Question 1

Trade adjustment assistance in the United States began in 1962. The program

Accepted Answer

A)  was designed to provide assistance to firms or workers who suffer idle facilities, unprofitability, and unemployment because of sharp increases in imports. 
B)  provided little assistance to victims of free trade before the 1970s. 
C)  was enlarged and worker benefits were extended in 1981 by the Reagan administration. 
D)  All of the above are correct. 
A)  was designed to provide assistance to firms or workers who suffer idle facilities, unprofitability, and unemployment because of sharp increases in imports. 
B)  provided little assistance to victims of free trade before the 1970s. 
C)  was enlarged and worker benefits were extended in 1981 by the Reagan administration. 
D)  All of the above are correct.

Question 2

If two countries each are currently producing two goods, and each begins to specialize in the good in which it has a comparative advantage, what will happen to total (world) output?

Accepted Answer

A)  It will increase. 
B)  It will decrease. 
C)  It will be unchanged in both countries. 
D)  It will rise in one country and fall in the other, but the total is unchanged. 
E)  Uncertain; economic theory has no answer to this question. 
A)  It will increase. 
B)  It will decrease. 
C)  It will be unchanged in both countries. 
D)  It will rise in one country and fall in the other, but the total is unchanged. 
E)  Uncertain; economic theory has no answer to this question.

Question 3

If every country uses tariffs, everyone is likely to lose.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that with 1 unit of labor, Canada can produce 40 TVs or 20 computers. With 1 unit of labor, Taiwan can produce 30 TVs or 10 computers. Which of the following is correct?

Accepted Answer

A)  Taiwan has a comparative advantage in the production of computers. 
B)  Canada has an absolute advantage in the production of neither good. 
C)  Canada has a comparative advantage in the production of computers. 
D)  Taiwan has an absolute advantage in the production of computers. 
E)  Taiwan has an absolute advantage in the production of TVs. 
A)  Taiwan has a comparative advantage in the production of computers. 
B)  Canada has an absolute advantage in the production of neither good. 
C)  Canada has a comparative advantage in the production of computers. 
D)  Taiwan has an absolute advantage in the production of computers. 
E)  Taiwan has an absolute advantage in the production of TVs.

Question 5

Why is comparative advantage rather than absolute advantage the basis for trade?

Accepted Answer

The concept of comparative advantage emp

Question 6

Nothing raises the standard of living more than a greater

Accepted Answer

A)  abundance of goods. 
B)  effort of production. 
C)  population. 
D)  number of import tariffs. 
E)  All of the above are true. 
A)  abundance of goods. 
B)  effort of production. 
C)  population. 
D)  number of import tariffs. 
E)  All of the above are true.

Question 7

"I oppose a free trade agreement with Mexico because American workers will lose jobs to low-paid Mexican workers." Explain whether you agree or disagree with this statement.

Accepted Answer

Low-paid workers may also be low-product

Question 8

The supply-demand mechanism will bring an international market into equilibrium

Accepted Answer

A)  at a price below the domestic price. 
B)  where domestic supplies are less than domestic demand. 
C)  with one nation's price higher than the other nation's price. 
D)  when the quantity demanded for exports is equal to quantity supplied. 
A)  at a price below the domestic price. 
B)  where domestic supplies are less than domestic demand. 
C)  with one nation's price higher than the other nation's price. 
D)  when the quantity demanded for exports is equal to quantity supplied.

Question 9

Suppose the South had won the Civil War, and trade no longer took place between Northern and Southern states. Explain whether the sum of the North and South GDPs would have been higher or lower than with the current United States.

Accepted Answer

North and South added together would hav

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

Equilibrium price in international trade is the common price between exporting and importing countries.

Accepted Answer

A) True 
 B)False

Question 12

A country has an absolute advantage over another in the production of widgets if it can produce

Accepted Answer

A)  widgets using smaller quantities of resources than can the other country. 
B)  more widgets than can the other country. 
C)  widgets more efficiently than can the other country. 
D)  widgets at a lower opportunity cost than can the other country. 
A)  widgets using smaller quantities of resources than can the other country. 
B)  more widgets than can the other country. 
C)  widgets more efficiently than can the other country. 
D)  widgets at a lower opportunity cost than can the other country.

Question 13

If a country begins to import more of a commodity, one can normally expect the price of the commodity to

Accepted Answer

A)  remain unchanged in that nation. 
B)  rise and then fall below where it was originally. 
C)  rise in that nation. 
D)  drop in that nation. 
A)  remain unchanged in that nation. 
B)  rise and then fall below where it was originally. 
C)  rise in that nation. 
D)  drop in that nation.

Question 14

As a result of pure free trade in a commodity, the

Accepted Answer

A)  price of the commodity must be the same in all countries. 
B)  total quantity imported will exceed the total quantity exported. 
C)  price of the commodity will be higher in the producing country. 
D)  price of the commodity will be lower in the producing country. 
A)  price of the commodity must be the same in all countries. 
B)  total quantity imported will exceed the total quantity exported. 
C)  price of the commodity will be higher in the producing country. 
D)  price of the commodity will be lower in the producing country.

Question 15

How can tariffs lead to a situation in which all parties to a trade lose?

Accepted Answer

In effect, a tariff amounts to governmen

Question 16

A country's comparative advantage can be illustrated by the graph of the production possibilities frontier.

Accepted Answer

A) True 
 B)False

Question 17

David Ricardo discovered that two countries can still gain by trading even if one country is more efficient in the production of every commodity. Ricardo's discovery is called the law of

Accepted Answer

A)  comparative advantage. 
B)  absolute advantage. 
C)  compensating balances. 
D)  increasing returns. 
A)  comparative advantage. 
B)  absolute advantage. 
C)  compensating balances. 
D)  increasing returns.

Question 18

Figure 34-2
 
In Figure 34-2, if the United States and Mexico are negotiating to trade wheat for petroleum,

Accepted Answer

A)  the United States must receive more than 1 2/3 units of petroleum for a unit of wheat. 
B)  Mexico must receive more than 1 2/3 units of petroleum for a unit of wheat. 
C)  the limits of the agreement are between 1 unit of wheat for 2/3 unit of petroleum for the United States and 1 unit of wheat for 1 1/2 units of petroleum for Mexico. 
D)  if the agreement is formalized at 1 unit of wheat for 1 unit of petroleum, then Mexico will benefit from the trade but the United States will not. 
A)  the United States must receive more than 1 2/3 units of petroleum for a unit of wheat. 
B)  Mexico must receive more than 1 2/3 units of petroleum for a unit of wheat. 
C)  the limits of the agreement are between 1 unit of wheat for 2/3 unit of petroleum for the United States and 1 unit of wheat for 1 1/2 units of petroleum for Mexico. 
D)  if the agreement is formalized at 1 unit of wheat for 1 unit of petroleum, then Mexico will benefit from the trade but the United States will not.

Question 19

Among the impediments to the international mobility of capital are

Accepted Answer

A)  restrictions on foreign ownership. 
B)  fear of nationalization or political instability. 
C)  fluctuations in exchange rates. 
D)  All of the above are correct. 
A)  restrictions on foreign ownership. 
B)  fear of nationalization or political instability. 
C)  fluctuations in exchange rates. 
D)  All of the above are correct.

Question 20

A tariff has one distinct advantage over a quota. It increases tax revenues to the government.

Accepted Answer

A) True 
 B)False

Exam 34: International Trade and Comparative Advantage

Trade adjustment assistance in the United States began in 1962. The program

If two countries each are currently producing two goods, and each begins to specialize in the good in which it has a comparative advantage, what will happen to total (world) output?

If every country uses tariffs, everyone is likely to lose.

Suppose that with 1 unit of labor, Canada can produce 40 TVs or 20 computers. With 1 unit of labor, Taiwan can produce 30 TVs or 10 computers. Which of the following is correct?

Why is comparative advantage rather than absolute advantage the basis for trade?

Nothing raises the standard of living more than a greater

"I oppose a free trade agreement with Mexico because American workers will lose jobs to low-paid Mexican workers." Explain whether you agree or disagree with this statement.

The supply-demand mechanism will bring an international market into equilibrium

Suppose the South had won the Civil War, and trade no longer took place between Northern and Southern states. Explain whether the sum of the North and South GDPs would have been higher or lower than with the current United States.

A tariff is better than a quota because

Equilibrium price in international trade is the common price between exporting and importing countries.

A country has an absolute advantage over another in the production of widgets if it can produce

If a country begins to import more of a commodity, one can normally expect the price of the commodity to

As a result of pure free trade in a commodity, the

How can tariffs lead to a situation in which all parties to a trade lose?

A country's comparative advantage can be illustrated by the graph of the production possibilities frontier.

David Ricardo discovered that two countries can still gain by trading even if one country is more efficient in the production of every commodity. Ricardo's discovery is called the law of

Figure 34-2 In Figure 34-2, if the United States and Mexico are negotiating to trade wheat for petroleum,

Among the impediments to the international mobility of capital are

A tariff has one distinct advantage over a quota. It increases tax revenues to the government.

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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

Contemporary Issues in the Us Economy

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