Deck 9: Application: International Trade

Question 1

Without free trade, the import price of a good must be equal to the export price of a good.

Answer 1

False

Question 2

Trade among nations is ultimately based on absolute advantage.

Answer 2

False

Question 3

Policymakers in Australia are increasingly considering trade restrictions in order to protect domestic producers from foreign competitors.

Answer 3

False

Question 4

In general, if a country allows trade and becomes an importer of a good, domestic producers of the good are worse off, domestic consumers of the good are better off, but the economic wellbeing of the country increases.

Question 5

Suppose France imposes a tariff on imported US computers.The tariff will raise the price of computers and will make both French producers and consumers of computers worse off.

Question 6

If a tariff is placed on clocks, the price of both domestic and imported clocks will rise by the amount of the tariff.

Question 7

The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive in a market.

Question 8

If Peru exports coffee to the rest of the world, Peruvian consumers of coffee are worse off as a result of trade, but Peruvian producers of coffee are better off.

Question 9

If the domestic price of a good is low relative to the world price, the country has a comparative advantage in producing that good.

Question 10

Since losers from international trade are always compensated for their losses, international trade increases the size of the economic pie and the size of the pieces such that everyone is better off.

Question 11

If Colombia exports coffee to the rest of the world, Colombian coffee sellers benefit from higher producer surplus.Colombian coffee buyers are worse off because of lower consumer surplus, but total surplus in Colombia increases because of trade.

Question 12

France imports a lot of snow peas from Africa.This means that France has comparative advantage in producing snow peas.

Question 13

Suppose that Tonga, a small country, imports apples at the world price of $4 per kilogram.If Tonga imposes a tariff of $1 per kilogram on imported apples, the price of apples in Tonga will increase, but by less than $1, ceteris paribus.

Question 14

A tariff decreases the quantity of imports.

Question 15

If Australia imports toys from other countries, this means the world price of toys is lower than the Australian price of toys.

Question 16

A country is likely to import a good if its domestic price is high, relative to the world price.

Question 17

When a government imposes a tariff on a product, the domestic price will equal the world price.

Question 18

In general, importing will always increase the wellbeing of a country if the world price of a good is lower than the domestic price.

Question 19

One of the important outcomes of international trade is that countries specialise in the output of things they are best at.

Question 20

The decrease in total surplus that results from a tariff or quota is called the gains from trade.

Question 21

Import quotas increase the domestic price of the product to at least the world price.

Question 22

Free trade causes job losses in industries in which a country does not have a comparative advantage but it also causes job gains in industries in which the country has a comparative advantage.

Question 23

Economists agree that the winners from free trade should compensate the losers through taxation.

Question 24

Suppose that Australia imposes a tariff on imported computer chips.If the increase in producer surplus is $100 million, the increase in tariff revenue is $200 million and the reduction in consumer surplus is $500 million, then the deadweight loss of the tariff is $200 million.

Question 25

In practice, it has proven to be extraordinarily difficult for governments to pick the right infant industries to protect.

Question 26

If country A produces all goods at a cheaper price than country B, country B will specialise in producing the goods for which it has comparative advantage.

Question 27

Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium price without trade, thus reducing the gains from trade.

Question 28

Sometimes countries suffer a net loss of jobs due to free trade, because they do not have a comparative advantage in producing anything.

Question 29

An import quota increases domestic producer surplus and the surplus of import licence holders, reduces domestic consumer surplus, and creates deadweight loss.

Question 30

A quota can potentially cause an even larger deadweight loss than a tariff.

Question 31

If Japan subsidised the production of rice and then exported the rice to Australia at artificially low prices, then the Australian economy would be worse off.

Question 32

Import quotas make domestic buyers better off and domestic sellers worse off.

Question 33

Import quotas and tariffs both cause the quantity of imports to fall.

Question 34

If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue and domestic consumers will gain consumer surplus.

Question 35

Economists contend that imposing trade restrictions in order to protect industries for national security reasons is never justified.

Question 36

Australia should always be a net exporter of wheat.

Question 37

Economists like the infant industry argument because it is easy to implement in practice.

Question 38

Many economists oppose the infant industry argument because it is difficult to remove.

Question 39

If an import tariff is imposed on a good produced exclusively for export, the tariff will reduce the quantity of the good produced.

Question 40

Benefits from free trade include increased variety of goods and increased competition.

Question 41

When goods that are produced in China are sold to Australia, the goods are:

A)exported by Australia and imported by China
B)imported by Australia and exported by China
C)exported by Australia and exported by China
D)imported by Australia and imported by China

Question 42

The main justification for imposing restrictions on free international trade is:

A)to protect foreign producers
B)to support foreign consumers
C)to protect domestic producers
D)to support domestic consumers

Question 43

If a country allows trade and the domestic price of a good is lower than the world price:

A)the country will become an exporter of the good.
B)the country will become an importer of the good
C)the country will neither export nor import the good
D)additional information about demand is needed to determine whether the country will export or import the good

Question 44

A tariff and an import quota will both:

A)increase the quantity of imports and raise domestic price
B)increase the quantity of imports and lower domestic price
C)reduce the quantity of imports and raise domestic price
D)reduce the quantity of imports and lower domestic price

Question 45

If the cost of producing wool in New Zealand is higher than in China but New Zealand exports wool to China, it is likely that:

A)New Zealand has a comparative advantage in producing cameras and China has a comparative advantage in producing wool.
B)New Zealand has an absolute advantage in producing wool and China has a comparative advantage in producing cameras.
C)New Zealand and China would both be better off if they each produced wool and cameras.
D)New Zealand subsidises the production of wool.

Question 46

When Ford and General Motors import automobile parts from Mexico at prices below those they must pay in the US:

A)workers who assemble Ford and General Motors vehicles become worse off
B)US consumers, taken as a group, become worse off
C)Mexican consumers, taken as a group, become worse off
D)American companies that manufacture automobile parts become worse off

Question 47

A multilateral approach to free trade has the potential to increase the gains from trade more than a unilateral approach does, because the multilateral approach can reduce trade restrictions abroad as well as at home.

Question 48

A multilateral approach to free trade is about involving large corporations in trade negotiations.

Question 49

A country is deemed to have a comparative advantage in a product if:

A)the world price is lower than its domestic price
B)the world price is higher than its domestic price
C)the world price is equal to its domestic price
D)none of the above

Question 50

Trade among nations is ultimately based on:

A)absolute advantage
B)international trade treaties
C)comparative advantage
D)exploitation of weaker countries by more powerful countries

Question 51

If a country allows trade and the price of a good falls as a result:

A)the domestic price is higher than the world price and the country will import the good
B)the domestic price is lower than the world price and the country will import the good
C)the domestic price is higher than the world price and the country will export the good
D)the domestic price is lower than the world price and the country will export the good

Question 52

A quota is:

A)a type of tax imposed on imports
B)a physical limit on the quantity of internationally traded goods
C)a physical limit on the tax level on internationally traded goods
D)a tool to encourage imports into a country

Question 53

When a quota is imposed on a market, the:

A)supply curve (above the world price) shifts to the right by the amount of the quota
B)supply curve (above the world price) shifts to the left by the amount of the quota
C)demand curve (above the world price) shifts to the right by the amount of the quota
D)demand curve (above the world price) shifts to the left by the amount of the quota

Question 54

The world price is:

A)the price that arises in the world market through supply and demand
B)the lowest price for which a producer will supply a good
C)the price at which a domestic producer will sell a good in an economy without trade
D)the price that gives the domestic market a comparative advantage

Question 55

Comparative advantage refers to:

A)a situation where the relative price of a domestic good is the same in two countries
B)one country's ability to control domestic and world prices
C)the situation where one country can produce a good relatively more cheaply than another country
D)a situation where there is increased competition due to trade

Question 56

Tariffs and import quotas have the following differing outcomes:

A)import quotas do not create deadweight losses but tariffs do
B)tariffs help domestic consumers and import quotas help domestic producers
C)tariffs raise revenue for the government but import quotas create a surplus for import licence holders
D)tariffs increase prices but import quotas do not.

Question 57

Indonesia and Australia engage in international trade because:

A)Indonesia has absolute advantage over Australia in producing goods
B)both Indonesia and Australia have absolute advantage in producing some goods
C)both Indonesia and Australia have comparative advantage in producing some goods
D)Australia has comparative advantage over Indonesia in producing all goods

Question 58

The Closer Economic Relations agreement between New Zealand and Australia is designed to ensure that Australia can exercise its absolute advantage.

Question 59

The Closer Economic Relations agreement between New Zealand and Australia is designed to ensure both Australia and New Zealand can exercise their own comparative advantage.

Question 60

Which of the following is NOT a consequence of international trade for an exporting country?

A)both domestic consumers and domestic producers will be better off
B)the domestic price will rise to equal the world price
C)domestic consumers will be worse off and domestic producers will be better off
D)total combined consumer and producer surplus will rise

Question 61

According to this statement, if trade in corn is allowed, the price of corn in Australia:

A)will increase
B)will decrease
C)will be unaffected
D)could increase or decrease

Question 62

According to this statement, if trade in corn is allowed, the price of corn in Australia will be:

A)equal to $8 per kg
B)equal to $15 per kg
C)less than $15 per kg
D)greater than $8 per kg

Question 63

When a country allows free trade:

A)the domestic price will be greater than the world price
B)the domestic price will be lower than the world price
C)the domestic price will equal the world price
D)it does not matter what the world price is, the domestic price is the prevailing price

