Question 1

When a country fixes the price of foreign exchange (in terms of the domestic currency) below equilibrium, which of the following will result?

Accepted Answer

A)  A black market will develop for foreign exchange. 
B)  Residents of that country can buy as much foreign currency as they want. 
C)  There will be a surplus of foreign exchange. 
D)  A depreciation of the currency will restore equilibrium in the foreign exchange market. 
A)  A black market will develop for foreign exchange. 
B)  Residents of that country can buy as much foreign currency as they want. 
C)  There will be a surplus of foreign exchange. 
D)  A depreciation of the currency will restore equilibrium in the foreign exchange market.

Question 2

Which of the following is a partially valid economic argument for restricting free trade?

Accepted Answer

A)  Restrictions on foreign trade will increase employment and permanently reduce unemployment. 
B)  Infant industries may need temporary protection to develop and gain productive efficiency. 
C)  A nation needs to protect its national defense; hence, it should restrict some products that threaten an industry considered vital to its defense. 
D)  Both b and c are correct. 
A)  Restrictions on foreign trade will increase employment and permanently reduce unemployment. 
B)  Infant industries may need temporary protection to develop and gain productive efficiency. 
C)  A nation needs to protect its national defense; hence, it should restrict some products that threaten an industry considered vital to its defense. 
D)  Both b and c are correct.

Question 3

Figure 17-13   In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, how much tariff revenue will the United States government collect?

Accepted Answer

A)  $4,000 
B)  $16,000 
C)  $20,000 
D)  $24,000 
E)  $48,000 
A)  $4,000 
B)  $16,000 
C)  $20,000 
D)  $24,000 
E)  $48,000

Question 4

When a country allows trade and becomes an importer of steel,

Accepted Answer

A)  the losses of the domestic producers of steel exceed the gains of the domestic consumers of steel. 
B)  the losses of the domestic consumers of steel exceed the gains of the domestic producers of steel. 
C)  the gains of the domestic producers of steel exceed the losses of the domestic consumers of steel. 
D)  the gains of the domestic consumers of steel exceed the losses of the domestic producers of steel. 
A)  the losses of the domestic producers of steel exceed the gains of the domestic consumers of steel. 
B)  the losses of the domestic consumers of steel exceed the gains of the domestic producers of steel. 
C)  the gains of the domestic producers of steel exceed the losses of the domestic consumers of steel. 
D)  the gains of the domestic consumers of steel exceed the losses of the domestic producers of steel.

Question 5

As the result of specialization and trade, according to the law of comparative advantage, total output will

Accepted Answer

A)  decline because specialization is costly. 
B)  rise only when there is an accompanying decline in the total output of one's trading partners. 
C)  rise if a nation is a net exporter and fall if the nation is a net importer of goods and services. 
D)  increase since resources will be better directed toward their highest-valued use. 
A)  decline because specialization is costly. 
B)  rise only when there is an accompanying decline in the total output of one's trading partners. 
C)  rise if a nation is a net exporter and fall if the nation is a net importer of goods and services. 
D)  increase since resources will be better directed toward their highest-valued use.

Question 6

Nevada is the low opportunity cost producer of computer software, and California is low opportunity cost producer of wine. Which of the following is true?

Accepted Answer

A)  Nevada has no comparative advantage over California in the production of wine or computer software. 
B)  Nevada has a comparative advantage in producing wine 
C)  Nevada has a comparative advantage in producing software. 
D)  Nevada has a comparative advantage in producing both wine and software. 
A)  Nevada has no comparative advantage over California in the production of wine or computer software. 
B)  Nevada has a comparative advantage in producing wine 
C)  Nevada has a comparative advantage in producing software. 
D)  Nevada has a comparative advantage in producing both wine and software.

Question 7

Suppose the lowest-wage state in the United States is West Virginia and the highest-wage state is New York. Which of the following would be true?

Accepted Answer

A)  If New York trades with West Virginia, consumers in New York will be worse off. 
B)  If New York trades with West Virginia, wages in New York will fall until they equal the wages in West Virginia. 
C)  New York would be better off if its state government imposed restrictions on the importation of goods made in West Virginia. 
D)  Both New York and West Virginia will be better off if they are allowed to trade freely. 
A)  If New York trades with West Virginia, consumers in New York will be worse off. 
B)  If New York trades with West Virginia, wages in New York will fall until they equal the wages in West Virginia. 
C)  New York would be better off if its state government imposed restrictions on the importation of goods made in West Virginia. 
D)  Both New York and West Virginia will be better off if they are allowed to trade freely.

Question 8

What is the difference between a tariff and a quota?

Accepted Answer

A tariff is a tax imposed by a

Question 9

The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. Figure 17-11
  Refer to Figure 17-11. The deadweight loss created by the tariff is represented by the area

Accepted Answer

A)  B. 
B)  D + F. 
C)  D + E + F. 
D)  B + D + E + F. 
A)  B. 
B)  D + F. 
C)  D + E + F. 
D)  B + D + E + F.

Question 10

The theory of comparative advantage suggests that nations should produce a good if they

Accepted Answer

A)  have the lowest opportunity cost. 
B)  have the lowest wages. 
C)  have the most resources. 
D)  can produce more of the good than any other nation. 
A)  have the lowest opportunity cost. 
B)  have the lowest wages. 
C)  have the most resources. 
D)  can produce more of the good than any other nation.

Question 11

Figure 17-2     In Figure 17-2, in the absence of trade, the domestic price of shoes is Pn. Since many foreign countries have a comparative advantage in the production of shoes, when the United States begins to trade, the domestic price will fall to the world price. When this happens, what does the quantity Qc through Qp represent?

Accepted Answer

A)  the quantity of shoes that the United States imports 
B)  an increase in the world consumption of shoes 
C)  the quantity of shoes that the United States exports 
D)  a reduction in the world consumption of shoes 
A)  the quantity of shoes that the United States imports 
B)  an increase in the world consumption of shoes 
C)  the quantity of shoes that the United States exports 
D)  a reduction in the world consumption of shoes

Question 12

Figure 17-8   Refer to Figure 17-8. If this country allows free trade in wagons,

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 13

Public choice theory indicates that tariffs, quotas, and other trade restrictions are primarily the result of the

Accepted Answer

A)  political clout of foreigners. 
B)  political clout of domestic consumers. 
C)  political power of the special interest groups. 
D)  attractiveness of sound economic policies to elected political officials. 
A)  political clout of foreigners. 
B)  political clout of domestic consumers. 
C)  political power of the special interest groups. 
D)  attractiveness of sound economic policies to elected political officials.

Question 14

The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. Figure 17-11
  Refer to Figure 17-11. The tariff

Accepted Answer

A)  decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F. 
B)  decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F. 
C)  increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F. 
D)  increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F. 
A)  decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F. 
B)  decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F. 
C)  increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F. 
D)  increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F.

Question 15

A major difference between a tariff and a quota is that a tariff

Accepted Answer

A)  will reduce imports, but a quota generally will not. 
B)  can easily be rescinded, but a quota cannot. 
C)  will reduce the ability of foreigners to obtain the purchasing power to buy a nation's export goods, but a quota will not affect the foreign demand for the nation's exports. 
D)  typically generates tax revenue, while a quota does not. 
A)  will reduce imports, but a quota generally will not. 
B)  can easily be rescinded, but a quota cannot. 
C)  will reduce the ability of foreigners to obtain the purchasing power to buy a nation's export goods, but a quota will not affect the foreign demand for the nation's exports. 
D)  typically generates tax revenue, while a quota does not.

Question 16

Compared to the no-trade situation, if the United States imports video games,

Accepted Answer

A)  the price of video games will decline in the domestic market. 
B)  domestic video game producers will be able to charge higher prices. 
C)  domestic video game producers will expand both output and employment. 
D)  U.S. consumers will be harmed. 
A)  the price of video games will decline in the domestic market. 
B)  domestic video game producers will be able to charge higher prices. 
C)  domestic video game producers will expand both output and employment. 
D)  U.S. consumers will be harmed.

Question 17

The United States is the world's leading grain-producing nation. Exporting U.S. grain causes the

Accepted Answer

A)  domestic consumption of grain to rise because of the added foreign demand. 
B)  price of grain in the domestic market to fall because foreigners are now taking some of the domestic demand. 
C)  price of grain to domestic consumers to rise because of the added foreign demand. 
D)  standard of living of foreigners to fall because they lose purchasing power. 
A)  domestic consumption of grain to rise because of the added foreign demand. 
B)  price of grain in the domestic market to fall because foreigners are now taking some of the domestic demand. 
C)  price of grain to domestic consumers to rise because of the added foreign demand. 
D)  standard of living of foreigners to fall because they lose purchasing power.

Question 18

For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?

