Deck 18: Gaining From International Trade

Question 1

The law of comparative advantage explains why a nation will benefit from trade when

A) it exports more than it imports.
B) its trading partners are experiencing offsetting losses.
C) it exports goods for which it is a high-opportunity cost producer, while importing those for which it is a low-opportunity cost producer.
D) it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer.

Answer 1

it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer.

Question 2

If the United States unilaterally removed all of its trade restrictions and moved toward a policy of free trade, international trade theory indicates that

A) U.S. residents would gain, but people in other countries would be worse off.
B) people in other countries would gain, but U.S. residents would be worse off.
C) both U.S. residents and people in other countries would be able to achieve higher income levels.
D) the average income level would be lower in both the United States and other countries.

Answer 2

both U.S. residents and people in other countries would be able to achieve higher income levels.

Question 3

Which of the following provides the foundation of the case for free trade?

A) the law of diminishing marginal utility
B) the anti-dumping argument
C) the industrial diversity argument
D) the law of comparative advantage

Answer 3

the law of comparative advantage

Question 4

Opening trade between two nations would

A) shift their production possibilities curves outward.
B) shift their production possibilities curves inward.
C) leave the production possibilities unchanged and increase their consumption possibilities.
D) leave the production possibilities unchanged and decreased their consumption possibilities.

Question 5

International trade does all the following except

A) allow a country to specialize in producing certain goods and services.
B) reduce world output.
C) allow a country to move to higher consumption levels.
D) increase world output.

Question 6

Assume the United States can use a given amount of its resources to produce either 20 airplanes or 8 automobiles and Japan can employ the same amount of its resources to produce either 20 airplanes or 10 automobiles. The U.S. should specialize in

A) airplanes.
B) automobiles.
C) both goods.
D) neither good.

Question 7

The law of comparative advantage indicates that

A) specialization and exchange will permit trading partners to maximize their joint output.
B) a nation can gain from trade only if it is not at an absolute disadvantage in producing all goods.
C) a nation can gain from trade only when its trading partners are not low-wage countries.
D) countries should export products for which they are high-opportunity cost producers.

Question 8

In recent years, the largest trading partners of the United States have been

A) Germany, France, Spain, and the United Kingdom.
B) Canada, Mexico, China, and Japan.
C) Canada, Brazil, Argentina, and Chile.
D) Russia, Venezuela, Saudi Arabia, and Indonesia.

Question 9

During the last several decades, the size of the trade sector (exports plus imports) of the United States has been

A) increasing as a share of the economy.
B) relatively constant as a share of the economy.
C) declining as a share of the economy.
D) increasing during periods of recession, but declining during periods of strong economic growth.

Question 10

A nation benefits from international trade if it

A) exports more than it imports.
B) imports more than it exports.
C) imports goods for which it is a low opportunity cost producer.
D) exports goods for which it is a low opportunity cost producer.

Question 11

According to international trade theory, a country can gain

A) if it protects domestic industries from low-wage foreign producers.
B) only if the trade harms its trading partners.
C) by importing goods when they can be obtained more economically from foreign producers.
D) if it maximizes the employment in domestic industries that face competition from foreign producers who have lower costs.

Question 12

Which of the following is true?

A) In recent decades, the volume of U.S. international trade has been declining as a share of the economy.
B) Most of the textile products produced in the United States are exported abroad.
C) The volume of U.S. trade with Canada is larger than for any other country.
D) If one party to an international exchange gains, the other party must lose a similar amount.

Question 13

Nations will be able to produce a larger joint output and realize mutual gains when each specializes in the production of those items for which it is a low-opportunity cost producer and trades for those things that it could produce only at a high cost. This statement best describes the

A) free rider problem.
B) infant-industry argument.
C) law of comparative advantage.
D) equation of exchange.

Question 14

If nation A has an absolute advantage over nation B in the production of a product, this implies that

A) it requires fewer resources in A to produce the good than in B.
B) the cost of producing the good in terms of some other good's production that must be sacrificed is lower in A than in B.
C) nation B could not benefit by engaging in trade with A.
D) nation A should acquire this product by trading with B.
E) nation A could not benefit by engaging in trade with B.

Question 15

The theory of comparative advantage suggests that nations should produce a good if they

A) have the lowest opportunity cost.
B) have the lowest wages.
C) have the most resources.
D) can produce more of the good than any other nation.

