Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F'

if the statement is false.
1) The percentage of the United States' domestic output
that is derived from international trade is higher than that for
any other industrially advanced nation.

⊚ true
⊚ false

2) In 2018, the United States became a net exporter of

oil.

⊚ true
⊚ false

3) It is impossible for a nation to have a comparative

advantage in producing everything.

⊚ true
⊚ false

4) The nation that has a comparative advantage in a

particular product will be the only world exporter of that
product.

⊚ true
⊚ false

5) International trade based on the principle of

comparative advantage creates a more efficient allocation of
world economic resources.

⊚ true
⊚ false

Version 1 1
6) The law of increasing opportunity costs limits
international specialization.

⊚ true
⊚ false

7) Assume that by devoting all its resources to the Therefore, Alpha should
production of X, nation Alpha can produce 40 units of X. By specialize in Y and Beta in
devoting all its resources to Y, Alpha can produce 60Y. X.
Comparable figures for nation Beta are 60X and 40Y.

⊚ true
⊚ false

8) Assume that by devoting all its resources to the terms of trade will be at or
production of X, nation Alpha can produce 40 units of X. By within the 1X = 1½Y to
devoting all its resources to Y, Alpha can produce 60Y. 1X = ⅔Y range.
Comparable figures for nation Beta are 60X and 40Y. The

⊚ true
⊚ false

9) Assume that by devoting all its resources to the would prefer terms of trade
production of X, nation Alpha can produce 40 units of X. By at, or close to, 1X = 1½Y.
devoting all its resources to Y, Alpha can produce 60Y.
Comparable figures for nation Beta are 60X and 40Y. Alpha

⊚ true
⊚ false

Version 1 2
 ⊚ true

Version 1 3
11) Assume that by devoting all its resources to the that the gains from
production of X, nation Alpha can produce 40 units of X. By specialization and trade are
devoting all its resources to Y, Alpha can produce 60Y. 10X and 10Y.
Comparable figures for nation Beta are 60X and 40Y. If
Alpha had produced 20X and 30Y and Beta had produced
30X and 20Y before specialization and trade, then we can say

⊚ true
⊚ false

12) Assume that by devoting all its resources to the has an absolute advantage
production of X, nation Alpha can produce 20 units of X. By in the production of both
devoting all its resources to Y, Alpha can produce 30Y. goods.
Comparable figures for nation Beta are 60X and 40Y. There
is no basis for trade between Alpha and Beta, because Beta

⊚ true
⊚ false

13) Assume that by devoting all its resources to the would prefer terms of trade
production of X, nation Alpha can produce 20 units of X. By at, or close to, 1X = 2/
devoting all its resources to Y, Alpha can produce 30Y. 3Y.

Comparable figures for nation Beta are 60X and 40Y. Alpha

⊚ true
⊚ false

14) A nation's export supply curve is downsloping, and its

import demand curve is upsloping.

⊚ true
⊚ false

15) The equilibrium world price of a product equates the

quantities of exports supplied and imports demanded.

Version 1 4
 ⊚ true ⊚ false

16) Economists prefer free trade to tariffs and prefer tariffs

to import quotas.

⊚ true
⊚ false

17) Tariffs create larger gains to domestic producers than

losses to domestic consumers.

⊚ true
⊚ false

18) A side benefit of international trade is that it links

national interests and increases the opportunity costs of war.

⊚ true
⊚ false

19) During the Great Depression, most nations lowered

tariffs and abolished import quotas to encourage the flow of
trade.

⊚ true
⊚ false

20) Barriers to free trade impair efficiency in the

international allocation of resources.

⊚ true
⊚ false

21) The World Trade

Organization comprises 28

Version 1 5
European nations and is dedicated to abolishing trade barriers
and integrating their economies.

⊚ true
⊚ false

22) The World Trade Organization (WTO) is an

international organization designed to provide short-term
advances of foreign monies to those nations faced with trade
deficits.

⊚ true
⊚ false

23) Trade adjustment assistance provides subsidies to

companies that have lost business to foreign firms.

⊚ true
⊚ false

24) Offshoring benefits some firms by reducing their

producing costs and maintaining their global competitiveness.

⊚ true
⊚ false

25) Economists generally view offshoring as detrimental

to the U.S. economy.

⊚ true
⊚ false

26) In terms of trade volume in the past many years, China

has been the largest trading partner of the United States.

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 ⊚ true ⊚ false

27) In 2018, the United States was the largest exporter in

the world.

⊚ true
⊚ false

28) Among the principal exports of the United States are

agricultural products.

⊚ true
⊚ false

29) The United States can be classified as an "open"

economy in that foreign trade accounts for more than 50
percent of its GDP.

⊚ true
⊚ false

30) The U.S. has a trade surplus in services.

⊚ true
⊚ false

31) One major factor that serves as an economic basis for

world trade is the uneven distribution of resources among
nations.

⊚ true
⊚ false

32) Comparative advantage is another name for absolute

advantage.

Version 1 7
 ⊚ true ⊚ false

33) If a nation's labor can produce more of a good

compared to labor in another nation, then we say that the first
nation has a comparative advantage in producing that good.

⊚ true
⊚ false

34) In a two-nation, two-good world, it is possible for one

nation to have the comparative advantage in both goods.

⊚ true
⊚ false

35) If two nations specialize according to their respective their production

comparative advantage, and then trade with each other, both possibilities curves.
nations can consume output-combinations that are beyond

⊚ true
⊚ false

36) In a two-nation, two-good world, if one nation is more

efficient in producing both goods than the other nation, then
the more-efficient nation cannot gain from trading with the
other nation.

⊚ true
⊚ false

37) The terms of trade will favor a larger nation over a

smaller nation.

⊚ true
⊚ false

Version 1 8
38) With constant costs in production, specialization tends costs, specialization will
to proceed to complete specialization, but with increasing not be complete.

⊚ true
⊚ false

39) A nation will import a particular product if the world

price is less than the domestic price.

⊚ true
⊚ false

40) If a nation starts exporting a product to the rest of the

world, then the price of that product in the exporting nation
will rise.

⊚ true
⊚ false

41) The world price for a traded product will be between

the domestic no-trade prices of the trading nations.

⊚ true
⊚ false

42) Import tariffs benefit the consumers of the product

involved.

⊚ true
⊚ false

43) If demand for a product is increasing, an import tariff

is less restrictive than an import quota.

⊚ true

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44) Export subsidies are designed to aid domestic
producers.

⊚ true
⊚ false

45) A voluntary export restraint (VER) is similar to an

import quota, except that the former benefits the foreign
producers while the latter benefits the domestic producers.

⊚ true
⊚ false

46) Trade protection in most instances transfers wealth

from consumers to domestic producers and government.

⊚ true
⊚ false

47) Tariffs and import quotas meant to increase domestic

employment also eliminate domestic jobs in export industries.

⊚ true
⊚ false

48) Whenever a foreign producer is selling a product like is being practiced and must
steel at a lower price than domestic producers, then dumping be corrected.

⊚ true
⊚ false

49) The World Trade Organization was established by the

United States to force other nations to open their markets to
U.S. goods.

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 ⊚ true ⊚ false

50) NAFTA is a trade agreement that covers trade

between the United States and the European Union.

⊚ true
⊚ false

51) Bastiat’s "Petition of the Candlemakers," a classic

reading in economics, presents a powerful argument in favor
of protectionism.

⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that income account basis) are
best completes the statement or answers the question. about
52) U.S. exports of goods and services (on a national

D) 12 percent of
A) 20 percent of U.S. GDP. U.S. GDP.
B) 8 percent of U.S. GDP.
C) 28 percent of U.S. GDP.

53) The United States' most important trading partner

quantitatively is

C) Mexico.
A) China. D) Japan.
B) Canada.

54) In recent years, the United States has

B) had a small
A) exported more services abroad than it has goods trade surplus with
imported. Japan.

Version 1 11
 C) had a large goods trade surplus with the rest of the services combined) with
world. the rest of the world.
D) maintained an overall trade surplus (goods and

55) As a percentage of GDP, U.S. exports are

D) higher than in
A) greater than U.S. imports. Canada but lower than in
B) about 20 percent. Germany.
C) considerably lower than in several other
industrially advanced nations.

56) Which of the following statements is false?

D) As a
A) In recent years, the United States has had large percentage of GDP, U.S.
annual trade deficits in goods. exports are the highest
B) The United States imports some of the same among the industrially
categories of goods as it exports. advanced nations.
C) China has the largest share of world exports.

57) Which country has the largest share of total world

exports?

C) United States
A) Japan D) China
B) Germany

58) In terms of absolute dollar volume, the top 3 leaders in

world exports are

D) China, the
A) Japan, China, and the European Union. United States, and
B) the United States, England, and Canada. Germany.
C) Germany, England, and the United States.

Version 1 12
59) In 2018, the United States

D) had a small
A) imported more services than it exported. trade surplus in goods and
B) imported more goods than it exported. services.
C) traded mainly with developing nations such as
Mexico and India.

60) Which of the following is an example of a land-

intensive commodity?

C) watches
A) chemicals D) wool
B) autos

61) Which of the following is an example of a labor-

intensive commodity?

C) aspirin tablets
A) digital cameras D) gasoline
B) beer

62) Which of the following is an example of a capital-

intensive commodity?

D) chemicals
A) clothing
B) wool
C) sunflower seeds

63) Differences in production efficiencies among nations

in producing a particular good result from

D) all of these.
A) different endowments of fertile soil.
B) different amounts of skilled labor.
C) different levels of technological knowledge.

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64) Countries engaged in international trade specialize in
production based on

D) relative
A) relative levels of GDP. inflation rates.
B) comparative advantage.
C) relative exchange rates.

65) In order for mutually beneficial trade to occur between

two otherwise isolated nations,

D) one nation's
A) each nation must be able to produce at least one production must be labor-
good absolutely cheaper than the other. intensive, while the other
B) each nation must be able to produce at least one nation's production is
good relatively cheaper than the other. capital-intensive.
C) each nation must face constant costs in the
production of the good it exports.

66) The accompanying tables give production possibilities Gamma's production

data for Gamma and Sigma. All data are in tons. possibilities

A B C D E
Sigma's production
Tea 120 90 60 30 0
possibilities
Pots 0 30 60 90 120

A B C D E
On the basis of this
Tea 40 30 20 10 0
information,
Pots 0 30 60 90 120

should export pots to

A) Gamma should export both tea and pots to Sigma. Gamma.
D) Gamma should
B) Sigma should export tea to Gamma, and Gamma export tea to Sigma, but it
should export pots to Sigma. will not be profitable for
C) Gamma should export tea to Sigma, and Sigma the two nations to

Version 1 14
exchange pots.

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67) The accompanying tables give production possibilities
data for Gamma and Sigma. All data are in tons. Gamma's
production possibilities

A B C D E
Sigma's production
Tea 120 90 60 30 0
possibilities
Pots 0 30 60 90 120

A B C D E
What are the limits of the
Tea 40 30 20 10 0
terms of trade between
Pots 0 30 60 90 120 Gamma and Sigma?

D) 1 tea = 1 pot to
A) 1 tea = 2 pots to 1 tea = 6 pots 1 tea = 3 pots
B) 1 tea = 3 pots to 1 tea = 6 pots
C) 1 tea = 2 pots to 1 tea = 3.5 pots

68) The accompanying tables give production possibilities

data for Gamma and Sigma. All data are in tons.
Gamma's production possibilities

A B C D E
Sigma's production
Tea 120 90 60 30 0
possibilities
Pots 0 30 60 90 120

A B C D E Assume that before

specialization and trade,
Tea 40 30 20 10 0 Gamma and Sigma both
Pots 0 30 60 90 120 chose production
possibility "C." Now if
each specializes according
to comparative advantage,
the gains from
specialization and trade
will be

Version 1 16
 C) 20 tons of tea.
A) 40 tons of pots. D) 40 tons of tea.
B) 20 tons of tea and 20 tons of pots.

69) If country A can produce both goods X and Y more resources, than can country
efficiently, that is, with smaller absolute amounts of B,

D) then there is no
A) mutually advantageous specialization and trade possible basis for mutually
between A and B may still be possible. advantageous
B) we can conclude that A is an industrially specialization and trade
advanced economy and B is a developing economy. between A and B.
C) it will necessarily be advantageous for B to import
both X and Y from A.

70) The terms of trade reflect the

D) cost conditions
A) rate at which gold exchanges internationally for embodied in a single
any domestic currency. country's production
B) ratio at which nations will exchange two goods. possibilities curve.
C) fact that the gains from trade will be equally
divided.

71) Assume that by devoting all of its resources to the Comparable figures for
production of X, nation Alpha can produce 40 units of X. By nation Beta are 60X and
devoting all of its resources to Y, Alpha can produce 60Y. 40Y. We can conclude that

specialization and trade.

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

72) Answer the question on the basis of the accompanying

production possibilities tables for two countries, Latalia and
Trombonia.

Version 1 17
 Latalia's The given data indicate
production that production in
possibilities
A B C D E
Pork 4 3 2 1 0
(Tons
)
Beans 0 5 1 1 2
(Tons 0 5 0
)
Trombonia's
production
possibilities
A B C D E
Pork 8 6 4 2 0
(Tons
)
Beans 0 6 1 1 2
(Tons 2 8 4
)

Version 1 18
 costs.
A) both Latalia and Trombonia are subject to D) both Latalia
constant opportunity costs. and Trombonia are subject
B) Trombonia is subject to decreasing costs, but to the law of increasing
production in Latalia occurs under increasing opportunity opportunity costs.
costs.
C) Latalia is subject to increasing costs, but
production in Trombonia occurs under constant opportunity

73) Answer the question on the basis of the accompanying

production possibilities tables for two countries, Latalia and
Trombonia.

Latalia's Trombonia's
production production
possibilities possibilities
A B C D E A B C D E
Pork 4 3 2 1 0 Pork 8 6 4 2 0
(Tons (Tons
) )
Beans 0 5 1 1 2 Beans 0 6 1 1 2
(Tons 0 5 0 (Tons 2 8 4
) )
In Latalia the domestic real
cost of 1 ton of pork

D) is 1/5 of a ton
A) is 3 tons of beans. of beans.
B) diminishes with the level of pork production.
C) is 5 tons of beans.

74) Answer the question on the basis of the accompanying

production possibilities tables for two countries, Latalia and
Trombonia.

Latalia's Pork 4 3 2 1 0
production (Tons
possibilities )
A B C D E Beans 0 5 1 1 2

Version 1 19
 (Tons 0 5 0 (Tons
) )
Trombonia's Beans 0 6 1 1 2
production (Tons 2 8 4
possibilities )
A B C D E If these two nations
Pork 8 6 4 2 0 specialize on the basis of
comparative advantage,

D) Latalia will
A) Trombonia will produce beans and Latalia will produce beans, and
produce pork. Trombonia will produce
B) Trombonia will produce both beans and pork. pork.
C) Latalia will produce both beans and pork, and
Trombonia will produce neither.

