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Application: International Trade 2445
16. If Belgium exports chocolate to the rest of the world, then Belgian chocolate producers benefit
from higher producer surplus, Belgian chocolate consumers are worse off because of lower
consumer surplus, and total surplus in Belgium increases because of the exports of chocolate.
a. True
b. False
17. In principle, trade can make a nation better off, because the gains to the winners exceed the
losses to the losers.
a. True
b. False
18. Suppose the Ivory Coast, a small country, imports wheat at the world price of $4 per bushel. If the
Ivory Coast imposes a tariff of $1 per bushel on imported wheat, then, other things equal, the price
of wheat in Ivory Coast will increase, but by less than $1.
a. True
b. False
2446 Application: International Trade
19. The small-economy assumption is necessary to analyze the gains and losses from international
trade.
a. True
b. False
20. The greater the elasticities of supply and demand, the smaller are the gains from trade.
a. True
b. False
21. If a tariff is placed on watches, the price of both domestic and imported watches will rise by the
amount of the tariff.
a. True
b. False
Application: International Trade 2447
22. When a government imposes a tariff on a product, the domestic price will equal the world price.
a. True
b. False
23. A tariff increases the quantity of imports and moves the market farther from its equilibrium
without trade.
a. True
b. False
24. When a country abandons no-trade policies in favor of free-trade policies and becomes an
importer of steel, then the domestic price of steel will increase as a result.
a. True
b. False
2448 Application: International Trade
25. When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country
become worse off.
a. True
b. False
26. When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country
become worse off and sellers of shoes in that country become better off.
a. True
b. False
27. Deadweight loss measures the decrease in total surplus that results from a tariff or quota.
a. True
b. False
Application: International Trade 2449
28. If a small country imposes a tariff on an imported good, domestic sellers will gain producer
surplus, the government will gain tariff revenue, and domestic consumers will gain consumer
surplus.
a. True
b. False
29. Domestic consumers gain and domestic producers lose when the government imposes a tariff on
imports.
a. True
b. False
30. The imposition of a tariff on imported wine will increase the domestic price of wine, decrease the
quantity of wine imported, and increase the quantity of wine produced domestically.
a. True
b. False
2450 Application: International Trade
31. Suppose that Australia imposes a tariff on imported beef. If the increase in producer surplus is
$100 million, the increase in tariff revenue is $200 million, and the reduction in consumer surplus is
$500 million, the deadweight loss of the tariff is $300 million.
a. True
b. False
32. Suppose Ecuador imposes a tariff on imported bananas. If the increase in producer surplus is $50
million, the reduction in consumer surplus is $150 million, and the deadweight loss of the tariff is
$30 million, then the tariff generates $130 million in revenue for the government.
a. True
b. False
33. Tariffs cause deadweight loss because they move the price of an imported product closer to the
equilibrium without trade, thus reducing the gains from trade.
a. True
b. False
Application: International Trade 2451
34. Import quotas and tariffs both cause the quantity of imports to fall.
a. True
b. False
35. Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.
a. True
b. False
36. If a country allows free trade and imports cars, then it is the case that the gains to domestic
producers outweigh the losses to domestic consumers.
a. True
b. False
2452 Application: International Trade
37. The nation of Cranolia used to prohibit international trade, but now trade is allowed, and Cranolia
is exporting furniture. Relative to the previous no-trade situation, buyers of furniture in Cranolia
are now better off.
a. True
b. False
38. The nation of Spritzland used to prohibit international trade, but now trade is allowed, and
Spritzland is exporting wristwatches. Relative to the previous no-trade situation, total surplus in the
market for wristwatches in Spritzland has increased.
a. True
b. False
39. Free trade allows firms to realize economies of scale, resulting in higher costs of production.
a. True
b. False
Application: International Trade 2453
40. For a given country, comparing the world price of aluminum and the domestic price of aluminum
before trade indicates whether that country’s demand for aluminum exceeds the demand for
aluminum in other countries.
a. True
b. False
41. For Country A, the world price of soybeans exceeds the domestic equilibrium price of soybeans.
As a result, international trade allows buyers of soybeans in Country A to experience greater
consumer surplus than they otherwise would experience.
a. True
b. False
42. For Country A, the world price of textiles exceeds the domestic equilibrium price of textiles. As a
result, international trade allows sellers of textiles in Country A to experience greater producer
surplus than they otherwise would experience.
