Parkin&Bade, Microeconomics, 2nd edition

Chapter 9: Global Markets in Action

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) Goods and services that Australia buys from other nations are called

A) bartered goods.

B) imports.

C) exports.

D) world goods.

E) exchanges.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

2) Goods and services that Australia sells to other nations are called

A) world goods.

B) imports.

C) exports.

D) exchanges.

E) bartered goods.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

3) All of the following statements about Australia are true EXCEPT

A) Australia is a small open trading nation.

B) the largest imports are manufactured goods.

C) imports are a larger percentage of total expenditure than exports.

D) services account for a larger portion of Australian exports than Australian imports.

E) Australia usually imports more than it exports.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

4) Of the following, ________ account(s) for the largest share of imports into Australia.

A) computers

B) clothing and footwear

C) tourism

D) chemicals

E) food and drinks

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

5) The fundamental force that drives trade between nations is

A) the government.

B) absolute advantage.

C) free trade agreements.

D) comparative advantage.

E) legal treaties.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

6) A nation has a comparative advantage in a good when it has a

A) tariff in place protecting the producers of the good.

B) lower opportunity cost of producing the good.

C) higher absolute cost of producing the good.

D) lower absolute cost of producing the good.

E) higher opportunity cost of producing the good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

7) A country exports the goods

A) that the economy can produce the most of.

B) for which its domestic prices are very high compared to world prices.

C) that the economy can produce at the relatively lowest opportunity cost.

D) that it cannot sell domestically.

E) in which it has a comparative disadvantage.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

8) Australia imports t-shirts because

A) foreign nations have a lower opportunity cost of production.

B) Australia must import goods and services from other countries so that they can develop economically.

C) it is a dangerous job to produce them.

D) Australia has a lower opportunity cost of production.

E) foreign economies have an absolute advantage in their production.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

9) If Australia starts to import a good that had previously been produced in Australia, the market price of the good in Australia

A) rises.

B) falls.

C) remains constant.

D) either remains constant or rises, depending on whether the supply of the good stays the same or increases.

E) There is not enough information to answer the question because we need to know if the market price in Australia had been above or below the world market price before trade began.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

10) Australia imports t-shirts from Asia. As a result, Australian consumers pay ________ otherwise and Asian producers receive ________ otherwise.

A) the same price as; the same price as

B) a lower price than; a higher price than

C) a lower price than; a lower price than

D) a higher price than; a higher price than

E) a higher price than; a lower price than

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

11) If the world price of a good is below the no-trade domestic price, a country

A) will benefit from importing the good.

B) cannot benefit from trade.

C) has a comparative advantage in the production of that good.

D) will benefit from exporting the good.

E) will not engage in trade for that good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

12) If a nation imports a good that can be domestically produced, what happens to the quantity consumed of the good and why?

A) The quantity consumed remains constant because the price is unchanged.

B) The quantity consumed decreases because the market price increases.

C) The quantity consumed increases because the nation produces more of the good.

D) The quantity consumed decreases because the market price decreases.

E) The quantity consumed increases because the market price decreases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

13) A country exports a good if

A) the world price of the good is above the country's no-trade equilibrium price.

B) the world price of the good is below the country's no-trade equilibrium price.

C) it has a high opportunity cost of production.

D) it cannot import the good.

E) the quantity demanded of the good in the country is greater than the quantity supplied at the world price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

14) As a result of importing a good, domestic consumers ________ the quantity consumed and the price of the good ________.

A) increase; falls

B) decrease; falls

C) increase; rises

D) decrease; rises

E) increase; does not change

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

15) The above figure shows the Australian market for thongs. When there is no international trade, the Australian price is ________ per thong and the Australian quantity is ________ thongs.

A) $12; 300,000

B) $14; 500,000

C) $14; 700,000

D) $12; 700,000

E) $14; 300,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

16) The above figure shows the Australian market for thongs. With international trade, the equilibrium price in Australia is ________ and Australia ________ thongs.

A) $14; imports

B) $12; imports

C) $12; does not trade

D) $12; exports

E) $14; does not trade

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

17) The above figure shows the Australian market for thongs. With international trade, Australian consumers buy ________ thongs and Australian producers produce ________ thongs.

