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102)
In 1930 the U.S. government attempted to help domestic firms that were harmed by the Great
Depression by
102)
A)
establishing the World Trade Organization (WTO).
B)
passing the North American Free Trade Agreement (NAFTA).
C)
establishing the General Agreement on Tariffs and Trade (GATT).
D)
passing the Smoot-Hawley Tariff.
103)
The terms of trade refers to
103)
A)
the ratio at which a country can trade its exports for imports from other countries.
B)
the rules and regulations that countries must adhere to when trading.
C)
a legal document that specifies the terms of a trade agreed to by two countries.
D)
the role of the government in overseeing international trade.
Figure 18-6
104)
Refer to Figure 18-6. The French fall in love with California wines and triple their purchases of this
beverage. Assuming everything else remains constant, this would be represented as a movement
from ________.
104)
A)
C to D
B)
A to D
C)
A to B
D)
B to A
E)
B to C
Figure 18-3
Since 1953 the U.S. has imposed a quota to limit the imports of peanuts. Figure 18-3 illustrates the impact of the quota.
105)
Refer to Figure 18-3. What is the area of domestic producer surplus without a quota?
105)
A)
A + B + C + D
B)
A + B + C
C)
C
D)
C + B
106)
If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the
following would explain this pattern of trade?
106)
A)
Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark
has a comparative advantage in producing butter.
B)
Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark
has a higher opportunity cost of producing butter.
C)
Sweden must have an absolute advantage in producing cell phones and Denmark must have
an absolute advantage in producing butter.
D)
The opportunity cost of producing butter in Denmark is higher than the opportunity cost of
producing butter in Sweden.
107)
Assume that Nation A has a comparative advantage in producing corn and exports corn to Nation
B. We can conclude that
107)
A)
Nation B has an absolute disadvantage in producing corn relative to Nation B.
B)
Nation A also has an absolute advantage in producing corn relative to Nation B.
C)
Labor costs are higher for corn producers in Nation B than in Nation A.
D)
Nation A has a lower opportunity cost of producing corn relative to Nation B.
Figure 18-2
Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 18-2 shows the impact of this tariff.
108)
Refer to Figure 18-2. The tariff revenue collected by the government equals the area
108)
A)
C + D + E + F.
B)
B + D + E + F.
C)
D + E + F.
D)
E.
109)
You're traveling in Ireland and are thinking about buying a new digital camera. You've decided
you'd be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the
camera you're looking at costs 115 euros, under which of the following exchange rates would you
be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)
109)
A)
0.56 euros per dollar
B)
0.89 euros per dollar
C)
0.92 euros per dollar
D)
You would purchase the new camera at any of the above exchange rates.
110)
Costa Rica is a leading exporter of bananas. What explains the comparative advantage of this
country in banana production?
110)
A)
investment by multinational firms such as Chiquita Brands International and the Dole Food
Company
B)
climate and soil conditions in Costa Rica are well-suited for banana production
C)
positive externalities
D)
a large supply of unskilled labor
111)
International trade
111)
A)
helps consumers but hurts firms that are less efficient than their foreign competitors.
B)
helps consumers and firms that compete with their foreign competitors.
C)
helps consumers but harms exporting firms and their workers.
D)
harms consumers but helps exporting firms.
112)
Once an industry becomes established in a certain area firms that locate in that area gain
advantages over firms located elsewhere, leading to lower costs of production. Economists refer to
the lower costs that result from increases in the size of an industry in a certain area as
112)
A)
technological change.
B)
positive externalities.
C)
strategic advantages.
D)
external economies.
113)
Which of the following is not a source of comparative advantage?
113)
A)
a strong foreign currency exchange rate
B)
climate and natural resources
C)
technology
D)
relative abundance of labor and capital
114)
Economists believe the most persuasive argument for protectionism is to protect infant industries.
But the argument has a drawback. What is this drawback?
114)
A)
Governments always make the level of protection for infant industries too high.
B)
Governments usually use tariffs, rather than quotas, to protect infant industries in order to
collect tariff revenue. (Quotas do not result in government revenue).
