Question 1

For the United States since 1950, imports as a percentage of GDP has

Accepted Answer

A)  tripled. 
B)  increased slightly. 
C)  remained constant. 
D)  decreased. 
A)  tripled. 
B)  increased slightly. 
C)  remained constant. 
D)  decreased.

Question 2

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 bicycle in the United States is equal to ________, and the opportunity cost of producing a bicycle in Mexico is ________.

Accepted Answer

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

Question 3

Consider a world with two countries and two goods. Under which of the following conditions does comparative advantage NOT exist?

Accepted Answer

A)  One country can produce both goods more cheaply than the other country. 
B)  One country has more productive resources or inputs than another country. 
C)  The opportunity cost of producing each good is the same in each country. 
D)  One country has an absolute advantage in producing one good while the other country has an absolute advantage in producing the other good. 
A)  One country can produce both goods more cheaply than the other country. 
B)  One country has more productive resources or inputs than another country. 
C)  The opportunity cost of producing each good is the same in each country. 
D)  One country has an absolute advantage in producing one good while the other country has an absolute advantage in producing the other good.

Question 4

Because of NAFTA, the U.S. shifts some of its imports from Europe to Mexico (a member of NAFTA). This is an example of

Accepted Answer

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

Question 5

The basic proposition in international trade is that

Accepted Answer

A)  trade is determined by absolute advantage. 
B)  in the long run, imports are paid for by exports. 
C)  everyone is made better off by free trade. 
D)  fair trade is more important than free trade. 
A)  trade is determined by absolute advantage. 
B)  in the long run, imports are paid for by exports. 
C)  everyone is made better off by free trade. 
D)  fair trade is more important than free trade.

Question 6

Suppose that the opportunity cost of producing goods differs between two nations. We can correctly state that

Accepted Answer

A)  the two nations should not specialize in the production of goods. 
B)  specialization can lead to an increase in the production of all goods. 
C)  specialization can lead to an increase in the consumption of all goods. 
D)  neither country has a comparative advantage in the production of any good. 
A)  the two nations should not specialize in the production of goods. 
B)  specialization can lead to an increase in the production of all goods. 
C)  specialization can lead to an increase in the consumption of all goods. 
D)  neither country has a comparative advantage in the production of any good.

Question 7

An assumption behind the infant industry argument for tariff protection is that

Accepted Answer

A)  foreign competitors are selling output below average cost. 
B)  the domestic industry will be facing an upward adjustment in its average cost. 
C)  the domestic industry will eventually gain comparative advantage in producing the good. 
D)  the market needs additional competition to satisfy consumer demand. 
A)  foreign competitors are selling output below average cost. 
B)  the domestic industry will be facing an upward adjustment in its average cost. 
C)  the domestic industry will eventually gain comparative advantage in producing the good. 
D)  the market needs additional competition to satisfy consumer demand.

Question 8

One reason that U.S. exports of commercial services have increased steadily over the past 25 years is that

Accepted Answer

A)  European and Asian nations have shown little interest in developing their own commercial services sectors. 
B)  the United States has made significant investments in new information technologies. 
C)  the U.S. government owns and operates most of the economy's service sector. 
D)  the U.S. economy operates like one big corporation. 
A)  European and Asian nations have shown little interest in developing their own commercial services sectors. 
B)  the United States has made significant investments in new information technologies. 
C)  the U.S. government owns and operates most of the economy's service sector. 
D)  the U.S. economy operates like one big corporation.

Question 9

-According to the above table, which assumes that opportunity costs of producing goods X and Y are constant, the opportunity cost of producing one unit of Good Y is ________ units of Good X for Chen and ________ units of Good X for Holly.

Accepted Answer

A)  50; 40 
B)  25; 10 
C)  2; 2/5 
D)  1/2; 2 1/2 
A)  50; 40 
B)  25; 10 
C)  2; 2/5 
D)  1/2; 2 1/2

Question 10

During the 1960s, U.S. steel firms argued they needed tariff protection because Germany and Japan were using new mills to make steel since their old mills were destroyed in World War II. Essentially, this argument is a form of the

Accepted Answer

A)  infant-industry argument. 
B)  anti-dumping argument. 
C)  countering foreign subsidies argument. 
D)  national defense argument. 
A)  infant-industry argument. 
B)  anti-dumping argument. 
C)  countering foreign subsidies argument. 
D)  national defense argument.

Question 11

An effect of international trade is

Accepted Answer

A)  the increase in the average price of goods as the cost of transportation has to be included. 
B)  the transmission of ideas around the world. 
C)  that only countries that have absolute advantage in producing a good can participate. 
D)  that the United States has a trade surplus. 
A)  the increase in the average price of goods as the cost of transportation has to be included. 
B)  the transmission of ideas around the world. 
C)  that only countries that have absolute advantage in producing a good can participate. 
D)  that the United States has a trade surplus.

Question 12

An international agreement from 1947 designed to lower tariffs was

Accepted Answer

A)  the General Agreement on Tariffs and Trade. 
B)  the World Trade Organization. 
C)  the World Agreement on Tariffs and Trade. 
D)  the Trade and Tariff Agreement. 
A)  the General Agreement on Tariffs and Trade. 
B)  the World Trade Organization. 
C)  the World Agreement on Tariffs and Trade. 
D)  the Trade and Tariff Agreement.

Question 13

Benefits of free trade include all of the following EXCEPT

Accepted Answer

A)  increased world production. 
B)  higher standards of living. 
C)  transmission of new ideas. 
D)  increased international mobility of labor. 
A)  increased world production. 
B)  higher standards of living. 
C)  transmission of new ideas. 
D)  increased international mobility of labor.

Question 14

When a firm sells its good abroad below the cost of producing the good the firm is

Accepted Answer

A)  using the concept of comparative advantage. 
B)  dumping. 
C)  taking advantage of the infant industry argument. 
D)  taking advantage of absolute advantage. 
A)  using the concept of comparative advantage. 
B)  dumping. 
C)  taking advantage of the infant industry argument. 
D)  taking advantage of absolute advantage.

Question 15

For infant industry tariff protection to be valid requires that

Accepted Answer

A)  the tariff must be allowed to last forever. 
B)  only industries that currently are producing efficiently should be protected. 
C)  government officials must predict which industries will eventually be able to compete with more established foreign producers. 
D)  the industries protected must have substantial monopoly power in the absence of foreign competition. 
A)  the tariff must be allowed to last forever. 
B)  only industries that currently are producing efficiently should be protected. 
C)  government officials must predict which industries will eventually be able to compete with more established foreign producers. 
D)  the industries protected must have substantial monopoly power in the absence of foreign competition.

Question 16

Maximum Feasible Hourly Production Rates (in Tons) of Either
Knives or Forks Using All Available Resources
Product Country Alpha Country Beta
Knives 9 3
Forks 6 12
-Use the above table. Assuming constant opportunity costs, if countries Alpha and Beta specialize based on comparative advantage, then

Accepted Answer

A)  Alpha should specialize in knives and Beta should specialize in forks. 
B)  Alpha should specialize in forks and Beta should specialize in knives. 
C)  Alpha should specialize in producing both items. 
D)  Beta should produce both items. 
A)  Alpha should specialize in knives and Beta should specialize in forks. 
B)  Alpha should specialize in forks and Beta should specialize in knives. 
C)  Alpha should specialize in producing both items. 
D)  Beta should produce both items.

