Economics Chapter 18—Gaining from International Trade
MULTIPLE CHOICE
1. Measured as a share of the economy, the size of the trade sector (exports plus imports) of the United
States has
a.
been increasing since 1980, but it declined during 1960-1980.
b.
been relatively constant during the last four decades.
c.
increased by about 10 percent during the last four decades.
d.
approximately doubled since 1980 and tripled since 1960.
2. A U.S. trade policy that restricts the sale of foreign goods in the U.S. market will
a.
reduce the demand for U.S. export goods since foreigners will be less able to buy our
goods if they cannot sell to us.
b.
benefit producers in industries that export goods.
c.
increase the nation’s income since it protects domestic jobs.
d.
enhance economic efficiency by allocating more resources to the areas of their greatest
comparative advantage.
3. Suppose the United States reduced the tariff on digital camera, allowing foreign-produced cameras to
more freely enter the U.S. market. Which of the following would most likely occur?
a.
The price of cameras to U.S. consumers would increase, and the demand for U.S. export
products would rise.
b.
The price of cameras to U.S. consumers would fall, and the demand for U.S. export
products would fall.
c.
The price of cameras to U.S. consumers would increase, and the demand for U.S. export
products would fall.
d.
The price of cameras to U.S. consumers would fall, and the demand for U.S. export
products would rise.
4. International trade is advantageous because trade makes it possible for people in each country to
a.
import more than they export.
b.
export more than they import.
c.
employ more of their domestic resources producing things that are costly for them to
produce domestically.
d.
acquire goods from foreigners more economically than they could be produced
domestically.
e.
do all of the above.
5. Trade restrictions like tariffs and quotas will
a.
protect American jobs and increase employment.
b.
ensure that more dollars stay in the United States.
c.
reduce the value of goods and services that we will be able to produce and consume.
d.
make all Americans better off.
6. Compared to the no-trade situation, if the United States imports video games,
a.
the price of video games will decline in the domestic market.
b.
domestic video game producers will be able to charge higher prices.
c.
domestic video game producers will expand both output and employment.
d.
U.S. consumers will be harmed.
7. Imposing a restrictive quota on the import of dishwashers will likely
a.
increase the price of the dishwashers but decrease the quantity consumed.
b.
increase both the price of the dishwashers and the quantity consumed.
c.
leave the price of the dishwashers unchanged but decrease the quantity consumed.
d.
leave the price of the dishwashers unchanged and also leave the quantity consumed
unchanged.
8. The political popularity of a tariff on imported goods that compete with products of a well-established
domestic industry is
a.
surprising since one would expect the political power of consumers to override the
interests of even a well-established domestic industry.
b.
surprising since one would expect the economic harm resulting from tariffs to be well
understood by voters.
c.
not surprising since such a tariff would generally benefit an easily recognized interest
group at the expense of uninformed, uninterested consumers.
d.
not surprising since the tariff enables domestic producers and consumers to gain at the
expense of foreigners.
9. Hong Kong and Singapore both have relatively
a.
high trade barriers and high rates of economic growth.
b.
high trade barriers and low rates of economic growth.
c.
low trade barriers and high rates of economic growth.
d.
low trade barriers and low rates of economic growth.
10. Which of the following has resulted from the North American Free Trade Agreement (NAFTA)?
a.
Domestic producers in the United States, Canada, and Mexico have free access to larger
markets.
b.
The low wages of Mexican workers have made it virtually impossible for American and
Canadian producers to export goods to Mexico.
c.
A smaller variety of goods are available to consumers in all three countries.
d.
Unemployment has increased in all three countries.
11. Which of the following is true?
a.
In recent decades, the volume of U.S. international trade has been increasing as a share of
the economy.
b.
As transportation costs decline, the volume of international trade will also tend to decline.
c.
Most international trade is between the governments of different nations.
d.
If one party to an international exchange gains, the other party must lose a similar amount.
12. In recent years, the largest trading partners of the United States have been
a.
Germany, France, Spain, and the United Kingdom.
b.
Canada, Mexico, China, and Japan.
c.
Canada, Brazil, Argentina, and Chile.
d.
Russia, Venezuela, Saudi Arabia, and Indonesia.
13. Which of the following is true?
a.
In recent decades, the volume of U.S. international trade has been declining as a share of
the economy.
b.
