Question 1

The North American Free Trade Agreement and the European Union are examples of

Accepted Answer

A)  defense treaties. 
B)  regional trade blocs. 
C)  labor agreements designed only for industrialized countries. 
D)  agriculturally based economies. 
A)  defense treaties. 
B)  regional trade blocs. 
C)  labor agreements designed only for industrialized countries. 
D)  agriculturally based economies.

Question 2

Explain the infant industry argument.

Accepted Answer

The infant industry argument is an argum

Question 3

In general, who will benefit as the result of a tariff? I. Domestic producers
II) Domestic consumers
III) The domestic government

Accepted Answer

A)  I only 
B)  II only 
C)  both I and III 
D)  both II and III 
E)  All of the above are correct 
A)  I only 
B)  II only 
C)  both I and III 
D)  both II and III 
E)  All of the above are correct

Question 4

International trade is based on the existence of

Accepted Answer

A)  absolute advantage. 
B)  perfect advantage. 
C)  productivity advantage. 
D)  comparative advantage. 
A)  absolute advantage. 
B)  perfect advantage. 
C)  productivity advantage. 
D)  comparative advantage.

Question 5

A quota is

Accepted Answer

A)  a tariff imposed on goods that are dumped in the country. 
B)  a law that prevents ecologically damaging goods from being imported into a country. 
C)  a market-imposed balancing factor that keeps prices of imports and exports in equilibrium. 
D)  a government-imposed restriction on the quantity of a specific good that can be imported. 
A)  a tariff imposed on goods that are dumped in the country. 
B)  a law that prevents ecologically damaging goods from being imported into a country. 
C)  a market-imposed balancing factor that keeps prices of imports and exports in equilibrium. 
D)  a government-imposed restriction on the quantity of a specific good that can be imported.

Question 6

Discuss the relationship between world trade and world Gross Domestic Product (GDP) since the early 1950s.

Accepted Answer

Both world trade and world GDP have grow

Question 7

Mercosur is a trade agreement between nations

Accepted Answer

A)  in Southeast Asia. 
B)  in South America. 
C)  in South Africa. 
D)  in Southern Europe. 
A)  in Southeast Asia. 
B)  in South America. 
C)  in South Africa. 
D)  in Southern Europe.

Question 8

Using trade restrictions to protect special interests such as the U.S. auto industry

Accepted Answer

A)  results in lower prices for U.S. auto consumers. 
B)  raises the prices that U.S. consumers must pay for autos. 
C)  is a very cost-efficient way of dealing with trade problems. 
D)  is the best long-term solution for threatened U.S. jobs. 
A)  results in lower prices for U.S. auto consumers. 
B)  raises the prices that U.S. consumers must pay for autos. 
C)  is a very cost-efficient way of dealing with trade problems. 
D)  is the best long-term solution for threatened U.S. jobs.

Question 9

Consider the following information, and assume that opportunity costs are constant: On one hand, residents of Country A can produce more corn in a year than residents of Country B, but they can produce computers at a lower opportunity cost than residents of country B. On the other hand, residents of country B can produce more computers in a year than residents of Country A, but they can produce corn at a lower opportunity cost than residents of country A. It can be concluded that residents of

Accepted Answer

A)  Country A should produce corn and trade it for computers produced in Country B. 
B)  Country B should produce computers and trade them for corn produced in Country B. 
C)  Country A should produce computers and trade them for corn produced in Country B. 
D)  both countries should choose not to trade. 
A)  Country A should produce corn and trade it for computers produced in Country B. 
B)  Country B should produce computers and trade them for corn produced in Country B. 
C)  Country A should produce computers and trade them for corn produced in Country B. 
D)  both countries should choose not to trade.

Question 10

What must a government know for the infant industry argument to be a valid reason for imposing tariffs?

Accepted Answer

The government must be able to determine

Question 11

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
-Use the above table. Assuming constant opportunity costs, the opportunity cost of producing donuts in country Alpha is ________, and the opportunity cost of producing donuts in country Beta is ________ .

Accepted Answer

A)  1 donut; 0.17 donut 
B)  1 donut; 6 donuts 
C)  10 donuts; 12 pizzas 
D)  0.2 pizza; 1.67 donuts 
A)  1 donut; 0.17 donut 
B)  1 donut; 6 donuts 
C)  10 donuts; 12 pizzas 
D)  0.2 pizza; 1.67 donuts

Question 12

What is the relationship between imports and employment?

Accepted Answer

There is no causal link between imports

Question 13

The Number of Worker Days to Produce One
Cuckoo Clock or Movie Using All Available Resources
U.S. Switzerland
Product (Worker-Days) (Worker-Days)
Cuckoo Clocks 8 6
Movies 12 4
-Refer to the above table. Assuming constant opportunity costs, which of the of the following statements is correct if the rate of exchange is 1 movie for 1 cuckoo clock.

Accepted Answer

A)  U.S. residents would be willing to export cuckoo clocks, but Swiss residents would not gain from exporting movies at this rate of exchange. 
B)  Swiss residents would be willing to export movies, but U.S. residents would not gain from exporting cuckoo clocks at this rate of exchange. 
C)  U.S. residents will gain from exporting movies and Swiss residents will gain from exporting cuckoo clocks at a rate of exchange. 
D)  U.S. residents will gain from exporting cuckoo clocks and Swiss residents will gain from exporting movies at a rate of exchange. 
A)  U.S. residents would be willing to export cuckoo clocks, but Swiss residents would not gain from exporting movies at this rate of exchange. 
B)  Swiss residents would be willing to export movies, but U.S. residents would not gain from exporting cuckoo clocks at this rate of exchange. 
C)  U.S. residents will gain from exporting movies and Swiss residents will gain from exporting cuckoo clocks at a rate of exchange. 
D)  U.S. residents will gain from exporting cuckoo clocks and Swiss residents will gain from exporting movies at a rate of exchange.

Question 14

It has been suggested that in order to protect U.S. jobs we need to restrict foreign competition by restricting imports.

Accepted Answer

A)  This is a sound economic statement since the U.S. will still export protecting U.S. jobs. 
B)  This is a sound economic statement since U.S. firms will have to increase output to make up for the lack of imports leading to increase employment in the U.S. 
C)  This is not a sound economic statement since employment in the U.S. does not depend on imports and exports. 
D)  This is not a sound economic statement since import restrictions lead to a reduction in employment in the export industries of the U.S. 
A)  This is a sound economic statement since the U.S. will still export protecting U.S. jobs. 
B)  This is a sound economic statement since U.S. firms will have to increase output to make up for the lack of imports leading to increase employment in the U.S. 
C)  This is not a sound economic statement since employment in the U.S. does not depend on imports and exports. 
D)  This is not a sound economic statement since import restrictions lead to a reduction in employment in the export industries of the U.S.

Question 15

Goods that are produced domestically and then sold in other countries are called

Accepted Answer

A)  exports. 
B)  imports. 
C)  tariffs. 
D)  quotas. 
A)  exports. 
B)  imports. 
C)  tariffs. 
D)  quotas.

Question 16

According to the principle of comparative advantage, a nation should specialize in economic activities

Accepted Answer

A)  that incur lower opportunity costs. 
B)  that incur higher opportunity costs. 
C)  for which it has an absolute advantage. 
D)  for which it has no absolute advantage. 
A)  that incur lower opportunity costs. 
B)  that incur higher opportunity costs. 
C)  for which it has an absolute advantage. 
D)  for which it has no absolute advantage.

Question 17

Which of the following is an argument against free trade?

Accepted Answer

A)  Protecting infant industries 
B)  Protecting against dumping 
C)  Protecting domestic jobs 
D)  All of the above 
A)  Protecting infant industries 
B)  Protecting against dumping 
C)  Protecting domestic jobs 
D)  All of the above

Question 18

During the past 40 years, U.S. exports as a percent of GDP and U.S. imports as a percent of GDP

Accepted Answer

A)  both rose at the same pace. 
B)  both fell at the same pace. 
C)  both rose, but U.S. imports as a percent of GDP rose at a faster pace. 
D)  both rose, but U.S. exports as a percent of GDP rose at a faster pace. 
A)  both rose at the same pace. 
B)  both fell at the same pace. 
C)  both rose, but U.S. imports as a percent of GDP rose at a faster pace. 
D)  both rose, but U.S. exports as a percent of GDP rose at a faster pace.

Question 19

Suppose Mexico has a comparative advantage relative to the United States in the manufacture of clothing and the United States has a comparative advantage in producing agricultural products. Which of the following is most likely to occur?

Accepted Answer

A)  Mexico and the United States will not trade agricultural products or clothing. 
B)  Mexico will sell clothing to the United States and the United States will sell agricultural products to Mexico. 
C)  Mexico will sell agricultural products to the United States and Mexico will buy clothing from the United States. 
D)  Mexico will sell clothing to the United States but not buy any agricultural products from the United States. 
A)  Mexico and the United States will not trade agricultural products or clothing. 
B)  Mexico will sell clothing to the United States and the United States will sell agricultural products to Mexico. 
C)  Mexico will sell agricultural products to the United States and Mexico will buy clothing from the United States. 
D)  Mexico will sell clothing to the United States but not buy any agricultural products from the United States.

Question 20

One way to reduce exports is to

Accepted Answer

A)  base trade on comparative advantage. 
B)  base trade on opportunity costs. 
C)  trade with poor countries. 
D)  restrict imports. 
A)  base trade on comparative advantage. 
B)  base trade on opportunity costs. 
C)  trade with poor countries. 
D)  restrict imports.

Exam 32: Comparative Advantage and the Open Economy

The North American Free Trade Agreement and the European Union are examples of

Explain the infant industry argument.

In general, who will benefit as the result of a tariff? I. Domestic producers II) Domestic consumers III) The domestic government

International trade is based on the existence of

A quota is

Discuss the relationship between world trade and world Gross Domestic Product (GDP) since the early 1950s.

Mercosur is a trade agreement between nations

Using trade restrictions to protect special interests such as the U.S. auto industry

What must a government know for the infant industry argument to be a valid reason for imposing tariffs?

What is the relationship between imports and employment?

It has been suggested that in order to protect U.S. jobs we need to restrict foreign competition by restricting imports.

Goods that are produced domestically and then sold in other countries are called

According to the principle of comparative advantage, a nation should specialize in economic activities

Which of the following is an argument against free trade?

During the past 40 years, U.S. exports as a percent of GDP and U.S. imports as a percent of GDP

Suppose Mexico has a comparative advantage relative to the United States in the manufacture of clothing and the United States has a comparative advantage in producing agricultural products. Which of the following is most likely to occur?

One way to reduce exports is to

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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