Question 1

Trade occurs when a country has an absolute advantage and not just a comparative advantage over another country.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 28-2 Karl can produce either 10 tons of oranges or 5 tons of apples in a year,while Adam can produce either 5 tons of oranges or 10 tons of apples.
Refer to Exhibit 28-2.If the exchange rate between apples and oranges in international markets is 1 ton of oranges per 3 tons of apples:

Accepted Answer

A)  Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export oranges to other countries. 
B)  Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export apples to other countries. 
C)  Karl and Adam will trade apples and oranges with one another. 
D)  Karl and Adam will not specialize or engage in international trade. 
A)  Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export oranges to other countries. 
B)  Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export apples to other countries. 
C)  Karl and Adam will trade apples and oranges with one another. 
D)  Karl and Adam will not specialize or engage in international trade.

Question 3

Which of the following is false with reference to subsidies?

Accepted Answer

A)  They reduce the cost of production. 
B)  They transfer the income from tax payers to the exporters. 
C)  They mean the nation is exporting products in which it does not have comparative advantage. 
D)  They can lead to inefficiencies. 
A)  They reduce the cost of production. 
B)  They transfer the income from tax payers to the exporters. 
C)  They mean the nation is exporting products in which it does not have comparative advantage. 
D)  They can lead to inefficiencies.

Question 4

Raising an existing tariff on grapes from Chile will:

Accepted Answer

A)  increase U.S. imports of Chilean grapes. 
B)  decrease U.S. consumption of domestically produced grapes. 
C)  decrease total U.S. consumption of grapes. 
D)  do all of the above. 
A)  increase U.S. imports of Chilean grapes. 
B)  decrease U.S. consumption of domestically produced grapes. 
C)  decrease total U.S. consumption of grapes. 
D)  do all of the above.

Question 5

If opening up international trade resulted in the U.S.importing ballpoint pens,what would tend to happen to the U.S.price of ballpoint pens?

Accepted Answer

A)  The domestic price will fall. 
B)  The domestic price will rise. 
C)  The domestic price will remain constant. 
D)  It is impossible to predict the impact. 
A)  The domestic price will fall. 
B)  The domestic price will rise. 
C)  The domestic price will remain constant. 
D)  It is impossible to predict the impact.

Question 6

Which of the following arguments in favor of trade restrictions is of questionable validity?

Accepted Answer

A)  total domestic employment 
B)  national security 
C)  infant industries 
D)  all of the above 
A)  total domestic employment 
B)  national security 
C)  infant industries 
D)  all of the above

Question 7

Tariffs and other trade restrictions increase the domestic scarcity of products from abroad.Such policies benefit domestic producers of the restricted products at the expense of domestic consumers.This statement:

Accepted Answer

A)  is essentially correct. 
B)  contains two errors; trade restraints do not increase the domestic scarcity of product and neither do they harm domestic consumers. 
C)  contains one error; domestic producers gain at the expense of foreign producers rather than domestic consumers. 
D)  contains one error; the trade restraints do not increase the scarcity of foreign produced goods. 
A)  is essentially correct. 
B)  contains two errors; trade restraints do not increase the domestic scarcity of product and neither do they harm domestic consumers. 
C)  contains one error; domestic producers gain at the expense of foreign producers rather than domestic consumers. 
D)  contains one error; the trade restraints do not increase the scarcity of foreign produced goods.

Question 8

Which of the following would increase prices for U.S.consumers?

Accepted Answer

A)  a tariff on imported automobiles 
B)  an automobile import quota 
C)  a foreign government subsidizing auto production 
D)  (a) and (b) above only 
A)  a tariff on imported automobiles 
B)  an automobile import quota 
C)  a foreign government subsidizing auto production 
D)  (a) and (b) above only

Question 9

One difference between a tariff and a quota is that the tariff brings in revenue to
the government while the quota benefits the foreign producer who is lucky enough to receive an import license.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  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 demand of foreigners for the nation's exports. 
B)  typically generates tax revenue while a quota does not. 
C)  can easily be rescinded but a quota cannot. 
D)  will reduce imports but a quota generally will not. 
A)  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 demand of foreigners for the nation's exports. 
B)  typically generates tax revenue while a quota does not. 
C)  can easily be rescinded but a quota cannot. 
D)  will reduce imports but a quota generally will not.

Question 11

Japan and China can both produce guns and rice.The country with the lowest opportunity cost of guns (in terms of rice)will

Accepted Answer

A)  import guns. 
B)  have a comparative advantage in guns. 
C)  have an absolute advantage in guns. 
D)  have a comparative advantage in rice. 
A)  import guns. 
B)  have a comparative advantage in guns. 
C)  have an absolute advantage in guns. 
D)  have a comparative advantage in rice.

Question 12

Imposing a quota on metal softball bats shipped into the United States would likely:

Accepted Answer

A)  increase the price of the bats but decrease the quantity of domestically made bats purchased in the United States. 
B)  increase the price of the bats and the quantity of domestically made bats purchased in the United States. 
C)  leave the price of the bats unchanged but decrease the quantity purchased in the United States. 
D)  leave both the price of bats and the quantity purchased in the United States unchanged. 
A)  increase the price of the bats but decrease the quantity of domestically made bats purchased in the United States. 
B)  increase the price of the bats and the quantity of domestically made bats purchased in the United States. 
C)  leave the price of the bats unchanged but decrease the quantity purchased in the United States. 
D)  leave both the price of bats and the quantity purchased in the United States unchanged.

Question 13

One country will have a comparative advantage over another if its production possibilities

Accepted Answer

A)  frontier is higher. 
B)  curve has a different slope. 
C)  curve lies closer to the origin. 
D)  curve lies farther from the origin. 
A)  frontier is higher. 
B)  curve has a different slope. 
C)  curve lies closer to the origin. 
D)  curve lies farther from the origin.

Question 14

A country that is half as productive at producing some goods as another country,but is one quarter as productive at producing others,will not be able to gain from trade.

Accepted Answer

A) True 
 B)False

Question 15

Compared to the no-trade situation,when a country imports a good:

Accepted Answer

A)  domestic consumers gain, domestic producers lose, and the gains outweigh the losses. 
B)  domestic consumers lose, domestic producers gain, and the gains outweigh the losses. 
C)  domestic consumers gain, domestic producers lose, and the losses outweigh the gains. 
D)  domestic consumers gain, domestic producers lose an equal amount. 
A)  domestic consumers gain, domestic producers lose, and the gains outweigh the losses. 
B)  domestic consumers lose, domestic producers gain, and the gains outweigh the losses. 
C)  domestic consumers gain, domestic producers lose, and the losses outweigh the gains. 
D)  domestic consumers gain, domestic producers lose an equal amount.

Question 16

A tariff on a good increases the domestic price of the good,increases domestic production of the good,reduces the amount of the good sold,and decreases imports of the good.

Accepted Answer

A) True 
 B)False

Question 17

Imposing a tariff brings about:

Accepted Answer

A)  higher prices and revenues to domestic producers. 
B)  lower sales and revenues to foreign producers. 
C)  higher prices to domestic consumers. 
D)  all of the above 
A)  higher prices and revenues to domestic producers. 
B)  lower sales and revenues to foreign producers. 
C)  higher prices to domestic consumers. 
D)  all of the above

Question 18

In Artland the opportunity cost of producing 1 ton of wheat is 2 tons of corn,while in Scienceland,the opportunity cost of producing 2 tons of wheat is 3 tons of corn.Both countries would be better off if:

Accepted Answer

A)  Artland sells 4 tons of wheat to Scienceland in return for 7 tons of corn. 
B)  Artland sells 4 tons of wheat to Scienceland in return for 10 tons of corn. 
C)  Scienceland sells 4 tons of wheat to Artland in return for 7 tons of corn. 
D)  Scienceland sells 4 tons of wheat to Artland in return for 4 tons of corn. 
A)  Artland sells 4 tons of wheat to Scienceland in return for 7 tons of corn. 
B)  Artland sells 4 tons of wheat to Scienceland in return for 10 tons of corn. 
C)  Scienceland sells 4 tons of wheat to Artland in return for 7 tons of corn. 
D)  Scienceland sells 4 tons of wheat to Artland in return for 4 tons of corn.

Question 19

Exhibit 28-2 Karl can produce either 10 tons of oranges or 5 tons of apples in a year,while Adam can produce either 5 tons of oranges or 10 tons of apples.
Refer to Exhibit 28-2.Which of the following is true?

Accepted Answer

A)  Mutually beneficial trade between Karl and Adam could take place at an exchange rate of 1 ton of apples to 1 1/2 ton of oranges. 
B)  Mutually beneficial trade between Karl and Adam could take place at an exchange rate of 1 ton of oranges to 1 1/2 ton of apples. 
C)  both a. and b. are true. 
D)  neither a. or b. are true. 
A)  Mutually beneficial trade between Karl and Adam could take place at an exchange rate of 1 ton of apples to 1 1/2 ton of oranges. 
B)  Mutually beneficial trade between Karl and Adam could take place at an exchange rate of 1 ton of oranges to 1 1/2 ton of apples. 
C)  both a. and b. are true. 
D)  neither a. or b. are true.

Question 20

Which of the following is not an argument favoring tariffs?

Accepted Answer

A)  They help infant industries grow. 
B)  They increase consumer surplus for domestic consumers. 
C)  They reduce domestic unemployment. 
D)  They are necessary for national security reasons. 
A)  They help infant industries grow. 
B)  They increase consumer surplus for domestic consumers. 
C)  They reduce domestic unemployment. 
D)  They are necessary for national security reasons.

Exam 28: International Trade

Trade occurs when a country has an absolute advantage and not just a comparative advantage over another country.

Exhibit 28-2 Karl can produce either 10 tons of oranges or 5 tons of apples in a year,while Adam can produce either 5 tons of oranges or 10 tons of apples. Refer to Exhibit 28-2.If the exchange rate between apples and oranges in international markets is 1 ton of oranges per 3 tons of apples:

Which of the following is false with reference to subsidies?

Raising an existing tariff on grapes from Chile will:

If opening up international trade resulted in the U.S.importing ballpoint pens,what would tend to happen to the U.S.price of ballpoint pens?

Which of the following arguments in favor of trade restrictions is of questionable validity?

Tariffs and other trade restrictions increase the domestic scarcity of products from abroad.Such policies benefit domestic producers of the restricted products at the expense of domestic consumers.This statement:

Which of the following would increase prices for U.S.consumers?

One difference between a tariff and a quota is that the tariff brings in revenue to the government while the quota benefits the foreign producer who is lucky enough to receive an import license.

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

Japan and China can both produce guns and rice.The country with the lowest opportunity cost of guns (in terms of rice)will

Imposing a quota on metal softball bats shipped into the United States would likely:

One country will have a comparative advantage over another if its production possibilities

A country that is half as productive at producing some goods as another country,but is one quarter as productive at producing others,will not be able to gain from trade.

Compared to the no-trade situation,when a country imports a good:

A tariff on a good increases the domestic price of the good,increases domestic production of the good,reduces the amount of the good sold,and decreases imports of the good.

Imposing a tariff brings about:

In Artland the opportunity cost of producing 1 ton of wheat is 2 tons of corn,while in Scienceland,the opportunity cost of producing 2 tons of wheat is 3 tons of corn.Both countries would be better off if:

Exhibit 28-2 Karl can produce either 10 tons of oranges or 5 tons of apples in a year,while Adam can produce either 5 tons of oranges or 10 tons of apples. Refer to Exhibit 28-2.Which of the following is true?

Which of the following is not an argument favoring tariffs?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Finance

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