Deck 19: International Trade

Question 1

Terms of trade indicate the purchasing power of a nation's exports.

Answer 1

True

Question 2

The difference between absolute advantage and comparative advantage is called gains from trade.

Answer 2

False

Question 3

The prices at which goods trade are determined by their costs of production.

Answer 3

True

Question 4

A production possibilities curve determines the price at which goods trade.

Question 5

When there are gains from trade, the trading nations would be worse off if no trade took place.

Question 6

Gains from trade means that all trading nations must be made better off.

Question 7

An argument against free trade is that it might endanger national security.

Question 8

Even though free trade creates gains, some people still object to free trade because of the way those gains are distributed.

Question 9

Now that the world is technologically advanced, nations no longer try to protect infant industries.

Question 10

NAFTA or GATT disagreements are settled at the United Nations.

Question 11

When the production possibilities curve is a straight line, the opportunity cost ofproducing more of one good must be equal to the opportunity costs of producing more of the other good.

Question 12

When one nation specializes in the production of one good and another nation specializes in the production of another good, more of both goods can be produced.

Question 13

Free trade benefits all consumers and producers in a country.

Question 14

The gains from specialization in international trade accrue strictly from the principle of absolute advantage.

Question 15

If Ireland can produce cloth at a lower opportunity cost than Austria, then Ireland has a comparative advantage vis-à-vis Austria in cloth.

Question 16

Dividing the index of import prices by the index of export prices and multiplying by 100 generates a country's terms of trade.

Question 17

A worsening of a country's terms of trade means that its export prices are falling relative to its import prices.

Question 18

Japan is the largest trading partner of the United States.

Question 19

Dumping refers to the practice of one country selling off its surplus goods in other countries.

Question 20

Both tariffs and quotas result in fewer imports being sold in a country.

Question 21

NAFTA is an example of a free trade area consisting of the United States, Canada, Mexico, and the European Community.

Question 22

It is possible for China to have an absolute advantage over Japan in the production of rice, but not a comparative advantage over Japan in its production.

Question 23

A country must always have an absolute advantage in some product.

Question 24

A country must always have a comparative advantage in some product.

Question 25

A nation should specialize in the good for which it has an absolute advantage.

Question 26

Exports as a percentage of global GDPs have declined since 1980.

Question 27

Because industrial countries depend upon the less developed countries for their food and raw materials, the less-developed countries account for the majority of world trade.

Question 28

Japan exports more goods than any other country

Question 29

U.S. tariff rates are substantially higher than the world average.

Question 30

A tariff will decrease the quantity supplied of a good.

Question 31

If Canada has a comparative advantage over Mexico in the production of shoes, it must also have an absolute advantage over Mexico in the production of shoes.

Question 32

If two nations engage in trade, they will always share equally the gains achieved through specialization.

Question 33

When each of two countries can produce one good with fewer resources than the other, each is said to have an absolute advantage in that good.

Question 34

Free trade is, in essence, a roundabout way to wealth based upon comparative advantage.

Question 35

Micromania imports a good that costs $12,000 and exports a different good for a price of $9,000. Ten years ago it paid $6,000 for the good and received $3,000 for the good itexported. How have the terms of trade index changed from then to now?

A) From 25 to 75
B) From 66 to 300
C) From 75 to 25
D) From 300 to 66
E) None of the above

Question 36

-In Example EE-1, where S_us and D represent domestic demand and supply, which panel could be best used to illustrate an import quota?

A) 1
B) 2
C) 3
D) 4
E) 5

Question 37

-In Example EE-1, where S_us and D represent domestic demand and supply, which panel could be best used to illustrate a tariff on imported goods?

A) 1
B) 2
C) 3
D) 4
E) 5

Question 38

Which of the following is not a major trading partner of the United States?

A) Canada
B) Japan
C) Brazil
D) Mexico
E) All are major trading partners

Question 39

Which of the following is not an argument for trade barriers?