Most of the textile products produced in the United States are exported abroad.
c.
The volume of U.S. trade with Canada is larger than for any other country.
d.
If one party to an international exchange gains, the other party must lose a similar amount.
14. International trade does all the following except
a.
allow a country to specialize in producing certain goods and services.
b.
reduce world output.
c.
allow a country to move to higher consumption levels.
d.
increase world output.
15. 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.
16. 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.
17. 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.
b.
automobiles.
c.
both goods.
d.
neither good.
18. 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.
19. 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.
20. Opportunity costs differ among nations primarily because
a.
nations employ different currencies.
b.
nations have different endowments of land, labor skills, capital, and technology.
c.
nations have different political institutions.
d.
work-leisure preferences vary considerably from one nation to another.
21. The law of 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. The law of comparative advantage indicates that
a.
specialization and exchange will permit trading partners to maximize their joint output.
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. People living in different countries can benefit from international trade because
a.
different countries use different currencies.
b.
trade makes it possible for the residents of different countries to specialize in the
production of those things they do best.
c.
trade makes it possible for people to acquire goods from foreigners cheaper than they
could be produced domestically.
d.
both b and c are correct.
e.
all of the above are correct.
24. Nations will be able to produce a larger joint output and realize mutual gains when each specializes in
the production of those items for which it is a low-opportunity cost producer and trades for those
things that it could produce only at a high cost. This statement best describes the
a.
free rider problem.
b.
infant-industry argument.
c.
law of comparative advantage.
d.
equation of exchange.
25. Which of the following provides the foundation of the case for free trade?
a.
the law of diminishing marginal utility
b.
the anti-dumping argument
c.
the industrial diversity argument
d.
the law of comparative advantage
26. If domestic producers have a comparative advantage in producing a good,
a.
trade restrictions will be required before the producers can benefit from their comparative
advantage.
b.
trade restrictions will still be required before the domestic producers can compete with
low-wage producers abroad.
c.
they will be able to compete effectively in a competitive world market.
d.
the government should subsidize production of the good so the domestic producers will be
able to achieve a larger share of the world market.
27. According to international trade theory, a country can gain
a.
if it protects domestic industries from low-wage foreign producers.
b.
only if the trade harms its trading partners.
c.
by importing goods when they can be obtained more economically from foreign
producers.
d.
if it maximizes the employment in domestic industries that face competition from foreign
producers who have lower costs.
28. According to international trade theory, a country can gain if it
a.
imports goods when they can be purchased cheaper from domestic producers.
b.
imports goods when foreigners are willing to pay higher prices than domestic consumers.
c.
specializes in producing those things it does best (produces at a low cost).
d.
trades with high-income countries but not low-income countries.
29. If the United States unilaterally removed all of its trade restrictions and moved toward a policy of free
trade, international trade theory indicates that
a.
U.S. residents would gain, but people in other countries would be worse off.
b.
people in other countries would gain, but U.S. residents would be worse off.
c.
both U.S. residents and people in other countries would be able to achieve higher income
levels.
d.
the average income level would be lower in both the United States and other countries.
30. Assume, for Canada, that the domestic price of steel without international trade is higher than the
world price of steel. This suggests that with trade,
a.
Canada has a comparative advantage in the production of steel over other countries and
Canada will import steel.
b.
Canada has a comparative advantage in the production of steel over other countries and
Canada will export steel.
c.
other countries have a comparative advantage over Canada in the production of steel and
Canada will import steel.
d.
other countries have a comparative advantage over Canada in the production of steel and
Canada will export steel.
31. Assume, for the U.S., that the domestic price of beef without international trade is lower than the
world price of beef. This suggests that with trade,
a.
the U.S. has a comparative advantage in the production of beef over other countries and
the U.S. will export beef.
b.
the U.S. has a comparative advantage in the production of beef over other countries and
the U.S. will import beef.
c.
other countries have a comparative advantage over the U.S. in the production of beef and
the U.S. will export beef.
d.
other countries have a comparative advantage over the U.S. in the production of beef and
the U.S. will import beef.
