Deck 16: Gaining From International Trade

Question 1

Figure 17-5
Refer to Figure 17-5. If this country chooses to trade, the price of baskets in this country will be

A) $10 and 40 baskets will be sold domestically.
B) $10 and 105 baskets will be domestically.
C) $7 and 70 baskets will be sold domestically.
D) $7 and 40 baskets will be sold domestically.

Answer 1

$10 and 40 baskets will be sold domestically.

Question 2

Compared to the no-trade situation, if the United States imports video games,

A) the price of video games will decline in the domestic market.
B) domestic video game producers will be able to charge higher prices.
C) domestic video game producers will expand both output and employment.
D) U.S. consumers will be harmed.

Answer 2

the price of video games will decline in the domestic market.

Question 3

Figure 17-6
The domestic country is China.
Refer to Figure 17-6. With trade, China will

A) import 100 pencil sharpeners.
B) import 250 pencil sharpeners.
C) export 150 pencil sharpeners.
D) export 250 pencil sharpeners.

Answer 3

export 250 pencil sharpeners.

Question 4

Suppose the United States reduced the tariff on digital camera, allowing foreign-produced cameras to more freely enter the U.S. market. Which of the following would most likely occur?

A) The price of cameras to U.S. consumers would increase, and the demand for U.S. export products would rise.
B) The price of cameras to U.S. consumers would fall, and the demand for U.S. export products would fall.
C) The price of cameras to U.S. consumers would increase, and the demand for U.S. export products would fall.
D) The price of cameras to U.S. consumers would fall, and the demand for U.S. export products would rise.

Question 5

Figure 17-2
In Figure 17-2, in the absence of trade, the domestic price of shoes is P_n. Since many foreign countries have a comparative advantage in the production of shoes, when the United States begins to trade, the domestic price will fall to the world price. When this happens, what does the quantity Q_c through Q_p represent?

A) the quantity of shoes that the United States imports
B) an increase in the world consumption of shoes
C) the quantity of shoes that the United States exports
D) a reduction in the world consumption of shoes

Question 6

International trade is advantageous because trade makes it possible for people in each country to

A) import more than they export.
B) export more than they import.
C) employ more of their domestic resources producing things that are costly for them to produce domestically.
D) acquire goods from foreigners more economically than they could be produced domestically.
E) do all of the above.

Question 7

Hong Kong and Singapore both have relatively

A) high trade barriers and high rates of economic growth.
B) high trade barriers and low rates of economic growth.
C) low trade barriers and high rates of economic growth.
D) low trade barriers and low rates of economic growth.

Question 8

Which of the following has resulted from the North American Free Trade Agreement (NAFTA)?

A) Domestic producers in the United States, Canada, and Mexico have free access to larger markets.
B) The low wages of Mexican workers have made it virtually impossible for American and Canadian producers to export goods to Mexico.
C) A smaller variety of goods are available to consumers in all three countries.
D) Unemployment has increased in all three countries.

Question 9

Figure 17-4
In Figure 17-4, the equilibrium price of Dominican pesos is P_e. If the Dominican Republic government fixes the price of foreign currency in terms of domestic currency at P_f (below equilibrium), what does the quantity Q_d through Q_s represent?

A) the quantity of Dominican exports
B) a shortage of foreign exchange
C) the quantity of Dominican imports
D) a surplus of foreign exchange

Question 10

Figure 17-7
The domestic country is Jamaica.
Refer to Figure 17-7. With trade, Jamaica

A) imports 150 calculators.
B) imports 250 calculators.
C) exports 100 calculators.
D) exports 250 calculators.

Question 11

A U.S. trade policy that restricts the sale of foreign goods in the U.S. market will

A) reduce the demand for U.S. export goods since foreigners will be less able to buy our goods if they cannot sell to us.
B) benefit producers in industries that export goods.
C) increase the nation's income since it protects domestic jobs.
D) enhance economic efficiency by allocating more resources to the areas of their greatest comparative advantage.

Question 12

Figure 17-1
In Figure 17-1, in the absence of trade, the domestic price of shoes would be P_n. If the United States moved from a no-trade situation to free trade, which of the following would happen?

A) The domestic price of shoes would rise, and domestic consumption would fall.
B) Both the domestic price of shoes and domestic consumption would rise.
C) Both the domestic price of shoes and domestic consumption would fall.
D) The domestic price of shoes would fall, and domestic consumption would rise.

Question 13

Figure 17-5
Refer to Figure 17-5. With free trade, this country will

A) import 40 baskets.
B) import 70 baskets.
C) export 35 baskets.
D) export 65 baskets.

Question 14

Figure 17-3
In Figure 17-3, in the absence of trade, the domestic price of soybeans is P_n. If the world price of soybeans is P_w, which of the following will occur when the United States begins to trade internationally?

A) The domestic price of soybeans will rise, and domestic consumption will fall.
B) Both the domestic price of soybeans and domestic consumption will rise.
C) Both the domestic price of soybeans and domestic consumption will fall.
D) The domestic price of soybeans will fall, and domestic consumption will rise.

Question 15

Measured as a share of the economy, the size of the trade sector (exports plus imports) of the United States has

A) been increasing since 1980, but it declined during 1960-1980.
B) been relatively constant during the last four decades.
C) increased by about 10 percent during the last four decades.
D) approximately doubled since 1980 and tripled since 1960.

Question 16

The political popularity of a tariff on imported goods that compete with products of a well-established domestic industry is

A) surprising since one would expect the political power of consumers to override the interests of even a well-established domestic industry.
B) surprising since one would expect the economic harm resulting from tariffs to be well understood by voters.
C) not surprising since such a tariff would generally benefit an easily recognized interest group at the expense of uninformed, uninterested consumers.
D) not surprising since the tariff enables domestic producers and consumers to gain at the expense of foreigners.

Question 17

Figure 17-6
The domestic country is China.
Refer to Figure 17-6. If China were to abandon a no-trade policy in favor of a free-trade policy,

A) Chinese producers of pencil sharpeners would become worse off.
B) Chinese consumers of pencil sharpeners would become better off.
C) total surplus in the Chinese economy would increase.
D) All of the above are correct.

Question 18

Imposing a restrictive quota on the import of dishwashers will likely

A) increase the price of the dishwashers but decrease the quantity consumed.
B) increase both the price of the dishwashers and the quantity consumed.
C) leave the price of the dishwashers unchanged but decrease the quantity consumed.
D) leave the price of the dishwashers unchanged and also leave the quantity consumed unchanged.

Question 19

Figure 17-6
The domestic country is China.
Refer to Figure 17-6. With no international trade,

A) the equilibrium price is $12 and the equilibrium quantity is 300.
B) the equilibrium price is $16 and the equilibrium quantity is 200.
C) the equilibrium price is $16 and the equilibrium quantity is 300.
D) the equilibrium price is $16 and the equilibrium quantity is 450.

Question 20

Trade restrictions like tariffs and quotas will

A) protect American jobs and increase employment.
B) ensure that more dollars stay in the United States.
C) reduce the value of goods and services that we will be able to produce and consume.
D) make all Americans better off.

Question 21

Figure 17-10
Refer to Figure 17-10. With the tariff, the domestic price and domestic quantity demanded are

A) P₁ and Q₁.
B) P₁ and Q₄.
C) P₂ and Q₂.
D) P₂ and Q₃.

Question 22

Figure 17-9
Refer to Figure 17-9. With trade and without a tariff,

A) the domestic price is equal to the world price.
B) carnations are sold at $8 in this market.
C) there is a shortage of 400 carnations in this market.
D) this country imports 200 carnations.

Question 23

Figure 17-10
Refer to Figure 17-10. A result of the tariff is that, relative to the free-trade situation, the quantity of saddles imported decreases by

A) Q₂ − Q₁.
B) Q₃ − Q₂.
C) Q₄ − Q₃.
D) Q₄ − Q₃ + Q₂ − Q₁.

Question 24

Figure 17-10
Refer to Figure 17-10. The amount of government revenue created by the tariff is

A) B.
B) E.
C) D + F.
D) B + D + E + F.

Question 25

Figure 17-10
Refer to Figure 17-10. With trade and without a tariff, the price and domestic quantity demanded are

A) P₁ and Q₁.
B) P₁ and Q₄.
C) P₂ and Q₂.
D) P₂ and Q₃.

