Question 1

Free trade refers to trade between countries without government restrictions.

Accepted Answer

A) True 
 B)False

Question 2

Dumping refers to countries exporting unwanted and inferior products to other countries.

Accepted Answer

A) True 
 B)False

Question 3

Figure 9-3   Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota.
-Refer to Figure 9-3. Without the quota, the domestic price of peanuts equals the world price which is $2.00 per pound. What is the quantity of peanuts supplied by domestic producers in the absence of a quota?

Accepted Answer

A)  10 million pounds 
B)  28 million pounds 
C)  30 million pounds 
D)  40 million pounds 
A)  10 million pounds 
B)  28 million pounds 
C)  30 million pounds 
D)  40 million pounds

Question 4

Goods and services bought domestically but produced in other countries are referred to as

Accepted Answer

A)  exports. 
B)  imports. 
C)  transfer payments. 
D)  foreign consumption. 
A)  exports. 
B)  imports. 
C)  transfer payments. 
D)  foreign consumption.

Question 5

What does it mean for a country to have a comparative advantage in producing a product?

Accepted Answer

A country has a comparative ad

Question 6

Table 9-11
Production and
Consumption Production
Without Trade With Trade
   Denmark and Belize can produce both clocks and hats. Table 9-11 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-11. Which country has a comparative advantage in producing hats?

Accepted Answer

A)  Denmark 
B)  Belize 
C)  both countries 
D)  neither country 
A)  Denmark 
B)  Belize 
C)  both countries 
D)  neither country

Question 7

Figure 9-5   Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 9-5 shows the impact of this tariff.
-Refer to Figure 9-5. With the tariff in place, the United States

Accepted Answer

A)  imports 20 million pounds of coffee. 
B)  imports 12 million pounds of coffee. 
C)  imports 18 million pounds of coffee. 
D)  exports 38 million pounds of coffee. 
A)  imports 20 million pounds of coffee. 
B)  imports 12 million pounds of coffee. 
C)  imports 18 million pounds of coffee. 
D)  exports 38 million pounds of coffee.

Question 8

A voluntary export restraint is an agreement negotiated by two countries that places ________ that can be imported by one country from another country.

Accepted Answer

A)  a tax on goods 
B)  a minimum quantity of a good 
C)  quality standards on goods 
D)  a numerical limit on the quantity of a good 
A)  a tax on goods 
B)  a minimum quantity of a good 
C)  quality standards on goods 
D)  a numerical limit on the quantity of a good

Question 9

Whenever a buyer and a seller agree to trade,

Accepted Answer

A)  the agreement is made based on absolute advantage. 
B)  they must have identical opportunity costs in producing their respective products. 
C)  one party will always be worse off. 
D)  both must believe they will be made better off. 
A)  the agreement is made based on absolute advantage. 
B)  they must have identical opportunity costs in producing their respective products. 
C)  one party will always be worse off. 
D)  both must believe they will be made better off.

Question 10

When the U.S. government places a tariff on a product, such as the tariff on tires imported from China, the quantity of the product imported will generally ________ and the price paid by consumers for the product will generally ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 11

Table 9-12
Production and
Consumption Production
Without Trade With Trade
   Estonia and Morocco can produce both swords and belts. Table 9-12 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-12. Which country has an absolute advantage in producing swords?

Accepted Answer

A)  Estonia 
B)  Morocco 
C)  both countries 
D)  neither country 
A)  Estonia 
B)  Morocco 
C)  both countries 
D)  neither country

Question 12

Which of the following describes the national security argument for protectionism?

Accepted Answer

A)  Nearly all industries can make some claim to strategic importance so such trade restrictions can get out of hand. 
B)  Increases in economic surplus outweigh the decreases in consumer surplus that result from protectionism. 
C)  Some goods should be insulated from foreign competition to ensure an adequate supply of these goods in the event of an international conflict. 
D)  Private companies (for example, Coca-Cola) should not be forced to reveal their trade secrets to foreign companies. 
A)  Nearly all industries can make some claim to strategic importance so such trade restrictions can get out of hand. 
B)  Increases in economic surplus outweigh the decreases in consumer surplus that result from protectionism. 
C)  Some goods should be insulated from foreign competition to ensure an adequate supply of these goods in the event of an international conflict. 
D)  Private companies (for example, Coca-Cola) should not be forced to reveal their trade secrets to foreign companies.

Question 13

If a country has a comparative advantage in producing a product, it may not have an absolute advantage in producing that product.

Accepted Answer

A) True 
 B)False

Question 14

The selling of a product for a price below its cost of production is called

Accepted Answer

A)  fair competition. 
B)  dumping. 
C)  unfair competition. 
D)  operating at a loss. 
A)  fair competition. 
B)  dumping. 
C)  unfair competition. 
D)  operating at a loss.

Question 15

Jobs lost to foreign trade are generally easy to identify, but jobs created by foreign trade are generally less easy to identify.

Accepted Answer

A) True 
 B)False

Question 16

What are the four main sources of comparative advantage? Briefly explain each source and provide examples.

Accepted Answer

The 4 main sources cited are:
1. climate

Question 17

What is dumping? Who benefits and who loses from dumping?

Accepted Answer

Dumping refers to selling a product for

Question 18

Figure 9-3   Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota.
-Refer to Figure 9-3. What is the value of the deadweight loss as a result of the quota?

Accepted Answer

A)  $5.25 million 
B)  $8 million 
C)  $17.25 million 
D)  $20 million 
A)  $5.25 million 
B)  $8 million 
C)  $17.25 million 
D)  $20 million

Question 19

In general, the costs tariffs and quotas impose on consumers are

Accepted Answer

A)  large in total but relatively small per person. 
B)  small in total but relatively large per person. 
C)  large in total and large per person. 
D)  small in total and small per person. 
A)  large in total but relatively small per person. 
B)  small in total but relatively large per person. 
C)  large in total and large per person. 
D)  small in total and small per person.

Exam 9: Comparative Advantage and the Gains From International Trade

Free trade refers to trade between countries without government restrictions.

Dumping refers to countries exporting unwanted and inferior products to other countries.

Goods and services bought domestically but produced in other countries are referred to as

What does it mean for a country to have a comparative advantage in producing a product?

Figure 9-5 Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 9-5 shows the impact of this tariff. -Refer to Figure 9-5. With the tariff in place, the United States

A voluntary export restraint is an agreement negotiated by two countries that places ________ that can be imported by one country from another country.

Whenever a buyer and a seller agree to trade,

When the U.S. government places a tariff on a product, such as the tariff on tires imported from China, the quantity of the product imported will generally ________ and the price paid by consumers for the product will generally ________.

Which of the following describes the national security argument for protectionism?

If a country has a comparative advantage in producing a product, it may not have an absolute advantage in producing that product.

The selling of a product for a price below its cost of production is called

Jobs lost to foreign trade are generally easy to identify, but jobs created by foreign trade are generally less easy to identify.

What are the four main sources of comparative advantage? Briefly explain each source and provide examples.

What is dumping? Who benefits and who loses from dumping?

Figure 9-3 Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota. -Refer to Figure 9-3. What is the value of the deadweight loss as a result of the quota?

In general, the costs tariffs and quotas impose on consumers are

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

When the U.S. government places a tariff on a product, such as the tariff on tires imported from China, the quantity of the product imported will generally and the price paid by consumers for the product will generally .