Question 1

A $\underline {\text { static }}$ welfare effect resulting from the formation of the European Union would be:

Accepted Answer

A)  Economies of scale 
B)  Trade diversion 
C)  Investment incentives 
D)  Increased competition 
A)  Economies of scale 
B)  Trade diversion 
C)  Investment incentives 
D)  Increased competition

Question 2

Suppose that Canada has domestic firms that could supply its entire market for radios at a price of $50, while U.S. firms could supply radios at $40 and Mexico at $30. Suppose that Canada initially has a 50 percent tariff on imports of radios and then forms a free trade area with the United States. As a result, Canada realizes:

Accepted Answer

A)  Trade creation, no trade diversion, and overall welfare gains 
B)  Trade creation, no trade diversion, and overall welfare losses 
C)  Trade diversion, no trade creation, and potential overall welfare losses 
D)  Trade diversion, trade creation, and potential overall welfare gains 
A)  Trade creation, no trade diversion, and overall welfare gains 
B)  Trade creation, no trade diversion, and overall welfare losses 
C)  Trade diversion, no trade creation, and potential overall welfare losses 
D)  Trade diversion, trade creation, and potential overall welfare gains

Question 3

By the mid-1990s, the European Union had essentially achieved the common market stage of economic integration.

Accepted Answer

A) True 
 B)False

Question 4

Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SS1U1B1GS1U1B0 and DS1U1B1GS1U1B0. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit.
Figure 8.1. Effects of a Customs Union
  
-Consider Figure 8.1. Suppose Greece had formed a customs union with Germany, rather than France. The value of the trade diversion effect would be:

Accepted Answer

A)  Zero 
B)  $5 
C)  $10 
D)  $15 
A)  Zero 
B)  $5 
C)  $10 
D)  $15

Question 5

Which economic integration scheme is solely intended to abolish trade restrictions among member countries, while setting up common tariffs against nonmembers?

Accepted Answer

A)  Economic union 
B)  Common market 
C)  Free trade area 
D)  Customs union 
A)  Economic union 
B)  Common market 
C)  Free trade area 
D)  Customs union

Question 6

Trade creation tends to more than offset trade diversion for a home country forming a customs union with partner countries when: (1) the tariff rate in the home country is high prior to the formation of the customs union; (2) there are a large number of countries forming the customs union.

Accepted Answer

A) True 
 B)False

Question 7

When Mexico became a part of NAFTA, along with Canada and the United States, it:

Accepted Answer

A)  Eliminated tariffs against Canada and the United States but maintained them against nonmembers 
B)  Eliminated tariffs against Canada, the United States, and all nonmember countries 
C)  Increased tariffs against Canada the United States, and all nonmember countries 
D)  Increased tariffs against Canada and the United States, but did not change them against nonmember countries 
A)  Eliminated tariffs against Canada and the United States but maintained them against nonmembers 
B)  Eliminated tariffs against Canada, the United States, and all nonmember countries 
C)  Increased tariffs against Canada the United States, and all nonmember countries 
D)  Increased tariffs against Canada and the United States, but did not change them against nonmember countries

Question 8

A main $\underline {  \text { disadvantage }  }$ of the European Monetary Union is that:

Accepted Answer

A)  Each member country loses the use of monetary policy as to tool to combat recession 
B)  There is a high degree of labor mobility among the member countries 
C)  Prices are highly flexible in response to changing economic conditions 
D)  Wages are highly flexible in response to changing economic conditions 
A)  Each member country loses the use of monetary policy as to tool to combat recession 
B)  There is a high degree of labor mobility among the member countries 
C)  Prices are highly flexible in response to changing economic conditions 
D)  Wages are highly flexible in response to changing economic conditions

Question 9

NAFTA is a:

Accepted Answer

A)  Monetary union 
B)  Free trade area 
C)  Common market 
D)  Customs union 
A)  Monetary union 
B)  Free trade area 
C)  Common market 
D)  Customs union

Question 10

By 1992 the European Union had become a full-fledged:

Accepted Answer

A)  Economic union 
B)  Monetary union 
C)  Common market 
D)  Fiscal union 
A)  Economic union 
B)  Monetary union 
C)  Common market 
D)  Fiscal union

Question 11

Figure 8.1 depicts the supply and demand schedules of calculators for Greece, a "small" country that is unable to affect the world price. Greece's supply and demand schedules of calculators are respectively depicted by SS1U1B1GS1U1B0 and DS1U1B1GS1U1B0. Assume that Greece imports calculators from either Germany or France. Suppose Germany is the world's low-cost producer who can supply calculators to Greece at $20 per unit, while France can supply calculators at $30 per unit.
Figure 8.1. Effects of a Customs Union
  
-Consider Figure 8.1. The value of the trade creation effect, resulting from the Greece/France customs union, equals:

Accepted Answer

A)  $5 
B)  $10 
C)  $15 
D)  $20 
A)  $5 
B)  $10 
C)  $15 
D)  $20

Question 12

The Maastricht Treaty of 1991 established a blueprint for economic union and monetary union for European Union members.

Accepted Answer

A) True 
 B)False

Question 13

Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world?

Accepted Answer

A)  Domestic content regulations 
B)  Variable import levies 
C)  Voluntary export quotas 
D)  Orderly marketing agreements 
A)  Domestic content regulations 
B)  Variable import levies 
C)  Voluntary export quotas 
D)  Orderly marketing agreements

Question 14

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest cost world producer.

Accepted Answer

A)  Trade diversion occurs 
B)  Trade creation occurs 
C)  World welfare rises 
D)  World welfare falls to zero 
A)  Trade diversion occurs 
B)  Trade creation occurs 
C)  World welfare rises 
D)  World welfare falls to zero

Question 15

In the former Soviet Union, major manufacturing firms were typically:

Accepted Answer

A)  Owned and operated by employee labor unions 
B)  Owned and operated by the government 
C)  Privately owned, but operated by the government 
D)  Publically owned, but operated by the private sector 
A)  Owned and operated by employee labor unions 
B)  Owned and operated by the government 
C)  Privately owned, but operated by the government 
D)  Publically owned, but operated by the private sector

Question 16

A common market

Accepted Answer

A)  Allows the imposition of common external trade barriers against non-members 
B)  Represents less economic integration than a free trade area 
C)  Does not permit free movement of goods among member nations 
D)  Does not allow free movement of factors of production among nations 
A)  Allows the imposition of common external trade barriers against non-members 
B)  Represents less economic integration than a free trade area 
C)  Does not permit free movement of goods among member nations 
D)  Does not allow free movement of factors of production among nations

Question 17

World welfare under a customs union

Accepted Answer

A)  Increases due to a trade creation effect 
B)  Decreases due to a trade diversion effect 
C)  Depends on the relative strength of the trade creation effect and the trade diversion effect 
D)  All of the above 
A)  Increases due to a trade creation effect 
B)  Decreases due to a trade diversion effect 
C)  Depends on the relative strength of the trade creation effect and the trade diversion effect 
D)  All of the above

Question 18

Government procurement liberalization permits a country to realize cost savings resulting from the trade effect, competition effect, and economies-of-scale effect.

Accepted Answer

A) True 
 B)False

Question 19

Suppose that Canada has domestic firms that could supply its entire market for radios at a price of $50, while U.S. firms could supply radios at $40 and Mexico at $30. Suppose that Canada initially has a 50 percent tariff on imports of radios and then forms a free trade area with Mexico. As a result, Canada realizes:

Accepted Answer

A)  Trade creation, no trade diversion, and overall welfare gains 
B)  Trade creation, no trade diversion, and overall welfare losses 
C)  Trade diversion, no trade creation, and potential overall welfare losses 
D)  Trade diversion, trade creation, and potential overall welfare gains 
A)  Trade creation, no trade diversion, and overall welfare gains 
B)  Trade creation, no trade diversion, and overall welfare losses 
C)  Trade diversion, no trade creation, and potential overall welfare losses 
D)  Trade diversion, trade creation, and potential overall welfare gains

Question 20

The transition of the former communist countries to market economies would likely result in:

Accepted Answer

A)  The implementation of price ceilings 
B)  The implementation of price floors 
C)  Price inflation 
D)  Price deflation 
A)  The implementation of price ceilings 
B)  The implementation of price floors 
C)  Price inflation 
D)  Price deflation

A $\underline {\text { static }}$ welfare effect resulting from the formation of the European Union would be:

By the mid-1990s, the European Union had essentially achieved the common market stage of economic integration.

Which economic integration scheme is solely intended to abolish trade restrictions among member countries, while setting up common tariffs against nonmembers?

Trade creation tends to more than offset trade diversion for a home country forming a customs union with partner countries when: (1) the tariff rate in the home country is high prior to the formation of the customs union; (2) there are a large number of countries forming the customs union.

When Mexico became a part of NAFTA, along with Canada and the United States, it:

A main $\underline { \text { disadvantage } }$ of the European Monetary Union is that:

NAFTA is a:

By 1992 the European Union had become a full-fledged:

The Maastricht Treaty of 1991 established a blueprint for economic union and monetary union for European Union members.

Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world?

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest cost world producer.

In the former Soviet Union, major manufacturing firms were typically:

A common market

World welfare under a customs union

Government procurement liberalization permits a country to realize cost savings resulting from the trade effect, competition effect, and economies-of-scale effect.

The transition of the former communist countries to market economies would likely result in:

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

Exam 8: Regional Trading Arrangements

A static ‾\underline {\text { static }} static ​ welfare effect resulting from the formation of the European Union would be:

By the mid-1990s, the European Union had essentially achieved the common market stage of economic integration.

Which economic integration scheme is solely intended to abolish trade restrictions among member countries, while setting up common tariffs against nonmembers?

Trade creation tends to more than offset trade diversion for a home country forming a customs union with partner countries when: (1) the tariff rate in the home country is high prior to the formation of the customs union; (2) there are a large number of countries forming the customs union.

When Mexico became a part of NAFTA, along with Canada and the United States, it:

A main disadvantage ‾\underline { \text { disadvantage } } disadvantage ​ of the European Monetary Union is that:

NAFTA is a:

By 1992 the European Union had become a full-fledged:

The Maastricht Treaty of 1991 established a blueprint for economic union and monetary union for European Union members.

Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world?

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest cost world producer.

In the former Soviet Union, major manufacturing firms were typically:

A common market

World welfare under a customs union

Government procurement liberalization permits a country to realize cost savings resulting from the trade effect, competition effect, and economies-of-scale effect.

The transition of the former communist countries to market economies would likely result in:

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

A $\underline {\text { static }}$ welfare effect resulting from the formation of the European Union would be:

A main $\underline { \text { disadvantage } }$ of the European Monetary Union is that: