Deck 15: International Trade

Question 1

When a tariff is imposed on a good, the price to consumers _____ and the amount imported _____.

A) rises; falls
B) falls; rises
C) falls; falls
D) rises; rises

Answer 1

rises; falls

Question 2

A quota generates revenue to government entities.

Answer 2

False

Question 3

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

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

Answer 3

20

Question 4

Domestic producers gain when trade restrictions on imports are imposed.

Question 5

Free trade tends to make prices of many goods converge worldwide.

Question 6

Quotas

A) lead to lower prices for domestic consumers.
B) lead to greater domestic government revenue.
C) do not contribute to domestic government revenue.
D) are widely used in the United States.

Question 7

Free trade zones

A) allow foreign companies to exploit domestic workers.
B) do not permit the export of products produced in such zones.
C) encourage foreign companies to build factories in that country.
D) are usually located in the interior of a country.

Question 8

Which statement is NOT true?

A) If the price of U.S. grain is cheaper than that of Russian grain, and U.S. producers sell cheap grain to Russia, not everyone in Russia will benefit.
B) If the price of U.S. grain is cheaper than that of Russian grain, U.S. producers will have a comparative advantage in grain.
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) According to the laws of absolute and comparative advantage, trade benefits everyone all the time.

Question 9

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 10

When there is no trade between Econia and Macroland, the price of a hairbrush is $6 in Econia and $8 in Macroland, while the price of a pair of socks is $5 in Econia and $4 in Macroland. If trade opened up between the two countries, which of these would be the terms of trade that might result, assuming that there are no transportation costs?

A) The price of a hairbrush would be $6, and the price of socks would be $5 in both countries.
B) The price of a hairbrush would be $7, and the price of socks would be $4.50 in both countries.
C) The price of a hairbrush would be $8, and the price of socks would be $4 in both countries.
D) The price of a hairbrush would be $8, and the price of socks would be $5 in both countries.

Question 11

(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 12

(Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that, after free trade, producers in country A will _____ and producers in country B will _____.

A) increase production of watches; produce the same amount of watches
B) increase production of watches; decrease production of watches
C) produce the same number of watches; increase the production of watches
D) produce the same number of watches; decrease the production of watches

Question 13

A country has an absolute advantage in the production of a good if it can _____ of the good than another country.

A) produce more
B) produce less
C) consume less
D) consume more

Question 14

Countries should specialize only in products in which they have an absolute advantage.

Question 15

If the United States begins importing motorcycles from Tanzania, where motorcycle workers are paid just 50 cents a day, which group is likely to be hurt the most?

A) Tanzanian motorcycle workers
B) American motorcycle consumers
C) Tanzanian motorcycle producers
D) American motorcycle workers

Question 16

A group opposed to free trade concludes that if free trade is adopted, the total number of domestic jobs will decrease because the group estimates that 20,000 jobs will migrate abroad. The actual total loss is

A) greater than 20,000 because of the tariff effect.
B) greater than 20,000 because of the multiplier effect.
C) equal to 20,000 because of the import effect.
D) less than 20,000 because the estimate ignores the jobs created in the industries that benefit from increased exports.

Question 17

Suppose that the United States and Italy are considering trade in two products: grain and oranges. The United States can produce 800 million bushels of grain or 200 million bushels of oranges, while Italy can produce 200 million bushels of grain or 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 18

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

Question 19

Trade is restricted by all of these EXCEPT the

A) imposition of an import quota.
B) imposition of an export quota.
C) payment of export subsidies.
D) use of regulations and license requirements.

Question 20

(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 21

Increased trade

A) deprives poor countries of the funds needed for investment.
B) reduces jobs in all industries that have a comparative advantage.
C) always leads to environmental degradation in the long run.
D) tends to raise living standards in the countries to which jobs migrate.

Question 22

Theoretically, does the outsourcing of labor to low-wage countries lead to long-term exploitation of labor?

A) Yes, because the profit motive is moving jobs to where owners can pay as little as possible for labor, causing hardship to workers who lose jobs when production is moved abroad. It is unfair for domestic workers to be fired.
B) Yes, because the profit motive means that companies who outsource will pay progressively lower wages to the same workers abroad, threatening to fire them if they do not accept lower wages. The labor market will support this drop in equilibrium wage in countries where outsourcing brings jobs.
C) No, because the increasing demand for labor in high-wage countries will enhance the well-being of workers there as well as in the low-wage countries.
D) No, because as the demand for labor rises in low-wage countries due to outsourcing, wages in these countries will gradually rise.

Question 23

Manipulating the amount of currency available to foreigners has the effect of restricting trade.

Question 24

A foreign firm sells its product in the United States for $50 per unit. Its cost per unit is $60. Based on this information, we can assume that the

A) foreign firm is charging $50 per unit in its home country.
B) foreign firm may possibly be dumping.
C) cost-price difference is enough evidence to prove predatory pricing.
D) foreign firm has a comparative advantage in making this product.

Question 25

(Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that, as a result of free trade, producers of watches in country A _____ and producers of watches in country B _____.

A) will be the winners; will be the losers
B) will be the losers; will be the winners
C) The producers in both countries will end up winning.
D) The producers in both countries will end up losing.

Question 26

Trade restrictions, such as government regulation, licensing, foreign exchange control, and government purchasing policies, do not affect consumers.

Question 27

Trade between two countries

A) results in more choices and better prices for consumers of exported goods.
B) may cause job loss and firm closings in industries that compete with exported goods.
C) is always positive for both consumers and producers.
D) results in more choices and better prices for consumers of imported goods, but may cause job loss and firm closings in the industries that compete with imports.

Question 28

The ability to produce an item at a lower opportunity cost compared with other producers is known as comparative advantage.

Question 29

What industry is typically believed to be important in times of national crisis in the United States?

A) video game
B) entertainment
C) defense
D) furniture

Question 30

Increased trade benefits consumers by providing them with more choices.

Question 31

One of the main purposes of a tariff is to

A) raise the price of an import above the world price.
B) compensate importers for losses due to fluctuating exchange rates.
C) reduce the price of imports to make them more affordable.
D) increase the supply of imports.

Question 32

When there is no trade between Econostan and Macroland, the price of orange juice is $1 per cup in Econostan and $0.50 in Macroland, while the price of shoes is $40 per pair in Econostan and $45 per pair in Macroland at current exchange rates. Assuming there is no change in exchange rates, which result could be expected regarding terms of trade if trade opened up between the two countries?

A) The price of orange juice will fall, and the price of shoes will rise in Econostan.
B) The price of shoes will fall, and the price of orange juice will rise in Econostan.
C) The price of orange juice will rise, and the price of shoes will rise in Macroland.
D) The price of both orange juice and shoes will fall in Econostan.

Question 33

(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 34

"A tariff should be imposed on Chinese shirts because they are being sold in the United States below their cost of production." Which argument for trade barriers is used in this example?

A) low foreign wages
B) infant industry
C) antidumping
D) national defense

Question 35

If the United States can produce 50 airplanes or 50,000 shirts in one year, while Mexico can produce 5 airplanes or 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) trade is mutually beneficial because the United States has a comparative advantage in producing airplanes, and Mexico has a comparative advantage in producing shirts.
D) neither country would benefit from trade with the other.

Question 36

The United States and Japan both produce computer chips. Suppose the United States has a comparative advantage over Japan in the production of computer chips. 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. consumers and Japanese producers of computer chips
C) U.S. and Japanese consumers of computer chips
D) U.S. and Japanese producers of computer chips

Question 37

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

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

Question 38

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 39

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 40

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 41

The national defense argument for imposing trade restraints is unjustified during times of peace.

Question 42

A tariff placed on imported foreign vehicles will have what effect?

A) It will cause foreign car producers to produce more.
B) It will entice domestic consumers to buy more foreign vehicles due to lower costs.
C) It will cause foreign producers to generate higher revenues on the imported vehicles.
D) It will entice domestic consumers to buy more domestic vehicles due to the higher price of foreign vehicles.

Question 43

Economists have found that foreign trade zones

A) reduce net income to U.S. residents.
B) can lead to greater investment and growth.
C) reduce the number of jobs available in the United States.
D) lead to environmental degradation.

Question 44

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 45

_____ refers to circumstances when a market is too underdeveloped to achieve a comparative advantage.

A) An infant industry situation
B) Consumer protection
C) Dumping
D) Low foreign wages

Question 46

The automobile industry in Macroland successfully lobbies for import quotas that result in automobile prices that are $1,000 higher than before the quotas. Increased sales of automobiles produced in Macroland protect the jobs of 20,000 automobile workers. What is an additional consequence of the quotas that is not as attractive for Macroland's economy?

A) The government will lose tax revenue.
B) Automobile producers in other countries will reduce the price of their cars to offset the higher prices required by the quotas.
C) Each of Macroland's citizens who buys a car will have $1,000 less to spend on other products, leading to reduced sales and fewer jobs in other industries.
D) Consumers will buy more cars than before, pushing the automobile market out of equilibrium.

Question 47

Assume there is no trade between Lizland and Kitland. The price of a toothbrush is $1 in Lizland and $3 in Kitland. The price of a candy bar is $2 in Lizland and $2.50 in Kitland. If trade opens up between the two countries, which of these is the likely result?

A) A toothbrush sells for $1.50 and a candy bar sells for $2.50 in both countries, with Kitland as the importer of candy bars and both as the exporters of toothbrushes.
B) A toothbrush sells for $2 and a candy bar sells for $2.25 in both countries, with Lizland as the exporter of candy bars and Kitland as the exporter of toothbrushes.
C) A toothbrush sells for $2 and a candy bar sells for $2.25 in both countries, with Lizland as the importer of candy bars and Kitland as the importer of toothbrushes.
D) A toothbrush sells for $2.25 and a candy bar sells for $1.75 in both countries, with Lizland as the importer of toothbrushes and Kitland as the importer of candy bars.

Question 48

(Table: Econoland and Macroland Annual Production Capacity in Tons) Based on the table, which statement correctly identifies the situation described therein?

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

Question 49

The United States has not used quotas to restrict trade since the 1800s.

Question 50

The problem of increasing costs from specialization puts limits on the gains from trade.

Question 51

Tariffs and quotas lead to _____ prices of imported goods and _____ levels of imports.

A) increased; decreased
B) decreased; increased
C) decreased; decreased
D) increased; increased

Question 52

The national defense argument in favor of trade restrictions concerns only the protection of vital industries during times of war.

Question 53

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

Question 54

When a tariff or a quota is imposed on an import, the domestic industry benefits from higher prices and increased output.

Question 55

(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 56

A foreign trade zone is a designated area in a country where foreign consumers can buy that country's products without paying sales taxes.

Question 57

The Trade Adjustment Assistance (TAA) program is an American trade program intended to deal with

A) concerns about infant industries.
B) trade and domestic employment concerns.
C) environmental concerns of free trade.
D) poor working conditions in developing nations.

Question 58

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 59

Economists have found that foreign trade zones lead to a net increase in income to U.S. residents.

Question 60

If the steel industry argues for tariff protection by saying that steel is necessary to build military vehicles, it is using the _____ argument.

A) infant industry
B) antidumping
C) protection against low foreign wages
D) national defense

Question 61

(Table: Econoland and Macroland Annual Production Capacity in Tons) Based on the table, which statement correctly identifies the situation described therein?

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

Question 62

Which item is NOT considered an example of a trade restriction?

A) tariffs
B) quotas
C) voluntary export restraints
D) dumping

Question 63

Over the last several decades, U.S. tariffs have been

A) about 2%.
B) about 10%.
C) double the value of imports.
D) zero, having been eliminated by the World Trade Organization.

Question 64

A quota is

A) a set of regulations designed to ensure the quality of imports.
B) designed to stimulate exports.
C) a rule on how many citizens can travel abroad.
D) a government-set limit on the quantity of imports into a country.

Question 65

One reason economists are generally in favor of free trade is that there are no "losers" from it.

Question 66

Average tariff rates peaked in the United States during

A) World War I.
B) the Great Depression.
C) World War II.
D) the Vietnam War.

Question 67

(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) 25,000 gadgets.
D) 50,000 gadgets.

Question 68

Econia implements strict laws that require companies to use production methods that do not harm the environment, forcing the companies to change to more expensive production techniques to comply with the law. The companies then ask the government to impose trade restrictions against imports produced in countries that do not have similar environmental protection laws. Which of these is NOT a rationale for such trade restrictions?

A) The trade restrictions will raise the cost of imported goods for Econia's consumers, eliminating the bias toward foreign production that the law created.
B) The trade restrictions will eliminate the bias against Econia's products abroad that had been created by the law by effectively raising the price of foreign-produced goods in world markets.
C) The trade restrictions may save Econian jobs in the industries whose production methods were impacted by the environmental protection law.
D) The trade restriction will help Econian producers feel that the environmental protection law does not put them at a disadvantage against foreign producers in Econia's product markets.

Question 69

Increased trade and globalization are both beneficial for all domestic workers.

Question 70

Antitrade legislation is often implemented for political reasons.

Question 71

Trade restrictions may be counterproductive if they discourage workers from migrating to industries that have a comparative advantage.

Question 72

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 statement 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 73

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 74

Barriers to free trade create inefficiencies in the allocation of foreign resources.

Question 75

On which of these commodities has the United States imposed quotas?

A) Japanese automobiles
B) Malaysian automobiles
C) refined gasoline
D) copper

Question 76

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 77

The fear expressed by domestic producers regarding dumping is that

A) the low prices of imports will drive them out of business, eventually leaving foreign competitors free to raise prices.
B) it violates international environmental protection regulations.
C) it can lead to a trade war, which would force many foreign and domestic businesses into bankruptcy.
D) by lowering the prices of imports, it reduces the revenues the government can raise when imposing tariffs.

Question 78

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

Question 79

Absolute advantage exists only when one country can produce a good at a lower opportunity cost than can another country.

Question 80

Which of these is an example of a quota?

A) A tax of $2 is placed on every jar of jam that is imported.
B) European manufacturers of electrical equipment must convert their production processes to meet U.S. standards.
C) A maximum of 0.7 million pairs of jeans can be imported.
D) The government pays a $1 million subsidy to a manufacturer to help meet foreign competition.