ECN | Course Paper

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Chapter 1:

International Economics is Different

Multiple Choice Questions

1. After 2006, why did the cost of new natural gas wells in the U.S. and Canada increase?

a. The amount of natural gas being imported into the U.S. and Canada was

increasing.

b. The lowest cost sources of natural gas using standard production technologies had

been exhausted.

c. Government regulations on new natural gas production increased the cost of

production.

d. Natural gas production in other parts of the world decreased thereby increasing

world-wide demand for natural gas.

Answer: B

Difficulty: 02 Medium

Blooms: Understand

AACSB: Reflective Thinking

Topic: Four Controversies

2. A law in the U.S. prohibits the export of natural gas unless such exports are in the “public

interest.” What does “public interest” mean in the context of that law?

a. The amount received for the exported natural gas is enough to cover the

production and transportation costs plus a reasonable profit

b. The U.S. government is able to collect export taxes set by law on the exported

natural gas

c. The exports leave an adequate supply of natural gas for domestic users and

consumers of natural gas

d. The exported natural gas does not fall into the hands of groups or countries

that the U.S. government has designated as terrorists

Answer: C

Difficulty: 02 Medium

Blooms: Understand

AACSB: Reflective Thinking

Topic: Four Controversies

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3. If natural gas produced in the U.S. was exported to countries in Asia and Europe, what factor

would likely increase the price of that natural gas in the importing countries?

a. The U.S. would impose export charges on each unit of natural gas exported and

those charges would be passed along to the importing countries.

b. Exporters in the U.S. would arbitrarily inflate the costs of production so that the

importing countries would pay higher prices.

c. Importing countries would impose tariffs on the imported natural gas and those

tariffs be passed along by exporting companies to importing countries.

d. Natural gas from the U.S. would have to be liquefied and transported in specially-

designed ships to Asia and Europe, so transportation costs would increase the

price of the imported natural gas in Asia and Europe.

Answer: D

Difficulty: 02 Medium

Blooms: Understand

AACSB: Reflective Thinking

Topic: Four Controversies

4. If the U.S. allowed the export of significant amounts of natural gas, what would be the

economic effect?

a. There would be no net economic effect on international trade because increased

exports from the U.S. would be offset by increased imports to the U.S. of other

goods.

b. The economic effect on international trade would be negative because increased

amounts of natural gas in the importing countries would drive down the price of

domestically produced natural gas in the importing countries.

c. The foreign demand for natural gas from the U.S. would increase the price of

natural gas in the U.S., production of natural gas in the U.S. would increase, and

consumption of natural gas in the U.S. would decrease slightly.

d. Increased demand for natural gas form the U.S. in foreign countries would

increase the price of natural gas world-wide and result in many countries not

being able to afford the price of natural gas.

Answer: C

Difficulty: 03 Hard

Blooms: Analyze

AACSB: Analytic

Topic: Four Controversies

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5. What would be the effect in the U.S. of increased exports of natural gas from the U.S. to

foreign countries?

a. Exports of natural gas from the U.S. would force the world-wide price of natural

gas to an equilibrium and reduce the price of natural gas for consumers in the U.S.

b. Exports of natural gas from the U.S. would result in higher prices for natural gas,

benefiting producers and exporters of natural gas in the U.S. and harming

consumers of natural gas in the U.S.

c. Exports of natural gas from the U.S. would force the world-wide price of natural

gas to an equilibrium which would mean that producers of natural gas in the U.S.

could not charge more than the cost to produce the natural gas.

d. The U.S. government would eventually have to prohibit exports of natural gas to

foreign countries in order to control the price of natural gas.

Answer: B

Difficulty: 02 Medium

Blooms: Understand

AACSB: Reflective Thinking

Topic: Four Controversies

6. What is fracking?

a. A process that uses a combination of hydraulic pressure and horizontal drilling to

allow the extraction of natural gas that cannot otherwise be extracted.

b. The difference between the cost of producing natural gas and transporting it to

consumers and the price that consumers are willing to pay for the natural gas.

c. The sale of natural gas on the black market in foreign countries without approval

of the U.S. government.

d. The imposition of import tariffs on natural gas exported from the U.S. to protect

domestic producers in the importing country.

Answer: A

Difficulty: 01 Easy

Blooms: Remember

AACSB: Reflective Thinking

Topic: Four Controversies

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7. What event in Japan increased demand for imported natural gas in Japan?

a. Deposits of natural gas in Japan have been exhausted.

b. The largest deposits of natural gas available to Japan are located in the islands in

the South China Sea and Japan and China have a dispute about who owns those

islands.

c. A tsunami in 2011 damaged the nuclear reactor in Fukushima causing Japan to

shut down all of its nuclear generation of electricity.

d. Japan imposed strict environmental requirements for the generation of electricity

that can only be met by using natural gas to produce electricity.

Answer: C

Difficulty: 01 Easy

Blooms: Remember

AACSB: Reflective Thinking

Topic: Four Controversies

8. Dow Chemical objected to the export of natural gas from the U.S. to foreign countries. What

does the economic analysis of the export of natural gas from the U.S. suggest the effect of

those exports will be for Dow Chemical?

a. The export of natural gas from the U.S. will decrease the supply of natural gas

available to Dow Chemical and other users of large amounts of natural gas and

increase the price of natural gas in the U.S.

b. Dow Chemical does not directly use natural gas, but does use electricity that can be

generated by natural gas, so the effect on Dow Chemical will depends on alternative

means of producing electricity.

c. The transportation costs of exporting natural gas from the U.S. to Asia and Europe

will keep the price of natural gas in the U.S. relatively low, so Dow Chemical will

benefit from that low price.

d. The export of natural gas from the U.S. will eventually deplete U.S. supplies of natural

gas so Dow Chemical will have to find other sources of energy.

Answer: C

Difficulty: 02 Medium

Blooms: Understand

AACSB: Reflective Thinking

Topic: Four Controversies

9. What is the effect on trade deficits of a country’s saving rate?

a. A low savings rate means that consumers are buying more, and more buying leads to

an increase in a country’s trade deficit.

b. A low savings rate means that people are spending more than they earn and that results

in increased financial difficulties for consumers, higher interest rate, and fewer

international sales, resulting in a decrease in a country’s trade deficit.

c. A high savings rate means that there is more money available for investment which

results in greater production and increased international sales which lead to lower trade

deficits.

d. A country’s savings rate has no effect on the country’s trade deficit.

Answer: A

Difficulty: 03 Hard

Blooms: Analyze

AACSB: Analytic

Topic: Four Controversies

10. “Job-seeking immigration brings net economic benefits not only to the immigrants, but also

to the receiving country overall.” But there are winners and losers within the receiving

country. Who among the following can be considered as a winner within the receiving

country?

a. The workers who compete with the immigrants for jobs