Deck 1: The Welfare Gains From Trade

Question 1

According to empirical studies, the gains from international trade:

A) are equal to more than 10 percent of GDP per year in all countries.
B) are not large enough to be of any concern to policy makers interested in increasing human welfare.
C) are large only in very small countries, but negative in large countries like the United States.
D) are equal to several hundred billion dollars per year throughout the world.

Answer 1

D

Question 2

Historical data on international trade shows that in 1820:

A) about 10 percent of the world's production was exported to other countries.
B) about half of the world's production was exported to other countries.
C) about 1 percent of the world's production was exported to other countries.
D) just one-tenth of 1 percent of the world's production was exported to other countries.

Answer 2

C

Question 3

At the start of the twenty-first century, countries:

A) exported about one-fifth of everything they produced.
B) imported about 1 percent of everything they consumed and invested.
C) imported about 9 percent of everything they consumed and invested.
D) exported about 7 percent of everything they consumed and invested.

Answer 3

A

Question 4

Which of the following statements is true?

A) In 1820, only about 10 percent of world output was exported to foreign markets.
B) Economies were more closed at the beginning of the twentieth century than they were halfway through the century, in 1950.
C) Over the past 200 years, international trade throughout the world has grown more rapidly than world output.
D) In the late 1990s, the United States exported less than it did 500 years earlier.

Question 5

What percentage of world output was being exported to other countries at the very end of the 20^th century?

A) less than 5 percent.
B) 8 percent.
C) nearly 20 percent.
D) over 50 percent.

Question 6

A shortcoming of general equilibrium analysis of international trade is that:

A) indifference curves can only be ranked ordinally; they do not reflect actual levels of welfare.
B) it reflects only the production side of the economy.
C) it only shows who gains and who loses when an economy shifts to free trade, not what the total gains in welfare are.
D) All of the above.
E) None of the above.

Question 7

According to the partial equilibrium model of international trade, in a market for a good in which a country does enjoys a comparative advantage, free trade will lead to:

A) welfare gains for the country's producers of the good that are greater in absolute value than the losses for domestic consumers of the good.
B) welfare gains for the country's producers of the good that are smaller in absolute value than the losses to domestic consumers of the good.
C) welfare losses for the country's producers of the good that are larger in absolute value than the gains to domestic consumers of the good.
D) welfare gains for the country's producers of the good that may be larger than or smaller in absolute value than the gains to domestic consumers of the good.
E) welfare gains for producers of the good that are exactly equal to the losses to domestic consumers of the good.

Question 8

According to the partial equilibrium model of international trade, in a market for a good in which a country does not have a comparative advantage, free trade will lead to:

A) welfare gains for the country's producers of the good that are greater in absolute value than the losses for domestic consumers of the good.
B) welfare losses for the country's producers of the good that are smaller in absolute value than the gains to domestic consumers of the good.
C) welfare losses for the country's producers of the good that are greater in absolute value the gains to domestic consumers of the good.
D) welfare gains for the country's producers of the good that may be larger than or smaller than the gains to domestic consumers of the good.
E) welfare gains for producers of the good that are exactly equal to the losses to domestic consumers of the good.

Question 9

The two-country partial equilibrium model of international trade shows that:

A) in markets where a country is an importer, consumers lose welfare when free trade is established.
B) in markets where a country is an exporter, consumers gain and competing domestic producers lose welfare when free trade is established.
C) there are net gains from trade in each individual market when free trade is established.
D) all of the above.

Question 10

Surveys generally show that:

A) Americans strongly support free trade policies.
B) nearly all Americans believe that international trade is good for their welfare.
C) about half of the American public agrees that free trade agreements are good for the economy.
D) economists are evenly divided on whether international trade is beneficial for human welfare.

Question 11

The production possibilities frontier is typically drawn so that it has a bowed-out shape, or concave to the origin. This shape implies that:

A) it becomes increasingly costly to expand production of one good the more of society's resources are taken from other sectors of the economy.
B) the more of a product is produced, the less costly it becomes.
C) production is characterized by decreasing costs.
D) Both b and c above.
E) None of the above.

