Deck 9: Application: International Trade

Question 1

A logical starting point from which the study of international trade begins is

A)the recognition that not all markets are competitive.
B)the recognition that government intervention in markets sometimes enhances the economic welfare of the society.
C)the principle of absolute advantage.
D)the principle of comparative advantage.

Answer 1

D

Question 2

Suppose a country abandons a no-trade policy in favor of a free-trade policy.If,as a result,the domestic price of pistachios decreases to equal the world price of pistachios,then

A)that country becomes an exporter of pistachios.
B)that country has a comparative advantage in producing pistachios.
C)at the world price,the quantity of pistachios demanded in that country exceeds the quantity of pistachios supplied in that country.
D)All of the above are correct.

Answer 2

C

Question 3

Suppose Haiti has an absolute advantage over other countries in producing oranges,but other countries have a comparative advantage over Haiti in producing oranges.If trade in oranges is allowed,Haiti

A)will import oranges.
B)will export oranges.
C)will either export oranges or export oranges,but it is not clear from the given information.
D)would have nothing to gain either from exporting or importing oranges.

Answer 3

A

Question 4

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

A)producer surplus increases and total surplus increases in the market for that good.
B)producer surplus increases and total surplus decreases in the market for that good.
C)producer surplus decreases and total surplus increases in the market for that good.
D)producer surplus decreases and total surplus decreases in the market for that good.

Question 5

Figure 9-1
The figure illustrates the market for wool in Scotland.
Refer to Figure 9-1.In the absence of trade,total surplus in Scotland is represented by the area

A)A + B + C.
B)A + B + C + D + F.
C)A + B + C + D + F + G.
D)A + B + C + D + F + G + H.

Question 6

In analyzing the gains and losses from international trade,to say that Moldova is a small country is to say that

A)Moldova can only import goods; it cannot export goods.
B)Moldova's choice of which goods to export and which goods to import is not based on the principle of comparative advantage.
C)only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant.
D)Moldova is a price taker.

Question 7

Figure 9-1
The figure illustrates the market for wool in Scotland.
Refer to Figure 9-1.From the figure it is apparent that

A)Scotland will experience a shortage of wool if trade is not allowed.
B)Scotland will experience a surplus of wool if trade is not allowed.
C)Scotland has a comparative advantage in producing wool,relative to the rest of the world.
D)foreign countries have a comparative advantage in producing wool,relative to Scotland.

Question 8

Which of the following statements is true?

A)Free trade benefits a country when it exports but harms it when it imports.
B)"Voluntary" limits on Canadian exports of hogs are better for the United States than U.S.tariffs placed on Canadian hog exports.
C)Tariffs and quotas differ in that tariffs work like a tax and therefore impose deadweight losses,whereas quotas do not impose deadweight losses.
D)Free trade benefits a country both when it exports and when it imports.

Question 9

What is the fundamental basis for trade among nations?

A)shortages or surpluses in nations that do not trade
B)misguided economic policies
C)absolute advantage
D)comparative advantage

Question 10

A tariff is a

A)limit on how much of a good can be exported.
B)limit on how much of a good can be imported.
C)tax on an exported good.
D)tax on an imported good.

Question 11

The principle of comparative advantage asserts that

A)not all countries can benefit from trade with other countries.
B)the world price of a good will prevail in all countries,regardless of whether those countries allow international trade in that good.
C)countries can become better off by exporting goods,but they cannot become better off by importing goods.
D)countries can become better off by specializing in what they do best.

Question 12

If the demand curve and the supply curve for a good are straight lines,then the deadweight loss that results from a tariff is represented on the supply-and-demand graph by

A)the area of one triangle.
B)the area of one rectangle.
C)the combined areas of two different triangles.
D)the combined areas of two different rectangles.

Question 13

Figure 9-1
The figure illustrates the market for wool in Scotland.
Refer to Figure 9-1.Relative to the no-trade situation,trade with the rest of the world results in

A)Scotland consumers paying a higher price for wool.
B)a decrease in producer surplus in Scotland.
C)a decrease in total surplus in Scotland.
D)All of the above are correct.

Question 14

A country has a comparative advantage in a product if the world price is

A)lower than that country's domestic price without trade.
B)higher than that country's domestic price without trade.
C)equal to that country's domestic price without trade.
D)not subject to manipulation by organizations that govern international trade.

Question 15

Figure 9-4.The domestic country is Nicaragua.
Refer to Figure 9-4.The change in total surplus in Nicaragua because of trade is

A)$625,and this is an increase in total surplus.
B)$750,and this is an increase in total surplus.
C)$625,and this is a decrease in total surplus.
D)$750,and this is a decrease in total surplus.

Question 16

Figure 9-11
Refer to Figure 9-11.Consumer surplus in this market before trade is

A)A.
B)B + C.
C)A + B + D.
D)C.

Question 17

When a nation first begins to trade with other countries and the nation becomes an importer of corn,

A)this is an indication that the world price of corn exceeds the nation's domestic price of corn in the absence of trade.
B)this is an indication that the nation has a comparative advantage in producing corn.
C)the nation's consumers of corn become better off and the nation's producers of corn become worse off.
D)All of the above are correct.

Question 18

Figure 9-15
Refer to Figure 9-15.With trade and without a tariff,the price and domestic quantity demanded are

A)P₁ and Q₁.
B)P₁ and Q₄.
C)P₂ and Q₂.
D)P₂ and Q₃.

Question 19

Figure 9-4.The domestic country is Nicaragua.
Refer to Figure 9-4.With trade,Nicaragua

A)imports 150 calculators.
B)imports 250 calculators.
C)exports 100 calculators.
D)exports 250 calculators.

Question 20

Figure 9-11
Refer to Figure 9-11.Consumer surplus in this market after trade is

A)A.
B)C + B.
C)A + B + D.
D)B + C + D.

Question 21

An import quota

A)is preferable to a tariff since an import quota does not create a deadweight loss.
B)is a tax on imported goods.
C)reduces the welfare of domestic consumers.
D)reduces the welfare of domestic producers.

Question 22

Figure 9-19.On the diagram below,Q represents the quantity of textiles and P represents the price of textiles.
Refer to Figure 9-19.With free trade,the country for which the figure is drawn will

A)export 30 units of textiles.
B)export 50 units of textiles.
C)import 30 units of textiles.
D)import 50 units of textiles.

Question 23

A major difference between tariffs and import quotas is that

A)tariffs create deadweight losses,but import quotas do not.
B)tariffs help domestic consumers,and import quotas help domestic producers.
C)tariffs raise revenue for the government,but import quotas create surplus for those who get the licenses to import.
D)All of the above are correct.

Question 24

Figure 9-15
Refer to Figure 9-15.With the tariff,the quantity of saddles imported is

A)Q₃ - Q₁.
B)Q₃ - Q₂.
C)Q₄ - Q₁.
D)Q₄ - Q₂.

Question 25

Figure 9-17
Refer to Figure 9-17.Relative to the free-trade outcome,the imposition of the tariff

A)decreases imports of the good by 16 units and increases domestic production of the good by 8 units.
B)decreases imports of the good by 16 units and increases domestic production of the good by 16 units.
C)decreases imports of the good by 24 units and increases domestic production of the good by 8 units.
D)decreases imports of the good by 24 units and increases domestic production of the good by 24 units.

Question 26

For a country that is considering the adoption of either a tariff or an import quota on a particular good,an important difference is that

A)an import quota has no effect on consumer surplus,while a tariff decreases consumer surplus.
B)an import quota has no effect on producer surplus,while a tariff decreases producer surplus.
C)a tariff raises total surplus,while an import quota does not.
D)a tariff raises revenue for that country's government,while an import quota does not.

Question 27

When a country abandons a no-trade policy,adopts a free-trade policy,and becomes an importer of a particular good,

A)consumer surplus increases and total surplus increases in the market for that good.
B)consumer surplus increases and total surplus decreases in the market for that good.
C)consumer surplus decreases and total surplus increases in the market for that good.
D)consumer surplus decreases and total surplus decreases in the market for that good.

Question 28

Figure 9-17
Refer to Figure 9-17.With free trade,the country imports

A)16 units of the good.
B)24 units of the good.
C)60 units of the good.
D)64 units of the good.

Question 29

In the market for apples in a certain country,consumer surplus increases and total surplus increases when that country

A)abandons a no-trade policy,adopts a free-trade policy,and becomes an importer of apples.
B)abandons a no-trade policy,adopts a free-trade policy,and becomes an exporter of apples.
C)abandons a free-trade policy,adopts a no-trade policy,and becomes an importer of apples.
D)abandons a free-trade policy,adopts a no-trade policy,and becomes an exporter of apples.

Question 30

Figure 9-15
Refer to Figure 9-15.A result of the tariff is that,relative to the free-trade situation,the quantity of saddles imported decreases by

A)Q₂ - Q₁.
B)Q₃ - Q₂.
C)Q₄ - Q₃.
D)Q₄ - Q₃ + Q₂ - Q₁.

Question 31

In September 2009,China took steps toward imposing tariffs on American exports of

A)automotive products and chicken in response to President Obama's decision to impose tariffs on toys imported from China.
B)airplanes and beef in response to President Obama's decision to impose tariffs on toys imported from China.
C)automotive products and chicken in response to President Obama's decision to impose tariffs on tires imported from China.
D)airplanes and beef in response to President Obama's decision to impose tariffs on tires imported from China.

