Chapter 18—International Trade and Finance
MULTIPLE CHOICE
1. In terms of production possibilities curves, the benefits of trade between two nations are that each
nation moves to a higher:
a.
standard of living.
c.
both a and b.
b.
consumption possibilities combination.
d.
neither a nor b.
2. Without trade, the consumption possibilities for two nations are:
a.
outside their production possibilities curve.
b.
inside their production possibilities curve.
c.
along their production possibilities curve.
d.
at a point equal to the world production possibilities curve.
3. Opening trade between two nations would:
a.
shift their production possibilities curves outward.
b.
shift their production possibilities curves inward.
c.
leave the production possibilities unchanged and increase their consumption possibilities.
d.
leave the production possibilities unchanged and decreased their consumption
possibilities.
4. If a nation follows a policy of being self-sufficient, its:
a.
production possibilities equal its consumption possibilities.
b.
consumption possibilities are greater than its production possibilities.
c.
production possibilities curve shifts rightward.
d.
consumption possibilities are less than its production possibilities.
5. Specialization and trade allow an economy to expand its:
a.
production possibilities.
c.
technological advantage.
b.
consumption possibilities.
d.
absolute advantage.
6. International trade has the potential to ____ the availability of goods and services to ____.
a.
increase; those nations who export more than they import
b.
increase; nations that have an absolute advantage in the production of a good or service
c.
increase; all nations
d.
decrease; all nations
7. With the benefits of international trade:
a.
there can be increased consumption for all.
b.
global production will be increased.
c.
world resources will be used more efficiently.
d.
all of these are true.
8. Suppose Japan has a comparative advantage over Canada in the production of VCRs. This means that
Japan:
a.
needs fewer resources to produce DVDS than does Canada.
b.
has better technology for producing DVDs than does Canada.
c.
has a lower opportunity cost of DVD production than does Canada.
d.
can produce more VCRs in a given period of time than can Canada.
9. Trade between nations A and B:
a.
leaves the production possibilities of nation A unchanged.
b.
leaves the production possibilities of nation B unchanged.
c.
increases the consumption possibilities of both nations.
d.
All of these are true.
Exhibit 18-1 Production possibilities curves
10. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. In Nabia the cost of producing one more unit of wheat is equal to:
a.
4 units of corn.
b.
4 units of wheat.
c.
1/4 unit of corn.
d.
15 units of corn.
e.
60 units of corn.
11. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. In Nabia the cost of producing one more unit of corn is equal to:
a.
4 units of wheat.
b.
4 units of corn.
c.
1/4 unit of wheat.
d.
15 units of wheat.
e.
60 units of wheat.
12. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. In Pada the cost of producing one more unit of corn is equal to:
a.
3 units of wheat.
b.
3 units of corn.
c.
1/3 unit of wheat.
d.
15 units of wheat.
e.
30 units of wheat.
13. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. In Pada the cost of producing one more unit of wheat is equal to:
a.
3 units of corn.
b.
1/3 unit of corn.
c.
1/3 unit of wheat.
d.
15 units of corn.
e.
30 units of corn.
14. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. If these two nations trade, Nabia should specialize in the production of:
a.
corn.
b.
corn and wheat.
c.
neither product since Pada has the comparative advantage in the production of both.
d.
neither product since Pada has the absolute advantage in the production of both.
e.
wheat.
15. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. If these two nations trade, Pada should specialize in the production of:
a.
corn.
b.
corn and wheat.
c.
neither product since Nabia has the comparative advantage in the production of both.
d.
neither product since Nabia has the absolute advantage in the production of both.
e.
wheat.
16. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. Suppose Nabia produces at point A on its PPC. How many units of wheat is the country
able to produce?
a.
15.
b.
60.
c.
5.
d.
20.
e.
40.
17. In Exhibit 18-1, the production possibilities curves of wheat and corn for Nabia and Pada are
presented. Suppose Pada produces at point B on its PPC. How much corn is the country able to
produce?
a.
2.
b.
15.
c.
10.
d.
6.
e.
13.
Exhibit 18-2 Production possibilities curves for U.S. and Mexico
18. As shown in Exhibit 18-2, in Mexico, producing 1 additional ton of wheat costs:
a.