32. Suppose the United States exports cars to France and imports cheese from Switzerland. This situation
suggests that
a.
the United States has a comparative advantage relative to Switzerland in producing cheese,
and France has a comparative advantage relative to the United States in producing cars.
b.
the United States has a comparative advantage relative to France in producing cars, and
Switzerland has a comparative advantage relative to the United States in producing cheese.
c.
the United States has an absolute advantage relative to Switzerland in producing cheese,
and France has an absolute advantage relative to the United States in producing cars.
d.
the United States has an absolute advantage relative to France in producing cars, and
Switzerland has an absolute advantage relative to the United States in producing cheese.
33. Use the table below, which outlines the production possibilities of Qatar and Botswana in wine and
wheat, to answer the following question.
Qatar
Botswana
Wine
Wheat
Wine
Wheat
0
8
0
8
3
6
2
6
6
4
4
4
9
2
6
2
12
0
8
0
The law of comparative advantage suggests that
a.
neither country would gain from trade, even if the costs for transporting the products were
zero.
b.
Qatar would not gain from trade because it has an absolute advantage in producing both
goods.
c.
both countries would gain if Botswana traded wine made in Botswana for Qatar’s wheat.
d.
both countries would gain if Botswana traded wheat grown in Botswana for Qatar’s wine.
34. Use the table below to answer the following question. The table outlines the production possibilities of
Slavia and Italia for food and clothing.
Italia
Slavia
Food
Clothing
Food
Clothing
0
8
0
8
8
6
4
6
16
4
8
4
24
2
12
2
32
0
16
0
The law of comparative advantage suggests that
a.
neither country could gain from trade, even if the costs of transporting the products were
zero.
b.
Italia could not gain from trade because it has an absolute advantage in producing both
goods.
c.
both countries could gain if Italia traded food for clothing produced in Slavia.
d.
both countries could gain if Slavia traded food for clothing produced in Italia.
35. Use the table below to answer the following question. The table outlines the production possibilities of
Slavia and Italia for food and clothing.
Italia
Slavia
Food
Clothing
Food
Clothing
0
8
0
8
4
6
3
6
8
4
6
4
12
2
9
2
16
0
12
0
Which of the following is true?
a.
Italia has a comparative advantage in producing both food and clothing.
b.
Italia is the low-opportunity cost producer of clothing.
c.
Slavia is the low-opportunity cost producer of food.
d.
Italia has a comparative advantage in producing food.
36. Use the table below to answer the following question. The table outlines the production possibilities
for two hypothetical countries.
Redland
Blueland
Mutton
Oats
Mutton
Oats
(tons)
(millions of bushels)
(tons)
(millions of bushels)
0
8
0
8
4
6
3
6
8
4
6
4
12
2
9
2
16
0
12
0
Which of the following statements is true?
a.
Redland has a comparative advantage in producing oats.
b.
Redland enjoys a comparative advantage in producing both products and could not gain
from exchange.
c.
Redland should specialize in producing mutton and should trade for oats.
d.
In this example, Blueland has nothing to gain through trade with Redland.
37. The following table indicates the production possibilities of food and clothing per worker day in the
United States and Japan.
Units of Output per Worker Day
United States
Japan
Food
4
3
Clothing
12
6
Which of the following is true?
a.
No gains from trade are possible.
b.
Joint output would be maximized if the United States specialized in producing clothing
and Japan in producing food.
c.
Mutual gains from trade could be realized if the United States specialized in food
production and Japan in clothing production.
d.
The Japanese are the high-cost producers of both food and clothing.
38. The following table indicates the production possibilities of cars and clothing per worker day in the
United States and Japan.
Units of Output per Worker Day
United States
Japan
Cars
5
4
Clothing
2
2
Which of the following is true?
a.
No gains from trade are possible.
b.
Joint output would be maximized if the United States specialized in producing cars and
Japan in producing clothing.
c.
Mutual gains from trade could be realized if the United States specialized in clothing
production and Japan in car production.
d.
The Japanese are the high-cost producers of both cars and clothing.
39. For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany
can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with
regard to opportunity costs in the two countries?
a.
The opportunity cost of producing watches is higher in Denmark.
b.
The opportunity cost of producing cheese is higher in Denmark.
c.
The opportunity cost of producing cheese is identical in both countries.
d.
It is impossible to compare opportunity costs because the two countries use different
currencies.
e.
In both countries combined, the opportunity cost of one watch is 150 pounds of cheese.
40. For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany
can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with
regard to opportunity costs in the two countries?
a.
The opportunity cost of producing watches is lower in Denmark.
b.
The opportunity cost of producing cheese is lower in Denmark.
c.
The opportunity cost of producing watches is identical in both countries.
d.
It is impossible to compare opportunity costs because the two countries use different
currencies.
e.
In Germany the opportunity cost of producing one pound of cheese is one watch.
41. Firms in a high-wage nation such as the U.S. can compete effectively with imports from low-wage
nations if
a.
skill levels are identical in the nations
b.
the U.S. reduces tariffs on imports
c.
low-wage nations impose tariffs on U.S. made goods
d.
labor productivity is higher in the low-wage nation
e.
labor productivity is higher in the U.S.
42. Which of the following is true?
a.
Specialization and trade leads to mutual gains for countries.
b.
Protectionism (i.e., policies that limit trade in certain goods) promotes both economic
prosperity and greater employment.
c.
Countries that have a lot of resources, like the United States, are always hurt by trade.
d.
Countries will have a higher standard of living when they produce as many goods as
possible domestically.
43. When Iceland can generate a product using fewer labor hours and resources than the United States, an
economist would say that Iceland 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.
44. 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.
45. Suppose there are only two goods in the world, corn and shirts. If it is true that with its vast resources
the United States could produce both more corn and more shirts than Mexico,
a.
Mexico will never have a comparative advantage and, thus, can never gain from trading
with the United States.
b.
trade between the United States and Mexico will make the United States better off but will
leave Mexico worse off unless the wage of workers in Mexico rises to equal that of
American workers.
c.
total production of corn and shirts cannot be increased through specialization and trade.
d.
both countries will be able to gain from specialization and trade as long as relative costs of
producing the two goods are different in Mexico than in the United States.
46. Which of the following is true?
a.
Competition from abroad fails to provide domestic producers with a strong incentive to
improve the quality of their products and keep their costs low.
b.
When economies of scale are important in an industry, international trade benefits
domestic consumers but harms domestic producers.
c.
When economies of scale are important in an industry, international trade will be
particularly important for domestic producers operating in small countries.
d.
Economies of scale eliminate the potential gains from international trade.
47. International trade can be mutually advantageous because it
a.
encourages the adoption of sound institutions and policies.
b.
reduces the competitiveness of domestic industries and, thereby, makes it easier for the
domestic producers to raise their prices.
c.
permits the trading partners to take advantage of reductions in per-unit costs in industries
where economies of scale are important.
d.
does all of the above.
e.
does both a and c.
48. International trade and competition from abroad
a.
provide domestic producers with a strong incentive to improve the quality of their
products and keep their costs low.
b.
will make it more difficult for domestic producers to realize fully the potential gains from
economies of scale in production.
c.
will make it more difficult for domestic consumers in small countries to purchase from
large scale producers.
d.
do all of the above.
e.
do none of the above.
49. Which of the following is true?
a.
When economies of scale are important in an industry, the domestic market of a small
country may not be large enough to support cost-efficient firms.
b.
In small countries, firms in industries where economies of scale are important will tend to
export little, if any, of their output.
c.
The size of the trade sector (exports plus imports) as a share of GDP will generally be
larger in more populous countries than in smaller less-populated countries.
d.
Countries with higher trade barriers have higher growth rates.
50. If a country allows trade and, for a certain good, the domestic price without trade is higher than the
world price,
a.
the country will be an exporter of the good.
b.
the country will be an importer of the good.
c.
the country will be neither an exporter nor an importer of the good.
d.
Additional information is needed about demand to determine whether the country will be
an exporter of the good, an importer of the good, or neither.
51. If a country allows trade and, for a certain good, the domestic price without trade is lower than the
world price,
a.
the country will be an exporter of the good.
b.
the country will be an importer of the good.
c.
the country will be neither an exporter nor an importer of the good.
d.
Additional information is needed about demand to determine whether the country will be
an exporter of the good, an importer of the good, or neither.
52. Compared to the no-trade situation, when a country imports a good,
a.
domestic consumers gain, domestic producers lose, and the gains outweigh the losses.
b.
domestic consumers lose, domestic producers gain, and the gains outweigh the losses.
c.
domestic consumers gain, domestic producers lose, and the losses outweigh the gains.
d.
domestic consumers gain, but domestic producers lose an equal amount.
53. Compared to the no-trade situation, when a country exports a good,
a.
domestic consumers gain, domestic producers lose, and the gains outweigh the losses.
b.
domestic producers gain, domestic consumers lose, and the gains outweigh the losses.
c.
domestic consumers gain, domestic producers lose, and the losses outweigh the gains.
d.
domestic producers gain, but domestic consumers lose an equal amount.
54. Relative to a no-trade situation, if the United States exported chairs, the domestic price of chairs
a.
would rise, and domestic output would also rise.
b.
would decline, but the domestic output would rise.
c.
would decline, and domestic output would decline also.
d.
would rise, but domestic output would fall.
55. Relative to a no-trade situation, if the United States imported jeans, the U.S. domestic price of jeans
would
a.
rise, but domestic output would fall.
b.
decline, but domestic output would rise.
c.
decline as would domestic output.
d.
rise as would domestic output.
56. When the nation of Venezia allows trade and as a result becomes an exporter of shoes,
a.
residents who produce shoes become worse off; residents who buy shoes become better
off; and the economic well-being of Venezia rises.
b.
residents who produce shoes become worse off; residents who buy shoes become better
off; and the economic well-being of Venezia falls.
c.
residents who produce shoes become better off; residents who buy shoes become worse
off; and the economic well-being of Venezia rises.
d.
residents who produce shoes become better off; residents who buy shoes become worse
off; and the economic well-being of Venezia falls.
57. When the nation of Roma allows trade and as a result becomes an importer of scooters,
a.
residents who produce scooters become worse off; residents who buy scooters become
better off; and the economic well-being of Roma rises.
b.
residents who produce scooters become worse off; residents who buy scooters become
better off; and the economic well-being of Roma falls.
c.
residents who produce scooters become better off; residents who buy scooters become
worse off; and the economic well-being of Roma rises.
d.
residents who produce scooters become better off; residents who buy scooters become
worse off; and the economic well-being of Roma falls.
58. When a country allows trade and becomes an exporter of a good,
a.
the gains of the domestic producers of the good exceed the losses of the domestic
consumers of the good.
b.
the gains of the domestic consumers of the good exceed the losses of the domestic
producers of the good.
c.
the losses of the domestic producers of the good exceed the gains of the domestic
consumers of the good.
d.
the losses of the domestic consumers of the good exceed the gains of the domestic
producers of the good.
59. When a country allows trade and becomes an importer of steel,
a.
the losses of the domestic producers of steel exceed the gains of the domestic consumers
of steel.
b.
the losses of the domestic consumers of steel exceed the gains of the domestic producers
of steel.
c.
the gains of the domestic producers of steel exceed the losses of the domestic consumers
of steel.
d.
the gains of the domestic consumers of steel exceed the losses of the domestic producers
of steel.
60. The United States is the world’s leading grain-producing nation. Exporting U.S. grain causes the
a.
domestic consumption of grain to rise because of the added foreign demand.
b.
price of grain in the domestic market to fall because foreigners are now taking some of the
domestic demand.
c.
price of grain to domestic consumers to rise because of the added foreign demand.
d.
standard of living of foreigners to fall because they lose purchasing power.
61. The primary source of purchasing power used to buy imported goods is
a.
the monetary sector.
b.
the balance of payments deficit.
c.
the exports of a nation.
d.
taxation and other revenue-generating activities.
62. The primary source of purchasing power used to buy imported goods is the
a.
revenue received from exports.
b.
monetary sector.
c.
balance of payments deficit.
d.
domestic currency of a nation.
63. Which of the following is correct?
a.
An increase in the tariff on foreign-produced automobiles will benefit U.S. consumers of
domestic cars.
b.
An ongoing result of the North American Free Trade Agreement is that producers in both
countries will benefit at the expense of consumers.
c.
The wages of U.S. workers would sharply decline if we traded freely with low-wage
countries like India and China.
d.
Exports provide a nation with its primary source of purchasing power used to buy
imported goods.
64. If the U.S. imposed an import quota on sugar, then in the U.S.
a.
exports and imports would rise.
b.
exports and imports would fall.
c.
exports would rise and imports would fall.
d.
exports would fall and imports would rise.
