about 10 percent. 
C)  close to 30 percent. 
D)  more than 99 percent.

Question 8

Some nations avoid the effects of trade deflection in a trade bloc by enforcing

Accepted Answer

A)  trade deflection. 
B)  trade diversion. 
C)  quotas. 
D)  rules of origin. 
A)  trade deflection. 
B)  trade diversion. 
C)  quotas. 
D)  rules of origin.

Question 9

-Refer to the above figures. A quota is placed on a foreign good. Which figure represents the situation in the domestic market for a competing domestic good?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 10

The effect of a quota is to

Accepted Answer

A)  increase quantity supplied and lower price. 
B)  increase quantity supplied and increase price. 
C)  increase demand for the good and increase price. 
D)  reduce quantity supplied and raise price. 
A)  increase quantity supplied and lower price. 
B)  increase quantity supplied and increase price. 
C)  increase demand for the good and increase price. 
D)  reduce quantity supplied and raise price.

Question 11

The argument that trade in high-tech equipment can facilitate the implementation of advanced military technology in countries that may become strategic opponents later on is the

Accepted Answer

A)  national security argument. 
B)  infant industry argument. 
C)  protecting domestic jobs argument. 
D)  environmental and safety argument. 
A)  national security argument. 
B)  infant industry argument. 
C)  protecting domestic jobs argument. 
D)  environmental and safety argument.

Question 12

Suppose a Middle Eastern firm moves its final assembly line to Germany and then ships the final products to other members of the EU trading bloc. This is an example of

Accepted Answer

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

Question 13

The selling of a good or service abroad at a price below what is charged in the home market or below the cost of production is referred to as

Accepted Answer

A)  recycling. 
B)  a quota. 
C)  dumping. 
D)  a tariff. 
A)  recycling. 
B)  a quota. 
C)  dumping. 
D)  a tariff.

Question 14

Since 1950, the volume of world trade and the volume of world real GDP

Accepted Answer

A)  have both increased at roughly the same rate. 
B)  have both decreased at roughly the same rate. 
C)  have both increased, but the volume of world trade has increased more slowly than the volume of world real GDP. 
D)  have both increased, but the volume of world trade has increased faster than the volume of world real GDP. 
A)  have both increased at roughly the same rate. 
B)  have both decreased at roughly the same rate. 
C)  have both increased, but the volume of world trade has increased more slowly than the volume of world real GDP. 
D)  have both increased, but the volume of world trade has increased faster than the volume of world real GDP.

Question 15

Assume that maximum feasible hourly productions levels if all resources are utilized in the United States are either 8 yards of fabric or 4 bushels of wheat. Maximum feasible production levels if all resources are utilized in Japan are either 3 yards of fabric or 6 bushels of wheat. Based on this information

Accepted Answer

A)  beneficial trade is absolutely impossible between the two countries. 
B)  the United States will benefit from trading but Japan will not. 
C)  both nations will gain from specialization and trade, with the United States exporting wheat and Japan exporting fabric. 
D)  both nations will gain from specialization and trade, with the United States exporting fabric and Japan exporting wheat. 
A)  beneficial trade is absolutely impossible between the two countries. 
B)  the United States will benefit from trading but Japan will not. 
C)  both nations will gain from specialization and trade, with the United States exporting wheat and Japan exporting fabric. 
D)  both nations will gain from specialization and trade, with the United States exporting fabric and Japan exporting wheat.

Question 16

Which of the following is NOT a benefit of international trade?

Accepted Answer

A)  It increases overall output. 
B)  It results in a transmission of ideas. 
C)  It promotes self-sufficiency. 
D)  It results in the transmission of new processes. 
A)  It increases overall output. 
B)  It results in a transmission of ideas. 
C)  It promotes self-sufficiency. 
D)  It results in the transmission of new processes.

