Application: International Trade 2265
36. Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a
comparative advantage in producing pharmaceuticals if we
a. know whether Costa Rica imports or exports pharmaceuticals.
b. compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail
in Costa Rica if trade with the rest of the world were not allowed.
c. compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of
pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the world were
not allowed.
d. All of the above are correct.
37. Spain allows trade with the rest of the world. We know that Spain has a comparative advantage in
producing olive oil if we know that
a. Spain imports olive oil.
b. the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade
with other countries were not allowed.
c. consumer surplus in Spain would exceed producer surplus in Spain if trade with other countries
were not allowed.
d. All of the above are correct.
2266 Application: International Trade
38. The nation of Farmland forbids international trade. In Farmland, you can exchange 1 pound of
beef for 2 pounds of pepper. In other countries, you can exchange 1 pound of beef for 4 pounds
of pepper. These facts indicate that
a. Farmland has a comparative advantage, relative to other countries, in producing beef.
b. other countries have an absolute advantage, relative to Farmland, in producing beef.
c. the price of beef in Farmland exceeds the world price of beef.
d. if Farmland were to allow trade, it would export pepper.
39. The nation of Isolani forbids international trade. In Isolani, you can exchange 1 car for 5
motorcycles. In other countries, you can exchange 1 car for 4 motorcycles. These facts indicate
that
a. other countries have an absolute advantage, relative to Isolani, in producing cars.
b. Isolani has a comparative advantage, relative to other countries, in producing cars.
c. if Isolani were to allow trade, it would import motorcycles.
d. the world price of motorcycles exceeds the price of motorcycles in Isolani.
Application: International Trade 2267
40. Assume for Guatemala that the domestic price of coffee without international trade is higher than
the world price of coffee. This suggests that
a. Guatemala has a comparative advantage over other countries in the production of coffee, and
Guatemala will export coffee.
b. Guatemala has a comparative advantage over other countries in the production of coffee, and
Guatemala will import coffee.
c. other countries have a comparative advantage over Guatemala in the production of coffee, and
Guatemala will export coffee.
d. other countries have a comparative advantage over Guatemala in the production of coffee, and
Guatemala will import coffee.
41. Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation
suggests
a. Russia has a comparative advantage over Brazil in producing coffee, and Ireland has a
comparative advantage over Russia in producing sunflower seeds.
b. Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has
a comparative advantage over Russia in producing coffee.
c. Russia has an absolute advantage over Ireland in producing sunflower seeds, and Brazil has an
absolute advantage over Russia in producing coffee.
d. Russia has an absolute advantage over Brazil in producing coffee, and Ireland has an absolute
advantage over Russia in producing sunflower seeds.
2268 Application: International Trade
Multiple Choice – Section 02a: The Winners and Losers from Trade
1. When a country that imported a particular good abandons a free-trade policy and adopts a no-trade
policy,
a. producer surplus increases and total surplus increases in the market for that good.
b. producer surplus increases and total surplus decreases in the market for that good.
c. producer surplus decreases and total surplus increases in the market for that good.
d. producer surplus decreases and total surplus decreases in the market for that good.
2. When, in our analysis of the gains and losses from international trade, we assume that a country is
small, we are in effect assuming that the country
a. cannot experience significant gains or losses by trading with other countries.
b. cannot have a significant comparative advantage over other countries.
c. cannot affect world prices by trading with other countries.
d. All of the above are correct.
Application: International Trade 2269
3. When, in our analysis of the gains and losses from international trade, we assume that a particular
country is small, we are
a. assuming the domestic price before trade will continue to prevail once that country is opened up
to trade with other countries.
b. assuming there is no demand for that country’s domestically-produced goods by other countries.
c. assuming international trade can benefit producers, but not consumers, in that country.
d. making an assumption that is not necessary to analyze the gains and losses from international
trade.
4. In analyzing international trade, we often focus on a country whose economy is small relative to the
rest of the world. We do so
a. because it is impossible to analyze the gains and losses from international trade without making
this assumption.
b. because then we can assume that world prices of goods are unaffected by that country’s
participation in international trade.
c. in order to rule out the possibility of tariffs or quotas.
d. All of the above are correct.
2270 Application: International Trade
5. In analyzing the gains and losses from international trade, to say that Moldova is a small country is
to say that
a. Moldova can only import goods; it cannot export goods.
b. Moldova’s choice of which goods to export and which goods to import is not based on the
principle of comparative advantage.
c. only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant.
d. Moldova is a price taker.
6. When a country allows trade and becomes an exporter of a good,
a. domestic producers gain and domestic consumers lose.
b. domestic producers lose and domestic consumers gain.
c. domestic producers and domestic consumers both gain.
d. domestic producers and domestic consumers both lose.
Application: International Trade 2271
7. Trade enhances the economic well-being of a nation in the sense that
a. both domestic producers and domestic consumers of a good become better off with trade,
regardless of whether the nation imports or exports the good in question.
b. the gains of domestic producers of a good exceed the losses of domestic consumers of a good,
regardless of whether the nation imports or exports the good in question.
c. trade results in an increase in total surplus.
d. trade puts downward pressure on the prices of all goods.
8. When a country allows trade and becomes an importer of a good,
a. both domestic producers and domestic consumers become better off.
b. domestic producers become better off, and domestic consumers become worse off.
c. domestic producers become worse off, and domestic consumers become better off.
d. both domestic producers and domestic consumers become worse off.
2272 Application: International Trade
9. When a country allows trade and becomes an importer of a good,
a. everyone in the country benefits.
b. the gains of the winners exceed the losses of the losers.
c. the losses of the losers exceed the gains of the winners.
d. everyone in the country loses.
10. When the nation of Worldova allows trade and becomes an exporter of silk,
a. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk
become better off; and the economic well-being of Worldova rises.
b. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk
become better off; and the economic well-being of Worldova falls.
c. residents of Worldova who produce silk become better off; residents of Worldova who buy silk
become worse off; and the economic well-being of Worldova rises.
d. residents of Worldova who produce silk become better off; residents of Worldova who buy silk
become worse off; and the economic well-being of Worldova falls.
Application: International Trade 2273
11. When the nation of Duxembourg allows trade and becomes an importer of software,
a. residents of Duxembourg who produce software become worse off; residents of Duxembourg
who buy software become better off; and the economic well-being of Duxembourg rises.
b. residents of Duxembourg who produce software become worse off; residents of Duxembourg
who buy software become better off; and the economic well-being of Duxembourg falls.
c. residents of Duxembourg who produce software become better off; residents of Duxembourg
who buy software become worse off; and the economic well-being of Duxembourg rises.
d. residents of Duxembourg who produce software become better off; residents of Duxembourg
who buy software become worse off; and the economic well-being of Duxembourg falls.
12. When a nation first begins to trade with other countries and the nation becomes an importer of
corn,
a. this is an indication that the world price of corn exceeds the nation’s domestic price of corn in
the absence of trade.
b. this is an indication that the nation has a comparative advantage in producing corn.
c. the nation’s consumers of corn become better off and the nation’s producers of corn become
worse off.
d. All of the above are correct.
2274 Application: International Trade
13. When a nation first begins to trade with other countries and the nation becomes an exporter of
soybeans,
a. this is an indication that the world price of soybeans exceeds the nation’s domestic price of
soybeans in the absence of trade.
b. this is an indication that the nation has a comparative advantage in producing soybeans.
c. the nation’s consumers of soybeans become worse off and the nation’s producers of soybeans
become better off.
d. All of the above are correct.
14. Trade raises the economic well-being of a nation in the sense that
a. the gains of the winners exceed the losses of the losers.
b. everyone in an economy gains from trade.
c. since countries can choose what products to trade, they will pick those products that are most
beneficial to society.
d. the nation joins the international community when it begins to engage in trade.
Application: International Trade 2275
15. 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.
16. When a country allows trade and becomes an importer of coal,
a. the losses of the domestic producers of coal exceed the gains of the domestic consumers of
coal.
b. the losses of the domestic consumers of coal exceed the gains of the domestic producers of
coal.
c. the gains of the domestic producers of coal exceed the losses of the domestic consumers of
coal.
d. the gains of the domestic consumers of coal exceed the losses of the domestic producers of
coal.
2276 Application: International Trade
17. When a country allows trade and becomes an exporter of a good, which of the following is not a
consequence?
a. The price paid by domestic consumers of the good increases.
b. The price received by domestic producers of the good increases.
c. The losses of domestic consumers of the good exceed the gains of domestic producers of the
good.
d. The gains of domestic producers of the good exceed the losses of domestic consumers of the
good.
