Question 1

The effect of opening trade between countries is

Accepted Answer

A)  living standards rise in the country with efficient, high-pay workers. 
B)  both countries can exploit comparative advantage and increase productivity. 
C)  total world production increases as both countries specialize in specific goods. 
D)  All of the above are correct. 
A)  living standards rise in the country with efficient, high-pay workers. 
B)  both countries can exploit comparative advantage and increase productivity. 
C)  total world production increases as both countries specialize in specific goods. 
D)  All of the above are correct.

Question 2

If gains from trade are based solely on comparative advantage, and if all countries have the same opportunity costs of production, then there are no gains from trade.

Accepted Answer

A) True 
 B)False

Question 3

In the long run, foreign labor remains cheap when and if

Accepted Answer

A)  it becomes highly efficient and competes successfully internationally. 
B)  countries erect barriers to trade between poor countries. 
C)  productivity increases more rapidly in poor countries than in rich countries. 
D)  it remains inefficient compared to other countries' labor. 
A)  it becomes highly efficient and competes successfully internationally. 
B)  countries erect barriers to trade between poor countries. 
C)  productivity increases more rapidly in poor countries than in rich countries. 
D)  it remains inefficient compared to other countries' labor.

Question 4

If England uses one week's time to produce 10 yards of cloth or 2 barrels of wine and Portugal uses one week's time to produce 12 yards of cloth or 6 barrels of wine, England has the comparative advantage in both goods.

Accepted Answer

A) True 
 B)False

Question 5

In William Safire's 1983 essay, "Smoot-Hawley Lives," he argues that the United States should

Accepted Answer

A)  threaten retaliation if trading partners practice protectionism. 
B)  pursue a unilateral free trade policy regardless of what others do. 
C)  limit government's role in the economy. 
A)  threaten retaliation if trading partners practice protectionism. 
B)  pursue a unilateral free trade policy regardless of what others do. 
C)  limit government's role in the economy.

Question 6

If a country's productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage.

Accepted Answer

A) True 
 B)False

Question 7

Are there impediments to international movement of labor and capital?

Accepted Answer

A)  Yes, but they apply to labor only; capital mobility is almost completely free. 
B)  Yes, although these apply to capital, and not to labor. 
C)  Yes, there are significant (often prohibitive) restrictions on labor and capital mobility. 
D)  No, these have been removed with the passage of recent trade legislation. 
A)  Yes, but they apply to labor only; capital mobility is almost completely free. 
B)  Yes, although these apply to capital, and not to labor. 
C)  Yes, there are significant (often prohibitive) restrictions on labor and capital mobility. 
D)  No, these have been removed with the passage of recent trade legislation.

Question 8

A tariff is a tax on imports imposed by the country that is importing the goods.

Accepted Answer

A) True 
 B)False

Question 9

An example of a quota that protects an American industry is the quota on

Accepted Answer

A)  tourists entering the country. 
B)  sugar imports. 
C)  sales of oil products to foreign countries. 
D)  purchases of military hardware to foreign dictators. 
E)  All of the above are examples of protective quotas. 
A)  tourists entering the country. 
B)  sugar imports. 
C)  sales of oil products to foreign countries. 
D)  purchases of military hardware to foreign dictators. 
E)  All of the above are examples of protective quotas.

Question 10

Figure 34-2
 
In Figure 34-2,

Accepted Answer

A)  the opportunity cost of 1 unit of wheat in the United States is a 2/3 unit of petroleum. 
B)  the opportunity cost of 1 unit of wheat in Mexico is a 2/3 unit of petroleum. 
C)  the opportunity cost of wheat is higher in the United States than it is in Mexico. 
D)  the United States has a comparative advantage over Mexico in the production of petroleum. 
A)  the opportunity cost of 1 unit of wheat in the United States is a 2/3 unit of petroleum. 
B)  the opportunity cost of 1 unit of wheat in Mexico is a 2/3 unit of petroleum. 
C)  the opportunity cost of wheat is higher in the United States than it is in Mexico. 
D)  the United States has a comparative advantage over Mexico in the production of petroleum.

Question 11

Figure 34-9
 
In Figure 34-9, at price OC

Accepted Answer

A)  quantity supplied of pasta exceeds quantity demanded so price will fall. 
B)  quantity demanded for pasta exceeds quantity supplied so price will rise. 
C)  exports of pasta equal XY. 
D)  imports of pasta equal XY. 
A)  quantity supplied of pasta exceeds quantity demanded so price will fall. 
B)  quantity demanded for pasta exceeds quantity supplied so price will rise. 
C)  exports of pasta equal XY. 
D)  imports of pasta equal XY.