A) national security
B) infant industries
C) cheap labor
D) antidumping
E) information dissemination

Question 40

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. In Nabia, the opportunity cost of producing a unit of wheat is

A) 4 units of corn
B) 4 units of wheat
C) 1/4 unit of corn
D) 15 units of corn
E) 60 units of corn

Question 41

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. In Pada, the opportunity cost of producing a unit of corn is

A) 3 units of wheat
B) 3 units of corn
C) 1/3 unit of wheat
D) 15 units of wheat
E) 30 units of wheat

Question 42

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. In Pada, the opportunity cost of producing a unit of wheat is

A) 3 units of corn
B) 1/3 unit of corn
C) 1/3 unit of wheat
D) 15 units of corn
E) 30 units of corn

Question 43

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. Suppose Nabia produces at point A on its PPC. How many units of wheat is thecountry able to produce? Suppose Pada produces at point B on its PPC. How much cornis it able to produce?

A) 2
B) 15
C) 10
D) 6
E) 13

Question 44

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. What is the most wheat Nabia would be willing to trade for one unit of Pada'scorn?

A) 1/3
B) 1/4
C) 3
D) 4
E) 1

Question 45

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. What is the most corn Pada would be willing to trade for one unit of Nabia's wheat?

A) 1/3
B) 1/4
C) 3
D) 4
E) 1

Question 46

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. If these countries engage in trade, the exchange rate corn for wheat or wheat forcorn must fall between

A) 1 corn = 4 wheat to 1 corn = 3 wheat
B) 1 wheat = 4 corn to 1 wheat = 3 corn
C) one-third corn = 1 wheat to 1 corn = 1 wheat
D) one-third wheat = 1 corn to one-fourth wheat = 1 corn
E) 1 corn = 1 wheat to one-half corn = 1 wheat

Question 47

-Exhibit EE-2 depicts the production possibilities curves of wheat and corn for Nabia and Pada. Which of the following statements is true?

A) Neither country has an absolute advantage in the production of both corn and wheat.
B) Pada has an absolute advantage in the production of both corn and wheat.
C) Pada has a comparative advantage in the production of both corn and wheat.
D) Pada has a comparative advantage in the production of corn.
E) Nabia has a comparative advantage in the production of corn.

Question 48

Having an absolute advantage in the production of a good implies that a country

A) should specialize in the production of the good
B) is able to produce the good with fewer resources than another country
C) should not specialize in the production of the good
D) also has the comparative advantage in the production of the good
E) cannot have an absolute advantage in the production of the good

Question 49

Having a comparative advantage in the production of a good implies that a country

A) should specialize in the production of the good
B) is able to produce the good with fewer resources than another country
C) should not specialize in the production of the good
D) also has the absolute advantage in the production of the good
E) cannot have an absolute advantage in the production of the good

Question 50

If Canada has a comparative advantage over Denmark in the production of wood, this implies that

A) it requires fewer resources in Canada than in Denmark to produce wood
B) the opportunity cost of producing wood in Canada is lower than in Denmark
C) Denmark does not benefit by trading with Canada
D) Canada should buy wood from Denmark
E) Canada does not benefit by trading with Denmark

Question 51

If Canada has an absolute advantage over Denmark in the production of wood, this implies that

A) it requires fewer resources in Canada than in Denmark to produce wood
B) the opportunity cost of producing wood in Canada is lower than in Denmark
C) Denmark does not benefit by trading with Canada
D) Canada should buy wood from Denmark
E) Canada does not benefit by trading with Denmark

Question 52

-Exhibit EE-3 shows Brazil's and Cuba's production possibilities of sugar and tobacco. Which of the following is true?

A) Cuba has the comparative advantage in the production of both sugar and tobacco.
B) Brazil has the comparative advantage in the production of both sugar and tobacco.
C) Cuba has the absolute advantage in the production of both sugar and tobacco.
D) There are no gains from trade for both Brazil and Cuba.
E) Cuba has the comparative advantage in the production of sugar.

Question 53

-Exhibit EE-3 shows Brazil's and Cuba's production possibilities of sugar and tobacco. Which of the following is true?

A) Cuba has the comparative advantage in the production of both sugar and tobacco.
B) Brazil has the comparative advantage in the production of both sugar and tobacco.
C) Brazil has the absolute advantage in the production of both sugar and tobacco.
D) Brazil has the comparative advantage in the production of tobacco.
E) Cuba has the comparative advantage in the production of sugar

Question 54

-Exhibit EE-3 shows Brazil's and Cuba's production possibilities of sugar and tobacco. Which of the following is true?

A) Cuba has the comparative advantage in the production of both sugar and tobacco.
B) Brazil has the comparative advantage in the production of both sugar and tobacco.
C) The opportunity costs of producing both goods are identical in both countries.
D) Brazil has the comparative advantage in the production of tobacco.
E) Cuba has the comparative advantage in the production of sugar.

Question 55

-Exhibit EE-4 shows Brazil's and Cuba's production possibilities of sugar and tobacco. Which of the following is true?

A) Brazil has the comparative advantage in the production of tobacco.
B) Brazil has the absolute advantage in the production of tobacco.
C) The opportunity cost of 1 tobacco is 1.25 sugar in Cuba.
D) The opportunity cost of 1 tobacco is .80 sugar in Cuba.
E) The opportunity cost of 1 tobacco is .67 sugar in Brazil.

Question 56

A French import is a good

A) produced in France and sold to Britain
B) used in the production of a French good
C) produced in Britain
D) consumed in Britain
E) produced in Britain and sold to France

Question 57

A French export is a good

A) produced in France and sold to Britain
B) used in the production of a French good
C) produced in Britain
D) consumed in Britain
E) produced in Britain and sold to France

Question 58

A good produced in Japan and sold to Korea

A) is a Korean export and Japanese import
B) is a Korean import and Japanese export
C) implies that Japan has an absolute advantage in the production of the good
D) implies that Korea has a comparative advantage in the production of the good
E) implies that Korea has an absolute advantage in the production of the good

Question 59

If Boliva's terms of trade changes from 1.00 to 1.20, it implies that

A) Bolivia is exporting more than it's importing
B) Bolivia is importing more than it's exporting
C) Bolivia's export prices have risen relative to its import prices
D) Bolivia has lost the comparative advantage in the production of goods
E) Bolivia now has an absolute advantage in the production of goods

Question 60

The largest volume of trade in the world occurs between the United States and

A) Russia
B) Japan
C) Mexico
D) Canada
E) Britain

Question 61

Which of the following is not an argument usually presented in favor of traderestrictions?

A) national security
B) infant industry
C) cheap foreign labor
D) diversity of industry
E) increased efficiency

Question 62

Which of the following is an infant industry argument in favor of restrictions on foreign trade?

A) Foreign producers must be prevented from exporting their goods below cost of production.
B) Domestic workers must be protected from lower wages paid in foreign countries.
C) The nation's security demands we ensure an adequate domestic supply of certain strategic goods.
D) Do unto others as they do unto you.
E) Industries in the early stages of development must be protected from competing with the more mature producers.

Question 63

Which of the following is an antidumping argument in favor of restrictions on foreign trade?

A) Foreign producers must be prevented from exporting their goods below cost of production.
B) Domestic workers must be protected from the lower wages paid in foreign countries.
C) The nation's security demands we ensure an adequate domestic supply of certain strategic goods.
D) Do unto others as they do unto you.
E) Industries in the early stages of development must be protected from more mature producers.

Question 64

Which of the following is a diversity of industry argument in favor of restrictions on foreign trade?

A) Foreign producers must be prevented from exporting their goods below cost of production.
B) Domestic workers must be protected from the lower wages paid in foreign countries.
C) The nation's security demands we ensure an adequate domestic supply of certain strategic goods.
D) Don't have all of your eggs in one basket.
E) Industries in the early stages of development must be protected from more mature producers.

Question 65

In international trade, dumping refers to

A) producing a lower quality good for export than what is produced for domestic consumption
B) selling an export at a higher price than its price to domestic consumers
C) selling an export at a price below its cost of production
D) producing a lower quality good for domestic consumption than for export
E) paying workers below subsistence wages

Question 66

Which of the following is not a trade-restricting practice?

A) subsidy
B) tariff
C) quota
D) a voluntary limit on exports
E) higher safety standards for imports than for the same good sold domestically.

Question 67

A tariff is a

A) tax on exports
B) limit on the quantity of exports
C) limit on the quantity of imports
D) tax on imports
E) subsidy on imports

Question 68

Typically, labor unions favor trade restrictions because

A) of the poor quality of imported goods that workers buy
B) the lower prices of the imported goods results in a decrease in the demand for domestic goods and the labor that produces them
C) foreign workers would have to be paid the same wage as domestic workers.
D) it means more revenue for the government
E) the restrictions lower the prices of the imported goods that workers buy

Question 69

Reciprocity between two countries implies that

A) neither will trade with the other
B) trade flows freely across the two countries' borders
C) trade can only be beneficial to one of the countries
D) each agree not to trade with any other countries
E) you do unto others as they do unto you

Question 70

When two nations agree to lower their tariffs against each other, they engage in

A) a customs union
B) a free trade union
C) geographical specialization
D) a reciprocal agreement
E) a comparative advantage

Question 71

The primary purpose of GATT is to

A) protect the United States from cheap foreign labor
B) foster trade among nations
C) promote the dumping of foreign goods
D) prevent the dumping of foreign goods
E) form a union of European nations

Question 72

A most favored nation clause in a trade agreement among nations means that

A) only one nation will receive the lowest tariff
B) tariffs are prohibited
C) tariffs can only be applied to member countries
D) any tariff reduction given to any member of the group applies to every member
E) the nations will not trade with other nations except in emergency

Question 73

A less-developed country would probably use ___________ to argue for traderestrictions.

A) national security
B) infant industry
C) protection of workers from cheap foreign labor
D) antidumping
E) increased efficiency

Question 74

The GATT was

A) formed shortly after World War II
B) authorized in the American Constitution
C) formed in 1994
D) formed in 1876
E) formed to unify the European continent

Question 75

The EEC stands for the

A) European Economic Community
B) Enactment of Economic Cooperation
C) Enforcement of Efficient Commerce
D) Energy Efficient Commitment
E) Economic Enforcement Compact

Question 76

The EEC is a group of

A) South American countries
B) Eastern European countries
C) Asian countries
D) Middle Eastern countries
E) Western European countries

Question 77

A customs union is a(n)

A) tax on an imported good
B) union of similarly skilled workers
C) group of countries that agree on common trade policies
D) union of countries with similar customs
E) agreement that affects intra-country trade

Question 78

The rules of the GATT

A) apply only to domestic trade within a nation
B) apply to both domestic trade within a nation and international trade with other nations
C) apply only to trade among nations
D) prohibit tariffs
E) encourage high tariffs

Question 79

Which of the following is a feature of a customs union?

A) The agreement only affects trade among members.
B) The agreement only affects trade with nonmembers.
C) The agreement establishes free trade among its members and a common trade policy with nonmembers.
D) The agreement provides mere guidelines and does not obligate members to any given policy.
E) The agreement prohibits all tariffs.

Question 80

Which of the following transactions would be governed by the rules of the EEC?

A) Russia's trade with Canada
B) the U.S.'s trade with Russia
C) Brazil's trade with Bolivia
D) France's trade with Greece
E) China's trade with Japan