chapter_19 - Principles of Macroeconomics, 9e ­ TB1...

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Unformatted text preview: Principles of Macroeconomics, 9e ­ TB1 (Case/Fair/Oster) Chapter 19 1 Internation al Trade, Comparativ e Advantage, and Protectionis 19.1 m Trade 1 M ul ti pl e C h o i c e 1) A country has a trade surplus when A) its exports exceed its imports. B) its exports equal its imports. C) its government spending exceeds its tax revenues. D) its exports are less than its imports. Answer: A Diff: 1 Topic: Trade Surpluses and Deficits Skill: Definition 2) A country's trade is balanced when A) its imports exceeds its exports. B) its government expenditures are equal to its tax revenues. C) its net exports equal to zero. D) its net exports are greater than zero. Answer: C Diff: 1 Topic: Trade Surpluses and Deficits Skill: Definition 3) A country has a trade deficit when A) its exports exceed its imports. B) its exports equal its imports. C) its exports are less than its imports. D) government spending is greater than tax receipts. Answer: C Diff: 1 Topic: Trade Surpluses and Deficits Skill: Definition 4) If a country has a trade surplus of $40 billion, which of the following can be true? A) The country's exports are $160 billion and its imports are $120 billion. B) The country's exports are $110 billion and its imports are $150 billion. C) The country's exports are $120 billion and its imports are $140 billion. D) The country's exports are $140 billion and its imports are $40 billion. Answer: A Diff: 1 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 5) If a country has a trade deficit of $30 billion, which of the following can be true? A) The country's exports are $150 billion and its imports are $120 billion. B) The country's exports are $110 billion and its imports are $140 billion. C) The country's exports are $120 billion and its imports are $140 billion. D) The country's exports are $140 billion and its imports are $40 billion. Answer: B Diff: 1 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 6) In the year ________, the United States switched from running a trade surplus to running a trade deficit. A) 1950 B) 1966 C) 1976 D) 1994 Answer: C Diff: 1 Topic: Trade Surpluses and Deficits Skill: Fact 2 Tr ue /F al s e 1) If Belgium has exports of 50 billion euros and imports of 40 billion euros, then it is running a trade deficit. Answer: FALSE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 2) If Japan has a exports of 70 billion yen and imports of 60 billion yen, it is running a trade surplus. Answer: TRUE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 3) If a country's imports are greater than its exports, a country has a trade deficit. Answer: TRUE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 4) A country's balance of trade must be balanced. Answer: FALSE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 5) If a country's imports are less than its exports, a country has a trade surplus. Answer: TRUE Diff: 2 Topic: Trade Surpluses and Deficits Skill: Conceptual AACSB: Reflective Thinking 19.2 The 1 M ul ti pl e C h o i c e 1) The purpose of the Corn Laws was to A) encourage imports and discourage exports, and thus keep the price of food low. B) encourage both exports and imports in order to integrate the British economy with the rest of Europe. C) discourage both imports and exports in order to promote economic self-sufficiency in Britain. D) discourage imports and encourage exports, and thus keep the price of food high. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 2) The theory of comparative advantage is credited to A) Adam Smith. B) David Ricardo. C) John Maynard Keynes. D) Milton Friedman. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 3) Country A would have an absolute advantage compared to Country B in the production of corn if A) corn can be produced at lower cost in terms of other goods than it could be in Country B. B) Country A uses fewer resources to produce corn than Country B does. C) the demand for corn is higher in Country A than in Country B. D) corn sells for a higher price in Country A than in Country B. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 4) The in the production of a product enjoyed by one country over another when it uses fewer resources to advantage produce that product than the other country does is A) an absolute advantage. B) a comparative advantage. C) a relative advantage. D) a productive advantage. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Definition 5) Accordin g to the theory of comparative advantage, a country A) exports the goods in which its has a comparative advantage. B) imposes tariffs on goods in which it does not have comparative advantage. C) imports the goods in which it has a comparative advantage. D) exports goods in which it has absolute advantage. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 6) China has comparative advantage in textile and an absolute advantage in radios. Japan has a comparative advantage a in radios and an absolute advantage in textiles. According to this scenario A) Japan should export both radios and textiles. B) China should import both radios and textiles. C) China should export textiles and import radios. D) Japan should export textiles and import radios. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 7) Country A has a comparative advantage compared to Country B in the production of shoes, if A) Country A can produce shoes at a lower monetary cost than Country B can. B) Country A can produce shoes using fewer resources than Country B can. C) the demand for shoes is higher in Country A than in Country B. D) Country A can produce shoes at a lower cost in terms of other goods than Country B can. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 8) Accordin g to the theory of comparative advantage, a country should A) specialize and export goods with the highest opportunity cost. B) specialize and export goods with the lowest production cost. C) specialize and export goods with the lowest opportunity cost. D) specialize and export goods with the lowest average cost. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Fact 9) When one country can produce a product at a lower cost in terms of other goods, that country is said to have A) an absolute advantage. B) a comparative advantage. C) a productive advantage. D) an unfair advantage. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Definition 10) The United States imports televisions from Japan and Japan imports computer chips from the United States. If the theory of comparative advantage guides trade between the two countries, it must be true that A) the opportunity cost of producing televisions in Japan is higher than that in the United States. B) the opportunity cost of producing computer chips in the United States is higher than that in Japan. C) the United States has comparative advantage in producing computer chips. D) the United States has comparative advantage in producing televisions. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 11) If Russia absolute advantage in the production of wheat and China has an absolute advantage in the production of has an textiles, then A) neither country has anything to gain from specialization and trade. B) it is reasonable to expect that specialization will benefit both countries, but trade will not. C) it is reasonable to expect that specialization and trade will benefit both countries. D) it is reasonable to expect that trade will benefit both countries, but specialization will not. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 12) If Brazil has a comparative advantage in the production of coffee compared to the United States, then A) Brazil also has an absolute advantage in the production of coffee. B) the United States has an absolute advantage in the production of coffee. C) Brazil can produce coffee at a lower opportunity cost than the United States. D) the United States cannot produce coffee. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 13) The United States has a comparative advantage in the production of wheat, and Haiti has a comparative advantage in the production of sugar. If both countries specialize based on the theory of comparative advantage, A) only the production of wheat will increase. B) the production and consumption of both goods will increase. C) only the production of both goods will increase. D) only the consumption of both goods will increase. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 14) Suppose and India are both engaged in the production of radios and rice, and that Japan has an absolute advantage that Japan in the production of both goods. If India has a lower opportunity cost for producing rice, then A) India has a comparative advantage in rice production, but there will be no gains from specialization and trade. B) Japan has a comparative advantage in the production of both goods. C) India has a comparative advantage in the production of rice, but it is outweighed by Japan's absolute advantage in rice production. D) India has a advantage in the production of rice, and specialization and trade between the two countries can be comparative mutually beneficial. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 15) If the slopes of the production possibility frontiers involving sugar and rice in countries A and B are equal, A) the opportunity cost of producing sugar is less in Country A. B) the opportunity cost of producing rice is less in Country B. C) specialization does not benefit either country. D) each country will produce identical quantities of sugar and rice. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 16) Suppose and Chile are both engaged in the production of copper and wheat, and that Argentina has an absolute that advantage in the production of both goods. If Chile has a comparative advantage in the production of Argentina copper, then Chile A) has a lower for copper, which means that it should specialize in production of copper and engage in trade. opportunity cost B) has a lower for producing copper, but specialization is not feasible because Argentina has a lower monetary opportunity cost cost of copper production. C) has a higher for copper, which means it should specialize in the production of wheat and engage in trade. opportunity cost D) should continue to produce copper, but only for domestic consumption, because trade is not a viable option. Answer: A Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 19.1 below to answer the questions that follow. Table 19.1 17) Refer to Table 19.1. In Mexico, the opportunity cost of 1 bushel of bananas is A) 1/2 bushel of oranges. B) 1 bushels of oranges. C) 2 bushel of oranges. D) 5 bushels of oranges. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 18) Refer to Table 19.1. In Guatemala, the opportunity cost of 1 bushel of oranges is A) 1/2 bushel of bananas. B) 1 bushels of bananas. C) 2 bushel of bananas. D) 4 bushels of bananas. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 19) Refer to Table 19.1. In Mexico, the opportunity cost of 1 bushel of oranges is A) 1/2 bushel of bananas. B) 1 bushels of bananas. C) 2 bushel of bananas. D) 5 bushels of bananas. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 20) Refer to Table 19.1. In Guatemala, the opportunity cost of 1 bushel of bananas is A) 1/2 bushel of oranges. B) 1 bushels of oranges. C) 2 bushel of oranges. D) 4 bushels of oranges. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 21) Refer to Table 19.1. The opportunity cost of producing a bushel of oranges in Mexico is A) twice as much as that in Guatemala. B) half as much as that in Guatemala. C) the same as that in Guatemala. D) four times as much as that in Guatemala. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 22) Refer to Table 19.1. Guatemala has A) a comparative advantage in orange production. B) an absolute advantage in orange production. C) an absolute advantage in banana production. D) a comparative advantage in banana production. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 23) Refer to Table 19.1. Guatemala has A) a comparative advantage but not an absolute advantage in orange production. B) a comparative advantage but not an absolute advantage in banana production. C) an absolute advantage and a comparative advantage in banana production. D) an absolute advantage and a comparative advantage in orange production. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 24) Refer to Table 19.1. Mexico has A) a comparative advantage but not an absolute advantage in orange production. B) a comparative advantage but not an absolute advantage in banana production. C) an absolute advantage and a comparative advantage in banana production. D) an absolute advantage and a comparative advantage in orange production. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 25) Refer to 19.1. Guatemala should specialize in and export ________, and Mexico should specialize in and export Table ________. A) oranges; oranges B) bananas; bananas C) bananas; oranges D) oranges; bananas Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 26) Refer to Before specialization, Mexico produces 120 bushels of oranges and 80 bushels of bananas, and Table Guatemala produces 40 bushels of oranges and 20 bushels of bananas. After specialization, the increase 19.1. in orange production is A) 10 bushels of oranges. B) 20 bushels of oranges. C) 25 bushels of oranges. D) 40 bushels of oranges. Answer: D Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 27) Refer to Before specialization, Mexico produces 160 bushels of oranges and 40 bushels of bananas, and Table Guatemala produces 30 bushels of oranges and 40 bushels of bananas. After specialization, the increase 19.1. in banana production is A) 10 bushels of bananas. B) 15 bushels of bananas. C) 20 bushels of bananas. D) 40 bushels of bananas. Answer: C Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 28) Refer to 19.1. For both countries to benefit from trade, the terms of trade must be between ________ bushel(s) of Table oranges to bushel(s) of bananas. A) 1:1/2 and 1:4 B) 2:3 and 2:1 C) 1:1 and 1:1/2 D) 1:1 and 1:2. Answer: D Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Table 19.2 below to answer the questions that follow. Table 19.2 29) Refer to Table 19.2. In China, the opportunity cost of A) a tractor is 1 motorcycle. B) a motorcycle is 10 tractors. C) a tractor is 10 motorcycles. D) a motorcycle is 1/30 of a tractor. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 30) Refer to Table 19.2. In Thailand, the opportunity cost of A) a motorcycle is 1/15 of a tractor. B) a motorcycle is 15 tractors. C) a motorcycle is 1/30 of a tractor. D) a tractor is 20 motorcycles. Answer: A Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 31) Refer to 19.2. ________ has a comparative advantage in motorcycles and ________ has an absolute advantage in Table motorcycles. A) China; neither B) Neither; neither C) Thailand; neither D) Thailand; China Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 32) Refer to 19.2. If both countries specialize and trade with each other, Thailand will export ________ and China Table will import ________. A) motorcycles; tractors B) tractors; motorcycles C) tractors; tractors D) motorcycles; motorcycles Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 33) Refer to Table 19.2. The most that Thailand will be willing to pay for a tractor is A) 5 motorcycles. B) 10 motorcycles. C) 15 motorcycles. D) 20 motorcycles. Answer: C Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 34) Refer to Table 19.2. The most that China will be willing to pay for a motorcycle is A) 1/20 of a tractor. B) 1/10 of a tractor. C) 1/30 of a tractor. D) 1/5 of a tractor. Answer: B Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 35) Refer to Table 19.2. Which terms of trade benefits both countries? A) 1 tractor for 10 motorcycles B) 1 tractor for 12.5 motorcycles C) 1 motorcycle for 10 tractors D) 1 motorcycle for 1/5 of a tractor Answer: B Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 36) The terms of trade refers to A) the documents that two countries sign in order to facilitate trade. B) the conditions imposed by the importing country regarding the quality of the imported goods. C) the exchange rate determined by the exporting and the importing countries. D) the ratio at which one country trades a domestic product for imported product. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Definition 37) Specializa tion and trade allow a country to A) produce and consume on its production possibility frontier. B) produce and consume inside its production possibility frontier. C) produce and consume outside its production possibility frontier. D) produce on its production possibility frontier and consume outside it. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 38) The main advantage of trade between two countries is that A) trade makes both countries more self-sufficient. B) employment in both countries will increase. C) both countries have consumption choices beyond their current resource and production constraints. D) trade will lead to a more equitable distribution of income in both countries. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 39) Accordin g to comparative advantage, trade between two countries A) maximizes the amount of inputs that are used in the production of all products. B) guarantees that consumption levels will be equal in the two countries. C) will benefit all the industries in each of the countries. D) allows each of the trading countries to use its resources most efficiently. Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 40) When countries specialize in producing those goods in which they have a comparative advantage, they A) maximize their combined output, but they do not necessarily allocate their resources more efficiently. B) maximize their combined output and allocate their resources more efficiently. C) allocate their resources more efficiently, but they do not necessarily maximize their combined output. D) do not maximize their combined output, and they also do not necessarily allocate their resources more necessarily efficiently. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 19.1 below to answer the questions that follow. Figure 19.1 41) Refer to Figure 19.1. Which of the following statements is TRUE? A) The United an absolute advantage and a comparative advantage in the production of soybeans and alfalfa. States has both B) The United States has an absolute advantage in the production of soybeans and alfalfa, but a comparative advantage only in the production of soybeans. C) The United States has an absolute advantage in the production of soybeans and alfalfa, but a comparative advantage only in the production of alfalfa. D) The United comparative advantage in the production of both soybeans and alfalfa, but an absolute advantage States has a only in the production of soybeans. Answer: C Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 42) Refer to Figure 19.1. Which of the following statements is TRUE? A) Only Canada can benefit from trade because the United States has an absolute advantage in the production of both soybeans and alfalfa. B) Trade will benefit both countries because the United States has a comparative advantage in the production of soybeans and Canada has a comparative advantage in the production of alfalfa. C) Trade will benefit both countries because the United States has a comparative advantage in the production of alfalfa and Canada has a comparative advantage in the production of soybeans. D) Trade will the United States has an absolute advantage in the production of both soybeans and alfalfa, but benefit neither Canada has a comparative advantage in the production of both soybeans and alfalfa. country because Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 43) Refer to Figure 19.1. The opportunity cost of producing a bushel of alfalfa in the United States is A) twice as much as that in Canada. B) half as much as that in Canada. C) the same as that in Canada. D) four times as much as that in Canada. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 44) Refer to Figure 19.1. The opportunity cost of producing a bushel of alfalfa in the United States is A) half a bushel of soybeans. B) 1 bushel of soybeans. C) 2 bushels of soybeans. D) 300 bushels of soybeans. Answer: A Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 45) Refer to Figure 19.1. The opportunity cost of producing a bushel of alfalfa in Canada is A) half a bushel of soybeans. B) 1 bushel of soybeans. C) 2 bushels of soybeans. D) zero. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 46) Refer to Figure 19.1. The opportunity cost of producing a bushel of soybeans in the United States is A) half a bushel of alfalfa. B) 1 bushel of alfalfa. C) 2 bushels of alfalfa. D) 300 bushels of alfalfa. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 19.2 below to answer the questions that follow. Figure 19.2 47) Refer to 19.2. The opportunity cost of a truck is ________ car(s) in the United States and ________ car(s) in Figure England. A) 6; 4 B) 4; 1.5 C) 4; 6 D) .25; 1.5 Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 48) Refer to Figure 19.2. the theory of comparative advantage suggests that A) England should import trucks and export cars. B) England should export both trucks and cars. C) the United States should export both trucks and cars. D) the United States should export cars and import trucks. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 49) Refer to 19.2. The opportunity cost of a car is ________ truck(s) in the United States and ________ truck(s) in Figure England A) 6; 4 B) 4; 1.5 C) 4; 6 D) .25; .67 Answer: D Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 50) Refer to Figure 19.2. England has A) a comparative advantage in producing trucks. B) an absolute advantage in producing cars. C) a comparative advantage in producing cars. D) no comparative advantage in producing either cars or trucks. Answer: A Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 51) Refer to Figure 19.2. the U.S. has A) a comparative advantage in producing trucks. B) an absolute advantage in producing trucks. C) a comparative advantage in producing cars. D) no comparative advantage in producing either cars or trucks. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 52) Assume Runner specializes in producing in-line skates and Hang Ten specializes in producing surfboards. After that Blade trade Blade Runner exports 800 pairs of in-line skates and imports 200 surfboards. The terms of trade A) are 1:4 in-line skates to surfboards. B) are 4:1 in-line skates to surfboards. C) are 1/4:1 in-line skates to surfboards. D) cannot be determined from this information. Answer: B Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 53) When trade is free, patterns of trade and trade flows result from A) the collective few importers and exporters, as well as the governments of the countries in which they reside. decisions of a B) the collective decisions of a few importers and exporters, as well as millions of private households and firms. C) the independent thousands of importers and exporters, as well as millions of private households and firms. decisions of D) the independent thousands of importers and exporters, as well as the governments of the countries in which they decisions of reside. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 54) If you are in China and you purchase a meal that costs 140 yuan and the current exchange rate is 7 yuan to the traveling dollar, then the price of the meal in U.S. currency is A) $200. B) $20. C) $10. D) $2 Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 55) Suppose a U.S. dollar exchanges for 2 British pounds, then each pound is worth A) $.25. B) $.50. C) $1. D) $4. Answer: B Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 56) If the car in the United States is $26,000, and the exchange rate between the dollar and the British pound rises price of a from $1.50 to $2.00 per pound, then the price of the American car in Britain will A) fall. B) rise. C) remain the same. D) be irrelevant, because the British government will impose restrictions on imports from the United States. Answer: A Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 57) If the car in the United States is $22,000, and the exchange rate between the dollar and the Japanese yen falls price of a from 125 yen to 105 yen per dollar, then the price of the American car in Japan will A) fall. B) rise. C) remain the same. D) be irrelevant, because the Japanese government will impose restrictions on imports from the United States. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 58) For any pair of countries, there is A) a range of that can lead automatically to both countries realizing the gains from specialization and exchange rates comparative advantage. B) one single that will lead indirectly to one country realizing the gains from specialization and comparative exchange rate advantage, but not the other country. C) a range of that can lead indirectly to one country realizing the gains from specialization and comparative exchange rates advantage, but not the other country. D) one single that will lead automatically to both countries realizing the gains from specialization and exchange rate comparative advantage. Answer: A Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Table 19.3 below to answer the questions that follow. Table 19.3 59) Refer to Table 19.3. If the exchange rate is $1 = 1 euro, then A) the United States will import both raspberries and chocolate. B) Belgium will import both raspberries and chocolate. C) the United States will import chocolate and Belgium will import raspberries. D) Belgium will import chocolate. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 60) Refer to Table 19.3. If the exchange rate is $1 = 3 euros, then A) the United States will import both raspberries and chocolate. B) Belgium will import both raspberries and chocolate. C) the United States will import chocolate and Belgium will import raspberries. D) the United States will import raspberries and Belgium will import chocolate. Answer: A Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 61) Refer to Table 19.3. If the exchange rate is $1 = 2 euros, then A) the United States will import both raspberries and chocolate. B) Belgium will import both raspberries and chocolate. C) the United States will import raspberries and Belgium will import chocolate. D) Belgium will import chocolate. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 62) Refer to Table 19.3. Trade will flow in both directions between countries only if the price of the euro is between A) $.40 and $.50. B) $1.00 and $2.25. C) $.60 and $.75. D) $.44 and $1.00 Answer: D Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 63) If the rate between the United States and Japan changes from $1 = 100 yen to $1 = 110 yen, then, ceteris exchange paribus, the price of American goods in Japan A) could either increase or decrease. B) will decrease. C) will remain the same. D) will increase. Answer: D Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 64) If the rate between the United States and Mexico changes from $1 = 100 peso to $1 = 5 pesos, ceteris paribus, exchange A) the United States imports from Mexico increase. B) Mexican exports to the United States increase. C) the United States exports to Mexico increase. D) the trade deficit in the United States increases. Answer: C Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 65) If trade the United States and Canada is balanced and the U.S. dollar appreciates against the Canadian dollar, between ceteris paribus, we would expect A) a trade surplus in the United States. B) a trade surplus in Canada. C) a trade deficit in Canada. D) a trade deficit in both countries. Answer: B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 66) Suppose States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes that the sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. If the United current exchange rate is 0.8 euro to the dollar, then A) Italy will import both shoes and wine from the United States. B) the United States will import both shoes and wine from Italy. C) the United States will import shoes from Italy and Italy will import wine from the United States. D) the United States will import wine from Italy and Italy will import shoes from the United States. Answer: C Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 67) Suppose States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and shoes that the sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a pair. Given this United information, trade will flow in both directions if the price of a dollar is between A) .5 and .75 euro. B) .67 and 2 euros. C) 1.5 and 2.5 euros. D) 2.0 and 3.0 euros. Answer: B Diff: 3 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Analytic AACSB: Analytic Skills 2 Tr ue /F al s e 1) In general, for any two countries, there are many exchange rates that will lead to gains from trade, based on comparative advantage. Answer: TRUE Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 2) Trade allows the people of a country to consume outside their production possibility curve. Answer: TRUE Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 3) If the rate between the United States and Greece changes from $1 = 1 euro to $1 = 2 euros, then holding exchange everything else constant, the price of U.S. goods in Greece will increase. Answer: TRUE Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 4) If Spain decreases subsidies to its olive growers, the price of olives in the U.S. will fall. Answer: FALSE Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 5) A country enjoy a comparative advantage over another country in the production of a product if it uses fewer is said to resources to produce that product than the other country does. Answer: FALSE Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 6) A country comparative advantage in the production of a good if that good can be produced at a lower cost in terms enjoys a of other goods. Answer: TRUE Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 7) For any pair of nations and goods, if each country has an absolute advantage in the production of one product, it is reasonable to expect that specialization and trade will benefit both countries. Answer: TRUE Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 8) For any pair of countries, there is only one single exchange rate that can lead automatically to both countries realizing the gains from specialization and comparative advantage. Answer: FALSE Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 9) Within of exchange rates that permits specialization and trade to take place, the exchange rate will determine the range which country gains the most from trade. Answer: TRUE Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 10) If rates end up in the right ranges, the free market will drive each country to shift resources into those exchange sectors in which it enjoys a comparative advantage. Answer: TRUE Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 11) Only those products in which a country has an absolute advantage will be competitive in world markets. Answer: FALSE Diff: 1 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 12) If the price is below the world price of a certain product, the domestic country will export the product. domestic Answer: TRUE Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 19.3 The 1 M ul ti pl e C h o i c e 1) The quantity and quality of labor, land, and natural resources of a country are its A) capital stock. B) productive capacity. C) factor endowments. D) economic potential. Answer: C Diff: 1 Topic: The Sources of Comparative Advantage Skill: Definition 2) The depends on highly trained workers, who are abundantly available in Country A. The heavy equipment software industry depends on the availability of a large stock of physical capital with which Country B is well industry endowed. According to Heckscher-Ohlin theorem A) Country A should export heavy equipment. B) Country B should import software. C) Country B should import heavy equipment. D) Country A should import software. Answer: B Diff: 2 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 3) A significant portion of actual world trade patterns results from A) different factor endowments between countries. B) the different tastes and preferences of people in different countries. C) the industrial policies of governments. D) different sizes of the countries. Answer: A Diff: 2 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 4) An example of an acquired comparative advantage is A) the United States producing more agricultural products than other countries because land is more abundant in the United States than in other countries. B) United States buying television sets produced in Japan because Japanese companies have a reputation for consumers producing a higher-quality TV than those produced in the United States. C) United States companies selling to other countries chemical products that cannot be sold in the United States. D) the United States purchasing coconuts from other countries, because they cannot be produced in the United States. Answer: B Diff: 2 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 5) An example of acquired comparative advantage is that A) the United States imports coffee beans because coffee beans cannot be grown in the United States. B) some U.S. consumers prefer German cars over American cars because German cars have a reputation for being very safe. C) China the production of labor-intensive goods because of the amount of labor available in the country specializes in relative to capital. D) the U.S. government provides a subsidy to firms that are trying to increase their exports to other countries. Answer: B Diff: 2 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 6) Which of