75) Answer the question on the basis of the accompanying

production possibilities tables for two countries, Latalia and
Trombonia.

Latalia's )
production Beans 0 6 1 1 2
possibilities (Tons 2 8 4
A B C D E )
Pork 4 3 2 1 0 Assume that before
(Tons specialization and trade,
) Latalia produced
Beans 0 5 1 1 2 combination C and
(Tons 0 5 0 Trombonia produced
) combination B. If these
Trombonia's two nations now specialize
production completely based on
possibilities
comparative advantage, the
A B C D E total gains from
Pork 8 6 4 2 0 specialization and trade
(Tons will be

C) 4 tons of pork.
A) 4 tons of beans.
B) 1 ton of pork and 2 tons of beans.

Version 1 20
 D) 2 tons of pork and 4 tons of beans.

76) Answer the question on the basis of the accompanying

production possibilities tables for two countries, Latalia and
Trombonia.

Latalia's possibilities
production A B C D E
possibilities
Pork 8 6 4 2 0
A B C D E (Tons
Pork 4 3 2 1 0 )
(Tons Beans 0 6 1 1 2
) (Tons 2 8 4
Beans 0 5 1 1 2 )
(Tons 0 5 0 Which of the following
)
would be feasible terms for
Trombonia's trade between Latalia and
production
Trombonia?

D) 4 tons of beans
A) 1 ton of beans for 1 ton of pork for 1 ton of pork
B) 2 tons of beans for 1 ton of pork
C) 6 tons of beans for 1 ton of pork

77) In the theory of comparative advantage, a good should

be produced in that nation where

least.
A) the production possibilities line lies further to the D) its absolute
right than the trading possibilities line. money cost of production
B) its cost is least in terms of alternative goods that is least.
might otherwise be produced.
C) its absolute cost in terms of real resources used is

78) If two nations have straight-line production

possibilities curves,

A) then their

Version 1 21
trading possibilities curves must lie inside the production D) there will be a
possibilities curves. basis for mutually
B) there will be no basis for mutually advantageous advantageous trade
trade. provided the slopes differ.
C) there will be a basis for mutually advantageous
trade whether the slopes are equal or not.

79) <p><b><span style="font-size:20pt;"><span In the accompanying

style="color:#FF0000;"> diagrams, solid lines are
production possibilities
curves, and the dashed
lines are trading
possibilities curves. The
data contained in the
production possibilities
curves are based on the
assumption of

D) increasing
A) imperfect substitutability of resources between costs.
beer and pizza production.
B) constant costs.
C) decreasing costs.

80) <p><b><span style="font-size:20pt;"><span In the accompanying

style="color:#FF0000;"> diagrams, solid lines are
production possibilities
curves, and the dashed
lines are trading
possibilities curves. The
opportunity cost of
producing a

Version 1 22
 D) beer in West
A) pizza is 2 beers in both countries. Lothian is ½ pizza.
B) beer is ½ pizza in both countries.
C) pizza in East Lothian is 1 beer.

81) <p><b><span style="font-size:20pt;"><span possibilities curves, and

style="color:#FF0000;"> the dashed lines are trading
possibilities curves. The
data suggest that

In the accompanying diagrams, solid lines are production

pizza.
A) West Lothian should specialize in, and export, D) East Lothian
beer. should specialize in, and
B) both countries will be better off if they do not export, beer.
engage in specialization and trade involving these two
products.
C) West Lothian should specialize in, and export,

82) <p><b><span style="font-size:20pt;"><span In the accompanying

style="color:#FF0000;"> diagrams, solid lines are
production possibilities
curves, and the dashed
lines are trading
possibilities curves. The
trading possibilities curves
imply that

Version 1 23
 advantage.
A) both countries have a trade surplus that will result D) both nations
in economic growth. will be worse off as a
B) the domestic production possibilities curves entail result of international
unemployment and/or the domestic misallocation of specialization and trade.
resources.
C) world resources will be allocated more efficiently
if the two nations specialize and trade based on comparative

83) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

In the accompanying diagrams, solid lines are production

possibilities curves, and the dashed lines are trading
possibilities curves. The trading possibilities curves suggest
that the terms of trade are

D) 1 beer for 1.5

A) 1.5 beers for 1 pizza. pizzas.
B) 1 beer for 2 pizzas.
C) 2 beers for 1 pizza.

84) The fact that international specialization and trade demonstrated by the reality
based on comparative advantage can increase world output is that

C) a nation's
A) the production possibilities curves of any two trading possibilities line
nations are identical. lies to the right of its
B) a nation's production possibilities and trading production possibilities
possibilities lines coincide. line.

Version 1 24
 D) a nation's production possibilities line lies to the
right of its trading possibilities line.

85) Answer the question using the accompanying cost Singsong: 1F = 2C

ratios for two products, fish (F) and chicken (C), in countries Harmony: 1F = 4C
Singsong and Harmony. Assume that production occurs under In Singsong the domestic
conditions of constant costs and that these are the only two real cost of each chicken
nations in the world.

D) decreases with
A) is ½ fish. the level of fish caught.
B) is 2 fish.
C) increases with the level of fish caught.

86) Answer the question using the accompanying cost Singsong: 1F = 2C

ratios for two products, fish (F) and chicken (C), in countries Harmony: 1F = 4C
Singsong and Harmony. Assume that production occurs under If these two nations
conditions of constant costs and that these are the only two specialize based on
nations in the world. comparative advantage,

catch fish.
A) Singsong will both produce chicken and catch D) Singsong will
fish. produce chicken and
B) Harmony will both produce chicken and catch Harmony will catch fish.
fish.
C) Harmony will produce chicken and Singsong will

87) Answer the question using the accompanying cost Which one of the
ratios for two products, fish (F) and chicken (C), in countries following would not be
Singsong and Harmony. Assume that production occurs under feasible terms for trade
conditions of constant costs and that these are the only two between Singsong and
nations in the world. Harmony?
Singsong: 1F = 2C
Harmony: 1F = 4C

A) 1 fish for 2½

Version 1 25
chicken D) 1 chicken for
B) 1 fish for 3 chicken 1/3 of a fish
C) 1 chicken for 1/5 of a fish

88) The primary gain from international trade is

C) tariff revenue.
A) increased employment in the domestic export D) increased
sector. employment in the
B) more goods than would be attainable through domestic import sector.
domestic production alone.

89) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

The production possibilities curves suggest that

baseball bats.
A) West Mudville should specialize in, and export, D) workers will
baseball bats. try to immigrate from West
B) West Mudville should specialize in, and export, Mudville to East Mudville.
both baseballs and baseball bats.
C) East Mudville should specialize in, and export,

Version 1 26
90) <p><b><span style="font-size:20pt;"><span
style="color:#FF0000;">

Assuming labor forces of equal size, the production

possibilities curves suggest that workers in West Mudville
will have

Version 1 27
 before and after trade.
A) lower wages than workers in East Mudville before D) higher wages
trade but equal wages after trade. than workers in East
B) higher wages than workers in East Mudville both Mudville before trade but
before and after trade. lower wages after trade.
C) lower wages than workers in East Mudville both

91) If a nation has a comparative advantage in the

production of X, this means the nation

those of other nations.

A) cannot benefit by producing and trading this D) is not subject
product. to increasing opportunity
B) must give up less of other goods than other costs.
nations in producing a unit of X.
C) has a production possibilities curve identical to

92) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

Refer to the graphs. Stanville has a comparative advantage

in producing

D) neither product
A) product A. A nor B.
B) product B.
C) both product A and B.

Version 1 28
93) <p><b><span style="font-size:20pt;"><span
style="color:#FF0000;">

Refer to the graphs. Terryville has a comparative advantage

in producing

D) neither product
A) product A. A nor B.
B) product B.
C) both products A and B.

94) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

Refer to the graphs. These production possibilities curves

C) reflect the law

A) demonstrate that there can be gains from
specialization and trade between the two nations.
B) reflect the law of increasing opportunity costs.

Version 1 29
of diminishing marginal utility.
D) imply that specialization will be incomplete.

Version 1 30
95) The tables give production possibilities data for two
countries, Alpha and Beta, which have populations of equal
size.

Alpha's production A B C D E
possibilities Fish 2 1 1 6 0
A B C D E (Ton 4 8 2 0
Fish 8 6 4 2 0 s) 0 0 0
(Tons 0 0 0 0 Chip 0 1 2 3 4
) s 0 0 0
Chips 0 5 1 1 2 (Ton
(Tons 0 5 0 s)
)
Beta's production
possibilities The given data show that

subject to increasing costs.

A) Beta has a comparative advantage in producing D) Beta is more
chips. efficient than Alpha both
B) Alpha has a comparative advantage in catching in catching fish and in
fish. producing chips.
C) Alpha is subject to constant costs and Beta is

96) The tables give production possibilities data for two

countries, Alpha and Beta, which have populations of equal
size.

Alpha's production A B C D E
possibilities Fish 2 1 1 6 0
A B C D E (Ton 4 8 2 0
Fish 8 6 4 2 0 s) 0 0 0
(Tons 0 0 0 0 Chip 0 1 2 3 4
) s 0 0 0
Chips 0 5 1 1 2 (Ton
(Tons 0 5 0 s)
)
Beta's production
possibilities

Version 1 31
The domestic opportunity cost of

D) catching a ton
A) producing a ton of chips in Alpha is 1/5 of a ton of fish in Beta is 6 tons of
of fish. chips.
B) producing a ton of chips in Beta is 6 tons of fish.
C) catching a ton of fish in Alpha is 5 tons of chips.

97)

Alpha's production Fish 2 1 1 6 0

possibilities (Tons 4 8 2 0
A B C D E ) 0 0 0
Fish 8 6 4 2 0 Chips 0 1 2 3 4
(Tons 0 0 0 0 (Tons 0 0 0 0
) )
Chips 0 5 1 1 2
(Tons 0 5 0
) The tables give production
Beta's production possibilities data for two
possibilities countries, Alpha and Beta,
A B C D E which have populations of
equal size. Beta

trade.
A) should specialize in catching fish and trade with D) will export
Alpha for chips. both fish and chips to
B) should specialize in producing chips and trade Alpha.
with Alpha for fish.
C) will not realize gains from specialization and

98) The tables give production possibilities data for two

countries, Alpha and Beta, which have populations of equal
size.

Alpha's production (Tons 0 0 0 0

possibilities )
A B C D E
Fish 8 6 4 2 0

Version 1 32
 Chips 0 5 1 1 2 s 0 0 0
(Tons 0 5 0 (Ton
) s)
Beta's production Suppose that before
possibilities specialization and trade,
A B C D E Alpha chose production
Fish 2 1 1 6 0 alternative C and Beta
(Ton 4 8 2 0 chose production
s) 0 0 0 alternative B. After
Chip 0 1 2 3 4 specialization and trade,
the gains will be

D) 240 tons of
A) 20 tons of fish. fish and 20 tons of chips.
B) 20 tons of chips.
C) 20 tons of fish and 20 tons of chips.

99) The tables give production possibilities data for two

countries, Alpha and Beta, which have populations of equal
size.

Alpha's production (Ton 4 8 2 0

possibilities s) 0 0 0
A B C D E Chip 0 1 2 3 4
Fish 8 6 4 2 0 s 0 0 0
(Tons 0 0 0 0 (Ton
) s)
Chips 0 5 1 1 2 Assume the production
(Tons 0 5 0 possibilities in Beta double
) at alternatives A through
Beta's production E, while remaining as
possibilities shown in the table for
A B C D E Alpha. As a result, Beta
Fish 2 1 1 6 0 should

and sell the surplus to

A) continue to specialize in producing chips. Alpha.
B) continue to specialize in fishing.
C) no longer specialize and trade.
D) specialize both in fishing and in producing chips

Version 1 33
100) <p><b><span style="font-size:20pt;"><span production possibilities
style="color:#FF0000;"> curve and AC is its trading
possibilities curve. We can
conclude that the United
States

Refer to the given diagram, in which line AB is the U.S.

partners in producing both

A) has chosen to specialize in the production of cheese and beef.
cheese.
B) has chosen to specialize in the production of beef.
C) has decided to trade beef for cheese.
D) is relatively more efficient than its trading

101) <p><b><span style="font-size:20pt;"><span possibilities curve. The

style="color:#FF0000;"> international exchange
ratio between beef and
cheese (terms of trade)

Refer to the given diagram, in which line AB is the U.S.

production possibilities curve and AC is its trading

Version 1 34
 D) cannot be
A) is the absolute value of the slope of line AB. determined on the basis of
B) is the absolute value of the slope of line AC. this information.
C) could lie anywhere between the absolute value of
the slopes of lines AB and AC.

102) The impact of increasing, as opposed to constant, costs

is to

advantage.
A) intensify and prolong the comparative advantages D) cause nations
that any nation may have initially. to realize economies of
B) expand the limits of the terms of trade. scale in those products in
C) cause the bases for further specialization to which they specialize.
disappear as nations specialize according to comparative

103) In the real world, specialization is rarely complete

because

C) one nation's
A) nations normally experience increasing imports are necessarily
opportunity costs in producing more of the product in which another nation's exports.
they are specializing. D) international
B) production possibilities curves are straight lines law prohibits monopolies.
rather than curves bowed outward as viewed from the origin.

104) The law of increasing opportunity costs

D) may limit the

A) applies to land-intensive commodities but not to extent to which a nation
labor-intensive or capital-intensive commodities. specializes in producing a
B) results in straight-line production possibilities particular product.
curves rather than curves that are bowed outward from the
origin.
C) refutes the principle of comparative advantage.

105) Suppose the domestic price (no-international-trade price) of copper is $1.20 a

Version 1 35
pound in the United States while the world price is $1.00 a
pound. Assuming no transportation costs, the United States
will

D) neither export
A) have a domestic surplus of copper. nor import copper.
B) export copper.
C) import copper.

106) Suppose the domestic price (no-international-trade costs, the United States
price) of wheat is $3.50 a bushel in the United States while will
the world price is $4.00 a bushel. Assuming no transportation

D) neither export
A) have a domestic shortage of wheat. nor import wheat.
B) export wheat.
C) import wheat.

107) A nation's import demand curve for a specific product

D) depends on
A) is upsloping. domestic demand for the
B) shows the amount of the product it will import at product, but not on
prices below its domestic price. domestic supply.
C) lies above its export supply curve for the product.

108) A nation's export supply curve for a specific product

D) depends on
A) is upsloping. domestic supply of the
B) shows the amount of the product it will export at product, but not on
prices below its domestic price. domestic demand.
C) lies below its import demand curve for the
product.

109) A nation will neither export nor import a specific

product when its

Version 1 36
 D) import demand
A) domestic price equals the world price. curve is downsloping.
B) export supply curve lies above its import demand
curve.
C) export supply curve is upsloping.