65. If the U.S. put an import quota on clothes dryers, it would
a.
raise U.S. net exports of clothes dryers and raise net exports of other U.S. goods.
b.
raise U.S. net exports of clothes dryers and lower net exports of other U.S. goods.
c.
lower U.S. net exports of clothes dryers and raise net exports of other U.S. goods.
d.
lower U.S. net exports of clothes dryers and lower net exports of other U.S. goods.
66. If the United States imposes an import quota on clothing, U.S. imports
a.
increase, exports increase, and U.S. net exports are unchanged.
b.
increase, exports decrease, and U.S. net exports increase.
c.
decrease, exports increase, and U.S. net exports decrease.
d.
decrease, exports decrease, and U.S. net exports are unchanged.
67. Which of the following is most likely to increase U.S. exports?
a.
The government gives subsidies to U.S. firms that export goods or services.
b.
The government reduces the size of the budget surplus.
c.
The United States unilaterally reduces its restrictions on foreign imports.
d.
Taxes on domestic saving rise.
68. As a result of a tariff on imports,
a.
imports will fall, exports will fall, and total output will decline.
b.
imports will fall, exports will rise, and total output will decline.
c.
imports will rise, exports will fall, and total output will expand.
d.
imports will rise, exports will rise, and total output will expand.
69. As a result of a tariff on an imported good,
a.
domestic producers are better off because they sell more goods at the same price.
b.
domestic producers are better off because they sell more goods at a higher price.
c.
domestic producers are better off because they sell the same quantity of goods at a higher
price.
d.
domestic consumers are better off because there are more domestically produced goods
available.
e.
domestic consumers are neither better off nor worse off because imports do not change.
70. Which of the following restricts the volume of international trade?
a.
quotas
b.
well-enforced property rights
c.
a stable international monetary framework
d.
an increase in the rate of economic growth
71. A tariff can be defined simply as a
a.
tax on imports.
b.
tax on exports.
c.
legal limit on imports.
d.
legal limit on exports.
72. A tax levied on imported goods is called
a.
an excise tax.
b.
a quota.
c.
a foreign profits tax.
d.
a tariff.
73. Economically speaking, tariffs are
a.
a means to promote economic efficiency.
b.
necessary to keep the industries of an economy healthy.
c.
the same as import quotas.
d.
obstacles that limit voluntary exchange.
74. 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.
75. If tariffs are decreased, the long-run effect is most likely to be
a.
a decrease in both U.S. imports and exports.
b.
an increase in both U.S. imports and exports.
c.
a decrease in U.S. imports and an increase in U.S. exports.
d.
an increase in U.S. imports and a decrease in U.S. exports.
76. 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.
77. 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.
78. A decrease in the tariff on foreign-produced automobiles would be most likely to harm
a.
steel producers, who supply steel to the domestic automobile industry.
b.
foreign producers of automobiles.
c.
importers of automobiles.
d.
domestic distributors of foreign automobiles.
79. An increase in the tariff on foreign-produced automobiles would most likely help
a.
the domestic producers of automobiles.
b.
steel producers that sell most of their output to foreign producers of automobiles.
c.
workers in the foreign automobile industry.
d.
consumers looking for alternatives to domestic automobiles.
80. 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.
81. Imposing a restrictive quota on imported plasma TVs will likely
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
82. 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.
83. 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.
84. Which of the following would be the most likely long-run effect if the United States increased its tariff
rates and adopted stricter import quotas?
a.
a decrease in both U.S. imports and exports
b.
an increase in both U.S. imports and exports
c.
a decrease in U.S. imports and an increase in U.S. exports
d.
an increase in U.S. imports and a decrease in U.S. exports
85. When a country fixes the price of foreign exchange (in terms of the domestic currency) below
equilibrium, which of the following will result?
a.
A black market will develop for foreign exchange.
b.
Residents of that country can buy as much foreign currency as they want.
c.
There will be a surplus of foreign exchange.
d.
A depreciation of the currency will restore equilibrium in the foreign exchange market.
86. Fixing exchange rates and limiting the convertibility of currency will
a.
improve international trade.
b.
increase the ability of people to gain from specialization.
c.
lead to black markets and less trade.
d.
increase productivity and living standards.
87. 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.
88. 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.