Chapter 9 Application International Trade Exam Prep - Principles of Microeconomics ANZ Edition Test Bank by Joshua Gans. DOCX document preview.
CHAPTER 9 – Application: International trade
TRUE/FALSE
1. Trade among nations is ultimately based on absolute advantage.
DIF: Easy TOP: The determinants of trade
2. One of the important outcomes of international trade is that countries specialise in the output of things they are best at.
DIF: Easy TOP: The world price and comparative advantage
3. A country is likely to import a good if its domestic price is high, relative to the world price.
DIF: Easy TOP: The gains and losses of an importing country
4. If the domestic price of a good is low relative to the world price, the country has a comparative advantage in producing that good.
DIF: Easy TOP: The gains and losses of an exporting country
5. Without free trade, the import price of a good must be equal to the export price of a good.
DIF: Easy TOP: The gains and losses of an exporting country
6. If Peru exports coffee to the rest of the world, Peruvian consumers of coffee are worse off as a result of trade, but Peruvian producers of coffee are better off.
DIF: Moderate TOP: The gains and losses of an exporting country
7. If Australia imports toys from other countries, this means the world price of toys is lower than the Australian price of toys.
DIF: Moderate TOP: The gains and losses of an exporting country
8. If Colombia exports coffee to the rest of the world, Colombian coffee sellers benefit from higher producer surplus. Colombian coffee buyers are worse off because of lower consumer surplus, but total surplus in Colombia increases because of trade.
DIF: Moderate TOP: The gains and losses of an exporting country
9. In general, if a country allows trade and becomes an importer of a good, domestic producers of the good are worse off, domestic consumers of the good are better off, but the economic wellbeing of the country increases.
DIF: Easy TOP: The gains and losses of an importing country
10. In general, importing will always increase the wellbeing of a country if the world price of a good is lower than the domestic price.
DIF: Easy TOP: The gains and losses of an importing country
11. Suppose that Tonga, a small country, imports apples at the world price of $4 per kilogram. If Tonga imposes a tariff of $1 per kilogram on imported apples, the price of apples in Tonga will increase, but by less than $1, ceteris paribus.
DIF: Moderate TOP: The effects of a tariff
12. If a tariff is placed on clocks, the price of both domestic and imported clocks will rise by the amount of the tariff.
DIF: Easy TOP: The effects of a tariff
13. Suppose France imposes a tariff on imported US computers. The tariff will raise the price of computers and will make both French producers and consumers of computers worse off.
DIF: Moderate TOP: The effects of a tariff
14. The decrease in total surplus that results from a tariff or quota is called the gains from trade.
DIF: Easy TOP: The effects of a tariff
15. If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue and domestic consumers will gain consumer surplus.
DIF: Moderate TOP: The effects of a tariff
16. Suppose that Australia imposes a tariff on imported computer chips. If the increase in producer surplus is $100 million, the increase in tariff revenue is $200 million and the reduction in consumer surplus is $500 million, then the deadweight loss of the tariff is $200 million.
DIF: Moderate TOP: The effects of a tariff
17. Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium price without trade, thus reducing the gains from trade.
DIF: Easy TOP: The effects of a tariff
18. Import quotas increase the domestic price of the product to at least the world price.
DIF: Easy TOP: The effects of an import quota
19. Import quotas and tariffs both cause the quantity of imports to fall.
DIF: Easy TOP: The effects of an import quota
20. An import quota increases domestic producer surplus and the surplus of import licence holders, reduces domestic consumer surplus, and creates deadweight loss.
DIF: Moderate TOP: The effects of an import quota
21. If an import tariff is imposed on a good produced exclusively for export, the tariff will reduce the quantity of the good produced.
DIF: Moderate TOP: The effects of an import tariff
22. A quota can potentially cause an even larger deadweight loss than a tariff.
DIF: Moderate TOP: The effects of an import quota
23. If country A produces all goods at a cheaper price than country B, country B will specialise in producing the goods for which it has comparative advantage.
DIF: Easy TOP: The jobs argument
24. Benefits from free trade include increased variety of goods and increased competition.
DIF: Easy TOP: FYI: Other benefits of international trade
25. Free trade causes job losses in industries in which a country does not have a comparative advantage but it also causes job gains in industries in which the country has a comparative advantage.
