Verified Test Bank International Trade Chapter 18 - Principles of Macroeconomics -Complete Test Bank by Taylor. DOCX document preview.
Chapter 18
International Trade
Multiple Choice
1. International trade tends to
a. | increase economic instability in the world. |
b. | increase the efficiency of production. |
c. | lower profit. |
d. | increase the cost of production. |
e. | increase income inequality around the world. |
OBJ: factual
SEC: 0. International Trade
TOP: World Market Production
MSC: Bloom's: Analysis | AACSB: Analytic
Short Answer
2. Why has international trade grown more rapidly over the past 30 years?
OBJ: factual
SEC: 0. International Trade
TOP: International Trade
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
3. The commerce clause of the U.S. Constitution is a clause that
a. | forbids tariffs and quotas that would hinder trade between the 50 states. |
b. | forbids dumping within the nation. |
c. | restricts the way in which Congress can sign free trade agreements. |
d. | regulates the process of outsourcing American jobs. |
e. | regulates foreign investment. |
OBJ: conceptual
SEC: 1. Trends in International Trade
TOP: Commerce Clause; Tariffs and Quotas
MSC: Bloom's: Knowledge | AACSB: Analytic
4. Many government interventions to restrict trade between countries
a. | have increased economic efficiency. |
b. | involve a foreign firm attempting to monopolize a domestic market. |
c. | involve the existence of public goods. |
d. | have harmed rather than improved economic performance. |
e. | have improved a country's economic performance. |
OBJ: conceptual
SEC: 1. Trends in International Trade
TOP: Sovereign National Governments
MSC: Bloom's: Analysis | AACSB: Analytic
5. In the last 50 years, international trade has grown
a. | rapidly because of fewer trade barriers. |
b. | slowly because of increasing transportation costs. |
c. | slowly because of more government restrictions. |
d. | rapidly because it is more fashionable to consume foreign goods. |
e. | neither more slowly nor more rapidly than in past years. |
OBJ: factual
SEC: 1. Trends in International Trade
TOP: International Trade
MSC: Bloom's: Knowledge
6. Which of the following is not a reason why international trade has increased as a proportion of the world GDP in the last 50 years?
a. | The reduction in transportation costs |
b. | The advent of the Internet and the subsequent reduction in the cost of doing international business |
c. | Reductions in government restrictions on trade between countries |
d. | All of the above are relevant in explaining the growth of international trade. |
e. | None of the above are relevant in explaining the growth of international trade. |
OBJ: conceptual | factual
SEC: 1. Trends in International Trade
TOP: International Trade
MSC: Bloom's: Analysis | AACSB: Analytic
7. Over the past 50 years, international trade, as a proportion of real GDP, has
a. | declined by about 20 percent. |
b. | increased by about 15 percent. |
c. | increased by about 100 percent. |
d. | decreased by about 5 percent. |
e. | increased by about 50 percent. |
OBJ: factual
SEC: 1. Trends in International Trade
TOP: International Trade
MSC: Bloom's: Knowledge
8. The share of 2015 world GDP accounted for by international trade was
a. | between 10 and 12 percent. |
b. | between 70 and 78 percent. |
c. | approximately 60 percent. |
d. | approximately 14 percent. |
e. | between 20 and 25 percent. |
OBJ: factual
SEC: 1. Trends in International Trade
TOP: International Trade
MSC: Bloom's: Knowledge
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9. International trade as a share of world GDP has doubled in the last 40 years.
Basic
OBJ: factual
SEC: 1. Trends in International Trade
TOP: International Trade
MSC: Bloom's: Knowledge
10. According to the text, the most important reason international trade has grown so rapidly during the past 40 years is the reduction in the cost of transportation and communication.
Moderate
OBJ: factual
SEC: 1. Trends in International Trade
TOP: International Trade
MSC: Bloom's: Knowledge | AACSB: Analytic
Multiple Choice
11. According to the theory of comparative advantage,
a. | a country can gain from trade only if it can produce all goods at a lower cost than its trade partner. |
b. | a country can gain from trade only if it can produce a good at a lower cost than another country. |
c. | a country can gain from trade only if it can produce a good more efficiently than another country. |
d. | any country can gain from trade. |
e. | only high-income countries will gain from trade |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge
12. A situation in which a person or a country can produce one good at a lower opportunity cost than another person or country is known as
a. | relative opportunity. |
b. | absolute advantage. |
c. | comparative advantage. |
d. | opportunity cost disparity. |
e. | discrepancy of opportunity. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge
13. If country A can produce computers more efficiently than country B, then trade theory tells us that
a. | country A has an information advantage in computer production. |
b. | country A has an opportunity cost advantage in computer production. |
c. | country A has an absolute advantage in computer production. |
d. | country A has a production advantage in computer production. |
e. | country A has a comparative advantage in computer production. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
14. If country A can produce computers more efficiently than cars relative to country B, then trade theory tells us that
a. | the two countries should trade only if country B has an absolute advantage in car production. |
b. | country B will only gain from trade if it has an absolute advantage in car production. |
c. | country B must have an absolute advantage in car production. |
d. | both can gain from trade regardless of who has the absolute advantage in car production. |
e. | country A should not trade with country B. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
15. Rose has an absolute advantage over Sam in both computer programming and sales. Rose will hire Sam to sell her software if her efficiency at programming
a. | is greater than her efficiency at sales. |
b. | compared to Sam's is less than her efficiency at sales compared to Sam's. |
c. | is less than her efficiency at sales. |
d. | compared to Sam's is greater than her efficiency at sales compared to Sam's. |
e. | is greater than or equal to her efficiency at sales. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
16. Suppose Rose has a comparative advantage over Sam in programming rather than in sales. If Rose sold programs rather than write them, then she would
a. | sacrifice her programming time and her profits would rise. |
b. | not sacrifice her programming time and her profits would rise. |
c. | sacrifice her programming time and her profits would fall. |
d. | not sacrifice her programming time and her profits would fall. |
e. | not sacrifice her programming time because she could make just as much profits by selling as she could by programming. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
17. Rose has an absolute advantage over Sam in computer programming and sales. Her efficiency at programming compared to Sam's is greater than her efficiency at sales compared to Sam's.
a. | Rose has a comparative advantage in sales. |
b. | Sam has an absolute advantage in sales. |
c. | Sam has a comparative advantage in programming. |
d. | Sam has a comparative advantage in sales. |
e. | Sam has an absolute advantage in programming. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
18. Which of the following is the best definition of opportunity cost?
a. | The value of the sum of all possible alternatives to a particular choice |
b. | The value of the next-best foregone alternative that was not chosen because something else was chosen |
c. | The value of a choice multiplied by the value of the next-best alternative |
d. | The cost of making an opportunistic choice |
e. | None of these is remotely close to an appropriate definition of opportunity cost. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Knowledge | AACSB: Analytic
19. Rose has a comparative advantage in computer programming whereas Sam has a comparative advantage in sales. Therefore,
a. | Sam has a lower opportunity cost of spending his time selling than Rose does. |
b. | Rose should specialize in sales. |
c. | Sam should write computer programs. |
d. | Rose has a higher opportunity cost of spending her time writing computer programs than Sam does. |
e. | Sam has a higher opportunity cost of spending his time selling than Rose does. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Analysis | AACSB: Analytic
20. A person with a lower opportunity cost of producing a good than another person
a. | does not have a comparative advantage in either good. |
b. | has a comparative advantage in that good. |
c. | has no incentive to trade in that good. |
d. | has a comparative advantage in the other good. |
e. | has an absolute advantage in the other good. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Knowledge
21. If country A has a lower opportunity cost of producing cars than country B, then country A has
a. | a comparative advantage in car production and country B has an absolute advantage in car production. |
b. | an absolute advantage in car production. |
c. | a comparative advantage in car production. |
d. | an absolute and a comparative advantage in car production. |
e. | no reason to trade with country B. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Analysis | AACSB: Analytic
22. Country A and country B both produce only two goods, cars and computers. If country A has a lower opportunity cost of producing cars, then
a. | country B has an absolute advantage in computer production. |
b. | country B has a comparative advantage in computer production. |
c. | country A will have a comparative advantage in both goods if country A also has a lower opportunity cost of producing computers. |
d. | country A has an absolute advantage in car production. |
e. | country A can also have a lower opportunity cost of producing computers. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 29-1
23. According to the data in Exhibit 29-1, China has a(n)
a. | comparative advantage in neither good. |
b. | absolute advantage in the production of both goods. |
c. | comparative advantage in both goods. |
d. | absolute advantage in good A but not in good B. |
e. | comparative advantage in good A. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Trade between Countries
MSC: Bloom's: Application | AACSB: Analytic
24. According to the data in Exhibit 29-1, China has a(n)
a. | comparative advantage in both goods. |
b. | comparative advantage in good B. |
c. | absolute advantage in good A but not in good B. |
d. | comparative advantage in good A. |
e. | comparative advantage in neither good. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Trade between Countries
MSC: Bloom's: Analysis | AACSB: Analytic
25. According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good A in China is
a. | 3 units of good B. |
b. | 2 units of good B. |
c. | 5 units of good B. |
d. | 1/2 unit of good B. |
e. | 1/3 unit of good B. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Application | AACSB: Analytic
26. According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good B in China is
a. | 3 units of good A. |
b. | 1/3 unit of good A. |
c. | 2 units of good A. |
d. | 1/2 unit of good A. |
e. | 10 units of good A. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Application | AACSB: Analytic
27. According to the data in Exhibit 29-1, the opportunity cost of producing one more unit of good A in India is
a. | 1/2 unit of good B. |
b. | 1/3 unit of good B. |
c. | 3 units of good B. |
d. | 2 units of good B. |
e. | 5 units of good B. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Application | AACSB: Analytic