18. When a country allows trade and becomes an importer of bottled water, which of the following is
not a consequence?
a. The gains of domestic consumers of bottled water exceed the losses of domestic producers of
bottled water.
b. The losses of domestic producers of bottled water exceed the gains of domestic consumers of
bottled water.
c. The price paid by domestic consumers of bottled water decreases.
d. The price received by domestic producers of bottled water decreases.
Application: International Trade 2277
19. When a country allows trade and becomes an exporter of a good,
a. consumer surplus and producer surplus both increase.
b. consumer surplus and producer surplus both decrease.
c. consumer surplus increases and producer surplus decreases.
d. consumer surplus decreases and producer surplus increases.
20. When a country allows trade and becomes an importer of a good,
a. consumer surplus and producer surplus both increase.
b. consumer surplus and producer surplus both decrease.
c. consumer surplus increases and producer surplus decreases.
d. consumer surplus decreases and producer surplus increases.
2278 Application: International Trade
Figure 9-1
The figure illustrates the market for coffee in Guatemala.
Application: International Trade 2279
21. Refer to Figure 9-1. From the figure it is apparent that
a. Guatemala will experience a shortage of coffee if trade is not allowed.
b. Guatemala will experience a surplus of coffee if trade is not allowed.
c. Guatemala has a comparative advantage in producing coffee, relative to the rest of the world.
d. foreign countries have a comparative advantage in producing coffee, relative to Guatemala.
22. Refer to Figure 9-1. From the figure it is apparent that
a. Guatemala will export coffee if trade is allowed.
b. Guatemala will import coffee if trade is allowed.
c. Guatemala has nothing to gain either by importing or exporting coffee.
d. the world price will fall if Guatemala begins to allow its citizens to trade with other countries.
2280 Application: International Trade
23. Refer to Figure 9-1. With trade, Guatemala will
a. export 22 units of coffee.
b. export 10 units of coffee.
c. import 30 units of coffee.
d. import 12 units of coffee.
24. Refer to Figure 9-1. In the absence of trade, the equilibrium price of coffee in Guatemala is
a. $30.
b. $90.
c. $110.
d. $140.
Application: International Trade 2281
25. Refer to Figure 9-1. In the absence of trade, total surplus in Guatemala is represented by the
area
a. A + B + C.
b. A + B + C + D + F.
c. A + B + C + D + F + G.
d. A + B + C + D + F + G + H.
26. Refer to Figure 9-1. When trade in coffee is allowed, consumer surplus in Guatemala
a. increases by the area B + D.
b. increases by the area C + F.
c. decreases by the area B + D.
d. decreases by the area D + G.
2282 Application: International Trade
27. Refer to Figure 9-1. When trade in coffee is allowed, producer surplus in Guatemala
a. increases by the area B + D.
b. increases by the area B + D + G.
c. decreases by the area C + F.
d. decreases by the area G.
28. Refer to Figure 9-1. When trade is allowed,
a. Guatemalan producers of coffee become better off and Guatemalan consumers of coffee
become worse off.
b. Guatemalan consumers of coffee become better off and Guatemalan producers of coffee
become worse off.
c. both Guatemalan producers and consumers of coffee become better off.
d. both Guatemalan producers and consumers of coffee become worse off.
Application: International Trade 2283
29. Refer to Figure 9-1. Relative to the no–trade situation, trade with the rest of the world results in
a. Guatemalan consumers paying a higher price for coffee.
b. a decrease in producer surplus in Guatemala.
c. a decrease in total surplus in Guatemala.
d. All of the above are correct.
30. Refer to Figure 9-1. In the absence of trade, total surplus in the Guatemalan coffee market
amounts to
a. 750.
b. 1,100.
c. 1,514.
d. 1,650.
2284 Application: International Trade
31. Refer to Figure 9-1. With trade, total surplus in the Guatemalan coffee market amounts to
a. 1,250.
b. 1,468.
c. 1,870.
d. 1,980.
32. Which of the following statements is true?
a. Free trade benefits a country when it exports but harms it when it imports.
b. “Voluntary” limits on Canadian exports of hogs are better for the United States than U.S. tariffs
placed on Canadian hog exports.
c. Tariffs and quotas differ in that tariffs work like a tax and therefore impose deadweight losses,
whereas quotas do not impose deadweight losses.
d. Free trade benefits a country both when it exports and when it imports.