DIF: Moderate TOP: The jobs argument
26. Sometimes countries suffer a net loss of jobs due to free trade, because they do not have a comparative advantage in producing anything.
DIF: Moderate TOP: The jobs argument
27. Australia should always be a net exporter of wheat.
DIF: Moderate TOP: The national security argument
28. Economists like the infant industry argument because it is easy to implement in practice.
DIF: Easy TOP: The infant industry argument
29. Many economists oppose the infant industry argument because it is difficult to remove.
DIF: Easy TOP: The infant industry argument
30. In practice, it has proven to be extraordinarily difficult for governments to pick the right infant industries to protect.
DIF: Easy TOP: The infant industry argument
31. If Japan subsidised the production of rice and then exported the rice to Australia at artificially low prices, then the Australian economy would be worse off.
DIF: Moderate TOP: The arguments for restricting trade
32. A multilateral approach to free trade has the potential to increase the gains from trade more than a unilateral approach does, because the multilateral approach can reduce trade restrictions abroad as well as at home.
DIF: Moderate TOP: Case study: Trade agreements and the World Trade Organization
33. The Closer Economic Relations agreement between New Zealand and Australia is designed to ensure both Australia and New Zealand can exercise their own comparative advantage.
DIF: Moderate TOP: The winners and losers from trade
MULTIPLE CHOICE
1. When goods that are produced in China are sold to Australia, the goods are:
A. | exported by Australia and imported by China |
B. | imported by Australia and exported by China |
C. | exported by Australia and exported by China |
D. | imported by Australia and imported by China |
DIF: Easy TOP: The determinants of trade
2. Indonesia and Australia engage in international trade because:
A. | Indonesia has absolute advantage over Australia in producing all goods |
B. | both Indonesia and Australia have absolute advantage in producing some goods |
C. | both Indonesia and Australia have comparative advantage in producing some goods |
D. | Australia has comparative advantage over Indonesia in producing all goods |
DIF: Moderate TOP: The winners and losers from trade
3. When Ford and General Motors import automobile parts from Mexico at prices below those they must pay in the US:
A. | workers who assemble Ford and General Motors vehicles become worse off |
B. | US consumers, taken as a group, become worse off |
C. | Mexican consumers, taken as a group, become worse off |
D. | American companies that manufacture automobile parts become worse off |
DIF: Moderate TOP: The gains and losses of an importing country
4. The main justification for imposing restrictions on free international trade is:
A. | to protect foreign producers |
B. | to support foreign consumers |
C. | to protect domestic producers |
D. | to support domestic consumers |
DIF: Easy TOP: The winners and losers from trade
5. If a country allows trade and the price of a good falls as a result:
A. | the domestic price is higher than the world price and the country will import the good |
B. | the domestic price is lower than the world price and the country will import the good |
C. | the domestic price is higher than the world price and the country will export the good |
D. | the domestic price is lower than the world price and the country will export the good |
DIF: Easy TOP: The gains and losses of an importing country
6. If a country allows trade and the domestic price of a good is lower than the world price:
A. | the country will become an exporter of the good. |
B. | the country will become an importer of the good |
C. | the country will neither export nor import the good |
D. | additional information about demand is needed to determine whether the country will export or import the good |
DIF: Easy TOP: The gains and losses of an exporting country
7. A country is deemed to have a comparative advantage in a product if:
A. | the world price is lower than its domestic price |
B. | the world price is higher than its domestic price |
C. | the world price is equal to its domestic price |
D. | none of the above |
DIF: Easy TOP: The gains and losses of an exporting country
8. The world price is:
A. | the price that arises in the world market through supply and demand |
B. | the lowest price for which a producer will supply a good |
C. | the price at which a domestic producer will sell a good in an economy without trade |
D. | the price that gives the domestic market a comparative advantage |
DIF: Easy TOP: The world price and comparative advantage
9. A quota is:
A. | a type of tax imposed on imports |
B. | a physical limit on the quantity of internationally traded goods |
C. | a physical limit on the tax level on internationally traded goods |
D. | a tool to encourage imports into a country |
DIF: Easy TOP: The effects of an import quota
10. When a quota is imposed on a market, the:
A. | supply curve (above the world price) shifts to the right by the amount of the quota |
B. | supply curve (above the world price) shifts to the left by the amount of the quota |
C. | demand curve (above the world price) shifts to the right by the amount of the quota |
D. | demand curve (above the world price) shifts to the left by the amount of the quota |
DIF: Moderate TOP: The effects of an import quota
11. A tariff and an import quota will both:
A. | increase the quantity of imports and raise domestic price |
B. | increase the quantity of imports and lower domestic price |
C. | reduce the quantity of imports and raise domestic price |
D. | reduce the quantity of imports and lower domestic price |
DIF: Moderate TOP: The effects of an import quota
12. Suppose a country becomes more open to trade and imports increase. This means that:
A. | everyone in the country benefits from trade |
B. | the losses of the losers is less than the gains of the winners |
C. | the losses of the losers exceed the gains of the winners |
D. | everyone in the country loses from the trade |
DIF: Easy TOP: Figure 9.5: How free trade affects welfare in an importing country
13. When a country allows trade and becomes an importer of a good, which of the following is NOT true?
A. | the gains of domestic consumers exceed the losses of domestic producers |
B. | the losses of domestic producers exceed the gains of domestic consumers |
C. | the price paid by domestic consumers of the good decreases |
D. | the price received by domestic producers of the good decreases |
DIF: Easy TOP: Figure 9.5: How free trade affects welfare in an importing country
14. When a country allows trade and becomes an exporter of a good:
A. | both domestic producers and domestic consumers are better off |
B. | domestic producers are better off and domestic consumers are worse off |
C. | domestic producers are worse off and domestic consumers are better off |
D. | both domestic producers and domestic consumers are worse off |
DIF: Easy TOP: The gains and losses of an exporting country
15. If France has a comparative advantage in producing cheese and it allows trade:
A. | everyone in the country benefits |
B. | everyone in the country loses |
C. | the gains of the producers exceed the losses of the consumers |
D. | the losses of the consumers exceed the gains of the producers |
DIF: Easy TOP: The gains and losses of an exporting country
16. When a country allows trade and becomes an exporter of a good, consumer surplus:
A. | and producer surplus will increase |
B. | and producer surplus will decrease |
C. | will increase and producer surplus will decrease |
D. | will decrease and producer surplus will increase |
DIF: Moderate TOP: The gains and losses of an exporting country
17. When a country allows free trade:
A. | the domestic price will be greater than the world price |
B. | the domestic price will be lower than the world price |
C. | the domestic price will equal the world price |
D. | it does not matter what the world price is, the domestic price is the prevailing price |
DIF: Easy TOP: The gains and losses of an exporting country
Graph 9-1
This graph refers to the market for beef in Japan.
18. According to Graph 9-1, if trade in beef is allowed, Japan:
A. | will become an importer of beef |
B. | will become an exporter of beef |
C. | could become either an importer of beef or an exporter of beef |
D. | will neither import nor export beef |
DIF: Moderate TOP: The gains and losses of an importing country
19. According to Graph 9-1, if the world price rose to $6 and trade in beef is allowed, the price of beef in Japan will be:
A. | $5 per pound |
B. | $2 per pound |
C. | between $2 per pound and $5 per pound |
D. | $6 per pound |
DIF: Moderate TOP: The gains and losses of an importing country
20. According to Graph 9-1, if trade in beef is allowed, Japanese beef:
A. | consumers and Japanese beef producers will gain |
B. | consumers and Japanese beef producers will lose |
C. | consumers will gain, and Japanese beef producers will lose |
D. | producers will gain, and Japanese beef consumers will lose |
DIF: Moderate TOP: The gains and losses of an importing country
21. Which one of the According to Graph 9-1, if trade in beef is allowed, Japanese:
A. | consumer surplus will increase and producer surplus will decrease |
B. | consumer surplus will decrease and producer surplus will increase |
C. | producer surplus and consumer surplus will increase |
D. | producer surplus and consumer surplus will be unaffected |
DIF: Moderate TOP: How free trade affects welfare in an importing country
Graph 9-2
This graph refers to the market for saddles in Argentina.
