Question 1

Consider a product with a perfectly competitive market. Carefully explain why nations gain from engaging in international trade in this product. Do nations gain equally from trade? If not, what determines which country gains more? (In your answer you can assume a two-country world.)

Accepted Answer

The answer of Consider a product with a perfectly competitive...

Question 2

If the world price is higher than the no-trade domestic price, then domestic producers gain and domestic consumers lose as a result of free trade.

Accepted Answer

A) True 
 B)False

Question 3

If markets are perfectly competitive, the free-trade price of a good in an importing country is expected to be lower than the pre-trade price of the good in that country.

Accepted Answer

A) True 
 B)False

Question 4

If the price of a normal good is measured along the vertical axis and its quantity along the horizontal axis, an increase in the price of the good will lead to:

Accepted Answer

A) a downward movement along the demand curve. 
B) an upward movement along the demand curve. 
C) a rightward shift of the demand curve. 
D) a leftward shift of the demand curve.

Question 5

Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 60 + 3 P \
Q ^ { D } = 390 - 2 P
\end{array}$$ In the absence of international trade in skateboards how many skateboards will be sold in the United States?

Accepted Answer

A) 138 
B) 258 
C) 210 
D) 930

Question 6

Suppose country A and country B are the only two countries in the world. Country A imports good X from country B and exports good Y. In the absence of any transportation cost, at the world price of good X:

Accepted Answer

A) country B's export supply curve is perfectly inelastic. 
B) both country A's import demand curve and country B's export supply curve are positively sloped. 
C) country A's import demand curve will be perfectly inelastic. 
D) country A's import demand curve will intersect country B's export supply curve.

Question 7

Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 25 + 10 P \
Q ^ { D } = 875 - 5 P
\end{array}$$ If the United States can import MP3 players from the rest of the world at a per unit price of $50, how many MP3 players will be produced in the United States?

Accepted Answer

A) 625 
B) 475 
C) 925 
D) 525

Question 8

An increase in the imports of clothing into the United States from India will benefit the _____ and hurt the _____.

Accepted Answer

A) U.S.clothing producers; Indian clothing producers 
B) Indian consumers; Indian clothing producers 
C) the U.S.consumers; Indian clothing producers 
D) the U.S.consumers; the U.S.clothing producers

Question 9

Which of the following is true of consumer surplus?

Accepted Answer

A) It is graphically represented as the area under the equilibrium price and above the supply curve of a good. 
B) It is the net gain in economic well-being associated with producing and selling the equilibrium quantity of a good. 
C) It is used to measure the impact of a change in price on the economic well-being of the producers. 
D) It is the difference between the value that one places on a good and the price paid for the good.

Question 10

Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 60 + 3 P \
Q ^ { D } = 390 - 2 P
\end{array}$$ If the United States can imports skateboards from the rest of the world at a per unit price of $75, how many skateboards will be produced in the United States?

Accepted Answer

A) 165 
B) 240 
C) 285 
D) 215

Question 11

Suppose the domestic supply (QSU.S.) and demand (QDU.S)for bicycles in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { \mathrm { S } } \mathrm { U.S } . = 2 \mathrm { P } \
\mathrm { Q } _ { ^\mathrm { D } U . S } = 200 - 2 \mathrm { P } .
\end{array}$$ Demand (QD) and supply (QS) in the Rest of the World are given by the equations: $$\begin{array} { l } 
Q ^ { S } = P \
Q ^ { D } = 160 - P .
\end{array}$$ Quantities are measured in thousands and price in U.S. dollars. After the opening of free trade with the United States, if the world price of the bicycles settles at $60, the Rest of the World will:

Accepted Answer

A) export 40,000 bicycles. 
B) export 60,000 bicycles. 
C) import 60,000 bicycles. 
D) import 40,000 bicycles.

Question 12

The net economic gains from free trade are usually negative.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 25 + 10 P \
Q ^ { D } = 875 - 5 P
\end{array}$$ In the absence of international trade in MP3 players, what will be the price of MP3 players in the United States?

Accepted Answer

A) $60 
B) $65 
C) $90 
D) $70

Question 14

In a two-country world, the opening of free trade does not make everyone in the two countries better off. What assumption(s) must be made in order to make the claim that both countries do in fact benefit from the free trade?

Accepted Answer

The answer of In a two-country world, the opening of...

Question 15

Free trade is a zero-sum activity because a county always gains at the expense of its trading partner.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the domestic supply (QS) and demand (QD)for MP3 players in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { S } = - 25 + 10 P \
Q ^ { D } = 875 - 5 P
\end{array}$$ The consumer surplus will _____ by _____ when the United States engages in international trade and the international price for MP3 players settles at $50.

Accepted Answer

A) increase; $2,625 
B) increase; $6,000 
C) decrease; $7,150 
D) decrease; $13,500

Question 17

Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations: $$\begin{array} { l } 
Q ^ { 5 } = - 60 + 3 P \
Q ^ { D } = 390 - 2 P
\end{array}$$ If the U.S. engages in free trade and the international price of skateboards is $75, it would import _____ skateboards from the rest of the world.

Accepted Answer

A) 65 
B) 85 
C) 75 
D) 95

Question 18

Harry used work in a launderette and earned $30 a day. After work, he normally had a chicken burger worth $5 at McDonalds. However, his pay was lowered to $20 some days later. Then after work he used to have a vegetable burger worth $3. Here the vegetable burger is an example of a(n):

Accepted Answer

A) inferior good. 
B) normal good. 
C) complement good. 
D) luxury good.

Question 19

If an individual consumes more of good X when his/her income doubles, we can infer that

Accepted Answer

A) the individual is highly sensitive to changes in the price of good X. 
B) good X is a normal good. 
C) good X is an inferior good. 
D) the demand for good X is perfectly inelastic.

Question 20

Refer to Figure 2.1 below. At a price of $70, the producer surplus equals:

Accepted Answer

A) $6,000,000. 
B) $8,000,000. 
C) $15,000,000. 
D) $30,000,000.

Exam 2: The Basic Theory Using Demand and Supply

Consider a product with a perfectly competitive market. Carefully explain why nations gain from engaging in international trade in this product. Do nations gain equally from trade? If not, what determines which country gains more? (In your answer you can assume a two-country world.)

If the world price is higher than the no-trade domestic price, then domestic producers gain and domestic consumers lose as a result of free trade.

If markets are perfectly competitive, the free-trade price of a good in an importing country is expected to be lower than the pre-trade price of the good in that country.

If the price of a normal good is measured along the vertical axis and its quantity along the horizontal axis, an increase in the price of the good will lead to:

Suppose country A and country B are the only two countries in the world. Country A imports good X from country B and exports good Y. In the absence of any transportation cost, at the world price of good X:

An increase in the imports of clothing into the United States from India will benefit the _ and hurt the _.

Which of the following is true of consumer surplus?

The net economic gains from free trade are usually negative.

In a two-country world, the opening of free trade does not make everyone in the two countries better off. What assumption(s) must be made in order to make the claim that both countries do in fact benefit from the free trade?

Free trade is a zero-sum activity because a county always gains at the expense of its trading partner.

Harry used work in a launderette and earned $30 a day. After work, he normally had a chicken burger worth $5 at McDonalds. However, his pay was lowered to $20 some days later. Then after work he used to have a vegetable burger worth $3. Here the vegetable burger is an example of a(n) :

If an individual consumes more of good X when his/her income doubles, we can infer that

Refer to Figure 2.1 below. At a price of $70, the producer surplus equals: