89. 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.
Infant industries may need temporary protection to develop and gain productive
efficiency.
c.
A nation needs to protect its national defense; hence, it should restrict some products that
threaten an industry considered vital to its defense.
d.
Both b and c are correct.
90. The infant-industry argument about tariffs implies 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.
91. 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.
92. A downfall of 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.
once a tariff is granted, political pressure will likely force withdrawal of the tariff before
the industry matures.
d.
once established, a tariff is politically difficult to remove.
93. Dumping is
a.
the sale of a good by a foreign supplier in another country at a price below that charged by
the supplier in its home market.
b.
an inappropriate method for getting rid of byproducts from a production process.
c.
a method to increase competitiveness in a market.
d.
all of the above.
e.
both a and c above.
94. If a foreign supplier sells a good in another country at a cheaper price than it sells the good in its home
market, the
a.
foreign supplier will gain a monopoly in the foreign market.
b.
consumers in the receiving country will be harmed by the dumping of the good into its
domestic market.
c.
consumers in the receiving country can gain from buying the foreign-produced good if it is
cheaper than the cost of producing the good domestically.
d.
usual implications of the law of comparative advantage with trade restrictions do not hold
in this case, particularly if the low-cost supplier is subsidized by a foreign government.
95. Opening trade between a nation that has “cheap labor” and one that has “expensive labor” will
a.
lower the standard of living in both countries.
b.
raise the standard of living in both countries.
c.
raise the standard of living in the “expensive labor” country and lower the standard of
living in the “cheap labor” country.
d.
raise the standard of living in the “cheap labor” country and lower the standard of living in
the “expensive labor” country.
96. In 2002, President Bush enacted a 30 percent tariff on imported steel. The primary beneficiaries of this
tariff were
a.
U.S. steel companies and employees.
b.
U.S. automobile companies and employees.
c.
foreign steel companies.
d.
foreign steel workers.
e.
both a and b above.
97. Public choice theory indicates that 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 the special interest groups.
d.
attractiveness of sound economic policies to elected political officials.
98. Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international
trade have, on average,
a.
high rates of economic growth.
b.
low rates of economic growth.
c.
a large export sector.
d.
a large import sector.
99. Data on trade barriers, income levels, and the growth of per capita GDP indicate that
a.
there is no link between trade restrictions and either the per capita income levels or growth
rates of economies.
b.
countries that impose high trade restrictions have both high income levels and rapid rates
of economic growth.
c.
countries that impose high trade restrictions have low income levels, but they have been
growing rapidly in recent decades.
d.
countries that have lower trade restrictions have both higher income levels and more rapid
rates of economic growth than those with high trade barriers.
100. Data on trade barriers and the growth of per capita GDP indicate that
a.
there is no link between the degree of a country’s trade openness and its economic growth.
b.
more open economies have grown more rapidly than those that have imposed substantial
barriers restricting trade.
c.
economies that have imposed high trade barriers have, on average, grown more rapidly
than economies that are more open to international trade.
d.
countries with higher trade barriers have been able to achieve higher levels of per capita
GDP than those that are more open to international trade.
e.
both c and d are correct.
101. Trade restrictions that limit the sale of low-price foreign goods in the U.S. market
a.
increase the real income of Americans.
b.
benefit domestic producers in the protected industries at the expense of consumers and
domestic producers in export industries.
c.
help channel more of our resources into producing goods for which we are a low-cost
producer.
d.
reduce unemployment and increase the productivity of American workers.
102. American textile manufacturers and union members have often lobbied successfully for restrictive
quotas limiting the importation of textile products. The major impact of these quotas is
a.
a permanent reduction in unemployment in the United States.
b.
lower prices for American consumers and an improvement in the quality of textile
products available.
c.
higher prices for American consumers, a narrower selection of products, and less
competition in the U.S. textile industry.
d.
long-run profits in the U.S. textile industry that are substantially above market
equilibrium.
103. 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 purchasing power required for the
purchase of U.S. exports.
104. If labor-intensive textile products could be produced more cheaply in low-wage countries than in the
United States, the United States would gain if it
a.
levied a tariff on the goods produced by the cheap foreign labor.
b.
subsidized the domestic textile industry so it could compete in international markets.
c.
used its resources to produce other items while importing textiles from foreigners.
d.
levied a tax on the domestic textile products to penalize the industry for inefficiency.
105. If the United States imports low-cost goods produced in low-wage countries instead of producing the
goods domestically,
a.
the United States will incur a net loss of total jobs.
b.
the United States will gain, and domestic resources will be employed more productively.
c.
dollars that leave the United States will not return to buy goods produced by high-wage
American workers.
d.
the availability of consumption goods in the United States will be reduced.
106. Suppose the lowest-wage state in the United States is West Virginia and the highest-wage state is New
York. Which of the following would be true?
a.
If New York trades with West Virginia, consumers in New York will be worse off.
b.
If New York trades with West Virginia, wages in New York will fall until they equal the
wages in West Virginia.
c.
New York would be better off if its state government imposed restrictions on the
importation of goods made in West Virginia.
d.
Both New York and West Virginia will be better off if they are allowed to trade freely.
107. If import restrictions prohibit foreigners from selling various goods in the U.S. market,
a.
the United States will be able to export more goods abroad.
b.
foreigners will have fewer U.S. dollars with which to buy goods from Americans.
c.
the United States will be able to produce a larger output than would otherwise be the case.
d.
the domestic producers in the protected industries will supply goods to U.S. consumers at
lower prices than would otherwise be the case.
108. Globalization is becoming more of a worldwide phenomenon because
a.
more countries want to become self-sufficient.
b.
less-developed countries are increasing their trade restrictions.
c.
technological advancements are decreasing transportation costs.
d.
trade hurts workers in poor countries.
109. The agreement of the United States, Canada, and Mexico to eliminate tariffs on the shipment of most
products among the three countries is called the
a.
General Agreement on Tariffs and Trade.
b.
Uruguay Round.
c.
North American Free Trade Agreement.
d.
Tariff Reduction Act of 1993.
110. After the adoption of the North American Free Trade Agreement (NAFTA), trade between the United
States and Mexico____, and trade between the United States and Canada ____.
a.
rose; fell
b.
rose; rose
c.
fell; fell
d.
fell; rose
111. Which of the following has occurred since the North American Free Trade Agreement (NAFTA) took
affect in 1994?
a.
U.S. trade with both Mexico and Canada has increased.
b.
Employment in the United States is now slightly lower than before the agreement.
c.
Employment in the United States is now substantially higher than before the agreement.
d.
Both a and b are true.
e.
Both a and c are true.
Figure 17-1
112. In Figure 17-1, in the absence of trade, the domestic price of shoes would be Pn. If the United States
moved from a no-trade situation to free trade, which of the following would happen?
a.
The domestic price of shoes would rise, and domestic consumption would fall.
b.
Both the domestic price of shoes and domestic consumption would rise.
c.
Both the domestic price of shoes and domestic consumption would fall.
d.
The domestic price of shoes would fall, and domestic consumption would rise.
Figure 17-2
113. In Figure 17-2, in the absence of trade, the domestic price of shoes is Pn. Since many foreign countries
have a comparative advantage in the production of shoes, when the United States begins to trade, the
domestic price will fall to the world price. When this happens, what does the quantity Qc through Qp
represent?
a.
the quantity of shoes that the United States imports
b.
an increase in the world consumption of shoes
c.
the quantity of shoes that the United States exports
d.
a reduction in the world consumption of shoes
Figure 17-3
114. In Figure 17-3, in the absence of trade, the domestic price of soybeans is Pn. If the world price of
soybeans is Pw, which of the following will occur when the United States begins to trade
internationally?
a.
The domestic price of soybeans will rise, and domestic consumption will fall.
b.
Both the domestic price of soybeans and domestic consumption will rise.
c.
Both the domestic price of soybeans and domestic consumption will fall.
d.
The domestic price of soybeans will fall, and domestic consumption will rise.
Figure 17-4
115. In Figure 17-4, the equilibrium price of Dominican pesos is Pe. If the Dominican Republic government
fixes the price of foreign currency in terms of domestic currency at Pf (below equilibrium), what does
the quantity Qd through Qs represent?
a.
the quantity of Dominican exports
b.
a shortage of foreign exchange
c.
the quantity of Dominican imports
d.
a surplus of foreign exchange
Figure 17-5
116. Refer to Figure 17-5. With free trade, this country will
a.
import 40 baskets.
b.
import 70 baskets.
c.
export 35 baskets.
d.
export 65 baskets.
117. Refer to Figure 17-5. If this country chooses to trade, the price of baskets in this country will be
a.
$10 and 40 baskets will be sold domestically.
b.
$10 and 105 baskets will be domestically.
c.
$7 and 70 baskets will be sold domestically.
d.
$7 and 40 baskets will be sold domestically.
Figure 17-6
The domestic country is China.
