Test Bank Ch21 International Trade And Comparative Advantage - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. The United States is known worldwide as being a low-tariff nation.
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2. Many countries impose tariffs or quotas to protect the domestic industry from competition.
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3. An export subsidy is a payment by the government to exporters to permit them to charge lower prices.
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4. Equilibrium price in international trade is the common price between exporting and importing countries.
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5. Unequal distribution of resources is one of the main reasons for international trade.
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6. The United States has relatively low tariffs.
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7. An import quota will ordinarily raise the price of the good in the importing country.
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8. Trade adjustment assistance provides special unemployment benefits, loans, retraining programs, and other aid to workers and firms that are harmed by foreign competition.
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9. If a country has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item.
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10. Comparative advantage is a comparison among producers based on opportunity cost.
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11. Dumping means selling goods in a foreign market at lower prices than those charged in the home market.
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12. Even though international trade is more complicated, supply and demand are still at the center of the price determination mechanism.
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13. A quota sets the maximum amount of a good that is permitted into a country.
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14. If a country’s productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage.
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15. Dumping is a trade practice in which countries sell goods in a foreign market at cheaper prices than the goods can be produced domestically.
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16. The infant-industry argument for trade protection holds that new industries need to be protected from foreign competition until they develop and flourish.
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17. The principle of comparative advantage states that countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.
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18. If gains from trade are based solely on comparative advantage, and if all countries have the same opportunity costs of production, then there are no gains from trade.
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19. Comparative advantage is illustrated by the slopes of production possibilities frontiers.
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20. Tariffs are more desirable than quotas if a government wants to increase revenues and reduce benefits to inefficient exporters.
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21. Mercantilism is a doctrine that holds that exports are good for a country, whereas imports are harmful.
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22. If England uses one week’s time to produce 10 yards of cloth or 2 barrels of wine and Portugal uses one week’s time to produce 12 yards of cloth or 6 barrels of wine, England has the comparative advantage in both goods.
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23. Talented people who are best at everything have a comparative advantage in the production of everything.
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24. An export subsidy helps reduce the selling price of a product by allowing individual producers to charge less and still cover all of their production costs.
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25. If South Korea has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item.
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26. A tariff is a tax on imports imposed by the country that is importing the goods.
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27. Absolute advantage is the ability to produce a good using fewer inputs than another producer.
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28. Comparative advantage, not absolute advantage, determines the decision to specialize in production.
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29. Large gains from trade are most likely when countries are very different.
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30. A tariff has one distinct advantage over a quota. It increases tax revenues to the government.
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31. If every country uses tariffs, everyone is likely to lose.
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32. When a country removes a specific import restriction, it always benefits every worker in that country.
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33. If two countries voluntarily trade two goods with one another, the rate of exchange between the goods must fall in between the price ratios that would prevail in the two countries in the absence of trade.
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34. The strategic argument for protectionism holds that a nation may sometimes have to threaten protectionism to induce other countries to drop their own protectionist measures.
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35. Imports are goods produced abroad and sold domestically.
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36. Quotas and tariffs provide the same outcome: restriction of international trade and higher prices for consumers.
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37. If England uses one week’s time to produce 10 yards of cloth or 2 barrels of wine and Portugal uses one week’s time to produce 12 yards of cloth or 6 barrels of wine, then England has a comparative advantage in the production of cloth.
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38. Both tariffs and quotas will restrict supplies coming into the country from abroad.
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39. Absolute advantage is a comparison among producers based on productivity.
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40. Gain from trade is the increase in total production due to specialization allowed by trade.
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41. If a country’s workers can produce 10 hamburgers per hour or 5 bags of French fries per hour. If there is no trade, the price of 1 bag of fries is 2 hamburgers.
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42. Voluntary exchange is based on the principle that all parties must gain from trade.
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43. Self-sufficiency is the best way to increase one’s material welfare.
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44. The U.S. Constitution prevents tariffs on trade between the individual states.
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45. A tariff is a tax on imports.
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46. If producers have different opportunity costs of production, trade will allow them to consume outside their production possibility frontiers.
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47. A quota brings a more serious misallocation of resources than a tariff.
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48. According to William Safire, “helpfulism” is basically protectionism.
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49. Strategic trade policy relies on threats of protectionism to protect free trade.
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50. A quota specifies the maximum amount of a good that is permitted into the country from abroad per unit of time.
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51. Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer.
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52. Exports are goods produced domestically and sold abroad.
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53. If one country has an absolute advantage in every commodity, there is no reason for it to trade.
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54. The quantity supplied by domestic producers in an importing country must be less than the quantity demanded by its population.
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55. Any restriction of international trade that is accomplished by a quota can also be accomplished by a tariff.
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56. Specialization means that a country devotes its energy and resources to only a small proportion of the world’s productive activities.
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57. A country’s comparative advantage can be illustrated by the graph of the production possibilities frontier.
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58. Opportunity cost refers to whatever is given up to obtain some item.
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59. Labor is defined as cheap only if its productivity is very low.
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Indicate the answer choice that best completes the statement or answers the question. |
60. A country has a comparative advantage over another in the production of gadgets if it can produce
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61. As a result of pure free trade in a commodity, the
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Figure 34-2  |
62. In Figure 34-2,
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63. From Table 34-1, the United States
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64. The following table shows the units of output a worker can produce per month in country A and country B.
The opportunity cost of I unit of food in country A is
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Figure 34-9  |
65. In Figure 34-9, Pestoland at price OA
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66. How extensively does the United States use quotas?
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67. Tariffs and quotas are effective in protecting industry
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68. Which of the following observations is true of the principle of comparative advantage?
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Figure 34-6  |
69. From the graph in Figure 34-6, the opportunity cost of a unit of bananas is
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70. If nations begin to specialize in production for the purpose of trade,
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71. A program of protection that results in preserving jobs in certain industries
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72. Which of the following is an extreme form of risk associated with investing in a foreign country?
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73. Is it possible for a country to have an absolute disadvantage and a comparative advantage in the production of a good?
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74. Are there impediments to international movement of labor and capital?
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75. Tariffs are different from quotas because they
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76. A country has a comparative advantage over another in the production of gadgets if it can produce
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77. If a nation has an absolute advantage in the production of some commodity, it
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78. The U.S. Constitution
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79. If a nation does not have an absolute advantage in producing anything, it
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80. __________ is a payment by the government to exporters to permit them to reduce the selling prices of their goods so they can compete more effectively in foreign markets.
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Figure 34-4  |
81. In Figure 34-4, the opportunity cost of a unit of wheat in terms of cotton is
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82. A tariff on imports affects foreign suppliers ____; a quota affects foreign suppliers ____.
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83. The way in which a country benefits from trade is that it can
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84. The trade philosophy of the Clinton administration is best characterized as
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85. Which of the following statements regarding the cheap foreign labor argument is correct?
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86. Political factors influence international trade because
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Figure 34-2 |
87. In Figure 34-2, if the United States and Mexico are negotiating to trade wheat for petroleum,
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88.
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89. ____ is a doctrine that holds that exports are good for a country, whereas imports are harmful.
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90. For many years the U.S. government imposed quotas on cheap, Middle Eastern oil imports. The U.S. consumer consequently paid $3 billion more per year for oil products. A likely rationale for such a policy is
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91. A quota is
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92. In discussing trade, it is ____ that matters rather than ____.
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Table 34-4
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93. Table 34-4 presents the demand and supply schedules for television sets in Japan and the United States. If the United States and Japan trade with each other, what will happen to the output of television sets in the United States?
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Figure 34-3  |
94. In Figure 34-3, the solid lines represent the respective production possibilities curves for the United States and Mexico. Which graphs show the correct consumption possibilities curves (dashed lines) after an agreement is reached to trade 1 unit of wheat for 1 unit of petroleum?
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95. Trade adjustment assistance in the United States began in 1962. The program
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96. By tradition, Japanese employers cannot “lay off” workers. As a result they have goods that they cannot sell on the domestic market without driving down prices. To minimize losses, they sell goods such as steel and televisions in foreign markets at prices well below those in Japan. This is called
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97. The effect of an import quota is to
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98. Is the call for protection on the basis of national defense valid?
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99. If a nation has “cheap labor,”
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100. “Protection” is designed to help
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101. If Argentina has a large amount of farmland and Great Britain has many factories,
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Table 34-4
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102. Table 34-4 presents the demand and supply schedules for television sets in Japan and the United States. If there is no trade between these countries, what are the equilibrium price and quantity in Japan?
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103. What would be the output combination for two products A and B on the production possibility frontier, if a country uses its entire resources for producing A?