the following phenomena CANNOT be explained by the simple comparative advantage theory? A) A country that does not have much farmland tends to import agricultural goods. B) A country with a lot of skilled labor tends to export highly technical goods. C) A country tends to export the goods that it can produce at a lower opportunity cost. D) A country imports and exports the same goods. Answer: D Diff: 2 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 7) The Heckscher-Ohlin theorem looks to ________ to explain trade flows. A) relative factor endowments B) the existence of trade barriers C) acquired comparative advantage D) the differences in preferences among consumers Answer: A Diff: 1 Topic: The Sources of Comparative Advantage Skill: Fact 8) Which of the following is NOT a valid explanation for the existence of international trade? A) the existence of natural comparative advantage B) the existence of acquired comparative advantage C) some scale that are available when producing for a domestic market may not be available when economies of producing for a world market D) industries may differentiate their products in order to please the wide variety of tastes that exist worldwide Answer: C Diff: 1 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 2 Tr ue /F al s e 1) A country with a lot of human capital is likely to have a comparative advantage in highly technical goods. Answer: TRUE Diff: 1 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 2) The r-Ohlin theorem says that a country is likely to have a comparative advantage in a labor intensive Hecksche product, if it has a large labor supply. Answer: TRUE Diff: 1 Topic: The Sources of Comparative Advantage Skill: Fact 3) The Heckscher-Ohlin theorem explains why the U.S. both imports and exports cars. Answer: FALSE Diff: 1 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 4) Internatio can be spurred by economies of scale giving a cost advantage to one large producer exporting to the nal trade whole world. Answer: TRUE Diff: 1 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 5) Acquired comparative advantage come from factor endowments. Answer: FALSE Diff: 1 Topic: The Sources of Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking 19.4 Trade 1 M ul ti pl e C h o i c e 1) A tariff is A) a limit on the quantity of a good that can be imported into a country. B) a tax on imports. C) a government payment made to domestic firms to encourage exports. D) a payment made by the government to producers of the product. Answer: B Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Definition 2) Governm ent payments made to domestic firms in order to encourage exports are called A) tariffs. B) bribes. C) quotas. D) subsidies. Answer: D Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Definition 3) It costs a manufacturer $3,000 to produce a personal computer. This manufacturer sells these computers abroad computer for $2,500. This is an example of A) a negative tariff. B) export subsidy. C) dumping. D) a trade-related economy of scale. Answer: C Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 4) If the United States decreases the tariff on imported tuna steaks, this will A) reduce the steaks imported into the United States and reduce production of tuna steaks in the United States. number of tuna B) increase the steaks imported in the United States and increase the production of tuna steaks in the United States. number of tuna C) reduce the steaks imported in the United States and increase the production of tuna steaks in the United States. number of tuna D) increase the steaks imported in the United States and reduce the production of tuna steaks in the United States. number of tuna Answer: D Diff: 2 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 5) The United States placed a limit on the amount of cars that can be imported into the United States. This is an example of A) a tariff. B) an export subsidy. C) a quota. D) dumping. Answer: C Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 6) Which of the following is TRUE? A) An import quota generates government revenue. B) Tariffs on imports generate government revenue as long as the domestic price is larger than the world price plus the tariff. C) Tariffs on generate government revenue if the domestic price is larger than the world price plus the tariff. imports do not D) Tariffs on imports never generate government revenue. Answer: B Diff: 2 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 7) Which of the following statements is FALSE? A) If the United a tariff on Japanese car imports, the price of cars in the United States is likely to increase. States imposes B) If the United a quota on Japanese car imports, the price of cars in the United States is likely to increase. States imposes C) If Japan imposes a subsidy on car exports to the United States, the price of cars in the United States is likely to increase. D) If Japan imposes a "voluntary export restraint" on car exports to the United States, the price of cars in the United States is likely to increase. Answer: C Diff: 3 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 8) Dumping involves a country selling its exports A) at a price lower than its cost of production. B) to nations without a comparative advantage in producing the products. C) to nations that regularly impose tariffs. D) to nations that have no need for the products. Answer: A Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Definition 9) The U.S. tariff law that set off an international trade war in the 1930s was the A) Taft-Hartley tariff. B) Bentsen- Gephardt tariff. C) Smoot-Hawley tariff. D) Landrum- Griffin tariff. Answer: C Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 10) The nal agreement signed by the United States and 22 other countries in 1947 to promote the liberalization of internatio foreign trade is known by its initials as A) GATT. B) START. C) SALT. D) IMF. Answer: A Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 11) Every president who has held office since the General Agreement on Tariffs and Trade was signed has A) argued for free- but only Eisenhower and Reagan successfully resisted all calls for protection from various sectors trade policies, of the economy. B) argued that industries deserve protection, yet each one has been reluctant to use his powers to protect certain domestic individual sectors of the economy. C) argued for free- trade policies, yet each one has used his powers to protect various sectors of the economy. D) argued for free- but only Kennedy and Carter successfully resisted all calls for protection from various sectors of trade policies, the economy. Answer: C Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 12) In 2003, the WTO ruled that U.S. tariffs on ________ were unfair and allowed retaliatory tariffs