Question 32

Figure 9-16.The figure below illustrates a tariff.On the graph,Q represents quantity and P represents price.
Refer to Figure 9-16.The tariff

A)decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
B)decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F.
C)increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
D)increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F.

Question 33

Figure 9-16.The figure below illustrates a tariff.On the graph,Q represents quantity and P represents price.
Refer to Figure 9-16.The deadweight loss created by the tariff is represented by the area

A)B.
B)D + F.
C)D + E + F.
D)B + D + E + F.

Question 34

Figure 9-15
Refer to Figure 9-15.For the saddle market,area E represents

A)government's revenue from the tariff.
B)producer surplus after the tariff becomes effective.
C)the decrease in consumer surplus,relative to the free-trade situation,as a result of the tariff.
D)the decrease in total surplus,relative to the free-trade situation,as a result of the tariff.

Question 35

A quota is

A)a tax placed on imports.
B)a limit on the quantity of imports.
C)a tax on exports to other countries.
D)an excess of exports over imports.

Question 36

Figure 9-16.The figure below illustrates a tariff.On the graph,Q represents quantity and P represents price.
Refer to Figure 9-16.The tariff

A)decreases producer surplus by the area C,decreases consumer surplus by the area C + D + E,and decreases total surplus by the area D + F.
B)increases producer surplus by the area C,decreases consumer surplus by the area C + D + E + F,and decreases total surplus by the area D + F.
C)creates government revenue represented by the area B + E and decreases total surplus by the area D + E + F.
D)increases producer surplus by the area C + G and creates government revenue represented by the area D + E + F.

Question 37

Domestic producers of a good become worse off,and domestic consumers of a good become better off,when a country begins allowing international trade in that good and

A)the country becomes an importer of the good as a result.
B)the world price exceeds the domestic price of the good that prevailed before international trade was allowed.
C)the country in question has a comparative advantage,relative to other countries,in producing the good.
D)total surplus does not change as a result.

Question 38

Suppose a certain country imposes a tariff on a good.Which of the following results of the tariff is possible?

A)Consumer surplus decreases by $100; producer surplus increases by $100; and government revenue from the tariff amounts to $50.
B)Consumer surplus decreases by $200; producer surplus increases by $100; and government revenue from the tariff amounts to $50.
C)Consumer surplus increases by $100; producer surplus decreases by $200; and government revenue from the tariff amounts to $50.
D)Consumer surplus decreases by $50; producer surplus increases by $200; and government revenue from the tariff amounts to $150.

Question 39

Domestic producers of a good become better off,and domestic consumers of a good become worse off,when a country begins allowing international trade in that good and

A)the country becomes an importer of the good as a result.
B)the world price exceeds the domestic price of the good that prevailed before international trade was allowed.
C)other countries have a comparative advantage,relative to the country in question,in producing the good.
D)total surplus does not change as a result.

Question 40

Some goods can be produced at low cost only if they are produced in large quantities.This phenomenon is called

A)marginal cost of production.
B)marginal benefit of size.
C)economies of scale.
D)economies of production.

Question 41

Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.

Question 42

For a small country called Boxland, the equation of the domestic demand curve for cardboard is
$$Q ^ { D } = 200 - 2 P$$
where $$Q ^ { D }$$ represents the domestic quantity of cardboard demanded, in tons, and represents the price of a ton of cardboard.
For Boxland, the equation of the domestic supply curve for cardboard is
$$Q ^ { S } = - 60 + 3 P$$
where $$Q ^ { S }$$ represents the domestic quantity of cardboard supplied, in tons, and again represents the price of a ton of cardboard.

-Refer to Scenario 9-2.Suppose the world price of cardboard is 45 dollars.Then,if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard,

A)domestic producers of cardboard become better off and domestic consumers of cardboard become better off.
B)domestic producers of cardboard become better off and domestic consumers of cardboard become worse off.
C)domestic producers of cardboard become worse off and domestic consumers of cardboard become better off.
D)domestic producers of cardboard become worse off and domestic consumers of cardboard become worse off.

Question 43

The world price of cotton is the highest price of cotton observed anywhere in the world.

Question 44

"Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers." This statement is correct for a nation that exports manufactured goods,but it is not correct for a nation that imports manufactured goods.

Question 45

Which of the following is the most accurate statement?

A)The one argument for restricting trade that almost all economists accept as valid is the infant-industry argument.
B)Almost all economists insist that it is never appropriate to protect "key" industries,even when there are legitimate concerns about national security.
C)The idea that one nation might want to threaten another nation with a trade restriction is associated with the protection-as-a-bargaining-chip argument for restricting trade.
D)The protection-as-a-bargaining-chip argument for restricting trade is also known as the infant-industry argument.

Question 46

The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive from participating in a market.

Question 47

If a country's domestic price of a good is lower than the world price,then that country has a comparative advantage in producing that good.

Question 48

Deadweight loss measures the decrease in total surplus that results from a tariff or quota.

