Deck 9: Application: International Trade

Question 1

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

Answer 1

True

Question 2

A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade.

Answer 2

False

Question 3

The world price of cotton is the highest price of cotton observed anywhere in the world.

Answer 3

False

Question 4

If the United Kingdom imports tea cups from other countries,then U.K.producers of tea cups are better off,and U.K.consumers of tea cups are worse off,as a result of trade.

Question 5

Without free trade,the domestic price of a good must be equal to the world price of a good.

Question 6

If the world price of a good is greater than the domestic price in a country that can engage in international trade,then that country becomes an importer of that good.

Question 7

The nation of Aviana soon will abandon its no-trade policy and adopt a free-trade policy.If the world price of goose meat is $3 per pound and the domestic price of goose meat without trade is $2 per pound,then Aviana should export goose meat.

Question 8

Trade decisions are based on the principle of absolute advantage.

Question 9

If a country's domestic price of a good is lower than the world price,then that country has a comparative advantage in producing that good.

Question 10

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

Question 11

The greater the elasticities of supply and demand,the smaller are the gains from trade.

Question 12

The small-economy assumption is necessary to analyze the gains and losses from international trade.

Question 13

If Belgium exports chocolate to the rest of the world,then Belgian chocolate producers benefit from higher producer surplus,Belgian chocolate consumers are worse off because of lower consumer surplus,and total surplus in Belgium increases because of the exports of chocolate.

Question 14

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

Question 15

In principle,trade can make a nation better off,because the gains to the winners exceed the losses to the losers.

Question 16

When a country abandons no-trade policies in favor of free-trade policies and becomes an importer of steel,then the domestic price of steel will increase as a result.

Question 17

When a country allows international trade and becomes an importer of a good,domestic producers of the good are better off,and domestic consumers of the good are worse off.

Question 18

Suppose the Ivory Coast,a small country,imports wheat at the world price of $4 per bushel.If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat,then,other things equal,the price of wheat in Ivory Coast will increase,but by less than $1.

Question 19

If Argentina exports oranges to the rest of the world,Argentina's producers of oranges are worse off,and Argentina's consumers of oranges are better off,as a result of trade.

Question 20

According to the principle of comparative advantage,all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

Question 21

Most economists support the infant-industry argument because it is so easy to implement in practice.

Question 22

Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors.

Question 23

Deadweight loss measures the decrease in total surplus that results from a tariff or quota.

Question 24

NAFTA is an example of a multilateral approach to achieving free trade.

Question 25

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 26

The imposition of a tariff on imported wine will increase the domestic price of wine,decrease the quantity of wine imported,and increase the quantity of wine produced domestically.

Question 27

If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices,the Swedish economy would be worse off.

Question 28

When a country that imports shoes imposes a tariff on shoes,buyers of shoes in that country become worse off and sellers of shoes in that country become better off.

Question 29

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

Question 30

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

Question 31

GATT is an example of a successful unilateral approach to achieving free trade.

Question 32

Domestic consumers gain and domestic producers lose when the government imposes a tariff on imports.

Question 33

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 34

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

Question 35

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

Question 36

When a country that imports shoes imposes a tariff on shoes,buyers of shoes in that country become worse off.

Question 37

Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

Question 38

Suppose Ecuador imposes a tariff on imported bananas.If the increase in producer surplus is $50 million,the reduction in consumer surplus is $150 million,and the deadweight loss of the tariff is $30 million,then the tariff generates $130 million in revenue for the government.

Question 39

The rules established under the General Agreement on Tariffs and Trade (GATT)are enforced by an international body called the World Trade Organization (WTO).

Question 40

Suppose that Australia imposes a tariff on imported beef.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,the deadweight loss of the tariff is $300 million.

Question 41

An important factor in the decline of the U.S.textile industry over the past 100 or so years is

A) foreign competitors that can produce quality textile goods at low cost.
B) lower prices of goods that are substitutes for clothing.
C) a decrease in Americans' demand for clothing,due to increased incomes and the fact that clothing is an inferior good.
D) the fact that the minimum wage in the U.S.has failed to keep pace with the cost of living.

Question 42

A tax on an imported good is called a

A) quota.
B) tariff.
C) supply tax.
D) trade tax.

Question 43

What are the arguments in favor of trade restrictions,and what are the counterarguments? According to most economists,do any of these arguments really justify trade restrictions? Explain.

Question 44

Most economists view the United States as an ongoing experiment that raises serious doubts about the virtues of free trade.

Question 45

The nation of Waterland forbids international trade.In Waterland,you can obtain a computer by trading 2 bicycles.In other countries,you can obtain a computer by trading 3 bicycles.These facts indicate that

A) if Waterland were to allow trade,it would export computers.
B) Waterland has an absolute advantage,relative to other countries,in producing computers.
C) Waterland has a comparative advantage,relative to other countries,in producing bicycles.
D) All of the above are correct.

Question 46

The results of a 2007 Los Angeles Times poll suggest that the percentage of Americans who believe trade is harmful to the economy exceeds the percentage of Americans who believe trade is beneficial to the economy.

Question 47

The price of sugar that prevails in international markets is called the

A) export price of sugar.
B) import price of sugar.
C) comparative-advantage price of sugar.
D) world price of sugar.

Question 48

Patterns of trade among nations are primarily determined by

A) cultural considerations.
B) political considerations.
C) comparative advantage.
D) differences in the income elasticity of demand among nations.

Question 49

What is the fundamental basis for trade among nations?

A) shortages or surpluses in nations that do not trade
B) misguided economic policies
C) absolute advantage
D) comparative advantage

Question 50

The price of a good that prevails in a world market is called the

A) absolute price.
B) relative price.
C) comparative price.
D) world price.

Question 51

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 52

Which of the following tools and concepts is useful in the analysis of international trade?

A) total surplus
B) domestic supply
C) equilibrium price
D) All of the above are correct.

Question 53

How does an import quota differ from an equivalent tariff?

Question 54

A logical starting point from which the study of international trade begins is

A) the recognition that not all markets are competitive.
B) the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C) the principle of absolute advantage.
D) the principle of comparative advantage.

Question 55

With which of the Ten Principles of Economics is the study of international trade most closely connected?

A) People face tradeoffs.
B) Trade can make everyone better off.
C) Governments can sometimes improve market outcomes.
D) Prices rise when the government prints too much money.

Question 56

Characterize the two different approaches a nation can take to achieve free trade.Does one approach have an advantage over the other?

Question 57

The results of a 2007 Los Angeles Times poll suggest that a significant majority of Americans believe that free international trade helps the American economy.

Question 58

A tariff is a

A) limit on how much of a good can be exported.
B) limit on how much of a good can be imported.
C) tax on an exported good.
D) tax on an imported good.

Question 59

The nation of Pineland forbids international trade.In Pineland,you can buy 1 pound of fish for 2 pounds of beef.In other countries,you can buy 1 pound of fish for 1.5 pounds of beef.These facts indicate that

A) Pineland has a comparative advantage,relative to other countries,in producing fish.
B) other countries have a comparative advantage,relative to Pineland,in producing beef.
C) the price of beef in Pineland exceeds the world price of beef.
D) if Pineland were to allow trade,it would import fish.

Question 60

The principle of comparative advantage asserts that

A) not all countries can benefit from trade with other countries.
B) the world price of a good will prevail in all countries,regardless of whether those countries allow international trade in that good.
C) countries can become better off by exporting goods,but they cannot become better off by importing goods.
D) countries can become better off by specializing in what they do best.

Question 61

Trade enhances the economic well-being of a nation in the sense that

A) both domestic producers and domestic consumers of a good become better off with trade,regardless of whether the nation imports or exports the good in question.
B) the gains of domestic producers of a good exceed the losses of domestic consumers of a good,regardless of whether the nation imports or exports the good in question.
C) trade results in an increase in total surplus.
D) trade puts downward pressure on the prices of all goods.

Question 62

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

A) producer surplus increases and total surplus increases in the market for that good.
B) producer surplus increases and total surplus decreases in the market for that good.
C) producer surplus decreases and total surplus increases in the market for that good.
D) producer surplus decreases and total surplus decreases in the market for that good.

Question 63

For any country,if the world price of zinc is higher than the domestic price of zinc without trade,that country should

A) export zinc,since that country has a comparative advantage in zinc.
B) import zinc,since that country has a comparative advantage in zinc.
C) neither export nor import zinc,since that country cannot gain from trade.
D) neither export nor import zinc,since that country already produces zinc at a low cost compared to other countries.

Question 64

When,in our analysis of the gains and losses from international trade,we assume that a country is small,we are in effect assuming that the country

A) cannot experience significant gains or losses by trading with other countries.
B) cannot have a significant comparative advantage over other countries.
C) cannot affect world prices by trading with other countries.
D) All of the above are correct.

Question 65

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 66

Assume,for Singapore,that the domestic price of soybeans without international trade is higher than the world price of soybeans.This suggests that,in the production of soybeans,

A) Singapore has a comparative advantage over other countries and Singapore will import soybeans.
B) Singapore has a comparative advantage over other countries and Singapore will export soybeans.
C) other countries have a comparative advantage over Singapore and Singapore will import soybeans.
D) other countries have a comparative advantage over Singapore and Singapore will export soybeans.

Question 67

In analyzing international trade,we often focus on a country whose economy is small relative to the rest of the world.We do so

A) because it is impossible to analyze the gains and losses from international trade without making this assumption.
B) because then we can assume that world prices of goods are unaffected by that country's participation in international trade.
C) in order to rule out the possibility of tariffs or quotas.
D) All of the above are correct.

Question 68

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 69

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

A) both domestic producers and domestic consumers become better off.
B) domestic producers become better off,and domestic consumers become worse off.
C) domestic producers become worse off,and domestic consumers become better off.
D) both domestic producers and domestic consumers become worse off.

Question 70

If the world price of textiles is higher than Vietnam's domestic price of textiles without trade,then Vietnam

A) should import textiles.
B) has a comparative advantage in textiles.
C) should produce just enough textiles to meet its domestic demand.
D) should refrain altogether from producing textiles.

Question 71

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

A) domestic producers gain and domestic consumers lose.
B) domestic producers lose and domestic consumers gain.
C) domestic producers and domestic consumers both gain.
D) domestic producers and domestic consumers both lose.

Question 72

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

A) everyone in the country benefits.
B) the gains of the winners exceed the losses of the losers.
C) the losses of the losers exceed the gains of the winners.
D) everyone in the country loses.

Question 73

Trade among nations is ultimately based on

A) absolute advantage.
B) strategic advantage.
C) comparative advantage.
D) technical advantage.

Question 74

When,in our analysis of the gains and losses from international trade,we assume that a particular country is small,we are

A) assuming the domestic price before trade will continue to prevail once that country is opened up to trade with other countries.
B) assuming there is no demand for that country's domestically-produced goods by other countries.
C) assuming international trade can benefit producers,but not consumers,in that country.
D) making an assumption that is not necessary to analyze the gains and losses from international trade.

Question 75

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,in the production of beef,

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

Question 76

A country has a comparative advantage in a product if the world price is

A) lower than that country's domestic price without trade.
B) higher than that country's domestic price without trade.
C) equal to that country's domestic price without trade.
D) not subject to manipulation by organizations that govern international trade.

Question 77

Suppose Haiti has an absolute advantage over other countries in producing oranges,but other countries have a comparative advantage over Haiti in producing oranges.If trade in oranges is allowed,Haiti

A) will import oranges.
B) will export oranges.
C) will either export oranges or export oranges,but it is not clear from the given information.
D) would have nothing to gain either from exporting or importing oranges.

Question 78

Suppose Puerto Rico has a comparative advantage over other countries in producing sugar,but other countries have an absolute advantage over Puerto Rico in producing sugar.If trade in sugar is allowed,Puerto Rico

A) will import sugar.
B) will export sugar.
C) will either export sugar or export sugar,but it is not clear from the given information.
D) would have nothing to gain either from exporting or importing sugar.

Question 79

When the nation of Worldova allows trade and becomes an exporter of silk,

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

Question 80

In analyzing the gains and losses from international trade,to say that Moldova is a small country is to say that

A) Moldova can only import goods;it cannot export goods.
B) Moldova's choice of which goods to export and which goods to import is not based on the principle of comparative advantage.
C) only the domestic price of a good is relevant for Moldova;the world price of a good is irrelevant.
D) Moldova is a price taker.