Question 1

A voluntary export restraint is an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.

Accepted Answer

A) True 
 B)False

Question 2

Governments sometimes erect barriers to trade other than tariffs and quotas.Which of the following is not an example of this type of trade barrier?

Accepted Answer

A) a requirement that the employees of domestic firms that engage in foreign trade pay income taxes 
B) a requirement that imports meet health and safety requirements 
C) restrictions on imports for national security reasons 
D) a requirement that the U.S.government buy military uniforms only from U.S.manufacturers

Question 3

Which of the following statements is true?

Accepted Answer

A) Economic efficiency would be increased if the United States eliminated all of its trade restrictions,but only if all other countries eliminated their trade restrictions too. 
B) The U.S.economy would gain from the elimination of its tariffs but not from the elimination of its quotas. 
C) Eliminating its tariffs and quotas unilaterally would not benefit the United States because this would remove the leverage it would have to persuade other countries to eliminate their trade restrictions. 
D) The U.S.economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.

Question 4

Costa Rica is a leading exporter of bananas.What explains the comparative advantage of this country in banana production?

Accepted Answer

A) climate and soil conditions in Costa Rica which are well-suited for banana production 
B) investment by multinational firms such as Chiquita Brands International and the Dole Food Company 
C) a large supply of unskilled labor 
D) positive externalities

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.What will be the quantity demanded?

Accepted Answer

A) Q0 
B) Q1 
C) Q2 
D) Q2 - Q0

Question 6

Table 7-3
  Mateo and Celeste produce custom saddles and spurs.Table 7-3 lists the number of saddles and pairs of spurs Mateo and Celeste can each produce in one month.
-Refer to Table 7-3.Select the statement that accurately interprets the data in the table.

Accepted Answer

A) Celeste has a comparative advantage in making saddles. 
B) Mateo has an absolute advantage in making spurs. 
C) Mateo has a comparative advantage in making saddles. 
D) Mateo has a comparative advantage in making saddles and making spurs.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

A quota is

Accepted Answer

A) a limit placed on the quantity of goods that can be imported into a country. 
B) a tax imposed by a government on goods imported into a country. 
C) a subsidy granted to importers of a vital input. 
D) a health and safety restriction imposed on an imported product.

Question 9

China has developed a comparative advantage in the production of children's toys.The source of this comparative advantage is

Accepted Answer

A) superior process technology. 
B) a large supply of unskilled workers and relatively little capital. 
C) investment in capital used to produce toys. 
D) a large supply of natural resources.

Question 10

Which of the following countries is not one of the top three exporting countries in the world?

Accepted Answer

A) China 
B) Germany 
C) South Korea 
D) the United States

Exam 7: Comparative Advantage and the Gains From International Trade