Deck 15: International Trade

Question 1

The argument that industries should be temporarily protected by tariffs or quotas to allow firms to develop a competitive product is called the:

A) infant industry argument.
B) competitive relief argument.
C) countervailing duty argument.
D) antidumping argument.

Answer 1

A

Question 2

Based on this table, which statement is true? $$\begin{array}{l}\text { Output (in kilograms) per Worker per Day }\\\begin{array} { c c c } \text { Country } & \text { Maize } & \text { Rice } \\\text { Cambodia } & 60 & 20 \\\text { Laos } & 30 & 15\end{array}\end{array}$$

A) Cambodia has a comparative advantage in maize production.
B) Laos has a comparative advantage in rice production.
C) Both countries have comparative advantages.
D) Neither country has a comparative advantage.

Answer 2

Both countries have comparative advantages.

Question 3

In the market for surfboards seen in the graph, in autarky this country imports _____ units, while with free trade the country imports _____ units.

A) 0; 80
B) 0; 60
C) 50; 80
D) 50; 60

Answer 3

B

Question 4

A tariff of 15% on imported artwork is an example of a(n):

A) specific tariff.
B) compound tariff.
C) ad valorem tariff.
D) quota.

Question 5

Countries can gain from trade as long as the differences in the prices of a trade good between two countries is:

A) greater than the cost of transporting it between the countries.
B) equal to the cost of transporting it between the countries.
C) less than the cost of transporting it between the countries.
D) none of these is true.

Question 6

In the figure, the opportunity cost of one ton of steel in terms of aluminum is:

A) 4.0 tons.
B) 2.0 tons.
C) 0.5 tons.
D) 0.25 tons.

Question 7

In international trade, when we say that Brazil is "dumping" in the United States, this is indicating that:

A) Brazil is profiting from tariffs placed on U.S. goods.
B) Brazil's firms can produce goods at lower cost than U.S. firms can.
C) Brazil's firms are selling goods at prices below what they charge in Brazil or below their production costs.
D) Brazil's firms are selling goods at prices below the cost by which U.S. firms can produce that same good.

Question 8

(Figure: Gadgets and Widgets) According to the graph, which statement is correct?

A) Total output would rise if Country A specialized in gadgets and Country B specialized in widgets.
B) Total output would rise if Country B specialized in gadgets and Country A specialized in widgets.
C) There are no gains from trade.
D) Total output would fall if Country B specialized in gadgets and Country A specialized in widgets.

Question 9

Which statement is not a common argument against free trade?

A) It causes jobs to be lost to foreign competition.
B) It causes prices of imported goods to rise.
C) It prevents infant industries from becoming competitive in world markets.
D) It causes environmental damage due to fewer regulations abroad.

Question 10

Based on this table, the opportunity cost of one kilogram of coffee in Kenya is: $$\begin{array}{l}\text { Output (in kilograms) per Worker per Day }\\\begin{array} { c c c } \text { Country } & \text { Coffee } & \text { Cocoa } \\\text { Kenya } & 90 & 30 \\\text { Tanzania } & 40 & 20\end{array}\end{array}$$

A) 0.33 kilograms of cocoa.
B) 3 kilograms of cocoa.
C) 30 kilograms of cocoa.
D) 40 kilograms of cocoa.

Question 11

(Figure: Gadgets and Widgets) The graph shows the production possibilities for two countries, A and B. Which statement is correct?

A) Country A has the absolute advantage in both products.
B) Country B has the absolute advantage in widgets.
C) Country B has the comparative advantage in gadgets.
D) There are no gains from trade.

Question 12

A country has an absolute advantage in the production of a good if it can:

A) produce more of the good than another country.
B) produce less of the good than another country.
C) consume less of a good than another country.
D) consume more of a good than another country.

Question 13

If Costa Rica is able to produce 50,000 pounds of bananas a day, while Nicaragua can produce 30,000 pounds of bananas a day, which statement must be true?

A) Costa Rica has an absolute advantage over Nicaragua in banana production.
B) Costa Rica has a comparative advantage over Nicaragua in banana production.
C) Costa Rica has both an absolute advantage and comparative advantage over Nicaragua in banana production.
D) Costa Rica does not necessarily have an absolute advantage nor a comparative advantage over Nicaragua in banana production.

Question 14

Which sector represents the largest component of U.S. exports?

A) consumer goods
B) capital goods
C) services
D) food and beverages

Question 15

Which statement is generally NOT true with regard to the effect of trade on wages in developing countries?

A) Wages offered by foreign companies are generally higher than wages offered by local companies.
B) Foreign companies generally pay lower wages in developing countries than they do back home.
C) Working conditions, although often less pleasant than in developed nations, are generally improved with foreign investment.
D) Foreign companies tend to reduce the overall number of jobs available in developing countries.

Question 16

Which of these has NOT contributed to global integration?

A) improved communications
B) better transportation
C) lower trade barriers
D) increased nationalism

Question 17

A country in autarky would consume at a point _____ its PPF, while a country that engages in trade would consume at a point _____ its PPF.

A) to the left of; to the right of
B) to the left of; on
C) on; to the left of
D) on; to the right of

Question 18

Suppose Canada forms a free-trade agreement with the Netherlands and increases the quantity of tulips it imports. Canadian tulip consumers will be _____ and Canadian tulip producers will be _____.

A) better off; worse off
B) better off; better off
C) worse off; better off
D) worse off; worse off

Question 19

In the market for surfboards in the graph, with a $100 tariff per imported surfboard, the government collects a total of _____ in tariff revenues.

A) $4,000
B) $7,000
C) $16,000
D) $28,000

Question 20

Which of these typically occurs when a new tariff is imposed on the import of foreign-made steel as a result of a national defense argument?

A) Consumers will pay lower prices while deadweight loss is reduced.
B) Consumers will pay lower prices while deadweight loss is created.
C) Consumers will pay higher prices while deadweight loss is reduced.
D) Consumers will pay higher prices while deadweight loss is created.

Question 21

If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. If it used all its resources to produce milk, it could produce 20 million gallons of milk. Based on this, Germany's opportunity cost of producing a _____ is _____.

A) loaf of bread; 1/2 a gallon of milk
B) loaf of bread; 2 gallons of milk
C) gallon of milk; 1/2 a loaf of bread
D) gallon of milk; 1 loaf of bread

Question 22

If the United States can produce more of both bread and milk than Germany can, then:

A) the United States cannot benefit from trade with Germany.
B) Germany should buy all of its bread and milk from the United States.
C) the United States can still benefit from trade with Germany because of comparative advantage.
D) Germany cannot benefit from trade with the United States.

Question 23

Assume that the United States could produce 80 million loaves of bread if all its resources were devoted to bread production. If the United States used all its resources to produce milk, suppose it could produce 80 million gallons of milk. If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. Alternatively, if all its resources were used to produce milk, Germany could produce 20 million gallons of milk. Which of the following statements then is true?

A) Germany has a comparative advantage in producing milk.
B) The United States has a comparative advantage in producing bread.
C) The United States has a comparative advantage in producing both goods.
D) The United States has an absolute advantage in producing both goods.

Question 24

Mary can clean 20 windows per hour or type 30 pages per hour. Tom can clean 18 windows per hour or type 25 pages per hour. Based on this:

A) Tom has a comparative advantage in both activities.
B) Mary has a comparative advantage in cleaning windows.
C) Mary has a comparative advantage in both activities.
D) Tom has a comparative advantage in cleaning windows.

Question 25

One country has a comparative advantage in the production of a good if:

A) it has a lower opportunity cost in the production of the good than another country .
B) it has a higher opportunity cost in the production of the good than another country.
C) it can produce absolutely more than another country.
D) the quality of its finished good is consistently higher.

Question 26

(Figure: Gizmos and Gadgets) Based on the graph, we see that the opportunity cost of 1 gizmo is:

A) 1 gadget.
B) 2 gadgets.
C) 50,000 gadgets.
D) 25,000 gadgets.

Question 27

In Canada, the average worker can produce 10 computers or 6 cars a year. In the United States, the average worker can produce 12 computers or 10 cars a year. Thus:

A) Canada has a comparative advantage in producing both goods.
B) Canada has a comparative advantage in the production of computers.
C) the United States has a comparative advantage in producing both goods.
D) the United States has a comparative advantage in the production of computers.

Question 28

Suppose that the United States and Italy are considering trade in two products: grain and oranges. Suppose that before trade, the United States produces 800 million bushels of grain and 200 million bushels of oranges. At the same time, Italy produces 200 million bushels of grain and 100 million bushels of oranges. Which statement regarding absolute advantage is true?

A) The United States has an absolute advantage in producing both grain and oranges.
B) Italy has an absolute advantage in producing both grain and oranges.
C) The United States has an absolute advantage in producing grain only.
D) Italy has an absolute advantage in producing oranges only.

Question 29

When nations specialize according to their comparative advantage:

A) total world production rises but total consumption in the world declines.
B) total production and consumption in the world increase.
C) consumption rises in one country but falls in all others.
D) None of these happen.

Question 30

In Canada, the average worker can produce 10 computers or 6 cars a year. In the United States, the average worker can produce 12 computers or 10 cars a year. Based on the given information, which statement is correct?

A) Canada has a comparative advantage in the production of cars.
B) Canada has an absolute advantage in producing both goods.
C) The United States has an absolute advantage in both goods, but a comparative advantage in producing cars.
D) The United States has a comparative advantage in producing computers.

Question 31

According to international trade theory:

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

Question 32

(Figure: Corn and Watches in the United States and Canada) Referring to the graphs, we see that _____ has the comparative advantage in producing corn and _____ has the comparative advantage in producing watches.

A) the United States; Canada
B) Canada; the United States
C) the United States; the United States
D) Canada; Canada

Question 33

(Figure: Corn and Watches in the United States and Canada) Referring to the graphs, we see that the United States should export _____ to Canada and import _____ from Canada.

A) watches; corn
B) watches; nothing
C) corn; watches
D) corn; nothing

Question 34

If Canada is using all its resources to their fullest extent, it can produce either 10 million iPads or 5 million HDTVs. If Mexico is using all its resources to their fullest extent, it can produce either 6 million iPads or 6 million HDTVs. Thus:

A) Canada has a comparative advantage in producing iPads.
B) Canada has an absolute advantage in producing both goods and a comparative advantage in producing HDTVs.
C) Mexico has an absolute advantage in producing both goods.
D) Mexico has a comparative advantage in producing iPads.

Question 35

Suppose that the United States and Italy are considering trade in two products: grain and oranges. Suppose that before trade, the United States produces 800 million bushels of grain and 200 million bushels of oranges. At the same time, Italy produces 200 million bushels of grain and 100 million bushels of oranges. Which statement regarding comparative advantage is true?

A) The United States has a comparative advantage in producing both grain and oranges.
B) Italy has a comparative advantage in producing both grain and oranges.
C) The United States has a comparative advantage in producing oranges only.
D) Italy has a comparative advantage in producing oranges only.

Question 36

(Figure: Corn and Watches in the United States and Canada) Referring to the graphs, we see that _____ has the absolute advantage in producing corn and _____ has the absolute advantage in producing watches.

A) the United States; Canada
B) Canada; the United States
C) the United States; the United States
D) Canada; Canada

Question 37

If the United States can produce 50 airplanes and 50,000 shirts in one year, while Mexico can produce 5 airplanes and 15,000 shirts in one year, then:

A) the United States will not benefit from trade with Mexico because the United States has an absolute advantage over Mexico in producing both goods.
B) trade is mutually beneficial because Mexico has a comparative advantage in producing airplanes, and the United States has a comparative advantage in producing shirts.
C) neither country would benefit from trade with the other.
D) trade is mutually beneficial because the United States has a comparative advantage in producing airplanes, and Mexico has a comparative advantage in producing shirts.

Question 38

If a country has an absolute advantage in producing all goods:

A) it should produce all those goods.
B) it should ask its trading partners which goods it should specialize in.
C) it would not gain from trade.
D) there are still benefits to specialization and trade.

Question 39

Econostan can produce a widget at the cost of one thingamajig. Its trading partner can produce the same widget at a cost of two thingamajigs. Based on this information, which statement is true?

A) Econostan should specialize in widgets and import thingamajigs.
B) There is no advantage to trade between the two.
C) Econostan should specialize in thingamajigs and import widgets.
D) Econostan has a comparative advantage in producing thingamajigs.

Question 40

(Figure: Corn and Watches in the United States and Canada) Referring to the graphs, we see that ____ will benefit from free trade, but _____ will not.

A) Canada; the United States
B) the United States; Canada
C) Neither the United States nor Canada will benefit from free trade.
D) Both the United States and Canada will benefit from free trade.

Question 41

It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car. It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car. Therefore:

A) Greg has a comparative advantage in producing corn.
B) Melissa has a comparative advantage in washing cars.
C) Melissa has an absolute advantage in producing corn.
D) Greg has an absolute advantage in washing cars.

Question 42

(Table: Econoland and Macroland Annual Production Capacity in Tons) Based on the table, which statement correctly identifies the situation described therein? $$\begin{array} { | l | l | l | } \hline & \text { Cabbages } & \text { Oranges } \\\hline \text { Econoland } & 50,000 & 40,000 \\\hline \text { Macroland } & 80,000 & 72,000 \\\hline\end{array}$$

A) Macroland's opportunity cost of producing cabbages is 0.9 ton of oranges and Econoland's is 0.8 ton of oranges, which means Econoland has comparative advantage in cabbage production.
B) Macroland's opportunity cost of producing cabbages is 1.25 tons of oranges and Econoland's is 1.11 tons of oranges, which means Macroland has comparative advantage in cabbage production.
C) Macroland's opportunity cost of producing cabbages is 0.9 ton of oranges and Econoland's is 0.8 ton of oranges, which means Macroland has comparative advantage in cabbage production.
D) Macroland's opportunity cost of producing cabbages is 1.25 tons of oranges and Econoland's is 1.11 tons of oranges, which means Econoland has comparative advantage in cabbage production.

Question 43

As free trade expands:

A) worldwide GDP falls.
B) workers in industries with a comparative disadvantage lose their jobs.
C) shipping companies lose profitability.
D) exports fall.

Question 44

(Table) Referring to the table, assume that France and England want to produce the same total amount of cheese after trade. We see that after specialization, France will produce _____ units of cheese.

A) 15
B) 20
C) 40
D) 60

Question 45

From a macroeconomic perspective, consumers benefit from international trade, but from the view of industries at a comparative disadvantage:

A) employment in those industries is likely to grow.
B) profits will likely rise.
C) both employment and profits in those industries will likely rise.
D) individual workers in those industries are likely to lose their jobs.

Question 46

It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car. It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car. Therefore:

A) Greg has a comparative advantage in producing corn.
B) Greg has a comparative advantage in washing cars.
C) Melissa has an absolute advantage in producing corn.
D) Melissa has an absolute advantage in washing cars.

Question 47

(Table: Econoland and Macroland Annual Production Capacity in Tons) Based on the table, which statement correctly identifies opportunity costs? $$\begin{array} { | l | l | l | } \hline & \text { Cabbages } & \text { Oranges } \\\hline \text { Econoland } & 50,000 & 40,000 \\\hline \text { Macroland } & 80,000 & 72,000 \\\hline\end{array}$$

A) Macroland's opportunity cost for producing cabbages is 0.625% of Econoland's.
B) Econoland's opportunity cost for producing cabbages is 1.6 tons of oranges.
C) Macroland's opportunity cost for producing oranges is 1.11 tons of cabbage.
D) Econoland's opportunity cost for producing oranges is 0.556% of Macroland's.

Question 48

If the United States has a comparative advantage over Canada in the production of computers and Canada has a comparative advantage over the United States in the production of cars, then:

A) neither country can benefit from trade with each other.
B) the United States should specialize in the production of cars.
C) the United States should specialize in the production of computers and trade some computers to Canada for cars.
D) Canada should not trade its cars.

Question 49

(Table: Econoland and Macroland Annual Production Capacity in Tons) Based on the table, which statement correctly identifies the reason for Macroland's comparative advantage? $$\begin{array} { | l | l | l | } \hline & \text { Cabbages } & \text { Oranges } \\\hline \text { Econoland } & 50,000 & 40,000 \\\hline \text { Macroland } & 80,000 & 72,000 \\\hline\end{array}$$

A) Econoland's comparative advantage is in oranges because its opportunity cost per ton of orange (0.9 ton of cabbage) is lower than Macroland's.
B) Econoland's comparative advantage is in oranges because its opportunity cost per ton of orange (1.11 ton of cabbage) is lower than Macroland's.
C) Econoland's comparative advantage is in cabbages because its opportunity cost per ton of cabbage (0.8 ton of oranges) is lower than Macroland's.
D) Econoland's comparative advantage is in cabbages because its opportunity cost per ton of cabbage (1.25 ton of oranges) is lower than Macroland's.

Question 50

Which statement is an example of a practical constraint on trade?

A) Production possibilities curves exhibit increasing returns.
B) Transportation and communication costs occur with every trade.
C) Workers in every industry in the trading countries will benefit from trade.
D) Small countries may not have any absolute advantages in producing goods.

Question 51

Which occurrence has led to an increased amount of trade between countries?

A) reduced transportation costs
B) bowed-out production possibilities curve
C) increases in the cost of telegraphic communication
D) high levels of unemployment in the United States

Question 52

It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car. It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car. If Greg and Melissa each work 48 hours in one week and produce only the good for which they have the comparative advantage, how much corn is produced and how many cars are washed in total?

A) six bushels of corn and 48 washed cars
B) eight bushels of corn and 24 washed cars
C) eight bushels of corn and 48 washed cars
D) six bushels of corn and 24 washed cars

Question 53

With no trade, the equilibrium price of grapes is $2 per pound in Macroland and $4 per pound in Econoland. Government leaders in Macroland are negotiating a free trade agreement with Econoland to increase trade between the two countries. Who among consumers and producers is likely to support and who is likely to oppose the free trade agreement?

A) All consumers and grape producers in both countries are likely supporters because free trade typically provides a net gain in welfare for a country.
B) All consumers in both countries would likely be supporters and all grape producers in both countries would be likely to oppose the agreement because of the direction of price changes that would result.
C) Grape producers in Econoland and consumers in Macroland would likely be supporters, while grape producers in Macroland and consumers in Econoland would be likely to oppose the agreement because of the direction of price changes that would result.
D) Consumers in Econoland and grape producers in Macroland would be likely supporters, while consumers in Macroland and grape producers in Econoland would be likely to oppose the agreement due to the direction of price changes that would result.

Question 54

To say that countries gain from trade means that:

A) trade is a zero-sum game.
B) if one country has an absolute advantage over another in producing all goods, then that country alone benefits.
C) countries can consume beyond their production possibility frontiers (PPF).
D) small countries always gain more than large countries in international trade.

Question 55

It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car. It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car. Therefore:

A) Melissa has a comparative advantage in producing corn.
B) Melissa has a comparative advantage in washing cars.
C) Melissa has an absolute advantage in producing corn.
D) Melissa has an absolute advantage in washing cars.

Question 56

Which of these would NOT be a constraint on international trade?

A) The bubonic plague breaks out in China.
B) A war erupts between China and Russia.
C) China increases its ability to grow wheat.
D) The Internet is privatized and access costs increase dramatically.

Question 57

With no trade, the equilibrium price of grapes is $2 per pound in Macroland and $4 per pound in Econoland. After trade opens between the two countries, the price of grapes increases to $3 per pound in both countries. Which statement explains who gains and who loses when this happens?

A) Winners include consumers in both countries, grape producers in Macroland, and farm workers in Econoland. Losers include grape producers in Econoland and farm workers in Macroland.
B) Winners include grape producers in both countries, consumers in Econoland, and farm workers in Macroland. Losers include consumers in Macroland and farm workers in Econoland.
C) Winners include consumers, grape producers, and farm workers in Econoland. Losers include consumers, grape producers, and farm workers in Macroland.
D) Winners include consumers in Econoland, grape producers, and farm workers in Macroland. Losers include consumers in Macroland, and grape producers and farm workers in Econoland.

Question 58

(Table) Referring to the table, we see that England will be able to consume _____ units of wine after trade.

A) 15
B) 20
C) 40
D) 60

Question 59

(Table) Referring to the table, we see that France may now consume _____ wine and _____ cheese.

A) more; less
B) less; more
C) more; the same amount of
D) less; the same amount of

Question 60

(Table) Referring to the table, we see that England may now consume _____ wine and _____ cheese.

A) more; less
B) less; more
C) more; the same amount of
D) less; the same amount of

Question 61

(Table) Macrostan and Econostan are neighboring countries with populations of about 10 million people each and land area of 30 to 31 million square miles each. The table shows total output of cheese and wool if each country splits its resources evenly toward the production of both products. Who is likely to be the exporter of each product if voluntary trade is based on comparative advantage? $$\begin{array} { | l | l | l | } \hline & \text { Cheese output (in tons) } & \text { Wool output (in tons) } \\\hline \text { Macrostan } & 100 \text { million } & 80 \text { million } \\\hline \text { Econostan } & 90 \text { million } & 62 \text { million } \\\hline\end{array}$$

A) Macrostan will export both cheese and wool.
B) Macrostan will export cheese and Econostan will export wool.
C) Macrostan will export wool and Econostan will export cheese.
D) Econostan will export both cheese and wool.

Question 62

Computer game cartridges produced in EconomyLand sell for $50 each. The same cartridges made in MarketLand have a price of $100. If free trade were allowed, we would expect the prices in both countries to:

A) converge to somewhere between $50 and $100.
B) move to the higher price of $100.
C) move to the lower price of $50.
D) remain unchanged.

Question 63

The United States and Japan both produce computer chips. Suppose the United States has a comparative advantage over the Japanese in the production of this good. If the two countries trade computer chips, which two groups are likely to support trade restrictions?

A) U.S. producers and Japanese consumers of computer chips
B) U.S. and Japanese producers of computer chips
C) U.S. and Japanese consumers of computer chips
D) U.S. consumers and Japanese producers of computer chips

Question 64

Both Germany and India produce gadgets. Germany sells gadgets for $200 each and India sells them for $100 each. If there was free trade between the two countries, then:

A) Germany would sell some of its gadgets in India, which would lower supply in Germany and Germans would end up paying a price above $200.
B) India would sell some of its gadgets in Germany, which would lower supply in India and Indians would end up paying a price above $100.
C) Both Germany and India should abstain from trade, since it would be detrimental to both countries.
D) India would sell all of its gadgets in Germany, pushing down the supply in India to zero.

Question 65

If free trade occurs, consumers in the net exporting country will be _____ off, and consumers in the net importing country will be _____ off than before trade.

A) worse; worse
B) worse; better
C) better; worse
D) better; better

Question 66

How would the terms of trade be defined in a country with one export and one import?

A) P_export × P_import
B) P_export/P_import
C) P_import + P_export
D) The terms of trade cannot be determined.

Question 67

The average price of exports divided by the average price of imports is called the:

A) terms of trade.
B) average cost ratio.
C) export-import ratio.
D) trade balance.

Question 68

(Table) Based on the table for Macrostan and Econostan, what would the total output of cheese and wool be across the two countries if each specializes completely in the production of the good for which it has comparative advantage? $$\begin{array} { | l | l | l | } \hline & \text { Cheese output (in tons) } & \text { Wool output (in tons) } \\\hline \text { Macrostan } & 100 \text { million } & 80 \text { million } \\\hline \text { Econostan } & 90 \text { million } & 62 \text { million } \\\hline\end{array}$$

A) 190 million tons of cheese and 142 million tons of wool
B) 200 million tons of cheese and 124 million tons of wool
C) 180 million tons of cheese and 160 million tons of wool
D) 152 million tons of cheese and 180 million tons of wool

Question 69

If free trade occurs, producers in the net exporting country will be _____ off, and producers in the net importing country will be _____ off than before trade.

A) better; worse
B) worse; better
C) better; better
D) worse; worse

Question 70

Suppose Russia produces caviar that sells for $15 a can, and the United States produces it at a price of $20 per can. If all caviar were the same and there are no barriers to trade, then:

A) consumers would buy all of the U.S.-produced caviar.
B) Russians would see the price of their caviar drop due to U.S. competition.
C) the equilibrium price of caviar would be between $15 and $20.
D) Americans would see the price of caviar rise.

Question 71

In a two-country model, consumers in the exporting country will be _____ and producers in the exporting country will be _____ with the opening of free trade.

A) happy; happy
B) happy; unhappy
C) unhappy; unhappy
D) unhappy; happy

Question 72

The ratio of the prices of exported goods to the prices of imported goods is known as the:

A) price differential.
B) terms of trade.
C) ratio of advantage.
D) international inflation rate.

Question 73

When a country is open to free trade, there will be gains to:

A) producers in the country that is importing the good.
B) producers in the country that is exporting the good.
C) all producers of the good in both the importing and the exporting country.
D) None of the producers will gain.

Question 74

If Japan has a comparative advantage over the United States in the production of new cars and can sell a new car for an average price of $22,000, while the United States can sell a new car for an average price of $25,000, if the two countries engage in trade, the terms of trade will:

A) be less than $22,000.
B) lie somewhere between $22,000 and $25,000.
C) be more than $25,000.
D) be $23,500.

Question 75

Assume that in the United States, the opportunity cost of one bottle of wine is four loaves of bread, while in France, the opportunity cost of one bottle of wine is two loaves of bread. If the terms of trade are three loaves of bread for one bottle of wine:

A) France benefits from trade but the United States does not.
B) the United States benefits from trade but France does not.
C) both countries benefit from trade.
D) neither country benefits from trade.

Question 76

Which statement is NOT true?

A) The law of comparative and absolute advantage benefits everyone all the time.
B) If the price of U.S. grain is cheaper than that of Russian grain, U.S. producers will have an absolute advantage.
C) If the price of U.S. grain is cheaper than that of Russian grain, then trade between the two countries will depend on the terms of trade.
D) If U.S. grain is cheaper than Russian grain, and U.S. producers sell cheap grain to Russia, not everyone in Russia will benefit.

Question 77

The United States and Germany both produce chocolate, but Germany's pre-trade price for chocolate is lower than the U.S. price. After trade begins:

A) the price of chocolate will fall in both countries.
B) German chocolate producers will benefit.
C) U.S. chocolate producers will benefit.
D) German chocolate consumers will benefit.

Question 78

The terms of trade:

A) determine the prices of imports and exports.
B) is equal to P_m/P_x.
C) can determine only the price of imports.
D) can determine only the price of exports.

Question 79

In a two-country, two-good model, the:

A) exports of one country must equal the imports of the other country.
B) exports of one country can exceed the imports of the other country.
C) exports of one country can be less than the imports of the other country.
D) terms of trade always occur halfway between the two pre-trade equilibrium prices.

Question 80

If the domestic price of a good is below the prices in other countries and free trade is opened up, then in terms of pricing:

A) domestic producers lose and foreign producers gain.
B) foreign consumers lose and foreign producers gain.
C) domestic consumers lose and domestic producers gain.
D) both foreign and domestic consumers lose.