1/2 ton of cloth.
c.
1 ton of cloth.
b.
2/3 ton of cloth.
d.
1 1/2 tons of cloth.
19. As shown in Exhibit 18-2, the United States has a comparative advantage over Mexico in:
a.
wheat, but not in cloth.
c.
both wheat and cloth.
b.
cloth, but not in wheat.
d.
neither wheat nor cloth
20. The theory of comparative advantage suggests that nations should produce a good if they:
a.
have the lowest opportunity cost.
b.
have the lowest wages.
c.
have the most resources.
d.
can produce more of the good than any other nation.
21. Comparative advantage explains why a nation will benefit from trade when:
a.
it exports more than it imports.
b.
its trading partners are experiencing offsetting losses.
c.
it exports goods for which it is a high-opportunity cost producer, while importing those for
which it is a low-opportunity cost producer.
d.
it exports goods for which it is a low-opportunity cost producer, while importing those for
which it is a high-opportunity cost producer.
22. Comparative advantage indicates that:
a.
specialization and exchange will permit trading partners to maximize their joint
consumption.
b.
a nation can gain from trade only if it is not at an absolute disadvantage in producing all
goods.
c.
a nation can gain from trade only when its trading partners are not low-wage countries.
d.
countries should export products for which they are high-opportunity cost producers.
23. Comparative advantage indicates that:
a.
specialization and exchange will cause trading partners to reduce their joint output.
b.
a nation can gain from trade even when it is at an absolute disadvantage in producing all
goods.
c.
trade with low-wage countries will pull down the wages of workers in high-wage
countries.
d.
all of these.
24. Which of the following provides the foundation of the case for free trade?
a.
The law of diminishing marginal utility
c.
The industrial diversity argument
b.
The anti-dumping argument
d.
The theory of comparative advantage
25. If the United States were to adopt a policy of free trade with European countries and Japan, this policy
would:
a.
help the United States and hurt the other countries because the United States has a larger
population.
b.
help all of the countries involved because every country would have a comparative
advantage in the production of some goods.
c.
hurt all of the countries involved because all the countries are capable of producing
anything that could be produced in one of the other countries.
d.
help the United States and hurt the other countries because the United States has more
natural resources than the other countries.
26. The theory of comparative advantage suggests that nations should produce a good if they:
a.
have the lowest opportunity cost.
b.
have the lowest wages.
c.
have the most resources.
d.
can produce more of the good than any other nation.
27. A country is said to have a comparative advantage in the production of a good when it:
a.
has the lower opportunity cost of producing the good.
b.
can produce the good using fewer resources than another country.
c.
requires fewer labor hours to produce the good.
d.
all of these.
28. The theory of comparative advantage suggests that a(n):
a.
industrialized country should not import.
b.
country that is not competitive should import everything.
c.
country specialize in producing goods or services for which it has a lower opportunity
cost.
d.
none of these.
29. In a two good, two-country world, a country has a comparative advantage in any good for which it has
a:
a.
lower absolute cost than the other country.
b.
lower opportunity cost than the other country.
c.
higher absolute cost than the other country.
d.
higher opportunity cost than the other country.
30. Following the principle of comparative advantage, specialization:
a.
permits greater levels of total production than would be attained without it.
b.
increases the dependency of countries on trade.
c.
both of the above.
d.
neither of the above.
31. A nation benefits from international trade if it:
a.
exports more than it imports.
b.
imports more than it exports.
c.
imports goods for which it is a low opportunity cost producer.
d.
exports goods for which it is a low opportunity cost producer.
32. Assume the United States can use a given amount of its resources to produce either 20 airplanes or 8
automobiles and Japan can employ the same amount of its resources to produce either 20 airplanes or
10 automobiles. The U.S. should specialize in:
a.
airplanes.
c.
both goods.
b.
automobiles.
d.
neither good.
33. According to the principle of comparative advantage, total output and consumption levels will be
highest when goods are produced in nations according to which of the following conditions?
a.
Opportunity costs are lowest.
c.
Opportunity costs are equal.
b.
Absolute advantages are highest.
d.
Absolute advantages are lowest.
34. A country that has a lower opportunity cost of producing a good:
a.
has a comparative advantage.
b.
can produce the good using fewer resources than another country.
c.
requires fewer labor hours to produce the good.
d.
all of these.
35. Which of the following statements is true?
a.
Specialization and trade along the lines of comparative advantage allows nations to
consume more than if they were to produce just for themselves.
b.
Free trade theory suggests that when trade takes place any gains made by one nation
comes at the expense of another.
c.
According to the theory of comparative advantage, a nation should specialize in the
production of those goods for which it has an absolute advantage.
d.
All of these.
36. A nation should specialize in the production of the product for which it has a(n):
a.
absolute advantage.
b.
exchange rate.
c.
specialization.
d.
comparative advantage.
e.
terms of trade.
37. Suppose rice can be produced in country X at a lower cost than in country Y, while tuna can be
produced in country Y at a lower cost than in country X. International competition will:
a.
destroy the rice market in both countries.
b.
drive X to specialize in rice and Y to specialize in tuna.
c.
drive Y to specialize in rice and X to specialize in tuna.
d.
cause both X and Y to reject international specialization.
e.
result in lower total output of rice and tuna.
38. If a country has a lower opportunity cost of producing oranges, then this is:
a.
inefficient resource use.
b.
an absolute advantage.
c.
a tariff.
d.
a comparative advantage.
e.
a situation where oranges should be imported.
39. If a country has a comparative advantage in the production of all goods, it should:
a.
specialize in the production of goods with the lowest opportunity cost.
b.
specialize in the production of goods with the highest opportunity cost.
c.
specialize in the production of goods with the absolute advantage.
d.
specialize in the production of goods without the absolute advantage.
e.
not specialize at all and produce all the goods itself.
40. If a country has a comparative advantage in oil, then this means that the opportunity cost of producing
oil is:
a.
high.
b.
low.
c.
zero.
d.
infinite.
e.
equal to all other goods.
41. If Japan gives up ten bushels of rice to produce one bicycle, while the United States gives up five
bushels of rice to produce one bicycle, then:
a.
the opportunity cost of producing bicycles in the United States is higher than in Japan.
b.
Japan has a comparative advantage in the production of bicycles.
c.
the United States has an absolute advantage in the production of rice.
d.
total output will be highest if the United States specializes in rice and Japan specializes in
bicycles.
e.
total output will be highest if Japan specializes in rice and the United States specializes in
bicycles.
42. Juanita, a lawyer, can type faster than Jill, her secretary. Jill, on the other hand, does not have the
ability or skills to practice law. Applying the principles of international trade to this situation, an
economic consultant advises Juanita to:
a.
fire Jill, practice law during the day, and do her own typing at night.
b.
practice law and leave all the typing to the secretary.
c.
divide her time equally between typing and practicing law.
d.
quit practicing law and take a job as a secretary.
e.
have Jill attend law school.
43. If the opportunity cost of producing cheese is higher in Greece than it is in Italy, then:
a.
Greece should specialize in producing cheese.
b.
Italy should specialize in producing cheese.
c.
both Greece and Italy should produce cheese.
d.
Greece gives up fewer goods to produce cheese than Italy does.
e.
Italy has a better economy than Greece.
44. Suppose that Spain has a comparative advantage in hats and Portugal has a comparative advantage in
doormats. Under a system of free trade, each country specializes and then trades with the other. If the
price starts at four hats per doormat, and then increases to five hats per doormat, then:
a.
people in Portugal will not want to buy as many hats.
b.
Spain no longer has a comparative advantage in hats.
c.
Portugal is flooding the market with too many doormats.
d.
some of the gains from trade shift to Portugal.
e.
some of the gains from trade shift to Spain.
45. The average National Basketball Association player is over 6 feet tall. The average horse jockey is
shorter than 5 1/2 feet tall. This is because height provides NBA players with:
a.
d and e.
b.
an absolute advantage for horse racing.
c.
an absolute disadvantage for other sports in general.
d.
a comparative disadvantage in horse racing.
e.
a comparative advantage in basketball.
46. A lawyer once said, “I could paint my house and fix my plumbing if I just had some technical training
and good tools. But, I would rather hire a painter and a plumber.” When it comes to fixing a leaking
sink, the plumber:
a.
d and e.
b.
charges more per hour than the lawyer does.
c.
charges less per hour than the lawyer does.
d.
is more efficient.
e.
has a comparative advantage.
47. If Country A has an absolute advantage over Country B in the production of every commodity:
a.
mutual gains from trade between Country A and Country B would be impossible.
b.
Country B would be able to gain from trade but not country A.
c.
the joint output of the two countries could not be increased through specialization and
exchange.
d.
mutual gains from trade would still be possible.
48. When Brazil can generate a product using fewer labor hours and resources than the United States, an
economist would say that Brazil had:
a.
a comparative advantage in production of the product.
b.
an absolute advantage in production of the product.
c.
a higher opportunity cost of producing the product.
d.
no incentive to import the product, regardless of the cost-price conditions for other
products.
49. A country is said to have an absolute advantage in the production of a good when:
a.
its opportunity cost of producing the good is lower than another country.
b.
it can produce the good using fewer resources than another country.
c.
it specializes in the production of the good.
d.
all of these.
50. A country that can produce a good using fewer resources than another country has a(n):
a.
lower opportunity cost of producing the good than another country.
b.
absolute advantage.
c.
specialization in the production of the good.
d.
all of these.
51. If nation A has a comparative advantage over nation B in the production of a product, this implies:
a.
it requires fewer resources in A to produce the good than in B.
b.
the cost of producing the good in terms of some other good’s production that must be
sacrificed is lower in A than in B.
c.
that nation B could not benefit by engaging in trade with A.
d.
that nation A should acquire this product by trading with B.
e.
that nation A could not benefit by engaging in trade with B.
52. If nation A has an absolute advantage over nation B in the production of a product, this implies that:
a.
it requires fewer resources in A to produce the good than in B.
b.
the cost of producing the good in terms of some other good’s production that must be
sacrificed is lower in A than in B.
c.
nation B could not benefit by engaging in trade with A.
d.
nation A should acquire this product by trading with B.
e.
nation A could not benefit by engaging in trade with B.
53. If one country can produce a good with fewer resources than another country, this is called:
a.
specialization.
b.
geographic advantage.
c.
comparative advantage.
d.
absolute advantage.
e.
free trade.
54. If Dana can paint his house faster than Luke, a professional house painter, then:
a.
Dana has a comparative advantage in house painting.
b.
Dana has an absolute advantage in house painting.
c.
Luke has a comparative advantage in house painting.
d.
Luke has an absolute advantage in house painting.
e.
Dana should always paint his own house.
55. If India has an absolute advantage in rug production when compared to England, then:
a.
India should export rugs to England.
b.
England should export rugs to India.
c.
international trade should not occur.
d.
England uses fewer resources to produce rugs than India.
e.
India uses fewer resources to produce rugs than England.
56. Absolute advantage occurs when one nation can produce a good ____ its trading partners.
a.
in larger quantities than
b.
faster than
c.
that is desired by
d.
more efficiently than
e.
only consumed by
57. If it costs the DuPont Chemical Company more to make the chemical flaxinate in the United States
than it does to make it in Formosa, the Formosans must have:
a.
lower demand for flaxinate.
b.
tariffs on flaxinate.
c.
inefficient markets.
d.
a more favorable political environment.
e.
an absolute advantage in flaxinate production.
Exhibit 18-3 Potatoes and wheat output (tons per day)
Potatoes
Wheat
4
2
3
1
58. In Exhibit 18-3, Ireland’s opportunity cost of producing one unit of wheat is:
a.
1/3 ton of potatoes.
c.
either a or b.
b.
3 tons of potatoes.
d.
neither a nor b.
59. In Exhibit 18-3, the United States has a comparative advantage in producing:
a.
potatoes.
c.
both.
b.
wheat.
d.
neither.
60. If each nation in Exhibit 18-3 specializes in producing the good for which it has a comparative
advantage, then:
a.
Ireland would produce neither potatoes or wheat.
b.
the United States would produce both potatoes and wheat.
c.
the United States would produce potatoes.
d.
Ireland would produce potatoes.
61. In Exhibit 18-3, the United States has an absolute advantage in producing:
a.
potatoes.
c.
both.
b.
wheat.
d.
neither.
Exhibit 18-4 Coffee and tea output (pounds per hour)
Coffee
Tea
10
5
8
8
62. As shown in Exhibit 18-4, the opportunity cost to Brazil of producing one pound of coffee is:
a.
1 pound of tea.
c.
1/2 pound of tea.
b.
5 pounds of tea.
d.
10 pounds of tea.
63. As shown in Exhibit 18-4, if each country produced according to its comparative advantage, Brazil
would produce:
a.
tea and China would produce coffee.
c.
both coffee and tea.
b.
coffee and China would produce tea.
d.
neither coffee nor tea.
64. As shown in Exhibit 18-4, compared to Brazil, China has a comparative advantage in the production
of:
a.
coffee.
c.
both coffee and tea.
b.
tea.
d.
neither coffee nor tea.
65. If specialization were carried out by each country in Exhibit 18-4 on the basis of comparative
advantage, then:
a.
Brazil would produce neither coffee nor tea.
b.
China would produce both coffee and tea.
c.
Brazil would produce tea and China would produce coffee.
d.
Brazil would produce coffee and China would produce tea.
66. When a nation totally bans trade with another country, it is imposing a(n):
a.
tariff.
c.
quota.
b.
embargo.
d.
none of these.
67. A tariff can be defined as a:
a.
tax on imports.
c.
legal limit on imports.
b.
tax on exports.
d.
legal limit on exports.
68. A tax levied on imported goods is called a(n):
a.
excise tax.
c.
foreign profits tax.
b.
quota.
d.
tariff.
69. The primary benefits derived from tariffs usually accrue to the:
a.
domestic consumers of goods protected by the tariffs.
b.
foreign producers of goods protected by the tariffs.
c.
domestic producers of export goods.
d.
domestic suppliers of goods protected by the tariffs.
70. Which of the following would be expected if the tariff on foreign-produced shoes were decreased?
a.
The domestic price of shoes would fall.
b.
The supply of foreign shoes to the domestic market would decline, causing shoe prices to
rise.
c.
The number of unemployed workers in the domestic shoe industry would decline.
d.
The demand for foreign-produced shoes would decrease, causing the price of shoes to
increase in other nations.
71. Which of the following would be expected if the tariff on foreign-produced automobiles were
increased?
a.
The domestic price of automobiles would fall.
b.
The supply of foreign automobiles to the domestic market would decline, causing auto
prices to rise.
c.
The number of unemployed workers in the domestic automobile industry would rise.
d.
The demand for foreign-produced automobiles would increase, causing the price of
automobiles to increase in other nations.
72. A tariff is:
a.
a duty that a company must pay its own government on exports.
b.
the price charged by one country to buyers of a good in another country.
c.
a price reduction designed to encourage international trade.
d.
a tax on an import.
73. Suppose a country with a large domestic textile industry removed all tariffs on imported textiles, we
would expect domestic:
a.
textile prices to decline.
c.
textile employment to increase.
b.
textile production to increase.
d.
textile prices to rise.
74. Protective tariffs help a nation reach which of the following goals?
a.
Decreased domestic consumer prices.
b.
Increased domestic employment.
c.
Increased amount of goods for consumers to purchase.
d.
Increased competition among domestic and foreign producers.
e.
None of these.
75. A tariff is a:
a.
tax on an exported product.
b.
limit on the number of goods that can be exported.
c.
limit on the number of goods that can be imported.
d.
tax on an imported product.
e.
subsidy on an imported product.
76. A tariff has the effect of:
a.
raising the price of the exported product.
b.
increasing the demand for the exported product.
c.
increasing the demand for the imported product.
d.
increasing the supply of the imported product.
e.
raising the price of the imported product.
77. Tariff rates on products imported into the United States:
a.
were prohibited by the Constitution.
b.
have dropped substantially over the past 50 years.
c.
reached an all time high in 1996.
d.
have steadily increased since 1920.
e.
have never played a big part in U.S. trade policy.
78. A tax on an imported good is called:
a.
an export.
b.
dumping.
c.
a quota.
d.
a tariff.
e.
free trade.
79. Suppose the United States decides to impose a $1,000 tax on every Japanese minivan sold in the
United States. This is an example of:
a.
a tariff.
b.
free trade.
c.
comparative advantage.
d.
the diversity of industry argument.
e.
a quota.
80. Which of the following statements is true with respect to a tariff on imported cheese?
a.
It lowers the price of cheese.
b.
It lowers domestic cheese producers’ profits.
c.
It creates tax revenues for the government.
d.
It cannot result in retaliation.
e.
It increases the amount of foreign cheese sold.
81. A tariff has the effect of granting ____ a larger share of the domestic market.
a.
domestic consumers
b.
foreign consumers
c.
domestic producers
d.
foreign producers
e.
no producers or consumers
82. A tariff is a tax on ____ goods that is designed to ____.
a.
exported; protect domestic industries
b.
exported; hurt foreign industries
c.
imported; made domestic consumers pay more
d.
imported; protect domestic industries
e.
domestic; discourage imports
83. One big difference between tariffs and quotas is that tariffs:
a.
raise the price of a good while quotas lower it.
b.
generate tax revenues while quotas do not.
c.
stimulate international trade while quotas inhibit it.
d.
hurt domestic producers while quotas help them.
e.
give the same outcome as free trade while quotas do not.
84. Since World War II, tariff reductions have occurred in large part because of negotiations under the:
a.
Industry and Trade Administration Act.
c.
Monetary Control Act.
b.
Employment Act.
d.
General Agreement on Tariffs and Trade.
85. GATT stands for:
a.
Good and Total Trade.
b.
General Agreement on Tariffs and Trade.
c.
Greater Agreements Toward Trade.
d.
Gold and Trade Totals.
e.
Greater Area Trade Transactions.
86. The primary purpose of WTO is to:
a.
protect the United States from cheap foreign labor.
b.
foster trade among nations.
c.
promote the dumping of foreign products.
d.
increase worldwide tariffs.
e.
form a union of European nations.
87. The WTO was:
a.
formed shortly after World War II.
b.
authorized in the American Constitution.
c.
formed in 1995.
d.
formed in 1876.
e.
formed to unify the European continent.
88. The rules of the WTO:
a.
apply only to domestic trade within a nation.
b.
apply to both domestic trade within a nation and international trade with other nations.
c.
apply only to trade among nations.
d.
include a prohibition of tariffs.
e.
encourage high tariffs.
89. The principal objective of WTO is to:
a.
reduce the level of all tariffs.
b.
establish fair prices for all goods traded internationally.
c.
prevent the trading of services across nations’ borders.
d.
encourage countries to establish quotas.
90. A tariff differs from a quota in that a tariff is:
a.
levied on imports, whereas a quota is imposed on exports.
b.
levied on exports, whereas a quota is imposed on imports.
c.
a tax levied on exports, whereas a quota is a limit on the number of units of a good that
can be exported.
d.
a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a
good that can be imported.
91. A major difference between a tariff and a quota is that a tariff:
a.
will reduce imports, but a quota generally will not.
b.
can easily be rescinded, but a quota cannot.
c.
will reduce the ability of foreigners to obtain the purchasing power to buy a nation’s export
goods, but a quota will not affect the foreign demand for the nation’s exports.
d.
typically generates tax revenue, while a quota does not.
92. An import quota on a product protects domestic industries by:
a.
reducing the foreign supply to the domestic market and, thereby, raising the domestic
price.
b.
increasing the foreign supply to the domestic market and, thereby, lowering the domestic
price.
c.
increasing the domestic demand for the product and, thereby, increasing its price.
d.
providing the incentive for domestic producers to improve the efficiency of their operation
and, thereby, reduce their per-unit costs of production.
93. Which of the following is the best example of a quota?
a.
a tax placed on all small cars sold in the domestic market
b.
a limit imposed on the number of men’s suits that can be imported from a foreign country
c.
a subsidy from the U.S. government to domestic manufacturers of men’s suits so they can
compete more effectively with foreign producers of men’s suits
d.
a $100-per-car fee imposed on all small imported cars
94. Imposing a restrictive quota on imported plasma TVs will:
a.
increase the price of the plasma TVs and decrease the quantity consumed.
b.
increase both the price of the plasma TVs and the quantity consumed.
c.
leave the price of the plasma TVs unchanged but decrease the quantity consumed.
d.
leave the price and the quantity consumed of plasma TVs unchanged, because domestic
producers will expand production to make up for the reduction in imports
95. A restriction on the quantity of a good that can be imported into a country is a(n):
a.
tariff.
c.
embargo.
b.
quota.
d.
restricted exchange rate.
96. Suppose a quota on foreign-made automobiles is proposed in Congress. Which of the following groups
is most likely to oppose the bill?
a.
American Automobiles Manufacturers.
c.
American Steel Workers.
b.
Consumers.
d.
United Auto Workers.
97. A limit on the quantity of a good that may be imported in a given time period is called:
a.
an embargo.
c.
a quota.
b.
a tariff.
d.
dumping.
98. A quota is a:
a.
tax on a specific quantity of imported goods.
b.
limited number of foreign firms that can sell imported goods.
c.
restrictive health and safety standard that raises costs.
d.
tax on domestic producers so that they can make higher profits.
e.
limit on the quantity of a good that can be imported.
99. Which of the following is not an argument used in favor of protectionism?
a.
To protect an “infant” industry.
b.
To protect domestic jobs.
c.
To preserve national security.
d.
To protect against “unfair” competition because of cheap foreign labor.
e.
To reduce prices paid by domestic consumers.
100. The infant-industry argument about tariffs argues that:
a.
it is unfair to levy tariffs on items intended for use by infants.
b.
tariffs should be levied on foreign products that compete with new domestic industries
only in the short run.
c.
if a newly established domestic industry can survive in the short run, a tariff should be
levied to protect it from foreign competition in the long run.
d.
permanent tariffs should be levied on foreign products that compete with those produced
by newly established domestic industries.
101. A basic problem with the infant-industry argument is that:
a.
most industries need protection when they are mature, not when they are first established.
b.
the amount of the tariff is unlikely to have much impact on the success of an infant
industry.
c.
political pressure will likely prevent the withdrawal of the tariff when the industry
matures.
d.
domestic consumers will continue to buy the foreign products anyway, regardless of the
tariff.
102. In international trade, an infant industry is one:
a.
that protects firms that produce products for infants.
b.
with a large number of very small firms.
c.
in which the firms are experiencing very small profits.
d.
in the early stages of its development.
103. The infant industry argument is based on the idea that:
a.
competitive pressure from established foreign firms would encourage the infant industry’s
prospects for future growth.
b.
failure to shelter these infant industries tends to lead to political instability.
c.
small firms must be protected.
d.
none of these.
104. Which of the following is an infant-industry argument in favor of restrictions on foreign trade?
a.
Foreign producers must be stopped from selling their products in this country below cost
of production.
b.
Domestic workers must be protected from the lower wages paid in foreign countries.
c.
The nation’s security demands we ensure an adequate domestic supply capacity of certain
products.
d.
Do unto others as they do unto you.
e.
Industries in the early stages of development must be protected from more mature
producers.
105. The main problem with using the infant industries argument to justify protecting an industry from
foreign competition is that:
a.
all industries will claim that they are infant industries in order to gain protection.
b.
the protected industry will become too efficient and drive out foreign competition.
c.
once in place, it is difficult to remove protection even as the industry matures.
d.
it causes the goods that are produced in the protected industry to have lower prices.
e.
this policy compromises national security if the infant industry produces military goods.
106. Which of the following is a partially valid economic argument for restricting free trade?
a.
Restrictions on foreign trade will increase employment and permanently reduce
unemployment.
b.
Removal of restrictions that have existed for years will initially cause inflation.
c.
Infant industries need permanent protection to develop and gain productive efficiency.
d.
A nation needs to protect industries that are vital to national defense in case of future
international conflict.
107. Trade restrictions imposed in the name of national security have been recommended by protectionists
in order to:
a.
develop strong defense-related industries.
b.
avoid dependence on foreign suppliers during wartime.
c.
reduce the necessity of stockpiling strategic supplies.
d.
all of these.
108. The argument that import restrictions save jobs and promote prosperity fails to recognize that:
a.
there are no secondary effects of import restrictions.
b.
import restrictions will lower prices in the protected industries.
c.
import restrictions cannot create jobs in any industries.
d.
U.S. imports provide people in other countries with the dollars power required for the
purchase of U.S. exports.