110) Export supply curves are __________________;

import demand curves are ___________________.

D) upsloping;
A) horizontal; vertical downsloping
B) vertical; horizontal
C) downsloping; upsloping

111) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

Refer to the diagram, which shows the domestic demand

and supply curves for a specific standardized product in a
particular nation. If the world price for this product is $1.60,
this nation will experience a domestic

C) surplus of 160
A) shortage of 160 units, which it will meet with 160 units, which it will export.
units of imports. D) surplus of 160
B) shortage of 160 units, which will increase the units, which will reduce
domestic price to $1.60.

Version 1 37
the world price to $1.00.

Version 1 38
112) <p><b><span style="font-size:20pt;"><span particular nation. If the
style="color:#FF0000;"> world price for this product
is $0.50, this nation will
experience a domestic

Refer to the diagram, which shows the domestic demand

and supply curves for a specific standardized product in a

D) surplus of 160
A) shortage of 160 units, which it will meet with 160 units, which will reduce
units of imports. the world price to $1.00.
B) shortage of 160 units, which will increase the
domestic price to $1.60.
C) surplus of 160 units, which it will export.

113) <p><b><span
style="font-
size:20pt;"><span
style="color:#FF0000;">

Refer to the diagram,

Version 1 39
which shows the domestic demand and supply curves for a world price of this product
specific standardized product in a particular nation. If the is $1, this nation will

the product domestically.

A) export all of the product. D) neither export
B) import all of the product. nor import the product.
C) import some of the product and produce some of

114) In a two-nation model, the equilibrium world price

will occur where

D) both nations'
A) one nation's export supply curve intersects the import demand curves are
other nation's import demand curve. vertical.
B) exports are exactly twice the level of imports.
C) both nations' export supply curves are horizontal.

115) <p><b><span style="font-size:20pt;"><span Refer to the diagram

style="color:#FF0000;"> pertaining to two nations
and a specific product.
Lines FA and GB are

D) export supply
A) domestic supply curves for two countries. curves for two countries.
B) domestic demand curves for two countries.
C) import demand curves for two countries.

116) <p><b><span style="font-size:20pt;"><span style="color:#FF0000;">

Version 1 40
 Refer to the diagram,
which pertains to two
nations and a specific
product. Lines FC and GD
are

D) export supply
A) domestic supply curves for two countries. curves for two countries.
B) domestic demand curves for two countries.
C) import demand curves for two countries.

117) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

Refer to the diagram, which pertains to two nations and a

specific product. Point G is the

GB and GD.
A) domestic price for the nation represented by lines D) price above the
FA and FC. world equilibrium price.
B) world equilibrium price.
C) domestic price for the nation represented by lines

Version 1 41
118) <p><b><span style="font-size:20pt;"><span specific product. In
style="color:#FF0000;"> equilibrium, the nation
represented by lines FA
and FC will

Refer to the diagram, which pertains to two nations and a

C) pay price F
A) export H to the country represented by lines GB for its imports.
and GD. D) receive price
B) import H from the country represented by lines G for its exports.
GB and GD.

119) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

Refer to the diagram, which pertains to two nations and a

specific product. The equilibrium world price occurs at

Version 1 42
 C) G.
A) F. D) J.
B) I.

120) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">

Refer to the diagram, which pertains to two nations and a

specific product. The equilibrium level of exports and imports
occurs at

D) world price
A) H, where GB and FC intersect. level G.
B) J, where the vertical distance between A and B
equals the vertical distance between C and D.
C) world price level F.

121)

Domestic Market For Steel, Alpha Qs P Qd

Qs P Qd 80 $ 20
60 $ 5 10 5
40 4 20 70 4 30
30 3 30 60 3 40
20 2 40 50 2 50
10 1 50 40 1 60
Domestic Market For Steel, Beta

Version 1 43
The accompanying tables show data for the hypothetical equilibrium prices of steel
nations of Alpha and Beta. Qs is domestic quantity supplied, in Alpha and Beta are
and Qd is domestic quantity demanded. The domestic

D) $1 and $2,
A) $5 and $4, respectively. respectively.
B) $2 and $4, respectively.
C) $3 and $2, respectively.

122)

Domestic Market For Steel, Alpha 60 3 40

Qs P Qd 50 2 50
60 $ 5 10 40 1 60
40 4 20 The accompanying tables
30 3 30 show data for the
20 2 40 hypothetical nations of
10 1 50 Alpha and Beta. Qs is
domestic quantity
Domestic Market For Steel, Beta
supplied, and Qd is
Qs P Qd
domestic quantity
80 $ 5 20 demanded. At a world
70 4 30 price of $5,

D) neither country
A) Alpha will want to import 50 units of steel. will want to export steel.
B) Beta will want to import 60 units of steel.
C) Alpha will want to export 50 units of steel.

123)

Domestic Market For Steel, Alpha Domestic Market For

Qs P Qd Steel, Beta
60 $ 5 10 Qs P Qd
40 4 20 80 $ 20
5
30 3 30
70 4 30
20 2 40
60 3 40
10 1 50

Version 1 44
 50 2 50
40 1 60
The accompanying tables show data for the hypothetical
nations of Alpha and Beta. Qs is domestic quantity supplied,
and Qd is domestic quantity demanded. At a world price of $2,

D) neither country
A) Alpha will want to import 20 units of steel. will want to import steel.
B) Beta will want to export 20 units of steel.
C) Alpha will want to export 20 units of steel.

124)

Domestic Market For Steel, Alpha 60 3 40

Qs P Qd 50 2 50
60 $ 5 10 40 1 60
40 4 20 The accompanying tables
30 3 30 show data for the
20 2 40 hypothetical nations of
10 1 50 Alpha and Beta. Qs is
domestic quantity
Domestic Market For Steel, Beta
supplied, and Qd is
Qs P Qd
domestic quantity
80 $ 5 20 demanded. Alpha's export
70 4 30 supply is represented by

A)

P Q 3 0
$ 5 40
4 20 B)

P Q 3 0
$ 5 50
4 20 C)

P Q 4 30
$ 5 60 3 0

Version 1 45
 D)

P Q 4 30
$ 5 40 3 15

125)

Domestic Market For Steel, Alpha 40 1 60

Qs P Qd The accompanying tables
60 $ 5 10 show data for the
40 4 20 hypothetical nations of
30 3 30 Alpha and Beta. Qs is
domestic quantity
20 2 40
supplied, and Qd is
10 1 50
domestic quantity
Domestic Market For Steel, Beta demanded. Assuming that
Qs P Qd Alpha and Beta are the
80 $ 5 20 only two nations in the
70 4 30 world, the equilibrium
60 3 40 world price must be lower
50 2 50 than $4 because, at $4,

D) Alpha wants to
A) both nations want to import steel. import more than Beta.
B) both nations want to export steel.
C) Beta wants to export more than Alpha.

126)

Domestic Market For Steel, Alpha Qs P Qd

Qs P Qd 80 $ 20
60 $ 5 10 5
40 4 20 70 4 30
30 3 30 60 3 40
20 2 40 50 2 50
10 1 50 40 1 60
Domestic Market For Steel, Beta

Version 1 46
The accompanying tables show data for the hypothetical equilibrium world price
nations of Alpha and Beta. Qs is domestic quantity supplied, must be higher than $1
and Qd is domestic quantity demanded. Assuming that Alpha because, at $1,
and Beta are the only two nations in the world, the

D) both nations
A) Beta wants to import more than Alpha. want to import steel.
B) Alpha wants to export more than Beta.
C) both nations want to export steel.

127)

Domestic Market For Steel, Alpha 40 1 60

Qs P Qd The accompanying tables
60 $ 5 10 show data for the
40 4 20 hypothetical nations of
30 3 30 Alpha and Beta. Qs is
domestic quantity
20 2 40
supplied, and Qd is
10 1 50
domestic quantity
Domestic Market For Steel, Beta demanded. Assuming that
Qs P Qd Alpha and Beta are the
80 $ 5 20 only two nations in the
70 4 30 world, the equilibrium
60 3 40 world price of steel must
50 2 50 be between

C) $3 and $2.
A) $5 and $4. D) $2 and $1.
B) $4 and $3.

128)

Domestic Market For Steel, Alpha 20 2 40

Qs P Qd 10 1 50
60 $ 5 10 Domestic Market For
40 4 20 Steel, Beta
30 3 30 Qs P Qd

Version 1 47
 80 $ 5 20
70 4 30
60 3 40
50 2 50
40 1 60
The accompanying tables show data for the hypothetical
nations of Alpha and Beta. Qs is domestic quantity supplied,
and Qd is domestic quantity demanded. Assuming that Alpha
and Beta are the only two nations in the world, at the
equilibrium world price,

D) Beta will
A) both nations will export steel. export steel and Alpha will
B) both nations will import steel. import steel.
C) Alpha will export steel and Beta will import steel.

129) Tariffs

D) are per-unit
A) may be imposed either to raise revenue (revenue subsidies designed to
tariffs) or to shield domestic producers from foreign promote exports.
competition (protective tariffs).
B) are also called import quotas.
C) are excise taxes on goods exported abroad.

130) An excise tax on an imported good that is not

produced domestically is called a

D) voluntary
A) protective tariff. export restriction.
B) import quota.
C) revenue tariff.

131) Excise taxes on imported goods that help shield

domestic producers of the good are called

B) import quotas.
A) protective tariffs.

Version 1 48
 C) revenue tariffs.
D) voluntary export restrictions.

Version 1 49
132) Country A limits other nation's exports to Country A
to 1,000 tons of coal annually. This is an example of a(n)

D) voluntary
A) protective tariff. export restriction.
B) export subsidy.
C) import quota.

133) Which is an example of a nontariff barrier (NTB)?

fruit
A) an export subsidy D) an excise tax
B) an excise tax on the physical volume of imported on the dollar value of
goods imported goods
C) box-by-box inspection requirements for imported

134) A tariff can best be described as

D) a law that sets

A) an excise tax on an imported good. a limit on the amount of a
B) a government payment to domestic producers to good that can be imported.
enable them to sell competitively in world markets.
C) an excise tax on an exported good.

135) 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)

D) protective
A) import quota. tariff.
B) export subsidy.
C) voluntary export restriction.

136) 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)

Version 1 50
 D) import quota.
A) protective tariff.
B) revenue tariff.
C) voluntary export restriction.

137) <p><b><span style="font-size:20pt;"><span domestic supply and

style="color:#FF0000;"> demand for a product and
Pc is the world price of that
product. If this economy
were entirely closed to
international trade,
equilibrium price and
quantity would be

Refer to the given diagram, where Sd and Dd are the

C) Pc and z.
A) Pa and z. D) Pc and v.
B) Pa and x.

Version 1 51
138) <p><b><span style="font-size:20pt;"><span
style="color:#FF0000;">

Refer to the diagram,

where Sd and Dd are the
C) Pt and y.
A) Pc and v. D) Pc and z.
B) Pa and z.

139) <p><b><span style="font-size:20pt;"><span Refer to the diagram,

style="color:#FF0000;"> where Sd and Dd are the
domestic supply and
demand for a product and
Pc is the world price of that
product. With free trade,
that is, assuming no tariff,
the outputs produced by
domestic and foreign
producers, respectively,
would be

C) w and wz.
A) v and vz. D) vx and xz.
B) w and wy.

140) <p><b><span
style="font-

Version 1 52
size:20pt;"><span style="color:#FF0000;"> Refer to the diagram,
where Sd and Dd are the
domestic supply and
demand for a product and
Pc is the world price of that
product. With a per-unit
tariff in the amount PcPt,
price and total quantity
sold will be

C) Pt and y.
A) Pt and x. D) Pa and x.
B) Pc and z.

141) <p><b><span style="font-size:20pt;"><span Refer to the diagram,

style="color:#FF0000;"> where Sd and Dd are the
domestic supply and
demand for a product and
Pc is the world price of that
product. With a PcPt per-
unit tariff, the quantities
sold by foreign and
domestic producers,
respectively, will be

C) x and xz.
A) xz and x. D) wy and w.
B) xv and xz.

142) <p><b><span
style="font-

Version 1 53
size:20pt;"><span style="color:#FF0000;"> Refer to the diagram,
where Sd and Dd are the
domestic supply and
demand for a product and
Pc is the world price of that
product. With a PcPt per-
unit tariff, per-unit revenue
received by domestic and
foreign producers,
respectively, will be

C) Pa and Pt.
A) Pc and Pa. D) Pt and Pc.
B) Pa and Pc.

143) <p><b><span style="font-size:20pt;"><span supply and demand for a

style="color:#FF0000;"> product and Pc is the world
price of that product. With
a per-unit tariff of PcPt, the
total amount of tariff
revenue collected on this
product will be

Refer to the diagram, where Sd and Dd are the domestic

C) PcPt × wy.
A) PaPt × wy. D) PcPt × z.
B) PcPa × x.

144) Suppose the United States eliminates high tariffs on

German bicycles. As a result, we would expect

Version 1 54
 industry.
A) the price of German bicycles to increase in the D) profits to rise
United States. in the U.S. bicycle
B) employment to decrease in the German bicycle industry.
industry.
C) employment to decrease in the U.S. bicycle

145) In effect, tariffs on imports are

D) subsidies for
A) special taxes on domestic producers. domestic producers.
B) subsidies to domestic consumers.
C) subsidies to foreign producers.

146) The accompanying table gives domestic supply and

demand schedules for a product. Suppose that the world price
of the product is $1.

Quantity Price Quantity

Supplied Demanded 1 1
(Domestic) (Domestic) 6
12 $ 5 2 If this nation were entirely
10 4 4 closed to international
7 3 7 trade, equilibrium price
4 2 11 and quantity would be

C) $4 and 4 units.
A) $5 and 2 units. D) $3 and 7 units.
B) $1 and 1 unit.

Version 1 55
 Quantity Price Quantity 1 1 1
Supplied Demanded 6
(Domestic) (Domestic) If the economy was opened
12 $ 5 2 to free trade and the world
10 4 4 price of $1 prevailed, the
7 3 7 price and quantity sold of
4 2 11 this product would be

D) $2 and 11
A) $1 and 1 unit. units.
B) $1 and 16 units.
C) $3 and 7 units.

148) The accompanying table gives domestic supply and

demand schedules for a product. Suppose that the world price
of the product is $1.

Quantity Price Quantity 1 1 1

Supplied Demanded 6
(Domestic) (Domestic) With free trade, that is,
12 $ 5 2 assuming no tariff, the
10 4 4 outputs produced by
7 3 7 domestic and foreign
4 2 11 producers would be

D) 4 units and 6
A) 1 unit and 15 units, respectively. units, respectively.
B) 4 units and 7 units, respectively.
C) 7 units and 0 units, respectively.

