Question 1

The North American Free Trade Agreement

Accepted Answer

A) is an example of the unilateral approach to free trade. 
B) eliminated tariffs on imports to North America from the rest of the world. 
C) reduced trade restrictions among Canada, Mexico and the United States. 
D) All of the above are correct. 
A) is an example of the unilateral approach to free trade. 
B) eliminated tariffs on imports to North America from the rest of the world. 
C) reduced trade restrictions among Canada, Mexico and the United States. 
D) All of the above are correct. C

Question 2

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

Accepted Answer

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

Question 3

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.

Accepted Answer

Arguments mentioned in the text include the jobs argument, the national security argument, the infant industry argument, the unfair competition argument, and the protection-as-a-bargaining-chip argument. These arguments and counter-arguments are outlined in section 9-3 of the text. Most economists would dismiss the jobs argument, the infant industry argument, and the unfair competition argument on strictly economic grounds. The bargaining-chip argument carries high risks of economic harm if the threat doesn't work. The national-security argument balances economic loss from trade restriction against the benefit of long-term national survival, and is probably the argument that economists would most likely buy if it were clear that the industry being protected was clearly crucial to national security.

Question 4

​There are only increases in total surplus when a country exports a good, since more units of the country's output of that good are produced.

Accepted Answer

A) True 
 B)False

Question 5

Figure 9-18. On the diagram below, Q represents the quantity of peaches and P represents the price of peaches. The domestic country is Isoland.  
-Refer to Figure 9-18. If Isoland allows international trade, then it will be an exporter of peaches if and only if the world price of peaches is

Accepted Answer

A) above $2. 
B) below $4. 
C) above $4. 
D) below $7. 
A) above $2. 
B) below $4. 
C) above $4. 
D) below $7.

Question 6

Figure 9-29
The following diagram shows the domestic demand and domestic supply curves in a market. Assume that the world price in this market is $1 per unit.  
-Refer to Figure 9-29. Suppose the country imposes a $1 per unit tariff. If the country allows trade with a tariff, how many units will be imported?

Accepted Answer

With trade and a tar

Question 7

Figure 9-25
The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $10 per unit.  
-Refer to Figure 9-25. With free trade and a $5 per unit tariff, the country

Accepted Answer

A) exports 20 units of the good. 
B) imports 20 units of the good. 
C) exports 40 units of the good. 
D) imports 40 units of the good. 
A) exports 20 units of the good. 
B) imports 20 units of the good. 
C) exports 40 units of the good. 
D) imports 40 units of the good.

Question 8

Figure 9-5
The figure illustrates the market for tricycles in a country.  
-Refer to Figure 9-5. If this country allows free trade in tricycles,

Accepted Answer

A) consumers will gain more than producers will lose. 
B) producers will gain more than consumers will lose. 
C) producers and consumers will both gain equally. 
D) producers and consumers will both lose equally. 
A) consumers will gain more than producers will lose. 
B) producers will gain more than consumers will lose. 
C) producers and consumers will both gain equally. 
D) producers and consumers will both lose equally.

Question 9

Figure 9-5
The figure illustrates the market for tricycles in a country.  
-Refer to Figure 9-5. With trade, consumer surplus is

Accepted Answer

A) $3,240. 
B) $6,480. 
C) $6,760. 
D) $13,520. 
A) $3,240. 
B) $6,480. 
C) $6,760. 
D) $13,520.

Question 10

The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an

Accepted Answer

A) importer of fish and the price of fish in Germany will be $6.00. 
B) importer of fish and the price of fish in Germany will be $8.00. 
C) exporter of fish and the price of fish in Germany will be $6.00. 
D) exporter of fish and the price of fish in Germany will be $8.00. 
A) importer of fish and the price of fish in Germany will be $6.00. 
B) importer of fish and the price of fish in Germany will be $8.00. 
C) exporter of fish and the price of fish in Germany will be $6.00. 
D) exporter of fish and the price of fish in Germany will be $8.00.

Question 11

Figure 9-23
The following diagram shows the domestic demand and domestic supply for a market. Assume that the world price in this market is $120 per unit.  
-Refer to Figure 9-23. Producer surplus with free trade is

Accepted Answer

A) $200. 
B) $450. 
C) $630. 
D) $1,080 
A) $200. 
B) $450. 
C) $630. 
D) $1,080

Question 12

Figure 9-7. The figure applies to the nation of Wales and the good is cheese.  
-Refer to Figure 9-7. Which of the following is a valid equation for Welsh consumer surplus with trade?

