Question 1

Which of the following will cause an inward shift of the production possibilities curve of an economy?

Accepted Answer

A)  A decrease in the demand for goods and services 
B)  The introduction of better technology 
C)  A decline in the size of the labor force 
D)  An increase in the opportunity cost of the goods being produced 
A)  A decrease in the demand for goods and services 
B)  The introduction of better technology 
C)  A decline in the size of the labor force 
D)  An increase in the opportunity cost of the goods being produced

Question 2

A machine can manufacture 1 unit of Good X in 2 hours and 1 unit of Good Y in 1 hour.Assuming that the machine is used for 10 hours,which of the following combinations will lie on the production possibilities curve?

Accepted Answer

A)  5 units of Good X and 2 units of Good Y 
B)  3 units of Good X and 4 units of Good Y 
C)  2 units of Good X and 2 units of Good Y 
D)  6 units of Good X only 
A)  5 units of Good X and 2 units of Good Y 
B)  3 units of Good X and 4 units of Good Y 
C)  2 units of Good X and 2 units of Good Y 
D)  6 units of Good X only

Question 3

The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2.
  
-Refer to the figure above.What is the producer surplus before Lithasia opens up to free trade?

Accepted Answer

A)  $6 
B)  $12 
C)  $18 
D)  $24 
A)  $6 
B)  $12 
C)  $18 
D)  $24

Question 4

The following figure shows the demand curve, D, and the supply curve, S, for calculators in Barylia. The world price of calculators is $40.
  
-Refer to the figure above.If the economy of Barylia opens up to free trade,then which of the following statements is true?

Accepted Answer

A)  Barylia will start importing calculators. 
B)  Barylia will start exporting calculators. 
C)  Domestic consumers will purchase a greater quantity of calculators than before. 
D)  The production and purchase of calculators in Barylia will remain the same as before. 
A)  Barylia will start importing calculators. 
B)  Barylia will start exporting calculators. 
C)  Domestic consumers will purchase a greater quantity of calculators than before. 
D)  The production and purchase of calculators in Barylia will remain the same as before.

Question 5

What is meant by the term "comparative advantage"? How is it different from absolute advantage?

Accepted Answer

Comparative advantage is the ability of

Question 6

Scenario: The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3, and the government of Barylia decides to impose a $1 tariff on the import of chairs.
  
-Refer to the scenario above.Calculate the revenue earned by the government when it imposes a tariff of $1 on chairs.

Accepted Answer

A)  $10 
B)  $20 
C)  $30 
D)  $40 
A)  $10 
B)  $20 
C)  $30 
D)  $40

Question 7

Scenario: Suppose a country produces only two goods: Good X and Good Y.
-Refer to the scenario above.The opportunity cost of producing Good Y equals ________.

Accepted Answer

A)  gain in Good Y/gain in Good X 
B)  loss in Good X/gain in Good Y 
C)  loss in Good X/loss in Good Y 
D)  gain in Good X/gain in Good Y 
A)  gain in Good Y/gain in Good X 
B)  loss in Good X/gain in Good Y 
C)  loss in Good X/loss in Good Y 
D)  gain in Good X/gain in Good Y

Question 8

Alexander Selkirk lives on Juan Fernandez Island.He spends his days gathering coconuts and spiny lobsters.If he spends all day gathering coconuts,he can collect 40 coconuts.If he spends all day collecting spiny lobsters,he can capture 20 in a day.His production possibilities curve is shown in the figure below.
 
As Selkirk collects more coconuts,the opportunity cost of a coconut is ________.

Accepted Answer

A)  decreasing 
B)  constant 
C)  increasing 
D)  unpredictable 
A)  decreasing 
B)  constant 
C)  increasing 
D)  unpredictable

Question 9

Scenario: Norway and Sweden each produce cloudberries (CB) and salted cod (SC). Their production possibilities curves for these two goods are shown below.
   
Production Possibilities: Norway and Sweden (thousands of kilos)
   
Opportunity Costs: Norway and Sweden
  
-Refer to the scenario above.If the terms of trade are 1.5 kilos of cloudberries for a kilo of salted cod,the terms of trade are ________.

Accepted Answer

A)  not advantageous for either Norway or Sweden 
B)  advantageous for Norway but not for Sweden 
C)  advantageous for Sweden but not for Norway 
D)  advantageous for both Norway and Sweden 
A)  not advantageous for either Norway or Sweden 
B)  advantageous for Norway but not for Sweden 
C)  advantageous for Sweden but not for Norway 
D)  advantageous for both Norway and Sweden

Question 10

Suppose a nation opens up to free trade and becomes an exporter of goods.Which of the following is then true of this nation?

Accepted Answer

A)  The nation as a whole suffers losses. 
B)  Sellers gain. 
C)  Buyers gain. 
D)  Both buyers and sellers gain. 
A)  The nation as a whole suffers losses. 
B)  Sellers gain. 
C)  Buyers gain. 
D)  Both buyers and sellers gain.

Question 11

Which of the following is true of protectionism?

Accepted Answer

A)  It lowers prices for domestic consumers and increases social surplus. 
B)  It increases prices for domestic consumers and also increases social surplus. 
C)  It increases prices for domestic consumers and lowers social surplus. 
D)  It lowers prices for domestic consumers and also reduces social surplus. 
A)  It lowers prices for domestic consumers and increases social surplus. 
B)  It increases prices for domestic consumers and also increases social surplus. 
C)  It increases prices for domestic consumers and lowers social surplus. 
D)  It lowers prices for domestic consumers and also reduces social surplus.

Question 12

Scenario: Yasmin and Zeek are lawyers working at V, W, and X LLP. Yasmin works 48 hours a week, and Zeek also works 48 hours a week. They handle two types of cases, intellectual property (IP) cases and corporate fraud (CF) cases. It takes Yasmin 6 hours to handle each IP case and 4 hours to handle each CF case. Zeek can finish an IP case in 3 hours and a CF case in 6 hours.
-Refer to the scenario above.Suppose that the two lawyers' boss wants the total number of IP cases worked on by them to be equal the total number of CF cases worked on by them.So long as the total number of IP cases equals the total number of CF cases,their boss does not care which lawyer works on how many of which type of case.So Yasmin and Zeek decide to take advantage of their comparative advantages.How many IP and CF cases would they finish? (Hint: Assume that they can work on a fraction of a case.)

Accepted Answer

A)  12 and three halves of each type of case 
B)  13 and a third of each type of case 
C)  16 and a half of each type of case 
D)  24 of each type of case 
A)  12 and three halves of each type of case 
B)  13 and a third of each type of case 
C)  16 and a half of each type of case 
D)  24 of each type of case

Question 13

Scenario: You learned in the textbook that protectionism via an imposed tariff is not free, since it interferes with market equilibrium and leads to a loss of social surplus in that market. A rationale for imposing a tariff is to shield domestic firms in a particular industry from foreign competition. But what if domestic firms that export goods and services rely on imported inputs in their production? The pie charts below shows that most U.S. exporters are also importers and vice versa.
   
(Source: J. Bradford Jensen, Importers are Exporters: Tariffs Would Hurt Our Most Competitive Firms, Trade and Investment Policy Watch, Peterson Institute of International Economics, December 7, 2016, https://piie.com/blogs/trade-investment-policy-watch/importers-are-exporters-tariffs-would-hurt-our-most-competitive.)
-Refer to the scenario above.Which statement is consistent with the graphic above?

Accepted Answer

A)  It is not possible to discourage only imports without discouraging exports at the same time in the United States. 
B)  Tariffs can be an effective tool to promote U.S. exports. 
C)  Most U.S. importers use domestically produced inputs. 
D)  Loss of social surplus due to a tariff in one market could be offset by an increase in social surplus in other markets. 
A)  It is not possible to discourage only imports without discouraging exports at the same time in the United States. 
B)  Tariffs can be an effective tool to promote U.S. exports. 
C)  Most U.S. importers use domestically produced inputs. 
D)  Loss of social surplus due to a tariff in one market could be offset by an increase in social surplus in other markets.

Question 14

Terms of trade refers to the ________.

Accepted Answer

A)  rules and regulations that govern trade between nations 
B)  opportunity cost of producing the same good in two trading nations 
C)  exchange rate of goods for goods 
D)  amount of money that has to be given up to import an additional quantity of a good 
A)  rules and regulations that govern trade between nations 
B)  opportunity cost of producing the same good in two trading nations 
C)  exchange rate of goods for goods 
D)  amount of money that has to be given up to import an additional quantity of a good

Question 15

Scenario: The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3, and the government of Barylia decides to impose a $1 tariff on the import of chairs.
  
-Refer to the scenario above.What is the producer surplus when Barylia opens to free trade?

Accepted Answer

A)  $2 
B)  $5 
C)  $20 
D)  $21 
A)  $2 
B)  $5 
C)  $20 
D)  $21

Question 16

Compensation of losers from opening an economy to international trade is not common,because ________.

Accepted Answer

A)  losers don't lose so much that they would require being compensated 
B)  the loss is made up through the availability of a wide array of goods and services 
C)  it is difficult for governments to carry out such compensation policies 
D)  the government would have to transfer huge amounts of money to compensate losers 
A)  losers don't lose so much that they would require being compensated 
B)  the loss is made up through the availability of a wide array of goods and services 
C)  it is difficult for governments to carry out such compensation policies 
D)  the government would have to transfer huge amounts of money to compensate losers

Question 17

Which of the following statements is true of the United States?

Accepted Answer

A)  There is more value in trade between states in the United States than in international trade. 
B)  The United States has always been a net exporter of goods and services. 
C)  The United States exports more crude oil than it imports. 
D)  The level of imports in the United States has dramatically decreased since 1960. 
A)  There is more value in trade between states in the United States than in international trade. 
B)  The United States has always been a net exporter of goods and services. 
C)  The United States exports more crude oil than it imports. 
D)  The level of imports in the United States has dramatically decreased since 1960.

Question 18

Which of the following can be a source of a country's comparative advantage?

Accepted Answer

A)  The prices of finished goods 
B)  The demand for goods in the global market 
C)  Climatic conditions 
D)  The demand for goods in the domestic market 
A)  The prices of finished goods 
B)  The demand for goods in the global market 
C)  Climatic conditions 
D)  The demand for goods in the domestic market

Question 19

The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2.
  
-Refer to the figure above.If Lithasia does not engage in international trade,what is the domestic production of pens?

Accepted Answer

A)  0 units 
B)  6 units 
C)  12 units 
D)  16 units 
A)  0 units 
B)  6 units 
C)  12 units 
D)  16 units

Question 20

Scenario: The domestic supply and demand of a good in the United States is shown in the figure below. Suppose the world price of this good is $4. Suppose the United States is considering levying a $2 tariff per unit on imports of this good.
  
-Refer to the scenario above.The U.S.economy will ________ because of this tariff policy.

Accepted Answer

A)  lose $20 
B)  gain $20 
C)  lose $80 
D)  gain $80 
A)  lose $20 
B)  gain $20 
C)  lose $80 
D)  gain $80

Which of the following will cause an inward shift of the production possibilities curve of an economy?

A machine can manufacture 1 unit of Good X in 2 hours and 1 unit of Good Y in 1 hour.Assuming that the machine is used for 10 hours,which of the following combinations will lie on the production possibilities curve?

The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2. -Refer to the figure above.What is the producer surplus before Lithasia opens up to free trade?

The following figure shows the demand curve, D, and the supply curve, S, for calculators in Barylia. The world price of calculators is $40. -Refer to the figure above.If the economy of Barylia opens up to free trade,then which of the following statements is true?

What is meant by the term "comparative advantage"? How is it different from absolute advantage?

Scenario: Suppose a country produces only two goods: Good X and Good Y. -Refer to the scenario above.The opportunity cost of producing Good Y equals ________.

Suppose a nation opens up to free trade and becomes an exporter of goods.Which of the following is then true of this nation?

Which of the following is true of protectionism?

Terms of trade refers to the ________.

Compensation of losers from opening an economy to international trade is not common,because ________.

Which of the following statements is true of the United States?

Which of the following can be a source of a country's comparative advantage?

The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2. -Refer to the figure above.If Lithasia does not engage in international trade,what is the domestic production of pens?

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

Filters

Exam 8: Trade

Which of the following will cause an inward shift of the production possibilities curve of an economy?

A machine can manufacture 1 unit of Good X in 2 hours and 1 unit of Good Y in 1 hour.Assuming that the machine is used for 10 hours,which of the following combinations will lie on the production possibilities curve?

The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2. -Refer to the figure above.What is the producer surplus before Lithasia opens up to free trade?

The following figure shows the demand curve, D, and the supply curve, S, for calculators in Barylia. The world price of calculators is $40. -Refer to the figure above.If the economy of Barylia opens up to free trade,then which of the following statements is true?

What is meant by the term "comparative advantage"? How is it different from absolute advantage?

Scenario: Suppose a country produces only two goods: Good X and Good Y. -Refer to the scenario above.The opportunity cost of producing Good Y equals ________.

Suppose a nation opens up to free trade and becomes an exporter of goods.Which of the following is then true of this nation?

Which of the following is true of protectionism?

Terms of trade refers to the ________.

Compensation of losers from opening an economy to international trade is not common,because ________.

Which of the following statements is true of the United States?

Which of the following can be a source of a country's comparative advantage?

The following figure shows the demand curve, D, and supply curve, S, of ballpoint pens in Lithasia. The world price of pens is $2. -Refer to the figure above.If Lithasia does not engage in international trade,what is the domestic production of pens?

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

Trade-Offs Involving Time and Risk

The Economics of Information

Auctions and Bargaining

Social Economics

Filters