a. True
b. False
2454 Application: International Trade
43. William and Jamal live in the country of Dumexia. As a result of Dumexia’s legalization of
international trade in bananas, William becomes better off and Jamal becomes worse off. It
follows that William is a seller, and Jamal is a buyer, of bananas.
a. True
b. False
44. William and Jamal live in the country of Dumexia. When Dumexia legalized international trade in
bananas, the price of bananas in Dumexia increased. As a result, William became better off and
Jamal became worse off. It follows that William is a seller, and Jamal is a buyer, of bananas.
a. True
b. False
45. Economists agree that trade ought to be restricted if free trade means that domestic jobs might be
lost because of foreign competition.
a. True
b. False
Application: International Trade 2455
46. Free trade causes job losses in industries in which a country does not have a comparative
advantage, but it also causes job gains in industries in which the country has a comparative
advantage.
a. True
b. False
47. Most economists support the infant-industry argument because it is so easy to implement in
practice.
a. True
b. False
48. If Honduras were to subsidize the production of wool blankets and sell them in Sweden at
artificially low prices, the Swedish economy would be worse off.
a. True
b. False
2456 Application: International Trade
49. Policymakers often consider trade restrictions in order to protect domestic producers from foreign
competitors.
a. True
b. False
50. GATT is an example of a successful unilateral approach to achieving free trade.
a. True
b. False
51. NAFTA is an example of a multilateral approach to achieving free trade.
a. True
b. False
Application: International Trade 2457
52. The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced
by an international body called the World Trade Organization (WTO).
a. True
b. False
53. A multilateral approach to free trade has greater potential to increase the gains from trade than a
unilateral approach, because the multilateral approach can reduce trade restrictions abroad as well
as at home.
a. True
b. False
54. Economists feel that national security concerns never provide a legitimate rationale for trade
restrictions.
a. True
b. False
2458 Application: International Trade
55. Economists view free trade as a way to raise living standards both at home and abroad.
a. True
b. False
56. The results of a 2008 Los Angeles Times poll suggest that a significant majority of Americans
believe that free international trade helps the American economy.
a. True
b. False
57. The results of a 2008 Los Angeles Times poll suggest that the percentage of Americans who
believe trade is harmful to the economy exceeds the percentage of Americans who believe trade
is beneficial to the economy.
a. True
b. False
Application: International Trade 2459
58. Most economists view the United States as an ongoing experiment that raises serious doubts about
the virtues of free trade.
a. True
b. False
2460 Application: International Trade
59. Use the graph to answer the following questions about CDs.
a. What is the equilibrium price of CDs before trade?
b. What is the equilibrium quantity of CDs before trade?
c. What is the price of CDs after trade is allowed?
d. What is the quantity of CDs exported after trade is allowed?
e. What is the amount of consumer surplus before trade?
f. What is the amount of consumer surplus after trade?
g. What is the amount of producer surplus before trade?
h. What is the amount of producer surplus after trade?
i. What is the amount of total surplus before trade?
j. What is the amount of total surplus after trade?
k. What is the change in total surplus because of trade?
Application: International Trade 2461
60. Using the graph below, answer the following questions about hammers.
a. What is the equilibrium price of hammers before trade?
b. What is the equilibrium quantity of hammers before trade?
c. What is the price of hammers after trade is allowed?
d. What is the quantity of hammers imported after trade is allowed?
e. What is the amount of consumer surplus before trade?
f. What is the amount of consumer surplus after trade?
g. What is the amount of producer surplus before trade?
h. What is the amount of producer surplus after trade?
i. What is the amount of total surplus before trade?
j. What is the amount of total surplus after trade?
k. What is the change in total surplus because of trade?
2462 Application: International Trade
61. Using the graph, assume that the government imposes a $1 tariff on hammers. Answer the
following questions given this information.
a. What is the domestic price and quantity demanded of hammers after the tariff is imposed?
b. What is the quantity of hammers imported before the tariff?
c. What is the quantity of hammers imported after the tariff?
d. What would be the amount of consumer surplus before the tariff?
e. What would be the amount of consumer surplus after the tariff?
f. What would be the amount of producer surplus before the tariff?
g. What would be the amount of producer surplus after the tariff?
h. What would be the amount of government revenue because of the tariff?
i. What would be the total amount of deadweight loss due to the tariff?
Application: International Trade 2463
62. How does an import quota differ from an equivalent tariff?
63. Characterize the two different approaches a nation can take to achieve free trade. Does one
approach have an advantage over the other?