Accepted Answer

A)  The opportunity cost of producing watches is higher in Denmark. 
B)  The opportunity cost of producing cheese is higher in Denmark. 
C)  The opportunity cost of producing cheese is identical in both countries. 
D)  It is impossible to compare opportunity costs because the two countries use different currencies. 
E)  In both countries combined, the opportunity cost of one watch is 150 pounds of cheese. 
A)  The opportunity cost of producing watches is higher in Denmark. 
B)  The opportunity cost of producing cheese is higher in Denmark. 
C)  The opportunity cost of producing cheese is identical in both countries. 
D)  It is impossible to compare opportunity costs because the two countries use different currencies. 
E)  In both countries combined, the opportunity cost of one watch is 150 pounds of cheese.

Question 19

Opening trade between a nation that has "cheap labor" and one that has "expensive labor" will

Accepted Answer

A)  lower the standard of living in both countries. 
B)  raise the standard of living in both countries. 
C)  raise the standard of living in the "expensive labor" country and lower the standard of living in the "cheap labor" country. 
D)  raise the standard of living in the "cheap labor" country and lower the standard of living in the "expensive labor" country. 
A)  lower the standard of living in both countries. 
B)  raise the standard of living in both countries. 
C)  raise the standard of living in the "expensive labor" country and lower the standard of living in the "cheap labor" country. 
D)  raise the standard of living in the "cheap labor" country and lower the standard of living in the "expensive labor" country.

Question 20

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

Accepted Answer

A)  The domestic price of automobiles would fall. 
B)  The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise. 
C)  The number of unemployed workers in the domestic automobile industry would rise. 
D)  The demand for foreign-produced automobiles would increase, causing the price of automobiles to increase in other nations. 
A)  The domestic price of automobiles would fall. 
B)  The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise. 
C)  The number of unemployed workers in the domestic automobile industry would rise. 
D)  The demand for foreign-produced automobiles would increase, causing the price of automobiles to increase in other nations.

When a country fixes the price of foreign exchange (in terms of the domestic currency) below equilibrium, which of the following will result?

Which of the following is a partially valid economic argument for restricting free trade?

Figure 17-13 In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, how much tariff revenue will the United States government collect?

When a country allows trade and becomes an importer of steel,

As the result of specialization and trade, according to the law of comparative advantage, total output will

Nevada is the low opportunity cost producer of computer software, and California is low opportunity cost producer of wine. Which of the following is true?

Suppose the lowest-wage state in the United States is West Virginia and the highest-wage state is New York. Which of the following would be true?

What is the difference between a tariff and a quota?

The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. Figure 17-11 Refer to Figure 17-11. The deadweight loss created by the tariff is represented by the area

The theory of comparative advantage suggests that nations should produce a good if they

Figure 17-8 Refer to Figure 17-8. If this country allows free trade in wagons,

Public choice theory indicates that tariffs, quotas, and other trade restrictions are primarily the result of the

The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. Figure 17-11 Refer to Figure 17-11. The tariff

A major difference between a tariff and a quota is that a tariff

Compared to the no-trade situation, if the United States imports video games,

The United States is the world's leading grain-producing nation. Exporting U.S. grain causes the

For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?

Opening trade between a nation that has "cheap labor" and one that has "expensive labor" will

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 18: Gaining From International Trade

When a country fixes the price of foreign exchange (in terms of the domestic currency) below equilibrium, which of the following will result?

Which of the following is a partially valid economic argument for restricting free trade?

Figure 17-13 In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, how much tariff revenue will the United States government collect?

When a country allows trade and becomes an importer of steel,

As the result of specialization and trade, according to the law of comparative advantage, total output will

Nevada is the low opportunity cost producer of computer software, and California is low opportunity cost producer of wine. Which of the following is true?

Suppose the lowest-wage state in the United States is West Virginia and the highest-wage state is New York. Which of the following would be true?

What is the difference between a tariff and a quota?

The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. Figure 17-11 Refer to Figure 17-11. The deadweight loss created by the tariff is represented by the area

The theory of comparative advantage suggests that nations should produce a good if they

Figure 17-8 Refer to Figure 17-8. If this country allows free trade in wagons,

Public choice theory indicates that tariffs, quotas, and other trade restrictions are primarily the result of the

The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. Figure 17-11 Refer to Figure 17-11. The tariff

A major difference between a tariff and a quota is that a tariff

Compared to the no-trade situation, if the United States imports video games,

The United States is the world's leading grain-producing nation. Exporting U.S. grain causes the

For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?

Opening trade between a nation that has "cheap labor" and one that has "expensive labor" will

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

International Finance and the Foreign Exchange Market

Special Topics

Filters