Question 49

Economists view the fact that Florida grows oranges,Texas pumps oil,and California makes wine as

A)confirmation of the virtues of free trade.
B)confirmation of the infant-industry argument.
C)confirmation that free trade agreements are not necessary.
D)confirmation that specialization in absolute advantage works.

Question 50

The General Agreement on Tariffs and Trade (GATT)was initiated in response to

A)in increase in exports of low-priced goods from developing countries to developed countries.
B)the replacement of manufacturing jobs with service jobs in developed countries.
C)economic dislocations caused by the North American Free Trade Agreement (NAFTA)in the 1990s.
D)high tariffs imposed during the Great Depression of the 1930s.

Question 51

Which of the following arguments for trade restrictions is often advanced?

A)Trade restrictions make all Americans better off.
B)Trade restrictions increase economic efficiency.
C)Trade restrictions are necessary for economic growth.
D)Trade restrictions are sometimes necessary for national security.

Question 52

A possible outcome of the multilateral approach to free trade is that such an approach can

A)win political support when a unilateral approach cannot.
B)result in more restricted trade than under a unilateral approach,when international negotiations fail.
C)result in drastic reductions in tariffs for many countries.
D)All of the above are correct.

Question 53

If a tariff is placed on watches,the price of both domestic and imported watches will rise by the amount of the tariff.

Question 54

The history of the textile industry raises important questions for economic policy.

Question 55

For a small country called Boxland, the equation of the domestic demand curve for cardboard is
$$Q ^ { D } = 200 - 2 P$$
where $$Q ^ { D }$$ represents the domestic quantity of cardboard demanded, in tons, and represents the price of a ton of cardboard.
For Boxland, the equation of the domestic supply curve for cardboard is
$$Q ^ { S } = - 60 + 3 P$$
where $$Q ^ { S }$$ represents the domestic quantity of cardboard supplied, in tons, and again represents the price of a ton of cardboard.

-Refer to Scenario 9-2.Suppose the world price of cardboard is 60 dollars.Then,if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard,

A)domestic producers of cardboard become better off and domestic consumers of cardboard become better off.
B)domestic producers of cardboard become better off and domestic consumers of cardboard become worse off.
C)domestic producers of cardboard become worse off and domestic consumers of cardboard become better off.
D)domestic producers of cardboard become worse off and domestic consumers of cardboard become worse off.

Question 56

"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

A)national-security argument.
B)infant-industry argument.
C)unfair-competition argument.
D)jobs argument.

Question 57

For a small country called Boxland, the equation of the domestic demand curve for cardboard is
$$Q ^ { D } = 200 - 2 P$$
where $$Q ^ { D }$$ represents the domestic quantity of cardboard demanded, in tons, and represents the price of a ton of cardboard.
For Boxland, the equation of the domestic supply curve for cardboard is
$$Q ^ { S } = - 60 + 3 P$$
where $$Q ^ { S }$$ represents the domestic quantity of cardboard supplied, in tons, and again represents the price of a ton of cardboard.

-Refer to Scenario 9-2.If Boxland prohibits international trade in cardboard,then the equilibrium price of a ton of cardboard is

A)36 dollars and the equilibrium quantity of cardboard is 74 tons.
B)44 dollars and the equilibrium quantity of cardboard is 88 tons.
C)52 dollars and the equilibrium quantity of cardboard is 96 tons.
D)60 dollars and the equilibrium quantity of cardboard is 100 tons.

Question 58

When a country abandons no-trade policies in favor of free-trade policies and becomes an importer of steel,then the domestic price of steel will increase as a result.

Question 59

Countries that restrict foreign trade are likely to

A)forgo the additional surplus that trade allows,but will probably enjoy economies of scale.
B)forgo the additional surplus that trade allows,but will be compensated by a higher rate of technological change.
C)forgo the additional surplus that trade allows,but will have a lower rate of unemployment.
D)have more firms with domestic market power.

Question 60

According to the principle of comparative advantage,all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

Question 61

Free trade allows firms to realize economies of scale,resulting in higher costs of production.

Question 62

How does an import quota differ from an equivalent tariff?

Question 63

For a given country,comparing the world price of aluminum and the domestic price of aluminum before trade indicates whether that country's demand for aluminum exceeds the demand for aluminum in other countries.

Question 64

A multilateral approach to free trade has greater potential to increase the gains from trade than a unilateral approach,because the multilateral approach can reduce trade restrictions abroad as well as at home.

Question 65

Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

Question 66

Characterize the two different approaches a nation can take to achieve free trade.Does one approach have an advantage over the other?

Question 67

What are the arguments in favor of trade restrictions,and what are the counterarguments?
According to most economists,do any of these arguments really justify trade restrictions?
Explain.

Question 68

If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices,the Swedish economy would be worse off.