Question 1

An official agreement with another country to restrict the quantity of its exports to the U.S. is

Accepted Answer

A)  a regional trade bloc. 
B)  the quota system. 
C)  a voluntary import expansion. 
D)  a voluntary restraint agreement. 
A)  a regional trade bloc. 
B)  the quota system. 
C)  a voluntary import expansion. 
D)  a voluntary restraint agreement.

Question 2

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 3

All of the following are arguments in favor of restricting trade EXCEPT

Accepted Answer

A)  comparative advantage. 
B)  protecting domestic jobs. 
C)  protecting emerging industries. 
D)  dumping. 
A)  comparative advantage. 
B)  protecting domestic jobs. 
C)  protecting emerging industries. 
D)  dumping.

Question 4

Dumping is defined as

Accepted Answer

A)  selling a good abroad at prices above the costs of the firms in the foreign countries. 
B)  exporting goods that are of inferior quality. 
C)  selling a good abroad at prices below its cost of production or below the price charged in the home market. 
D)  exporting goods that are sources of pollution. 
A)  selling a good abroad at prices above the costs of the firms in the foreign countries. 
B)  exporting goods that are of inferior quality. 
C)  selling a good abroad at prices below its cost of production or below the price charged in the home market. 
D)  exporting goods that are sources of pollution.

Question 5

The selling of a good or service abroad at a price below what is charged in the home market or below the cost of production is referred to as

Accepted Answer

A)  recycling. 
B)  a quota. 
C)  dumping. 
D)  a tariff. 
A)  recycling. 
B)  a quota. 
C)  dumping. 
D)  a tariff.

Question 6

Which of the following is a TRUE statement?

Accepted Answer

A)  Everyone benefits from free trade. 
B)  Exporters benefit from trade and importers do not. 
C)  Consumers benefit from trade and producers do not. 
D)  Free trade harms domestic producers of goods that face import competition. 
A)  Everyone benefits from free trade. 
B)  Exporters benefit from trade and importers do not. 
C)  Consumers benefit from trade and producers do not. 
D)  Free trade harms domestic producers of goods that face import competition.

Question 7

The argument that many critics of free trade have suggested that genetic engineering of plants and animals could lead to accidental production of new diseases 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 8

Comparative advantage is defined as

Accepted Answer

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

Question 9

Today, in the United States, imports are about

Accepted Answer

A)  16 percent of GDP. 
B)  32 percent of GDP. 
C)  8 percent of GDP. 
D)  4 percent of GDP. 
A)  16 percent of GDP. 
B)  32 percent of GDP. 
C)  8 percent of GDP. 
D)  4 percent of GDP.

Question 10

-Refer to the above figures. A tariff is placed on a foreign good. Which figure represents the situation in the domestic market for the foreign 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 11

International trade is based on the existence of

Accepted Answer

A)  absolute advantage. 
B)  perfect advantage. 
C)  productivity advantage. 
D)  comparative advantage. 
A)  absolute advantage. 
B)  perfect advantage. 
C)  productivity advantage. 
D)  comparative advantage.

Question 12

Country A can product 100 units of Good X in a day and 40 units of Good Y while Country B can produce 50 units of Good X and 40 units of Good Y.

Accepted Answer

A)  These countries will not trade since Country A has a comparative advantage in the production of both goods. 
B)  These countries will not trade since Country A will always be able to take advantage of Country B. 
C)  These countries should trade since Country A has a comparative advantage in the production of Good X and Country B has a comparative advantage in the production of Good Y. 
D)  These countries should trade since Country B has a comparative advantage in the production of Good X and Country A has a comparative advantage in the production of Good Y. 
A)  These countries will not trade since Country A has a comparative advantage in the production of both goods. 
B)  These countries will not trade since Country A will always be able to take advantage of Country B. 
C)  These countries should trade since Country A has a comparative advantage in the production of Good X and Country B has a comparative advantage in the production of Good Y. 
D)  These countries should trade since Country B has a comparative advantage in the production of Good X and Country A has a comparative advantage in the production of Good Y.

Question 13

If in the long run, imports are paid for by exports, then

Accepted Answer

A)  any restriction of imports ultimately reduces exports. 
B)  any restriction of imports ultimately expands exports. 
C)  any restriction of imports has no impact on exports. 
D)  any restriction of exports has no impact on imports. 
A)  any restriction of imports ultimately reduces exports. 
B)  any restriction of imports ultimately expands exports. 
C)  any restriction of imports has no impact on exports. 
D)  any restriction of exports has no impact on imports.

