Deck 16: Trading With Other Nations  

Question 1

In the U.S. today, imports are over

A) 14 percent of GDP.
B) 18 percent of GDP.
C) 22 percent of GDP.
D) 26 percent of GDP.

Answer 1

14 percent of GDP.

Question 2

Table 16.1
Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

-Refer to Table 16.1. The table shows the production possibilities of cookies and coffee in Alpha and Beta measured in tons. In Alpha the domestic cost of 1 ton of cookies

A) is 5 tons of coffee.
B) changes with the level of cookie production.
C) changes with the level of coffee production.
D) averages 4 tons of coffee.

Answer 2

is 5 tons of coffee.

Question 3

Table 16.1
Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

-Refer to Table 16.1. The table shows the production possibilities of cookies and coffee in Alpha and Beta measured in tons. In Beta the domestic cost of 1 ton of cookies

A) is 3 tons of coffee.
B) is 5 tons of coffee.
C) is 6 tons of coffee.
D) changes with the combinations of goods produced.

Answer 3

is 3 tons of coffee.

Question 4

Table 16.1
Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

-Refer to Table 16.1. If these two countries, Alpha and Beta, specialize based on comparative advantage

A) Alpha will specialize in cookies, and Beta will specialize in coffee production.
B) Alpha will specialize in producing both items.
C) Beta will specialize in producing both items.
D) Alpha will specialize in coffee, and Beta will specialize in cookies.

Question 5

Table 16.1
Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

-Using the information in Table 16.1, which statement is TRUE?

A) Both countries have the same opportunity cost of producing cookies.
B) Beta has the lower opportunity cost of producing cookies.
C) Alpha has the lower opportunity cost of producing cookies.
D) Alpha has the lower opportunity cost of producing both coffee and cookies.

Question 6

Table 16.1
Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

-By looking at Table 16.1, we know that

A) Alpha has absolute advantage in producing both goods.
B) Beta has absolute advantage in producing both goods.
C) Neither has absolute advantage in producing either goods.
D) Alpha has absolute advantage in producing cookies, while Beta has absolute advantage in producing coffee.

Question 7

Table 16.2
Table 16.2 shows the quantities of forks and knives that can be produced with the full amount of resources in each of two countries, Alpha and Beta.

-Refer to Table 16.2. If these two countries specialize based on comparative advantage, then

A) Alpha should specialize in knives and Beta should specialize in forks.
B) Alpha should specialize in forks and Beta should specialize in knives.
C) Alpha should specialize in producing both items.
D) Beta should produce both items.

Question 8

Table 16.2
Table 16.2 shows the quantities of forks and knives that can be produced with the full amount of resources in each of two countries, Alpha and Beta.

-Using Table 16.2, which of the following statements is TRUE?

A) In Alpha, each fork produced costs one knife.
B) In Alpha, each fork produced costs three knives.
C) In Beta, each knife produced costs three forks.
D) In Beta, each fork produced costs one knife.

Question 9

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, Argentina has the absolute advantage in

A) wine, but not beef.
B) beef, but not wine.
C) both beef and wine.
D) neither beef nor wine.

Question 10

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, France has the absolute advantage in

A) wine, but not beef.
B) beef, but not wine.
C) both beef and wine.
D) neither beef nor wine.

Question 11

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, the opportunity costs for Argentina to produce one unit of wine in terms of beef is

A) 3.
B) 1/3.
C) 6.
D) 4.

Question 12

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, the opportunity costs for Argentina to produce one unit of beef in terms of wine is

A) 3.
B) 1/3.
C) 6.
D) 4.

Question 13

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, the opportunity costs for France to produce one unit of wine in terms of beef is

A) 4.
B) 1/3.
C) 2.
D) 1/2.

Question 14

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, the opportunity costs for France to produce one unit of beef in terms of wine is

A) 4.
B) 1/3.
C) 2.
D) 1/2.

Question 15

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, France has the comparative advantage in

A) wine, but not beef.
B) beef, but not wine.
C) both beef and wine.
D) neither beef nor wine

Question 16

Table 16.4
Table 16.4 gives the quantities of output that can be produced with the full amount of resources in each of two countries, France and Argentina.