C)
Governments are usually too impatient and do not allow protection to remain in place long
enough to allow industries to be competitive in international markets.
D)
Protection lessens the need for firms to become productive enough to compete with foreign
firms; this often results in infant industries never "growing up."
115)
When the market value of the dollar rises relative to other currencies around the world, we say that
115)
A)
the dollar has appreciated.
B)
the supply of dollars has increased.
C)
the dollar has depreciated.
D)
the demand for dollars has increased.
116)
Which of the following describes the infant industry argument for protectionism?
116)
A)
Domestic producers in high-wage countries must be protected from foreign producers in
low-wage countries to produce a level playing field.
B)
An industry must be protected in its early stages of development so that firms can compete
with government-subsidized foreign competition.
C)
Some strategic industries must be protected to ensure adequate supplies of resources needed
for national defense in emergencies.
D)
Domestic producers require time to gain experience and lower their unit costs; this will allow
these producers to compete successfully in international markets.
117)
A tariff is
117)
A)
a limit placed on the quantity of goods that can be imported into a country.
B)
a health and safety restriction imposed on an imported product.
C)
a tax imposed by a government on goods imported into a country.
D)
a subsidy granted to importers of a vital input.
118)
The United States Congress has enacted a quota on the importation of sugar. As a result
118)
A)
U.S. consumers enjoy a greater variety of products that are made with a lot of sugar (for
example, candy bars and chocolate).
B)
many firms that use sugar to make candy are able to keep producing their products in the
U.S. Among these are the firms that produce Life Savers and Cherry Balls.
C)
sugar producers in other countries benefit since they don't face as much international
competition.
D)
U.S. companies are able to sell sugar domestically at a price about three times as high as the
world price.
Figure 18-6
119)
Refer to Figure 18-6. Currency speculators believe that the value of the euro will increase relative
to the dollar. Assuming everything else remains constant, how would this be represented?
119)
A)
Supply would increase, demand would decrease and the economy moves from C to B to A.
B)
Supply would decrease, demand would decrease and the economy moves from B to C to D.
C)
Supply would decrease, demand would increase and the economy moves from A to D to C.
D)
Supply would increase, demand would increase and the economy moves from D to A to B.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
120)
If American demand for purchases of Mexican goods has increased, how would you expect
the equilibrium exchange rate in the market for dollars to respond? Support your answer
graphically.
120)
121)
Explain and show graphically how an increase in incomes in the United States will affect
equilibrium in the foreign exchange market?
121)
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
122)
Since September 11, 2001 a slowdown in international trade has decreased the demand for the
Boeing Company's 747 jumbo jets.
122)
123)
If currency speculators decide that the value of the dollar should rise in the future relative to the
yen, this will increase the demand for dollars and decrease the supply of dollars.
123)
124)
The General Agreement on Tariffs and Trade (GATT) was formed to replace the World Trade
Organization (WTO) because the WTO was empowered only to reduce barriers to trade in goods.
The GATT is an agreement to reduce barriers to trade in goods, services and intellectual property.
124)
125)
If country A has an absolute advantage in the production of two goods compared to country B,
country A can still benefit from trade with country B.
125)
126)
Although the United States is the leading exporting country, international trade is less important to
the U.S. than it is to most other countries.
126)
127)
The ability of a firm or country to produce a good or service at a lower opportunity cost than other
producers is called absolute advantage.
127)
128)
A tariff is a numerical limit on the quantity of a good that can be imported.
128)
129)
One of main sources of comparative advantage is internal economies.
129)
130)
One reason a country does not specialize completely in production is that production of most goods
involves increasing opportunity costs.
130)
131)
Protectionism refers to the use of trade barriers to shield domestic firms from foreign competition.
131)
132)
An economic expansion in Mexico should decrease the demand for U.S. dollars.
132)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
Figure 18-4
Suppose the U.S. government imposes a $0.25 per pound tariff on rice imports. Figure 18-4 shows the demand and supply
curves for rice and the impact of this tariff.
133)
Refer to Figure 18-4. Use the figure to answer questions a-i.
a. Following the imposition of the tariff, what is the price that domestic consumers must now pay and what is
the quantity purchased?
b. Calculate the value of consumer surplus with the tariff in place.
c. What is the quantity supplied by domestic rice growers with the tariff in place?
d. Calculate the value of producer surplus received by U.S. rice growers with the tariff in place.
e. What is the quantity of rice imported with the tariff in place?
f. What is the amount of tariff revenue collected by the government?
g. The tariff has reduced consumer surplus. Calculate the loss in consumer surplus due to the tariff.
h. What portion of the consumer surplus loss is redistributed to domestic producers? To the government?
i. Calculate the deadweight loss due to the tariff.
134)
Suppose in Vietnam a worker can produce either 16 units of cloth or 2 bicycles while in China a worker can
produce either 20 units of cloth or 5 bicycles.
a. Which country has an absolute advantage in cloth production? In bicycle production?
b. What is the opportunity cost of 1 unit of cloth in Vietnam? In China?
c. What is the opportunity cost of 1 bicycle in Vietnam? In China?
d. Which country has a comparative advantage in cloth production? In bicycle production?
e. Suppose each country has 1,000 workers. Currently, each country devotes 40 percent of its labor force to
cloth production and 60 percent to bicycle production. What is the output of cloth and bicycles for each
country and what is the total output of cloth and bicycles between the two countries?
f. Suppose each country specializes in the production of the good in which it has a comparative advantage.
What is the total output of cloth and bicycles in the two countries?
g. Provide a numerical example to show how Vietnam and China can both gain from trade. Assume that the
terms of trade are established at 6 units of cloth for 1 bicycle.
135)
The simple trade model demonstrates that countries can expand consumption by specializing in the production
of goods and services in which they have a comparative advantage. In reality we do not see complete
specialization in production. State three reasons why this is case.
136)
Examples of comparative advantage often begin with two countries that each produce the same two goods.
Each country is then shown to have a comparative advantage in producing the good it can produce at a lower
opportunity cost, and specializes in the production of the good for which it has a comparative advantage. How
do these examples prove that both nations are made better off as a result of trade than they would be without
trade?
Figure 18-5
Bragabong currently both produces and imports almonds. The government of Bragabong decides to restrict international
trade in almonds by imposing a quota that allows imports of only 10 million kilos each year. Figure 18-5 shows the estimated
demand and supply curves for almonds in Bragabong and the results of imposing the quota.
137)
Refer to Figure 18-5. Answer questions a-j using the figure.
a. If there is no quota what is the domestic price of almonds and what is the quantity of almonds demanded
by consumers?
b. If there is no quota how many kilos of almonds would domestic producers supply and what quantity
would be imported?
c. If there is no quota what is the dollar value of consumer surplus?
d. If there is no quota what is the dollar value of producer surplus received by producers in Bragabong?
e. If there is no quota what is the revenue received by foreign producers who supply almonds to Bragabong?
f. With a quota in place what is the price that consumers of Bragabong must now pay and what is the
quantity demanded?
g. With a quota in place what is the dollar value of consumer surplus? Are consumers better off?
h. With a quota in place what is the dollar value of producer surplus received by producers in Bragabong?
Are domestic producers better off?
i. Calculate the revenue to foreign producers who are granted permission to sell in Bragabong after the
imposition of the quota.
j. Calculate the deadweight loss as a result of the quota.
138)
Some government officials argue that the success achieved by firms in Dalton, Georgia in developing a
comparative advantage in carpet making because of external economies can be used to justify trade barriers as a
means to protect an "infant industry." After an infant industry gains experience it can compete in international
markets and the trade barriers can be removed. What objections do economists make to this argument in favor
of trade barriers?
139)
a. Define the term "globalization".
b. Describe the benefits of globalization.
c. Who is likely to oppose globalization and why?
140)
What are the four main sources of comparative advantage? Briefly explain each source and provide examples.
141)
a. Distinguish between a tariff and a quota.
b. In what ways are tariffs and quotas similar?
c. In what ways are tariffs and quotas different?
d. Why might a foreign producer prefer a quota rather than a tariff?