on U.S. products. A) steel imported from the EU B) beef imported from Argentina C) automobiles imported from Japan D) diamonds imported from South Africa Answer: A Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 13) Over time, the general movement in the United States has been toward A) higher tariffs and stricter import quotas. B) managed trade. C) relatively more free trade. D) complete elimination of tariffs, import quotas, and export subsidies. Answer: C Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 14) If a nation has most-favored-nation status conferred on it, then exports from that country A) will be priced higher than products exported from countries without most-favored-nation status. B) are exempt from all safety regulations. C) are sold below cost. D) are taxed at the lowest negotiated tariff rates. Answer: D Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 15) Economic integration A) occurs when two or more nations join to form a free-trade zone. B) occurs when countries develop an acquired comparative advantage that makes their industries more competitive in international markets. C) occurs when countries are granted most-favored-nation status. D) occurs when one country voluntarily agrees to reduce its exports to another country. Answer: A Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Definition 16) The idea U.S.-Canadian Free-Trade Agreement that removed all barriers to trade including tariffs and quotas of the between the United States and Canada by 1998 was to A) increase the price of Canadian goods sold in the United States. B) increase the price of U.S. goods sold in Canada. C) increase the United States exports to Canada and the amount that the United States imports from Canada. amount that the D) increase the United States exports to Canada and decrease the amount that the United States imports from amount that the Canada. Answer: C Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 17) In 1991, what group of countries began the process of forming the largest free-trade zone in the world? A) the European Community B) the North Atlantic Treaty Organization C) the United States, Canada, and Mexico D) the Organization of Petroleum Exporting Countries Answer: A Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 18) Which of the following can be considered a free-trade zone? A) countries that are members of GATT B) the United States C) all English- speaking nations D) the industrialized OECD nations Answer: B Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Fact 19) Related to Economics in Practice on p. 366 [678]: A rise in global food prices would most likely result in pressure the to A) increase tariffs on imported food. B) decrease tariffs on imported food. C) decrease quotas on imported food. D) decrease export duties on food. Answer: B Diff: 2 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas: Economics in Practice Skill: Conceptual AACSB: Analytic Skills 2 Tr ue /F al s e 1) An export subsidy raises the domestic price of the product. Answer: TRUE Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 2) A tariff is a tax on imports. Answer: TRUE Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Definition 3) Dumping refers to a country selling its exports at a price lower than its selling price at home. Answer: FALSE Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Definition 4) A quota is a restriction that allows women and minorities to import a certain percentage of imports. Answer: FALSE Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Definition 5) Tariffs, quotas and exports subsidies all increase domestic production. Answer: TRUE Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 6) A quota on sugar harms domestic producers of sugar. Answer: FALSE Diff: 2 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill: Conceptual AACSB: Reflective Thinking 7) Related to Economics in Practice on p. 366 [678]: To keep domestic food markets well-stocked, China has recently the increased export duties on food products. Answer: TRUE Diff: 1 Topic: Trade Barriers: Tariffs, Export Subsidies, and Quotas: Economics in Practice Skill: Fact 19.5 Free 1 M ul ti pl e C h o i c e 1) The case for free trade is based on the A) theory of balanced growth. B) theory of absolute advantage. C) argument for a diversified economy. D) theory of comparative advantage. Answer: D Diff: 1 Topic: Free Trade or Protection? Skill: Fact 2) Which of the following statements is NOT true? A) Trade is beneficial because it allows more efficient production. B) Trade is beneficial because it allows consumers to buy goods at cheaper prices. C) Trade is beneficial because it allows all domestic industries to increase production. D) Trade is beneficial because it allows consumption beyond the production possibility frontier. Answer: C Diff: 2 Topic: Free Trade or Protection? Skill: Conceptual AACSB: Reflective Thinking 3) A tariff on imported shoes will cause the domestic price of shoes to ________ and the domestic production of imposed shoes to ________. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease Answer: A Diff: 1 Topic: Free Trade or Protection? Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 19.3 below to answer the questions that follow. Figure 19.3 4) Refer to 19.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. After trade this Figure country will import A) 100 pairs of shoes. B) 200 pairs of shoes. C) 300 pairs of shoes. D) 1,300 pairs of shoes. Answer: C Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 5) Refer to 19.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. Now domestic Figure production costs fall so that the equilibrium domestic price of a pair of shoes is $70. This would cause A) the number of pairs of shoes imported into this country to increase. B) the number of pairs of shoes imported into this country to decrease. C) the number of pairs of shoes exported from this country to increase. D) the number of pairs of shoes exported from this country to decrease. Answer: B Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 6) Refer to 19.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. If shoes are a Figure normal good and income in this country rises, then we would expect A) the number of pairs of shoes imported into this country to increase. B) the number of pairs of shoes imported into this country to decrease. C) the number of pairs of shoes exported from this country to increase. D) the number of pairs of shoes exported from this country to decrease. Answer: A Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 19.4 below to answer the questions that follow. Figure 19.4 7) Refer to domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a Figure tariff is imposed the price is $15. If there is free trade, this country will import ________ leather wallets. 