Question 1

Import restrictions

Accepted Answer

A)  can protect United States jobs in the protected industry, which increases economic welfare of the country as a whole. 
B)  can protect United States jobs in the protected industry but will also lead to job reductions in other export industries. 
C)  hurt people who work in importing companies, but makes consumers better off. 
D)  cannot protect American jobs in any sector of the economy.

Question 2

Maximum Feasible Hourly Production Rates (in Tons) of Either
Wine or Beef Using All Available Resources
Product Argentina France
Wine (gallons) 30 60
Beef (pounds) 10 30
-Use the above table. Assuming constant opportunity costs, a comparative advantage in producing wine is possessed by

Accepted Answer

A)  neither Argentina or France. 
B)  both Argentina and France. 
C)  Argentina. 
D)  France.

Question 3

The Uruguay round of GATT (1993) talks

Accepted Answer

A)  reduced trade barriers and tariffs. 
B)  increased trade barriers and tariffs. 
C)  lowered some trade barriers but increased tariffs. 
D)  left tariffs and trade barriers unchanged.

Question 4

If a good sells for $10 domestically and the same good sells for $7 abroad, then this firm is engaging in

Accepted Answer

A)  marginal cost selling. 
B)  price discrimination. 
C)  price differentiation. 
D)  dumping.

Question 5

Maximum Feasible Hourly Production Rates of Either
Product A or Product B Using All Available Resources
Product Country X Country Y
A 4 8
B 4 4
-Refer to the above table. Assuming constant opportunity costs,

Accepted Answer

A)  neither country will be willing to engage in trade at any rate of exchange of product A for product B. 
B)  both countries will be willing to engage in trade at a rate of exchange of 0.3 unit of product A for 1 unit of product B. 
C)  both countries will be willing to engage in trade at a rate of exchange of 3 units of product A for 1 unit of product B. 
D)  both countries will be willing to engage in trade at a rate of exchange of 1.5 unit of product A for 1 unit of product B.

Question 6

Since World War II, world trade has

Accepted Answer

A)  decreased in importance as nations turn inward due to security concerns. 
B)  increased, but not as dramatically as annual world real GDP has climbed. 
C)  risen sharply, outpacing gains in annual world real GDP. 
D)  increased in relative importance for most nations, but not for the United States.

Question 7

If in the long run, imports are paid for by exports, then

Accepted Answer

A)  any restriction of imports ultimately reduces exports. 
B)  any restriction of imports ultimately expands exports. 
C)  any restriction of imports has no impact on exports. 
D)  any restriction of exports has no impact on imports.

Question 8

U.S. automakers have an interest to make it more difficult for European competitors to locate assembly plants in Canada or Mexico and thereby ship finished automobiles to the United States duty-free. This is an example of

Accepted Answer

A)  trade deflection. 
B)  trade diversion. 
C)  quotas. 
D)  rules of origin.

Question 9

A rationale used for tariff protection by some is that

Accepted Answer

A)  the country wants to practice international price discrimination. 
B)  the country finds its cost of producing their products higher than in other countries. 
C)  imports are produced by firms that received subsidies from their governments. 
D)  imports are produced by firms that are more efficient than domestic producers are.

Question 10

Which of the following are regulations that nations in regional trade blocs establish to delineate product categories eligible for trading preferences?

Accepted Answer

A)  trade quotas 
B)  trade tariffs 
C)  rules of law 
D)  rules of origin

Question 11

Specialization in trade will be economically efficient if it is based upon

Accepted Answer

A)  national security needs. 
B)  absolute advantage. 
C)  comparative advantage. 
D)  government regulations.

Question 12

Individual Opportunity Cost
Pramilla 2 units of good X to produce 1 unit of good Y
Sam 3 units of good X to produce 1 unit of good Y
George 4 units of good Y to produce 1 unit of good X
Lucas 5 units of good Y to produce 1 unit of good X
-Consider the opportunity costs of producing goods X and Y that are listed for the four individuals above. Which person has a comparative advantage in producing good X?

Accepted Answer

A)  Pramilla 
B)  Sam 
C)  George 
D)  Lucas

Question 13

How can comparative advantage yield gains from trade?

Accepted Answer

The answer of How can comparative advantage yield gains from...

Question 14

Why is it impossible to make everyone better off in the long run by imposing import restrictions?

Accepted Answer

The answer of Why is it impossible to make everyone...

Question 15

Maximum Feasible Hourly Production Rates for Either
Food or Cloth Using All Available Resources
 
-Using the data in the above table and assuming constant opportunity costs, it is correct to state that

Accepted Answer

A)  the United States has an absolute advantage in producing cloth. 
B)  Mexico has a comparative advantage in producing food. 
C)  the United States has a comparative advantage in producing both food and cloth. 
D)  Mexico has an absolute advantage in producing both food and cloth.

Question 16

In comparing tariffs and quotas, we know that

Accepted Answer

A)  neither raises revenues for the federal government. 
B)  both raise revenues for the federal government. 
C)  tariffs raise revenues for the federal government, while quotas do not. 
D)  quotas raise revenues for the federal government, while tariffs do not.

Question 17

The most important international trade organization is

Accepted Answer

A)  the World Bank 
B)  the World Trade Organization 
C)  the International Monetary Fund 
D)  the European Union

Question 18

The ability to produce a good or service at a lower opportunity cost than other producers is called

Accepted Answer

A)  absolute advantage. 
B)  comparative advantage. 
C)  implicit advantage. 
D)  marginal advantage.

Question 19

A tariff is a

Accepted Answer

A)  legal limit on sales of a foreign product in the domestic market. 
B)  regulation of the quality of a foreign product sold in the domestic market. 
C)  tax on sales of a foreign product in the domestic market. 
D)  voluntary limit on sales of a foreign product in the domestic market.

Question 20

One argument against free trade is the

Accepted Answer

A)  comparative advantage argument. 
B)  absolute advantage argument. 
C)  considerate advantage argument. 
D)  infant industry argument.

Exam 32: Comparative Advantage and the Open Economy