Question 1

Comparative advantage is defined as

Accepted Answer

A)  the ability to produce more output of one good relative to another good than another country can. 
B)  the ability to produce more output from given inputs of resources than others can. 
C)  the ability to use more input of resources than others can. 
D)  having a lower average fixed cost in the production of a good than does someone else. 
A)  the ability to produce more output of one good relative to another good than another country can. 
B)  the ability to produce more output from given inputs of resources than others can. 
C)  the ability to use more input of resources than others can. 
D)  having a lower average fixed cost in the production of a good than does someone else.

Question 2

Import restrictions

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 jobs in the protected industry but will also lead to job reductions in other export industries. 
C)  hurt people who work in importing companies, but makes consumers better off. 
D)  cannot protect American jobs in any sector of the economy. 
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 jobs in the protected industry but will also lead to job reductions in other export industries. 
C)  hurt people who work in importing companies, but makes consumers better off. 
D)  cannot protect American jobs in any sector of the economy.

Question 3

A tariff placed on a foreign good will

Accepted Answer

A)  reduce the price of a competing domestic good. 
B)  increase the price of a competing domestic good. 
C)  increase the quantity sold of both the foreign and competing domestic good. 
D)  reduce the quantity sold of both the foreign and competing domestic good. 
A)  reduce the price of a competing domestic good. 
B)  increase the price of a competing domestic good. 
C)  increase the quantity sold of both the foreign and competing domestic good. 
D)  reduce the quantity sold of both the foreign and competing domestic good.

Question 4

-Using the data in the above table and assuming constant opportunity costs, it is correct to state that

Accepted Answer

A)  the United States has an absolute advantage in producing cloth. 
B)  Mexico has a comparative advantage in producing food. 
C)  the United States has a comparative advantage in producing both food and cloth. 
D)  Mexico has a comparative advantage in producing both food and cloth. 
A)  the United States has an absolute advantage in producing cloth. 
B)  Mexico has a comparative advantage in producing food. 
C)  the United States has a comparative advantage in producing both food and cloth. 
D)  Mexico has a comparative advantage in producing both food and cloth.

Question 5

Arguments in support of protectionism (and against free trade) include all of the following EXCEPT

Accepted Answer

A)  new and troubled industries need to be protected until they acquire sufficient strength to compete equally against their foreign counterparts. 
B)  jobs at home should be protected from cheap foreign labor. 
C)  protectionism increase total domestic consumption possibilities. 
D)  national security interests require that nations retain the ability to produce vital materials at home and avoid dependence upon potential enemies. 
A)  new and troubled industries need to be protected until they acquire sufficient strength to compete equally against their foreign counterparts. 
B)  jobs at home should be protected from cheap foreign labor. 
C)  protectionism increase total domestic consumption possibilities. 
D)  national security interests require that nations retain the ability to produce vital materials at home and avoid dependence upon potential enemies.

Question 6

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 7

If protective import-restricting tariffs are imposed by a country, in the majority of cases that nation's consumers end up

Accepted Answer

A)  paying a higher price for the good than they otherwise would. 
B)  paying a lower price for the good than they otherwise would. 
C)  consuming more of the good than they otherwise would. 
D)  having a higher standard of living than they otherwise would. 
A)  paying a higher price for the good than they otherwise would. 
B)  paying a lower price for the good than they otherwise would. 
C)  consuming more of the good than they otherwise would. 
D)  having a higher standard of living than they otherwise would.

Question 8

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 9

If a country voluntarily agrees to have its companies import more goods from another country, the country has

Accepted Answer

A)  a voluntary import expansion (VI
E)  agreement. 
B)  a voluntary restraint agreement (VR
A) . 
C)  a mandated tariff. 
D)  a mandated agreement. 
A)  a voluntary import expansion (VI
E)  agreement. 
B)  a voluntary restraint agreement (VR
A) . 
C)  a mandated tariff. 
D)  a mandated agreement.

Question 10

A tariff is a tax on

Accepted Answer

A)  all exported goods imposed by the WTO. 
B)  imported goods. 
C)  shipping containers. 
D)  foreign exchange transactions. 
A)  all exported goods imposed by the WTO. 
B)  imported goods. 
C)  shipping containers. 
D)  foreign exchange transactions.

Question 11

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

Accepted Answer

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

Question 12

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 13

The contention that specific sensitive domestic technologies must not be traded freely is

Accepted Answer

A)  a national defense concern. 
B)  the infant industry argument. 
C)  dumping. 
D)  to protect domestic jobs. 
A)  a national defense concern. 
B)  the infant industry argument. 
C)  dumping. 
D)  to protect domestic jobs.

Question 14

Specialization in trade will be economically efficient if it is based upon

Accepted Answer

A)  national security needs. 
B)  absolute advantage. 
C)  comparative advantage. 
D)  government regulations. 
A)  national security needs. 
B)  absolute advantage. 
C)  comparative advantage. 
D)  government regulations.

Question 15

Given two economic systems, A and B, if economy A has a comparative advantage in the production of widgets, then

Accepted Answer

A)  the inputs necessary to produce widgets in economy A cost less than in economy B. 
B)  economy A must give up less of all other goods to produce widgets than economy B. 
C)  economy A is less efficient in the production of some goods than economy B. 
D)  economy A would not benefit from the specialization of production. 
A)  the inputs necessary to produce widgets in economy A cost less than in economy B. 
B)  economy A must give up less of all other goods to produce widgets than economy B. 
C)  economy A is less efficient in the production of some goods than economy B. 
D)  economy A would not benefit from the specialization of production.

Question 16

The highest tariff rates of the twentieth century in the United States arose as a result of which law?

Accepted Answer

A)  the Robinson-Patman Act 
B)  the Tariff of Abominations Act 
C)  the Wheeler-Lea Act 
D)  the Smoot-Hawley Act 
A)  the Robinson-Patman Act 
B)  the Tariff of Abominations Act 
C)  the Wheeler-Lea Act 
D)  the Smoot-Hawley Act

Question 17

-Using the data in the above table and assuming constant opportunity costs, it is correct to state that

Accepted Answer

A)  the United States has a comparative advantage in producing food. 
B)  Mexico has an absolute advantage in producing both food and cloth. 
C)  the United States has a comparative advantage in producing both food and cloth. 
D)  Mexico has a comparative advantage in producing cloth. 
A)  the United States has a comparative advantage in producing food. 
B)  Mexico has an absolute advantage in producing both food and cloth. 
C)  the United States has a comparative advantage in producing both food and cloth. 
D)  Mexico has a comparative advantage in producing cloth.

Question 18

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 19

A group of nations that grants member special trade privileges is

Accepted Answer

A)  World Trade Organization. 
B)  European Union. 
C)  General Agreement on Tariffs and Trade. 
D)  North American Free Trade Agreement. 
A)  World Trade Organization. 
B)  European Union. 
C)  General Agreement on Tariffs and Trade. 
D)  North American Free Trade Agreement.

Question 20

If protective import-restricting quota are imposed by a country, all of the following groups benefit EXCEPT

Accepted Answer

A)  domestic producers in the affected industry. 
B)  domestic consumers in the affected industry. 
C)  employees of domestic producers in the affected industry. 
D)  importers that are able to obtain the rights to sell imported items in the affected industry. 
A)  domestic producers in the affected industry. 
B)  domestic consumers in the affected industry. 
C)  employees of domestic producers in the affected industry. 
D)  importers that are able to obtain the rights to sell imported items in the affected industry.

Exam 32: Comparative Advantage and the Open Economy

Comparative advantage is defined as

Import restrictions

A tariff placed on a foreign good will

-Using the data in the above table and assuming constant opportunity costs, it is correct to state that

Arguments in support of protectionism (and against free trade) include all of the following EXCEPT

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

If protective import-restricting tariffs are imposed by a country, in the majority of cases that nation's consumers end up

The basic proposition in international trade is that

If a country voluntarily agrees to have its companies import more goods from another country, the country has

A tariff is a tax on

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

In international trade the term "dumping" means

The contention that specific sensitive domestic technologies must not be traded freely is

Specialization in trade will be economically efficient if it is based upon

Given two economic systems, A and B, if economy A has a comparative advantage in the production of widgets, then

The highest tariff rates of the twentieth century in the United States arose as a result of which law?

-Using the data in the above table and assuming constant opportunity costs, it is correct to state that

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

A group of nations that grants member special trade privileges is

If protective import-restricting quota are imposed by a country, all of the following groups benefit EXCEPT

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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