A) 700,000; 500,000

B) 700,000; 300,000

C) 300,000; 700,000

D) 500,000; 500,000

E) 500,000; 300,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

18) With no international trade, the Australian price of wheat is lower than the world price of wheat. This indicates that Australia ________ a comparative advantage in the production of wheat and, with international trade, Australia will ________ wheat.

A) has; import

B) has; not trade

C) has; export

D) might have; export

E) does not have; export

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

19) When a country exports a good because the world price is higher than the no-trade domestic price, domestic purchases of the good ________ and domestic production of the good ________.

A) increase; decreases

B) decrease; increases

C) increase; increases

D) do not change; increases

E) decrease; decreases

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

20) The table above has the domestic demand and domestic supply schedules for a good. According to the table, the no-trade price of the good is

A) $2.

B) $6.

C) $4.

D) $8.

E) $10.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

21) The table above has the domestic demand and domestic supply schedules for a good. If the world price of the good is $10 and international trade occurs, then, according to the table,

A) domestic production is higher before trade than after trade.

B) the country exports 6 units a day.

C) the country imports 6 units a day.

D) the country imports 16 units a day.

E) the country exports 22 units a day.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

22) The figure above shows the Australian demand and Australian supply curves for cherries. In the absence of international trade, cherry farmers would receive ________ per kilogram of cherries.

A) $1.00

B) $2.50

C) $0.50

D) $2.00

E) $1.50

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

23) The figure above shows the Australian demand and Australian supply curves for cherries. In the absence of international trade, how many kilograms of cherries would Australian farmers produce?

A) 200,000 kilograms

B) 400,000 kilograms

C) 600,000 kilograms

D) 800,000 kilograms

E) 0 kilograms

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

24) The figure above shows the Australian demand and Australian supply curves for cherries. Suppose the world price of cherries is $2 per kilogram. At this price, Australian consumption of cherries will equal

A) 200,000 kilograms.

B) 400,000 kilograms.

C) 600,000 kilograms.

D) 800,000 kilograms.

E) 0 kilograms.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

25) The figure above shows the Australian demand and Australian supply curves for cherries. At a world price of $2 per kilogram, once international trade occurs, the production of cherries in Australia will equal

A) 200,000 kilograms.

B) 400,000 kilograms.

C) 600,000 kilograms.

D) 800,000 kilograms.

E) 0 kilograms.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

26) The figure above shows the Australian demand and Australian supply curves for cherries. At a world price of $2 per kilogram, once international trade occurs, the total exports of cherries from Australia to other nations equals

A) 200,000 kilograms.

B) 400,000 kilograms.

C) 600,000 kilograms.

D) 800,000 kilograms.

E) 0 kilograms.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

27) The above figure shows the Australian market for wheat. With international trade, Australia exports ________ of wheat.

A) 700,000 tonnes

B) 500,000 tonnes

C) 300,000 tonnes

D) 400,000 tonnes

E) None of the above answers is correct because Australia imports wheat.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

28) If the United States exports planes to Brazil and imports ethanol from Brazil, the price received by U.S. producers of planes ________, and the price received by Brazilian producers of ethanol ________.

A) falls; rises

B) rises; falls

C) falls; falls

D) does not change; does not change

E) rises; rises

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

29) A nation will import a good if its no-trade, domestic

A) price is greater than the world price.

B) quantity is greater than the world quantity.

C) price is equal to the world price.

D) quantity is less than the world quantity.

E) price is less than the world price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

30) Australia exports a good if its no-trade Australian price is ________ the world price. With international trade, Australian production of the good ________ compared to the level of no-trade production.

A) the same as; does not change

B) the same as; increases

C) lower than; increases

D) higher than; does not change

E) higher than; increases

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.1 How Global Markets Work

31) International trade benefits

A) both the exporter and the importer.

B) only the exporter.

C) the exporter at all times and sometimes also the importer.

D) only the importer.

E) neither the exporter nor the importer.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

32) When a nation starts importing a good or service, domestic employment in that industry

A) decreases.

B) increases.

C) stays the same.

D) might change, but more information about what else the country imports is needed to determine if employment increases, decreases or does not change.

E) might change, but more information about what the country exports is needed to determine if employment increases, decreases or does not change.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

33) When a nation imports a good, its ________ surplus decreases and its ________ surplus increases.

A) consumer; producer

B) total; consumer

C) producer; consumer

D) consumer; consumer

E) producer; producer

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

34) When a nation imports a good, its ________ surplus increases and its ________ surplus increases.

A) producer; total

B) consumer; consumer

C) total; consumer

D) consumer; producer

E) producer; producer

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

35) When a nation starts importing a good or service, the domestic production of the good or service

A) decreases.

B) increases.

C) might change, but more information about what the country exports is needed to determine if production increases, decreases or does not change.

D) stays the same.

E) might change, but more information about what else the country imports is needed to determine if production increases, decreases or does not change.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

36) The above figure shows the Australian market for chocolate. With international trade, consumer surplus is equal to

A) area A.

B) area C + area D.

C) area B + area C + area D.

D) area E.

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

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

37) The above figure shows the Australian market for chocolate. With international trade, the gain in total surplus is equal to

A) area B.

B) area C + area D.

C) area B + area C + area D.

D) area A + area B + area C + area D.

E) area B + area C + area D + area E.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

38) The above figure shows the Australian market for chocolate. With no international trade, consumer surplus is equal to ________ and producer surplus is equal to ________.

A) area A + area B + area C + area D; area E

B) area E; area A + area B + area C + area D

C) area B + area C + area D; area A + area E

D) area A; area E

E) area C + area D; area B + area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

39) When a nation exports a good or service in which it has a comparative advantage, employment in that industry

A) decreases.

B) stays the same.

C) increases.

D) might change, but more information about what else the country exports is needed.

E) might change, but more information about what the country imports is needed.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

40) When a nation exports a good, its ________ surplus decreases and its ________ surplus increases.

A) consumer; consumer

B) producer; consumer

C) producer; producer

D) consumer; producer

E) total; consumer

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

41) When a nation exports a good, its ________ surplus decreases and its ________ surplus increases.

A) total; consumer

B) producer; producer

C) consumer; consumer

D) producer; consumer

E) consumer; total

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

42) When a nation exports a good or service, the nation's consumer surplus ________, its producer surplus ________, and its total surplus ________.

A) increases; decreases; decreases

B) decreases; decreases; decreases

C) increases; decreases; increases

D) increases; increases; increases

E) decreases; increases; increases

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

43) The above figure shows the Australian market for wheat. With international trade, consumer surplus is equal to

A) area A + area B + area C + area D.

B) area A.

C) area E + area F.

D) area A + area B + area C.

E) area B + area C + area D.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

44) The above figure shows the Australian market for wheat. With no international trade, consumer surplus is equal to ________ and producer surplus is equal to ________.

A) area B + area C + area D; area E + area F

B) area A + area B + area C + area D; area E + area F

C) area A; area B + area C + area E + area F

D) area A + area B + area C; area E + area F

E) area E + area F; area A

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

45) The above figure shows the Australian market for wheat. With international trade, ________ is the transfer of surplus from consumers to producers.

A) area D

B) area B + area C + area D

C) area C + area F

D) area B + area C

E) area C + area D

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

46) When a nation exports a good, its ________ surplus increases, and when it imports a good, its ________ surplus increases.

A) consumer; consumer

B) producer; producer

C) total; total

D) total; consumer

E) producer; consumer

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

47) When a nation exports a good, its ________ surplus increases, and when it imports a good, its ________ surplus increases.

A) producer; consumer

B) total; consumer

C) consumer; producer

D) producer; producer

E) consumer; consumer

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

48) International trade is definitely in the social interest if

A) total surplus increases.

B) consumer surplus increases.

C) producer surplus does not decrease.

D) producer surplus increases.

E) consumer surplus does not decrease.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

49) When a country imports a good, the ________ in consumer surplus is ________ the ________ in producer surplus.

A) decrease; larger than; increase

B) increase; smaller than; decrease

C) increase; larger than; decrease

D) increase; equal to; decrease

E) decrease; smaller than; increase

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

50) Which of the following is correct?

i. Australian total surplus decreases when Australia exports a good.

ii. Australian total surplus decreases when Australia imports a good.

iii. Australian total surplus increases when Australia imports a good and when it exports a good.

A) i and ii

B) ii only

C) iii only

D) i only

E) None of the above because the Australian total surplus does not change as a result of trade.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.2 Winners, Losers and Net Gains from Trade

51) A tariff is

A) a subsidy granted to imports.

B) any non-subsidy used to increase trade.

C) any non-tax action used to restrict trade.

D) a tax imposed on exports.

E) a tax imposed on imports.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

52) Since the early 2000s, the average Australian tariff rate has been

A) between 10 per cent and 15 per cent.

B) less than 20 per cent.

C) between 16 per cent and 25 per cent.

D) less than 10 per cent.

E) between 26 per cent and 35 per cent.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

53) Looking at the average tariff rate in Australia since 1930, we see that

A) while we talk about free trade, tariff levels have risen over the last 30 years.

B) at first tariffs declined, but have recently risen.

C) tariff levels have remained high at over 50 per cent throughout the period.

D) tariffs have trended downward since the early 1930s.

E) tariffs have trended downwards since 1947.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

54) In the wake of a worsening trade relationship with China, some Australians have called for an increase in tariffs on Chinese products coming into Australia. If higher tariffs are imposed on clothing produced in China, the price of clothing in Australia will

A) increase.

B) decrease.

C) not change.

D) first increase then decrease.

E) first decrease then increase.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

55) Suppose the world price of widgets is $5 each. If a widget-importing country imposed a $2 per widget tariff, what price would that country's consumers pay for widgets?

A) $3

B) $7

C) $5

D) $10

E) A price that is greater than $5 and less than $7.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

56) The imposition of tariffs on Korean steel would lead to ________ in imports of Korean steel to Australia and ________ the price of steel in Australia.

A) an increase; an increase in

B) a decrease; no change in

C) an increase; a decrease in

D) no change; an increase in

E) a decrease; an increase in

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

57) Imposing a tariff on a good leads to a ________ in the price of the product and ________ in imports.

A) rise; a decrease

B) fall; an increase

C) rise; no change

D) rise; an increase

E) fall; a decrease

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

58) If Australia imposes a tariff on foreign chocolate, how are Australian buyers of chocolate affected?

A) The price they pay for chocolate falls but they consume less chocolate because less is imported.

B) The quantity they consume is unchanged.

C) The price they pay for chocolate falls and they consume more chocolate.

D) The price they pay for chocolate rises.

E) Their demand for chocolate increases because Australian production of chocolate increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

59) Australian tariffs on Canadian timber products have led to ________ the production of timber products in Australia.

A) an increase in

B) the elimination of

C) no change in

D) a decrease in

E) making illegal the

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

60) The imposition of a tariff will typically ________ government revenue and ________ domestic production of the good.

A) increase; increase

B) increase; not change

C) decrease; decrease

D) decrease; increase

E) increase; decrease

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

61) Country A imports 1,000 cars per month. After imposing a $50 per car tariff, imports fall to 800 cars per month. How much does Country A's government collect in tariff revenue?

A) $40,000

B) $50,000

C) $10,000

D) $60,000

E) $90,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

62) Of the following, who is harmed by a tariff?

A) Domestic buyers of the good or service.

B) The overall domestic economy.

C) The foreign exporter of the good or service.

D) Domestic producers of the good or service.

E) Both answers A and B are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

63) Relative to free trade, domestic consumers of a good are ________ off with a tariff because of the ________.

A) better; higher price and smaller quantity sold

B) better; lower price and greater quantity sold

C) worse; lower price and smaller quantity sold

D) worse; higher price and greater quantity sold

E) better; higher price and greater quantity sold

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

64) If a tariff is imposed on imports of prawns into Australia, Australian consumer surplus from prawns will ________ and Australian total surplus from prawns will ________.

A) increase; increase

B) increase; decrease

C) decrease; increase

D) decrease; decrease

E) increase; not change

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

65) Relative to free trade, when a tariff is imposed in a market for an imported good,

A) the producer surplus in that market decreases.

B) the total surplus in that market decreases.

C) tariff revenue decreases.

D) the consumer surplus in that market increases.

E) deadweight loss decreases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

66) Of the following, who gains because of tariffs and why?

A) Foreign governments because they gain more revenue.

B) Domestic buyers because they pay a lower price.

C) Domestic buyers because they can be sure of buying high-quality products.

D) Foreign producers because they earn more total revenue.

E) Domestic producers of protected goods because they can sell at a higher price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

67) If Australia imposes a tariff on foreign chocolate, how are foreign producers of chocolate affected?

A) Their supply increases because they have to pay the tariff.

B) The tariff has no effect on foreign producers because Australian consumers must pay the higher price.

C) They export less to Australia.

D) Their supply is unaffected because the quota must be met by Australian producers.

E) They earn more profit because their chocolate sells for a higher price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

68) The above figure shows the Australian market for replacement mobile phone batteries. When there is no international trade, the equilibrium price is ________ per battery and when there is international trade the equilibrium price is ________ per battery.

A) $16; $12

B) $12; $14

C) $12; $16

D) $16; $14

E) $14; $12

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

69) The above figure shows the Australian market for replacement mobile phone batteries. With free international trade, Australia

A) imports 400,000 batteries.

B) imports 500,000 batteries.

C) imports 800,000 batteries.

D) exports 700,000 batteries.

E) exports 300,000 batteries.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

70) The above figure shows the Australian market for replacement mobile phone batteries. Suppose the Australian government imposes the tariff illustrated in the figure. The tariff is equal to ________ and the price Australian consumers pay ________ compared to the price paid when there was free trade.

A) $14; increases

B) $14; decreases

C) $2; increases

D) $2; decreases

E) $12; increases

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

71) The above figure shows the Australian market for replacement mobile phone batteries. With free trade, Australia imports ________ batteries and once the tariff illustrated in the figure is imposed, Australia imports ________ batteries.

A) 900,000; 700,000

B) 800,000; 400,000

C) 300,000; 100,000

D) 900,000; 100,000

E) 700,000; 300,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

72) The above figure shows the Australian market for replacement mobile phone batteries. With free trade, Australian production is equal to ________ batteries per year. When a $2 tariff is in place, Australian production is equal to ________ batteries per year.

A) 300,000; 100,000

B) 100,000; 500,000

C) 900,000; 700,000

D) 100,000; 300,000

E) 300,000; 500,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

73) The above figure shows the Australian market for replacement mobile phone batteries. The Australian government collects tariff revenue of ________ on each battery imported.

A) $12

B) $4

C) $6

D) $14

E) $2

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

74) If the Australian government imposes a tariff on imported steel, who else besides Australian steel producers gains from the tariff?

A) Australian steel consumers.

B) The Australian government.

C) Foreign exporters of steel.

D) Australian importers of steel.

E) The foreign government.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

75) Which type of policy instrument raises the most revenue for the government?

A) Voluntary export restraints

B) A tariff

C) A quota

D) If they are set at the same level, all of the above raise the same amount of revenue.

E) None of the above answers is correct because none of the policy instruments raises revenue for the government.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

76) The table above gives the domestic demand and supply schedules for a good. Suppose the world price of the good is $40 and the government imposes a $20 per unit tariff. How much will the government collect as tariff revenue?

A) $320

B) $360

C) $80

D) $240

E) $160

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

77) A quota is

A) the minimum amount that domestic firms can dump.

B) a specified maximum amount that can be imported.

C) a tax on imported goods or services.

D) a tariff on exports of goods or services.

E) a specified minimum amount that must be imported.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

78) When governments specify the maximum amount of a good that may be imported in a given period of time, they are establishing a

A) tax.

B) tariff.

C) dumping limit.

D) dynamic tariff.

E) quota.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

79) Of the following, who gains with a quota?

A) The foreign exporter of the good or service.

B) The government of the importing nation.

C) The importer of the good or service.

D) The government of the exporting nation.

