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Which of the following is an example of a land-intensive commodity?
A. chemicals
B. autos
C. watches
D. wool
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D. wool
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Which of the following is an example of a labor-intensive commodity?
A. digital cameras
B. beer
C. aspirin tablets
D. gasoline
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A. digital cameras
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Which of the following is an example of a capital-intensive commodity?
A. clothing
B. wool
C. sunflower seeds
D. chemicals
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D. chemicals
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Differences in production efficiencies among nations in producing a particular good result from:
A. different endowments of fertile soil.
B. different amounts of skilled labor.
C. different levels of technological knowledge.
D. all of these.
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D. all of these.
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Countries engaged in international trade specialize in production based on:
A. relative levels of GDP.
B. comparative advantage.
C. relative exchange rates.
D. relative inflation rates.
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B. comparative advantage.
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In order for mutually beneficial trade to occur between two otherwise isolated nations:
A. each nation must be able to produce at least one good absolutely cheaper than the other.
B. each nation must be able to produce at least one good relatively cheaper than the other.
C. each nation must face constant costs in the production of the good it exports.
D. one nation’s production must be labor-intensive while the other nation’s production is capital-intensive.
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B. each nation must be able to produce at least one good relatively cheaper than the other.
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If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B:
A. mutually advantageous specialization and trade between A and B may still be possible.
B. we can conclude that A is an industrially advanced economy and B is a developing economy.
C. it will necessarily be advantageous for B to import both X and Y from A.
D. then there is no possible basis for mutually advantageous specialization and trade between A and B.
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A. mutually advantageous specialization and trade between A and B may still be possible.
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The terms of trade reflect the:
A. rate at which gold exchanges internationally for any domestic currency.
B. ratio at which nations will exchange two goods.
C. fact that the gains from trade will be equally divided.
D. cost conditions embodied in a single country’s production possibilities curve.
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B. ratio at which nations will exchange two goods.
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Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that:
A. the terms of trade will be 3X equals 1Y.
B. Alpha should specialize in Y and Beta in X.
C. Alpha should specialize in X and Beta in Y.
D. there is no basis for mutually beneficial specialization and trade.
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B. Alpha should specialize in Y and Beta in X.
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In the theory of comparative advantage, a good should be produced in that nation where:
A. the production possibilities line lies further to the right than the trading possibilities line.
B. its cost is least in terms of alternative goods that might otherwise be produced.
C. its absolute cost in terms of real resources used is least.
D. its absolute money cost of production is least.
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B. its cost is least in terms of alternative goods that might otherwise be produced.
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If two nations have straight-line production possibilities curves:
A. then their trading possibilities curves must lie inside the production possibilities curves.
B. there will be no basis for mutually advantageous trade.
C. there will be a basis for mutually advantageous trade whether the slopes are equal or not.
D. there will be a basis for mutually advantageous trade provided the slopes differ.
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D. there will be a basis for mutually advantageous trade provided the slopes differ.
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The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:
A. the production possibilities curve of any two nations are identical.
B. a nation’s production possibilities and trading possibilities lines coincide.
C. a nation’s trading possibilities line lies to the right of its production possibilities line.
D. a nation’s production possibilities line lies to the right of its trading possibilities line.
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C. a nation’s trading possibilities line lies to the right of its production possibilities line.
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Answer the question on the basis of the following information about the cost ratios for two products-fish (F) and chicken (C)-in countries Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world.
Singsong: 1F = 2C
Harmony: 1F = 4C
Refer to the above information. In Singsong the domestic real cost of each chicken:
A. is 1/2a fish.
B. is 2 fish.
C. increases with the level of fish caught.
D. decreases with the level of fish caught.
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A. is 1/2a fish.
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Answer the question on the basis of the following information about the cost ratios for two products-fish (F) and chicken (C)-in countries Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world.
Singsong: 1F = 2C
Harmony: 1F = 4C
Refer to the above information. If these two nations specialize based on comparative advantage:
A. Singsong will both produce chicken and catch fish.
B. Harmony will both produce chicken and catch fish.
C. Harmony will produce chicken and Singsong will catch fish.
D. Singsong will produce chicken and Harmony will catch fish.
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C. Harmony will produce chicken and Singsong will catch fish.
