Question 1

The World Trade Organization

Accepted Answer

A)  was established to settle trade disputes within the European Union. 
B)  is another name for the IMF. 
C)  was established to resolve disputes arising under world trade rules. 
D)  increases world trade by providing interest rate subsidies to foreign borrowers who buy U.S. exports on credit. 
A)  was established to settle trade disputes within the European Union. 
B)  is another name for the IMF. 
C)  was established to resolve disputes arising under world trade rules. 
D)  increases world trade by providing interest rate subsidies to foreign borrowers who buy U.S. exports on credit.

Question 2

That each individual should engage in economic activities in which he or she is relatively more efficient is an application of the concept of

Accepted Answer

A)  competition. 
B)  absolute advantage. 
C)  scarcity. 
D)  comparative advantage. 
A)  competition. 
B)  absolute advantage. 
C)  scarcity. 
D)  comparative advantage.

Question 3

Quotas and tariffs both serve the purpose of

Accepted Answer

A)  increasing foreign trade. 
B)  restricting foreign trade. 
C)  causing domestic producers to lose revenues. 
D)  lowering prices on imported goods. 
A)  increasing foreign trade. 
B)  restricting foreign trade. 
C)  causing domestic producers to lose revenues. 
D)  lowering prices on imported goods.

Question 4

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

Accepted Answer

A)  paying a lower price and consuming more of the good than they otherwise would. 
B)  paying a lower price and consuming less of the good than they otherwise would. 
C)  paying a higher price and consuming less of the good than they otherwise would. 
D)  paying a higher price and consuming more of the good than they otherwise would. 
A)  paying a lower price and consuming more of the good than they otherwise would. 
B)  paying a lower price and consuming less of the good than they otherwise would. 
C)  paying a higher price and consuming less of the good than they otherwise would. 
D)  paying a higher price and consuming more of the good than they otherwise would.

Question 5

Dumping is considered a practice that seriously harms domestic producers because

Accepted Answer

A)  the quality of the dumped good is superior to that of the importing country. 
B)  it allows the exporting country to use poor quality materials. 
C)  it establishes a price that cannot be met by domestic producers. 
D)  it discriminates between wealthy and poor countries. 
A)  the quality of the dumped good is superior to that of the importing country. 
B)  it allows the exporting country to use poor quality materials. 
C)  it establishes a price that cannot be met by domestic producers. 
D)  it discriminates between wealthy and poor countries.

Question 6

The argument that trade in high-tech equipment can facilitate the implementation of advanced military technology in countries that may become strategic opponents later on is the

Accepted Answer

A)  national security argument. 
B)  infant industry argument. 
C)  protecting domestic jobs argument. 
D)  environmental and safety argument. 
A)  national security argument. 
B)  infant industry argument. 
C)  protecting domestic jobs argument. 
D)  environmental and safety argument.

Question 7

Absolute 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)  is always a relative concept. 
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)  is always a relative concept. 
D)  the ability to produce all goods at lower costs than anyone else can.

Question 8

According to the text, approximately how many countries are members of the WTO?

Accepted Answer

A)  100 
B)  135 
C)  160 
D)  180 
A)  100 
B)  135 
C)  160 
D)  180

Question 9

The contention that domestic unions tend to want to restrict foreign competition with tariffs 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 10

The infant industry argument says that

Accepted Answer

A)  tariffs should be imposed to allow a new industry in a country to get established. 
B)  dumping should be allowed in order to establish a presence of an industry that has previously not had a presence in another country. 
C)  countries should produce and trade goods according to their comparative advantage. 
D)  imports should target new products from other countries to take advantage of the transmission of new ideas. 
A)  tariffs should be imposed to allow a new industry in a country to get established. 
B)  dumping should be allowed in order to establish a presence of an industry that has previously not had a presence in another country. 
C)  countries should produce and trade goods according to their comparative advantage. 
D)  imports should target new products from other countries to take advantage of the transmission of new ideas.

Question 11

A significant advantage to being a member of a trade bloc is

Accepted Answer

A)  higher tariff collections from member countries. 
B)  reduced or eliminated tariffs among member countries. 
C)  reduced tariff rates only for the largest member countries. 
D)  None of the above; there is no economic advantage to a trade bloc. 
A)  higher tariff collections from member countries. 
B)  reduced or eliminated tariffs among member countries. 
C)  reduced tariff rates only for the largest member countries. 
D)  None of the above; there is no economic advantage to a trade bloc.