E) Domestic buyers of the good or service.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

80) If a quota is imposed on imports of prawns into Australia, Australian consumer surplus from prawns will ________ and Australian producer surplus from prawns will ________.

A) increase; increase

B) increase; decrease

C) decrease; increase

D) decrease; decrease

E) increase; not change

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

81) A quota ________ a deadweight loss and a tariff ________ a deadweight loss.

A) might create; might create

B) creates; creates

C) creates; does not create

D) does not create; creates

E) does not create; does not create

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

82) The above figure shows the Australian market for 1 carat diamonds. With free trade, Australia produces ________ diamonds and imports ________ diamonds.

A) 100,000; 800,000

B) 300,000; 600,000

C) 100,000; 900,000

D) 500,000; 400,000

E) 0; 900,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

83) The above figure shows the Australian market for 1 carat diamonds. Suppose Australia imposes the import quota shown in the figure. With the import quota, how many diamonds can be imported?

A) 300,000

B) 900,000

C) 500,000

D) 700,000

E) 400,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

84) The above figure shows the Australian market for 1 carat diamonds. With free trade, the price in Australia for diamonds is equal to ________ and, with the quota illustrated in the figure, the price in Australia is equal to ________.

A) $2,000; $3,000

B) $2,000; $2,000

C) $4,000; $3,000

D) $2,000; $4,000

E) $4,000; $2,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

85) The above figure shows the Australian market for 1 carat diamonds. Area B + area D is the

A) gain in total surplus due to the import quota.

B) increase in producer surplus due to the import quota.

C) decrease in consumer surplus due to the import quota.

D) deadweight loss from the import quota.

E) importers' profit from the quota.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

86) The above figure shows the Australian market for 1 carat diamonds. Area A + area B + area C + area D is the

A) decrease in consumer surplus due to the import quota.

B) increase in producer surplus due to the import quota.

C) importers' profit from the quota.

D) gain in total surplus due to the import quota.

E) deadweight loss from the import quota.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

87) The above figure shows the Australian market for 1 carat diamonds. Area A is the

A) deadweight loss from the import quota.

B) increase in producer surplus due to the import quota.

C) gain in total surplus due to the import quota.

D) importers' profit from the import quota.

E) decrease in consumer surplus due to the import quota.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

88) Which of the following methods of restricting trade does NOT create a deadweight loss?

A) A quota

B) A tariff

C) A voluntary export restraint

D) Both answers A and B are correct.

E) None of the above answers is correct because all the methods create a deadweight loss

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

89) Economists argue for free trade in export markets because

A) all consumers and producers benefit from exporting goods.

B) the gains to Australian producers outweigh the losses to Australian consumers.

C) exporting goods decreases total surplus.

D) the gains to Australian consumers outweigh the losses to Australian producers.

E) no one is made worse off by exporting goods.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

90) Suppose the world price of a shirt is $10. If Australia imposes a tariff of $5 a shirt, then the price of a shirt in

A) Australia falls to $5.

B) Australia rises to $15.

C) the world rises to $5.

D) the world rises to $15

E) the world falls to $5.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

91) When a tariff is imposed on a good, the ________ increases.

A) quantity imported

B) quantity exported

C) domestic quantity purchased

D) domestic quantity produced

E) world price

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

92) Which of the following parties benefits from an import quota but not from a tariff?

A) The domestic government.

B) Domestic consumers.

C) Domestic producers.

D) The person with the right to import the good.

E) The foreign government.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

93) Which of the following is the national security argument against free trade?

A) A country must protect its consumers from foreign influences.

B) A country must protect new industries to give them a chance to mature before facing foreign competition.

C) A country must protect industries that produce defence equipment and armaments.

D) A country must preserve its jobs.

E) A country must protect firms from dumping by foreign companies.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

94) When protection is encouraged to protect a growing domestic industry, which of the following is being used?

A) The save domestic jobs argument.

B) The anti-dumping argument.

C) The national security argument.

D) The diversity and stability argument.

E) The infant-industry argument.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.3 International Trade Restrictions

95) What is the dumping argument for protection from international trade?

A) Foreigners selling products in the economy limit the nation's diversity and stability.

B) Foreign producers selling below cost to drive domestic firms bankrupt must be stopped.

C) Any firm necessary in wartime must be protected.

D) Domestic jobs must be protected from competition from low-paid foreign workers.

E) Domestic firms must be protected until they gain a comparative advantage.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

96) Dumping is defined as the situation in which

A) domestic producers sell a product at prices below the cost of production.

B) foreign producers sell a product at a price above a fair level.

C) domestic producers are protected by tariffs.

D) domestic producers cut production to drive up domestic prices.

E) foreign producers sell a product at a price below the cost of production.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

97) Suppose Australia subsidises domestic chicken production and then sells surpluses on the world market at a price below the cost of production. In foreign countries, the argument that would be made to restrict chicken trade with Australia would be the

A) dumping argument.

B) penalise lax environmental standards argument.

C) national security argument.

D) infant-industry argument.

E) saves jobs argument.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

98) Which of the following is an argument used for protection from free trade?

i. The national security argument.

ii. The infant-industry argument.

iii. The dumping argument.

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

98) The argument that jobs are lost to free trade is

A) incorrect because no jobs are lost and new jobs are created by trade.

B) correct because some jobs are lost but incorrect because new jobs also are created.

C) true only when tariffs are imposed on the goods being imported.

D) totally false because no jobs are lost to free trade.

E) correct because jobs are lost but foreign countries are helped and we can afford losses.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

99) What is an effective counter against the argument that international trade should be restricted to protect domestic jobs?

A) A more effective policy would be to support the industry with subsidies.

B) Free trade in 'green' goods will increase jobs.

C) Free trade increases the number of jobs in which workers earn higher incomes.

D) The more diversified the economy, the more stable it is.

E) Rent-seeking behaviour should be encouraged.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

100) While high-paid Australian workers fear competition with low-paid foreign workers, low-paid foreign workers fear competition with high-paid Australian workers. Why?

A) Because high wages reflect high worker productivity and the low-paid foreign workers are not as productive.

B) It is completely irrational and unfounded.

C) Because Australia has such a large market it can protect its workers.

D) Because high wages mean that Australian workers can buy more goods and services.

E) Because high wages are the result of extensive tariff and other trade restrictions.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

101) When Australia imports goods from the rest of the world, which of the following parties is harmed?

i. Domestic producers of the good.

ii. Domestic consumers of the good.

iii. Foreign producers of the good.

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

102) The two main reasons why international trade is restricted is because restricting trade means that governments can ________ and because domestic businesses ________.

A) rent seek; want to dump

B) obtain revenue; rent seek

C) create jobs; earn profits

D) prevent dumping; want to dump

E) rent seek; obtain revenue

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

103) What is rent seeking with respect to restricting international trade?

A) The rent on factory buildings increases if trade is restricted.

B) An attempt to capture the gains from trade by imposing a tariff.

C) The attempt by importers to avoid paying a tariff.

D) The government's efforts to capture tariff rents.

E) The government avoids paying rent on buildings when importers pay the tariff.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

104) Why are the losers from free international trade not fully compensated for their losses?

A) The people who claim to lose are also the same ones who benefit.

B) The losers are foreigners.

C) The amount of compensation needed would bankrupt the government.

D) No one actually loses from international trade.

E) Identifying all losers and the size of their losses is extremely difficult.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

105) The argument that it is necessary to protect a new industry to enable it to grow into a mature industry that can compete in world markets is known as the

A) infant-industry argument.

B) national youth protection argument.

C) environmental protection argument.

D) diversity argument.

E) national security argument.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

106) ________ occurs when a foreign firm sells its exports at a lower price than its cost of production.

A) Tariff avoidance

B) Dumping

C) Rent seeking

D) The trickle-down effect

E) Nontariff barrier protection

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection

107) Why do governments in less-developed nations usually impose tariffs?

A) The nation's total income will be increased.

B) The government's low-paid workers are protected from high-paid foreign workers.

C) The national security of the country is definitely improved.

D) The government gains revenue from the tariff.

E) The government diversifies its economy.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 9.4 The Case Against Protection