c.
Q4 − Q3.
d.
Q4 − Q3 + Q2 − Q1.
137. Refer to Figure 17-10. Consumer surplus with trade and without a tariff is
a.
A.
b.
A + B.
c.
A + C + G.
d.
A + B + C + D + E + F.
138. Refer to Figure 17-10. Producer surplus with trade and without a tariff is
a.
G.
b.
C + G.
c.
A + C + G.
d.
A + B + C + G.
139. Refer to Figure 17-10. Consumer surplus with the tariff is
a.
A.
b.
A + B.
c.
A + C + G.
d.
A + B + C + D +E + F.
140. Refer to Figure 17-10. Producer surplus with the tariff is
a.
G.
b.
C + G.
c.
A + C + G.
d.
A + B + C + G.
141. Refer to Figure 17-10. The amount of government revenue created by the tariff is
a.
B.
b.
E.
c.
D + F.
d.
B + D + E + F.
142. Refer to Figure 17-10. As a result of the tariff, there is a deadweight loss that amounts to
a.
B.
b.
E.
c.
D + F.
d.
B + D + E + F.
The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price.
Figure 17-11
143. Refer to Figure 17-11. Government revenue raised by the tariff is represented by the area
a.
E.
b.
B + E.
c.
D + E + F.
d.
B + D + E + F.
144. Refer to Figure 17-11. The tariff
a.
decreases producer surplus by the area C and decreases consumer surplus by the area C +
D + E + F.
b.
decreases producer surplus by the area C + D and decreases consumer surplus by the area
D + E + F.
c.
increases producer surplus by the area C and decreases consumer surplus by the area C +
D + E + F.
d.
increases producer surplus by the area B + C and decrease consumer surplus by the area D
+ E + F.
145. Refer to Figure 17-11. The deadweight loss created by the tariff is represented by the area
a.
B.
b.
D + F.
c.
D + E + F.
d.
B + D + E + F.
Figure 17-12
146. At a world price of $1.00 in Figure 17-12,
a.
20 units will be exported
b.
20 units will be imported
c.
50 units will be exported
d.
50 units will be imported
e.
10 units will be exported
147. In Figure 17-12, with a tariff of $0.50 per unit and a world price of $1.00,
a.
25 units will be exported
b.
25 units will be imported
c.
50 units will be exported
d.
50 units will be imported
e.
10 units will be exported
148. If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of
$1.00, the loss of consumer surplus as a result of a tariff of $0.50 per unit is represented by area
a.
a
b.
b + d
c.
c + i + e + f
d.
c
e.
d
149. If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of
$1.00, the gain in producer surplus as a result of a tariff of $0.50 per unit is represented by area
a.
c + h
b.
h
c.
c
d.
c + g
e.
g
150. If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of
$1.00, the government revenue from a tariff of $0.50 per unit is represented by area
a.
c
b.
e + g
c.
i + e + f
d.
d + e
e.
e
151. If the country illustrated in Figure 17-12 is initially trading without restrictions at a world price of
$1.00, net welfare loss as a result of a tariff of $0.50 per unit is represented by area
a.
c + i + e + f
b.
i + f
c.
i
d.
f
e.
b + d
Figure 17-13
152. Figure 17-13 shows domestic supply and demand for baseballs in the United States. The world price of
a baseball is $3. With free trade, how many baseballs will be purchased in the United States?
a.
4,000
b.
6,000
c.
8,000
d.
10,000
e.
12,000
153. In Figure 17-13, the world price of a baseball is $3. With free trade, how many baseballs will the
United States import?
a.
4,000
b.
6,000
c.
8,000
d.
10,000
e.
12,000
154. In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the
United States, how many baseballs will be purchased in the United States?
a.
4,000
b.
6,000
c.
8,000
d.
10,000
e.
12,000
155. In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the
United States, how many baseballs will the United States import?
a.
4,000
b.
6,000
c.
8,000
d.
10,000
e.
12,000
156. In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the
United States, how much tariff revenue will the United States government collect?
a.
$4,000
b.
$16,000
c.
$20,000
d.
$24,000
e.
$48,000
157. In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the
United States, which area represents the amount of tariff revenue the United States government
collects?
a.
a
b.
b
c.
c
d.
f
e.
e
158. In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the
United States, which area represents the United States’ net loss as a result of the tariff?
a.
a + b + c + e
b.
b + c + e
c.
b + c
d.
c + e
e.
b + f
159. During the last several decades, the size of the trade sector (exports plus imports) of the United States
has been
a.
increasing as a share of the economy.
b.
relatively constant as a share of the economy.
c.
declining as a share of the economy.
d.
increasing during periods of recession, but declining during periods of strong economic
growth.
160. A nation can gain from international trade when
a.
its relative production costs are the same as those of other countries.
b.
it exports goods for which it is a low-opportunity cost producer while importing goods that
it could produce only at a high opportunity cost.
c.
it imports goods for which it is a low-opportunity cost producer and exports goods for
which it is a high opportunity cost producer.
d.
it has a trade deficit.
161. When foreigners export goods to the United States
a.
they reduce the ability of the U.S. to export products abroad.
b.
they acquire the dollars that are necessary to purchase goods, services, and assets from
Americans.
c.
they reduce the living standards of Americans.
d.
they cause the dollar to depreciate.
162. When both exports and imports are considered, the major advantage of international trade is that it
allows us to
a.
seclude ourselves from foreign products.
b.
consume a larger, more diverse quantity of goods and services at lower prices than would
otherwise prevail.
c.
benefit at the expense of less-developed nations
d.
maintain jobs for workers who would otherwise have little to do.
163. Which of the following restricts the volume of international trade?
a.
stable prices
b.
tariffs
c.
the law of comparative advantage
d.
a stable international monetary system.
164. Dumping
a.
is the sale of a good abroad at a cheaper price than what the good is sold for in the
producer’s domestic market.
b.
generally hurts consumers of the nation receiving the “dumped” goods.
c.
is generally encouraged by domestic producers of the product being dumped since they are
the primary beneficiaries of the dumping.
d.
is the sale of a good that is illegal in the producing country to another country.
165. Which of the following has resulted from the North American Free Trade Agreement (NAFTA)?
a.
trade between the United States and Mexico increased.
b.
trade between the United States and Canada increased.
c.
the joint output of the United States, Mexico, and Canada has increased.
d.
all of the above are correct.
166. Each trading nation can gain by specializing in producing those things for which it is a
low-opportunity cost producer. This statement best describes the implications of the
a.
free rider problem.
b.
law of comparative advantage.
c.
infant-industry argument.
d.
law of diminishing marginal returns.
167. Economists consider tariffs to be
a.
necessary for the protection of domestic industries and the achievement of full
employment.
b.
harmful to domestic consumers.
c.
obstacles that hinder voluntary exchange and gains from trade.
d.
both b and c above
168. According to public choice theory, tariffs, quotas, and other trade restrictions are primarily the result
of the
a.
political clout of foreigners.
b.
political clout of domestic consumers.
c.
political power of special interest groups.
d.
political desire for economic efficiency.
169. As the result of specialization and trade, according to the law of comparative advantage, total output
will
a.
decline because specialization is costly.
b.
rise only when there is an accompanying decline in the total output of one’s trading
partners.
c.
rise if a nation is a net exporter and fall if the nation is a net importer of goods and
services.
d.
increase since resources will be better directed toward their highest-valued use.
170. Compared to a no-trade situation, if Italy imported wine,
a.
the price of domestic Italian wine would decline.
b.
Italian wine producers would increase their prices.
c.
Italian wine producers would increase their profits.
d.
domestic wine production in Italy would expand.
171. Which of the following restricts the volume of international trade?
a.
stable prices
b.
tariffs
c.
the law of comparative advantage
d.
stable international monetary system
172. Nevada is the low opportunity cost producer of computer software, and California is low opportunity
cost producer of wine. Which of the following is true?
a.
Nevada has no comparative advantage over California in the production of wine or
computer software.
b.
Nevada has a comparative advantage in producing wine
c.
Nevada has a comparative advantage in producing software.
d.
Nevada has a comparative advantage in producing both wine and software.
ESSAY
173. What benefits are to be gained from countries producing according to the law of comparative
advantage? What if a country is absolutely more productive in all goods?
174. What is the law of comparative advantage, and why is it important in international trade?
175. At one time, it was believed that the way for a nation to prosper was to export as much as possible
while importing as little as possible. More money would flow into a country than out of a country. Is
this really a sound economic strategy? What is the relationship between exports and imports?
ANS:
176. Suppose that in the absence of trade, the U.S. price for peas was lower than the world price for peas.
Would allowing international trade mean that the United States would import or export peas? Who in
the United States would benefit and who would lose with a free trade policy, and would the gains be
greater than the losses?
177. Suppose that in the absence of trade, the U.S. price for bicycles was higher than the world price for
bicycles. Would allowing international trade mean that the United States would import or export
bicycles? Who in the United States would benefit and who would lose with a free trade policy, and
would the gains be greater than the losses?
178. “Economists have demonstrated that imports benefit consumers while causing losses to producers, and
exports benefit producers while causing losses to consumers. In the balance then, international trade
neither benefits nor hurts a nation as a whole.” Evaluate this statement.
179. What is the difference between a tariff and a quota?
180. What are the effects of a tariff, and who benefits and who loses when tariffs are imposed? What are the
effects of a quota, and who benefits and who loses when quotas are imposed?
181. “Trade restrictions will stop foreign imports, which will increase American employment and protect
American jobs.” Most economists realize this argument is wrong. Can you explain why?
182. In 1993 the negotiations over the North American Free Trade Agreement and the General Agreement
on Tariffs and Trade were frequently characterized by comments such as, “Free trade with low-wage
countries will cause the wages of U.S. workers to fall.” Identify the errors in statements such as this.
