Question 1

Since the 1930s, overall tariff rates in the United States have

Accepted Answer

A)  increased. 
B)  decreased. 
C)  remained unchanged. 
D)  become very unstable, changing week to week.

Question 2

A quota is

Accepted Answer

A)  a government-imposed restriction on the quantity of a specific good that can be imported into a country. 
B)  a tariff imposed on goods that are dumped into the home country. 
C)  a tariff imposed on goods that are subsidized by their domestic governments and exported to other countries. 
D)  a tariff based on the value of the imported good.

Question 3

The General Agreement on Tariffs and Trade is an international agreement

Accepted Answer

A)  to establish the North American continent as a free trade area. 
B)  to encourage peaceful settlements of trade disputes, but has no particular point of view about the desirability of higher or lower tariffs. 
C)  to encourage world trade by lowering tariffs and other trade barriers. 
D)  to make all tariffs illegal.

Question 4

Suppose that opportunity costs in India and Australia are constant. In India, maximum feasible hourly production rates are either 0.3 unit of cloth or 0.2 unit of food. In Australia, maximum feasible hourly production rates are either 0.5 unit of cloth or 0.5 unit of food. It is correct to state that

Accepted Answer

A)  India has a comparative advantage in producing cloth. 
B)  India has a comparative advantage in producing both cloth and wheat. 
C)  India has no comparative advantage in producing cloth or wheat. 
D)  Australia has a comparative advantage in producing cloth.

Question 5

If country A exports good X to country B and country B exports good Y to country A, it is most likely that

Accepted Answer

A)  A has an absolute advantage in the production of good X. 
B)  B has a comparative advantage in the production of good Y. 
C)  the opportunity cost of domestic production of good Y for country A is lowered with trade. 
D)  B is producing less of good Y than in the no-trade case.

Question 6

According to the infant-industry argument, protection should be withdrawn from an infant industry when the companies in the industry

Accepted Answer

A)  are listed on the domestic stock exchange. 
B)  become profitable. 
C)  double their sales revenues. 
D)  reach a sufficient size to compete with foreign firms.

Question 7

If protective import-restricting tariffs are imposed by a country, in the majority of cases that nation's consumers end up

Accepted Answer

A)  paying a higher price for the good than they otherwise would. 
B)  paying a lower price for the good than they otherwise would. 
C)  consuming more of the good than they otherwise would. 
D)  having a higher standard of living than they otherwise would.

Question 8

Comparative advantage is

Accepted Answer

A)  the ability to produce more output from given inputs than another producer can. 
B)  the ability to produce a good at a lower opportunity cost than other producers. 
C)  the ability to produce more output of all goods than anyone else can. 
D)  the ability to produce all goods at lower costs than anyone else can.

Question 9

If there are two goods and two countries, then one country can have

Accepted Answer

A)  a comparative advantage in only one good. 
B)  a comparative advantage in both goods. 
C)  a higher opportunity cost of producing both goods. 
D)  a lower opportunity cost of producing both goods.

Question 10

Assume that U.S. producers can manufacture cookies at a lower opportunity cost than Mexican producers. If this is the case,

Accepted Answer

A)  it will not be possible for Mexico to have an comparative advantage in the production of any other products. 
B)  Mexico could still have the comparative advantage in cookie production. 
C)  it would still be possible for Mexico to have a comparative advantage in trade for some other products. 
D)  Mexico would have the comparative advantage in all products compared to the United States.

Question 11

The European Union started out as a

Accepted Answer

A)  regional trade agreement. 
B)  union of nations with identical currency. 
C)  union of nations where the same language was spoken. 
D)  union of nations with identical tariffs.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A)  When it comes to overall productive efficiency, compared to Japan, Germany and the rest of the European Union, the United States lags far behind. 
B)  Sophisticated financial systems have given U.S. productive efficiency a boost. 
C)  The United States' international competitive position has been helped by its long history of widespread entrepreneurship. 
D)  Economic restructuring and investments in information technology have added to productive efficiency in the United States.

Question 13

In the long run, imports will most likely be paid for with

Accepted Answer

A)  exports. 
B)  the sale of real and financial assets. 
C)  the extension of credit. 
D)  higher domestic unemployment.

Question 14

-Refer to the above figures. A tariff is placed on a foreign good. Which figures represents the situation in the domestic market for a competing domestic good?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 15

Maximum Feasible Hourly Production Rates (in Tons) of Either
Knives or Forks Using All Available Resources
Product Country Alpha Country Beta
Knives 9 3
Forks 6 12
-Use the above table. Assuming constant opportunity costs, if countries Alpha and Beta specialize based on comparative advantage, then they will trade if the rate of exchange is

Accepted Answer

A)  5 knives for 1 fork, and Alpha imports forks. 
B)  0.5 knives for 1 fork, and Alpha imports forks. 
C)  0.5 fork for 1 knife, and Beta imports knives. 
D)  6 forks for 1 knife, and Beta imports knives.

Question 16

"Everybody has a comparative advantage in something." Do you agree or disagree? Why?

Accepted Answer

The answer of "Everybody has a comparative advantage in something."...

Question 17

-According to the above table, which assumes that opportunity costs of producing goods X and Y are constant, which of the following statements is TRUE?

Accepted Answer

A)  Chen will be willing to produce only good X and trade units of that good to Holly as long as he receives more than 0.5 units of good Y from her in exchange. 
B)  Holly will be willing to produce only good X and trade units of that good to Chen as long as she receives less than 2.5 units of good Y in exchange. 
C)  Chen will be willing to produce only good Y and trade units of that good to Holly as long has he receives less than 2 units of good X from her in exchange. 
D)  Holly will be willing to produce only good Y and trade units of that good to Chen as long as she receives less than 0.4 unit of good X in exchange.

Question 18

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

Accepted Answer

A)  profit maximization. 
B)  price discrimination. 
C)  price differentiation. 
D)  dumping.

Question 19

Maximum Feasible Hourly Production Rates of Either
Computers or Bicycles Using All Available Resources
Product United States Mexico
Computers 8 10
Bicycles 4 2
-Refer to the above table. It may be concluded that

Accepted Answer

A)  Mexico has a comparative advantage in computer production. 
B)  Mexico has a comparative advantage in bicycle production. 
C)  The United States has a comparative advantage in producing both goods. 
D)  The United States has a comparative advantage in producing neither good.

Question 20

-According to the above table, which assumes that opportunity costs of producing goods X and Y are constant, Holly has comparative advantage in production of

Accepted Answer

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

Exam 32: Comparative Advantage and the Open Economy