Deck 21: International Finance

Question 1

A tariff raises the price of the product on which the tariff has been placed,decreases consumers' surplus,increases producers' surplus,and generates tariff revenue for the government.

Answer 1

True

Question 2

As a result of a quota,both consumers' surplus and producers' surplus fall.

Answer 2

False

Question 3

One of the arguments in favor of trade restrictions is the foreign export subsidies argument.

Answer 3

True

Question 4

The national defense argument has been used in the past to justify trade restrictions by firms in the peanut industry and the pottery industry.

Question 5

The law of comparative advantage can be used to explain why many couples divide up their household duties along gender lines.

Question 6

Alexander Hamilton used the infant-industry argument to support trade restrictions.

Question 7

Two major exports for the United States are

A) clothing and office machines.
B) soybeans and scientific instruments.
C) footwear and fish.
D) coffee and diamonds.
E) none of the above

Question 8

Which of the following is a major import for the United States?

A) corn
B) soybeans
C) coal
D) fish
E) none of the above

Question 9

Comparative advantage is the ability to produce a good at a lower opportunity cost than others.

Question 10

Global technologies,such as electronics,have made up a significant portion of the recent wave of manufacturing offshoring.

Question 11

Tariffs raise the price of imported goods,but quotas rarely do.

Question 12

Dumping occurs when a firm sells goods abroad at a price below their cost and below the price charged in their domestic market.

Question 13

Major U.S.exports include automobiles and aircraft.

Question 14

Consumers receive more consumers' surplus when tariffs exist than when they do not exist.

Question 15

A quota raises the price of the product on which the quota has been placed,decreases consumers' surplus,increases producers' surplus,and generates tariff revenue for the government.

Question 16

It is necessary for government officials to analyze cost data to determine what their country should specialize in producing.

Question 17

When countries engage in specialization and international trade,every individual person in those countries will gain.

Question 18

Refer to Exhibit 34-1.The opportunity cost of one unit of Y in country A is

A) 1 unit of X.
B) 0.75 units of X.
C) 2 units of X.
D) 10 units of X.

Question 19

Countries that engage in specialization and trade can consume at a level beyond their production possibilities frontier.

Question 20

The term outsourcing is used to describe work done for a company by individuals working for another company in a different country.

Question 21

Refer to Exhibit 34-1.The opportunity cost of one unit of X in country B is

A) 1 unit of Y.
B) 0.33 units of Y.
C) 2 units of Y.
D) 20 units of Y.

Question 22

The sale of goods abroad at a price below their cost and below the price charged in the domestic market is called

A) priming.
B) coping.
C) invading.
D) dumping.

Question 23

Refer to Exhibit 34-1.Country A is the lower opportunity cost producer of

A) good X.
B) good Y.
C) goods X and Y.
D) neither good X nor good Y.

Question 24

"Dumping" refers to

A) the sale of goods abroad at a price below their cost and below the price charged in the domestic market.
B) unloading of foreign goods on domestic docks.
C) government actions to remedy "unfair" trade practices.
D) buying goods at low prices in foreign countries and selling them at high prices in the United States.

Question 25

The ability to produce a good at a lower opportunity cost than others is called a(n)__________ advantage.

A) complementary
B) comparative
C) natural
D) indigenous

Question 26

Refer to Exhibit 34-1.If country A is to specialize in the production of one of the two goods (and then trade that good with Country B),which good should it be and why? If Country B is to specialize in the production of one of the two goods (and then trade that good to with Country A),which good should it be and why?

A) Good X for Country A because it is the higher opportunity cost producer of good X; good Y for Country B because it is the higher opportunity cost producer of good Y.
B) Good Y for Country A because it is the lower opportunity cost producer of good Y; good X for Country B because it is the lower opportunity cost producer of good X.
C) Good X for Country A because it is the lower opportunity cost producer of good X; good Y for Country B because it is the lower opportunity cost producer of good Y.
D) Good Y for Country A because it is the higher opportunity cost producer of good Y; good X for Country B because it is the higher opportunity cost producer of good X.

Question 27

Refer to Exhibit 34-1.The opportunity cost of one unit of X in country A is

A) 1 unit of Y.
B) 2 units of Y.
C) 10 units of Y.
D) 0.50 units of Y.

Question 28

Refer to Exhibit 34-1.Considering the data,which of the following terms of trade would both countries agree to?

A) 1 unit of X for 2 units of Y
B) 1 unit of X for 3 units of Y
C) 1 unit of X for 1 unit of Y
D) 1 unit of X for 1.50 units of Y
E) all of the above

Question 29

The national defense argument for trade restriction holds that

A) the president should have the authority to erect trade barriers in case of war or national emergency.
B) free trade is a danger to the national defense because open borders increase the likelihood that spies will get into the country.
C) a country should produce those goods necessary for national defense purposes even if it doesn't have a comparative advantage in them.
D) if your enemy erects trade restrictions,so should you.