Question 26

Figure 17-8
Refer to Figure 17-8. If this country allows free trade in wagons,

A) consumers will gain more than producers will lose.
B) producers will gain more than consumers will lose.
C) producers and consumers will both gain equally.
D) producers and consumers will both lose equally.

Question 27

Figure 17-10
Refer to Figure 17-10. With the tariff, the quantity of saddles imported is

A) Q₃ − Q₁.
B) Q₃ − Q₂.
C) Q₄ − Q₁.
D) Q₄ − Q₂.

Question 28

Figure 17-9
Refer to Figure 17-9. The imposition of a tariff on carnations

A) increases the number of carnations imported by 100.
B) increases the number of carnations imported by 200.
C) decreases the number of carnations imported by 200.
D) decreases the number of carnations imported by 400.

Question 29

Figure 17-10
Refer to Figure 17-10. Producer surplus with trade and without a tariff is

A) G.
B) C + G.
C) A + C + G.
D) A + B + C + G.

Question 30

Figure 17-9
Refer to Figure 17-9. The size of the tariff on carnations is

A) $8 per dozen.
B) $6 per dozen.
C) $4 per dozen.
D) $2 per dozen.

Question 31

Figure 17-9
Refer to Figure 17-9. Before the tariff is imposed, this country

A) imports 200 carnations.
B) imports 400 carnations.
C) exports 200 carnations.
D) exports 400 carnations.

Question 32

Figure 17-8
Refer to Figure 17-8. If this country allows free trade in wagons,

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

Question 33

Figure 17-8
Refer to Figure 17-8. With trade, this country

A) exports 20 wagons.
B) exports 50 wagons.
C) imports 30 wagons.
D) imports 50 wagons.

Question 34

Figure 17-9
Refer to Figure 17-9. Without trade, the equilibrium price of carnations is

A) $8 and the equilibrium quantity is 300.
B) $6 and the equilibrium quantity is 200.
C) $6 and the equilibrium quantity is 400.
D) $4 and the equilibrium quantity is 500.

Question 35

Figure 17-10
Refer to Figure 17-10. Consumer surplus with trade and without a tariff is

A) A.
B) A + B.
C) A + C + G.
D) A + B + C + D + E + F.

Question 36

Figure 17-8
Refer to Figure 17-8. The horizontal line at the world price of wagons represents the

A) demand for wagons from the rest of the world.
B) supply of wagons from the rest of the world.
C) level of inefficiency in the domestic market caused by trade.
D) surplus in the domestic wagon market.

Question 37

Figure 17-10
Refer to Figure 17-10. Producer surplus with the tariff is

A) G.
B) C + G.
C) A + C + G.
D) A + B + C + G.

Question 38

Figure 17-8
Refer to Figure 17-8. With trade, the price of wagons in this country is

A) $8, with 70 wagons being produced in this country, 20 of which are exported.
B) $8, with 90 wagons being produced in this country, 50 of which are exported.
C) $5, with 40 wagons being produced in this country and another 30 wagons being imported.
D) $5, with 40 wagons being produced in this country and another 50 wagons being imported.

Question 39

Figure 17-10
Refer to Figure 17-10. Consumer surplus with the tariff is

A) A.
B) A + B.
C) A + C + G.
D) A + B + C + D +E + F.

Question 40

Figure 17-9
Refer to Figure 17-9. The amount of revenue collected by the government from the tariff is

A) $200.
B) $400.
C) $500.
D) $600.

Question 41

At one time, it was believed that the way for a nation to prosper was to export as much as possible while importing as little as possible. More money would flow into a country than out of a country. Is this really a sound economic strategy? What is the relationship between exports and imports?

Question 42

Figure 17-12
If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of $1.00, the loss of consumer surplus as a result of a tariff of $0.50 per unit is represented by area

A) a
B) b + d
C) c + i + e + f
D) c
E) d

Question 43

Figure 17-12
At a world price of $1.00 in Figure 17-12,

A) 20 units will be exported
B) 20 units will be imported
C) 50 units will be exported
D) 50 units will be imported
E) 10 units will be exported

Question 44

Figure 17-10
Refer to Figure 17-11. The tariff

A) decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
B) decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F.
C) increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
D) increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F.

Question 45

What is the law of comparative advantage, and why is it important in international trade?

Question 46

Figure 17-12
In Figure 17-12, with a tariff of $0.50 per unit and a world price of $1.00,

A) 25 units will be exported
B) 25 units will be imported
C) 50 units will be exported
D) 50 units will be imported
E) 10 units will be exported

Question 47

Figure 17-12
If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of $1.00, the gain in producer surplus as a result of a tariff of $0.50 per unit is represented by area

A) c + h
B) h
C) c
D) c + g
E) g

Question 48

Figure 17-13
In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, which area represents the United States' net loss as a result of the tariff?

A) a + b + c + e
B) b + c + e
C) b + c
D) c + e
E) b + f

Question 49

Figure 17-10
Refer to Figure 17-11. The tariff

A) decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
B) decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F.
C) increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
D) increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F.

Question 50

Figure 17-13
In Figure 17-13, the world price of a baseball is $3. With free trade, how many baseballs will the United States import?

A) 4,000
B) 6,000
C) 8,000
D) 10,000
E) 12,000

Question 51

Figure 17-12
If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of $1.00, net welfare loss as a result of a tariff of $0.50 per unit is represented by area

A) c + i + e + f
B) i + f
C) i
D) f
E) b + d

Question 52

Figure 17-12
If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of $1.00, the government revenue from a tariff of $0.50 per unit is represented by area

A) c
B) e + g
C) i + e + f
D) d + e
E) e

Question 53

Figure 17-10
Refer to Figure 17-11. The deadweight loss created by the tariff is represented by the area

A) B.
B) D + F.
C) D + E + F.
D) B + D + E + F.

Question 54

What benefits are to be gained from countries producing according to the law of comparative advantage? What if a country is absolutely more productive in all goods?

Question 55

Figure 17-13
In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, how much tariff revenue will the United States government collect?

A) $4,000
B) $16,000
C) $20,000
D) $24,000
E) $48,000

Question 56

Figure 17-13
Figure 17-13 shows domestic supply and demand for baseballs in the United States. The world price of a baseball is $3. With free trade, how many baseballs will be purchased in the United States?

A) 4,000
B) 6,000
C) 8,000
D) 10,000
E) 12,000

Question 57

Figure 17-13
In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, which area represents the amount of tariff revenue the United States government collects?

A) a
B) b
C) c
D) f
E) e

Question 58

Figure 17-13
In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, how many baseballs will be purchased in the United States?

A) 4,000
B) 6,000
C) 8,000
D) 10,000
E) 12,000

Question 59

Figure 17-13
In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, how many baseballs will the United States import?

A) 4,000
B) 6,000
C) 8,000
D) 10,000
E) 12,000

Question 60

Figure 17-10
Refer to Figure 17-10. As a result of the tariff, there is a deadweight loss that amounts to

A) B.
B) E.
C) D + F.
D) B + D + E + F.

Question 61

Globalization is becoming more of a worldwide phenomenon because

A) more countries want to become self-sufficient.
B) less-developed countries are increasing their trade restrictions.
C) technological advancements are decreasing transportation costs.
D) trade hurts workers in poor countries.

Question 62

In 1993 the negotiations over the North American Free Trade Agreement and the General Agreement on Tariffs and Trade were frequently characterized by comments such as, "Free trade with low-wage countries will cause the wages of U.S. workers to fall." Identify the errors in statements such as this.

Question 63

Trade restrictions that limit the sale of low-price foreign goods in the U.S. market

A) increase the real income of Americans.
B) benefit domestic producers in the protected industries at the expense of consumers and domestic producers in export industries.
C) help channel more of our resources into producing goods for which we are a low-cost producer.
D) reduce unemployment and increase the productivity of American workers.

Question 64

Suppose that in the absence of trade, the U.S. price for bicycles was higher than the world price for bicycles. Would allowing international trade mean that the United States would import or export bicycles? Who in the United States would benefit and who would lose with a free trade policy, and would the gains be greater than the losses?

Question 65

After the adoption of the North American Free Trade Agreement (NAFTA), trade between the United States and Mexico____, and trade between the United States and Canada ____.