118. Refer to Figure 17-6. With no international trade,
a.
the equilibrium price is $12 and the equilibrium quantity is 300.
b.
the equilibrium price is $16 and the equilibrium quantity is 200.
c.
the equilibrium price is $16 and the equilibrium quantity is 300.
d.
the equilibrium price is $16 and the equilibrium quantity is 450.
119. Refer to Figure 17-6. If China were to abandon a no-trade policy in favor of a free-trade policy,
a.
Chinese producers of pencil sharpeners would become worse off.
b.
Chinese consumers of pencil sharpeners would become better off.
c.
total surplus in the Chinese economy would increase.
d.
All of the above are correct.
120. Refer to Figure 17-6. With trade, China will
a.
import 100 pencil sharpeners.
b.
import 250 pencil sharpeners.
c.
export 150 pencil sharpeners.
d.
export 250 pencil sharpeners.
Figure 17-7
The domestic country is Jamaica.
121. Refer to Figure 17-7. With trade, Jamaica
a.
imports 150 calculators.
b.
imports 250 calculators.
c.
exports 100 calculators.
d.
exports 250 calculators.
Figure 17-8
122. Refer to Figure 17-8. The horizontal line at the world price of wagons represents the
a.
demand for wagons from the rest of the world.
b.
supply of wagons from the rest of the world.
c.
level of inefficiency in the domestic market caused by trade.
d.
surplus in the domestic wagon market.
123. Refer to Figure 17-8. With trade, this country
a.
exports 20 wagons.
b.
exports 50 wagons.
c.
imports 30 wagons.
d.
imports 50 wagons.
124. Refer to Figure 17-8. With trade, the price of wagons in this country is
a.
$8, with 70 wagons being produced in this country, 20 of which are exported.
b.
$8, with 90 wagons being produced in this country, 50 of which are exported.
c.
$5, with 40 wagons being produced in this country and another 30 wagons being imported.
d.
$5, with 40 wagons being produced in this country and another 50 wagons being imported.
125. Refer to Figure 17-8. If this country allows free trade in wagons,
a.
consumers will gain and producers will lose.
b.
consumers will lose and producers will gain.
c.
both consumers and producers will gain.
d.
both consumers and producers will lose.
126. Refer to Figure 17-8. If this country allows free trade in wagons,
a.
consumers will gain more than producers will lose.
b.
producers will gain more than consumers will lose.
c.
producers and consumers will both gain equally.
d.
producers and consumers will both lose equally.
Figure 17-9
127. Refer to Figure 17-9. Without trade, the equilibrium price of carnations is
a.
$8 and the equilibrium quantity is 300.
b.
$6 and the equilibrium quantity is 200.
c.
$6 and the equilibrium quantity is 400.
d.
$4 and the equilibrium quantity is 500.
128. Refer to Figure 17-9. With trade and without a tariff,
a.
the domestic price is equal to the world price.
b.
carnations are sold at $8 in this market.
c.
there is a shortage of 400 carnations in this market.
d.
this country imports 200 carnations.
129. Refer to Figure 17-9. Before the tariff is imposed, this country
a.
imports 200 carnations.
b.
imports 400 carnations.
c.
exports 200 carnations.
d.
exports 400 carnations.
130. Refer to Figure 17-9. The size of the tariff on carnations is
a.
$8 per dozen.
b.
$6 per dozen.
c.
$4 per dozen.
d.
$2 per dozen.
131. Refer to Figure 17-9. The imposition of a tariff on carnations
a.
increases the number of carnations imported by 100.
b.
increases the number of carnations imported by 200.
c.
decreases the number of carnations imported by 200.
d.
decreases the number of carnations imported by 400.
132. Refer to Figure 17-9. The amount of revenue collected by the government from the tariff is
a.
$200.
b.
$400.
c.
$500.
d.
$600.
Figure 17-10
133. Refer to Figure 17-10. With trade and without a tariff, the price and domestic quantity demanded are
a.
P1 and Q1.
b.
P1 and Q4.
c.
P2 and Q2.
d.
P2 and Q3.
134. Refer to Figure 17-10. With the tariff, the domestic price and domestic quantity demanded are
a.
P1 and Q1.
b.
P1 and Q4.
c.
P2 and Q2.
d.
P2 and Q3.
135. Refer to Figure 17-10. With the tariff, the quantity of saddles imported is
a.
Q3 − Q1.
b.
Q3 − Q2.
c.
Q4 − Q1.
d.
Q4 − Q2.
136. Refer to Figure 17-10. A result of the tariff is that, relative to the free-trade situation, the quantity of
saddles imported decreases by
a.
Q2 − Q1.
b.
Q3 − Q2.