Question 30

Producers' surplus is the difference between the price __________ receive for a good and the __________ price for which they would have __________ the good.

A) sellers; maximum; sold
B) buyers; maximum; bought
C) sellers; minimum; sold
D) buyers; minimum; bought

Question 31

Raquel,who earns $900 a week,bought a television set and gained $70 consumers' surplus.What price did she pay for the good?

A) $40
B) $830
C) $160
D) $5
E) There is not enough information to answer the question.

Question 32

"New industries need to be protected or they won't have the opportunity to grow up." This is a statement of the __________ argument for trade restrictions.

A) national-defense
B) infant-industry
C) anti-dumping
D) tariff
E) none of the above

Question 33

Refer to Exhibit 34-1.Considering the data,which of the following terms of trade would both countries agree to?

A) 1 unit of Y for 1 unit of X
B) 1 unit of Y for 0.75 units of X
C) 1 unit of Y for 0.25 units of X
D) 1 unit of Y for 1.50 units of X
E) all of the above

Question 34

Countries tend to specialize in the production of goods in which they have a comparative advantage because

A) government officials calculate opportunity costs and suggest to people what they ought to produce.
B) people want to make a profit.
C) the Economic Development Office of the United Nations hires economic experts to calculate the opportunity costs of different goods in different countries and then suggests to countries what they ought to produce.
D) the United Nations hires economic experts to calculate the opportunity costs of different goods in different countries and then suggests to countries what they ought to produce.
E) none of the above

Question 35

Refer to Exhibit 34-1.Country B is the lower opportunity cost producer of

A) good Y.
B) both goods.
C) neither good.
D) good X.

Question 36

A tariff is a tax on

A) savings.
B) capital goods.
C) imports.
D) land.

Question 37

Refer to Exhibit 34-1.The opportunity cost of one unit of Y in country B is

A) 0.5 units of X.
B) 1 unit of X.
C) 2 units of X.
D) 20 units of X.

Question 38

The difference between the amount a seller receives for a good and the lowest amount for which he would sell the good is called

A) producers' surplus.
B) windfall gain.
C) consumers' surplus.
D) excess profit.

Question 39

The difference between the highest amount a buyer would be willing to pay for a good and the amount she actually pays for it is

A) producers' surplus.
B) consumers' surplus.
C) marginal revenue.
D) marginal utility.

Question 40

One country has a comparative advantage over another country in the production of a good if it

A) has a curved production possibilities curve and the other country has a linear production possibilities curve.
B) has a linear production possibilities curve and the other country has a curved production possibilities curve.
C) is a lower opportunity cost producer of the good.
D) has lower fixed costs than the other country.

Question 41

Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P_W.At this price,what quantity of this good do U.S.consumers buy from U.S.producers and what quantity do they import from foreign producers?

A) Q₁ from U.S.producers and (Q₃ - Q₁)from foreign producers
B) Q₂ from U.S.producers and (Q₃ - Q₁)from foreign producers
C) (Q₃ - Q₁)from U.S.producers and Q₁ from foreign producers
D) Q₃ from U.S.producers and nothing from foreign producers

Question 42

Refer to Exhibit 34-3.The world price is P_W.If a tariff is imposed the price rises to P_W + T.Because of the tariff,consumers' surplus is reduced by an amount equal to the area of

A) 1 + 2 + 3.
B) 1 + 2.
C) 1 + 2 + 3 + 4.
D) 3 + 4.
E) 2 + 3 + 4.

Question 43

Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,where imports are permitted,the world price is P_W.If there is a policy change such that imports are prohibited,the price becomes P_N,consumers' surplus equals __________ and producers' surplus equals __________.

A) P_NAB; P_NBE
B) BCD; P_NDE
C) P_NAD; BCD
D) P_NAD; P_WBDE
E) none of the above

Question 44

Refer to Exhibit 34-3.The world price is P_W.If a tariff is imposed,the price rises to P_W + T.Because of the tariff,government collects tariff revenues equal to the area of

A) 1.
B) 1 + 2.
C) 3.
D) 1 + 2 + 4.
E) 1 + 3.

Question 45

Suppose that a tariff is imposed on imported cheese.This will have the effect of __________ the price of cheese,__________ consumers' surplus,and __________ producers' surplus.

A) increasing; increasing; increasing
B) decreasing; decreasing; decreasing
C) increasing; increasing; decreasing
D) increasing; decreasing; increasing
E) decreasing; decreasing; increasing

Question 46

Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P_W.At this price,producers' surplus equals the area of

A) P_NBDP_W.
B) DBC.
C) P_WCBP_N.
D) P_WDE.

Question 47

A quota is

A) a tax imposed on imported goods.
B) a legal limit on the amount of a good that can be produced by foreign owners of a firm located in a host country.
C) a legal limit on the amount of a good that can be imported.
D) an agreement between two countries in which the exporting country voluntarily agrees to limit its exports to the importing country.

Question 48

Refer to Exhibit 34-3.The world price is P_W.At this price,Americans purchase Q₁ from U.S.producers and import the quantity __________ from foreign producers.

A) Q₄ - Q₁
B) Q₂ - Q₁
C) Q₂ - Q₄
D) Q₂ - Q₃

Question 49

"New industries should be protected from older established foreign competitors until they are mature enough to compete on an equal basis." This argument for trade restrictions is called the __________ argument.

A) low-foreign-wages
B) foreign export-subsidies
C) anti-dumping
D) infant-industry

Question 50

Evidence indicates that tariffs and quotas are

A) beneficial for producers in a protected industry,but not beneficial for the workers in the industry.
B) beneficial for producers in a protected industry,but not beneficial for consumers.
C) beneficial for workers in a protected industry,but not beneficial for consumers.
D) not beneficial for the workers in a protected industry or for consumers.
E) b and c

Question 51

It is argued that certain industries should be protected from foreign competition because they are needed to secure the United States from foreign aggression.This argument is called the __________ argument.

A) saving domestic-jobs
B) low foreign wages
C) foreign export subsidies
D) national defense

Question 52

Which of the following founders of the United States used the infant-industry argument to support trade restrictions?

A) Thomas Jefferson
B) Alexander Hamilton
C) James Madison
D) John Jay

Question 53

Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P_W.At this price,consumers' surplus equals the area of

A) P_W DE.
B) P_W AB.
C) P_W AC.
D) P_W P_NBD.

Question 54

Suppose that a tariff is imposed on imported cheese.This will have the effect of __________ the quantity consumed of cheese,__________ consumers' surplus,and __________ the government's tariff revenues.

A) increasing; increasing; increasing
B) decreasing; decreasing; increasing
C) increasing; decreasing; decreasing
D) decreasing; increasing; increasing
E) decreasing; increasing; decreasing

Question 55

Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P_W.If there is a policy change such that imports are prohibited,the price becomes P_N.U.S.producers are better off if imports are __________; specifically,their producers' surplus changes by area __________.

A) permitted; P_WDE
B) permitted; P_N BDP_W
C) prohibited; BDC
D) prohibited; P_NBDP_W

Question 56

A tariff is a

A) tax imposed on domestic producers of export goods.
B) legal limit on the amount of a good that can be imported.
C) tax imposed on imported goods.
D) legal limit on the amount of a good that can be produced by foreign owners of a firm located in a host country.

Question 57

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

A) the national defense argument
B) the infant industry argument
C) the comparative advantage argument
D) the antidumping argument

Question 58

Refer to Exhibit 34-3.The world price is P_W.If a tariff is imposed,the price rises to P_W + T.Because of the tariff,producers' surplus is __________ by an amount equal to the area of __________.

A) increased; 1 + 2
B) decreased; 1
C) increased; 3 + 4
D) increased; 1
E) decreased; 3

Question 59

Refer to Exhibit 34-2.The U.S.demand and supply for a good are shown.Under a policy of free trade,the world price is P_W.If there is a policy change such that imports are prohibited,the price becomes P_N, U.S.consumers are worse off if imports are __________; specifically,their consumers' surplus changes by area __________.

A) prohibited; P_WABD
B) permitted; P_WDE
C) prohibited; P_NBCP_W
D) permitted; P_N BDP_W
E) none of the above

Question 60

Company Z is a U.S.company that has just entered the market for a given good and is the first in this country to produce that good.The good is already being produced in many foreign countries is exported to the United States.If company Z wants to restrict this foreign competition,it will most likely use which of the following arguments?

A) anti-dumping
B) national-defense
C) job-creation
D) infant-industry
E) low-foreign-wages

Question 61

The effect of a tariff is

A) an increase in consumers' surplus.
B) a decrease in producers' surplus.
C) an increase in tariff revenues for government.
D) b and c
E) all of the above

Question 62

Which of the following statements about a tariff and a quota is true?

A) With a tariff the government collects revenues,but not with a quota.
B) With a quota the quantity of imports falls,but not with a tariff.
C) With a tariff the domestic price of the good increases,but not with a quota.
D) With a quota the domestic production of the good increases,but not with a tariff.
E) all of the above

Question 63

The situation where a country can produce a good at a lower opportunity cost than another country is called a(n)__________ advantage.

A) permanent
B) transitory
C) absolute
D) comparative
E) natural

Question 64

The effects of tariffs and quotas are: a(n)__________ in the prices of imported goods to domestic consumers,and a(n)__________ in imports.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 65

Refer to Exhibit 34-6.The opportunity cost of 1 unit of cheese in terms of units of wine is __________ for country A.

A) 1/2
B) 2
C) 10
D) 5
E) none of the above

Question 66

Which of the following is an example of a trade restriction?

A) quotas
B) tariffs
C) dumping
D) a and b
E) a,b,and c

Question 67

Refer to Exhibit 34-4.The opportunity cost of one unit of good A is __________ for country 1 and __________ for country 2.

A) 20B; 15B
B) 2B; 1B
C) 40B; 15B
D) 1/2B; 1B
E) 1/20B; 1/15B

Question 68

The effects of tariffs and quotas are: a(n)__________ in consumers' surplus,and a(n)__________ in producers' surplus.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 69

Refer to Exhibit 34-5.Country 1 has a comparative advantage in the production of __________,and country 2 has a comparative advantage in the production of __________.

A) good A; good B
B) good B; good A
C) both goods; neither good
D) neither good; both goods
E) neither good; neither good

Question 70

If countries 1 and 2 produce only two goods,A and B,and they have the same opportunity cost for the production of good A (and thus good B),then

A) each country will specialize in the production of one good and engage in trade.
B) neither country will specialize in the production of a good,but both will engage in trade.
C) one country will specialize in the production of a good,and both will engage in trade.
D) neither country will specialize in the production of a good,and there will be no incentive for trade.

Question 71

Refer to Exhibit 34-4.The opportunity cost of one unit of good B is __________ for country 1 and __________ for country 2.

A) 20A; 15A
B) 2A; 1A
C) 40A; 15A
D) 1/2A; 1A
E) 1/40A; 1/15B

Question 72

International trade exists because countries

A) can make themselves better off through trade.
B) want to be neighborly with each other.
C) want to be political allies.
D) want to improve diplomatic relations with each other.
E) want to avoid war with each other.

Question 73

If there is no comparative advantage in the production of either of the two goods produced by countries 1 and 2,then

A) the benefits resulting from trade between the two countries are increased.
B) there are no gains from specialization and trade between the two countries.
C) one country must be more productive in producing all goods than the other.
D) each country should specialize in the production of a particular good.
E) none of the above

Question 74

Arguments made against free trade include all of the following except

A) national defense considerations justify producing certain goods domestically whether the country has a comparative advantage in their production or not.
B) infant industries should be protected from free trade so that they may have time to develop and compete on an even basis with older,more established foreign industries.
C) dumping is an unfair trade practice that puts domestic producers of substitute goods at a disadvantage that they should be protected against.
D) free trade is inflationary and should be restricted in the domestic interest.
E) if foreign governments subsidize their exports,foreign firms that export are given an unfair advantage that domestic producers should be protected against.

Question 75

Dumping refers to a country

A) imposing a retaliatory tariff against the subsidized products of a foreign country.
B) selling a good abroad at a price that is below its cost and lower than the price charged in the domestic market.
C) selling a good abroad at a price that is above its cost and higher than the price charged in the domestic market.
D) a and c
E) all of the above

Question 76

Producers' surplus is the difference between the price

A) sellers receive for a good and the maximum price they would have paid for the good.
B) sellers receive for a good and the minimum price for which they could have sold the good.
C) buyers pay for a good and the maximum price they would have paid for the good.
D) buyers pay for a good and the minimum price for which they would have sold the good.

Question 77

Consumers' surplus is the difference between the price

A) sellers receive for a good and the maximum price they would have paid for the good.
B) sellers receive for a good and the minimum price for which they could have sold the good.
C) buyers pay for a good and the maximum price they would have paid for the good.
D) buyers pay for a good and the minimum price for which they would have sold the good.

Question 78

Refer to Exhibit 34-4.Country 1 has a comparative advantage in the production of __________,and country 2 has a comparative advantage in the production of __________.

A) good A; good B
B) good B; good A
C) both goods; neither good
D) neither good; both goods
E) neither good; neither good

Question 79

Refer to Exhibit 34-5.The opportunity cost of one unit of good B is __________ for country 1 and __________ for country 2.

A) 20A; 15A
B) 1/20A; 1/15A
C) 10A; 15A
D) 1/2A; 1A
E) 2A; 1/2A

Question 80

Refer to Exhibit 34-5.The opportunity cost of one unit of good A is __________ for country 1 and __________ for country 2.

A) 20B; 15B
B) 10B; 15B
C) 2B; 1B
D) 1/2B; 2B
E) 1/10B; 1B