Question 1

A quota reduces quantity sold by operating through the demand side of the market.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following observations is true of the principle of comparative advantage?

Accepted Answer

A)  It arises from the absolute cost advantage. 
B)  It helps determine most efficient patterns of production. 
C)  It was advanced by Adam Smith. 
D)  It means producing a good using smaller quantities of resources than others. 
A)  It arises from the absolute cost advantage. 
B)  It helps determine most efficient patterns of production. 
C)  It was advanced by Adam Smith. 
D)  It means producing a good using smaller quantities of resources than others.

Question 3

The estimated cost of automobile jobs saved due to limitations on foreign autos is $105,000 per job.Why is there a cost to saving jobs through protectionism?

Accepted Answer

When foreign cars are limited, consumers

Question 4

William Safire argues that a unilateral free trade policy is a disaster if

Accepted Answer

A)  the governments of the nations' trading partners practice "helpfulism." 
B)  infant industries are allowed to expire. 
C)  the national defense is endangered. 
D)  it hurts the poor. 
A)  the governments of the nations' trading partners practice "helpfulism." 
B)  infant industries are allowed to expire. 
C)  the national defense is endangered. 
D)  it hurts the poor.

Question 5

Table 18-1
 $\begin{array}{r}
\text { Alternate Outputs from One Day's Labor Input }\
\begin{array}{lll}
& \text { Wheat } \quad\quad\quad\quad&& \text { Textiles } \quad\quad\quad\quad\
\hline \text { United States } \
 \text { (One person's/day's labor) } \quad\quad\quad& \text {12 bushels   } & \text { or  } & \text {3 yards  } \
\
 \text { Great Britain } \
 \text { (One person's/day's labor) } & \text { 3 bushels } & \text { or } & \text {12 yards  } \
\end{array}
\end{array}$

-From Table 18-1, the opportunity cost of one bushel of wheat in Great Britain is

Accepted Answer

A)  1/4 yard of textiles. 
B)  3 yards of textiles. 
C)  12 yards of textiles. 
D)  4 yards of textiles. 
A)  1/4 yard of textiles. 
B)  3 yards of textiles. 
C)  12 yards of textiles. 
D)  4 yards of textiles.

Question 6

If a nation does not have an absolute advantage in producing anything, it

Accepted Answer

A)  has no comparative advantage either. 
B)  will have a comparative advantage in the activity in which it is least inefficient. 
C)  will try to get along without trade. 
D)  will export raw materials and import finished products. 
A)  has no comparative advantage either. 
B)  will have a comparative advantage in the activity in which it is least inefficient. 
C)  will try to get along without trade. 
D)  will export raw materials and import finished products.

Question 7

Is it possible for a country to have an absolute disadvantage and a comparative advantage in the production of a good?

Accepted Answer

A)  No, these are incompatible on theoretical grounds. 
B)  No, theory prevents it, but some economists claim it could occur. 
C)  Yes, this situation can occur. 
D)  Yes, in theory, although not in reality. 
A)  No, these are incompatible on theoretical grounds. 
B)  No, theory prevents it, but some economists claim it could occur. 
C)  Yes, this situation can occur. 
D)  Yes, in theory, although not in reality.

Question 8

Strategic trade policy relies on threats of protectionism to protect free trade.

Accepted Answer

A) True 
 B)False

Question 9

Figure 18-6
  
-From Figure 18-6, one can infer that

Accepted Answer

A)  Honduras will be willing to trade bananas for corn at a unit ratio of no less than 2 corn:1 banana. 
B)  Honduras will be willing to trade bananas as long as the unit exchange ratio is greater than 1/2 corn:1 banana. 
C)  Honduras has no potential to gain from trade. 
D)  Honduras will be unwilling to trade at an exchange ratio. 
A)  Honduras will be willing to trade bananas for corn at a unit ratio of no less than 2 corn:1 banana. 
B)  Honduras will be willing to trade bananas as long as the unit exchange ratio is greater than 1/2 corn:1 banana. 
C)  Honduras has no potential to gain from trade. 
D)  Honduras will be unwilling to trade at an exchange ratio.

Question 10

A tariff is better than a quota because

Accepted Answer

A)  it does not distort trade as much. 
B)  quotas are inflexible. 
C)  tariffs produce tax revenue. 
D)  quotas hurt domestic producers; tariffs hurt foreign producers. 
A)  it does not distort trade as much. 
B)  quotas are inflexible. 
C)  tariffs produce tax revenue. 
D)  quotas hurt domestic producers; tariffs hurt foreign producers.

Question 11

A quota sets the maximum amount of a good that is permitted into a country.

Accepted Answer

A) True 
 B)False

Question 12

One of the major reasons why nations trade is that

Accepted Answer

A)  nations choose to trade for largely unknown reasons. 
B)  resources are not equally distributed across the planet. 
C)  nations wish to exert cultural influence abroad. 
D)  nations wish to copy others, and need imports to study. 
A)  nations choose to trade for largely unknown reasons. 
B)  resources are not equally distributed across the planet. 
C)  nations wish to exert cultural influence abroad. 
D)  nations wish to copy others, and need imports to study.

Question 13

Which of the following statements regarding the cheap foreign labor argument is correct?

Accepted Answer

A)  If there is an abrupt change in foreign competition that severely penalizes American workers, the U.S.government should immediately adopt protectionist measures. 
B)  In the long run, labor will be cheap (wages are low) in those nations where labor is most productive. 
C)  If workers in other countries are willing to supply their products with little compensation, this must ultimately raise the standard of living of the average American worker. 
D)  American workers can never suffer from foreign competition since our monetary and fiscal policies always produce high employment at home. 
A)  If there is an abrupt change in foreign competition that severely penalizes American workers, the U.S.government should immediately adopt protectionist measures. 
B)  In the long run, labor will be cheap (wages are low) in those nations where labor is most productive. 
C)  If workers in other countries are willing to supply their products with little compensation, this must ultimately raise the standard of living of the average American worker. 
D)  American workers can never suffer from foreign competition since our monetary and fiscal policies always produce high employment at home.

Question 14

Quotas increase the profits of importers but decrease the profits of exporters.

Accepted Answer

A) True 
 B)False

Question 15

Quebec is capable of producing 10 pallets of wood shingles or 8 barrels of maple syrup with a unit of labor.Vermont is capable of producing 12 pallets of wood shingles or 12 barrels of maple syrup with a unit of labor.Assume that this is typical of the labor force as a whole.Which location has the absolute advantage and which has the comparative advantage, in the production of each good? Can these locations reap gains from trade?

Accepted Answer

From the numbers given, Vermont has the

Question 16

Table 18-3
 $\begin{array}{r}
\text { Output Per Unit Labor Input }\
\begin{array}{lcc}
& \underline {\text { Cotton }}& \underline {\text { Wheat}}\
\text {  Egypt} \quad\quad\quad& \quad \quad20\quad\quad &  \quad\quad24\quad\quad \
\text { United States } & \quad \quad2\quad\quad &\quad\quad 12\quad\quad  \
\end{array}
\end{array}$

-The data in Table 18-3 indicate that the United States has

Accepted Answer

A)  an absolute advantage in both goods, and a comparative advantage in cotton. 
B)  an absolute advantage in both goods, and a comparative advantage in wheat. 
C)  only a comparative advantage in wheat. 
D)  only a comparative advantage in cotton. 
A)  an absolute advantage in both goods, and a comparative advantage in cotton. 
B)  an absolute advantage in both goods, and a comparative advantage in wheat. 
C)  only a comparative advantage in wheat. 
D)  only a comparative advantage in cotton.

Question 17

Quebec is capable of producing 10,000 pallets of wood shingles or 8,000 barrels of maple syrup.Vermont is capable of producing 12,000 pallets of wood shingles or 12,000 barrels of maple syrup.
a.Graph these production possibilities curves.Indicate from the slope, which has the absolute advantage, which the comparative advantage, and whether there are gains from trade.
b.Assume that Vermont and Quebec each specializes in the good in which they have a comparative advantage.Suppose that Vermont and Quebec decide to trade 5,000 pallets of shingles for 5,000 barrels of syrup.Indicate this on the graph.How does this affect the well being of the two societies? Explain.

Accepted Answer

Figure 18-11
 @#IMG-DLM& 
a.See Figure 18-11.Quebe

Question 18

Capital, labor, and other factors of production move more freely from country to country than they do within a country.

Accepted Answer

A) True 
 B)False

Question 19

In the past, when the United States enjoyed a continuing trade surplus, wages in the United States

Accepted Answer

A)  were much lower than wages in countries that imported U.S.products. 
B)  were much higher than wages in countries that imported U.S.products. 
C)  were roughly the same as wages in countries that imported U.S.products. 
D)  fell throughout that period, enabling the continuing trade surplus. 
E)  rose throughout that period, ending the trade surplus. 
A)  were much lower than wages in countries that imported U.S.products. 
B)  were much higher than wages in countries that imported U.S.products. 
C)  were roughly the same as wages in countries that imported U.S.products. 
D)  fell throughout that period, enabling the continuing trade surplus. 
E)  rose throughout that period, ending the trade surplus.

Question 20

An upward spiral of protectionism is a possible outcome of strategic trade policy.

Accepted Answer

A) True 
 B)False

Exam 35: International Trade and Comparative Advantage

A quota reduces quantity sold by operating through the demand side of the market.

Which of the following observations is true of the principle of comparative advantage?

The estimated cost of automobile jobs saved due to limitations on foreign autos is $105,000 per job.Why is there a cost to saving jobs through protectionism?

William Safire argues that a unilateral free trade policy is a disaster if

Table 18-1 Alternate Outputs from One Day's Labor Input Wheat Textiles United States (One person's/day's labor) 12 bushels or 3 yards Great Britain (One person's/day's labor) 3 bushels or 12 yards -From Table 18-1, the opportunity cost of one bushel of wheat in Great Britain is

If a nation does not have an absolute advantage in producing anything, it

Is it possible for a country to have an absolute disadvantage and a comparative advantage in the production of a good?

Strategic trade policy relies on threats of protectionism to protect free trade.

Figure 18-6 -From Figure 18-6, one can infer that

A tariff is better than a quota because

A quota sets the maximum amount of a good that is permitted into a country.

One of the major reasons why nations trade is that

Which of the following statements regarding the cheap foreign labor argument is correct?

Quotas increase the profits of importers but decrease the profits of exporters.

Table 18-3 Output Per Unit Labor Input Egypt 20 24 United States 2 12 -The data in Table 18-3 indicate that the United States has

Capital, labor, and other factors of production move more freely from country to country than they do within a country.

In the past, when the United States enjoyed a continuing trade surplus, wages in the United States

An upward spiral of protectionism is a possible outcome of strategic trade policy.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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