149) The accompanying

Version 1 56
table gives domestic supply and demand schedules for a
product. Suppose that the world price of the product is $1.

Quantity Price Quantity 4 2 1

Supplied Demanded 1
(Domestic) (Domestic) 1 1 1
12 $ 5 2 6
10 4 4 With a $1-per-unit tariff,
7 3 7 price and total quantity
sold will be

D) $2 and 11
A) $3 and 7 units. units.
B) $5 and 2 units.
C) $1 and 16 units.

150) The accompanying table gives domestic supply and

demand schedules for a product. Suppose that the world price
of the product is $1.

Quantity Price Quantity

Supplied Demanded
(Domestic) (Domestic)
12 $ 5 2 With a $1-per-unit tariff,
10 4 4 the quantities sold by
7 3 7 foreign and domestic
4 2 11 producers, respectively,
1 1 16 will be

D) indeterminate.
A) 1 unit and 15 units.
B) 7 units and 4 units.
C) 11 units and 4 units.

151) The accompanying

Version 1 57
table gives domestic supply and demand schedules for a
product. Suppose that the world price of the product is $1.

Quantity Price Quantity 1 1 1

Supplied Demanded 6
(Domestic) (Domestic) With a $1-per-unit tariff,
12 $ 5 2 prices (revenue per unit)
10 4 4 received by domestic and
7 3 7 foreign producers
4 2 11 respectively will be

C) $2 and $2.
A) $2 and $1. D) $3 and $2.
B) $1 and $2.

152) The accompanying table gives domestic supply and

demand schedules for a product. Suppose that the world price
of the product is $1.

Quantity Price Quantity

Supplied Demanded 1 1 1
(Domestic) (Domestic) 6
12 $ 5 2 The total amount of
10 4 4 revenue collected from a
7 3 7 $1-per-unit tariff on this
4 2 11 product will be

C) $7.
A) $22. D) $14.
B) $8.

153) A protective tariff will

D) create an
A) increase the sales of foreign exporters. efficiency gain in the
B) increase the price and sales of domestic domestic economy.
producers.
C) increase the welfare of domestic consumers.

Version 1 58
154) Other things equal, a tariff is

D) inferior to an
A) superior to an import quota for Americans import quota for
because a tariff increases the profits of foreign producers. Americans because a tariff
B) inferior to an import quota for Americans because generates revenue for the
a tariff increases the profits of domestic producers. U.S. Treasury.
C) superior to an import quota for Americans
because a tariff generates revenue for the U.S. Treasury.

155) In comparing a tariff and an import quota, we find that

but the tariff does not.

A) the tariff and quota both generate the same D) neither the
amount of revenue for the U.S. Treasury. tariff nor the quota
B) the tariff generates revenue for the U.S. Treasury, generates revenue for the
but the quota does not. U.S. Treasury.
C) the quota generates revenue for the U.S. Treasury,

156) Other things equal, economists would prefer

export restrictions.
A) free trade to tariffs and tariffs to import quotas. D) import quotas
B) free trade to import quotas and import quotas to to free trade and free trade
tariffs. to tariffs.
C) import quotas to tariffs and tariffs to voluntary

Version 1 59
157) <p><b><span style="font-size:20pt;"><span
style="color:#FF0000;">

Refer to the diagram,

D) cannot be
A) is vz. determined.
B) is vy.
C) is wy.

158) <p><b><span style="font-size:20pt;"><span supply and demand for a

style="color:#FF0000;"> product and Pc is the world
price of that product. Sd +
Q is the product supply
curve after an import quota
is imposed. The effect of
the import quota on
domestic price and
domestic consumption is

Refer to the diagram, where Sd and Dd are the domestic

less than a tariff of PcPt.

A) the same as that of a tariff of PcP t.
B) the same as that of a tariff of PtPa.
C) the same as that of a tariff of PcPa.
D) to raise price by more and reduce consumption

Version 1 60
159) <p><b><span style="font-size:20pt;"><span supply and demand for a
style="color:#FF0000;"> product and Pc is the world
price of that product. Sd +
Q is the product supply
curve after an import quota
is imposed. A tariff of PcPt
will

Refer to the diagram, where Sd and Dd are the domestic

areas G + H.
A) lower domestic price and increase domestic D) increase the
consumption. revenues of domestic
B) increase the revenues of domestic producers by producers by areas E +
areas E + F + K. F + G + H + J.
C) increase the revenues of domestic producers by

160) <p><b><span style="font-size:20pt;"><span that product. Sd + Q is the

style="color:#FF0000;"> product supply curve after
an import quota is
imposed. A quota of wy
will

Refer to the diagram, where Sd and Dd are the domestic

supply and demand for a product and Pc is the world price of

Version 1 61
 areas G + H.
A) lower domestic price and increase domestic D) increase the
consumption. revenues of domestic
B) increase the revenues of domestic producers by producers by areas E +
areas E + F + K. F + G + H + J.
C) increase the revenues of domestic producers by

161) Which of the following statements is false?

and the retaliation they

A) Studies show that developing nations that have caused worsened the Great
relied on import restrictions to protect domestic industries Depression.
have had higher growth rates than similar nations pursuing D) The European
more open economic policies. Union has enhanced
B) The U.S. Constitution forbids individual states prosperity in Western
from levying tariffs. Europe.
C) The high tariffs of the Smoot-Hawley Act of 1930

162) Graphical analysis of tariffs reveals that

D) although the
A) they benefit domestic consumers at the expense of benefits are not shared
domestic producers. equally, everyone in the
B) revenue gains outweigh the costs to domestic domestic economy benefits
consumers. from tariffs.
C) they increase domestic production of the good for
which imports face tariffs.

163) Studies show that

developing nations.
A) it is impossible to estimate the benefits of trade D) costs of trade
barriers. barriers exceed their
B) costs and benefits of trade barriers are about benefits, creating an
equal. efficiency loss for society.
C) benefits of trade barriers exceed their costs in

Version 1 62
164) Research studies indicate that

D) U.S.
A) U.S. producers gain more from tariffs than U.S. consumers lose more from
consumers lose. tariffs than U.S. producers
B) the costs of trade restrictions are proportionately gain.
higher for high-income groups than for low-income groups.
C) the revenue from tariffs equals the total cost that
tariffs impose on consumers.

165) A high tariff on imported good X might reduce

domestic employment in industry Y if

D) Y is an inferior
A) X is an input used domestically in producing Y. good.
B) X and Y are substitute goods.
C) X is an inferior good.

166) The increased-domestic-employment argument for

tariff protection holds that

D) an increase in
A) domestic inflation is a desirable policy goal tariffs will increase net
because it stimulates exports. exports and stimulate
B) domestic deflation is a desirable policy goal domestic employment.
because it stimulates imports.
C) an increase in tariffs will reduce net exports and
stimulate domestic employment.

167) Which of the following arguments for trade protection establish themselves and
contends that new domestic industries need support to survive?

D) the infant
A) the increased domestic employment argument industry argument
B) the cheap foreign labor argument
C) the diversification-for-stability argument

Version 1 63
168) Which of the following arguments for trade protection enough range of domestic
is based on the premise that a nation should have a wide industries to be self-
sufficient if necessary?

D) the infant
A) the increased domestic employment argument industry argument
B) the cheap foreign labor argument
C) the diversification-for-stability argument

169) Which of the following arguments contends that

certain industries need to be protected in the interest of
national security?

D) the military
A) the increased domestic employment argument self-sufficiency argument
B) the cheap foreign labor argument
C) the diversification-for-stability argument

170) A major difficulty with the argument that trade

barriers are necessary because foreign workers are paid low
wages is that

related.
A) labor costs and product prices are not related. D) wage rates and
B) there is no discernible relationship between wage labor productivity are
rates and labor productivity. inversely related.
C) wage rates and labor productivity are directly

171) As it relates to international trade, dumping

D) is defined as
A) is a form of price discrimination illegal under selling more goods than
U.S. antitrust laws. allowed by an import
B) is the practice of selling goods in a foreign market quota.
at less than cost.
C) constitutes a general case for permanent tariffs.

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172) Dumping of goods abroad

D) drives up
A) constitutes a general case for permanent tariffs. prices of the dumped
B) is simply comparative advantage at work. goods.
C) may be part of a nation's strategy to rectify its
trade deficit.

173) The World Trade Organization

D) enhances
A) is also known as the International Monetary Fund world trade by providing
(IMF). interest rate subsidies to
B) is also known as NAFTA. foreign borrowers who buy
C) was established to oversee trade agreements exports on credit.
between its member nations.

174) The number of countries belonging to the World Trade

Organization (WTO), as of 2018, is about

C) 80.
A) 164. D) 202.
B) 125.

175) The organization created to oversee the provisions of further trade liberalization
multilateral trade agreements, resolve disputes under the is called the
international trade rules, and meet periodically to consider

D) International
A) International Monetary Fund (IMF). Trade Commission (ITC).
B) World Trade Organization (WTO).
C) Common Market Organization (CMO).

176) The World Trade Organization was established as a

successor to

B) NAFTA.
A) GATT.

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 C) the EU.
D) the Doha Development Agenda.

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177) Which of the following was not one of the principles
on which the General Agreement on Tariffs and Trade
(GATT) was established?

alleviate global poverty

A) the elimination of import quotas D) the reduction
B) equal, nondiscriminatory trade treatment for all of tariffs by multilateral
member nations negotiations
C) the formation of international trade contracts to

178) The "eurozone"

allowed to occur.
A) is another name for the European Union. D) is the subset of
B) refers to the common currency used by all the EU that uses a common
European Union members. currency.
C) is a geographic region in Europe with no national
sovereignty, where free trade between European nations is

179) As of 2018, how many European nations belonged to

the European Union (EU)?

C) 28
A) All of the nations of Europe automatically belong D) 10
to the EU.
B) 17

180) Which of the following statements about the European

Union (EU) is true?

of goods and services

A) All members of the EU use a common currency among participating
(the euro). nations but largely restricts
B) The EU has abolished most trade barriers among the movement of labor and
participating countries and has common tariffs applied to non- capital.
EU goods. D) Trade within
C) The EU has eliminated most barriers to the trade the EU is liberalized, but

Version 1 67
EU nations set most of their own policies with regard to trade with non-EU nations.

181) "NAFTA" stands for

D) New Zealand-
A) North African Free Trade Area. Australia Free Trade
B) North American Free Trade Agreement. Agreement.
C) North Asian Free Trade Agreement.

182) NAFTA

D) has reduced
A) has increased the standard of living in the North most trade barriers
African member nations. between Canada, Mexico,
B) benefits workers in the participating nations but and the United States.
hurts consumers by raising prices.
C) allows completely unrestricted movement of
goods, services, and resources between the member nations.

183) Critics of the World Trade Organization (WTO) say

that liberalized world trade does all of the following except

D) promote the
A) produce environmental degradation. interests of multinational
B) allow producers to circumvent labor protections corporations.
such as workplace safety, child labor restrictions, and
collective bargaining rights.
C) help developing nations escape from poverty.

184) Which of the U.S. industries below has not seen

major shutdowns and layoffs because of free foreign trade?

C) steel
A) textiles D) apparel
B) accounting services

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185) Trade adjustment assistance

D) provides cash
A) provides financial assistance to all unemployed assistance for workers
workers in the United States. displaced by imports or
B) guarantees jobs for all workers displaced by plant relocations abroad.
imports or plant relocations abroad.
C) provides assistance to about 20 percent of
unemployed U.S. workers each year.

186) Economists who criticize trade adjustment assistance

argue that

D) it distorts
A) it only benefits a small fraction of all unemployed patterns of foreign trade,
workers. reducing the gains from
B) money spent on the program overstimulates trade.
aggregate demand and threatens to cause inflation.
C) benefits are too low to provide unemployed
workers with a livable wage.

187) "Offshoring" refers to

domestically.
A) importing goods, services, and resources. D) exporting key
B) stashing money in offshore accounts for the resources.
purpose of avoiding taxes.
C) shifting work overseas that was previously done

188) Which of the following best describes economists'

general assessment of the impacts of offshoring?

services based on
A) Offshoring has an overall negative impact on the comparative advantage.
U.S. economy because of the significant domestic job losses it C) Offshoring
causes. provides some cost
B) Offshoring benefits the U.S. economy by advantages but generally
promoting greater specialization and exchange of goods and results in much-lower-

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quality goods for consumers. losses in complementary
D) Job losses from offshoring are magnified by job industries.

189) The greatest benefit to an economy from international

trade is

D) consumption
A) greater employment in the export sector of the beyond domestic
economy. production possibilities.
B) the economic power it gives a nation over other
countries.
C) full employment of its labor force.

190) (Consider This) Madison, the CPA, is faster than

Mason, the house painter, at both accounting services and
painting. This means that

more efficient at painting.

A) there is no reason for them to trade services. D) Madison has
B) Madison should trade her accounting services for the comparative advantage
Mason's painting services, so long as Madison is relatively in both services.
more efficient at accounting services.
C) Madison should trade her accounting services for
Mason's painting services, so long as Madison is relatively

191) (Last Word) Frederic Bastiat's satirical argument

against protectionism called for protecting domestic producers
from

D) invention of
A) fire. the electric light.
B) the sun.
C) other European countries.

192) (Last Word)

Frederic Bastiat's "Petition

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of the Candlemakers" most directly refutes which of the
following arguments for protectionism?

D) diversification-
A) increased domestic employment argument for-stability argument
B) infant industry argument
C) cheap foreign labor argument

193) The term trade deficit refers to a situation where

C) assets are less

A) government spending (including transfer than liabilities.
payments) exceeds tax revenues. D) exports are less
B) a nation's purchases from other nations are less than imports.
than its sales to other nations.

194) Which nation had the largest share of world exports in

2018?

C) China
A) Japan D) United States
B) Germany

195) In the United States, exports of goods and services

accounted for about what percentage of GDP (total output) in
2018?

C) 24 percent
A) 6 percent D) 42 percent
B) 12 percent

196) Which of the following countries had the smallest

share of exports as a percentage of GDP in 2018?

D) United States
A) Canada
B) Germany
C) United Kingdom

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197) In which of the following countries did exports
account for the biggest percentage of GDP in 2018?

C) Netherlands
A) Japan D) Germany
B) United States

198) Which country is the United States' largest trading

partner in terms of volume of trade?

C) China
A) Mexico D) Canada
B) Japan

199) Which of the following product groups is a leading

export of the United States?

C) airplanes
A) home appliances D) toys
B) metals

200) Which of the following products is a leading import of

the United States?

D) generating
A) grains equipment
B) aircraft
C) automobiles

201) Starting in 2012, an important shift occurred in the

U.S. trade in petroleum, which was

the U.S.
A) a sharp decline in petroleum exports from the C) a significant
U.S. decline in the petroleum
B) a significant increase in petroleum imports into imports into the U.S.

Version 1 72
 D) a huge increase in petroleum exports from the U.S.

202) In 2018, U.S. exports of services ______ U.S. imports

of services by about _____.

D) fell short of;

A) exceeded; $20 B $220 B
B) fell short of; $20 B
C) exceeded; $270 B

203) Benefits from international trade are based on

differences in the following areas, except

D) income levels.
A) resource endowments.
B) technological capabilities.
C) product quality and other attributes.

204) A nation with abundant capital resources tends to be

an exporter of

D) consumer
A) labor-intensive products products.
B) capital-intensive products.
C) natural resource-based products.

205) A natural-resource abundant nation would be expected

to export a land-intensive commodity such as

C) beef.
A) tractors. D) chemicals.
B) DVD players.

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 D) spreading out
A) specialization in production of resources in more
B) nationalization of industries industries
C) regulation of production and trade

207) A basic assumption in comparing the production curves reflect differences

possibilities curves of two nations is that those possibilities in

D) unemployment
A) consumer tastes and preferences. and inflation rates.
B) resource availability and technological
capabilities.
C) the nations' incomes and income distribution.

208) The slopes of the production possibilities curves for

two nations reflect the

D) opportunity
A) relative prices of the resources in the two nations. costs of production in the
two nations.
B) amounts of imports and exports of the two
nations.
C) average income levels in the two nations.

209) If Nation A requires more resources to produce each

bale of cloth than Nation B does, then we say that

D) Nation B has
A) Nation A has the absolute advantage over Nation the comparative advantage
B in producing cloth. over Nation A in
B) Nation B has the absolute advantage over Nation producing cloth.
A in producing cloth.
C) Nation A has the comparative advantage over
Nation B in producing cloth.

210) Adam Smith

recognized the benefits

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from trade based on ____, and David Ricardo recognized the
benefits from trade based on ____.

D) comparative
A) comparative advantage; resource endowments advantage; absolute
B) absolute advantage; comparative advantage advantage
C) absolute advantage; resource endowments

211) The ratio at which nations will exchange one product

for another is known as the

D) balance of
A) exchange rate. trade.
B) discount rate.
C) terms of trade.

212) Specialization and trade between individuals or

between nations leads to

D) higher total
A) greater self-sufficiency. output.
B) higher product prices.
C) higher utilization of resources.

213) In a two-nation, two-good world, if both nations have then one nation would
identical production possibilities curves with constant costs, have

D) an absolute
A) no comparative advantage over the other nation. advantage in one good and
an absolute disadvantage
B) a comparative advantage in one good and a in the other good.
comparative disadvantage in the other good.
C) no absolute advantage over the other nation.

214) The principle of comparative advantage indicates that

mutually beneficial international trade can take place only
when

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 D) a country can
A) tariffs are eliminated. produce more of some
B) transportation costs are almost zero. product than other nations
C) relative costs of production differ between can.
nations.

215) In a two-nation world, comparative advantage in the

production of a particular product means that one nation can
produce

than the other nation.

A) the product with fewer inputs than the other D) more of the
nation. product than the other
B) the product at lower average cost than the other nation.
nation.
C) the product at a lower domestic opportunity cost

216) In a two-nation, two-good world, which of the

following statements is true?

D) If one nation
A) One nation cannot possibly have an absolute has the absolute advantage
advantage over the other nation in both products. in one product, then the
B) If one nation has the comparative advantage in other nation would have
one product, then the other nation would have the the absolute advantage in
comparative advantage in the other product. the other product.
C) One nation will always have the comparative
advantage over the other nation in one of the products.

217) In a two-nation, two-good world, if country A has the

comparative advantage in producing good X over country B,
then country A

producing the other good,

A) should not trade with country B.
B) could have the comparative advantage in
producing the other good, Y, as well.
C) must have the comparative disadvantage in

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Y.
D) can produce good X with fewer resources than
country B.

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218) The benefits to trading nations based on comparative
advantage accrue from

D) protection of
A) specialization only. domestic industries.
B) specialization and trading.
C) trading only.

219) The principal concept behind comparative advantage

is that a nation should

D) strive to be
A) maximize its volume of trade with other nations. self-sufficient in the
production of essential
B) use tariffs and quotas to protect the production of goods and services.
vital products for the nation.
C) concentrate production on those products for
which it has the lowest domestic opportunity cost.

220) Specialization and trade based on comparative

advantage allow nations to attain the following results,
except

D) consuming
A) higher combined output. combinations of products
B) higher consumption and standard of living. that are outside their PPCs.
C) rising total employment.

221) The domestic opportunity cost of producing a television is 10 bushels of

television in the United States is 20 bushels of wheat. In wheat. In this case,
Korea, the domestic opportunity cost of producing a

C) mutual gains
A) Korea has a comparative advantage in the from trade can be obtained
production of wheat. if the United States imports
B) the United States has a comparative advantage in televisions from Korea and
the production of televisions. Korea imports wheat from

Version 1 78
the United States. televisions from the United
D) mutual gains from trade can be obtained if the States.
United States imports wheat from Korea and Korea imports

222) The domestic opportunity cost of producing 100 chemicals is two tons of
barrels of chemicals in Germany is one ton of steel. In France, steel. In this case,
the domestic opportunity cost of producing 100 barrels of

production of chemicals.
A) France has a comparative advantage in the D) Germany has
production of chemicals. an absolute advantage in
B) Germany has a comparative advantage in the the production of
production of chemicals. chemicals.
C) France has an absolute advantage in the

223) Nation A pays lower wages to workers than Nation B.

Nation A also uses fewer capital goods per worker than
Nation B. This suggests that gains from trade are likely to
result if

from Nation A that are

A) Nation A produces products that are more capital- more capital-intensive.
intensive and exports them to Nation B in return for products D) Nations A and
from Nation B that are more labor-intensive. B each produce capital-
B) Nation A produces products that are more labor- intensive and labor-
intensive and exports them to Nation B in return for products intensive goods and trade
from Nation B that are more capital-intensive. them with each other.
C) Nation B produces products that are more labor-
intensive and exports them to Nation A in return for products

224) Employing all its available resources, Nation Alpha chemicals or 800 units of
can produce either 800 units of chemicals or 1,600 units of clothing.
clothing. Nation Beta can produce either 200 units of

producing chemicals.
A) Nation Alpha has a comparative advantage in C) Nation Alpha
producing clothing. has a comparative
B) Nation Beta has a comparative advantage in advantage in producing

Version 1 79
chemicals.
D) Nation Beta is the high-cost producer of clothing.

225) The production possibilities for country X are either

6,000 bushels of soybeans or 10,000 bushels of wheat. The
production possibilities for country Y are either 2,000 bushels
of soybeans or 4,000 bushels of wheat. Which of the
following is true?

production is lower in
A) Country Y should specialize in the growing of country Y.
soybeans according to the principle of comparative advantage. D) The high-cost
producer of soybeans is
B) Country X is the least-cost producer of wheat. country X.
C) The domestic opportunity cost of wheat

226) If countries A and B produce only either rubber bands accompanying production
or paper clips, their maximum outputs are shown in the possibilities schedules.

Country Rubber Bands Paper Clips In country A the

A 40 80 opportunity cost of 1 paper
B 10 40 clip is

D) 1/4 rubber
A) 2 rubber bands. band.
B) 1 rubber band.
C) 1/2 rubber band.

227) In Germany, one worker can produce either one has the comparative
cuckoo clock or one beer mug. In Taiwan, one worker can advantage in each good?
produce either two cuckoo clocks or three beer mugs. Who

D) Germany in
A) Taiwan in both goods both goods
B) Taiwan in clocks and Germany in mugs
C) Germany in clocks and Taiwan in mugs

Version 1 80
228)

Machines Wine The accompanying table

shows the output (either
France 3 1 machines or wine) that
Germany 1 1 each unit of input in
France and Germany can
produce. We see that

in producing either output.

A) France has an absolute advantage over Germany D) France will see
in producing either output. no economic basis for
B) Germany has an absolute disadvantage in trading with Germany.
producing wine.
C) Germany has no absolute advantage over France

229)

Machines Wine The accompanying table

shows the output (either
France 3 1 machines or wine) that
Germany 1 1 each unit of input in
France and Germany can
produce. We see that

producing wine.
A) France has a comparative advantage in producing D) Germany can
wine. produce machines at a
B) Germany has a comparative advantage in lower opportunity cost
producing wine. than France.
C) neither country has a comparative advantage in

230)

Wine Machines The accompanying table

Brazil 30 10
Poland 10 10

Version 1 81
gives maximum-output alternatives for Brazil and Poland. It
can be seen that if the two nations open up trade with each
other, then

Version 1 82
 D) Brazil will not
A) Brazil will specialize in producing machines and gain from specializing and
import wine. trading, but Poland will
B) Poland will specialize in producing machines and gain.
import wine.
C) Poland will export wine.

231)

Meat per Worker Houses per The accompanying table

per Day Worker per Day shows labor-productivity
A 40 80 figures in two countries
B 10 40 facing constant costs. It
can be deduced that

D) country B has
A) country A has the absolute advantage in a comparative advantage in
producing both meat and houses. producing both meat and
B) country B has the absolute advantage in producing houses.
both meat and houses.
C) country A has a comparative advantage in
producing both meat and houses.

232)

Meat per Worker Houses per The accompanying table

per Day Worker per Day shows labor-productivity
A 40 80 figures in two countries
B 10 40 facing constant costs. It
can be deduced that

houses.
A) country A can produce more meat and houses D) country B has
than country B. a comparative advantage in
B) country A has a comparative advantage in producing houses.
producing houses.
C) country B has the absolute advantage in producing

Version 1 83
233)

Wheat (Bushels) Rice (Bushels)

India 10 10
Canada 40 20
The accompanying productivity table shows how many
bushels of either wheat or rice can be produced in India and
Canada with 1 unit of input. To achieve gains from
specialization and trade,

not trade with India.

A) India should export rice to Canada and import D) India cannot
Canadian wheat. offer any benefits to
B) India should export wheat to Canada and import Canada from trading with
Canadian rice. her.
C) Canada should produce both wheat and rice and

234) Nation Alpha has a comparative advantage in product

X, and nation Beta has a comparative advantage in product Y.
Trade in the two products will only benefit the two nations if

domestic opportunity
A) the exchange ratio of X for Y is fixed. costs.
B) the terms of trade increase in both nations.
C) there is excess capacity in both economies.
D) the exchange ratio for X and Y reflect their

Version 1 84
235) <p><b><span style="font-size:20pt;"><span
style="color:#FF0000;">

The graph shows the

Orin than in Pohl.

A) Orin has a comparative advantage in both jaxs D) Orin is more
and keps. efficient than Pohl.
B) Pohl has a comparative advantage in jaxs.
C) The opportunity cost of making jaxs is lower in

236) If Nations Quirk and Turk only produce aluminum or

oil, the accompanying table shows the maximum output of
each nation.

Output Tu 30 90
(Units) rk
Nat Alu Oil Which one of the
ion min following terms of trade is
s um most likely to produce
Qu 20 40 mutually beneficial
ir exchange between the two
k nations?

D) 1 unit of oil for

A) 0.5 unit of oil for 1 unit of aluminum 4 units of aluminum
B) 0.5 unit of oil for 2 units of aluminum
C) 1 unit of oil for 0.4 unit of aluminum

237) <p><b><span

Version 1 85
style="font-size:20pt;"><span style="color:#FF0000;"> Suppose the world
economy is composed of
just two countries: Italy
and Greece. Each can
produce steel or chemicals,
but at different levels of
economic efficiency. The
production possibilities
curves for the two
countries are shown in the
graphs. It can be deduced
that

D) it is more
A) Greece has a comparative advantage in chemicals. costly in terms of resources
to produce steel in Italy.
B) Greece has the absolute advantage in both
products.
C) Italy has a comparative advantage in chemicals.

Version 1 86
239) <p><b><span style="font-size:20pt;"><span chemicals, but at different
style="color:#FF0000;"> levels of economic
efficiency. The production
possibilities curves for the
two countries are shown in
the graphs. The assumption
made about the domestic
production opportunity
costs in both countries is
that they are

Suppose the world economy is composed of just two

countries: Italy and Greece. Each can produce steel or

C) increasing.
A) constant. D) decreasing.
B) variable.

240) <p><b><span
style="font-
size:20pt;"><span
style="color:#FF0000;">

Suppose the world

economy is composed of
just two countries: Italy
and Greece. Each can

Version 1 87
produce steel or chemicals, but at different levels of economic result of complete
efficiency. The production possibilities curves for the two specialization according to
countries are shown in the graphs. Assume that prior to comparative advantage, the
specialization and trade, Italy and Greece preferred points I resulting gains in total
and G on their respective production possibilities curves. As a output will be

D) 25 steel.
A) 5 steel and 15 chemicals.
B) 10 chemicals.
C) 15 steel and 5 chemicals.

241)

Wat's Production Possibilities The hypothetical nations

Produ A B C D E F Wat and Xat have the
ct production possibilities for
Rice 750 600 450 300 150 0 rice and corn given in the
Corn 0 50 100 150 200 250 accompanying tables.
Which of the following
Xat's Production Possibilities
statements about the two
Produ A B C D E F
nations is correct based on
ct
the principle of
Rice 2,500 2,000 1,500 1,000 500 0
comparative advantage?
Corn 0 100 200 300 400 500

D) Xat has a
A) Xat should specialize in the production of corn. comparative advantage in
B) Wat should specialize in the production of rice. the production of corn.
C) Xat has a comparative advantage in the
production of rice.

242)

Wat's Production Possibilities P A B C D E F

Produ A B C D E F r
ct o
d
Rice 750 600 450 300 150 0
u
Corn 0 50 100 150 200 250 c
Xat's Production Possibilities t

Version 1 88
 Rice 2,500 2,000 1,500 1,000 500 0
Corn 0 100 200 300 400 500
The hypothetical nations Wat and Xat have the production
possibilities for rice and corn given in the accompanying
tables. The mutually beneficial terms of trade will be

D) between 3 and
A) less than 2 units of rice for 1 unit of corn. 5 units of rice for 1 unit of
B) greater than 4 units of rice for 1 unit of corn. corn.
C) between 3 and 5 units of corn for 1 unit of rice.

243)

Wat's Production Possibilities The hypothetical nations

Produ A B C D E F Wat and Xat have the
ct production possibilities for
Rice 750 600 450 300 150 0 rice and corn given in the
Corn 0 50 100 150 200 250 accompanying tables.
Assume that Wat
Xat's Production Possibilities
originally produced rice
Produ A B C D E F
and corn at combination C
ct
and that Xat originally
Rice 2,500 2,000 1,500 1,000 500 0
produced combination B.
Corn 0 100 200 300 400 500 If the nations now fully
specialize based on
comparative advantage, the
total gains from
specialization and trade are

D) 100 units of
A) 25 units of rice and 25 units of corn. rice and 150 units of corn.
B) 50 units of rice and 50 units of corn.
C) 100 units of rice and 100 units of corn.

244)

Germany Production Possibilities (Production Aut 0 4 8 12 16 20

Alternatives) os
Product A B C D E F Che 40 32 24 16 8 0

Version 1 89
 micals
U.S. Production Possibilities (Production The data in the
Alternatives) accompanying production
Product A B C D E F possibilities tables (in
Autos 0 3 6 9 12 15 millions of units) suggest
Chemicals 60 48 36 24 12 0 that production in

constant opportunity costs.

A) Germany is subject to increasing opportunity D) both Germany
costs and in the United States to constant opportunity costs. and the United States is
B) the United States is subject to increasing subject to increasing
opportunity costs and in Germany to constant opportunity opportunity costs.
costs.
C) both Germany and the United States is subject to

245)

Germany Production Possibilities (Production

Alternatives) Refer to the accompanying
Product A B C D E F production possibilities
Autos 0 4 8 12 16 20 tables. Data are in millions
Chemicals 40 32 24 16 8 0 of units. If Germany and
U.S. Production Possibilities (Production the United States engage in
Alternatives) trade, the mutually
Product A B C D E F beneficial terms of trade
Autos 0 3 6 9 12 15 will be between
Chemicals 60 48 36 24 12 0

D) 0.33 and 0.5

A) 3 and 4 units of autos for 1 unit of chemicals. units of autos for 1 unit of
B) 2 and 4 units of autos for 1 unit of chemicals. chemicals.
C) 2 and 4 units of chemicals for 1 unit of autos.

246)

Germany Production Possibilities (Production Pro A B C D E F

Alternatives) duc
t

Version 1 90
 Autos 0 4 8 12 16 20
Chemicals 40 32 24 16 8 0
U.S. Production Possibilities (Production
Alternatives)
Product A B C D E F
Autos 0 3 6 9 12 15
Chemicals 60 48 36 24 12 0
Refer to the accompanying production possibilities tables.
Data are in millions of units. Assume that prior to
specialization and trade, Germany and the United States both
choose production possibility C. Now if each specializes
according to its comparative advantage, the resulting gains
from specialization and trade will be

D) 8 million units
A) 8 million units of autos. of autos and 6 million units
B) 6 million units of autos. of chemicals.
C) 6 million units of autos and 8 million units of
chemicals.

247)

Germany Production Possibilities (Production Refer to the accompanying

Alternatives) production possibilities
Product A B C D E F tables. Data are in millions
Autos 0 4 8 12 16 20 of units. Suppose that each
Chemicals 40 32 24 16 8 0 nation specialized in
producing the product for
U.S. Production Possibilities (Production
Alternatives)
which it has a comparative
advantage and the terms of
Product A B C D E F
trade were set at 3 units of
Autos 0 3 6 9 12 15
chemicals for 1 unit of
Chemicals 60 48 36 24 12 0 autos. In this case,
Germany could obtain and
consume a maximum
combination of 8 million
units of autos and

B) 24 million
A) 12 million units of chemicals. units of chemicals.

Version 1 91
 C) 36 million units of chemicals.
D) 48 million units of chemicals.

248) In a world with two products, wheat (W) and coffee exchange rate preferred by
(C), nation Alpha produces wheat and nation Beta produces nation
coffee. Nation Alpha prefers an exchange rate of 1W = 2C,
and nation Beta prefers an exchange rate of 1W = 1C. The

great relative to its supply.

A) Alpha will prevail if world demand for coffee is D) Beta will
great relative to its supply. prevail if world demand
B) Alpha will prevail if world demand for wheat is for wheat is great relative
weak relative to its supply. to its supply.
C) Beta will prevail if world demand for coffee is

249) Which of the following statements is true?

of a particular product.
A) Comparative advantage means that total world D) Specialization
output will be greatest when each good is produced by the will be less than complete
nation that has the highest domestic opportunity cost of among nations when
producing it. opportunity costs increase
B) Comparative advantage means that a nation can as the nations produce
gain from trade only if it has a lower labor productivity than more of a particular
its trading partner. product.
C) Specialization will be complete among nations
when opportunity costs increase as the nations produce more

250)

Country X 1.00 400 200

Price Qdd Qsd
$ 5.00 200 400
4.00 250 350
3.00 300 300
2.00 350 250

Version 1 92
The accompanying table gives data for Country X. Column 1 international trade, at what
of the table is the price of a product. Column 2 is the quantity world price will it begin
demanded domestically (Qdd), and Column 3 is the quantity importing some units of
supplied domestically (Qsd). If Country X opens itself up to the product?

D) any price
A) any price below $5.00 above $3.00
B) any price above $5.00
C) any price below $3.00

251)

Country X The accompanying table

Price Qdd Qsd gives data for Country X.
$ 5.00 200 400 Column 1 of the table is
the price of a product.
4.00 250 350
Column 2 is the quantity
3.00 300 300
demanded domestically
2.00 350 250 (Qdd), and Column 3 is the
1.00 400 200 quantity supplied
domestically (Qsd). If
Country X opens itself up
to international trade, at
what world price will it
begin exporting some units
of the product?

D) any price
A) any price below $1.00 above $3.00
B) any price above $1.00
C) any price below $3.00

252)

Country X 2.00 350 250

Price Qdd Qsd 1.00 400 200
$ 5.00 200 400
4.00 250 350
3.00 300 300

Version 1 93
The accompanying table gives data for Country X. Column 1 international trade and the
of the table is the price of a product. Column 2 is the quantity world-market price of the
demanded domestically (Qdd), and Column 3 is the quantity product is $3, then Country
supplied domestically (Qsd). If Country X opens itself up to X will

D) not produce
A) neither export nor import the product. the product.
B) export some units of the product.
C) import some units of the product.

253)

Country X The accompanying table

Price Qdd Qsd gives data for Country X.
$ 5.00 200 400 Column 1 of the table is
the price of a product.
4.00 250 350
Column 2 is the quantity
3.00 300 300
demanded domestically
2.00 350 250 (Qdd), and Column 3 is the
1.00 400 200 quantity supplied
domestically (Qsd). At what
price will Country X
import 100 units of the
product?

C) $2.00
A) $4.00 D) $1.00
B) $3.00

254)

Country X The accompanying table

Price Qdd Qsd
$ 5.00 200 400
4.00 250 350
3.00 300 300
2.00 350 250
1.00 400 200

Version 1 94
gives data for Country X. Column 1 of the table is the price of
a product. Column 2 is the quantity demanded domestically
(Qdd), and Column 3 is the quantity supplied domestically
(Qsd). If the world price is $5.00, there will be

Version 1 95
 exported.
A) a domestic surplus of 100 units that will be D) neither a
exported. domestic surplus nor a
B) a domestic shortage of 100 units that will be shortage.
imported.
C) a domestic surplus of 200 units that will be

255)

Country Y The accompanying table

Price Qdd Qsd gives data for Country Y.
$ 9.00 250 450 Column 1 is the price of a
product. Column 2 is the
8.00 300 400
quantity demanded
7.00 350 350
domestically (Qdd), and
6.00 400 300 Column 3 is the quantity
supplied domestically
(Qsd). If the world price of
the product is $6, then
Country Y will

D) import 400
A) export 100 units of the product units of the product.
B) import 100 units of the product.
C) export 300 units of the product.

256)

Country Y The accompanying table

Price Qdd Qsd gives data for Country Y.
$ 9.00 250 450 Column 1 is the price of a
product. Column 2 is the
8.00 300 400
quantity demanded
7.00 350 350
domestically (Qdd), and
6.00 400 300 Column 3 is the quantity
supplied domestically
(Qsd). At what price will
Country Y export 100 units
of the product?

Version 1 96
 C) $7.00
A) $9.00 D) $6.00
B) $8.00

257) <p><b><span style="font-size:20pt;"><span supply curves for a specific

style="color:#FF0000;"> product in a hypothetical
nation called Econland. If
the world price for this
product is $2.00, then
Econland will

Refer to the graph, which shows the domestic demand and

D) import 400
A) export 200 units. units.
B) export 400 units.
C) import 200 units.

258) <p><b><span
style="font-
size:20pt;"><span
style="color:#FF0000;">

Refer to the graph, which

Version 1 97
shows the domestic demand and supply curves for a specific world price for this product
product in a hypothetical nation called Econland. When the is $0.50, Econland will

D) export 100
A) import 500 units. units.
B) import 100 units.
C) import 400 units.

Refer to the graph, which

shows the domestic
demand and supply curves
for a specific product in a
hypothetical nation called
Econland. At what price
will Econland be neither
importing nor exporting
the product?
259)

C) $2.00
A) $1.00 D) $2.50
B) $1.50

260) If the world price of a product rises relative to the

domestic price in a trading nation, then, for that product,

D) imports will
A) exports and imports will increase. increase and exports will
B) exports and imports will decrease. decrease.
C) exports will increase and imports will decrease.

261) If a nation exports a product, then the price of that

product in the nation

equilibrium price.
A) will rise above the domestic (no-trade)
equilibrium price.
B) will fall below the domestic (no-trade)

Version 1 98
 C) will remain the same as the domestic (no-trade)
equilibrium price.
D) may either rise or fall, depending on the product.

Version 1 99
262) When a nation starts opening up to international trade,
it will see falling prices for

D) all goods
A) goods that it exports. traded.
B) goods that it imports.
C) goods that it has a comparative advantage in.

263) The table shows a schedule of the import demand in

Country A and the export supply in Country B at various
dollar prices. Column 1 is the price of the product. Column 2
is the quantity demanded for imports (QdiA) in Country A.
Column 3 is the quantity of exports supplied (QseB) by Country
B.

Price QdiA QseB 1.00 300 0

$ 4.00 0 200 The equilibrium world
3.00 100 100 price in this two-nation
2.00 200 0 model will be

C) $2.00.
A) $4.00. D) $1.00.
B) $3.00.

Version 1 100
264) <p><b><span style="font-size:20pt;"><span

style="color:#FF0000;">
Refer to the graph, which shows the import demand and
export supply curves for two nations that produce a certain
product. The import demand curves for the two nations are
represented by lines

Version 1 101
 C) 6 and 8.
A) 5 and 6. D) 7 and 8.
B) 5 and 7.

265) <p><b><span style="font-size:20pt;"><span product. Lines 6 and 8

apply to one nation and
represent, respectively,

style="color:#FF0000;">
Refer to the graph, which shows the import demand and
export supply curves for two nations that produce a certain

D) domestic
A) import demand and export supply. demand and domestic
B) export supply and import demand. supply.
C) domestic supply and domestic demand.

266) <p><b><span
style="font-
size:20pt;"><span
style="color:#FF0000;">

Refer to the graph, which

Version 1 102
shows the import demand and export supply curves for two
nations that produce a certain product. In this two-nation
model, the equilibrium world price and quantity will be

C) C and Q 2.
A) A and Q 2. D) D and Q 4.
B) B and Q 4.

267) A maximum limit set on the amount of a specific good

that may be imported into a country over a given period of
time is called a

D) voluntary
A) tariff. export restriction.
B) quota.
C) nontariff barrier.

268) A tariff is a

C) quantity limit.
A) tax. D) subsidy.
B) price ceiling.

269) An excise tax on imported items is known as a(n)

D) price ceiling.
A) quota.
B) tariff.
C) export restriction.

270) Which of the following statements is true about the

alleged benefits and adverse effects of trade barriers?

B) The general
A) The alleged benefits like "saved jobs" are limited public does not have much
to a narrow sector of the economy and clearly seen by the interest in trade and trade
general public, while the adverse effects tend to be obscure barriers because their
and dispersed. effects are very small.

Version 1 103
 C) The alleged benefits of trade barriers tend to be trade barriers. That’s why
spread over the whole economy, while their adverse effects there is not much debate
are narrow and concentrated on a small sector. about them.
D) The U.S. does not really have any significant

271) An excise tax that is applied to an imported product

that is not at all produced domestically is called a(n)

D) nontariff
A) protective tariff. barrier.
B) revenue tariff.
C) import quota.

272) An import-licensing requirement or import restrictions

pertaining to the product quality and safety are examples of

D) quotas on
A) protective tariffs. imported products.
B) nontariff barriers.
C) voluntary export restrictions.

273) Which of the following statements best describes a

protective tariff?

D) such activities
A) an excise tax that is usually applied to products as restricting the issuance
that are not produced domestically in order to raise revenues of licenses for imported
for government products or setting
B) an excise tax that is designed to put foreign unreasonable standards for
producers at a competitive disadvantage in selling in domestic quality or safety in order to
markets restrict imports and protect
C) a specification of the maximum amount of a domestic markets
product that may be imported in any period of time that is
often used to protect domestic producers of a product

274) An example of a
nontariff barrier would be

Version 1 104
 D) voluntary
A) a minimum limit on the quantity of imports. export restraints.
B) excessive licensing requirements.
C) a tax on an imported product.

275) If a nation agrees to set an upper limit on the total situation would be an
amount of a product that it exports to another nation, then this example of

D) a voluntary
A) an import quota. export restriction.
B) a revenue tariff.
C) a protective tariff.

276) A key difference between import quotas and voluntary

export restraints (VERs) is that the

D) one raises the

A) domestic government administers the former, price of the imported
whereas the foreign government administers the latter. product involved, whereas
B) foreign government administers the former, the other one does not.
whereas the domestic government administers the latter.
C) one is a tax, whereas the other is a quantity limit.

277) If the United States government were to impose a

quota on wristwatches imported from Switzerland, then the

D) total quantity
A) price of wristwatches in the United States would of wristwatches (domestic
decrease and total quantity consumed (domestic and and imported) purchased
imported) would increase. would decline as prices
B) prices of wristwatches in Switzerland would rise, rose.
and that's how Switzerland would be hurt by the quota.
C) price of wristwatches in the United States would
remain the same, but the quantity would fall as imports fell.

278) The imposition of a tariff on a product is least likely

to result in a(n)

Version 1 105
 D) decrease in the
A) increase in efficiency in the domestic industry real incomes of workers in
producing the product. other industries.
B) increase in the price of the product.
C) decrease in the quantity of imports.

279) If a nation imposes a tariff on an imported product,

then the nation will experience a(n)

for, the product.

A) decrease in supply and an increase in the price of D) increase in
the product. supply of, and a decrease
B) decrease in demand and a decrease in the price of in demand for, the product.
the product.
C) decrease in supply of, and an increase in demand

280) Tariffs and quotas are costly to consumers because

D) consumers
A) the price of the imported good falls. have to switch to higher-
B) the supply of the imported good increases. priced domestic goods.
C) import competition increases for domestic goods.

281) Assume that a tariff is imposed on an imported

product. The difference between the domestic price and the
world price is captured by

D) foreign
A) the government. exporters.
B) domestic consumers.
C) domestic producers.

282) Assume that a VER (voluntary export restraint) is domestic price and the
imposed on an imported product. The difference between the world price is captured by

B) foreign
A) the government. exporters.

Version 1 106
 C) domestic consumers.
D) domestic workers.

283) Import quotas on products will reduce the quantity of

the imported products and

D) increase the
A) decrease the price to the consumers. total quantity of the
B) increase the price to the consumers. product consumed.
C) will not affect the price to the consumers.

284) Tariffs and import quotas would benefit the following

groups, except

D) the
A) consumers of the product. government of the
B) domestic producers of the product. importing country.
C) workers in domestic firms producing the product.

285) When a tariff or quota on a product is removed, this

policy action

D) hurts nations
A) benefits domestic producers of the product. exporting the product.
B) benefits consumers of the product.
C) benefits the government.

286) When tariffs on imported products are removed by a

nation, it will result in

that nation.
A) higher prices and lower quantities consumed in D) lower prices
that nation. and higher quantities
B) higher prices and higher quantities consumed in consumed in that nation.
that nation.
C) lower prices and lower quantities consumed in

Version 1 107
287) An export subsidy for a product will benefit

D) the domestic
A) domestic consumers of the product. taxpayers.
B) foreign producers of the product.
C) foreign consumers of the product.

288) The higher price of imported products due to trade domestically produced
barriers causes some consumers to shift their purchases to a product that is now

declined.
A) lower in price because import competition has D) lower in price
risen. because import
B) higher in price because import competition has competition has declined.
risen.
C) higher in price because import competition has

289)

Quantity Price Quantity 2,400 5 1,200

Demanded Supplied Refer to the accompanying
Domestically Domestically
table for a certain product's
1,400 $ 10 2,200 market in Econland. If
1,600 9 2,000 Econland was entirely
1,800 8 1,800 closed to international
2,000 7 1,600 trade, the equilibrium price
2,200 6 1,400 and quantity would be

D) $6 and 1,400
A) $9 and 2,000 units. units.
B) $8 and 1,800 units.
C) $7 and 2,000 units.

290)

Quantity Price Quantity Demande Suppli

Version 1 108
 d Domestically ed Domestically 2,400 5 1,200
1,400 $ 10 2,200 Refer to the accompanying
1,600 9 2,000 table for a certain product's
1,800 8 1,800 market in Econland. If the
2,000 7 1,600 world price for this product
were $6, then Econland
2,200 6 1,400
would import

2,200.
A) 400 units and domestic producers would supply D) 400 units and
1,400. domestic producers would
B) 800 units and domestic producers would supply supply 2,200.
1,400.
C) 800 units and domestic producers would supply

291)

Quantity Price Quantity Refer to the accompanying

Demanded Supplied table for a certain product's
Domestically Domestically market in Econland. If the
1,400 $ 10 2,200 world price of the product
1,600 9 2,000 were $6 and a tariff of $1
1,800 8 1,800 per unit imported is
2,000 7 1,600
imposed, then the quantity
of output that would be
2,200 6 1,400
supplied domestically
2,400 5 1,200
would be

D) 1,400 units,
A) 1,400 units, and the quantity of output that would and the quantity of output
be imported would be 800 units. that would be imported
B) 1,600 units, and the quantity of output that would would be 400 units.
be imported would be 800 units.
C) 1,600 units, and the quantity of output that would
be imported would be 400 units.

292)

Quantity Price Quantity Demande Suppli

Version 1 109
 d Domestically ed Domestically Refer to the accompanying
1,400 $ 10 2,200 table for a certain product's
1,600 9 2,000 market in Econland. If the
world price of the product
1,800 8 1,800
were $6 and a tariff of $1
2,000 7 1,600
per unit were applied to
2,200 6 1,400 imports of the product,
2,400 5 1,200 then the tariff would
generate government
revenues of

C) $800.
A) $600. D) $1,200.
B) $400.

293)

Quantity Price Quantity Refer to the accompanying

Demanded Supplied table for a certain product's
Domestically Domestically market in Econland. If the
1,400 $ 10 2,200 world price of the product
1,600 9 2,000 were $6 and a tariff of $1
1,800 8 1,800 per unit were applied to
2,000 7 1,600
imports of the product,
then the total revenue
2,200 6 1,400
(after tariff) going to
2,400 5 1,200
domestic producers would
be

D) $13,200, and
A) $11,200, and the total revenue (after tariff) going the total revenue (after
to foreign producers would be $2,800. tariff) going to foreign
B) $11,200, and the total revenue (after tariff) going producers would be
to foreign producers would be $2,400. $2,400.
C) $8,400, and the total revenue (after tariff) going to
foreign producers would be $2,800.

294)

Version 1 110
 Quantity Price Quantity Refer to the accompanying
Demanded Supplied table for a certain product's
Domestically Domestically market in Econland. If the
1,400 $ 10 2,200 world price of the product
1,600 9 2,000 were $6 and an import
1,800 8 1,800 quota of 400 units were
2,000 7 1,600
imposed on the product,
then the equilibrium price
2,200 6 1,400
in Econland would be
2,400 5 1,200

would be 2,000 units.

A) $6 and the total quantity available in Econland D) $7 and the total
would be 2,200 units. quantity available in
B) $6 and the total quantity available in Econland Econland would be 1,800
would be 1,800 units. units.
C) $7 and the total quantity available in Econland

295)

Quantity Price Quantity Refer to the accompanying

Demanded Supplied table for a certain product's
Domestically Domestically market in Econland.
1,400 $ 10 2,200 Assume that the world
1,600 9 2,000 price of the product is $6.
1,800 8 1,800 What would be the
2,000 7 1,600
difference in the total
revenue received by
2,200 6 1,400
foreign producers after a
2,400 5 1,200
quota of 400 units is
imposed, compared against
the total revenue received
by foreign producers when
a $1 per unit tariff is paid?

tariff
A) $0 revenue difference D) $400 more in
B) $100 more in revenue with a quota than with a revenue with a tariff than
tariff with a quota
C) $400 more in revenue with a quota than with a

Version 1 111
296) The basic difference in the economic effects of a tariff
compared with a quota is that a

D) quota raises
A) quota reduces domestic consumption of the product prices, but a tariff
product, but a tariff does not. does not.
B) tariff allows imports to increase if demand
increases, whereas a quota does not.
C) tariff raises product prices, but a quota does not.

Refer to the accompanying

graph, where Sd and Dd are
the domestic supply and
demand curves for a
product. The world price
of the product is $6. If this
market were closed to
international trade, the
total revenue that would go
to domestic producers
would be

297)

open to international trade.

A) $600, but only $240 if the domestic market were D) $240, but only
open to international trade. $120 if the domestic
B) $600, but only $120 if the domestic market were market were open to
open to international trade. international trade.
C) $500, but only $240 if the domestic market were

298) <p><b>

Version 1 112
 Refer to the
accompanying graph,
where Sd and Dd are the
domestic supply and
demand curves for a
product. The world price
of the product is $6. If the
market is open to
international trade but
there is a tariff of $2 per
unit imposed, the total
government revenue
generated by the tariff
would be

C) $80.
A) $40. D) $100.
B) $60.

299) <p><b> Refer to the

accompanying graph,
where Sd and Dd are the
domestic supply and
demand curves for a
product. The world price
of the product is $6. If an
import quota of 40 units
were imposed on the
product, then the
equilibrium price would be

D) $12 and the

A) $6 and the quantity consumed 80 units. quantity consumed 50
B) $8 and the quantity consumed 70 units. units.
C) $10 and the quantity consumed 60 units.

Version 1 113
300) <p><b> Refer to the
accompanying graph,
where Sd and Dd are the
domestic supply and
demand curves for a
product. The world price
of the product is $6. If the
economy is open to
international trade but a
per unit tariff of $4 is
imposed, then the total
revenue going to domestic
producers would be

D) $240, the total

A) $400, the total revenue (after tariff) going to revenue (after tariff) going
foreign producers would be $120, and the tariff revenue going to foreign producers would
to the government would be $80. be $120, and the tariff
B) $240, the total revenue (after tariff) going to revenue going to the
foreign producers would be $240, and the tariff revenue going government would be
to the government would be $80. $120.
C) $400, the total revenue (after tariff) going to
foreign producers would be $240, and the tariff revenue going
to the government would be $80.

Version 1 114
301) <p><b> Refer to the
accompanying graph,
where Sd and Dd are the
domestic supply and
demand for a product. The
world price of the product
is $6. What would be the
difference in the total
revenue received by
foreign producers after a
quota of 20 units is
imposed compared with
the total revenue received
by foreign producers when
a $4 per unit tariff is

D) $120 more
A) $0 revenue difference revenue with a tariff than
B) $80 more revenue with a quota than with a tariff with a quota
C) $200 more revenue with a quota than with a tariff

302) From an economic perspective, studies of the costs of

trade barriers show that they

D) far exceed
A) are outweighed by the reduction in foreign their benefits for society.
competition provided by the barriers.
B) are much less than benefits for domestic
producers and workers.
C) are about equal to the benefits from trade barriers.

303) The use of tariffs and quotas for trade protection

results in

D) less rent-
A) lower prices for domestic consumers. seeking activity.
B) less revenue for government.
C) less efficiency in the economy.

Version 1 115
304) Common arguments often raised to present the case
for protectionism include the following, except

D) reducing the
A) protecting infant industries until they mature. price of the product to
B) protection against foreign suppliers' dumping. consumers.
C) raising domestic employment in specific
industries.

305) The following are commonly used arguments for

protection against imports, except

D) price and profit

A) self-sufficiency and diversification-for-stability. maintenance.

B) protection against dumping.

C) infant industry protection.

306) Dumping is the sale of a product in a foreign market

nontariff barriers.
A) at a price below its domestic price or cost of D) and is
production. encouraged by voluntary
B) that does not meet the quality standards in the export restraints.
domestic market.
C) and is the principal means used to enforce

307) What is one of the major shortcomings of using tariffs

or quotas to "save American jobs"?

national employment.
A) Trade barriers protect the development of new
technology, but the new technology eliminates jobs.
B) Import restrictions alter the composition of
domestic employment, but they have minimal effect on the
overall level of domestic employment.
C) The volume of trade with other nations is limited
to a few industries, so trade restrictions would not increase

Version 1 116
 D) Major American firms have produced many
products in other countries and would not hire more domestic
labor when trade barriers are imposed.

Version 1 117
308) Which of the following is a valid counterargument to a
call for higher tariffs "to save U.S. jobs"?

are low.
A) The government needs to protect U.S. workers D) Imports may
from the dumping of foreign products. eliminate some U.S. jobs,
B) Strategic trade policy calls for equal treatment of but they create others, so
all trading nations so that they will have the same competitive they may have little or no
conditions. effect on employment.
C) U.S. firms and workers must be protected from
the ruinous competition of nations where wages for workers

309) Which of the following is a valid counterargument to

the call for higher tariffs to save U.S. jobs?

D) The need to
A) U.S. firms and workers must be protected from protect U.S. workers from
the cheaper labor in nations where wages are low. unemployment is not a
B) All nations cannot simultaneously succeed in concern in international
restricting imports while maintaining exports. economics.
C) Reducing tariffs will benefit all consumers and
domestic producers.

310) Which of the following is a likely result of imposing

tariffs to increase domestic employment?

D) an increase in
A) a decrease in consumer prices the possibility of
B) a decrease in the tariff rates of foreign nations retaliatory tariffs
C) an increase in the number of jobs

311) Which is a valid counterargument to the infant

industry argument for protective tariffs?

B) It is difficult to
A) Protective tariffs result in too many benefits for determine which infant
domestic firms that export goods and services. industries will become

Version 1 118
mature industries with a comparative advantage. quotas and nontariff
C) The objective would be better achieved through barriers.
strategic trade policy.
D) The objective would be better achieved by import

312) "The nation needs to prevent foreign nations from most closely associated
selling their excess goods in our nation at a price below cost with which protectionist
so we can save American firms." This quotation would be argument?

D) cheap foreign
A) increase domestic employment labor
B) protection against dumping
C) strategic trade policy

313) Which of the following is a valid counterargument

against using tariffs to protect high wages from cheap foreign
labor?

productivity, not trade

A) The benefits of such a tariff policy will go to tariffs.
consumers, not workers. D) The economy
B) The benefits of such a tariff policy will go to may become overheated,
businesses, not workers. thus increasing inflation.
C) Wage rates in a nation are largely determined by

314) The Smoot-Hawley Tariff Act of 1930 is notorious for

which of the following reasons?

D) It is a classic
A) It spawned a global trade war. example of the dumping
B) It triggered the Great Depression. argument.
C) It favored imports over domestic producers.

315) Which is not a commonly heard argument for

protectionism?

A) A strong

Version 1 119
national defense requires that some military products be D) When other
produced domestically. nations' economies grow,
B) Infant industries need short-term protection from they typically import fewer
foreign competition in order to grow. goods and services.
C) Specialization along the lines of comparative
advantage can lead to some economic instability in a nation.

316) A major goal of the World Trade Organization is to

D) maximize tariff
A) increase the protection of producers against revenue for governments.
foreign trade competition.
B) encourage bilateral trade agreements between
nations.
C) liberalize international trade among nations.

317) The World Trade Organization is the successor to the

D) United Nations
A) General Agreement on Tariffs and Trade (GATT). Conference on Trade and
Development (UNCTAD).
B) United Nations Commission on Trade Law
(UNCTL).
C) World Customs Organization.

318) Which organization meets regularly to establish rules

and settle disputes related to international trade?

D) the World
A) the United Nations Commission on Trade Law Economic Forum
B) the United Nations Conference on Trade and
Development
C) the World Trade Organization

319) Which of the following is not a major achievement

of the European Union (EU)?

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 D) It established a
A) It abolished tariffs and quotas among its member common fiscal policy
nations. among its member nations.
B) It liberalized the movement of capital and labor
among its member nations.
C) It created common policies in agriculture,
transportation, and business practices among its members.

320) The so-called eurozone refers to

D) nations in
A) all members of the European Union. Europe where the U.S. has
B) the EU nations that have adopted a common military bases.
currency.
C) the combined Eastern and Western Europe.

321) NAFTA established a free-trade area and eliminated

trade barriers between

D) the U.S.,
A) the U.S. and Canada only. China, and Canada.
B) the U.S., Mexico, and China.
C) the U.S., Mexico, and Canada.

322) The Trade Adjustment Assistance Act of 2002 focused

mainly on assisting

abroad.
A) U.S. firms to establish export markets around the D) businesses who
world. wish to globalize and
B) other nations to become familiar with, and adjust compete in the world
to, U.S. products. market.
C) workers displaced by imports or plant relocations

323) "Offshoring" of
certain production
activities refers to

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 D) firms opening
A) businesses shifting production activities from new markets offshore and
being done domestically to foreign locations. expanding their targeted
B) businesses acquiring other businesses abroad. export areas.
C) investors putting their funds into foreign assets
instead of investing them in local businesses.

324) Some people accuse an offshoring firm of "exporting

jobs". This activity called offshoring is really equivalent to

C) import tariffs.
A) exporting products. D) import quotas.
B) importing products.

325) Globalization of resource markets has resulted in the

business practice of offshoring, which involves

D) both an
A) only an outflow of jobs away from the U.S. outflow as well as an
B) no possible expansion of jobs in the U.S. inflow of jobs in the U.S.
C) huge losses to consumers in the U.S.

326) (Last Word) Frederic Bastiat's satire clearly illustrates

that

sometimes be ridiculous.
A) French candlemakers would benefit from D) the arguments
government restrictions on trade. in favor of protectionism
B) French consumers would benefit from a tariff on are sometimes well-
U.S. candles. founded.
C) the arguments in favor of trade protectionism can

327) (Last Word) One main point of Frederic Bastiat's

satire is that

measure of the standard of

A) employment, or jobs, is the single most important living.

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 B) we should not try to produce what we can get supported and enhanced.
from others at a lower cost.
C) some industries may reasonably require protection
in order to grow.
D) exporting is always a worthwhile activity to be

ESSAY. Write your answer in the space provided or on a

separate sheet of paper.
328) Define a trade deficit and a trade surplus. Does the
United States have a trade deficit or surplus in goods?
Services?

329) What are the major imports and exports of the United
States?

330) Cite three important reasons why nations trade.

331) What insights about international trade came from

Adam Smith and David Ricardo?

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332) Production of goods and services require different resource intensities and
mixes of resources. Discuss the three different production give examples of each.

333) What does it mean to have an absolute advantage in

the production of two goods?

334) What is the principle of comparative advantage?

335) State how the world economy can benefit from free
trade.

336) How will the difference between the world price and
the domestic price of a good encourage exports and imports?

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337) How can supply and demand analysis be used to nations (e.g., the United
explain the equilibrium price and quantity of exports and States and Canada)?
imports for aluminum when there is trade between two

338) List and describe the four basic types of trade barriers.

339) Which is more effective in blocking imports, a tariff or

a quota?

340) What are the net costs of tariffs and quotas?

341) Evaluate the validity of the argument that a new

industry (infant industry) in a nation needs protection from
foreign competition if it is to establish itself.

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342) How can the United States compete successfully with
a relatively low-wage nation such as Mexico?

343) What was the General Agreement on Tariffs and

Trade (GATT)?

344) What is the World Trade Organization and what

assistance does it provide to its members?

345) What is the eurozone? How has the euro benefited the
countries that have adopted it?

346) What is the Trade Adjustment Assistance Act?

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347) Describe the economic reasons why businesses use
offshoring.

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Answer Key

Test name: Chap 20_22e_Macro_Static

1) FALSE
2) TRUE
3) TRUE
4) FALSE
5) TRUE
6) TRUE
7) TRUE
8) TRUE
9) FALSE
10) TRUE
11) TRUE
12) FALSE
13) TRUE
14) FALSE
15) TRUE
16) TRUE
17) FALSE
18) TRUE
19) FALSE

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20) TRUE
21) FALSE
22) FALSE
23) FALSE
24) TRUE
25) FALSE
26) FALSE
27) FALSE
28) TRUE
29) FALSE
30) TRUE
31) TRUE
32) FALSE
33) FALSE
34) FALSE
35) TRUE
36) FALSE
37) FALSE
38) TRUE
39) TRUE
40) TRUE

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41) TRUE
42) FALSE
43) TRUE
44) TRUE
45) TRUE
46) TRUE
47) TRUE
48) FALSE
49) FALSE
50) FALSE
51) FALSE
52) D
53) B
54) A
55) C
56) D
57) D
58) D
59) B
60) D
61) A

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62) D
63) D
64) B
65) B
66) C
67) D
68) D
69) A
70) B
71) B
72) A
73) C
74) D
75) A
76) D
77) B
78) D
79) B
80) D
81) A
82) C

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83) D
84) C
85) A
86) C
87) C
88) B
89) A
90) B
91) B
92) B
93) A
94) A
95) D
96) B
97) A
98) A
99) B
100) A
101) B
102) C
103) A

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104) D
105) C
106) B
107) B
108) A
109) A
110) D
111) C
112) A
113) D
114) A
115) D
116) C
117) C
118) B
119) B
120) A
121) C
122) C
123) A
124) B

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125) B
126) D
127) C
128) D
129) A
130) C
131) A
132) C
133) C
134) A
135) C
136) D
137) B
138) D
139) A
140) C
141) D
142) D
143) C
144) C
145) D

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146) D
147) B
148) A
149) D
150) B
151) A
152) C
153) B
154) C
155) B
156) A
157) C
158) A
159) B
160) B
161) A
162) C
163) D
164) D
165) A
166) D

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167) D
168) C
169) D
170) C
171) B
172) B
173) C
174) A
175) B
176) A
177) C
178) D
179) C
180) B
181) B
182) D
183) C
184) B
185) D
186) A
187) C

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188) B
189) D
190) B
191) B
192) A
193) D
194) C
195) B
196) D
197) C
198) D
199) C
200) C
201) C
202) C
203) D
204) B
205) C
206) A
207) B
208) D

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209) B
210) B
211) C
212) D
213) A
214) C
215) C
216) B
217) C
218) B
219) C
220) C
221) C
222) B
223) B
224) C
225) C
226) C
227) C
228) C
229) B

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230) B
231) A
232) D
233) A
234) D
235) B
236) C
237) A
238) D
239) A
240) A
241) C
242) D
243) B
244) C
245) C
246) B
247) C
248) C
249) D
250) C

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251) D
252) A
253) C
254) C
255) B
256) B
257) A
258) C
259) B
260) C
261) A
262) B
263) B
264) D
265) B
266) C
267) B
268) A
269) B
270) A
271) B

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272) B
273) B
274) B
275) D
276) A
277) D
278) A
279) A
280) D
281) A
282) B
283) B
284) A
285) B
286) D
287) C
288) C
289) B
290) B
291) C
292) B

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293) B
294) C
295) C
296) B
297) B
298) C
299) B
300) A
301) B
302) D
303) C
304) D
305) D
306) A
307) B
308) D
309) B
310) D
311) B
312) B
313) C

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314) A
315) D
316) C
317) A
318) C
319) D
320) B
321) C
322) C
323) A
324) B
325) D
326) C
327) B
328) A trade deficit occurs when imports deficit in goods and
exceed exports. A trade surplus occurs when a trade surplus in
exports exceed imports. The U.S. has a trade services.
329) The major imports of the U.S. include computer software
petroleum, automobiles, metals, household and services.
appliances, and computers. The major exports
of the U.S. are chemicals, agricultural
products, consumer durables, aircraft, and
330) Trade is beneficial in that (1) the distribution of

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natural, human, and capital resources among prefer certain goods
nations is uneven; nations differ in their imported from
endowments of economic resources; (2) abroad rather than
efficient production of various goods require similar goods
different technologies, and not all nations have produced
the same level of technological expertise; and domestically. <i>
(3) products are differentiated as to quality
and other attributes, and some people may
331) In 1776, Adam Smith used the concept of country to
absolute advantage to argue for international specialize and trade
specialization and trade. He noted that nations with other countries
will be better off if each specializes in the even if it is less
production of those products in which it has productive in all
an absolute advantage and is therefore the economic activities
most efficient producer. In the early 1800s, than other countries.
David Ricardo extended Smith’s idea by It can also benefit
demonstrating that it is advantageous for a from trade just as
country to specialize and trade with other long as it has a
countries even if it is more productive in all comparative
economic activities than any other country. It advantage in at least
only needs a comparative advantage. Ricardo one product. <i>
also demonstrated that it is advantageous for a
332) Labor-intensive goods are products goods are beef,
requiring relatively large amounts of labor to wool, meat, and
produce. Examples of labor-intensive goods vegetables. Capital-
are textiles, electronics, apparel, toys, and intensive goods are
sporting goods. Land-intensive goods are products that
products requiring relatively large amounts of require relatively
land to produce. Examples of land-intensive large amounts of

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capital to produce. Examples of capital-
intensive goods are airplanes, automobiles,
agriculture equipment, machinery, and
chemicals. <i>
333) A country has an absolute advantage producing both
over other producers of a product if it is the products. However,
most efficient producer of that product (that is, the countries can
it can produce more output of that product still gain from
from any given amount of resource inputs than specialization and
any other producer can). Having an absolute trade based on the
advantage in the production of two goods principle of
means that one country can produce more of comparative
either good than the other country can. Output advantage. Absolute
per worker, or labor productivity, in the one advantage turns out
country exceeds that in the other country in to be irrelevant. <i>
334) The principle of comparative advantage which it specializes
is the proposition that an individual, region, or for other desired
nation will benefit if it specializes in products produced
producing goods for which its own by others. <i>
opportunity costs are lower than the
opportunity costs of a trading partner, and
then exchanging some of the products in
335) Through free trade, the world economy product choices.
can achieve a more efficient allocation of Additionally, it
resources and a higher level of material well- links national
being than it can without free trade. It interests and breaks
promotes competition and deters monopoly. down national
Free trade gives consumers a wider range of animosities. <i>

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336) If an economy is open to international production will be
trade, differences between the world price and the exporter and the
the domestic price of a good will encourage country with the
exports and imports. If the world price is higher costs of
above the domestic price for a good, the good production will be
will be exported. If the world price is below the importer. <i>
the domestic price, the good will be imported.
The country with the lower costs of
337) For the United States, there will be and demand curves
domestic supply and demand and export is similar for those
supply and import demand for aluminum. The of the United States.
price and quantity of aluminum are The price and
determined by the intersection of the quantity of
domestic demand and supply curves in a world aluminum are
without trade. In a world with trade, the determined by the
export supply curve for the United States intersection of the
shows the amount of aluminum that American domestic demand
producers will export at each world price and supply curves in
above the domestic equilibrium price. a world without
American exports will increase when the trade. In a world
world price rises relative to the domestic with trade, the
price. The import demand curve for the export supply curve
United States shows the amount of aluminum for Canada shows
that Americans will import at each world price the amount of
below the domestic equilibrium price. aluminum that the
American imports will increase when world Canadian producers
prices fall relative to the domestic price. For will export at each
Canada, there will be domestic supply and world price above
demand and export supply and import demand the domestic
for aluminum. The description of these supply equilibrium price.

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Canadian exports will increase when the nations can be
world price rises relative to the domestic plotted on the same
price. The import demand curve for Canada graph. In this two-
shows the amount of aluminum that nation model,
Canadians will import at each world price equilibrium will be
below the domestic equilibrium price. achieved when the
Canadian imports will increase when world United States’
prices fall relative to the domestic price. The import demand
equilibrium world price and equilibrium world curve for aluminum
levels of exports and imports of aluminum can intersects the
be determined with further supply and demand Canadian export
analysis. The export supply curves of the supply curve.
United States and Canada can be plotted on
one graph. The import demand curves of both
338) The four basic types of trade barriers are: voluntary export
(1) tariffs: a tax imposed by a nation on restrictions: a
imports. Tariffs may be used to collect voluntary limitation
revenue for the government, or they may be by countries or
protective tariffs that are designed to shield firms of their
domestic producers from foreign competition. exports to a
(2) import quotas: a limit imposed by a nation particular foreign
on the quantity (or total value) of a good that nation. These are
may be imported during some time period. (3) undertaken to avoid
nontariff barriers: refers to all barriers other the enactment of
than protective tariffs that nations erect to formal trade barriers
impede international trade, including import by the foreign
quotas, licensing requirements, unreasonable nation. <i>
product-quality standards, or unnecessary
bureaucratic detail in customs procedures. (4)

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339) Import quotas are more effective than imports are
tariffs at blocking imports. With a tariff, a prohibited once the
product can go on being imported in large quota is filled.
quantities. But with an import quota, all
340) Studies show that the costs of tariffs and entire economy. The
quotas to consumers substantially exceed the result is economic
gains to producers and government. Rent- inefficiency,
seeking efforts of industries seeking reduced
protectionist measures divert resources away consumption, and
from more socially desirable purposes, so lower standards of
these costs are imposed on society as well. living.
The gains that U.S. trade barriers create for
protected industries and their workers come at
the expense of much greater losses for the
341) The infant-industry argument is based on may persist even
the idea that new industries need time to after industrial
become mature and sufficiently strong and maturity has been
large to compete with more mature industries realized. Most
from other nations. These new industries may economists believe
need temporary protection to gain productive that if infant
efficiency and become low-cost producers of a industries are to be
product. There are some logical problems with subsidized, there are
this argument. For instance, it is difficult to better means than
determine which industries are capable of tariffs for doing so.
achieving economic maturity and therefore <i>
deserve protection. Also, protective tariffs
342) If the low wages are a reflection of a low the per-unit costs in
level of productivity, the per-unit cost of the U.S. It is not the
Mexico’s products will not be any greater than level of wages alone

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that determines the cost of a product, but unit costs as low as
rather the wage relative to the level of output or lower than those
per hour. Wages in the U.S. are high, but so is in low-wage
the level of productivity, often keeping per- nations.
343) The General Agreement on Tariffs and most nations and
Trade (GATT) is the international agreement has become the
reached in 1947 in which 23 nations agreed to World Trade
eliminate import quotas, negotiate reductions Organization. <i>
in tariff rates, and give each other equal and
nondiscriminatory treatment. It now includes
344) The Uruguay Round agreement negotiations are
established the World Trade Organization aimed at further
(WTO) as GATT’s successor. 164 nations reducing tariffs and
belonged to the WTO in 2019. The WTO quotas, as well as
oversees trade agreements reached by its agricultural
member nations, and it rules on trade disputes subsidies that distort
between members. It also provides forums for trade. <i>
further rounds of trade negotiations. The
345) The eurozone or euro area is the more easily
composed of the 19 countries that have comparison shop for
adopted the euro as their common currency. outputs and inputs,
Economists believe the adoption of the euro which has increased
has increased the standard of living in competition,
eurozone countries. By ending the reduced prices, and
inconvenience and expense of exchanging lowered costs. <i>
currencies, the euro has enhanced the free
flow of goods, services, and resources. The
euro has allowed consumers and businesses to

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346) The Trade Adjustment Assistance Act is workers displaced
a U.S. law that was passed in 2002 that by imports or
provides cash assistance, education and relocations of U.S.
training benefits, health care subsidies, and plants to other
wage subsidies (for persons age 50 or older) to countries.
347) Offshoring is the practice of shifting lowers production
work previously done by domestic workers to costs and keeps
workers located in other nations. In recent them competitive
years, U.S. firms have found the outsourcing worldwide.
of work abroad to be increasingly profitable. It

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