28. According to the data in Exhibit 29-1, which of the following statements is ?
a. | Chinese workers cannot gain from trade with India. |
b. | Labor productivity in both goods is higher in India than in China. |
c. | Wages will be higher in India than in China. |
d. | Labor productivity in both goods is higher in China than in India. |
e. | Labor productivity in the production of good A is higher in India than in China. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Trade between Countries
MSC: Bloom's: Analysis | AACSB: Analytic
29. According to Exhibit 29-1, which of the following is ?
a. | As workers are more productive in China, wages will be higher. |
b. | As workers are more productive in China, China will have a comparative advantage in the production of both goods. |
c. | As workers are less productive in India, wages will be lower, and they will have a comparative advantage in the production of both goods. |
d. | Indian workers are less productive at producing both goods, so China will not find it advantageous to trade with India. |
e. | Indian workers are less productive at producing both goods, so India will not be able to gain from trade with China. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Labor Productivity
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 29-2
30. According to the data in Exhibit 29-2, the relative price of computers and rice for Japan is
a. | 1/2 computer per unit of rice. |
b. | 1 computer per 4 units of rice. |
c. | 1/4 computer per unit of rice. |
d. | 4 computers per unit of rice. |
e. | 2 computers per unit of rice. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Relative Price
MSC: Bloom's: Application | AACSB: Analytic
31. According to the data in Exhibit 29-2, the relative price of computers and rice for Korea is
a. | 1/2 computer per unit of rice. |
b. | 2 computers per unit of rice. |
c. | 3 computers per 2 units of rice. |
d. | 3/2 computers per unit of rice. |
e. | 2/3 computer per unit of rice. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Relative Price
MSC: Bloom's: Application | AACSB: Analytic
32. Suppose two countries trade two goods without government restrictions. If transportation costs are negligible and markets are competitive, then the price of the goods
a. | will be lower in the high-wage country. |
b. | will be lower in the low-wage country. |
c. | must be the same in both countries. |
d. | could be lower in one country than the other. |
e. | could be higher in one country than the other. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Relative Price
MSC: Bloom's: Knowledge
33. Suppose the relative price of computers and rice in Japan is 2 computers per unit of rice. The relative price of computers and rice in Korea is 1/2 computer per unit of rice. If the two countries trade without government restrictions, transportation costs are negligible, and markets are competitive, then the likely terms of trade will fall in the range of
a. | 3 computers per unit of rice. |
b. | 5 computers per unit of rice. |
c. | 1/4 computer per unit of rice. |
d. | 1 computer per unit of rice. |
e. | 2 computers per unit of rice |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Relative Price
MSC: Bloom's: Analysis | AACSB: Analytic
34. Suppose the pretrade relative price of two goods in country X is 2 and the pretrade relative price of two goods in country Y is 4. The posttrade relative price will settle somewhere between 2 and 4 depending on
a. | the level of wages in the two countries. |
b. | the level of demand in the two countries. |
c. | the opportunity cost of production in the two countries. |
d. | the level of labor productivity in the two countries. |
e. | which country has the absolute advantage. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Relative Price and Demand
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 29-3
35. Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Japan takes 10 workers out of rice production, puts the 10 workers in computer production, and sells the resulting computers to Korea in exchange for rice, the net gain from trade for Japan is
a. | 20 units of rice. |
b. | 3 units of rice. |
c. | 50 units of rice. |
d. | 30 units of rice. |
e. | 5 units of rice. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Gains from Trade
MSC: Bloom's: Application | AACSB: Analytic
36. Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Korea takes 10 workers out of computer production, puts the 10 workers in rice production, and sells the resulting rice to Japan in exchange for computers, Korea will gain
a. | 3 computers. |
b. | 10 computers. |
c. | 2 computers. |
d. | 30 computers. |
e. | 20 computers. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Gains from Trade
MSC: Bloom's: Application | AACSB: Analytic
37. Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Korea takes 10 workers out of rice production, puts the 10 workers in computer production, and sells the resulting computers to Japan in exchange for rice, Korea will
a. | gain 20 units of rice. |
b. | lose 20 units of rice. |
c. | lose 30 units of rice. |
d. | gain 10 units of rice. |
e. | lose 40 units of rice. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Gains from Trade
MSC: Bloom's: Application | AACSB: Analytic
38. The negative slope of Korea's linear production possibilities curve between computers and rice means that
a. | to get more computers, Korea must give up some production of rice. |
b. | Korea has a comparative advantage in rice. |
c. | Korea has a comparative advantage in computers. |
d. | Korea can produce more computers without having to give up some production of rice. |
e. | to get more computers, Korea must give up increasing amounts of production of rice. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Production Possibilities Curve
MSC: Bloom's: Analysis | AACSB: Analytic
39. The slope of the linear production possibilities curve before trade is determined by the
a. | available quantity of labor in the country divided by the average labor productivity. |
b. | average labor productivity divided by the average wage. |
c. | average labor productivity. |
d. | opportunity cost of production. |
e. | available quantity of labor in the country. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Slope Production Frontier
MSC: Bloom's: Analysis | AACSB: Analytic
40. Compared to production possibilities curves without trade, those with trade are
a. | the same but with a different slope. |
b. | shifted inward. |
c. | sometimes shifted outward and sometimes shifted inward. |
d. | shifted outward. |
e. | the same. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Production Possibilities with Trade
MSC: Bloom's: Knowledge
41. The difference between production possibilities curves with and without trade represents the
a. | country's absolute advantage. |
b. | terms of trade. |
c. | deadweight loss to a country. |
d. | gains from trade. |
e. | country's comparative advantage. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Production Possibilities with Trade
MSC: Bloom's: Knowledge
42. The slope of a linear production possibilities curve with trade is given by the
a. | opportunity costs of the product in each country. |
b. | relative pricethe number of units of good A that can be obtained for one unit of good B. |
c. | ratio of productivity of workers in two countries. |
d. | ratio of the elasticities of the product demand curves. |
e. | rise over run of a country's average total cost curve. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Production Possibilities with Trade
MSC: Bloom's: Analysis | AACSB: Analytic
43. When countries specialize in producing products in which they have a comparative advantage, they
a. | increase the amount of goods available for consumption. |
b. | decrease the amount of goods available for consumption. |
c. | gain at the expense of the whole society. |
d. | decrease the world total amount of resources available for production. |
e. | increase the world total amount of resources available for production. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Gains from Trade
MSC: Bloom's: Knowledge
44. The principle of comparative advantage implies that trade
a. | decreases the level of world employment. |
b. | shifts production possibilities curves inward. |
c. | increases the amount of world production. |
d. | decreases the amount of world production. |
e. | decreases the amount of world consumption. |
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Gains from Trade
MSC: Bloom's: Knowledge
45. Linear production possibilities curves explain why a country
a. | tries to produce both products. |
b. | specializes in one product but not the one in which it has a comparative advantage. |
c. | does not specialize in the product in which it has a comparative advantage. |
d. | completely specializes in one product. |
e. | becomes self-sufficient. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Increasing Opportunity Costs
MSC: Bloom's: Analysis | AACSB: Analytic
46. If a country's opportunity costs increase when it trades one product for another,
a. | the country will stop trading in that product. |
b. | the country will have a linear production possibilities curve. |
c. | complete specialization can still occur but only in the product in which the country does not have a comparative advantage. |
d. | the country will specialize completely in the product in which it has a comparative advantage. |
e. | complete specialization does not occur. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Increasing Opportunity Costs: Incomplete Specialization
MSC: Bloom's: Analysis | AACSB: Analytic
47. The principle of comparative advantage
a. | does not hold true in cases of constant opportunity costs. |
b. | does not hold true in cases of increasing opportunity costs. |
c. | holds true in cases of constant opportunity costs but not in cases of increasing opportunity costs. |
d. | holds true in cases of increasing opportunity costs, as it does with constant opportunity costs. |
e. | may or may not hold true in cases of increasing opportunity costs. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Increasing Opportunity Costs
MSC: Bloom's: Analysis | AACSB: Analytic
/
48. A country can have an absolute advantage in the production of all goods.
Moderate
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge | AACSB: Analytic
49. A country cannot have a comparative advantage in the production of all goods.
Moderate
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge | AACSB: Analytic
50. Country A has a comparative advantage over country B in the production of a good if the opportunity cost of producing the good in country A is less than in country B.
Basic
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge
51. Countries with low labor productivity will not have a comparative advantage in the production of any good.
Moderate
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Analysis | AACSB: Analytic
52. The relative price of two goods (units of A per unit of B) is the same as the opportunity cost of producing good B.
Challenging
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Opportunity Cost
MSC: Bloom's: Analysis | AACSB: Analytic
53. To measure the gains from trade, we need to consider the relative prices in the two countries.
Moderate
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Relative Price
MSC: Bloom's: Analysis | AACSB: Analytic
54. The gains from trade are larger for a particular country if the post-trade relative price settles closer to the pre-trade relative price of the other country.
Moderate
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Gains from Trade
MSC: Bloom's: Analysis | AACSB: Analytic
55. The slope of the pre-trade production possibilities curve is the opportunity cost of production.
Basic
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Slope Production Frontier
MSC: Bloom's: Knowledge
56. Consumption can only occur along the pre-trade production possibilities frontier.
Moderate
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Production Frontier and Consumption
MSC: Bloom's: Analysis | AACSB: Analytic
57. Production can only occur along the pre-trade production possibilities frontier.
Moderate
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Production Frontier and Production
MSC: Bloom's: Analysis | AACSB: Analytic
58. If there are increasing opportunity costs of production, the production possibilities curve will bow inward.
Moderate
OBJ: factual
SEC: 2. Comparative Advantage
TOP: Slope Production Frontier
MSC: Bloom's: Analysis | AACSB: Analytic
Short Answer
59. Explain the difference between absolute and comparative advantage.
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Absolute and Comparative Advantage
MSC: Bloom's: Analysis | Bloom's: Knowledge
60. If a country has an absolute advantage in the production of both goods, then it is better off producing them both rather than producing only one good and trading with another country. or Explain.
