Question 1

The infant-industry argument for tariff protection is that tariffs should be imposed to protect from competition

Accepted Answer

A)  industries that are essential if a country is to become an industrial nation. 
B)  industries needed for national defense. 
C)  industries that cannot compete with foreign competitors at this point in time, but will be able to once they gain some size and experience. 
D)  industries that can compete with foreign competitors at this point in time and are deemed essential by the government. 
A)  industries that are essential if a country is to become an industrial nation. 
B)  industries needed for national defense. 
C)  industries that cannot compete with foreign competitors at this point in time, but will be able to once they gain some size and experience. 
D)  industries that can compete with foreign competitors at this point in time and are deemed essential by the government.

Question 2

The principle of comparative advantage essentially states that

Accepted Answer

A)  there are some goods for which the opportunity costs of production are the same regardless of who produces them. 
B)  some goods have high opportunity costs and low absolute costs. 
C)  specialization can reduce output rather than increase it. 
D)  total output of an economic system is greatest when each good is produced by those who have the lowest opportunity cost of producing the good. 
A)  there are some goods for which the opportunity costs of production are the same regardless of who produces them. 
B)  some goods have high opportunity costs and low absolute costs. 
C)  specialization can reduce output rather than increase it. 
D)  total output of an economic system is greatest when each good is produced by those who have the lowest opportunity cost of producing the good.

Question 3

The General Agreement on Tariffs and Trade is an international agreement

Accepted Answer

A)  to establish the North American continent as a free trade area. 
B)  to encourage peaceful settlements of trade disputes, but has no particular point of view about the desirability of higher or lower tariffs. 
C)  to encourage world trade by lowering tariffs and other trade barriers. 
D)  to make all tariffs illegal. 
A)  to establish the North American continent as a free trade area. 
B)  to encourage peaceful settlements of trade disputes, but has no particular point of view about the desirability of higher or lower tariffs. 
C)  to encourage world trade by lowering tariffs and other trade barriers. 
D)  to make all tariffs illegal.

Question 4

All of the following are arguments against free trade EXCEPT

Accepted Answer

A)  the infant industry argument. 
B)  dumping. 
C)  comparative advantage. 
D)  the need to protect American jobs. 
A)  the infant industry argument. 
B)  dumping. 
C)  comparative advantage. 
D)  the need to protect American jobs.

Question 5

The ability to produce a good or service at a lower opportunity cost than other producers is

Accepted Answer

A)  absolute advantage. 
B)  comparative advantage. 
C)  opportunity advantage. 
D)  special advantage. 
A)  absolute advantage. 
B)  comparative advantage. 
C)  opportunity advantage. 
D)  special advantage.

Question 6

Comparative advantage is

Accepted Answer

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

Question 7

Voluntary restraint agreements are

Accepted Answer

A)  a type of tariff in which the tax is a fixed amount per unit of good imported. 
B)  a type of tariff in which the tax is based on the value of the good. 
C)  a type of quota that actually benefits the firms facing the restrictions. 
D)  a type of quota agreed to "voluntarily" in order to prevent more severe protection of another type. 
A)  a type of tariff in which the tax is a fixed amount per unit of good imported. 
B)  a type of tariff in which the tax is based on the value of the good. 
C)  a type of quota that actually benefits the firms facing the restrictions. 
D)  a type of quota agreed to "voluntarily" in order to prevent more severe protection of another type.

Question 8

Suppose a Chinese firm moves its final assembly line to France 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 9

According to the Swiss Institute for Management Development, the top country in terms of productive efficiency is

Accepted Answer

A)  Germany. 
B)  Japan. 
C)  Switzerland. 
D)  the United States. 
A)  Germany. 
B)  Japan. 
C)  Switzerland. 
D)  the United States.

Question 10

The net effect of regional trade agreements has been

Accepted Answer

A)  an increase in the total amount of trade in the world. 
B)  a decrease in the total amount of trade in the world. 
C)  no change in the total amount of trade in the world. 
D)  either an increase or decrease in the amount of trade in the world, depending on where trade takes place. 
A)  an increase in the total amount of trade in the world. 
B)  a decrease in the total amount of trade in the world. 
C)  no change in the total amount of trade in the world. 
D)  either an increase or decrease in the amount of trade in the world, depending on where trade takes place.

Question 11

The effect of an import quota is

Accepted Answer

A)  to shift the supply curve up by the amount of the quota. 
B)  to lead to a decrease in demand. 
C)  to make the supply curve vertical at the amount of the quota. 
D)  to make the supply curve horizontal at the amount of the quota. 
A)  to shift the supply curve up by the amount of the quota. 
B)  to lead to a decrease in demand. 
C)  to make the supply curve vertical at the amount of the quota. 
D)  to make the supply curve horizontal at the amount of the quota.

Question 12

In order to obtain an efficient allocation of resources worldwide

Accepted Answer

A)  countries that have a lot of resources should ship resources to countries that do not have a lot of resources. 
B)  countries that have a lot of resources should not trade since poorer countries cannot compete. 
C)  each country should produce the good they have a comparative advantage in and then trade. 
D)  no trade among countries should occur. 
A)  countries that have a lot of resources should ship resources to countries that do not have a lot of resources. 
B)  countries that have a lot of resources should not trade since poorer countries cannot compete. 
C)  each country should produce the good they have a comparative advantage in and then trade. 
D)  no trade among countries should occur.

Question 13

Assume that maximum feasible hourly productions levels if all resources are utilized in the United States are either 3 yards of fabric or 9 bushels of wheat. Maximum feasible production levels if all resources are utilized in Japan are either 6 yards of fabric or 12 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)  Japan should specialize in both products. 
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)  Japan should specialize in both products.

Question 14

-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 15

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.

Question 16

Which of the following are regulations that nations in regional trade blocs establish to delineate product categories eligible for trading preferences?

Accepted Answer

A)  trade quotas 
B)  trade tariffs 
C)  rules of law 
D)  rules of origin 
A)  trade quotas 
B)  trade tariffs 
C)  rules of law 
D)  rules of origin

Question 17

When the principle of comparative advantage determines trade, then a country will

Accepted Answer

A)  specialize only in that good with the highest opportunity cost. 
B)  specialize only in goods with the lowest opportunity costs. 
C)  specialize only in that good where output is less per worker hour than another country. 
D)  specialize only in that good where production costs are more than average total costs. 
A)  specialize only in that good with the highest opportunity cost. 
B)  specialize only in goods with the lowest opportunity costs. 
C)  specialize only in that good where output is less per worker hour than another country. 
D)  specialize only in that good where production costs are more than average total costs.

Question 18

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)  will produce less 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)  will produce less than they could without trade. 
C)  will have a lower standard of living. 
D)  will be exploited by the second nation.

Question 19

An agreement with another country in which it agrees to import more from the United States is called a

Accepted Answer

A)  VRA. 
B)  VIE. 
C)  VAR. 
D)  VAT. 
A)  VRA. 
B)  VIE. 
C)  VAR. 
D)  VAT.

Question 20

Which of the following is NOT an example of a regional trade bloc?

Accepted Answer

A)  the North American Free Trade Agreement 
B)  the European Union 
C)  the Asian-Pacific Trade Agreement 
D)  Mercosur 
A)  the North American Free Trade Agreement 
B)  the European Union 
C)  the Asian-Pacific Trade Agreement 
D)  Mercosur

Exam 32: Comparative Advantage and the Open Economy

The infant-industry argument for tariff protection is that tariffs should be imposed to protect from competition

The principle of comparative advantage essentially states that

The General Agreement on Tariffs and Trade is an international agreement

All of the following are arguments against free trade EXCEPT

The ability to produce a good or service at a lower opportunity cost than other producers is

Comparative advantage is

Voluntary restraint agreements are

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

According to the Swiss Institute for Management Development, the top country in terms of productive efficiency is

The net effect of regional trade agreements has been

The effect of an import quota is

In order to obtain an efficient allocation of resources worldwide

-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?

One problem with the infant industry argument is that

Which of the following are regulations that nations in regional trade blocs establish to delineate product categories eligible for trading preferences?

When the principle of comparative advantage determines trade, then a country will

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

An agreement with another country in which it agrees to import more from the United States is called a

Which of the following is NOT an example of a regional trade bloc?

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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