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104. The supply-demand mechanism will bring an international market into equilibrium
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105. Opening trade between a nation that has “cheap labor” and one that has “expensive labor” will
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106. Among the impediments to the international mobility of capital are
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107. If the United States imposes a tariff on the import of Japanese cars instead of a quota, the price
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108. The world price of a commodity will settle at the level where
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109. Suppose a country’s workers can produce 4 watches per hour or 16 rings per hour. If there is no trade
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110. The main reason why one nation trades with another is to
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Figure 34-7  |
111. In Figure 34-7, where AB represents the production possibilities of Pestoland and CD the production possibilities of Pastaland, Pastaland is
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112. A nation can gain from imposing a tariff on imports if it forces exporting countries
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113. If a nation can produce greater quantities of a good than another nation, it has a(n)
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114. When can a country gain a price advantage on imports by imposing a tariff?
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Figure 34-9 |
115. In Figure 34-9, at price OC total quantity demanded exceeds quantity supplied and price will rise to
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116. Why does equilibrium in the market for a traded good not occur where that country’s quantity demanded equals quantity supplied?
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117. If the production possibilities curves of two countries have the same slope,
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118. The infant industry argument is valid when
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119. Variability in exchange rates of currencies used in international trade
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120. According to the ____ view, a nation’s wealth consists of the amount of gold or other monies at its command.
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121. Japan and China produce guns and rice. The country with the lowest opportunity cost of guns (in terms of rice) will
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122. If the United States imposed a 25 percent tariff on imports of minivans, the effect would be to
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123. In a situation of free trade,
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Table 34-4
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124. Table 34-4 presents the demand and supply schedules for television sets in Japan and the United States. If the United States and Japan decide to trade with each other, what will happen to the output of television sets in Japan?
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Figure 34-1  |
125. In Figure 34-1,
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126. If a country begins to import more of a commodity, one can normally expect the price of the commodity to
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127. The Trade Adjustment Assistance program is intended to help
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128. Suppose a country’s workers can produce 4 watches per hour or 16 rings per hour. If there is no trade
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129. An import quota on a product normally does all of the following except
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130. The following table shows the units of output a worker can produce per month in country A and country B.
The opportunity cost of 1 unit of electronics in country A is
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131. Is the call for protection on the basis of “infant industry” valid?
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Figure 34-8  |
132. Figure 34-8 has four sets of production possibility curves for two hypothetical countries. In which case will there be no advantage to trade between the two countries?
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133. The following table shows the units of output a worker can produce per month in country A and country B.
The opportunity cost of a unit of electronics in Country B is
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Table 34-4
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134. Table 34-4 presents the demand and supply schedules for television sets in Japan and the United States. If there is no trade between these countries, what are the equilibrium price and quantity in the United States?
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135. Which of the following positions would a mercantilist support?
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136. The danger of using the national defense argument to protect domestic industries necessary to wage war is that
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137. Using graphs to illustrate the concepts, absolute advantage
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138. If a country produces a commodity in the range of decreasing returns to scale, and the country begins to export more in a pure free trade system, the domestic price of the commodity will
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139. If a nation has an absolute advantage in the production of a good,
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Figure 34-5  |
140. From the graph in Figure 34-5 (curves show output per unit of labor input), one can infer that
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Table 34-4
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141. Table 34-4 presents the demand and supply schedules for television sets in Japan and the United States. If Japan and the United States trade with each other, which country will export television sets and how many?
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142. The logic of why international trade increases well-being is
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143. David Ricardo discovered that two countries can still gain by trading even if one country is more efficient in the production of every commodity. Ricardo’s discovery is called the law of
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144. Trade between two nations is complicated by
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Figure 34-7 |
145. In Figure 34-7, AB represents the production possibilities of Pestoland and CD that of Pastaland. The graph indicates Pestoland has an absolute
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146. Comparing international trade with trade among the different states of the United States shows that
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147. Trade between nations usually means that
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Table 34-4
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148. Table 34-4 presents the demand and supply schedules for television sets in Japan and the United States. If Japan and the United States trade with each other, what will be the equilibrium price in the world market for television sets?
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149. What matters most in determining efficient distribution of production over the world is
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150. William Safire argues that a unilateral free trade policy is a disaster if
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151. A tariff is
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Figure 34-7 |
152. In Figure 34-7, AB represents the production possibilities of Pestoland and CD that of Pastaland. In this graph, Pestoland has a comparative advantage in
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153. If Japan imposes a quota on imports of rice, the effect will be
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154. A program of protection that results in preserving jobs in certain industries
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155. The effect of a tariff or a quota is to
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Figure 34-7 |
156. In Figure 34-7, CF has the same slope as BG. AB and CD are the production possibilities of Pestoland and Pastaland, respectively. If both countries are given the opportunity to trade at prices indicated by CF,
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Table 34-2
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157. Using the data from Table 34-2, suppose England transfers 2 units of labor from wine to cloth and Portugal transfers 1 unit from cloth to wine. The combined production of wine and cloth will be increased by
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158. A tariff is better than a quota because
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159. A restriction of imports that is accomplished by a quota normally
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Figure 34-10  |
160. Figure 34-10 shows the effect on the market for disk drives of a(n)
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161. The effect of opening trade between countries is
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162. Nothing raises the standard of living more than a greater
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163. How does the imposition of a tariff reduce the price of imports?
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164. A country has an absolute advantage over another in the production of widgets if it can produce
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Figure 34-7 |
165. In Figure 34-7, AB represents the production possibilities of Pestoland and CD that of Pastaland. Pestoland has a comparative advantage in pasta because it
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166. Generally, if a nation imposes a tariff on imports,
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Table 34-3
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167. The data in Table 34-3 indicate that the United States has
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168. A country that must inhibit imports should give preference to
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Figure 34-7 |
169. In Figure 34-7, it is probably true that wages are
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170. When other nations Orient “dump” products on the U.S. market, they
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171. Suppose that with 1 unit of labor, Canada can produce 40 TVs or 20 computers. With 1 unit of labor, Taiwan can produce 30 TVs or 10 computers. Which of the following is correct?
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172. One of the major reasons why nations trade is that
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173. The two primary reasons to adopt measures to restrict trade are that
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174. Ideally, a free trade policy should be accompanied by
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Figure 34-6 |
175. From Figure 34-6, one can infer that
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176. Colombia produces coffee with less labor and land than any other country; it therefore surely has
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177. If a nation imposes a tariff on imports, the portion of the tax paid by citizens depends upon
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178. Assume that a country imposes a tariff in order to gain a price advantage on an item. What is the typical response from the exporting country?
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Figure 34-5 |
179. From the graph in Figure 34-5 (curves show output per unit of labor input), one can infer that
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180. A country can gain by importing a good that it can make itself if
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181. A tariff affects imports
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182. A complicating factor in international trade is that
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183. In the long run, foreign labor remains cheap when and if
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184. If the supply curve of a commodity is upward sloping, and the producing country begins to export more in a pure free trade system, the domestic price of the commodity will
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185. The following table shows the units of output a worker can produce per month in country A and country B.
Which of the following statements about absolute advantage is true?
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186. One reason why nations trade is because
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187. One of the main reasons that people want to limit imports is the
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188. Suppose that the United States can make 15 cars or 20 bottles of wine with one year’s worth of labor. France can make 10 cars or 18 bottles of wine with one year’s worth of labor. From these numbers, we can conclude that
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Figure 34-9 |
189. In Figure 34-9, at price OC
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190. In Figure 34-9, hostilities break out between Pastaland and Pestoland after Pestoland violates the Treaty of Basil. Consequently, trade stops and the price of pasta
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191. The basic concept behind strategic trade policy is that free trade is the best policy to pursue, but some countries don’t play by those rules. Therefore,
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192. Which of the following is true?
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Figure 34-9 |
193. In Figure 34-9, Pestoland exports pasta to Pastaland. Equilibrium will occur when
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194. If two countries each are currently producing two goods, and each begins to specialize in the good in which it has a comparative advantage, what will happen to total (world) output?
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195. An example of a quota that protects an American industry is the quota on
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196. After the American Civil War, many prominent Southerners lamented the fact that the South “overproduced” cotton and “underproduced” food. In fact, the South did import a very large percentage of its food. Nevertheless, rather than reduce cotton production and grow more food, Southern farmers did the opposite because
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197. In William Safire’s 1983 essay, “Smoot-Hawley Lives,” he argues that the United States should
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198. An essential point, among many, in the refutation of the “cheap foreign labor” argument is that
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199. Suppose that Captain Canada can produce 100 hockey sticks or 10 gallons of maple syrup in a typical work week, while Captain Germany can produce 90 hockey sticks or 10 gallons of maple syrup in a typical work week. From these numbers, we can conclude
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Figure 34-9 |
200. In Figure 34-9, Pestoland exports pasta to Pastaland. The equilibrium price of pasta will be
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201. From Table 34-1, the opportunity cost of one bushel of wheat in Great Britain is
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202. A common fallacy that is used to oppose trade is the idea that
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203. Why is comparative advantage rather than absolute advantage the basis for trade? |
204. How can tariffs lead to a situation in which all parties to a trade lose? |
205. “The United States has more oil in Alaska than there is oil in Kuwait. Therefore, the United States should stop importing oil.” Evaluate this statement using economic analysis. |
206. “Free trade benefits one country at another country’s expense.” Evaluate this statement using economic analysis. |
207. Economists say that voluntary exchange makes both parties better off. What is the explanation that they offer to back up this conclusion? |
208. What is mercantilism? What are the draw backs of this doctrine? |
209. The estimated cost of automobile jobs saved due to limitations on foreign autos is $105,000 per job. Why is there a cost to saving jobs through protectionism? |
210. ”I oppose a free trade agreement with Mexico because American workers will lose jobs to low-paid Mexican workers.” Explain whether you agree or disagree with this statement. |
211. Quebec is capable of producing 10 pallets of wood shingles or 8 barrels of maple syrup with a unit of labor. Vermont is capable of producing 12 pallets of wood shingles or 12 barrels of maple syrup with a unit of labor. Assume that this is typical of the labor force as a whole. Which location has the absolute advantage and which has the comparative advantage, in the production of each good? Can these locations reap gains from trade? |
212. Suppose that a quota is imposed on imports of minivans. Show graphically what the effect is in terms of price and quantity of imports. Be sure that your graph is completely and correctly labeled. What determines how much of the quota is paid by the buyers of the minivans? |
213. Carefully define the following terms and explain their importance to the study of economics. a. Specialization b. Absolute advantage c. Comparative advantage d. Quota e. Trade adjustment assistance |
214. The United States can produce 1,000 shoes if it specializes in shoe production. Alternatively, it can produce 500 shirts. Taiwan can produce 500 shoes or 200 shirts. Explain which country will specialize in shoe production and which in shirt production. What are the possible terms of trade? |
215. What are the two approaches followed by the U.S. government to ease the burden on the victims of free trade? |
216. Compare and contrast the effects of a quota and a tariff on imports. Be sure to include both short-run and long-run effects in your answer. |
217. Baumol and Blinder offer some reasons why countries trade with each other. List three of the reasons, and give an example of each to illustrate the reason. |
218. Quebec is capable of producing 10,000 pallets of wood shingles or 8,000 barrels of maple syrup. Vermont is capable of producing 12,000 pallets of wood shingles or 12,000 barrels of maple syrup. a. Graph these production possibilities curves. Indicate from the slope, which has the absolute advantage, which the comparative advantage, and whether there are gains from trade. b. Assume that Vermont and Quebec each specializes in the good in which they have a comparative advantage. Suppose that Vermont and Quebec decide to trade 5,000 pallets of shingles for 5,000 barrels of syrup. Indicate this on the graph. How does this affect the well-being of the two societies? Explain. |
219. Suppose that a tariff is imposed on imports of minivans. Show graphically what the effect is in terms of price and quantity of imports. Be sure that your graph is completely and correctly labeled. What determines how much of the tariff is paid by the buyers of the minivans? |
220. Suppose that the citizens of South Dakota decided to limit imports of citrus fruit from Florida and California on the grounds that climatic differences give those two states an unfair advantage in the production of those products. How would the analysis used to explain international trade apply? |
221. Suppose the South had won the Civil War, and trade no longer took place between Northern and Southern states. Explain whether the sum of the North and South GDPs would have been higher or lower than with the current United States. |
222. What is an export subsidy? Discuss some of the recent examples where such subsidies were controversial. |
223. The essential logic behind international trade is not different from that underlying trade among different states. Why, then, do we study international trade as a special subject? |
224. What is strategic trade policy? What are the pros and cons of such a policy by a nation in its dealings with other nations? |
225. Discuss national defense, infant industry, and strategic trade as arguments for protection. |
226. American producers often complain about dumping. What is dumping, and should it be prohibited? |
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Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol