Question 1

An area that has no trade barriers between the countries in the area is called a

Accepted Answer

A) customs union. 
B) free trade area. 
C) duty-free area. 
D) tariff-free area. 
E) quota-free area. 
A) customs union. 
B) free trade area. 
C) duty-free area. 
D) tariff-free area. 
E) quota-free area.

Question 2

If country A has a lower opportunity cost of producing cars than country B, then country A has

Accepted Answer

A) a comparative advantage in car production and country B has an absolute advantage in car production. 
B) an absolute advantage in car production. 
C) a comparative advantage in car production. 
D) an absolute and a comparative advantage in car production. 
E) no reason to trade with country B. 
A) a comparative advantage in car production and country B has an absolute advantage in car production. 
B) an absolute advantage in car production. 
C) a comparative advantage in car production. 
D) an absolute and a comparative advantage in car production. 
E) no reason to trade with country B.

Question 3

Consider an industry in which, for each individual firm in the industry, cost per unit of output declines as the individual firm's output increases. If there is an increase in the number of firms in this industry whereas the market size stays the same, then the

Accepted Answer

A) marginal cost at each firm decreases because each firm produces more. 
B) average total cost at each firm increases because each firm produces less. 
C) marginal cost at each firm increases because each firm produces more. 
D) average total cost at each firm decreases because each firm produces more. 
E) average total cost at each firm decreases because each firm produces less. 
A) marginal cost at each firm decreases because each firm produces more. 
B) average total cost at each firm increases because each firm produces less. 
C) marginal cost at each firm increases because each firm produces more. 
D) average total cost at each firm decreases because each firm produces more. 
E) average total cost at each firm decreases because each firm produces less.

Question 4

Production that uses a relatively low level of capital per worker is called

Accepted Answer

A) labor abundant. 
B) capital abundant. 
C) labor intensive. 
D) capital intensive. 
E) capital deepened. 
A) labor abundant. 
B) capital abundant. 
C) labor intensive. 
D) capital intensive. 
E) capital deepened.

Question 5

The effect the Smoot-Hawley tariff had on international trade was small.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 29-1  
-According to the data in Exhibit 29-1, which of the following statements is true?

Accepted Answer

A) Chinese workers cannot gain from trade with India. 
B) Labor productivity in both goods is higher in India than in China. 
C) Wages will be higher in India than in China. 
D) Labor productivity in both goods is higher in China than in India. 
E) Labor productivity in the production of good A is higher in India than in China. 
A) Chinese workers cannot gain from trade with India. 
B) Labor productivity in both goods is higher in India than in China. 
C) Wages will be higher in India than in China. 
D) Labor productivity in both goods is higher in China than in India. 
E) Labor productivity in the production of good A is higher in India than in China.

Question 7

Exhibit 29-2  
-According to the data in Exhibit 29-2, the relative price of computers and rice for Korea is

Accepted Answer

A) 1/2 computer per unit of rice. 
B) 2 computers per unit of rice. 
C) 3 computers per 2 units of rice. 
D) 3/2 computers per unit of rice. 
E) 2/3 computer per unit of rice. 
A) 1/2 computer per unit of rice. 
B) 2 computers per unit of rice. 
C) 3 computers per 2 units of rice. 
D) 3/2 computers per unit of rice. 
E) 2/3 computer per unit of rice.

Question 8

A free trade area with a common external tariff is called a(n)

Accepted Answer

A) quota-free area. 
B) customs union. 
C) duty-free area. 
D) tariff-free union. 
E) economic union. 
A) quota-free area. 
B) customs union. 
C) duty-free area. 
D) tariff-free union. 
E) economic union.

Question 9

Exhibit 29-3  
-Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Japan takes 10 workers out of rice production, puts the 10 workers in computer production, and sells the resulting computers to Korea in exchange for rice, the net gain from trade for Japan is

Accepted Answer

A) 20 units of rice. 
B) 3 units of rice. 
C) 50 units of rice. 
D) 30 units of rice. 
E) 5 units of rice. 
A) 20 units of rice. 
B) 3 units of rice. 
C) 50 units of rice. 
D) 30 units of rice. 
E) 5 units of rice.

Question 10

Exhibit 29-1  
-According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good B in China is

Accepted Answer

A) 3 units of good A. 
B) 1/3 unit of good A. 
C) 2 units of good A. 
D) 1/2 unit of good A. 
E) 10 units of good A. 
A) 3 units of good A. 
B) 1/3 unit of good A. 
C) 2 units of good A. 
D) 1/2 unit of good A. 
E) 10 units of good A.

Question 11

Was the rationale for the North American Free Trade Agreement (NAFTA) based solely on the concept of comparative advantage? Explain.

Accepted Answer

No. According to the Economics in Action

Question 12

Using the price/cost per unit analysis diagram presented in this section, show how a free trade agreement between countries with identical technology and resources can lead to gains from trade.

Accepted Answer

As shown in the diagram below, the trade

Question 13

What determines a country's comparative advantage?

Accepted Answer

Differences in climate and natural resou

Question 14

Simultaneous tariff reduction on the part of many countries is called

Accepted Answer

A) regional trading areas. 
B) multilateral negotiations. 
C) bilateral negotiations. 
D) unilateral disarmament. 
E) the political economy approach. 
A) regional trading areas. 
B) multilateral negotiations. 
C) bilateral negotiations. 
D) unilateral disarmament. 
E) the political economy approach.

Question 15

The cost to consumers of imposing antidumping duties on steel has been up to more than $700,000 per job protected.

Accepted Answer

A) True 
 B)False

Question 16

A country is willing to export a positive quantity of a good if the quantity demanded domestically at the world price is greater than the quantity produced at the world price.

Accepted Answer

A) True 
 B)False

Question 17

If a country's opportunity costs increase when it trades one product for another,

Accepted Answer

A) the country will stop trading in that product. 
B) the country will have a linear production possibilities curve. 
C) complete specialization can still occur but only in the product in which the country does not have a comparative advantage. 
D) the country will specialize completely in the product in which it has a comparative advantage. 
E) complete specialization does not occur. 
A) the country will stop trading in that product. 
B) the country will have a linear production possibilities curve. 
C) complete specialization can still occur but only in the product in which the country does not have a comparative advantage. 
D) the country will specialize completely in the product in which it has a comparative advantage. 
E) complete specialization does not occur.

Question 18

Exhibit 29-1  
-According to the data in Exhibit 29-1, China has a(n)

Accepted Answer

A) comparative advantage in both goods. 
B) comparative advantage in good B. 
C) absolute advantage in good A but not in good B. 
D) comparative advantage in good A. 
E) comparative advantage in neither good. 
A) comparative advantage in both goods. 
B) comparative advantage in good B. 
C) absolute advantage in good A but not in good B. 
D) comparative advantage in good A. 
E) comparative advantage in neither good.

Question 19

It takes Gail two hours to mow the lawn and one hour to clean up the house on weekends. It takes Gail's husband two hours to clean up the house. Gail's husband is responsible for cleaning up the house. Use the concept of comparative advantage to explain why.

Accepted Answer

Gail's husband must be much sl

Question 20

Suppose the Russian government decides it needs to protect its aircraft industry for reasons of national security. Name two ways it can achieve this goal. Which policy would you recommend? Why?

Accepted Answer

The Russian government can subsidize its

Exam 29: International Trade

An area that has no trade barriers between the countries in the area is called a

If country A has a lower opportunity cost of producing cars than country B, then country A has

Consider an industry in which, for each individual firm in the industry, cost per unit of output declines as the individual firm's output increases. If there is an increase in the number of firms in this industry whereas the market size stays the same, then the

Production that uses a relatively low level of capital per worker is called

The effect the Smoot-Hawley tariff had on international trade was small.

Exhibit 29-1 -According to the data in Exhibit 29-1, which of the following statements is true?

Exhibit 29-2 -According to the data in Exhibit 29-2, the relative price of computers and rice for Korea is

A free trade area with a common external tariff is called a(n)

Exhibit 29-1 -According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good B in China is

Was the rationale for the North American Free Trade Agreement (NAFTA) based solely on the concept of comparative advantage? Explain.

Using the price/cost per unit analysis diagram presented in this section, show how a free trade agreement between countries with identical technology and resources can lead to gains from trade.

What determines a country's comparative advantage?

Simultaneous tariff reduction on the part of many countries is called

The cost to consumers of imposing antidumping duties on steel has been up to more than $700,000 per job protected.

A country is willing to export a positive quantity of a good if the quantity demanded domestically at the world price is greater than the quantity produced at the world price.

If a country's opportunity costs increase when it trades one product for another,

Exhibit 29-1 -According to the data in Exhibit 29-1, China has a(n)

It takes Gail two hours to mow the lawn and one hour to clean up the house on weekends. It takes Gail's husband two hours to clean up the house. Gail's husband is responsible for cleaning up the house. Use the concept of comparative advantage to explain why.

Suppose the Russian government decides it needs to protect its aircraft industry for reasons of national security. Name two ways it can achieve this goal. Which policy would you recommend? Why?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Finance

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