Question 1

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because

Accepted Answer

A) in the real world,rich countries can take advantage of poor countries. 
B) they do not account for the reduction in wages that occurs in both countries as a result of trade. 
C) some individuals in both countries may be made worse off because of trade. 
D) trade restrictions are likely to be imposed as trade grows over time.

Question 2

The General Agreement on Tariffs and Trade (GATT)was formed to replace the World Trade Organization (WTO)because the WTO was empowered only to reduce barriers to trade in goods.The GATT is an agreement to reduce barriers to trade in goods,services,and intellectual property.

Accepted Answer

A) True 
 B)False

Question 3

Figure 7-2  Suppose the U.S.government imposes a $0.75 per pound tariff on coffee imports.Figure 7-2 shows the impact of this tariff.
-Refer to Figure 7-2.The loss in domestic consumer surplus as a result of the tariff is equal to

Accepted Answer

A) $5 million. 
B) $14.625 million. 
C) $15.75 million. 
D) $30.375 million.

Question 4

Your roommate Hansen argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States.Hansen

Accepted Answer

A) is incorrect.Free trade raises living standards by increasing economic efficiency. 
B) is right in asserting the need to protect high wages if the United States wishes to maintain its high standard of living. 
C) is correct in arguing that the high wages of U.S.workers make it impossible to compete with workers in low-wage countries. 
D) is advancing the anti-dumping argument for protectionism.

Question 5

Figure 7-1  Figure 7-1 shows the U.S.demand and supply for leather footwear.
-Refer to Figure 7-1.Suppose the government allows imports of leather footwear into the United States.The market price falls to $24.What area represents consumer surplus?

Accepted Answer

A) R + S 
B) R + S + T + U 
C) V + W + X + Y 
D) R + S + V

Question 6

Figure 7-3  Since 1953 the United States has imposed a quota to limit the imports of peanuts.Figure 7-3 illustrates the impact of the quota.
-Refer to Figure 7-3.What is the value of domestic producer surplus without a quota?

Accepted Answer

A) $5 million 
B) $15.75 million 
C) $38.5 million 
D) $53.5 million

Question 7

Assume that Finland and Latvia produce only two goods.If Finland has an absolute advantage in the production of these two goods compared to Latvia,Finland can still benefit from trade with Latvia.

Accepted Answer

A) True 
 B)False

Question 8

Figure 7-2  Suppose the U.S.government imposes a $0.75 per pound tariff on coffee imports.Figure 7-2 shows the impact of this tariff.
-Refer to Figure 7-2.The tariff causes domestic consumption of coffee

Accepted Answer

A) to fall by 21 million pounds. 
B) to fall by 9 million pounds. 
C) to rise by 6 million pounds. 
D) to rise by 12 million pounds.

Question 9

Today,the United States charges an average tariff rate of less than 1.5 percent.

Accepted Answer

A) True 
 B)False

Question 10

If a country has an absolute advantage in producing a product,it may not have a comparative advantage in producing that product.

Accepted Answer

A) True 
 B)False

Question 11

Figure 7-3  Since 1953 the United States has imposed a quota to limit the imports of peanuts.Figure 7-3 illustrates the impact of the quota.
-Refer to Figure 7-3.If there was no quota,how many pounds of peanuts would domestic producers supply?

Accepted Answer

A) 10 million 
B) 28 million 
C) 30 million 
D) 40 million

Question 12

A tariff is the same as a quota.

Accepted Answer

A) True 
 B)False

Question 13

Table 7-6
Output per hour Production and Production
of work Consumption without Trade with Trade
  Estonia and Morocco can produce both swords and belts.Each country has a total of 40 available labor hours for the production of swords and belts.Table 7-6 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 7-6.What is the opportunity cost to produce 1 belt in Estonia?

Accepted Answer

A) 1/3 of a sword 
B) 3/5 of a sword 
C) 1.67 swords 
D) 5 swords

Question 14

Table 7-2
  Madison and Austin own Cafe Ole'.Table 7-2 lists the number of empanadas and tacos Madison and Austin can each make in one hour.
-Refer to Table 7-2.Select the statement that accurately interprets the data in the table.

Accepted Answer

A) Madison has a comparative advantage in making empanadas. 
B) Austin has a comparative advantage in making tacos. 
C) Madison has a comparative advantage in making empanadas and making tacos. 
D) Madison has a comparative advantage in making tacos.

Question 15

Table 7-6
Output per hour Production and Production
of work Consumption without Trade with Trade
  Estonia and Morocco can produce both swords and belts.Each country has a total of 40 available labor hours for the production of swords and belts.Table 7-6 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 7-6.If the actual terms of trade are 1 belt for 1.5 swords and 50 belts are traded,how many swords will Morocco gain compared to the "without trade" numbers?

Accepted Answer

A) 0 
B) 15 
C) 60 
D) 75

Question 16

Autarky is a situation where one country does not trade with other countries.

Accepted Answer

A) True 
 B)False

Question 17

In 1995,the General Agreement on Tariffs and Trade (GATT)was replaced by the World Trade Organization (WTO).

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is the best example of a tariff?

Accepted Answer

A) a subsidy from the U.S.government to domestic manufacturers of residential air conditioners to enable them to compete more effectively with foreign producers 
B) a limit on the quantity of residential air conditioners that can be imported from a foreign country 
C) a $150 fee imposed on all imported residential air conditioners 
D) a tax placed on all residential air conditioners sold in the domestic market to help offset the impact of emissions on the environment

Question 19

Table 7-6
Output per hour Production and Production
of work Consumption without Trade with Trade
  Estonia and Morocco can produce both swords and belts.Each country has a total of 40 available labor hours for the production of swords and belts.Table 7-6 shows the output per hour of work,the production and consumption quantities without trade,and the production numbers with trade.
-Refer to Table 7-6.All of the following are terms of trade that could possibly benefit both countries except

Accepted Answer

A) 1 belt : 1.25 swords. 
B) 1 belt : 1.33 swords. 
C) 1 belt : 1.75 swords. 
D) 1 belt : 2.25 swords.

Question 20

What are three primary reasons for the growth of international trade over the past 50 years?

Accepted Answer

The answer of What are three primary reasons for the...

Exam 7: Comparative Advantage and the Gains From International Trade

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade.These examples are misleading because

The General Agreement on Tariffs and Trade (GATT)was formed to replace the World Trade Organization (WTO)because the WTO was empowered only to reduce barriers to trade in goods.The GATT is an agreement to reduce barriers to trade in goods,services,and intellectual property.

Figure 7-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee imports.Figure 7-2 shows the impact of this tariff. -Refer to Figure 7-2.The loss in domestic consumer surplus as a result of the tariff is equal to

Your roommate Hansen argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States.Hansen

Figure 7-1 Figure 7-1 shows the U.S.demand and supply for leather footwear. -Refer to Figure 7-1.Suppose the government allows imports of leather footwear into the United States.The market price falls to $24.What area represents consumer surplus?

Figure 7-3 Since 1953 the United States has imposed a quota to limit the imports of peanuts.Figure 7-3 illustrates the impact of the quota. -Refer to Figure 7-3.What is the value of domestic producer surplus without a quota?

Assume that Finland and Latvia produce only two goods.If Finland has an absolute advantage in the production of these two goods compared to Latvia,Finland can still benefit from trade with Latvia.

Figure 7-2 Suppose the U.S.government imposes a $0.75 per pound tariff on coffee imports.Figure 7-2 shows the impact of this tariff. -Refer to Figure 7-2.The tariff causes domestic consumption of coffee

Today,the United States charges an average tariff rate of less than 1.5 percent.

If a country has an absolute advantage in producing a product,it may not have a comparative advantage in producing that product.

Figure 7-3 Since 1953 the United States has imposed a quota to limit the imports of peanuts.Figure 7-3 illustrates the impact of the quota. -Refer to Figure 7-3.If there was no quota,how many pounds of peanuts would domestic producers supply?

A tariff is the same as a quota.

Table 7-2 Madison and Austin own Cafe Ole'.Table 7-2 lists the number of empanadas and tacos Madison and Austin can each make in one hour. -Refer to Table 7-2.Select the statement that accurately interprets the data in the table.

Autarky is a situation where one country does not trade with other countries.

In 1995,the General Agreement on Tariffs and Trade (GATT)was replaced by the World Trade Organization (WTO).

Which of the following is the best example of a tariff?

What are three primary reasons for the growth of international trade over the past 50 years?