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Answer the question on the basis of the following information about the cost ratios for two products-fish (F) and chicken (C)-in countries Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world.
Singsong: 1F = 2C
Harmony: 1F = 4C
Refer to the above information. Which one of the following would not be feasible terms for trade between Singsong and Harmony?
A. 1 fish for 21/2chicken
B. 1 fish for 3 chicken
C. 1 chicken for 1/5of a fish
D. 1 chicken for 1/3of a fish
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C. 1 chicken for 1/5of a fish
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The primary gain from international trade is:
A. increased employment in the domestic export sector.
B. more goods than would be attainable through domestic production alone.
C. tariff revenue.
D. increased employment in the domestic import sector.
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B. more goods than would be attainable through domestic production alone.
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If a nation has a comparative advantage in the production of X, this means the nation:
A. cannot benefit by producing and trading this product.
B. must give up less of other goods than other nations in producing a unit of X.
C. has a production possibilities curve identical to those of other nations.
D. is not subject to increasing opportunity costs.
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B. must give up less of other goods than other nations in producing a unit of X.
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The impact of increasing, as opposed to constant, costs is to:
A. intensify and prolong the comparative advantages that any nation may have initially.
B. expand the limits of the terms of trade.
C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage.
D. cause nations to realize economies of scale in those products in which they specialize.
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C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage.
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In the real world, specialization is rarely complete because:
A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.
B. production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin.
C. one nation’s imports are necessarily another nation’s exports.
D. international law prohibits monopolies.
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A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.
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The law of increasing opportunity costs:
A. applies to land-intensive commodities, but not to labor-intensive or capital-intensive commodities.
B. results in straight-line production possibilities curves rather than curves that are bowed outward from the origin.
C. refutes the principle of comparative advantage.
D. may limit the extent to which a nation specializes in producing a particular product.
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D. may limit the extent to which a nation specializes in producing a particular product.
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Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will:
A. have a domestic surplus of copper.
B. export copper.
C. import copper.
D. neither export nor import copper.
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C. import copper.
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Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will:
A. have a domestic shortage of wheat.
B. export wheat.
C. import wheat.
D. neither export nor import wheat.
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B. export wheat.
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A nation’s import demand curve for a specific product:
A. is upsloping.
B. shows the amount of the product it will import at prices below its domestic price.
C. lies above its export supply curve for the product.
D. depends on domestic demand for the product, but not on domestic supply.
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B. shows the amount of the product it will import at prices below its domestic price.
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A nation’s export supply curve for a specific product:
A. is upsloping.
B. shows the amount of the product it will export at prices below its domestic price.
C. lies below its import demand curve for the product.
D. depends on domestic supply of the product, but not on domestic demand.
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A. is upsloping.
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A nation will neither export nor import a specific product when its:
A. domestic price equals the world price.
B. export supply curve lies above its import demand curve.
C. export supply curve is upsloping.
D. import demand curve is downsloping.
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A. domestic price equals the world price.
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Export supply curves are __________________; import demand curves are ___________________.
A. horizontal; vertical
B. vertical; horizontal
C. downsloping; upsloping
D. upsloping; downsloping
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D. upsloping; downsloping
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In a two-nation model, the equilibrium world price will occur where:
A. one nation’s export supply curve intersects the other nation’s import demand curve.
B. exports are exactly twice the level of imports.
C. both nations’ export supply curves are horizontal.
D. both nations’ import demand curves are vertical.
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A. one nation’s export supply curve intersects the other nation’s import demand curve.
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Tariffs:
A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).
B. are also called import quotas.
C. are excise taxes on goods exported abroad.
D. are per unit subsidies designed to promote exports.
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A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).
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An excise tax on an imported good that is not produced domestically is called a:
A. protective tariff.
B. import quota.
C. revenue tariff.
D. voluntary export restriction.
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C. revenue tariff.
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Excise taxes on imported goods that help shield domestic producers of the good are called:
A. protective tariffs.
B. import quotas.
C. revenue tariffs.
D. voluntary export restrictions.
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A. protective tariffs.
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Country A limits other nation’s exports to Country A to 1,000 tons of coal annually. This is an example of a(n):
A. protective tariff.
B. export subsidy.
C. import quota.
D. voluntary export restriction.
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C. import quota.
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Which is an example of a nontariff barrier (NTB)?
A. an export subsidy
B. an excise tax on the physical volume of imported goods
C. box-by-box inspection requirements for imported fruit
D. an excise tax on the dollar value of imported goods
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C. box-by-box inspection requirements for imported fruit
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A tariff can best be described as:
A. an excise tax on an imported good.
B. a government payment to domestic producers to enable them to sell competitively in world markets.
C. an excise tax on an exported good.
D. a law that sets a limit on the amount of a good that can be imported.
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A. an excise tax on an imported good.
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In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber sold to the United States. This is an example of a(n):
A. import quota.
B. export subsidy.
C. voluntary export restriction.
D. protective tariff.
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C. voluntary export restriction.
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Suppose the United States sets a limit on the number of tons of sugar that can be imported each year. This is an example of a(n):
A. protective tariff.
B. revenue tariff.
C. voluntary export restriction.
D. import quota.
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D. import quota.
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Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect:
A. the price of German bicycles to increase in the United States.
B. employment to decrease in the German bicycle industry.
C. employment to decrease in the U.S. bicycle industry.
D. profits to rise in the U.S. bicycle industry.
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C. employment to decrease in the U.S. bicycle industry.
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In effect, tariffs on imports are:
A. special taxes on domestic producers.
B. subsidies to domestic consumers.
C. subsidies to foreign producers.
D. subsidies for domestic producers.
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D. subsidies for domestic producers.
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A protective tariff will:
A. increase the sales of foreign exporters.
B. increase the price and sales of domestic producers.
C. increase the welfare of domestic consumers.
D. create an efficiency gain in the domestic economy.
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B. increase the price and sales of domestic producers.
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Other things equal, a tariff is:
A. superior to an import quota for Americans because a tariff increases the profits of foreign producers.
B. inferior to an import quota for Americans because a tariff increases the profits of domestic producers.
C. superior to an import quota for Americans because a tariff generates revenue for the United States Treasury.
D. inferior to an import quota for Americans because a tariff generates revenue for the United States Treasury.
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C. superior to an import quota for Americans because a tariff generates revenue for the United States Treasury.
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In comparing a tariff and an import quota we find that:
A. the tariff and quota both generate the same amount of revenue for the United States Treasury.
B. the tariff generates revenue for the United States Treasury but the quota does not.
C. the quota generates revenue for the United States Treasury but the tariff does not.
D. neither the tariff nor the quota generates revenue for the United States Treasury.
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B. the tariff generates revenue for the United States Treasury but the quota does not.
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Other things equal, economists would prefer:
A. free trade to tariffs and tariffs to import quotas.
B. free trade to import quotas and import quotas to tariffs.
C. import quotas to tariffs and tariffs to voluntary export restrictions.
D. import quotas to free trade and free trade to tariffs.
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A. free trade to tariffs and tariffs to import quotas.
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Which of the following statements is false?
A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies.
B. The United States Constitution forbids individual states from levying tariffs.
C. The high tariffs of the Smoot-Hawley Act of 1930 and the retaliation they caused worsened the Great Depression.
D. The European Union has enhanced prosperity in Western Europe.
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A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies.
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Graphical analysis of tariffs reveals that:
A. they benefit domestic consumers at the expense of domestic producers.
B. revenue gains outweigh the costs to domestic consumers.
C. they increase domestic production of the good for which imports face tariffs.
D. although the benefits are not shared equally, everyone in the domestic economy benefits from tariffs.
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C. they increase domestic production of the good for which imports face tariffs.
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Studies show that:
A. it is impossible to estimate the benefits of trade barriers.
B. costs and benefits of trade barriers are about equal.
C. benefits of trade barriers exceed their costs in developing nations.
D. costs of trade barriers exceed their benefits, creating an efficiency loss for society.
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D. costs of trade barriers exceed their benefits, creating an efficiency loss for society.
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Research studies indicate that:
A. U.S. producers gain more from tariffs than U.S. consumers lose.
B. the costs of trade restrictions are proportionately higher for high-income groups than for low-income groups.
C. the revenue from tariffs equals the total cost that tariffs impose on consumers.
D. U.S. consumers lose more from tariffs than U.S. producers gain.
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D. U.S. consumers lose more from tariffs than U.S. producers gain.
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A high tariff on imported good X might reduce domestic employment in industry Y if:
A. X is an input used domestically in producing Y.
B. X and Y are substitute goods.
C. X is an inferior good.
D. Y is an inferior good.
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A. X is an input used domestically in producing Y.
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The increased-domestic-employment argument for tariff protection holds that:
A. domestic inflation is a desirable policy goal because it stimulates exports.
B. domestic deflation is a desirable policy goal because it stimulates imports.
C. an increase in tariffs will reduce net exports and stimulate domestic employment.
D. an increase in tariffs will increase net exports and stimulate domestic employment.
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D. an increase in tariffs will increase net exports and stimulate domestic employment.
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Which of the following arguments for trade protection contends that new domestic industries need support to establish themselves and survive?
A. the increase-domestic-employment argument
B. the cheap-foreign-labor argument
C. the diversification-for-stability argument
D. the infant-industry argument
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D. the infant-industry argument
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Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary?
A. the increase-domestic-employment argument
B. the cheap-foreign-labor argument
C. the diversification-for-stability argument
D. the infant-industry argument
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C. the diversification-for-stability argument
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Which of the following arguments contends that certain industries need to be protected in the interest of national security?
A. the increase-domestic-employment argument
B. the cheap-foreign-labor argument
C. the diversification-for-stability argument
D. the military self-sufficiency argument
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D. the military self-sufficiency argument
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A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that:
A. labor costs and product prices are not related.
B. there is no discernible relationship between wage rates and labor productivity.
C. wage rates and labor productivity are directly related.
D. wage rates and labor productivity are inversely related.
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C. wage rates and labor productivity are directly related.
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As it relates to international trade, dumping:
A. is a form of price discrimination illegal under U.S. antitrust laws.
B. is the practice of selling goods in a foreign market at less than cost.
C. constitutes a general case for permanent tariffs.
D. is defined as selling more goods than allowed by an import quota.
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B. is the practice of selling goods in a foreign market at less than cost.
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Dumping of goods abroad:
A. constitutes a general case for permanent tariffs.
B. may be part of a firm’s price discrimination strategy.
C. may be part of a nation’s strategy to rectify its trade deficit.
D. drives up prices of the dumped goods
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B. may be part of a firm’s price discrimination strategy.
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The World Trade Organization:
A. is also known as the International Monetary Fund (IMF).
B. is also known as NAFTA.
C. was established to resolve disputes arising under world trade rules.
D. enhances world trade by providing interest rate subsidies to foreign borrowers who buy exports on credit.
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C. was established to resolve disputes arising under world trade rules.
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The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the:
A. International Monetary Fund (IMF).
B. World Trade Organization (WTO).
C. Common Market Organization (CMO).
D. International Trade Commission (ITC).
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B. World Trade Organization (WTO).
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The World Trade Organization was established as a successor to:
A. GATT.
B. NAFTA.
C. the EU.
D. the Doha Development Agenda.
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A. GATT.
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Which of the following was not one of the principles on which the General Agreement on Tariffs and Trade (GATT) was established?
A. The elimination of import quotas.
B. Equal, nondiscriminatory trade treatment for all member nations.
C. The formation of international trade contracts to alleviate global poverty.
D. The reduction of tariffs by multilateral negotiations.
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C. The formation of international trade contracts to alleviate global poverty.
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The "Euro Zone":
A. is another name for the European Union.
B. refers to the common currency used by all European Union members.
C. is a geographic region in Europe with no national sovereignty, where free trade between European nations is allowed to occur.
D. is the subset of the EU that uses a common currency.
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D. is the subset of the EU that uses a common currency.
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"NAFTA" stands for:
A. North African Free Trade Area
B. North American Free Trade Agreement
C. North Asian Free Trade Agreement
D. New Zealand-Australia Free Trade Agreement
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B. North American Free Trade Agreement
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Critics of the World Trade Organization (WTO) say that liberalized world trade does all of the following except:
A. produce environmental degradation.
B. allow producers to circumvent labor protections such as workplace safety, child labor restrictions, and collective bargaining rights.
C. help developing nations escape from poverty.
D. promote the interests of multinational corporations.
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C. help developing nations escape from poverty.
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