Question 64

According to this statement, if trade in corn is allowed, Australian consumers of corn:

A)will be better off
B)will be worse off
C)will be unaffected
D)could be better off or worse off

Question 65

If France has a comparative advantage in producing cheese and it allows trade:

A)everyone in the country benefits
B)everyone in the country loses
C)the gains of the producers exceed the losses of the consumers
D)the losses of the consumers exceed the gains of the producers

Question 66

When a country allows trade and becomes an exporter of a good, consumer surplus:

A)and producer surplus will increase
B)and producer surplus will decrease
C)will increase and producer surplus will decrease
D)will decrease and producer surplus will increase

Question 67

As a result of Austria's tape measure trade:

A)producers of tape measures will be better off and consumers of tape measures will be worse off
B)everyone will be better off
C)there will be a deadweight loss as a result of the tariff
D)consumers will consume too many tape measures and producers won't produce enough tape measures

Question 68

NARRBEGIN: 9-1
Graph 9-1
This graph refers to the market for beef in Japan.
According to Graph 9-1, if trade in beef is allowed, Japanese beef:

A)consumers and Japanese beef producers will gain
B)consumers and Japanese beef producers will lose
C)consumers will gain, and Japanese beef producers will lose
D)producers will gain, and Japanese beef consumers will lose

Question 69

NARRBEGIN: 9-1
Graph 9-1
This graph refers to the market for beef in Japan.
According to Graph 9-1, if trade in beef is allowed, Japan:

A)will become an importer of beef
B)will become an exporter of beef
C)could become either an importer of beef or an exporter of beef
D)will neither import nor export beef

Question 70

According to this statement, if a quota on corn is then imposed, the price of corn in Australia:

A)will fall compared to the price with free trade
B)will remain the same as with free trade
C)will rise compared to the price with free trade
D)will remain the same as before trade

Question 71

When a country allows trade and becomes an exporter of a good:

A)both domestic producers and domestic consumers are better off
B)domestic producers are better off and domestic consumers are worse off
C)domestic producers are worse off and domestic consumers are better off
D)both domestic producers and domestic consumers are worse off

Question 72

When a country allows trade and becomes an importer of a good, consumer surplus:

A)and producer surplus will increase
B)and producer surplus will decrease
C)will increase and producer surplus will decrease
D)will decrease and producer surplus will increase

Question 73

When a country allows trade and becomes an importer of a good, which of the following is NOT true?

A)the gains of domestic consumers exceed the losses of domestic producers
B)the losses of domestic producers exceed the gains of domestic consumers
C)the price paid by domestic consumers of the good decreases
D)the price received by domestic producers of the good decreases

Question 74

According to this statement, if trade in corn is allowed:

A)Australia will become an importer of corn
B)Australia will become an exporter of corn
C)Australia may become either an importer or an exporter of corn
D)it is impossible to determine whether Australia will become an importer of corn or an exporter of corn

Question 75

Now that Austria is open to trade, it is:

A)an importer of tape measures and a price taker
B)an importer of tape measures but imposes a quota on imports
C)an exporter of tape measures but imposes a quota on exports
D)an importer of tape measures but imposes a tariff on imports

Question 76

If Brazil has a comparative advantage in producing rubber and trade in rubber is allowed:

A)Brazil will become an importer of rubber
B)Brazil will become an exporter of rubber
C)Brazil could become either an exporter or an importer of rubber
D)it is impossible to determine whether Brazil will become an importer or an exporter of rubber without additional information about rubber prices

Question 77

NARRBEGIN: 9-1
Graph 9-1
This graph refers to the market for beef in Japan.
According to Graph 9-1, if the world price rose to $6 and trade in beef is allowed, the price of beef in Japan will be:

A)$5 per pound
B)$2 per pound
C)between $2 per pound and $5 per pound
D)$6 per pound

Question 78

Suppose Australia has a free-trade treaty with the United States.As a result, Australia increases its exports of kangaroo to the USA.Which of the following statements is NOT true?

A)the price paid by Australian consumers of kangaroo increases
B)the price received by Australian producers of kangaroo increases
C)the losses of Australian consumers exceed the gains of Australian producers
D)the gains of Australian producers exceed the losses of Australian consumers

Question 79

Suppose a country becomes more open to trade and imports increase.This means that:

A)everyone in the country benefits from trade
B)the losses of the losers is less than the gains of the winners
C)the losses of the losers exceed the gains of the winners
D)everyone in the country loses from the trade

Question 80

According to this statement, if free trade in corn is allowed:

A)producers' welfare will increase and consumers' welfare will decrease
B)producers' welfare will decrease and consumers' welfare will increase
C)producers' and consumers' welfare will be unaffected
D)producers' welfare will increase and consumers will suffer a deadweight loss