Question 12

If country X can produce a unit of good 1 at a lower opportunity cost than can country Y, it is correct to state that country X

Accepted Answer

A)  has a comparative advantage in producing good 1. 
B)  has an absolute advantage in producing good 1. 
C)  will import good 1 from country Y. 
D)  will not produce good 1. 
A)  has a comparative advantage in producing good 1. 
B)  has an absolute advantage in producing good 1. 
C)  will import good 1 from country Y. 
D)  will not produce good 1.

Question 13

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 14

A tariff is

Accepted Answer

A)  a subsidy on domestically produced goods. 
B)  the difference between the world market price and the domestic price when a group of firms in an industry collude successfully. 
C)  a tax on imported goods. 
D)  a government imposed restriction on the quantity of a specific good that can be imported into the country and sold. 
A)  a subsidy on domestically produced goods. 
B)  the difference between the world market price and the domestic price when a group of firms in an industry collude successfully. 
C)  a tax on imported goods. 
D)  a government imposed restriction on the quantity of a specific good that can be imported into the country and sold.

Question 15

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

Accepted Answer

A)  the United States will import food. 
B)  Mexico will export cloth. 
C)  the United States will export both cloth and food. 
D)  Mexico will export both cloth and food. 
A)  the United States will import food. 
B)  Mexico will export cloth. 
C)  the United States will export both cloth and food. 
D)  Mexico will export both cloth and food.

Question 16

The successor organization to GATT that handles trade disputes among its member nations is the

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 17

Dumping typically occurs because

Accepted Answer

A)  the exporting country raises its prices to increase profits. 
B)  the exporting country usually is experiencing a recession and has excess production. 
C)  the importing country is experiencing a recession. 
D)  the importing country has assessed significant tariffs. 
A)  the exporting country raises its prices to increase profits. 
B)  the exporting country usually is experiencing a recession and has excess production. 
C)  the importing country is experiencing a recession. 
D)  the importing country has assessed significant tariffs.

Question 18

According to the infant-industry argument, protection should be withdrawn from an infant industry when the companies in the industry

Accepted Answer

A)  are listed on the domestic stock exchange. 
B)  become profitable. 
C)  double their sales revenues. 
D)  reach a sufficient size to compete with foreign firms. 
A)  are listed on the domestic stock exchange. 
B)  become profitable. 
C)  double their sales revenues. 
D)  reach a sufficient size to compete with foreign firms.

Question 19

The infant industry argument has a normative economic basis because

Accepted Answer

A)  clearly, all industries need to be protected. 
B)  protected industries are selected on a factual basis. 
C)  the government must decide which industries should be protected. 
D)  political corruption is the only deciding factor. 
A)  clearly, all industries need to be protected. 
B)  protected industries are selected on a factual basis. 
C)  the government must decide which industries should be protected. 
D)  political corruption is the only deciding factor.

Question 20

Selling a good abroad below the price charged in the home market, or at a price below the cost of production is called

Accepted Answer

A)  dumping. 
B)  import substitution. 
C)  a quota. 
D)  a tariff. 
A)  dumping. 
B)  import substitution. 
C)  a quota. 
D)  a tariff.

Exam 32: Comparative Advantage and the Open Economy

The World Trade Organization

That each individual should engage in economic activities in which he or she is relatively more efficient is an application of the concept of

Quotas and tariffs both serve the purpose of

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

Dumping is considered a practice that seriously harms domestic producers because

The argument that trade in high-tech equipment can facilitate the implementation of advanced military technology in countries that may become strategic opponents later on is the

Absolute advantage is

According to the text, approximately how many countries are members of the WTO?

The contention that domestic unions tend to want to restrict foreign competition with tariffs is

The infant industry argument says that

A significant advantage to being a member of a trade bloc is

If country X can produce a unit of good 1 at a lower opportunity cost than can country Y, it is correct to state that country X

Which of the following is an argument against free trade?

A tariff is

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

The successor organization to GATT that handles trade disputes among its member nations is the

Dumping typically occurs because

According to the infant-industry argument, protection should be withdrawn from an infant industry when the companies in the industry

The infant industry argument has a normative economic basis because

Selling a good abroad below the price charged in the home market, or at a price below the cost of production is called

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