-In Table 16.4, Argentina has the comparative advantage in

A) wine, but not beef.
B) beef, but not wine.
C) both beef and wine.
D) neither beef nor wine

Question 17

A limit on the amount of sugar imported into the U.S. is

A) a tariff.
B) a subsidy.
C) a quota.
D) an infant-industry protection measure.

Question 18

The law that created the high level of tariffs in United States in the 1930s is

A) the North American Free Trade Agreement.
B) the World Trade Act.
C) the Smoot-Hawley Act.
D) the Compromise Tariff.

Question 19

Restrictions on the amount of cotton that could be imported to the U.S. would

A) benefit foreign cotton producers.
B) benefit domestic cotton consumers.
C) benefit domestic cotton producers.
D) reduce employment in the domestic cotton industry.

Question 20

The organization that settles trade disputes between countries is the

A) Organization of Petroleum Exporting Countries.
B) World Trade Organization.
C) European Union.
D) United Nations.

Question 21

The European Union is

A) a common market.
B) a group of countries that impose tariffs on one another's agricultural goods.
C) an organization established to resolve trade disputes among member nations.
D) a restricted trade zone.

Question 22

The free trade zone in which the U.S. operates is

A) the European Union.
B) NAFTA.
C) the Western Alliance.
D) the Alignment Zone.

Question 23

Table 16.5
Table 16.5 shows the labor input required to produce a fixed quantity of product A and a fixed quantity of product B in each of two countries.

-Refer to Table 16.5. Assume that each country has 100 workers. If there is no trade between the countries and each country only produces Product A, what is the world output of product A?

A) 30
B) 100
C) 150
D) 200

Question 24

Table 16.5
Table 16.5 shows the labor input required to produce a fixed quantity of product A and a fixed quantity of product B in each of two countries.

-In Table 16.5, if trade is allowed between the two countries

A) country X will produce product A and country Y will produce product B.
B) country X will produce product B and country Y will produce product A.
C) country X will refuse to trade with country Y since country X has an absolute advantage.
D) country Y will refuse to trade with country X since country Y has an absolute advantage.

Question 25

Table 16.5
Table 16.5 shows the labor input required to produce a fixed quantity of product A and a fixed quantity of product B in each of two countries.

-Refer to Table 16.5. If both countries produce only one good and then trade, world output would equal

A) 200 units of product A and 100 units of product B.
B) 100 units of product A and 200 units of product B.
C) 100 units of product A and 50 units of product B.
D) 100 units of product A and 100 units of product B.

Question 26

Suppose the United States and Japan are the only two countries and each can produce two goods-wheat and cars. If the United States has an absolute advantage in wheat and Japan has an absolute advantage in cars, we know that

A) there will be no trade because neither country has a comparative advantage in either good.
B) one of the countries will have a comparative advantage in wheat, but we can't tell which one without more information.
C) the United States must have a comparative advantage in cars and Japan in wheat.
D) the United States has a comparative advantage in wheat and Japan has a comparative advantage in cars.

Question 27

During the Great Depression, many industrial countries tried protecting domestic jobs by raising tariffs. Economic theory would suggest that the result would be

A) success for only the countries that raised tariffs first.
B) success for firms that had a comparative advantage in manufactured goods rather than agricultural goods.
C) a reduction in the total volume of trade for everyone.
D) increased incomes in the countries that pursued this policy.

Question 28

What term is applied to the situation in which a good is sold overseas at a price below its cost of production?

A) Tariff pricing
B) Dumping
C) Comparative advantage
D) Fair trade status

Question 29

The infant-industry argument for tariff protection is that tariffs should be imposed to protect from competition those industries

A) that are essential if a country is to become an industrial nation.
B) needed for national defense.
C) that cannot compete with foreign competitors at this point in time, but will be able to once they gain some size and experience.
D) able to compete with foreign competitors at this point in time and are deemed essential by the government.

Question 30

Dumping is

A) selling low-quality goods abroad.
B) exporting goods that are sources of pollution.
C) exporting goods that would be subject to antitrust laws if sold domestically.
D) selling a good abroad at a price below production cost.