19.4. The A) 50 B) 100 C) 200 D) 300 Answer: C Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 8) Refer to domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a Figure tariff is imposed the price is $15. After the tariff is imposed, this country will import ________ leather 19.4. The wallets. A) 50 B) 100 C) 150 D) 200 Answer: B Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 9) Refer to 19.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. After the tariff is imposed, tariff revenue in this country will be A) $50. B) $250. C) $500. D) $750. Answer: C Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 10) Refer to 19.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. After the tariff is imposed, A) domestic consumption will increase by 50 wallets and domestic consumption will increase by 50 wallets. production and B) domestic production will increase by 150 wallets and domestic consumption will decrease by 250 wallets. C) domestic production will increase by 100 wallets and domestic consumption will decrease by 100 wallets. D) domestic production will increase by 50 wallets and domestic consumption will decrease by 50 wallets. Answer: D Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 11) Refer to domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and after a Figure tariff is imposed the price is $15. If the tariff is raised so that it now equals $10, tariff revenue in this 19.4. The country will be A) $0. B) $1,000. C) $2,000. D) $3,000. Answer: A Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 12) Refer to 19.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. With free trade domestic production is A) 0. B) 100. C) 150. D) 300. Answer: B Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 13) Refer to 19.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. With the tariff domestic production is A) 100. B) 150. C) 200. D) 300. Answer: B Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 19.5 below to answer the questions that follow. Figure 19.5 14) Refer to 19.5. The domestic price of oil is $130 per barrel. If the world price of oilis $135 per barrel, this country Figure will A) import 23 million barrels. B) import 9 million barrels. C) export 5 million barrels. D) export 14 million barrels. Answer: C Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 15) Refer to 19.5. The domestic price of oil is $130 per barrel. This country imports 14 million barrels if the world Figure price of oil is $________. A) 120 B) 125 C) 135 D) 140 Answer: A Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 16) Refer to domestic price of oil is $130 per barrel, and the world price of oil is $120 per barrel. If the domestic Figure government imposes a tariff of $________ per barrel, it will eliminate all oil imports and achieve tariff 19.5. The revenues of $________. A) 10; zero B) 5; 20 million C) 5; 45 million D) 10; 120 million Answer: A Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills Refer to the information provided in Figure 19.6 below to answer the questions that follow. Figure 19.6 17) Refer to 19.6. Before imposing an import quota, the equilibrium price of cheese is $________ per pound and the Figure equilibrium quantity is ________ pounds. A) 3; 12,000 B) 5; 8,000 C) 5; 6,000 D) 3; 6,000 Answer: B Diff: 1 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 18) Refer to 19.6. Suppose the government imposes an import quota of 6,000 pounds of cheese. The equilibrium price Figure changes to $________ per pound, and the equilibrium quantity changes to ________ pounds. A) 3; 12,000 B) 3, 6,000 C) 5; 8,000 D) 7; 6,000 Answer: A Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 19) Refer to 19.6. If the government does not impose an import quota of 6,000 pounds of cheese and the world price Figure of cheese is $2 per pound, this country will ________ pounds of cheese. A) import 7,000 B) import 10,000 C) import 13,000 D) none of the above Answer: C Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 20) Refer to Figure 19.6. From a no trade position, an import quota of 6,000 pounds A) increases domestic supply by 3,000 pounds and lowers the price by $2 per pound. B) decreases domestic supply by 2,000 pounds and lowers the price by $2 per pound. C) decreases domestic supply by 2,000 pounds and raises the price by $1 per pound. D) decreases domestic supply by 3,000 pounds and lowers the price by $2 per pound. Answer: B Diff: 2 Topic: Free Trade or Protection? Skill: Analytic AACSB: Analytic Skills 21) Related to Economics in Practice on p. 369 [681]: If the candle makers in the petition were able to gain protection the for their industry, the French economy would most likely A) benefit in the short run. B) become more efficient. C) benefit only if the protection was in the form of a tariff. D) have to pay higher prices for candles. Answer: D Diff: 1 Topic: Free Trade or Protection?: Economics in Practice Skill: Conceptual AACSB: Reflective Thinking 22) Related to Economics in Practice on p. 369 [681]: Satirist Frederic Bastiat's essay arguing for a quota on sunlight in the order to protect domestic candle makers suggests that it is pointless to A) participate in international trade B) protect industries that cannot compete effectively C) legislate based on economic theory D) create barriers to trade in some markets but not others Answer: B Diff: 2 Topic: Free Trade or Protection?: Economics in Practice Skill: Analytic AACSB: Analytic Skills 2 Tr ue /F al s e 1) It is a valid argument that industries need to be protected from foreign competition because foreign wages are substantially lower than wages paid to U.S. workers. Answer: FALSE Diff: 2 Topic: Free Trade or Protection? Skill: Conceptual AACSB: Reflective Thinking 2) Free trade allows the people of a country to consume outside their production possibility frontier. Answer: TRUE Diff: 2 Topic: Free Trade or Protection? Skill: Conceptual AACSB: Reflective Thinking 3) Free trade decreases world production and consumption. Answer: FALSE Diff: 2 Topic: Free Trade or Protection? Skill: Conceptual AACSB: Reflective Thinking 4) Protection is often temporary to help infant industries. Answer: FALSE Diff: 2 Topic: Free Trade or Protection? Skill: Fact 5) Protection makes the people of a country better off. Answer: FALSE Diff: 2 Topic: Free Trade or Protection? Skill: Conceptual AACSB: Reflective Thinking 6) Accordin g to some environmental groups, free trade policies are potentially harmful to the environment. Answer: TRUE Diff: 1 Topic: Free Trade or Protection? Skill: Fact ...
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This note was uploaded on 06/10/2011 for the course MATH 788 taught by Professor Dean during the Spring '11 term at Texas Southern.

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