Question 14

Why do free trade proponents dislike rules of origin in trade agreements?

Accepted Answer

A)  It decreases the amount of international trade in the world. 
B)  It increases the amount of international trade in the world. 
C)  It decreases incentives for trade diversion. 
D)  It increases incentives for trade deflection. 
A)  It decreases the amount of international trade in the world. 
B)  It increases the amount of international trade in the world. 
C)  It decreases incentives for trade diversion. 
D)  It increases incentives for trade deflection.

Question 15

When a tariff is imposed, the supply curve for the imported good

Accepted Answer

A)  shifts downward and to the right. 
B)  shifts upward and to the left. 
C)  does not change. 
D)  becomes perfectly inelastic. 
A)  shifts downward and to the right. 
B)  shifts upward and to the left. 
C)  does not change. 
D)  becomes perfectly inelastic.

Question 16

A legal restriction on the amount of a good that can be imported into a country is known as a

Accepted Answer

A)  voluntary restraint agreement. 
B)  tariff. 
C)  quota. 
D)  Domestic Protection Restraint (DPR). 
A)  voluntary restraint agreement. 
B)  tariff. 
C)  quota. 
D)  Domestic Protection Restraint (DPR).

Question 17

What is GATT and what happened to tariff rates as a result of GATT?

Accepted Answer

GATT is the General Agreement on Tariffs

Question 18

According to international trade theory

Accepted Answer

A)  trade is based on absolute advantage. 
B)  comparative advantage is based on absolute advantage. 
C)  every country has a comparative advantage in something. 
D)  less developed countries cannot trade successfully with developed countries. 
A)  trade is based on absolute advantage. 
B)  comparative advantage is based on absolute advantage. 
C)  every country has a comparative advantage in something. 
D)  less developed countries cannot trade successfully with developed countries.

Question 19

The two groups that benefit the most from quotas are

Accepted Answer

A)  the importers who have the right to import the restricted good and the domestic producers of the restricted good. 
B)  the domestic consumers of the restricted good and the domestic producers of the restricted good. 
C)  the domestic consumers of the restricted good and the foreign producers of the restricted good. 
D)  the importers who have the right to import the restricted good and the domestic consumers of the restricted good. 
A)  the importers who have the right to import the restricted good and the domestic producers of the restricted good. 
B)  the domestic consumers of the restricted good and the domestic producers of the restricted good. 
C)  the domestic consumers of the restricted good and the foreign producers of the restricted good. 
D)  the importers who have the right to import the restricted good and the domestic consumers of the restricted good.

Question 20

A tariff is

Accepted Answer

A)  a government-imposed restriction on the quantity of a specific good that can be imported into the country. 
B)  a tax on imported goods. 
C)  a subsidy on domestically produced goods. 
D)  a voluntary agreement to restrict exports. 
A)  a government-imposed restriction on the quantity of a specific good that can be imported into the country. 
B)  a tax on imported goods. 
C)  a subsidy on domestically produced goods. 
D)  a voluntary agreement to restrict exports.

Exam 32: Comparative Advantage and the Open Economy

An official agreement with another country to restrict the quantity of its exports to the U.S. is

An international agreement from 1947 designed to lower tariffs was

All of the following are arguments in favor of restricting trade EXCEPT

Dumping is defined as

The selling of a good or service abroad at a price below what is charged in the home market or below the cost of production is referred to as

Which of the following is a TRUE statement?

The argument that many critics of free trade have suggested that genetic engineering of plants and animals could lead to accidental production of new diseases is the

Comparative advantage is defined as

Today, in the United States, imports are about

-Refer to the above figures. A tariff is placed on a foreign good. Which figure represents the situation in the domestic market for the foreign good?

International trade is based on the existence of

Country A can product 100 units of Good X in a day and 40 units of Good Y while Country B can produce 50 units of Good X and 40 units of Good Y.

If in the long run, imports are paid for by exports, then

Why do free trade proponents dislike rules of origin in trade agreements?

When a tariff is imposed, the supply curve for the imported good

A legal restriction on the amount of a good that can be imported into a country is known as a

What is GATT and what happened to tariff rates as a result of GATT?

According to international trade theory

The two groups that benefit the most from quotas are

A tariff is

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