22. According to Graph 9-2, the equilibrium price and the equilibrium quantity of saddles in Argentina before trade would be:
A. | P1, Q2 |
B. | P1, Q1 |
C. | P0, Q0 |
D. | P0, Q1 |
DIF: Easy TOP: The gains and losses of an exporting country
23. According to Graph 9-2, the price and quantity demanded of saddles in Argentina after trade would be:
A. | P1, Q2 |
B. | P1, Q1 |
C. | P0, Q0 |
D. | P0, Q1 |
DIF: Moderate TOP: The gains and losses of an exporting country
24. According Graph 9-2, the quantity of saddles exported from Argentina is:
A. | Q0 minus Q1 |
B. | Q2 minus Q1 |
C. | Q2 minus Q0 |
D. | Q0 |
DIF: Moderate TOP: The gains and losses of an exporting country
Graph 9-3
25. In Graph 9-3, the free-trade price and quantity demanded would be:
A. | P1, Q1 |
B. | P1, Q4 |
C. | P2, Q2 |
D. | P2, Q3 |
DIF: Difficult TOP: The effects of an import quota
26. In Graph 9-3, the equilibrium price and quantity after the quota would be:
A. | P1, Q1 |
B. | P1, Q4 |
C. | P2, Q2 |
D. | P2, Q3 |
DIF: Difficult TOP: The effects of an import quota
27. In Graph 9-3, after the quota, imports would be equal to:
A. | Q4 minus Q1 |
B. | Q3 minus Q2 |
C. | Q3 minus Q1 |
D. | Q2 minus Q1 |
DIF: Difficult TOP: The effects of an import quota
28. In Graph 9-3, after the quota, deadweight loss would be equal to:
A. | E |
B. | B |
C. | D + F |
D. | B + D + E + F |
DIF: Difficult TOP: The effects of an import quota
29. In Graph 9-3, area G represents:
A. | consumer surplus under free trade |
B. | producer surplus under free trade |
C. | a surplus for import licence holders |
D. | producer surplus before trade |
DIF: Difficult TOP: The effects of an import quota
Graph 9-4
This graph refers to the market for kiwifruit in New Zealand.
30. According to Graph 9-4, consumer surplus in New Zealand before trade the trade in kiwifruit is:
A. | a |
B. | a + b |
C. | a + b + d |
D. | c |
DIF: Easy TOP: The gains and losses of an exporting country
31. According to Graph 9-4, consumer surplus in New Zealand after the trade in kiwifruit is:
A. | a |
B. | a + b |
C. | a + b + c |
D. | c |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
32. According to Graph 9-4, producer surplus in New Zealand before trade is:
A. | a |
B. | a + b |
C. | c + b + d |
D. | c |
DIF: Easy TOP: Figure 9.3: How free trade affects welfare in an exporting country
33. According to Graph 9-4, producer surplus in New Zealand after trade is:
A. | a |
B. | a + b |
C. | c + b + d |
D. | c |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
34. According to Graph 9-4, total surplus in New Zealand before the trade in kiwifruit is:
A. | a + b |
B. | a + b + c |
C. | a + b + c + d |
D. | b + c + d |
DIF: Easy TOP: The gains and losses of an exporting country
35. According to Graph 9-4, total surplus in New Zealand after the trade in kiwifruit is:
A. | a + b |
B. | a + b + c |
C. | a + b + c + d |
D. | b + c + d |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
36. According to Graph 9-4, the change in total surplus in New Zealand because of the trade in kiwifruit is:
A. | a |
B. | b |
C. | c |
D. | d |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
Graph 9-5
This graph refers to the market for oil in Spain.
37. According to Graph 9-5, the price and quantity of oil in Spain before trade would be:
A. | P0, Q0 |
B. | P1, Q1 |
C. | P1, Q2 |
D. | P1, Q0 |
DIF: Easy TOP: The gains and losses of an importing country
38. According to Graph 9-5, the price of oil and the quantity demanded in Spain after trade would be:
A. | P1, Q1 |
B. | P1, Q2 |
C. | P1, Q0 |
D. | P0, Q0 |
DIF: Moderate TOP: The gains and losses of an importing country
39. According to Graph 9-5, the quantity of oil imported into Spain is:
A. | Q0 |
B. | Q1 |
C. | Q2 |
D. | Q2 minus Q1 |
DIF: Moderate TOP: The gains and losses of an importing country
Graph 9-6
40. According to Graph 9-6, equilibrium price and quantity before trade would be:
A. | $20, 2000 |
B. | $20, 2400 |
C. | $10, 2000 |
D. | $10, 2400 |
DIF: Easy TOP: The gains and losses of an exporting country
41. According to Graph 9-6, the price and domestic quantity demanded after trade would be:
A. | $20, 2000 |
B. | $20, 2800 |
C. | $10, 2000 |
D. | $10, 2800 |
DIF: Moderate TOP: The gains and losses of an exporting country
42. According to Graph 9-6, domestic production and domestic consumption after trade would be:
A. | 2400, 2000 |
B. | 2800, 2000 |
C. | 2000, 2400 |
D. | 2000, 2800 |
DIF: Moderate TOP: The gains and losses of an exporting country
43. According to Graph 9-6, consumer surplus before trade would be:
A. | $20 000 |
B. | $24 000 |
C. | $40 000 |
D. | $48 000 |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
44. According to Graph 9-6, consumer surplus after trade would be:
A. | $10 000 |
B. | $12 000 |
C. | $20 000 |
D. | $24 000 |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
45. According to Graph 9-6, producer surplus before trade would be:
A. | $8000 |
B. | $9600 |
C. | $16 000 |
D. | $19 200 |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
46. According to Graph 9-6, producer surplus after trade would be:
A. | $21 600 |
B. | $25 200 |
C. | $43 200 |
D. | $50 400 |
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
47. According to Graph 9-6, how many units of this product would be exported after trade is allowed?
A. | 400 |
B. | 800 |
C. | 2400 |
D. | 2800 |
DIF: Moderate TOP: The gains and losses of an exporting country
Graph 9-7
48. According to Graph 9-7, equilibrium price and quantity before trade would be:
A. | $19 400 |
B. | $19 800 |
C. | $15 400 |
D. | $15 600 |
DIF: Easy TOP: The gains and losses of an importing country
49. According to Graph 9-7, the price and quantity demanded after trade would be:
A. | $9300 |
B. | $9900 |
C. | $15 400 |
D. | $15 600 |
DIF: Moderate TOP: The gains and losses of an importing country
50. According to Graph 9-7, domestic production and domestic consumption after trade would be:
A. | 600, 600 |
B. | 600, 300 |
C. | 300, 900 |
D. | 600, 900 |
DIF: Moderate TOP: The gains and losses of an importing country
51. According to Graph 9-7, consumer surplus before trade would be:
A. | $1600 |
B. | $2400 |
C. | $3200 |
D. | $3600 |
DIF: Moderate TOP: Figure 9.5: How free trade affects welfare in an importing country
52. According to Graph 9-7, consumer surplus after trade would be:
A. | $3600 |
B. | $5400 |
C. | $7200 |
D. | $8100 |
DIF: Moderate TOP: Figure 9.5: How free trade affects welfare in an importing country
53. According to Graph 9-7, producer surplus before trade would be:
A. | $3600 |
B. | $4400 |
C. | $5200 |
D. | $6600 |
DIF: Moderate TOP: Figure 9.5: How free trade affects welfare in an importing country
54. According to Graph 9-7, producer surplus after trade would be:
A. | $900 |
B. | $1100 |
C. | $1500 |
D. | $2000 |
DIF: Moderate TOP: Figure 9.5: How free trade affects welfare in an importing country
55. If the price of torches in Estonia is $100 and the world price is $150, how would producer surplus change if Estonia opened to world trade?
A. | it would rise by $50 |
B. | it would rise by more than consumer surplus would fall |
C. | it wouldn’t change but consumer surplus would rise |
D. | it would change by the same amount as consumer surplus |
DIF: Moderate TOP: The gains and losses of an exporting country
Graph 9-8
56. In Graph 9-8, the free-trade price and quantity demanded would be:
A. | P1, Q1 |
B. | P1, Q4 |
C. | P2, Q2 |
D. | P2, Q3 |
DIF: Moderate TOP: Figure 9.5: How free trade affects welfare in an importing country
57. In Graph 9-8, the domestic price and quantity demanded after the tariff would be:
A. | P1, Q1 |
B. | P1, Q4 |
C. | P2, Q2 |
D. | P2, Q3 |
DIF: Difficult TOP: The effects of a tariff
58. In Graph 9-8, consumer surplus with free trade would be:
A. | A |
B. | A + B |
C. | A + C + G |
D. | A + B + C + D + E + F |
DIF: Difficult TOP: Figure 9.5: How free trade affects welfare in an importing country
59. In Graph 9-8, producer surplus with free trade would be:
A. | G |
B. | C + G |
C. | A + C + G |
D. | A + B + C + G |
DIF: Difficult TOP: Figure 9.5: How free trade affects welfare in an importing country
60. In Graph 9-8, consumer surplus after the tariff would be:
A. | A |
B. | A + B |
C. | A + C + G |
D. | A + B + C + D +E + F |
DIF: Difficult TOP: The effects of a tariff
61. In Graph 9-8, producer surplus after the tariff would be:
A. | G |
B. | C + G |
C. | A + C + G |
D. | A + B + C + G |
DIF: Difficult TOP: The effects of a tariff
62. In Graph 9-8, as a result of the tariff, government tariff revenue would be:
A. | E |
B. | B |
C. | D + F |
D. | B + D + E + F |
DIF: Difficult TOP: The effects of a tariff
63. In Graph 9-8, as a result of the tariff, deadweight loss would be:
A. | E |
B. | B |
C. | D + F |
D. | B + D + E + F |
DIF: Difficult TOP: The effects of a tariff
64. Which of the following is NOT a function of the World Trade Organization?
A. | enforcing the multilateral approach to free trade |
B. | administration of trade agreements |
C. | provision of a forum for negotiations between member countries |
D. | handling of disputes arising among member countries |
DIF: Easy TOP: The national security argument
65. Which of the following is NOT an argument for restricting trade?
A. | the jobs argument |
B. | the national security argument |
C. | the infant industry argument |
D. | the efficiency argument |
DIF: Moderate TOP: The arguments for restricting trade
66. “Lower costs through economies of scale” refers to:
A. | one of the reasons for restricting international trade |
B. | the advantage that can sometimes arise when companies can sell to international markets |
C. | the way in which big companies can dominate domestic markets when there is no trade |
D. | the increased variety of goods that can be accessed in a free-trade economy |
DIF: Moderate TOP: Other benefits of international trade
67. ‘Tariffs are needed to reduce imports during times of recession in order to increase domestic output.’ This statement would be most closely associated with which argument for restricting trade?
A. | the jobs argument |
B. | the infant industry argument |
C. | the national security argument |
D. | the unfair competition argument |
DIF: Moderate TOP: The jobs argument
68. When resources devoted to lobbying are included in the analysis of restrictions to international trade:
A. | deadweight losses may increase. |
B. | deadweight losses from fall |
C. | the welfare of domestic consumers will increase |
D. | domestic prices will equal world prices |
DIF: Difficult TOP: Figure 9.5: How free trade affects welfare in an importing country
69. The infant industry argument:
A. | is based on the belief that protecting industries when they are young will pay off later |
B. | is based on the belief that protecting industries producing goods and services for infants is necessary if a country is to have healthy children |
C. | has the support of most economists |
D. | has proven to be correct in nearly all cases |
DIF: Easy TOP: The infant industry argument
70. Which of the following is NOT a claim policymakers often use to justify imposing a tariff?
A. | protection is necessary in order for young industries to grow up and be successful |
B. | the threat of a trade restriction will encourage other countries to remove existing trade restrictions |
C. | protection is sometimes necessary because many countries protect their industries |
D. | trade restrictions will cause wages in certain domestic industries to rise |
DIF: Moderate TOP: The arguments for restricting trade
SHORT ANSWER
1. Suppose that Australia and China do not trade with each other. If they then allow trade and Australia becomes an exporter of mineral products to China, which group or groups in each country are better off, and which are worse off?
DIF: Moderate TOP: The winners and losers from trade
2. Suppose that China can produce every product at an absolutely lower cost than can Australia. Does it pay for China to trade with Australia? Explain.
DIF: Moderate TOP: The world price and comparative advantage
3. The before-trade domestic price of pepper in India is $15 per tonne. The world price of pepper is $25 per tonne. India is a price taker in the pepper market. Given this information, answer the following questions.
a. Will India import or export pepper?
b. What will the price of pepper be in India if free trade is allowed?
c. Who will benefit from free trade in this case?
d. Who will lose from free trade?
DIF: Moderate TOP: The gains and losses of an exporting country
4. Suppose that a country that has been isolated from the rest of the world decides to open its borders to international trade. The country produces chickens and soccer balls. On what basis can the country decide which good to import and which good to export?
DIF: Moderate TOP: The gains and losses of an exporting country
Graph 9-9
5. Using Graph 9-9, fill-in the answers for the following questions.
a. consumer surplus before trade would be area(s) _______________.
b. consumer surplus after trade would be area(s) _______________.
c. producer surplus before trade would be area(s) _______________.
d. producer surplus after trade would be area(s) _______________.
e. total surplus before trade would be area(s) ______________.
f. total surplus after trade would be area(s) ______________.
DIF: Moderate TOP: Figure 9.3: How free trade affects welfare in an exporting country
Graph 9-10
6. Using Graph 9-10, fill-in the answers for the following questions.
a. consumer surplus before trade would be area(s) _______________.
b. consumer surplus after trade would be area(s) _______________.
c. producer surplus before trade would be area(s) _______________.
d. producer surplus after trade would be area(s) _______________.
e. total surplus before trade would be area(s) ______________.
f. total surplus after trade would be area(s) ______________.
DIF: Moderate TOP: Figure 9.5: How free trade affects welfare in an importing country
7. The government of Ecuador is considering imposing a quota on quinoa imports. The Ecuadorian price of quinoa is above the world price. What will be the effects of imposing an import quota on quinoa? Who will make a profit out of this policy? Who will lose?
DIF: Difficult TOP: The effects of an import quota
Graph 9-11
8. Using Graph 9-11, assume that the government imposes an import quota of 20 hammers. Answer the following questions, given this information.
a. What is the equilibrium price and quantity of hammers after the quota is imposed?
b. What is the quantity of hammers imported before the quota?
c. What is the quantity of hammers imported after the quota?
d. What is the amount of consumer surplus before the quota?
e. What is the amount of consumer surplus after the quota?
f. What is the amount of producer surplus before the quota?
g. What is the amount of producer surplus after the quota?
h. What would be the amount of deadweight loss due to the quota?
DIF: Difficult TOP: The effects of an import quota
9. What is the effect on the economic wellbeing of a nation if a tariff on imports is imposed? Why?
DIF: Moderate TOP: The effects of a tariff
10. Suppose that you are advising Russian policymakers on trade issues, and the issue of protection for the Russian vodka industry comes up. You argue in favour of free trade but the policymakers are convinced that some protection is needed. They are leaning in favour of an import quota. What will you tell them about the relative effects of import quotas and equivalent tariffs on the wellbeing of Russian vodka producers, Russian vodka consumers and the Russian government budget?
DIF: Difficult TOP: The effects of an import quota
11. How does an import quota differ from an equivalent tariff?
DIF: Moderate TOP: The effects of an import quota
12. When the free trade treaty CER was signed between New Zealand and Australia, opponents claimed that New Zealand would suffer significant job losses to more efficient Australian producers. Why would you not be surprised to learn that CER did not lift unemployment in either country?
DIF: Difficult TOP: The infant industry argument
13. Serbia has a small but growing apple juice market. In the past, Serbia has not traded much apple juice with other countries but now it is considering signing an agreement freeing up its apple juice trade with Croatia. Some apple juice growers are worried about the effect that opening up trade will have on their new industry and are meeting with the president to ask him to do something to protect them. What argument might they make to the president? Do they have a good point?
DIF: Moderate TOP: The infant industry argument
14. What are the arguments in favour of trade restrictions and what are the counter-arguments?
DIF: Difficult TOP: The winners and losers from trade
15. Most economists argue that international trade increases social welfare. What are some of the other benefits of international trade?
DIF: Difficult TOP: Other benefits of international trade
16. Suppose that Australia has a comparative advantage over the New Zealand in providing financial services and New Zealand has a comparative advantage over Australia in producing milk products. By reducing trade barriers, CER allowed both Australia and New Zealand to export more of the products in which it enjoys a comparative advantage. Do all people in both countries benefit from this free trade agreement? Explain.
DIF: Difficult TOP: Figure 9.5: How free trade affects welfare in an importing country