Question 31

Tariffs serve to

A) encourage exports.
B) encourage imports.
C) encourage trade.
D) discourage trade.

Question 32

Quotas serve to

A) encourage trade.
B) encourage imports.
C) restrict the quantity of imports.
D) protect consumer interests.

Question 33

Some argue that American workers cannot compete with cheap labor from many developing nations. This

A) justifies tariffs to protect domestic jobs.
B) justifies quotas to protect domestic jobs.
C) justifies infant industry protection for American workers.
D) is not true, as evidenced by the fact that the United States carries on a lot of trade with countries that have lower wages.

Question 34

Suppose an industry receives protection from the government in the form of tariffs. A number of years later, it is observed that the quantity supplied by domestic firms had decreased and that the domestic price was substantially greater than the world price. We could conclude that

A) the tariff had been imposed to counteract dumping and had been successful.
B) removal of the tariff would actually cause domestic output to increase and price to fall.
C) the tariff had been imposed to protect an infant industry and that the industry still needed protection.
D) removal of the tariff would cause domestic output to fall even further.

Question 35

The effect of a tariff is to

A) increase the quantity of a good imported.
B) allow consumers maximum choice in the marketplace.
C) increase the price consumers pay for an imported good.
D) decrease the price consumers pay for an imported good.

Question 36

The effect of a tariff is to

A) shift the supply curve of the imported good to the left.
B) shift the supply curve of the imported good to the right.
C) shift the demand curve for the imported good to the left.
D) shift the demand curve for the imported good to the right.

Question 37

Which one of the following is FALSE?

A) A quota imposed on an imported good will increase its price.
B) A tariff imposed on an imported good will increase its price.
C) Tariffs are imposed to protect consumers.
D) Both tariffs and quotas reduce the volume of trade.

Question 38

Which one of the following is FALSE?

A) A nation pays for its imports through its exports.
B) As imports into a country increase, its unemployment rate will increase.
C) Trade allows each country to specialize in producing those goods for which it enjoys a comparative advantage.
D) Both tariffs and quotas reduce the volume of trade.

Question 39

Which one of the following is FALSE?

A) The end result of trade is that richer countries take advantage of poorer ones.
B) Trade of goods facilitates the exchange of intellectual property as well.
C) Countries that engage in trade will end up specializing according to their own comparative advantage.
D) A country enjoys an absolute advantage if it can produce a good with fewer resources than any other country can.

Question 40

Which one of the following is FALSE?

A) In the U.S. economy, imports account for less than 25 percent of GDP.
B) International trade results in the transmission of ideas.
C) In the long run, imports are paid for by exports.
D) International trade promotes self sufficiency.

Question 41

Which one of the following is FALSE?

A) A country can only have a comparative advantage in producing a good if it also has an absolute advantage in producing that good.
B) A country has a comparative advantage in producing a good if it can do so at a lower opportunity cost than any other country can.
C) Trade allows each country to specialize in producing those goods for which it enjoys a comparative advantage.
D) Both tariffs and quotas reduce the volume of trade.

Question 42

Which one of the following is TRUE?

A) A nation pays for its imports through its exports.
B) Quotas on imported goods will affect the quantity sold but not the equilibrium price.
C) When tariffs are proposed, they typically are supported by consumers.
D) By purchasing imported goods, you destabilize the U.S. economy.

Question 43

An infant industry is one in which

A) the products are only consumed domestically.
B) no country has a comparative advantage.
C) the firms are too new and too small to compete internationally.
D) no country has an absolute advantage.

Question 44

Table 16.6
Table 16.6 shows the combinations of quantities of two goods, gallons of ice cream and yards of textiles, that can be produced with all of the resources available in two countries, X and Y.

-Refer to Table 16.6. Which of the following statements is TRUE?

A) advantage in producing both goods.
B) Country X has an absolute cost of producing a yard of textiles is three gallons of ice cream.
C) In Country Y, the opportunity cost of producing a yard of textiles is two gallons of ice cream.
D) In Country X, the opportunity Country Y has an absolute advantage in producing both goods.

Question 45

Table 16.6
Table 16.6 shows the combinations of quantities of two goods, gallons of ice cream and yards of textiles, that can be produced with all of the resources available in two countries, X and Y.

-Refer to Table 16.6. Which of the following statements is TRUE?

A) Country Y has a comparative advantage in producing textiles.
B) Country X has a comparative advantage in producing ice cream.
C) Country X has a lower opportunity cost of producing ice cream than does Country Y.
D) In Country X, the opportunity cost of producing a gallon of ice cream is three yards of textiles.

Question 46

Table 16.6
Table 16.6 shows the combinations of quantities of two goods, gallons of ice cream and yards of textiles, that can be produced with all of the resources available in two countries, X and Y.

-Refer to Table 16.6. Which of the following statements is TRUE?

A) These two countries can gain from trade.
B) Country X can gain from trade; Country Y will lose.
C) Country Y can gain from trade; Country X will lose.
D) Neither of these countries has a comparative advantage in ice cream.

Question 47

Table 16.6
Table 16.6 shows the combinations of quantities of two goods, gallons of ice cream and yards of textiles, that can be produced with all of the resources available in two countries, X and Y.

-Refer to Table 16.6. What is the opportunity cost for country Y to produce one gallon of ice cream?

A) One-third of a yard of textiles
B) One-half of a yard of textiles
C) 2 yards of textiles
D) 3 yards of textiles

Question 48

A country has an absolute advantage in producing a good if it can do so using fewer _____ than any other county can.

Question 49

A country has a comparative advantage in producing a good if it can do so at the lowest possible _____ _____.

Question 50

There can be no specialization without _____ .

Question 51

In the long run, _____ are paid for by exports.

Question 52

Those goods and services we purchase from outside the U.S. are called _____ .

Question 53

Currently, about _____ percent of U.S. GDP is made up of imports.

Question 54

Goods and services produced domestically and sold abroad are called _____ .

Question 55

When a country specializes in producing what it can offer at the lowest possible opportunity cost and then engages in trade, it will experience an _____ shift of its production possibilities curve.

Question 56

According to economic historians, _____ has been the principal means by which new goods, services, and processes have spread around the world.

Question 57

When each nation specializes in producing those goods and services in which it has a comparative advantage, total world production _____ .

Question 58

Restricting imports will eventually lead to the loss of jobs in the _____ sector.

Question 59

Protecting domestic _____ is the most common reason given for restricting imports.

Question 60

If there had been an effective _____ of French goods during the war in Iraq, it would have had the effect of eventually reducing employment in U.S. industries that manufacture goods for export.

Question 61

The assertion that firms need import protection until they have grown to a size at which they can compete internationally is known as the _____ _____ _____ .

Question 62

The effect of a _____ is to shift the supply curve up and to the left.

Question 63

The effect of a _____ is to make the supply curve vertical at the restricted quantity.

Question 64

The World _____ _____ is a body that administers trade agreements, settles tariff disputes, and reviews national trade policies.

Question 65

A _____ market is a free trade zone.

Question 66

When a good is sold in foreign markets below production cost, it is known as _____ .

Question 67

The set of high tariffs legislated in the U.S. during the Great Depression was known as
the _____ _____ _____.

Question 68

What is the definition of absolute advantage?

Question 69

What is the definition of comparative advantage?

Question 70

Why is it said that specialization requires trade?

Question 71

Why is it said that imports are paid for by exports?

Question 72

What change do you make on a supply and demand graph to show the effect of a tariff?

Question 73

What change do you make on a supply and demand graph to show the effect of an import quota?

Question 74

What has happened to employment levels in the industries that have received the most import protection?

Question 75

What organization settles trade disputes between nations?

Question 76

Give an example of a free trade zone.

Question 77

Why do restrictions on imports end up reducing domestic employment?

Question 78

How is the price of a good affected by imposition of a tariff?

Question 79

How is the price of a good affected by imposition of a quota?

Question 80

How would you determine which country has a comparative advantage in producing DVD players?