Question 12

If producers have different opportunity costs of production, trade will allow them to consume outside their production possibility frontiers.

Accepted Answer

A) True 
 B)False

Question 13

The world price of a commodity will settle at the level where

Accepted Answer

A)  supply and demand are equal within each country. 
B)  the excess demand of the importing country is equal to the excess supply of the exporting country. 
C)  the excess demand in the exporting country is equal to the excess demand in the importing country. 
D)  there is no excess demand in the exporting country. 
A)  supply and demand are equal within each country. 
B)  the excess demand of the importing country is equal to the excess supply of the exporting country. 
C)  the excess demand in the exporting country is equal to the excess demand in the importing country. 
D)  there is no excess demand in the exporting country.

Question 14

Carefully define the following terms and explain their importance to the study of economics. 
a. Specialization 
b. Absolute advantage 
c. Comparative advantage 
d. Quota 
e. Trade adjustment assistance

Accepted Answer

a. Specialization means that a country d

Question 15

Figure 34-3
 
In Figure 34-3, the solid lines represent the respective production possibilities curves for the United States and Mexico. Which graphs show the correct consumption possibilities curves (dashed lines) after an agreement is reached to trade 1 unit of wheat for 1 unit of petroleum?

Accepted Answer

A)  (1) and (4) 
B)  (1) and (2) 
C)  (2) and (3) 
D)  (3) and (4) 
A)  (1) and (4) 
B)  (1) and (2) 
C)  (2) and (3) 
D)  (3) and (4)

Question 16

What is an export subsidy? Discuss some of the recent examples where such subsidies were controversial.

Accepted Answer

An export subsidy is a government paymen

Question 17

Table 34-1   From Table 34-1, 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 18

The United States is known worldwide as being a low-tariff nation.

Accepted Answer

A) True 
 B)False

Question 19

Suppose a country's workers can produce 4 watches per hour or 16 rings per hour. If there is no trade

Accepted Answer

A)  domestic price of 1 ring is 1/4th of a watch. 
B)  domestic price of 1 ring is 4 watches. 
C)  domestic price of 1 ring is 5 watches. 
D)  all of these. 
A)  domestic price of 1 ring is 1/4th of a watch. 
B)  domestic price of 1 ring is 4 watches. 
C)  domestic price of 1 ring is 5 watches. 
D)  all of these.

Question 20

When can a country gain a price advantage on imports by imposing a tariff?

Accepted Answer

A)  When it is the largest country with absolute advantage in all goods 
B)  When it has a comparative advantage in the production of all goods 
C)  When it can do so without other countries retaliating with tariffs 
D)  When trade agreements prohibit quotas but permit tariffs 
A)  When it is the largest country with absolute advantage in all goods 
B)  When it has a comparative advantage in the production of all goods 
C)  When it can do so without other countries retaliating with tariffs 
D)  When trade agreements prohibit quotas but permit tariffs

Exam 34: International Trade and Comparative Advantage

The effect of opening trade between countries is

If gains from trade are based solely on comparative advantage, and if all countries have the same opportunity costs of production, then there are no gains from trade.

In the long run, foreign labor remains cheap when and if

If England uses one week's time to produce 10 yards of cloth or 2 barrels of wine and Portugal uses one week's time to produce 12 yards of cloth or 6 barrels of wine, England has the comparative advantage in both goods.

In William Safire's 1983 essay, "Smoot-Hawley Lives," he argues that the United States should

If a country's productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage.

Are there impediments to international movement of labor and capital?

A tariff is a tax on imports imposed by the country that is importing the goods.

An example of a quota that protects an American industry is the quota on

Figure 34-2 In Figure 34-2,

Figure 34-9 In Figure 34-9, at price OC

If producers have different opportunity costs of production, trade will allow them to consume outside their production possibility frontiers.

The world price of a commodity will settle at the level where

Carefully define the following terms and explain their importance to the study of economics. a. Specialization b. Absolute advantage c. Comparative advantage d. Quota e. Trade adjustment assistance

Figure 34-3 In Figure 34-3, the solid lines represent the respective production possibilities curves for the United States and Mexico. Which graphs show the correct consumption possibilities curves (dashed lines) after an agreement is reached to trade 1 unit of wheat for 1 unit of petroleum?

What is an export subsidy? Discuss some of the recent examples where such subsidies were controversial.

Table 34-1 From Table 34-1, the opportunity cost of one bushel of wheat in Great Britain is

The United States is known worldwide as being a low-tariff nation.

Suppose a country's workers can produce 4 watches per hour or 16 rings per hour. If there is no trade

When can a country gain a price advantage on imports by imposing a tariff?

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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