Question 16

If domestic producers have a comparative advantage in producing a good,

A) trade restrictions will be required before the producers can benefit from their comparative advantage.
B) trade restrictions will still be required before the domestic producers can compete with low-wage producers abroad.
C) they will be able to compete effectively in a competitive world market.
D) the government should subsidize production of the good so the domestic producers will be able to achieve a larger share of the world market.

Question 17

Opportunity costs differ among nations primarily because

A) nations employ different currencies.
B) nations have different endowments of land, labor skills, capital, and technology.
C) nations have different political institutions.
D) work-leisure preferences vary considerably from one nation to another.

Question 18

Which of the following is true?

A) In recent decades, the volume of U.S. international trade has been increasing as a share of the economy.
B) As transportation costs decline, the volume of international trade will also tend to decline.
C) Most international trade is between the governments of different nations.
D) If one party to an international exchange gains, the other party must lose a similar amount.

Question 19

People living in different countries can benefit from international trade because

A) different countries use different currencies.
B) trade makes it possible for the residents of different countries to specialize in the production of those things they do best.
C) trade makes it possible for people to acquire goods from foreigners cheaper than they could be produced domestically.
D) both b and c are correct.
E) all of the above are correct.

Question 20

According to international trade theory, a country can gain if it

A) imports goods when they can be purchased cheaper from domestic producers.
B) imports goods when foreigners are willing to pay higher prices than domestic consumers.
C) specializes in producing those things it does best (produces at a low cost).
D) trades with high-income countries but not low-income countries.

Question 21

Use the table below to answer the following question. The table outlines the production possibilities of Slavia and Italia for food and clothing. The law of comparative advantage suggests that

A) neither country could gain from trade, even if the costs of transporting the products were zero.
B) Italia could not gain from trade because it has an absolute advantage in producing both goods.
C) both countries could gain if Italia traded food for clothing produced in Slavia.
D) both countries could gain if Slavia traded food for clothing produced in Italia.

Question 22

For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?

A) The opportunity cost of producing watches is lower in Denmark.
B) The opportunity cost of producing cheese is lower in Denmark.
C) The opportunity cost of producing watches is identical in both countries.
D) It is impossible to compare opportunity costs because the two countries use different currencies.
E) In Germany the opportunity cost of producing one pound of cheese is one watch.

Question 23

Suppose there are only two goods in the world, corn and shirts. If it is true that with its vast resources the United States could produce both more corn and more shirts than Mexico,

A) Mexico will never have a comparative advantage and, thus, can never gain from trading with the United States.
B) trade between the United States and Mexico will make the United States better off but will leave Mexico worse off unless the wage of workers in Mexico rises to equal that of American workers.
C) total production of corn and shirts cannot be increased through specialization and trade.
D) both countries will be able to gain from specialization and trade as long as relative costs of producing the two goods are different in Mexico than in the United States.

Question 24

Suppose the United States exports cars to France and imports cheese from Switzerland. This situation suggests that

A) the United States has a comparative advantage relative to Switzerland in producing cheese, and France has a comparative advantage relative to the United States in producing cars.
B) the United States has a comparative advantage relative to France in producing cars, and Switzerland has a comparative advantage relative to the United States in producing cheese.
C) the United States has an absolute advantage relative to Switzerland in producing cheese, and France has an absolute advantage relative to the United States in producing cars.
D) the United States has an absolute advantage relative to France in producing cars, and Switzerland has an absolute advantage relative to the United States in producing cheese.

Question 25

The following table indicates the production possibilities of food and clothing per worker day in the United States and Japan. Which of the following is true?

A) No gains from trade are possible.
B) Joint output would be maximized if the United States specialized in producing clothing and Japan in producing food.
C) Mutual gains from trade could be realized if the United States specialized in food production and Japan in clothing production.
D) The Japanese are the high-cost producers of both food and clothing.

Question 26

When Iceland can generate a product using fewer labor hours and resources than the United States, an economist would say that Iceland had

A) a comparative advantage in production of the product.
B) an absolute advantage in production of the product.
C) a higher opportunity cost of producing the product.
D) no incentive to import the product, regardless of the cost-price conditions for other products.

Question 27

Use the table below to answer the following question. The table outlines the production possibilities for two hypothetical countries. Which of the following statements is true?

A) Redland has a comparative advantage in producing oats.
B) Redland enjoys a comparative advantage in producing both products and could not gain from exchange.
C) Redland should specialize in producing mutton and should trade for oats.
D) In this example, Blueland has nothing to gain through trade with Redland.

Question 28

Which of the following is true?

A) When economies of scale are important in an industry, the domestic market of a small country may not be large enough to support cost-efficient firms.
B) In small countries, firms in industries where economies of scale are important will tend to export little, if any, of their output.
C) The size of the trade sector (exports plus imports) as a share of GDP will generally be larger in more populous countries than in smaller less-populated countries.
D) Countries with higher trade barriers have higher growth rates.

Question 29

Assume, for the U.S., that the domestic price of beef without international trade is lower than the world price of beef. This suggests that with trade,

A) the U.S. has a comparative advantage in the production of beef over other countries and the U.S. will export beef.
B) the U.S. has a comparative advantage in the production of beef over other countries and the U.S. will import beef.
C) other countries have a comparative advantage over the U.S. in the production of beef and the U.S. will export beef.
D) other countries have a comparative advantage over the U.S. in the production of beef and the U.S. will import beef.

Question 30

Use the table below, which outlines the production possibilities of Qatar and Botswana in wine and wheat, to answer the following question. The law of comparative advantage suggests that

A) neither country would gain from trade, even if the costs for transporting the products were zero.
B) Qatar would not gain from trade because it has an absolute advantage in producing both goods.
C) both countries would gain if Botswana traded wine made in Botswana for Qatar's wheat.
D) both countries would gain if Botswana traded wheat grown in Botswana for Qatar's wine.

Question 31

Use the table below to answer the following question. The table outlines the production possibilities of Slavia and Italia for food and clothing. Which of the following is true?

A) Italia has a comparative advantage in producing both food and clothing.
B) Italia is the low-opportunity cost producer of clothing.
C) Slavia is the low-opportunity cost producer of food.
D) Italia has a comparative advantage in producing food.

Question 32

International trade and competition from abroad

A) provide domestic producers with a strong incentive to improve the quality of their products and keep their costs low.
B) will make it more difficult for domestic producers to realize fully the potential gains from economies of scale in production.
C) will make it more difficult for domestic consumers in small countries to purchase from large scale producers.
D) do all of the above.
E) do none of the above.

Question 33

If Country A has an absolute advantage over Country B in the production of every commodity,

A) mutual gains from trade between Country A and Country B would be impossible.
B) Country B would be able to gain from trade but not country A.
C) the joint output of the two countries could not be increased through specialization and exchange.
D) mutual gains from trade would still be possible.

Question 34

International trade can be mutually advantageous because it

A) encourages the adoption of sound institutions and policies.
B) reduces the competitiveness of domestic industries and, thereby, makes it easier for the domestic producers to raise their prices.
C) permits the trading partners to take advantage of reductions in per-unit costs in industries where economies of scale are important.
D) does all of the above.
E) does both a and c.

Question 35

Which of the following is true?

A) Specialization and trade leads to mutual gains for countries.
B) Protectionism (i.e., policies that limit trade in certain goods) promotes both economic prosperity and greater employment.
C) Countries that have a lot of resources, like the United States, are always hurt by trade.
D) Countries will have a higher standard of living when they produce as many goods as possible domestically.

Question 36

The following table indicates the production possibilities of cars and clothing per worker day in the United States and Japan. Which of the following is true?

A) No gains from trade are possible.
B) Joint output would be maximized if the United States specialized in producing cars and Japan in producing clothing.
C) Mutual gains from trade could be realized if the United States specialized in clothing production and Japan in car production.
D) The Japanese are the high-cost producers of both cars and clothing.

Question 37

Assume, for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that with trade,

A) Canada has a comparative advantage in the production of steel over other countries and Canada will import steel.
B) Canada has a comparative advantage in the production of steel over other countries and Canada will export steel.
C) other countries have a comparative advantage over Canada in the production of steel and Canada will import steel.
D) other countries have a comparative advantage over Canada in the production of steel and Canada will export steel.

Question 38

Firms in a high-wage nation such as the U.S. can compete effectively with imports from low-wage nations if

A) skill levels are identical in the nations
B) the U.S. reduces tariffs on imports
C) low-wage nations impose tariffs on U.S. made goods
D) labor productivity is higher in the low-wage nation
E) labor productivity is higher in the U.S.

Question 39

Which of the following is true?

A) Competition from abroad fails to provide domestic producers with a strong incentive to improve the quality of their products and keep their costs low.
B) When economies of scale are important in an industry, international trade benefits domestic consumers but harms domestic producers.
C) When economies of scale are important in an industry, international trade will be particularly important for domestic producers operating in small countries.
D) Economies of scale eliminate the potential gains from international trade.

Question 40

For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?

A) The opportunity cost of producing watches is higher in Denmark.
B) The opportunity cost of producing cheese is higher in Denmark.
C) The opportunity cost of producing cheese is identical in both countries.
D) It is impossible to compare opportunity costs because the two countries use different currencies.
E) In both countries combined, the opportunity cost of one watch is 150 pounds of cheese.

Question 41

Which of the following is correct?

A) An increase in the tariff on foreign-produced automobiles will benefit U.S. consumers of domestic cars.
B) An ongoing result of the North American Free Trade Agreement is that producers in both countries will benefit at the expense of consumers.
C) The wages of U.S. workers would sharply decline if we traded freely with low-wage countries like India and China.
D) Exports provide a nation with its primary source of purchasing power used to buy imported goods.

Question 42

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price,

A) the country will be an exporter of the good.
B) the country will be an importer of the good.
C) the country will be neither an exporter nor an importer of the good.
D) Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.

Question 43

Nevada is the low opportunity cost producer of computer software, and California is low opportunity cost producer of wine. Which of the following is true?

A) Nevada has no comparative advantage over California in the production of wine or computer software.
B) Nevada has a comparative advantage in producing wine
C) Nevada has a comparative advantage in producing software.
D) Nevada has a comparative advantage in producing both wine and software.

Question 44

When a country allows trade and becomes an importer of steel,

A) the losses of the domestic producers of steel exceed the gains of the domestic consumers of steel.
B) the losses of the domestic consumers of steel exceed the gains of the domestic producers of steel.
C) the gains of the domestic producers of steel exceed the losses of the domestic consumers of steel.
D) the gains of the domestic consumers of steel exceed the losses of the domestic producers of steel.

Question 45

The primary source of purchasing power used to buy imported goods is the

A) revenue received from exports.
B) monetary sector.
C) balance of payments deficit.
D) domestic currency of a nation.

Question 46

When the nation of Venezia allows trade and as a result becomes an exporter of shoes,

A) residents who produce shoes become worse off; residents who buy shoes become better off; and the economic well-being of Venezia rises.
B) residents who produce shoes become worse off; residents who buy shoes become better off; and the economic well-being of Venezia falls.
C) residents who produce shoes become better off; residents who buy shoes become worse off; and the economic well-being of Venezia rises.
D) residents who produce shoes become better off; residents who buy shoes become worse off; and the economic well-being of Venezia falls.

Question 47

Compared to the no-trade situation, when a country imports a good,

A) domestic consumers gain, domestic producers lose, and the gains outweigh the losses.
B) domestic consumers lose, domestic producers gain, and the gains outweigh the losses.
C) domestic consumers gain, domestic producers lose, and the losses outweigh the gains.
D) domestic consumers gain, but domestic producers lose an equal amount.

Question 48

The primary source of purchasing power used to buy imported goods is

A) the monetary sector.
B) the balance of payments deficit.
C) the exports of a nation.
D) taxation and other revenue-generating activities.

Question 49

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

A) the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.
B) the gains of the domestic consumers of the good exceed the losses of the domestic producers of the good.
C) the losses of the domestic producers of the good exceed the gains of the domestic consumers of the good.
D) the losses of the domestic consumers of the good exceed the gains of the domestic producers of the good.

Question 50

Relative to a no-trade situation, if the United States imported jeans, the U.S. domestic price of jeans would

A) rise, but domestic output would fall.
B) decline, but domestic output would rise.
C) decline as would domestic output.
D) rise as would domestic output.

Question 51

When foreigners export goods to the United States

A) they reduce the ability of the U.S. to export products abroad.
B) they acquire the dollars that are necessary to purchase goods, services, and assets from Americans.
C) they reduce the living standards of Americans.
D) they cause the dollar to depreciate.

Question 52

Compared to the no-trade situation, when a country exports a good,

A) domestic consumers gain, domestic producers lose, and the gains outweigh the losses.
B) domestic producers gain, domestic consumers lose, and the gains outweigh the losses.
C) domestic consumers gain, domestic producers lose, and the losses outweigh the gains.
D) domestic producers gain, but domestic consumers lose an equal amount.

Question 53

As the result of specialization and trade, according to the law of comparative advantage, total output will

A) decline because specialization is costly.
B) rise only when there is an accompanying decline in the total output of one's trading partners.
C) rise if a nation is a net exporter and fall if the nation is a net importer of goods and services.
D) increase since resources will be better directed toward their highest-valued use.

Question 54

A nation can gain from international trade when

A) its relative production costs are the same as those of other countries.
B) it exports goods for which it is a low-opportunity cost producer while importing goods that it could produce only at a high opportunity cost.
C) it imports goods for which it is a low-opportunity cost producer and exports goods for which it is a high opportunity cost producer.
D) it has a trade deficit.

Question 55

Relative to a no-trade situation, if the United States exported chairs, the domestic price of chairs

A) would rise, and domestic output would also rise.
B) would decline, but the domestic output would rise.
C) would decline, and domestic output would decline also.
D) would rise, but domestic output would fall.

Question 56

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price,

A) the country will be an exporter of the good.
B) the country will be an importer of the good.
C) the country will be neither an exporter nor an importer of the good.
D) Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.

Question 57

The United States is the world's leading grain-producing nation. Exporting U.S. grain causes the

A) domestic consumption of grain to rise because of the added foreign demand.
B) price of grain in the domestic market to fall because foreigners are now taking some of the domestic demand.
C) price of grain to domestic consumers to rise because of the added foreign demand.
D) standard of living of foreigners to fall because they lose purchasing power.

Question 58

Each trading nation can gain by specializing in producing those things for which it is a low-opportunity cost producer. This statement best describes the implications of the

A) free rider problem.
B) law of comparative advantage.
C) infant-industry argument.
D) law of diminishing marginal returns.

Question 59

When both exports and imports are considered, the major advantage of international trade is that it allows us to

A) seclude ourselves from foreign products.
B) consume a larger, more diverse quantity of goods and services at lower prices than would otherwise prevail.
C) benefit at the expense of less-developed nations
D) maintain jobs for workers who would otherwise have little to do.

Question 60

When the nation of Roma allows trade and as a result becomes an importer of scooters,

A) residents who produce scooters become worse off; residents who buy scooters become better off; and the economic well-being of Roma rises.
B) residents who produce scooters become worse off; residents who buy scooters become better off; and the economic well-being of Roma falls.
C) residents who produce scooters become better off; residents who buy scooters become worse off; and the economic well-being of Roma rises.
D) residents who produce scooters become better off; residents who buy scooters become worse off; and the economic well-being of Roma falls.

Question 61

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 62

If the U.S. put an import quota on clothes dryers, it would

A) raise U.S. net exports of clothes dryers and raise net exports of other U.S. goods.
B) raise U.S. net exports of clothes dryers and lower net exports of other U.S. goods.
C) lower U.S. net exports of clothes dryers and raise net exports of other U.S. goods.
D) lower U.S. net exports of clothes dryers and lower net exports of other U.S. goods.

Question 63

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 64

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 65

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 66

If import restrictions prohibit foreigners from selling various goods in the U.S. market,

A) the United States will be able to export more goods abroad.
B) foreigners will have fewer U.S. dollars with which to buy goods from Americans.
C) the United States will be able to produce a larger output than would otherwise be the case.
D) the domestic producers in the protected industries will supply goods to U.S. consumers at lower prices than would otherwise be the case.

Question 67

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 68

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.

Question 69

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 70

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 71

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 72

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 73

If the U.S. imposed an import quota on sugar, then in the U.S.

A) exports and imports would rise.
B) exports and imports would fall.
C) exports would rise and imports would fall.
D) exports would fall and imports would rise.

Question 74

Economists consider tariffs to be

A) necessary for the protection of domestic industries and the achievement of full employment.
B) harmful to domestic consumers.
C) obstacles that hinder voluntary exchange and gains from trade.
D) both b and c above

Question 75

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 76

If the United States imposes an import quota on clothing, U.S. imports

A) increase, exports increase, and U.S. net exports are unchanged.
B) increase, exports decrease, and U.S. net exports increase.
C) decrease, exports increase, and U.S. net exports decrease.
D) decrease, exports decrease, and U.S. net exports are unchanged.

Question 77

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 78

Compared to a no-trade situation, if Italy imported wine,

A) the price of domestic Italian wine would decline.
B) Italian wine producers would increase their prices.
C) Italian wine producers would increase their profits.
D) domestic wine production in Italy would expand.

Question 79

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 80

Which of the following is most likely to increase U.S. exports?

A) The government gives subsidies to U.S. firms that export goods or services.
B) The government reduces the size of the budget surplus.
C) The United States unilaterally reduces its restrictions on foreign imports.
D) Taxes on domestic saving rise.