Accepted Answer

A) Consumer surplus with trade = (1/2)(Q0)(P1 - P0). 
B) Consumer surplus with trade = (1/2)(Q0)(P3 - P0). 
C) Consumer surplus with trade = (1/2)(Q1)(P3 - P1). 
D) None of the above is correct. 
A) Consumer surplus with trade = (1/2)(Q0)(P1 - P0). 
B) Consumer surplus with trade = (1/2)(Q0)(P3 - P0). 
C) Consumer surplus with trade = (1/2)(Q1)(P3 - P1). 
D) None of the above is correct.

Question 13

Figure 9-22
The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit.  
-When a country allows trade and becomes an importer of jet skis,

Accepted Answer

A) domestic producers of jet skis are worse off, domestic consumers of jet skis are better off, and the economic well-being of the country rises. 
B) domestic producers of jet skis are worse off, domestic consumers of jet skis are better off, and the economic well-being of the country falls. 
C) domestic producers of jet skis are better off, domestic consumers of jet skis are worse off, and the economic well-being of the country rises. 
D) domestic producers of jet skis are better off, domestic consumers of jet skis are worse off, and the economic well-being of the country falls. 
A) domestic producers of jet skis are worse off, domestic consumers of jet skis are better off, and the economic well-being of the country rises. 
B) domestic producers of jet skis are worse off, domestic consumers of jet skis are better off, and the economic well-being of the country falls. 
C) domestic producers of jet skis are better off, domestic consumers of jet skis are worse off, and the economic well-being of the country rises. 
D) domestic producers of jet skis are better off, domestic consumers of jet skis are worse off, and the economic well-being of the country falls.

Question 14

Economists view free trade as a way to raise living standards both at home and abroad.

Accepted Answer

A) True 
 B)False

Question 15

An import quota

Accepted Answer

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. 
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 16

When a country takes a multilateral approach to free trade, it

Accepted Answer

A) removes trade restrictions on its own. 
B) reduces its trade restrictions while other countries do the same. 
C) does not remove trade restrictions no matter what other countries do. 
D) is willing to trade with multiple countries at once. 
A) removes trade restrictions on its own. 
B) reduces its trade restrictions while other countries do the same. 
C) does not remove trade restrictions no matter what other countries do. 
D) is willing to trade with multiple countries at once.

Question 17

Trade among nations is ultimately based on

Accepted Answer

A) absolute advantage. 
B) strategic advantage. 
C) comparative advantage. 
D) technical advantage. 
A) absolute advantage. 
B) strategic advantage. 
C) comparative advantage. 
D) technical advantage.

Question 18

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that

Accepted Answer

A) foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding. 
B) foreign competition may cause unemployment in import-competing industries, but the increase in consumer surplus due to free trade is more valuable than the lost jobs. 
C) the critics are correct, so countries must protect their industries with tariffs or quotas. 
D) foreign competition may cause unemployment in import-competing industries, but the increase in the variety of goods consumers can choose from is more valuable than the lost jobs. 
A) foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding. 
B) foreign competition may cause unemployment in import-competing industries, but the increase in consumer surplus due to free trade is more valuable than the lost jobs. 
C) the critics are correct, so countries must protect their industries with tariffs or quotas. 
D) foreign competition may cause unemployment in import-competing industries, but the increase in the variety of goods consumers can choose from is more valuable than the lost jobs.

Question 19

The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced by an international body called the World Trade Organization (WTO).

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

Exam 9: Application: International Trade

The North American Free Trade Agreement

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

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.

​There are only increases in total surplus when a country exports a good, since more units of the country's output of that good are produced.

Figure 9-18. On the diagram below, Q represents the quantity of peaches and P represents the price of peaches. The domestic country is Isoland. -Refer to Figure 9-18. If Isoland allows international trade, then it will be an exporter of peaches if and only if the world price of peaches is

Figure 9-25 The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $10 per unit. -Refer to Figure 9-25. With free trade and a $5 per unit tariff, the country

Figure 9-5 The figure illustrates the market for tricycles in a country. -Refer to Figure 9-5. If this country allows free trade in tricycles,

Figure 9-5 The figure illustrates the market for tricycles in a country. -Refer to Figure 9-5. With trade, consumer surplus is

The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an

Figure 9-23 The following diagram shows the domestic demand and domestic supply for a market. Assume that the world price in this market is $120 per unit. -Refer to Figure 9-23. Producer surplus with free trade is

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. Which of the following is a valid equation for Welsh consumer surplus with trade?

Figure 9-22 The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. -When a country allows trade and becomes an importer of jet skis,

Economists view free trade as a way to raise living standards both at home and abroad.

An import quota

When a country takes a multilateral approach to free trade, it

Trade among nations is ultimately based on

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs. An economist would argue that

The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced by an international body called the World Trade Organization (WTO).

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Filters

There are only increases in total surplus when a country exports a good, since more units of the country's output of that good are produced.