Question 12

The following is a property of indifference curves:

A) they can intersect.
B) they slope downward from left to right.
C) their slope is always constant.
D) they are concave to (they bow out from) the origin.
E) None of the above.

Question 13

If an economy insists on remaining completely self-sufficient and isolated from the rest of the world and it is already producing as efficiently as possible, it can raise the welfare of its citizens only by

A) specializing according to its comparative advantage.
B) increasing the amount of productive resources, perhaps by investing and increasing its capital stock.
C) improving its level of technology so that it can convert the same amount of inputs into a greater amount of output.
D) All of the above.
E) b and c above.

Question 14

The general equilibrium model of international trade pointed out that:

A) Whenever the relative prices of goods are not the same, countries can potentially enhance national welfare by engaging in international trade.
B) Producers will specialize and produce more of the goods that, compared to world prices, were relatively cheap at home and fewer of the goods that were relatively expensive.
C) A country will tend to export the goods that are relatively cheap at home, compared to overseas prices, and import the goods that are relatively expensive at home.
D) All of the above.
E) None of the above.

Question 15

The small country general equilibrium (PPF/indifference curve) model of international trade brought out a number of important points, among which is/are:

A) Whenever the relative prices of goods are the same, countries can enhance national welfare by engaging in exchange, but they cannot gain from specialization.
B) Producers will specialize and produce more of the goods that, compared to world prices, were relatively expensive at home and fewer of the goods that were relatively cheap.
C) A country exports goods that are relatively cheap at home, compared to overseas prices, and imports goods that are relatively expensive at home.
D) All of the above.
E) None of the above.

Question 16

The small country general equilibrium (PPF/indifference curve model) of international trade brought out a number of important points, among which is/are:

A) After international trade is carried out to its fullest potential, domestic prices will become lower than international prices.
B) The gains from exchange are the result of domestic consumers substituting relatively cheaper foreign products for more expensive domestic products.
C) The shift from self-sufficiency to free trade decreases the economy's real output but it lowers the prices of everything so that it seems as though real income increases.
D) All of the above.
E) None of the above.

Question 17

The huge differences in standards of living across the many different countries of the world are largely the result of:

A) different rates of economic growth during the last two centuries.
B) different economic growth performances dating back for thousands of years.
C) different rates of population growth.
D) sharp declines in per capita real output in what are now poor countries.

Question 18

The relative equality of per capita incomes throughout the world before the 19^th century was due to the fact that:

A) virtually all economies grew at similarly high rates.
B) population growth was much more similar in all countries.
C) no country had ever grown very fast.
D) None of the above; per capita incomes across countries were much less equal before the 19^th century than they are today.

Question 19

World economic growth over the past 200 years has been characterized by:

A) convergence of per capita output across nations..
B) stagnation.
C) a slowdown from earlier centuries.
D) divergence of per capita output across nations.

Question 20

Dynamic models:

A) describe how the model's equilibrium changes as the result of a change in one variable.
B) are not appropriate for analyzing globalization's effects on economic growth.
C) trace the economy's path of adjustment as it moves from one equilibrium to another.
D) describe the one-time changes that result from some outside variable's one-time change.

Question 21

According to the static Heckscher-Ohlin model of trade, when countries trade, they are able to reach points outside their production possibilities frontier (PPF) because of:

A) economies of scale.
B) foreign exploitation.
C) specialization and exchange.
D) technological progress.

Question 22

Referring to the production possibilities frontier (PPF) with international trade, trade triangles:

A) grow larger with more total trade.
B) grow larger with less total trade.
C) grow larger with more exports only.
D) grow larger with more imports only.

Question 23

Referring to partial equilibrium analysis, deadweight losses are also referred to as:

A) trade triangles.
B) quota rent.
C) Okun's gap.
D) Harberger triangles.

Question 24

Most estimates of the total static costs of protectionism find:

A) the losses are less than 5 percent of GDP.
B) the losses range from 6 percent to 10 percent of GDP.
C) the losses range from 11 percent to 25 percent of GDP.
D) the losses range from 26 percent to 50 percent of GDP.

Question 25

The fact that the ratio of the highest level of per capita real output to the lowest level of per capita real output has increased is evidence of:

A) convergence.
B) divergence.
C) economic growth.
D) a lowering of standards of living.

Question 26

According to Angus Maddison, world economic growth began to occur:

A) with the discovery of agriculture.
B) with the invention of democracy.
C) the 19^th century.
D) at the height of the Roman Empire.

Question 27

Which region of the world today has the lowest per capita income?

A) Eastern Europe.
B) Asia.
C) Africa.
D) Latin America.

Question 28

Since 1950, world trade has grown world output.

A) faster than.
B) slower than.
C) at the same rate as.
D) in opposite directions as.

Question 29

Producer surplus is:

A) the area between the supply curve and the market price.
B) the difference between total revenue and total variable costs.
C) the net welfare gain to producers from being able to produce and sell their product.
D) All of the above.
E) None of the above.

Question 30

Consumer surplus is:

A) the area between the demand curve and the market price.
B) the difference between welfare gained from consuming the equilibrium level of output and the total revenue paid to producers.
C) the net welfare gain to consumers from being able to buy and consume a product.
D) All of the above.
E) None of the above.

Question 31

Suppose that the market for running shoes looks as in the figure below. Producer surplus is equal to:

A) $15,000.
B) $90.
C) $7,500.
D) $18,000.
E) None of the above.

Question 32

Suppose that the market for soccer balls looks as in the figure below. Consumer surplus is equal to:

A) $150.
B) $600.
C) $900.
D) $750.
E) None of the above.

Question 33

The two-country partial equilibrium model of international trade shows that:

A) international trade simultaneously affects consumer and producer welfare in both the importing and exporting economies.
B) in markets where a country is an exporter, consumers gain and competing domestic producers lose welfare.
C) in markets where a country is an importer, consumers lose welfare when the competition from foreign consumers forces them to pay more for the goods.
D) All of the above.
E) None of the above.

Question 34

According to the two-country general equilibrium (PPF/indifference curves) model, a country's comparative advantage depends on:

A) each country's opportunity costs of production.
B) each country's consumer tastes.
C) each country's resource endowment.
D) All of the above.
E) None of the above.

Question 35

According to the two-country general equilibrium (PPF/indifference curves) model, if both countries production possibilities frontiers are identical, then:

A) both countries must have the identical resource endowments and technology.
B) the two countries could still have different comparative advantages if their tastes differ.
C) the two countries could find that international trade is not welfare-increasing.
D) All of the above.
E) None of the above.

Question 36

According to the two-country general-equilibrium model, international trade is a:

A) positive-sum game in which both players win.
B) zero-sum game in which one side wins and the other loses.
C) negative-sum game in which both sides end up worse off than if they had not played.
D) indeterminate game, in which there are sometimes winners and sometimes there are losers.

Question 37

The Rule of 72 says that:

A) a quantity that grows at 1% will double in size in about 72 years.
B) a quantity that grows at 7.2% will double in about ten years.
C) a quantity that grows at at 10% will double in about 7.2 years.
D) all of the above.
E) none of the above.

Question 38

The Rule of 72 says that:

A) a quantity that grows at 10% will double in size in about 72 years.
B) a quantity that grows at 7.2% will double in 100 years.
C) a quantity that grows at at 7.2% will double in about 10 years.
D) none of the above.

Question 39

The Rule of 72 says that:

A) a quantity that grows at 1% will double in size in about 72 years.
B) a quantity that grows at 7.2% will double in about 10 years.
C) a quantity that grows at 1% will double in about 7.2 years.
D) none of the above.