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Absolute and Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
61. Explain the connection between the relative price and opportunity cost.
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Relative Price and Opportunity Cost
MSC: Bloom's: Analysis | AACSB: Analytic
62. Explain the connection between opportunity costs of production and the shape of the production possibilities curve.
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Shape Production Curve
MSC: Bloom's: Analysis | AACSB: Analytic
63. Explain the connection between opportunity costs of production and complete specialization in the production of a good.
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Complete Specialization
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 29-4
64. Referring to Exhibit 29-4, suppose you are given the following information about the production of two goods in two countries.
(A) | Who has an absolute advantage in the production of each good? |
(B) | Find the opportunity cost of producing bananas in each country. |
(C) | Who has a comparative advantage in banana production? |
(A) | Country A because it gets more output per day of work |
(B) | 1/2 in country A and 1/4 in country B |
(C) | Country B |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
65. Suppose the post-trade relative price is 1/3 radio per banana, or equivalently 1 radio per 3 bananas. Based on the information in Exhibit 29-4, demonstrate the gains from trade to each country by assuming each takes 10 units of labor from the production of one good, moves the units of production to the other good, and trades the extra production with the other country.
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Gains from Trade
MSC: Bloom's: Analysis | AACSB: Analytic
66. Answer the questions below:
(A) | Suppose country A has 100 units of labor and country B has 200 units of labor. Based on the information in Exhibit 29-4, draw the production possibilities curve for both countries, with radios on the horizontal axis. What is the slope of each curve? |
(B) | Suppose the post-trade relative price is 1/3 radio per banana, or equivalently 1 radio per 3 bananas. Draw the post-trade production possibilities curve for each country and identify the production point for each country. |
(A) | See graph below. The slope for country A is 2. The slope for country B is 4. |
| |
(B) | Each country will completely specialize. The production points are given by the letter P. The new production possibilities curve is the dashed line. |
OBJ: conceptual
SEC: 2. Comparative Advantage
TOP: Production Possibilities Curve
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
67. Central America would most likely have a comparative advantage over the United States in producing
a. | automobiles. |
b. | tropical fruits. |
c. | computers. |
d. | pharmaceuticals. |
e. | financial services. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge
68. The United States may have a comparative advantage in pharmaceuticals because of
a. | its investment in research. |
b. | its ability to bypass patent laws in various countries. |
c. | its natural resource endowment. |
d. | weather conditions. |
e. | its geographical location in the world. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge
69. Changes in comparative advantage over time from investment in physical and human capital and in technology are called
a. | static comparative advantage. |
b. | innovative comparative advantage. |
c. | resource-intensive comparative advantage. |
d. | dynamic comparative advantage. |
e. | differential comparative advantage. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge
70. Which of the following is least likely to explain a country's comparative advantage?
a. | Its stock of natural resources |
b. | A skilled labor force |
c. | Its transportation system |
d. | The level of physical capital investment |
e. | The level of investment in research |
OBJ: conceptual
SEC: 3. Reasons for Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
71. The Heckscher-Ohlin model
a. | provides support for levying tariffs on imported goods. |
b. | supports restrictions on trade. |
c. | provides an explanation for why a country has a comparative advantage in a good. |
d. | explains why mercantilism is inefficient. |
e. | explains why comparative advantage changes over time because of investment in physical and human capital. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Heckscher-Ohlin Model
MSC: Bloom's: Knowledge
72. If one country has a higher level of capital per worker than another country, it is relatively
a. | capital abundant. |
b. | labor abundant. |
c. | labor intensive. |
d. | capital intensive. |
e. | capital deepened. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor Abundance
MSC: Bloom's: Knowledge
73. If one country has a lower level of capital per worker than another country, it is relatively
a. | labor abundant. |
b. | capital intensive. |
c. | capital abundant. |
d. | labor intensive. |
e. | labor deepened. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor Abundance
MSC: Bloom's: Knowledge
74. Production that uses a relatively high level of capital per worker is called
a. | labor abundant. |
b. | capital intensive. |
c. | labor intensive. |
d. | capital abundant. |
e. | labor deepened. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor Intensity
MSC: Bloom's: Knowledge
75. Production that uses a relatively low level of capital per worker is called
a. | labor abundant. |
b. | capital abundant. |
c. | labor intensive. |
d. | capital intensive. |
e. | capital deepened. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor Intensity
MSC: Bloom's: Knowledge
76. A country would have a comparative advantage in a good if its production is
a. | capital intensive and the country is capital abundant. |
b. | capital intensive and the country is labor abundant. |
c. | labor intensive and the country is capital abundant. |
d. | capital intensive but the country is neither capital nor labor abundant. |
e. | labor intensive but the country is neither capital nor labor abundant. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor Intensity
MSC: Bloom's: Knowledge
77. An implication of the Heckscher-Ohlin model is that trade will tend to
a. | bring factor prices into equality in different countries. |
b. | cause factor prices to fall in different countries. |
c. | be diverted from countries with higher factor prices. |
d. | not have any effect on factor prices in different countries. |
e. | cause factor prices to rise in different countries. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Knowledge
78. If the comparative advantage between Japan and Korea was due only to differences in relative capital and labor abundance, then trade would tend to
a. | increase real wages in the higher-wage country and lower real wages in the lower-wage country. |
b. | have no effect on the real wages in either country. |
c. | increase real wages in the lower-wage country and lower real wages in the higher-wage country. |
d. | decrease money wages in the lower-wage country and raise money wages in the higher-wage country. |
e. | prevent wages from changing in either country. |
OBJ: conceptual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Analysis | AACSB: Analytic
79. The equilibrating of the price of labor and the price of capital across countries when they are engaging in free trade is called
a. | the Leontief paradox. |
b. | the gains from trade model. |
c. | the complete specialization model. |
d. | factor-price equalization. |
e. | the comparative advantage model. |
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Knowledge
80. Trade will tend to increase wages in a labor-abundant country because the
a. | supply of labor will increase. |
b. | supply of labor will decrease and the demand for labor will increase. |
c. | demand for labor will increase. |
d. | demand for labor will decrease. |
e. | supply of labor will decrease. |
OBJ: conceptual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Analysis | AACSB: Analytic
/
81. If country A has a lower level of capital per worker than country B, then country A is relatively labor intensive.
Moderate
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Labor Abundance
MSC: Bloom's: Analysis | AACSB: Analytic
82. A country should specialize in the production of those goods that use its most abundant factor most intensively.
Moderate
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Heckscher-Ohlin Theory
MSC: Bloom's: Analysis | AACSB: Analytic
83. Trade will tend to increase wages in a labor-abundant country.
Basic
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Knowledge
84. Trade will tend to increase the cost of capital in a labor-abundant country.
Basic
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Knowledge
85. Trade will tend to equalize factor prices.
Basic
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Knowledge
86. Trade will tend to equalize the price of goods, but not the price of factors of production.
Basic
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Knowledge
87. Wages in the developed world with high technology remain about equal to wages in the less-developed world with low technology.
Moderate
OBJ: conceptual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Analysis | AACSB: Analytic
88. If the United States is relatively abundant in high-skilled workers and other countries are relatively abundant in low-skilled workers, then high-skilled workers' wages should rise and low-skilled workers' wages should fall in the United States.
Challenging
OBJ: conceptual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Analysis | AACSB: Analytic
89. Workers in countries with higher productivity will be paid more than workers with lower productivity, even in countries that trade.
Moderate
OBJ: conceptual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Analysis | AACSB: Analytic
Short Answer
90. What determines a country's comparative advantage?
OBJ: factual
SEC: 3. Reasons for Comparative Advantage
TOP: Comparative Advantage
MSC: Bloom's: Knowledge | AACSB: Analytic
91. Suppose there are two countries that are about to begin trading goods; one is labor abundant and one is capital abundant.
(A) | What can be said about the type of goods that each should produce? |
(B) | What can be said about how factor prices will change in the two countries after trade? |
(A) | The labor-abundant country should specialize in labor-intensive goods and the capital-abundant country should specialize in capital-intensive goods. |
(B) | Wages will increase in the labor-abundant country and decrease in the capital-abundant country. The cost of capital will increase in the capital-abundant country and decrease in the labor-abundant country according to the factor-price equalization theory. |
OBJ: conceptual
SEC: 3. Reasons for Comparative Advantage
TOP: Factor-Price Equalization
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
92. Suppose two countries have similar resources, capital, and skilled labor. If they produce more, the cost per unit of production for both goods declines as more goods are produced. The most efficient method to produce the products is for each country to
a. | produce some of each product and not trade with each other. |
b. | specialize in one of the products and then trade extra production for the other product. |
c. | specialize in one of the products but not trade extra production for the other product. |
d. | produce some of each product and then trade with each other. |
e. | specialize in both products while hoping the other country is not successful in its specialization. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Effects of a Larger Market
MSC: Bloom's: Analysis | AACSB: Analytic
93. When economies of scale exist over wide production ranges, countries that specialize in one product and trade excess units to other countries can
a. | raise the quality of the product. |
b. | lower production of the product. |
c. | raise the price of the product. |
d. | lower average total costs of production. |
e. | increase revenues. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Effects of a Larger Market
MSC: Bloom's: Knowledge
94. When cost per unit of production for two goods declines as more are produced, a country that trades can
a. | rationalize production of both in order to enjoy the benefits of trade. |
b. | expand production of both products. |
c. | reduce the size of the market for the product it produces. |
d. | contract production of both products. |
e. | expand production of one product and contract production of the other. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Effects of a Larger Market
MSC: Bloom's: Knowledge
95. When economies of scale exist over wide production ranges for two products,
a. | no specialization in production will occur but cost per unit will fall. |
b. | the gain from trade is the reduction in cost per unit. |
c. | specialization in production will occur but cost per unit will not fall. |
d. | the gain from trade is the increase in cost per unit. |
e. | the gain from trade is the increase in labor productivity. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Economies of Scale
MSC: Bloom's: Analysis | AACSB: Analytic
96. Trade between countries in goods from the same or similar industries is called
a. | interindustry trade. |
b. | free trade. |
c. | the gains from trade. |
d. | intraindustry trade. |
e. | collusive trade. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry versus Interindustry Trade
MSC: Bloom's: Knowledge
97. Trade between countries in goods from different industries is called
a. | free trade. |
b. | intraindustry trade. |
c. | interindustry trade. |
d. | the gains from trade. |
e. | competitive trade. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry versus Interindustry Trade
MSC: Bloom's: Knowledge
98. Trade due to comparative advantage tends to be
a. | intraindustry. |
b. | more important than trade due to economies of scale. |
c. | multinational. |
d. | just like trade due to economies of scale. |
e. | interindustry. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry versus Interindustry Trade
MSC: Bloom's: Analysis | AACSB: Analytic
99. Trade due to expanded markets differs from trade due to comparative advantage in that
a. | the gains from trade due to expanded markets do not rely on differences in efficiencies. |
b. | the gains from trade due to comparative advantage do not rely on efficiencies. |
c. | trade due to expanded markets tends to be interindustry trade. |
d. | trade due to comparative advantage tends to be intraindustry trade. |
e. | trade due to expanded markets relies on factor abundance. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Trade due to Expanded Markets
MSC: Bloom's: Analysis | AACSB: Analytic
100. Consider an industry in which, for each individual firm in the industry, cost per unit of output declines as the individual firm's output increases. If there is an increase in the number of firms in this industry whereas the market size stays the same, then the
a. | marginal cost at each firm decreases because each firm produces more. |
b. | average total cost at each firm increases because each firm produces less. |
c. | marginal cost at each firm increases because each firm produces more. |
d. | average total cost at each firm decreases because each firm produces more. |
e. | average total cost at each firm decreases because each firm produces less. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Economies of Scale
MSC: Bloom's: Knowledge
101. Consider an industry in which, for each individual firm in the industry, cost per unit of output declines as the individual firm's output increases. As the size of the market increases, the average total cost at each firm
a. | decreases because each firm produces more. |
b. | decreases because each firm produces less. |
c. | increases because each firm produces less. |
d. | increases because each firm produces more. |
e. | remains the same because the number of firms remains constant. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Economies of Scale
MSC: Bloom's: Analysis | AACSB: Analytic
102. The figure below shows the relationship between cost per unit and the number of firms producing a particular good. The downward shift in the curve from A to B is best explained by a(n)
a. | increase in the number of firms in the market. |
b. | increase in market size. |
c. | decrease in the number of firms in the market. |
d. | increase in market price. |
e. | decrease in the market size. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: The Effect of Market Size
MSC: Bloom's: Analysis | AACSB: Analytic
103. An increase in the number of firms entering a market causes the
a. | market price to increase. |
b. | cost per unit to decline. |
c. | market price to decline. |
d. | cost per unit curve to shift up. |
e. | cost per unit curve to shift down. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Relationship between Price and the Number of Firms
MSC: Bloom's: Analysis | AACSB: Analytic
104. If price is above cost, then
a. | there are too many firms. |
b. | firms will enter the industry. |
c. | firms are losing profit. |
d. | firms will exit the industry. |
e. | average cost is too low. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Price and Number of Firms
MSC: Bloom's: Knowledge
105. A long-run equilibrium in an industry exists when
a. | cost per unit is at its lowest possible level. |
b. | there is only one firm in the industry. |
c. | the size of the market remains constant. |
d. | price equals cost per unit. |
e. | price equals marginal cost. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Price and Number of Firms
MSC: Bloom's: Knowledge
106. An increase in the size of the market due to the creation of a free trade area
a. | reduces the equilibrium price and increases the number of firms. |
b. | increases the equilibrium price and increases the number of firms. |
c. | reduces the equilibrium price and decreases the number of firms. |
d. | increases the equilibrium price and decreases the number of firms. |
e. | has no effect on equilibrium price and decreases the number of firms. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Free Trade Area
MSC: Bloom's: Analysis | AACSB: Analytic
107. When countries create a free trade area and increase market size, the schedule relating
a. | price to the number of firms in the market shifts to the left. |
b. | average total cost to the number of firms in the market shifts to the left. |
c. | average total cost to the number of firms in the market shifts to the right. |
d. | price to the number of firms in the market shifts to the right. |
e. | average total cost to the number of firms in the market remains constant. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Free Trade Area
MSC: Bloom's: Analysis | AACSB: Analytic
108. When countries create a free trade area and increase market size, there will be
a. | less product variety and a less competitive market. |
b. | more product variety and a less competitive market. |
c. | less product variety, which is another part of the gain from trade. |
d. | more product variety, which is another part of the gain from trade. |
e. | less product variety but a better quality of products. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Free Trade Area
MSC: Bloom's: Analysis | AACSB: Analytic
109. Trade in cars between Canada and the United States occurs
a. | because Canada has a comparative advantage. |
b. | because the United States has a comparative advantage and Canada has the absolute advantage. |
c. | even though neither country has an obvious comparative advantage. |
d. | because the United States has a comparative advantage. |
e. | because both countries have a comparative advantage. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
110. When Canada and the United States permitted free trade in cars, Canadian automobile
a. | exports to the United States did not change. |
b. | production costs increased. |
c. | production increased. |
d. | consumers paid higher prices. |
e. | production decreased. |
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Free Trade
MSC: Bloom's: Knowledge
/
111. A huge amount of international trade is intraindustry.
Moderate
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry versus Interindustry
MSC: Bloom's: Knowledge | AACSB: Analytic
112. Trade due to comparative advantage tends to be intraindustry.
Moderate
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry versus Interindustry
MSC: Bloom's: Knowledge | AACSB: Analytic
113. When the size of the market increases, the relationship between the number of firms in the market and the average total cost shifts upward.
Basic
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Relationship between Average Total Cost and the Number of Firms
MSC: Bloom's: Knowledge
114. As a market increases in size, average total cost declines at each firm if the number of firms does not change.
Basic
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Relationship between Average Total Cost and the Number of Firms
MSC: Bloom's: Knowledge
115. If price is above average cost, then there are too many firms.
Basic
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: Price and Number of Firms
MSC: Bloom's: Knowledge
Short Answer
116. Explain how there can be gains from trade between countries even if there is no difference in the efficiency of production between each country.
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage versus Expanded Markets
MSC: Bloom's: Analysis | AACSB: Analytic
117. How does trade due to comparative advantage differ from trade due to expanded markets?
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage versus Expanded Markets
MSC: Bloom's: Analysis | AACSB: Analytic
118. What are the gains from trade when there is an increase in the market size? Why do these gains occur?
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Gains from Trade from Expanded Markets
MSC: Bloom's: Analysis | AACSB: Analytic
119. Suppose China and India are both able to produce tea and cloth by only using labor. In China, it takes 1 unit of labor to produce 1 kilogram of tea and 2 units of labor to produce 1 meter of cloth. In India, it takes 2 units of labor to produce 1 kilogram of tea and 2 units of labor to produce 1 meter of cloth.
(A) | Suppose China has 1,000 units of labor and India has 800 units of labor. Draw the production possibilities curve without trade for each country. |
(B) | Which country has the absolute advantage in tea production? Which country has a comparative advantage in tea production? Which country has a comparative advantage in cloth production? |
(C) | In what range would the world trading price ratio lie when these countries open up to free trade? |
(A) | Production of tea and cloth per unit of labor in India and China: See diagrams I and II below. |
| |
| |
(B) | Determining comparative advantage for India and China: |
| |
China has the absolute advantage in tea production because it has a lower unit labor requirement. | |
China has a comparative advantage in tea production because its opportunity cost of tea is lower than India's. India has a comparative advantage in cloth production because its opportunity cost of cloth is lower than China's. | |
(C) | The terms of trade will be between 1 kilo and 2 kilos of tea per unit of cloth. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
120. Was the rationale for the North American Free Trade Agreement (NAFTA) based solely on the concept of comparative advantage? Explain.
OBJ: factual
SEC: 4. Gains from Expanded Markets
TOP: NAFTA Rationale
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 29-5
121. Refer to Exhibit 29-5. Suppose that the following table represents the production of wheat and strawberries per unit of labor in the United States and Mexico:
(A) | Which country has a comparative advantage in wheat production? Why? |
(B) | Which country has an absolute advantage in wheat? in strawberries? Why? |
(C) | With free trade between the United States and Mexico, is it possible that 1 bushel of wheat will trade for 1 pint of strawberries? Why or why not? |
(D) | Suppose the free trade price is 2 bushels of wheat for 1 pint of strawberries. Draw a diagram indicating the production possibilities curve with and without trade if the United States has 100 million units of labor. How much of each good will the United States produce? |
(A) | As can be inferred from the following table, Mexico has a comparative advantage in wheat. In other words, the opportunity cost of wheat is lower in Mexico than in the United States. |
| |
(B) | Neither has an absolute advantage in wheat. The United States has an absolute advantage in strawberries because it can produce more per unit of labor. |
(C) | Refer to the table shown in part (A). No. The relative price after trade will be between the pretrade relative pricesthat is, between 3 and |
(D) | The following diagram shows the tradeoff between wheat and strawberries for the United States before and after trade. The United States will produce 400 strawberries (million pints) and no wheat. |
|
or 
and 
.
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
122. Suppose that instead of constant costs of production, the United States and Mexico both had increasing costs of production.
(A) | What would happen to the numbers in the table in Exhibit 29-5 as production was increased? |
(B) | What would happen to the production possibilities curve? |
(C) | What would happen to production in each country? |
(A) | The numbers would decrease, and the opportunity cost of producing each good would increase. The same labor would produce less output. |
(B) | The production possibilities curve would bow out. |
(C) | There would be incomplete specialization. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Opportunity Costs of Production
MSC: Bloom's: Analysis | AACSB: Analytic
123. Using the price/cost per unit analysis diagram presented in this section, show how a free trade agreement between countries with identical technology and resources can lead to gains from trade.
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Gains from Trade from Expanded Markets
MSC: Bloom's: Analysis | AACSB: Analytic
124. Suppose Canada has 400 units of labor and the United States has 800 units of labor. In Canada, 1 unit of labor can produce 10 bushels of wheat or 5 pounds of fish. In the United States, 1 unit of labor can produce 12 bushels of wheat or 6 pounds of fish. Draw the production possibilities curve for each country. Who has a comparative advantage in the production of wheat? Explain.
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
125. It takes Gail two hours to mow the lawn and one hour to clean up the house on weekends. It takes Gail's husband two hours to clean up the house. Gail's husband is responsible for cleaning up the house. Use the concept of comparative advantage to explain why.
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
126. Does comparative advantage occur only because of resource endowments? Explain.
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Comparative Advantage
MSC: Bloom's: Analysis | AACSB: Analytic
127. The United States imports more manufactured goods than it exports. These are goods that require more capital than labor. It also exports more services than it imports. Services require more labor than capital. If comparative advantage depends on relative factor abundance, what does the United States have in relative abundance? Does this make sense for an economy as advanced as the United States?
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Relative Factor Abundance
MSC: Bloom's: Analysis | AACSB: Analytic
128. Most trade between countries is of the interindustry varietythat is, a country will trade one good for a different good. Is this statement or ? Explain.
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry Trade
MSC: Bloom's: Analysis | AACSB: Analytic
129. Suppose that each firm in an industry has total costs as shown in the following table.
(A) | Suppose that the quantity demanded in the market is perfectly inelastic at a quantity of 6. Calculate the average total cost for each firm when there are 1, 2, and 6 firms in the industry. Draw a diagram indicating the relationship between average total cost and the number of firms. |
(B) | Suppose the quantity demanded in the market expands because of an opening of trade and is now perfectly inelastic at a quantity of 8. Draw a diagram, similar to the one in part (A), indicating the relationship between average total cost and the number of firms. Why does this opening of trade cause this shift in the curve? |
(C) | What happens to price in the long run? Explain. |
(A) |
|
The average total cost when there are 1, 2, and 6 firms is $21.3, $35, and $100, respectively. This is illustrated in the graph below. | |
| |
(B) | Opening trade causes the market to increase. The diagram below shows that if the number of firms stays constant when the market increases in size, then average total cost declines as well. This is because as each firm increases output, it is able to exploit economies of scale. |
| |
(C) | Price in the long run will be lower, as can be seen from the downward-sloping price line in the graph in part (B). Price is lower because for any given number of firms, ATC is lower since output is higher. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry Trade
MSC: Bloom's: Analysis | AACSB: Analytic
130. The following relationship between price, average total cost, and the number of firms describes an industry in a single country.
(A) | Graph the relationship between average total cost and the number of firms, as well as the relationship between price and the number of firms. |
(B) | Find the long-run equilibrium price and number of firms. |
(C) | Suppose the country opens to trade with other countries. Which line will shift and in which direction? What will happen to the long-run equilibrium price and the number of firms in the industry? |
(A) |
|
(B) | The long-run equilibrium price is where price equals ATC. As shown in the diagram in part (A), this occurs at a price of $40 with 5 firms in the market. |
(C) | An opening up of trade will cause the ATC line to shift down. The long-run equilibrium price will fall and the number of firms will increase. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry Trade
MSC: Bloom's: Analysis | AACSB: Analytic
131. Explain whether the following statements are true or
(A) | Although a country can have an absolute advantage in the production of all goods, a country cannot have a comparative advantage in the production of all goods. |
(B) | A country with a relatively high capital labor ratio is capital intensive. |
(C) | The theory of comparative advantage explains why all trade takes place. |
(A) | True. A country can be absolutely more productive in the production of all goods and have an absolute advantage in producing all goods. A country cannot have a comparative advantage in the production of all goods. Comparative advantage is found by looking at opportunity cost. The opportunity cost of production will be higher for some goods and lower for other goods, compared to another country. Each country should produce its goods with the lowest opportunity cost, in comparison with the other country, to maximize the gains from trade. |
(B) | False. A country with a relatively high capital labor ratio is capital abundant and should specialize in the production of capital-intensive goods. |
(C) | False. The theory of comparative advantage explains trade in different products. Trade in similar products is explained by economies of scale and expanded markets in which a country can gain by producing a larger quantity of a good. If there are economies of scale, as production increases, average total cost will fall. A country can therefore gain by increasing the production of some goods and importing other goods within the same industry. Cars are a good example. |
OBJ: conceptual
SEC: 4. Gains from Expanded Markets
TOP: Intraindustry Trade, Comparative Advantage, and Capital Abundance
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
132. A policy that restricts trade to protect domestic producers is called a(n)
a. | domestic revenue-generating policy. |
b. | no-free-trade policy. |
c. | interventionist policy. |
d. | protectionist policy. |
e. | no-tariff policy. |
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Trade Restrictions
MSC: Bloom's: Knowledge
133. Protectionist policies tend to
a. | cause domestic industries to face more competition from foreign imports. |
b. | expand international trade. |
c. | raise domestic prices. |
d. | protect foreign producers selling in domestic markets. |
e. | increase the selection of goods available to domestic consumers. |
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Trade Restrictions
MSC: Bloom's: Knowledge
134. A tax on an import evaluated as a percentage of the value of the import is called a(n)
a. | per unit tariff. |
b. | sales tax. |
c. | ad valorem tariff. |
d. | specific tariff. |
e. | value-added tax. |
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Knowledge
135. What is a tariff?
a. | A limit on the amount of products that can be imported into a country |
b. | A limit on the amount of products that can be exported out of a country |
c. | A tax on goods and services imported into a country |
d. | A tax on goods and services exported out of a country |
e. | The rate at which goods and services are traded internationally |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Knowledge
136. A tax on imports that is proportional to the number of units or items imported is called a(n)
a. | value-added tax. |
b. | ad valorem tariff. |
c. | per unit tariff. |
d. | quota tax. |
e. | specific tariff. |
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Knowledge
137. The oldest and most common method for a government to restrict trade is the
a. | voluntary export restraint. |
b. | quota. |
c. | voluntary restraint agreement. |
d. | tariff. |
e. | voluntary import expansion. |
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Knowledge
138. A curve showing the quantity of imports demanded at various prices is called a(n)
a. | export supply curve. |
b. | import supply curve. |
c. | demand curve. |
d. | import demand curve. |
e. | export demand curve. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Knowledge
139. A curve showing the quantity of exports supplied at various prices is called a(n)
a. | export demand curve. |
b. | import demand curve. |
c. | export supply curve. |
d. | supply curve. |
e. | import supply curve. |
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Knowledge
140. The intersection of the export supply curve and import demand curve gives the amount
a. | exported out of the country, but not the price. |
b. | imported into the country and the price. |
c. | exported out of the country and the price. |
d. | imported into the country, but not the price. |
e. | of foreign currency traded, but not the amount of goods and services exported and imported. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
141. When the government imposes a tariff, the
a. | import demand curve shifts up. |
b. | export supply curve shifts up. |
c. | import demand curve shifts down. |
d. | export supply curve shifts down. |
e. | export supply curve shifts up and demand curve shifts down. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
142. When the government imposes an import tariff, the price received by suppliers equals the price
a. | suppliers pay less the tariff the consumers must pay to the government. |
b. | consumers pay plus the tariff the suppliers must pay to the government. |
c. | consumers pay less the tariff the suppliers must pay to the government. |
d. | suppliers pay plus the tariff the consumers must pay to the government. |
e. | paid by consumers. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
143. When the United States imposes a tariff on imported cars, U.S. consumers pay
a. | more for imported and less for domestically produced cars. |
b. | less for imported and more for domestically produced cars. |
c. | less for imported and domestically produced cars. |
d. | more for imported and domestically produced cars. |
e. | the same as before the tariff was imposed. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 30-1
144. According to the data in Exhibit 30-1, the equilibrium price for the good is
a. | 12. |
b. | 3. |
c. | 10. |
d. | 5. |
e. | 4. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Equilibrium Price
MSC: Bloom's: Knowledge
145. If the world price of the good is $4, according to the data in Exhibit 30-1,
a. | there is an excess demand for the good, and the price will fall. |
b. | there is an excess supply of the good, and the price will fall. |
c. | there is an excess supply of the good, and the price will rise. |
d. | there is an excess demand for the good, and the price will rise. |
e. | this is the equilibrium price. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Equilibrium Price
MSC: Bloom's: Analysis | AACSB: Analytic
146. Refer to Exhibit 30-1. If the importing country imposes a tariff of $2 per unit, the new equilibrium price will be
a. | $5. |
b. | $4. |
c. | $7. |
d. | $6. |
e. | $3. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Equilibrium Price
MSC: Bloom's: Analysis | AACSB: Analytic
147. Refer to Exhibit 30-1. If the importing country imposes a tariff of $2 per unit, consumers will pay ____ percent of the tax, and producers will pay ____ percent.
a. | 75; 25 |
b. | 60; 40 |
c. | 25; 75 |
d. | 50; 50 |
e. | 40; 60 |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Producer Tax Share
MSC: Bloom's: Analysis | AACSB: Analytic
148. An upper limit on the quantity of a good that may be imported or sold is called a(n)
a. | per-unit tariff. |
b. | ad valorem tariff. |
c. | quota. |
d. | specific tariff. |
e. | value-added tax. |
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Quotas
MSC: Bloom's: Knowledge
149. A quota set below the free market equilibrium quantity of imports will mean that
a. | consumers will pay a price that would prevail in a foreign country. |
b. | foreign producers will receive a price higher than the market equilibrium price without a quota. |
c. | consumers will pay a price higher than the market equilibrium price without a quota. |
d. | foreign producers will receive a price equal to the market equilibrium price without a quota. |
e. | consumers will pay a price lower than the market equilibrium price without a quota. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Quotas
MSC: Bloom's: Analysis | AACSB: Analytic
150. If the price U.S. consumers pay with a quota on an imported good exceeds the price they pay without a quota, then the quota was set
a. | above the equilibrium quantity without a quota. |
b. | below the equilibrium quantity without a quota. |
c. | sometimes above and sometimes below the equilibrium quantity without a quota. |
d. | equal to the equilibrium quantity without a quota. |
e. | to allow a different quantity of imports than a tariff. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Quotas
MSC: Bloom's: Analysis | AACSB: Analytic
Exhibit 30-2
151. Refer to the data in Exhibit 30-2. If the importing country sets a quota of 10 units, imports will be
a. | the same as the free trade case. |
b. | greater than the free trade case. |
c. | higher than in the case of the tariff. |
d. | lower than in the case of the tariff. |
e. | the same as in the case of the tariff. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Equilibrium Price with Quota
MSC: Bloom's: Analysis | AACSB: Analytic
152. The government is considering imposing either a tariff that will restrict export supply according to the data in Exhibit 30-2 or a quota that limits imports to 8 units. Which of the following is ?
a. | Consumers will prefer the quota. |
b. | The government will collect more revenue with the quota. |
c. | Producers will prefer the quota. |
d. | The equilibrium price will be lower with the quota. |
e. | Imports will be higher with the quota. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Equilibrium Price with Quota
MSC: Bloom's: Analysis | AACSB: Analytic
153. The difference between a tariff and a quota is that the
a. | government collects more revenue by imposing a quota. |
b. | government collects no revenue by imposing a quota. |
c. | producer and consumer prices are equal when a tariff is imposed, but different when a quota is imposed. |
d. | producer and consumer prices are equal when a quota is imposed, but different when a tariff is imposed. |
e. | tariff is more effective at restricting imports. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs versus Quotas
MSC: Bloom's: Analysis | AACSB: Analytic
154. Which of the following statements about trade restrictions is ?
a. | Trade restrictions are a benefit to consumers. |
b. | All types of trade restrictions will increase government revenue. |
c. | Foreign producers always benefit when trade restrictions are imposed. |
d. | Domestic producers always lose revenue when trade restrictions are imposed. |
e. | Domestic producers benefit at the expense of domestic consumers and foreign producers. |
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Cost of Trade Restrictions
MSC: Bloom's: Analysis | AACSB: Analytic
/
155. A policy that restricts trade is called a protectionist policy.
Basic
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Protectionism
MSC: Bloom's: Knowledge
156. There are winners and losers as a result of protectionist policies, but economic theory can show that the gains from the winners are larger than the losses of the losers.
Moderate
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Gains from Trade
MSC: Bloom's: Analysis | AACSB: Analytic
157. The oldest and most common method for a government to restrict trade is by using quotas.
Basic
OBJ: conceptual | factual
SEC: 5. Tariffs and Quotas
TOP: Tariffs versus Quotas
MSC: Bloom's: Knowledge
158. One of the most common forms of trade restrictions is the ad valorem tariff, which represents a tax on imports evaluated as a percentage of the value of the import.
Moderate
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
159. If the world price of a good is lower than the no-trade equilibrium price for a particular country, the country will export the good.
Moderate
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Import Demand
MSC: Bloom's: Analysis | AACSB: Analytic
160. A country is willing to export a positive quantity of a good if the quantity demanded domestically at the world price is greater than the quantity produced at the world price.
Moderate
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Export Supply
MSC: Bloom's: Analysis | AACSB: Analytic
161. A tariff will increase the price of imported goods and have no effect on the price of the same good produced domestically.
Moderate
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Equilibrium Price
MSC: Bloom's: Analysis | AACSB: Analytic
162. In the case of both tariffs and quotas, consumers will pay more for imports when these are implemented to restrict international trade.
Basic
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Tariffs versus Quotas
MSC: Bloom's: Knowledge
163. When a quota is imposed, the difference between the price the consumer pays and the price the foreign supplier gets goes to the government that imposed the quota.
Moderate
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: Quotas
MSC: Bloom's: Analysis | AACSB: Analytic
164. The United States imposes quotas on sugar.
Basic
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Cost of Trade Restrictions
MSC: Bloom's: Knowledge
165. Quotas do not lead to deadweight loss.
Basic
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Cost of Trade Restrictions
MSC: Bloom's: Knowledge
Short Answer
166. What is the difference between the effect of a tariff and the effect of a quota?
OBJ: factual
SEC: 5. Tariffs and Quotas
TOP: Tariffs versus Quotas
MSC: Bloom's: Analysis | AACSB: Analytic
167. Graphically illustrate how a tariff, quota, and VRA can all result in the same quantity of imports and the same equilibrium price.
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: VRA, Tariff, and Quota
MSC: Bloom's: Analysis | AACSB: Analytic
168. Given that a tariff, quota, and VRA are all equally effective at restricting imports, why would one be preferred over another?
OBJ: conceptual
SEC: 5. Tariffs and Quotas
TOP: VRA, Tariff, and Quota
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
169. An import tax whose main purpose is to provide revenue to the government is called a(n)
a. | export subsidy. |
b. | per-unit tax. |
c. | revenue tariff. |
d. | income tax. |
e. | value-added tax. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Revenue Tariffs
MSC: Bloom's: Knowledge
170. The most significant source of federal revenue in the United States before the income tax was enacted in 1913 was
a. | revenue tariffs. |
b. | export tariffs. |
c. | voluntary export restraints. |
d. | voluntary import expansions. |
e. | quotas. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Revenue Tariffs
MSC: Bloom's: Knowledge
171. Revenue tariffs are still common in less-developed countries because
a. | their governments are unable to collect other forms of taxes from their citizens. |
b. | their governments can easily collect them as goods come through a port or one of a few checkpoints. |
c. | their governments want foreign exporters to subsidize them. |
d. | they raise more money at one time than any other form of taxation would. |
e. | they raise money from foreigners rather than from taxing their own citizens. |
OBJ: conceptual
SEC: 6. The History of Trade Restrictions
TOP: Revenue Tariffs
MSC: Bloom's: Knowledge
172. U.S. tariffs, measured as a percentage of the import price,
a. | were very low prior to the Great Depression. |
b. | have remained constant since the Great Depression. |
c. | have declined steadily since the Great Depression. |
d. | were never used prior to the Great Depression. |
e. | have only been used since the start of the twentieth century. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
173. Throughout much of U.S. history, tariffs had the purpose of
a. | reducing product variety to consumers. |
b. | protecting southern states while not affecting northern states. |
c. | reducing imports of manufactured goods. |
d. | lowering prices to consumers. |
e. | resolving conflicts between consumers wanting lower prices and producers wanting higher prices. |
OBJ: conceptual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
174. The average tariff level reached a high of ____ percent in the nineteenth century.
a. | 80 |
b. | 20 |
c. | 40 |
d. | 60 |
e. | 90 |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Knowledge | AACSB: Analytic
175. The tariff that was passed in 1828 that brought the average tariff level in the United States to over 60 percent came to be known as
a. | the Smoot-Hawley tariff. |
b. | the pre-Civil War tariff. |
c. | the tariff of abominations. |
d. | the mother of all tariffs. |
e. | None of these |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Knowledge | AACSB: Analytic
176. The Smoot-Hawley tariff of 1930 had the effect of
a. | offsetting the Great Depression. |
b. | causing a trade war. |
c. | stimulating U.S. production. |
d. | promoting free trade. |
e. | causing other countries to lower their tariffs on U.S.-made goods. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Knowledge
177. The Smoot-Hawley tariff demonstrated to the whole world how
a. | harmful tariffs can be. |
b. | beneficial protectionism can be. |
c. | raising tariffs can stimulate the growth of world trade. |
d. | lowering tariffs can be counterproductive. |
e. | raising tariffs stimulated U.S. production. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Knowledge
178. An international treaty and organization that until 1993 promoted mutual reduction in tariffs and other trade barriers among countries was called the
a. | Maastricht Treaty. |
b. | Reciprocal Trade Agreement Act. |
c. | Underwood Tariff Act. |
d. | General Agreement on Tariffs and Trade. |
e. | Smoot-Hawley tariff. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariff Reduction
MSC: Bloom's: Knowledge
179. A tariff imposed on a country as a penalty for dumping goods is called a(n)
a. | antidumping duty. |
b. | quota tariff. |
c. | ad valorem tariff. |
d. | revenue tariff. |
e. | dumping duty. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Antidumping
MSC: Bloom's: Knowledge
180. The selling of goods by foreign firms at a price below average cost or below the price in the domestic country is called
a. | dumping. |
b. | a specific tariff. |
c. | dumping duty. |
d. | price discrimination. |
e. | an ad valorem tariff. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Antidumping
MSC: Bloom's: Knowledge
181. When a firm dumps a product in another country, it sells it at
a. | a lower price in the foreign market, where the demand is more price-inelastic compared to the home market, where it is more elastic. |
b. | a higher price in the foreign market, where the demand is more price-elastic compared to the home market, where it is less elastic. |
c. | a lower price in the foreign market, where the demand is more price-elastic compared to the home market, where it is less elastic. |
d. | a higher price in the foreign market, where the demand is more price-inelastic compared to the home market, where it is more elastic. |
e. | the same price in the foreign market, where the demand is less price-elastic compared to the home market, where it is more elastic. |
OBJ: conceptual
SEC: 6. The History of Trade Restrictions
TOP: Antidumping
MSC: Bloom's: Analysis | AACSB: Analytic
182. Some people argue that dumping is a form of
a. | monopolistic pricing used by domestic firms to behave strategically. |
b. | competitive pricing used by foreign firms to produce more efficiently. |
c. | protecting foreign firms. |
d. | predatory pricing used by foreign firms to gain market share and power in a domestic economy. |
e. | oligopolistic pricing used by domestic firms to behave strategically. |
OBJ: conceptual
SEC: 6. The History of Trade Restrictions
TOP: Antidumping
MSC: Bloom's: Analysis | AACSB: Analytic
183. Many economists consider antidumping duties
a. | conducive to free trade. |
b. | an important step in making our trade more competitive. |
c. | beneficial to world trade. |
d. | serious restrictions on world trade. |
e. | an important step in increasing imports and lowering consumer prices. |
OBJ: conceptual
SEC: 6. The History of Trade Restrictions
TOP: Antidumping
MSC: Bloom's: Analysis | AACSB: Analytic
184. As tariffs were being reduced in the post-World War II period,
a. | antidumping duties increased in popularity. |
b. | voluntary restraint agreements decreased in popularity. |
c. | nontariff barriers grew in popularity. |
d. | nontariff barriers decreased in popularity. |
e. | voluntary import expansion agreements decreased in popularity. |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Nontariff Barrier
MSC: Bloom's: Knowledge
185. Which of the following statements about nontariff barriers is ?
a. | The United States is the only major industrialized country to use them. |
b. | They have been replaced by tariffs. |
c. | The United States has never used them. |
d. | What may seem like a nontariff barrier may actually be in place to protect consumers. |
e. | None of these |
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Nontariff Barrier
MSC: Bloom's: Analysis | AACSB: Analytic
/
186. Unlike in developed countries, revenue tariffs are not common in developing countries.
Basic
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Knowledge
187. Revenue tariffs, whose main purpose is raising revenue, were by far the most significant source of federal revenue in the United States before the income tax was made constitutional by the Sixteenth Amendment to the U.S. Constitution in 1913.
Moderate
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
188. The effect the Smoot-Hawley tariff had on international trade was small.
Basic
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Smoot-Hawley Tariff
MSC: Bloom's: Knowledge
189 When a domestic firm dumps a product in a foreign country, consumers in the foreign market are harmed.
Moderate
OBJ: conceptual
SEC: 6. The History of Trade Restrictions
TOP: Dumping
MSC: Bloom's: Analysis | AACSB: Analytic
190. The cost to consumers of imposing antidumping duties on steel has been up to more than $700,000 per job protected.
Basic
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Dumping
MSC: Bloom's: Knowledge
191. The Food and Drug Administration's decision prohibiting drugs into the United States that are deemed safe by foreign governments but not tested is an example of a nontariff barrier.
Basic
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Nontariff Barrier
MSC: Bloom's: Knowledge
Short Answer
192. What was the purpose of the Smoot-Hawley tariff of 1930? Did it work? Explain.
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Smoot-Hawley Tariff
MSC: Bloom's: Knowledge | AACSB: Analytic
193. What are the positive and negative aspects of the WTO?
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: WTO
MSC: Bloom's: Knowledge
194. What are antidumping duties? What are the consequences of imposing antidumping duties on the domestic steel industry?
OBJ: factual
SEC: 6. The History of Trade Restrictions
TOP: Antidumping Duties
MSC: Bloom's: Knowledge
Multiple Choice
195. When trade restrictions are removed,
a. | unemployment will increase in the long run. |
b. | workers can be easily moved from the protected industries to other industries. |
c. | workers from the protected industries can be easily retrained and moved to other industries. |
d. | everyone benefits because prices are lower. |
e. | unemployment will increase in the short run. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Transition Costs
MSC: Bloom's: Analysis | AACSB: Analytic
196. If adjustment costs associated with removing trade restrictions are high, trade barriers should
a. | not be removed. |
b. | be increased while workers are being retrained for new jobs. |
c. | be slowly phased out to give workers time to retrain and find new jobs. |
d. | be immediately removed so workers are forced to retrain and find new jobs. |
e. | not be changed until all workers have left because of attrition. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Phase-Out of Trade Restrictions
MSC: Bloom's: Knowledge
197. If adjustment costs associated with removing trade restrictions are high, then
a. | consumers will end up worse off because government payments to workers who lost their jobs will increase. |
b. | the benefits of free trade can be used to compensate workers who lost their jobs. |
c. | the benefits of free trade will be negative. |
d. | there are no benefits of free trade. |
e. | None of these |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Phase-Out of Trade Restrictions
MSC: Bloom's: Knowledge
198. Transfer payments to workers who lose jobs as a result of removing trade restrictions are called
a. | phase-out assistance. |
b. | reciprocal trade assistance. |
c. | trade adjustment assistance. |
d. | free trade assistance. |
e. | transition assistance. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Phase-Out of Trade Restrictions
MSC: Bloom's: Knowledge
199. A new industry that may be encouraged by protectionist policies is called a(n)
a. | national security industry. |
b. | infant industry. |
c. | reciprocal trade industry. |
d. | strategic trade industry. |
e. | growth industry. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Infant Industry
MSC: Bloom's: Knowledge
200. A danger with the infant industry argument is that
a. | it will increase product variety too much. |
b. | the protection may last long after it was initially justified. |
c. | it will increase international trade around the world. |
d. | a nation's security may be at stake. |
e. | firms may engage in strategic behavior. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Infant Industry
MSC: Bloom's: Knowledge
201. Which of the following do Japanese rice farmers and the U.S. textile industry have in common?
a. | They both did not require trade adjustment assistance when trade barriers were lifted in their industries. |
b. | They both used the infant industry argument to justify trade barriers. |
c. | They both made national security arguments to justify trade barriers in their industries. |
d. | Trade barriers have never been imposed in either of the two industries. |
e. | The market prices in both of the two industries would be the same with or without free trade. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: National Security Argument
MSC: Bloom's: Analysis | AACSB: Analytic
202. Which of the following is not a reason to restrict trade?
a. | To increase consumer welfare |
b. | To promote certain key industries |
c. | To prevent predatory behavior on the part of foreign firms |
d. | To retaliate against another country |
e. | To give a new industry time to grow and become competitive |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Trade Restrictions
MSC: Bloom's: Knowledge
203. A possible reason for deviating from free trade is to
a. | threaten other countries or retaliate against them when they have trade restrictions. |
b. | remove a country's voluntary restraint agreement. |
c. | remove a country's import quotas. |
d. | remove a country's antidumping duties. |
e. | increase consumer surplus. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Retaliation Threats
MSC: Bloom's: Knowledge
204. A subsidy on exports
a. | is less harmful than a tariff. |
b. | increases the demand for imports. |
c. | lowers consumer prices and so should be encouraged. |
d. | increases the supply of exports. |
e. | imposes no cost on the importing country. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Export Subsidy
MSC: Bloom's: Knowledge
205. Which of the following is ?
a. | Trade restrictions encourage developing countries to devote more resources to environmental regulation and health standards. |
b. | Trade restrictions increase the adoption of cleaner and safer technologies in the developing world. |
c. | Trade restrictions improve working conditions worldwide. |
d. | Trade restrictions worsen environmental quality worldwide by preventing incomes from rising in poor countries. |
e. | Trade restrictions improve environmental quality worldwide. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Environmental Impact of Trade Restrictions
MSC: Bloom's: Analysis | AACSB: Analytic
206 Trade barriers tend to persist because
a. | the short-term adjustment costs of free trade are too high. |
b. | losses to consumers are more visible than gains to producers. |
c. | losses to consumers are less visible than gains to producers. |
d. | consumer groups successfully lobby Congress to protect jobs. |
e. | losses to consumers are smaller than gains to producers. |
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Political Economy of Trade Restrictions
MSC: Bloom's: Knowledge
/
207. High transactions costs are a valid reason for maintaining trade barriers.
Moderate
OBJ: conceptual
SEC: 7. Arguments for Trade Barriers
TOP: Transaction Costs
MSC: Bloom's: Analysis | AACSB: Analytic
208. In the United States, those who are the most vocal about retaliation against other countries are those who want to protect an industry.
Basic
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Retaliation Argument
MSC: Bloom's: Knowledge
209. Trade restrictions imposed on a country with poor environmental and/or labor standards in order to get the country to improve these standards are often counterproductive.
Moderate
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Environmental Impact of Trade Restrictions
MSC: Bloom's: Analysis | AACSB: Analytic
210. Often the benefit an individual consumer receives from the elimination of trade barriers is much less than the benefit a domestic firm or industry receives from keeping such a barrier in place.
Basic
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Trade Restrictions
MSC: Bloom's: Knowledge
Short Answer
211. What problems do quality and performance standards create in terms of foreign trade?
OBJ: factual
SEC: 7. Arguments for Trade Barriers
TOP: Nontariff Barrier
MSC: Bloom's: Analysis | AACSB: Analytic
212. What are the two arguments made to justify not lowering trade barriers against countries with poor environmental protection laws and poor labor standards? According to the text, what is the problem with these arguments?
OBJ: conceptual
SEC: 7. Arguments for Trade Barriers
TOP: Environmental and Labor Standards Arguments
MSC: Bloom's: Knowledge | AACSB: Analytic
213. If consumers as a whole benefit from the reduction of trade barriers, then why are businesses able to successfully lobby Congress to impose trade barriers?
OBJ: conceptual
SEC: 7. Arguments for Trade Barriers
TOP: Political Economy of Trade Restrictions
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
214. The recommendation of early economists such as Smith and Ricardo to the British government was to
a. | develop a policy that protects strategic domestic industry. |
b. | use trade barriers only to protect agricultural industries. |
c. | develop a policy to increase trade barriers. |
d. | use trade barriers only to protect infant industries. |
e. | develop a policy to reduce trade barriers. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Reduction of Trade Barriers
MSC: Bloom's: Knowledge
215. In trade policy, the removal of trade barriers by one country without reciprocal action on the part of other countries is called
a. | retaliatory threats. |
b. | unilateral disarmament. |
c. | the infant industry argument. |
d. | multilateral negotiations. |
e. | the political economy approach. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Unilateral Disarmament
MSC: Bloom's: Knowledge
216. If a country unilaterally removes all trade restrictions,
a. | individual gains will tend to be larger in magnitude than individual losses. |
b. | it will gain because all other countries' markets will be more open. |
c. | it can prevent large adjustment costs. |
d. | individual gains will tend to be smaller in magnitude than individual losses. |
e. | everybody in the country will be better off. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Unilateral Disarmament
MSC: Bloom's: Knowledge
217. Simultaneous tariff reduction on the part of many countries is called
a. | regional trading areas. |
b. | multilateral negotiations. |
c. | bilateral negotiations. |
d. | unilateral disarmament. |
e. | the political economy approach. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Multilateral Negotiation
MSC: Bloom's: Knowledge
218. With multilateral negotiations,
a. | a country reduces its trade barriers without other countries also reducing their barriers. |
b. | exporters will fight any reductions in trade barriers. |
c. | import-competing domestic industries can count on support from foreign exporters in the same industries. |
d. | opposing political interests can cancel each other out. |
e. | the domestic industry lobby inevitably loses. |
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Multilateral Negotiation
MSC: Bloom's: Analysis | AACSB: Analytic
219. With the implementation of the Uruguay Round, U.S. tariffs have, on average,
a. | increased by 3 percent. |
b. | fallen to 3 percent. |
c. | fallen to 12 percent. |
d. | disappeared. |
e. | fallen to 40 percent. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Uruguay Round
MSC: Bloom's: Knowledge
220. After the Uruguay round of trade talks, the newest attempt on reducing trade barriers around the world has come to be known as the
a. | Monterrey Enriching Round. |
b. | Doha Development Round. |
c. | Petra Round. |
d. | Paris Reshaping Round. |
e. | Polska Round. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Multilateral Negotiation
MSC: Bloom's: Knowledge | AACSB: Analytic
221. The principle by which all countries involved in GATT negotiations receive the same tariff rates as the country with the lowest negotiated tariff rates is called
a. | regional trading areas. |
b. | Uruguay Round. |
c. | customs unions. |
d. | most-favored nation. |
e. | economic unionization. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Most-Favored Nation
MSC: Bloom's: Knowledge
222. The shifting of trade away from the low-cost producer toward a higher-cost producer because of a reduction in trade barriers with the country of the higher-cost producer is called
a. | the Uruguay Round. |
b. | multilateral trade. |
c. | trade creation. |
d. | trade diversion. |
e. | multilateral negotiations. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Trade Diversion versus Trade Creation
MSC: Bloom's: Knowledge
223. The increase in trade due to a decrease in trade barriers is called
a. | multilateral negotiations. |
b. | the Uruguay Round. |
c. | trade diversion. |
d. | free trade. |
e. | trade creation. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Trade Diversion versus Trade Creation
MSC: Bloom's: Knowledge
224. An area that has no trade barriers between the countries in the area is called
a. | customs union. |
b. | free trade area. |
c. | duty-free area. |
d. | tariff-free area. |
e. | quota-free area. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Free Trade Areas versus Customs Unions
MSC: Bloom's: Knowledge
225. A free trade area with a common external tariff is called a(n)
a. | quota-free area. |
b. | customs union. |
c. | duty-free area. |
d. | tariff-free union. |
e. | economic union. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Free Trade Areas versus Customs Unions
MSC: Bloom's: Knowledge
226. A requirement that a fraction of the product must be produced within the area to qualify for zero tariffs between the countries in the free trade area is called a(n)
a. | import substitution requirement. |
b. | most-favored-nation requirement. |
c. | domestic content restriction. |
d. | managed trade restriction. |
e. | trade-diversion requirement. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Free Trade Areas versus Customs Unions
MSC: Bloom's: Knowledge
227. The British corn laws
a. | pertained to restricting imports of grains into Great Britain. |
b. | were, in part, responsible for the devastation caused by the Irish potato famine. |
c. | stymied the growth of British manufacturing. |
d. | benefited British farmers. |
e. | All of these |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Corn Laws
MSC: Bloom's: Knowledge
228. The British corn laws pertained to restricting
a. | corn imports for the use of corn bread into Great Britain. |
b. | corn-on-the-cob imports into Great Britain. |
c. | imports of vegetation from North America into Great Britain. |
d. | imports of grains into Great Britain. |
e. | imports of liquor produced in Germany into Great Britain. |
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Corn Laws
MSC: Bloom's: Knowledge
/
229. The reduction of trade barriers is a concept that was first recognized by most mainstream economists during the twentieth century.
Basic
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Reduction of Trade Barriers
MSC: Bloom's: Knowledge
230. Currently, unilateral disarmament is seldom used by developed countries.
Basic
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Unilateral Disarmament
MSC: Bloom's: Knowledge
231. Creating regional trading areas is an increasingly popular approach to reducing trade barriers.
Basic
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Regional Trading Areas
MSC: Bloom's: Knowledge
232. Multilateral approaches have more advantages than regional trading areas have.
Basic
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Regional Trading Areas
MSC: Bloom's: Knowledge
233. The corn laws were laws that pertained to restricting imports of the vegetable corn into England.
Basic
OBJ: factual
SEC: 8. How to Reduce Trade Barriers
TOP: Corn Laws
MSC: Bloom's: Knowledge
Short Answer
234. What is unilateral disarmament? Why is unilateral disarmament not a viable way to reduce trade barriers in developed countries?
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Unilateral Disarmament
MSC: Bloom's: Analysis | AACSB: Analytic
235. If reducing trade barriers is supposed to improve consumer surplus and reduce deadweight loss, why is it so difficult to reduce trade barriers?
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Reducing Trade Barriers
MSC: Bloom's: Analysis | AACSB: Analytic
236. Why is multilateral negotiation a viable alternative to unilateral disarmament?
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Multilateral Negotiation
MSC: Bloom's: Analysis | AACSB: Analytic
237. Suppose country X imposes a tariff on imported shoes. The table below shows the import demand and export supply before and after the tariff. Quantities are in thousands.
(A) | What happens to the equilibrium price of shoes and the quantity imported after the tariff is imposed? Draw a graph to illustrate your answer. |
(B) | Suppose the tariff is removed and replaced with a quota that limits imports to 80,000 shoes. What happens to the price of shoes in country X? |
(C) | When the government switched from a tariff to a quota, what happened to government revenue? |
(A) | The price rises from $50 to $60, and the quantity falls from 120,000 to 100,000. |
| |
(B) | The price of shoes rises to $70. |
(C) | The government lost 100,000 times the value of the tariff in revenue. |
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
238. Graphically illustrate what happens to the price of wine in the United States if the United States negotiates a voluntary restraint agreement with France on imports of wine from France. Explain who benefits and who loses from this agreement.
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: VRA
MSC: Bloom's: Analysis | AACSB: Analytic
239. Suppose that, after negotiating with the United States, Japan is able to increase the number of automobiles exported to the United States under a VRA. Sketch a diagram showing the consequence of this new agreement, and briefly explain what happens to price.
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: VRA
MSC: Bloom's: Analysis | AACSB: Analytic
240. American movies have become very popular in France.
(A) | How does this change affect the price and quantity of imported American movies? Indicate this in a diagram. |
(B) | Suppose the French government imposes a tariff to restore the original quantity of American movies coming into France. Indicate this in your diagram. Show the tariff revenue raised due to the tariff. |
(A) | The demand for imported American movies increases. The price and quantity demanded of American movies both increase. This is illustrated in the diagram below. |
| |
(B) | The price of American movies will increase, and the quantity will decrease. The tariff revenue is the shaded area in the diagram above. |
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Revenue Tariffs
MSC: Bloom's: Analysis | AACSB: Analytic
241. Explain the difference between an export subsidy and an import tariff. Under what circumstances would a country use one versus the other? Who gains and who loses under each policy?
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Tariff versus Subsidy
MSC: Bloom's: Analysis | AACSB: Analytic
242. Suppose the Russian government decides it needs to protect its aircraft industry for reasons of national security. Name two ways it can achieve this goal. Which policy would you recommend? Why?
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Protectionism
MSC: Bloom's: Analysis | AACSB: Analytic
243. Why might it not be a good idea for the government to use trade policy to protect newly emerging industries?
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Infant Industry Argument
MSC: Bloom's: Analysis | AACSB: Analytic
244. Regional trade agreements have been criticized because countries tend to follow their regional comparative advantage as opposed to their global comparative advantage. Please explain.
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Regional Trade Agreement
MSC: Bloom's: Analysis | AACSB: Analytic
245. Suppose the United States decides to grant most-favored-nation status to Ukraine. What does this status mean? How will it affect the price and quantity of U.S. imports from Ukraine? Is this an increase or decrease in deadweight loss? Is this an increase or decrease in tariff revenue?
OBJ: conceptual
SEC: 8. How to Reduce Trade Barriers
TOP: Most-Favored Nation
MSC: Bloom's: Analysis | AACSB: Analytic