Parkin&Bade, Macroeconomics, 2nd edition

Chapter 16: International Trade Policy

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) exchanges.

B) imports.

C) exports.

D) bartered goods.

E) world goods.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

2) If you buy a DVD player produced in Japan, a

A) good was imported by Japan and by Australia.

B) good was exported by Japan and imported by Australia.

C) good was exported by Japan and by Australia.

D) service was exported by Japan and imported by Australia.

E) service was imported by Japan and exported by Australia.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

3) The fundamental force that generates international trade is

A) the sea rule.

B) the existence of tariffs.

C) comparative advantage.

D) absolute advantage.

E) the need for more goods and services.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

4) Comparative advantage is based on

A) comparing physical endowments, such as mineral resources, of two countries.

B) two countries producing the same good.

C) differences in opportunity costs between two countries.

D) one country being able to out-produce another country in some good.

E) comparing the capital accumulations of two countries.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

5) How can a domestic producer determine whether or not it has a comparative advantage in the production of a good or service?

A) It cannot.

B) By comparing the price it receives to the prices of other domestic producers.

C) By comparing the total domestic quantity to the total world quantity.

D) By comparing the price it receives to the world price.

E) By comparing the quantity it produces to the quantity produced in the world.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

6) If a nation can produce a good or service at the lowest opportunity cost, then it

A) does not want to export the good because the low cost means it makes only a low profit.

B) will definitely import the good because it can beat other countries' prices.

C) is best for the nation to not trade the good internationally.

D) might export or import the good, depending on whether or not it has a comparative advantage in the production of the good.

E) can sell the product at a lower price than other nations.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

7) Australia imports motor vehicles because

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

B) Australia has a lower opportunity cost of production.

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

D) it is a dangerous job to produce them.

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

8) If Australia imports medicines, then the quantity of medicines produced in Australia will ________ and the quantity of medicines purchased by consumers in Australia will ________.

A) not change; increase

B) decrease; decrease

C) increase; increase

D) decrease; increase

E) increase; decrease

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) will benefit from exporting the good.

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

C) will not engage in trade for that good.

D) will benefit from importing the good.

E) cannot benefit from trade.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

10) 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 decreases because the market price increases.

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

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

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

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

Diff: 0 Type: MC

Skill: Level 2

A-Head: 16.1 How Global Markets Work

AACSB: Analytical thinking

11) A country exports a good if

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

B) it cannot import the good.

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

D) it has a high opportunity cost of production.

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) decrease; falls

B) increase; does not change

C) decrease; rises

D) increase; rises

E) increase; falls

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

13) 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; 700,000

B) $14; 500,000

C) $14; 300,000

D) $14; 700,000

E) $12; 300,000

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

14) 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) $14; does not trade

C) $12; imports

D) $12; exports

E) $12; does not trade

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

15) The above figure shows the Australian market for thongs. With international trade, Australia imports ________ thongs.

A) 400,000

B) 500,000

C) 300,000

D) 700,000

E) 0 because Australia exports thongs

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

16) 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

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

17) 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; increases

B) increase; decreases

C) decrease; increases

D) do not change; increases

E) decrease; decreases

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) $2.50

B) $0.50

C) $2.00

D) $1.50

E) $1.00

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) 600,000 kilograms

B) 0 kilograms

C) 800,000 kilograms

D) 400,000 kilograms

E) 200,000 kilograms

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) 0 kilograms.

B) 200,000 kilograms.

C) 800,000 kilograms.

D) 600,000 kilograms.

E) 400,000 kilograms.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) 0 kilograms.

B) 400,000 kilograms.

C) 200,000 kilograms.

D) 600,000 kilograms.

E) 800,000 kilograms.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) 800,000 kilograms.

B) 600,000 kilograms.

C) 0 kilograms.

D) 400,000 kilograms.

E) 200,000 kilograms.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

23) The figure above shows the Australian demand and supply curves for cherries. At a world price of $2 per kilogram, the total imports of cherries to Australian from other nations equals

A) 600,000 kilograms.

B) 800,000 kilograms.

C) 400,000 kilograms.

D) 200,000 kilograms.

E) 0 kilograms.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

24) Who gains from international trade?

A) Only the exporting nation.

B) Only the importing nation.

C) Both the importing and the exporting nations.

D) Neither the importing nor the exporting nations.

E) The gains depend on which nation gets to keep the total revenue from the sale.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) decreases.

B) stays the same.

C) increases.

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

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

26) 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 to determine if employment increases, decreases or does not change.

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

27) When a nation exports a good or service, 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 to determine if employment increases, decreases or does not change.

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

28) A tariff is a tax

A) on an imported good.

B) imposed on all traded goods.

C) on an exported good.

D) imposed on people's income.

E) imposed on the difference between the value of the goods a firm imports and the value of the goods it exports.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

29) A tariff is

A) the world price of a good or service.

B) a licensing regulation that limits imports.

C) price dumping by a firm engaging in international trade.

D) the domestic price charged by an exporting firm.

E) a tax on an imported good imposed by the importing country.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

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

B) tariffs have trended downward for most of the period.

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

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

E) tariffs were made illegal in Australia in 1955.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

31) After a tariff is imposed, consumers must pay a price equal to the

A) domestic equilibrium price when there is no trade.

B) world market price less the tariff.

C) world market price.

D) domestic equilibrium price when there is no trade plus the tariff.

E) world market price plus the tariff.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

32) Which of the following chains of events occurs when a tariff is imposed on a good?

A) Domestic prices fall, decreasing the domestic quantity supplied and increasing the quantity demanded.

B) Domestic prices rise, shifting the demand curve leftward and the domestic supply curve rightward.

C) Domestic prices rise, shifting the domestic supply curve rightward.