A) rose; fell
B) rose; rose
C) fell; fell
D) fell; rose

Question 66

Suppose that in the absence of trade, the U.S. price for peas was lower than the world price for peas. Would allowing international trade mean that the United States would import or export peas? Who in the United States would benefit and who would lose with a free trade policy, and would the gains be greater than the losses?

Question 67

The argument that import restrictions save jobs and promote prosperity fails to recognize that

A) there are no secondary effects of import restrictions.
B) import restrictions will lower prices in the protected industries.
C) import restrictions cannot create jobs in any industries.
D) U.S. imports provide people in other countries with the purchasing power required for the purchase of U.S. exports.

Question 68

American textile manufacturers and union members have often lobbied successfully for restrictive quotas limiting the importation of textile products. The major impact of these quotas is

A) a permanent reduction in unemployment in the United States.
B) lower prices for American consumers and an improvement in the quality of textile products available.
C) higher prices for American consumers, a narrower selection of products, and less competition in the U.S. textile industry.
D) long-run profits in the U.S. textile industry that are substantially above market equilibrium.

Question 69

"Trade restrictions will stop foreign imports, which will increase American employment and protect American jobs." Most economists realize this argument is wrong. Can you explain why?

Question 70

Suppose the lowest-wage state in the United States is West Virginia and the highest-wage state is New York. Which of the following would be true?

A) If New York trades with West Virginia, consumers in New York will be worse off.
B) If New York trades with West Virginia, wages in New York will fall until they equal the wages in West Virginia.
C) New York would be better off if its state government imposed restrictions on the importation of goods made in West Virginia.
D) Both New York and West Virginia will be better off if they are allowed to trade freely.

Question 71

If the United States imports low-cost goods produced in low-wage countries instead of producing the goods domestically,

A) the United States will incur a net loss of total jobs.
B) the United States will gain, and domestic resources will be employed more productively.
C) dollars that leave the United States will not return to buy goods produced by high-wage American workers.
D) the availability of consumption goods in the United States will be reduced.

Question 72

Which of the following has occurred since the North American Free Trade Agreement (NAFTA) took affect in 1994?

A) U.S. trade with both Mexico and Canada has increased.
B) Employment in the United States is now slightly lower than before the agreement.
C) Employment in the United States is now substantially higher than before the agreement.
D) Both a and b are true.
E) Both a and c are true.

Question 73

Opening trade between a nation that has "cheap labor" and one that has "expensive labor" will

A) lower the standard of living in both countries.
B) raise the standard of living in both countries.
C) raise the standard of living in the "expensive labor" country and lower the standard of living in the "cheap labor" country.
D) raise the standard of living in the "cheap labor" country and lower the standard of living in the "expensive labor" country.

Question 74

Which of the following has resulted from the North American Free Trade Agreement (NAFTA)?

A) trade between the United States and Mexico increased.
B) trade between the United States and Canada increased.
C) the joint output of the United States, Mexico, and Canada has increased.
D) all of the above are correct.

Question 75

What are the effects of a tariff, and who benefits and who loses when tariffs are imposed? What are the effects of a quota, and who benefits and who loses when quotas are imposed?

Question 76

"Economists have demonstrated that imports benefit consumers while causing losses to producers, and exports benefit producers while causing losses to consumers. In the balance then, international trade neither benefits nor hurts a nation as a whole." Evaluate this statement.

Question 77

In 2002, President Bush enacted a 30 percent tariff on imported steel. The primary beneficiaries of this tariff were

A) U.S. steel companies and employees.
B) U.S. automobile companies and employees.
C) foreign steel companies.
D) foreign steel workers.
E) both a and b above.

Question 78

What is the difference between a tariff and a quota?

Question 79

If labor-intensive textile products could be produced more cheaply in low-wage countries than in the United States, the United States would gain if it

A) levied a tariff on the goods produced by the cheap foreign labor.
B) subsidized the domestic textile industry so it could compete in international markets.
C) used its resources to produce other items while importing textiles from foreigners.
D) levied a tax on the domestic textile products to penalize the industry for inefficiency.

Question 80

The agreement of the United States, Canada, and Mexico to eliminate tariffs on the shipment of most products among the three countries is called the

A) General Agreement on Tariffs and Trade.
B) Uruguay Round.
C) North American Free Trade Agreement.
D) Tariff Reduction Act of 1993.