Question 17

In international trade the term "dumping" means

Accepted Answer

A)  price discrimination by domestic producers. 
B)  selling goods in a foreign market for a price less than on the home market. 
C)  selling goods in a home market for a price less than on the foreign market. 
D)  selling goods on the black market to avoid paying taxes. 
A)  price discrimination by domestic producers. 
B)  selling goods in a foreign market for a price less than on the home market. 
C)  selling goods in a home market for a price less than on the foreign market. 
D)  selling goods on the black market to avoid paying taxes.

Question 18

The ability to produce a good at lower opportunity costs than another producer is known as

Accepted Answer

A)  comparative advantage. 
B)  marginal cost production. 
C)  economies of scale. 
D)  absolute advantage. 
A)  comparative advantage. 
B)  marginal cost production. 
C)  economies of scale. 
D)  absolute advantage.

Question 19

Restricting imports

Accepted Answer

A)  can protect United States jobs in the protected industry, which increases economic welfare of the country as a whole. 
B)  can protect United States final goods and services in the protected industry and makes consumers better off. 
C)  can protect United States final goods and services in the protected industry and increase economic welfare of the country as a whole. 
D)  can protect United States jobs in the protected industry but will also lead to reductions in U.S. output and income. 
A)  can protect United States jobs in the protected industry, which increases economic welfare of the country as a whole. 
B)  can protect United States final goods and services in the protected industry and makes consumers better off. 
C)  can protect United States final goods and services in the protected industry and increase economic welfare of the country as a whole. 
D)  can protect United States jobs in the protected industry but will also lead to reductions in U.S. output and income.

Question 20

Maximum Feasible Hourly Production Rates of Either
Computers or Bicycles Using All Available Resources
Product United States Mexico
Computers 8 10
Bicycles 4 2
-Refer to the above table. It may be concluded that

Accepted Answer

A)  The United States will exports computers and import bicycles. 
B)  Mexico will exports computers and import bicycles. 
C)  The United States will export both goods. 
D)  The United States will import both goods. 
A)  The United States will exports computers and import bicycles. 
B)  Mexico will exports computers and import bicycles. 
C)  The United States will export both goods. 
D)  The United States will import both goods.

Exam 32: Comparative Advantage and the Open Economy

-Assuming that opportunity costs are constant, which of the following is a correct statement? (See the above table.

Free trade policies may lead to

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. If opportunity costs are constant, the two countries will gain from trade at a rate of exchange of

A tax placed on imports is known as

The United States is considered by the Institute for Management Development to be the most competitive economy because

Maximum Feasible Hourly Production Rates (in Tons) of Either Pizzas or Donuts Using All Available Resources Product Country Alpha Country Beta Pizzas 10 2 Donuts 10 12 -According to the above table, Alpha has comparative advantage in producing

Today, the share of international trade in U.S. GDP is

Some nations avoid the effects of trade deflection in a trade bloc by enforcing

-Refer to the above figures. A quota is placed on a foreign good. Which figure represents the situation in the domestic market for a competing domestic good?

The effect of a quota is to

The argument that trade in high-tech equipment can facilitate the implementation of advanced military technology in countries that may become strategic opponents later on is the

Suppose a Middle Eastern firm moves its final assembly line to Germany and then ships the final products to other members of the EU trading bloc. This is an example of

The selling of a good or service abroad at a price below what is charged in the home market or below the cost of production is referred to as

Since 1950, the volume of world trade and the volume of world real GDP

Which of the following is NOT a benefit of international trade?

In international trade the term "dumping" means

The ability to produce a good at lower opportunity costs than another producer is known as

Restricting imports

Maximum Feasible Hourly Production Rates of Either Computers or Bicycles Using All Available Resources Product United States Mexico Computers 8 10 Bicycles 4 2 -Refer to the above table. It may be concluded that

The Nature of Economics

Scarcity and the World of Trade-Offs

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The Macroeconomy: Unemployment, Inflation, and Deflation

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