Question 17

Maximum Feasible Hourly Production Rates (in Tons) of Either
Wine or Beef Using All Available Resources
Product Argentina France
Wine (gallons) 30 60
Beef (pounds) 10 30
-Use the above table. Assuming constant opportunity costs, if Argentina and France specialize based on comparative advantage, then they will trade if the rate of exchange

Accepted Answer

A)  is 7 gallons of wine for 1 pound of beef, and Argentina imports beef. 
B)  0.25 gallons of wine for 1 pound of beef, and France imports beef. 
C)  0.25 pounds of beef for 1 gallon of wine, and Argentina imports wine. 
D)  0.4 pounds of beef for 1 gallon of wine, and France imports wine. 
A)  is 7 gallons of wine for 1 pound of beef, and Argentina imports beef. 
B)  0.25 gallons of wine for 1 pound of beef, and France imports beef. 
C)  0.25 pounds of beef for 1 gallon of wine, and Argentina imports wine. 
D)  0.4 pounds of beef for 1 gallon of wine, and France imports wine.

Question 18

Which of the following is consistent with international trade theory?

Accepted Answer

A)  The United States needs trade restrictions to stay competitive. 
B)  The United States has been falling behind Europe and Japan because its economy is too open. 
C)  The standard of living within a country is a function of the economic strength of the economy and not of its relative position. 
D)  A country should strive for comparative advantage in manufacturing. 
A)  The United States needs trade restrictions to stay competitive. 
B)  The United States has been falling behind Europe and Japan because its economy is too open. 
C)  The standard of living within a country is a function of the economic strength of the economy and not of its relative position. 
D)  A country should strive for comparative advantage in manufacturing.

Question 19

U.S. job losses cited by anti-trade critics

Accepted Answer

A)  are mostly a short-term problem in isolated industries. 
B)  are non-existent. 
C)  affect only capital-intensive U.S. industries. 
D)  are mostly due to poor training by U.S. firms. 
A)  are mostly a short-term problem in isolated industries. 
B)  are non-existent. 
C)  affect only capital-intensive U.S. industries. 
D)  are mostly due to poor training by U.S. firms.

Question 20

One problem with the infant industry argument is that

Accepted Answer

A)  the protection is typically never removed, creating a domestic monopoly. 
B)  it fails to protect domestic industries from foreign competition. 
C)  it must be approved by the IMF and the World Bank. 
D)  it must be approved by the Federal Reserve Board. 
A)  the protection is typically never removed, creating a domestic monopoly. 
B)  it fails to protect domestic industries from foreign competition. 
C)  it must be approved by the IMF and the World Bank. 
D)  it must be approved by the Federal Reserve Board.

Exam 32: Comparative Advantage and the Open Economy

For the United States since 1950, imports as a percentage of GDP has

Consider a world with two countries and two goods. Under which of the following conditions does comparative advantage NOT exist?

Because of NAFTA, the U.S. shifts some of its imports from Europe to Mexico (a member of NAFTA). This is an example of

The basic proposition in international trade is that

Suppose that the opportunity cost of producing goods differs between two nations. We can correctly state that

An assumption behind the infant industry argument for tariff protection is that

One reason that U.S. exports of commercial services have increased steadily over the past 25 years is that

-According to the above table, which assumes that opportunity costs of producing goods X and Y are constant, the opportunity cost of producing one unit of Good Y is ________ units of Good X for Chen and ________ units of Good X for Holly.

During the 1960s, U.S. steel firms argued they needed tariff protection because Germany and Japan were using new mills to make steel since their old mills were destroyed in World War II. Essentially, this argument is a form of the

An effect of international trade is

An international agreement from 1947 designed to lower tariffs was

Benefits of free trade include all of the following EXCEPT

When a firm sells its good abroad below the cost of producing the good the firm is

For infant industry tariff protection to be valid requires that

Maximum Feasible Hourly Production Rates (in Tons) of Either Knives or Forks Using All Available Resources Product Country Alpha Country Beta Knives 9 3 Forks 6 12 -Use the above table. Assuming constant opportunity costs, if countries Alpha and Beta specialize based on comparative advantage, then

Which of the following is consistent with international trade theory?

U.S. job losses cited by anti-trade critics

One problem with the infant industry argument is that

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

Filters

-According to the above table, which assumes that opportunity costs of producing goods X and Y are constant, the opportunity cost of producing one unit of Good Y is units of Good X for Chen and units of Good X for Holly.