D) Domestic prices rise, decreasing the quantity demanded and increasing the domestic quantity supplied.

E) Domestic prices fall, shifting the demand curve rightward, and consumers buy more of the good.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) fall; a decrease

B) fall; an increase

C) rise; a decrease

D) rise; an increase

E) rise; no change

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

34) If Australia imposes a tariff on a good, then

A) domestic consumption of the good decreases.

B) the government makes less revenue than it would have gained if it had imposed a quota.

C) foreign production of the good increases.

D) domestic production of the good decreases.

E) foreign consumption of the good decreases.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

35) If the government decides to impose a new tariff on orange juice from Brazil, the tariff would lead to ________ the tariff revenue collected by the Commonwealth government.

A) no change in

B) an elimination of

C) making illegal

D) a decrease in

E) an increase in

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

36) 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) $10,000

B) $50,000

C) $60,000

D) $40,000

E) $90,000

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

37) 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

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) Foreign producers because they earn more total revenue.

B) Domestic buyers because they pay a lower price.

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

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

E) Foreign governments because they gain more revenue.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

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

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

C) They export less to Australia.

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

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

40) 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; $14

B) $14; $10

C) $10; $14

D) $12; $14

E) $12; $16

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

41) 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) $2; increases

B) $12; increases

C) $14; increases

D) $14; decreases

E) $2; decreases

Diff: 0 Type: MC

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

42) 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) 800,000; 400,000

B) 300,000; 100,000

C) 900,000; 100,000

D) 900,000; 700,000

E) 700,000; 300,000

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) $6

B) $4

C) $14

D) $12

E) $2

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

44) Of the following, who gains from a tariff?

A) The government of the exporting country

B) Producers in the exporting country

C) The government of the importing country

D) Consumers in the importing country

E) Both the government of the exporting country and the government of the importing country

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

45) 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) $160

B) $360

C) $320

D) $80

E) $240

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

46) A quota is a

A) restriction on how much a customer can buy of a scarce good imposed by the seller.

B) quantitative restriction on an import imposed by the importing country.

C) trade barrier that does not harm domestic consumers of the good or service.

D) tax that is imposed on a good when it crosses an international boundary.

E) quantitative restriction on an import imposed by the exporting country.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

47) A specified maximum amount of a good that may be imported in a given period of time is a

A) dumping limit.

B) tariff.

C) sanction.

D) quota.

E) forcible limit.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

48) If Australia imposed a quota on the amount of salmon imported from New Zealand, the result would be ________ salmon prices in Australia and ________ in the quantity of salmon demanded in Australia.

A) higher; an increase

B) lower; an increase

C) higher; a decrease

D) lower; a decrease

E) higher; no change

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

49) The above figure shows the U.S. market for 1 carat diamonds. With free trade, Americans buy ________ diamonds and pay a price of ________ per diamond.

A) 300,000; $4,000

B) 500,000; $4,000

C) 900,000; $2,000

D) 700,000; $3,000

E) 300,000; $3,000

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

50) The above figure shows the U.S. market for 1 carat diamonds. With free trade, the price in the United States for diamonds is equal to ________ and with the quota illustrated in the figure, the price in the United States is equal to ________.

A) $2,000; $2,000

B) $4,000; $2,000

C) $2,000; $3,000

D) $4,000; $3,000

E) $2,000; $4,000

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

51) The above figure shows the U.S. market for 1 carat diamonds. With free trade, U.S. production of diamonds is equal to ________ diamonds. When the quota illustrated in the figure is in place, U.S. production is equal to ________ diamonds.

A) 900,000; 700,000

B) 300,000; 500,000

C) 100,000; 300,000

D) 100,000; 500,000

E) 300,000; 100,000

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

52) Which of the following methods of restricting trade does NOT harm the overall economy?

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 harm the overall economy.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) A country must preserve its jobs.

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 protect its consumers from foreign influences.

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

54) What is the infant-industry argument for protection from international trade?

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

B) Any firm necessary in wartime must be protected.

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

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

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

55) The infant-industry argument is used by those who assert they want to

A) limit imports to protect new industries.

B) limit exports.

C) encourage foreign firms to dump in Australia.

D) increase exports to encourage the growth of new industries.

E) increase imports to earn money to support new industries.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

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

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

C) Any firm necessary in wartime must be protected.

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

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

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

57) Dumping is defined as the situation in which

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

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

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

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

E) domestic producers are protected by tariffs.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

58) Which of the following is an argument that is 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

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

59) International trade decreases the demand for workers in domestic industries that

A) produce goods that are exported from the country.

B) produce goods that also are imported into the country.

C) produce the goods in which the nation has a comparative advantage.

D) help businesses import and export.

E) service imported goods.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

60) The typical relationship between a worker's productivity and the worker's wage rate is

A) that workers with high productivity need to have their high wages protected by tariffs.

B) high productivity workers receive low wage rates.

C) high productivity workers find that their jobs are often outsourced.

D) low productivity workers receive low wage rates.

E) no link between productivity and wages earned.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

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

A) prevent dumping; want to dump

B) rent seek; want to dump

C) obtain revenue; rent seek

D) create jobs; earn profits

E) rent seek; obtain revenue

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

62) A major reason why it is difficult to lower the barriers to free trade is

A) that total benefits are less than total costs from free trade.

B) that the barriers allow us to compete with cheap foreign labour.

C) the loss of jobs without any gain of jobs from free trade.

D) the uneven distribution of gains and losses from free trade.

E) the inability to compensate losers from free trade.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

63) Which of the following groups gain from international trade?

i. Producers of exported goods

ii. Domestic consumers of imported goods

iii. Workers in exporting firms

A) i only

B) ii only

C) iii only

D) i and iii

E) i, ii and iii

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking