Application: International Trade 2365
189. The nation of Aquilonia has decided to end its policy of not trading with the rest of the world.
When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and
neither importing nor exporting rugs. We can conclude that Aquilonia’s new free-trade policy
has
a. increased consumer surplus and producer surplus in the incense market.
b. increased consumer surplus in the steel market and left producer surplus in the rug market
unchanged.
c. decreased consumer surplus in both the steel and rug markets.
d. decreased consumer surplus in the steel market and increased total surplus in the incense
market.
190. The nation of Aquilonia has decided to end its policy of not trading with the rest of the world.
When it ends its trade restrictions, it discovers that it is importing rice, exporting steel, and neither
importing nor exporting TVs. We can conclude that producer surplus in Aquilonia is now
a. higher in the steel market, lower in the rice market, and unchanged in the TV market.
b. higher in the rice and steel markets, and unchanged in the TV market.
c. lower in the rice and TV markets, and higher in the steel market.
d. lower in the rice and steel markets, and the same in the TV market.
2366 Application: International Trade
191. Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its
trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing
nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade
policy?
a. producers of incense and consumers of steel
b. consumers of all three goods
c. consumers of incense and producers of rugs
d. producers of steel and consumers of incense
192. The United States has imposed taxes on some imported goods that have been sold here by
foreign countries at below their cost of production. These taxes
a. benefit the United States as a whole, because they generate revenue for the government. In
addition, because the goods are priced below cost, the taxes do not harm domestic
consumers.
b. benefit the United States as a whole, because they generate revenue for the government and
increase producer surplus.
c. harm the United States as a whole, because they reduce consumer surplus by an amount that
exceeds the gain in producer surplus and government revenue.
d. harm the United States as a whole, because they reduce producer surplus by an amount that
exceeds the gain in consumer surplus and government revenue.
Application: International Trade 2367
193. Some goods can be produced at low cost only if they are produced in large quantities. This
phenomenon is called
a. marginal cost of production.
b. marginal benefit of size.
c. economies of scale.
d. economies of production.
194. Relative to a situation in which domestic firms do not compete with foreign firms, firms in
countries that engage in free trade
a. can realize economies of scale more fully.
b. have greater market power.
c. experience larger producer surplus.
d. All of the above are correct.
2368 Application: International Trade
Figure 9-17
195. Refer to Figure 9–17. Without trade, consumer surplus is
a. $400 and producer surplus is $200.
b. $400 and producer surplus is $800.
c. $1,600 and producer surplus is $200.
d. $1,600 and producer surplus is $800.
Application: International Trade 2369
196. Refer to Figure 9-17. With free trade, consumer surplus is
a. $400 and producer surplus is $200.
b. $400 and producer surplus is $800.
c. $1,600 and producer surplus is $200.
d. $1,600 and producer surplus is $800.
197. Refer to Figure 9-17. With trade and a tariff, consumer surplus is
a. $808 and producer surplus is $200.
b. $808 and producer surplus is $392.
c. $1,024 and producer surplus is $200.
d. $1,024 and producer surplus is $392.
198. Refer to Figure 9-17. Without trade, total surplus is
a. $600.
b. $1,200.
c. $1,800.
d. $2,250.
2370 Application: International Trade
199. Refer to Figure 9-17. With free trade, total surplus is
a. $600.
b. $1,200.
c. $1,800.
d. $2,400.
200. Refer to Figure 9-17. With trade and a tariff, total surplus is
a. $1,224.
b. $1,416.
c. $1,512.
d. $1,704.
201. Refer to Figure 9–17. With free trade, the country imports
a. 16 units of the good.
b. 24 units of the good.
c. 60 units of the good.
d. 64 units of the good.
Application: International Trade 2371
202. Refer to Figure 9-17. Relative to the free-trade outcome, the imposition of the tariff
a. decreases imports of the good by 16 units and increases domestic production of the good by 8
units.
b. decreases imports of the good by 16 units and increases domestic production of the good by
16 units.
c. decreases imports of the good by 24 units and increases domestic production of the good by 8
units.
d. decreases imports of the good by 24 units and increases domestic production of the good by
24 units.
203. Refer to Figure 9-17. The amount of revenue collected by the government from the tariff is
a. $32.
b. $288.
c. $368.
d. $720.
2372 Application: International Trade
204. Refer to Figure 9-17. The deadweight loss caused by the tariff is
a. $24.
b. $72.
c. $96.
d. $144.
205. Refer to Figure 9-17. When comparing no trade to free trade, the gains from trade amount to
a. $400.
b. $600.
c. $750.
d. $1,000.
206. Refer to Figure 9-17. When the country moves from no trade to free trade, consumer surplus
a. increases by $1,200 and producer surplus increases by $600.
b. increases by $1,200 and producer surplus decreases by $600.
c. decreases by $1,350 and producer surplus increases by $450.
d. decreases by $1,350 and producer surplus decreases by $450.
Application: International Trade 2373
207. Refer to Figure 9-17. When the country moves from free trade to trade and a tariff, consumer
surplus
a. decreases by $576 and producer surplus does not change.
b. decreases by $576 and producer surplus increases by $192.
c. decreases by $792 and producer surplus does not change.
d. decreases by $792 and producer surplus increases by $192.
208. When a certain nation abandoned a policy of prohibiting international trade in automobiles in
favor of a free–tree policy, the result was that the country began to import automobiles. The
change in policy improved the well-being of that nation in the sense that
a. both producers of automobiles and consumers of automobiles in that nation became better off
as a result.
b. the gains to automobile producers in that nation exceeded the losses of the automobile
consumers in that nation.
c. the gains to automobile consumers in that nation exceeded the losses of the automobile
producers in that nation.
d. even though total surplus in that nation decreased, it was still true that consumer surplus and
producer surplus increased.
2374 Application: International Trade
209. After a certain nation changed its policy from one that banned international trade in wheat to one
that allowed international trade in wheat, the nation began importing wheat. As a result, total
surplus in the wheat market increased by $10 million. Which of the following changes could
have occurred as well?
a. The price of wheat in that nation increased with the adoption of the new policy.
b. The domestic quantity of wheat supplied increased with the adoption of the new policy.
c. Consumer surplus in the wheat market increased by $7 million and producer surplus in the
wheat market increased by $3 million.
d. Consumer surplus in the wheat market increased by $15 million and producer surplus in the
wheat market decreased by $5 million.
210. When the nation of Isoland opens up its steel market to international trade, that change
a. creates winners and losers, regardless of whether Isoland ends up exporting or importing steel.
b. results in a decrease in total surplus, regardless of whether Isoland ends up exporting or
importing steel.
c. creates winners, but no losers, if Isoland ends up exporting steel.
d. creates losers, but no winners, if Isoland ends up importing steel.
Application: International Trade 2375
211. Some time ago, the nation of Republica opened up its paper market to international trade. Which
of the following results of this policy change is consistent with the notion that Republica has a
comparative advantage over other countries in producing paper?
a. The price of paper in Republica decreased as a result of the policy change.
b. Republica began exporting paper as a result of the policy change.
c. The domestic demand curve for paper shifted to the right as a result of the policy change.
d. The domestic quantity of paper demanded increased as a result of the policy change.
212. Domestic producers of a good become better off, and domestic consumers of a good become
worse off, when a country begins allowing international trade in that good and
a. the country becomes an importer of the good as a result.
b. the world price exceeds the domestic price of the good that prevailed before international
trade was allowed.
c. other countries have a comparative advantage, relative to the country in question, in producing
the good.
d. total surplus does not change as a result.
2376 Application: International Trade
Figure 9-18. On the diagram below, Q represents the quantity of peaches and P represents the
price of peaches. The domestic country is Isoland.
213. Refer to Figure 9-18. If Isoland allows international trade and if the world price of peaches is
$5, then
a. Isoland has a comparative advantage, relative to other countries, in producing peaches.
b. Isoland will import peaches.
c. consumer surplus with trade exceeds consumer surplus without trade.
d. All of the above are correct.
Application: International Trade 2377
214. Refer to Figure 9-18. If Isoland allows international trade and if the world price of peaches is
$3, then
a. Isoland has a comparative advantage, relative to other countries, in producing peaches.
b. Isoland will export peaches.
c. producer surplus with trade exceeds producer surplus without trade.
d. consumer surplus with trade exceeds consumer surplus without trade.
215. Refer to Figure 9-18. If Isoland allows international trade, then it will be an exporter of
peaches if and only if the world price of peaches is
a. above $2.
b. below $4.
c. above $4.
d. below $7.
2378 Application: International Trade
216. Refer to Figure 9-18. If Isoland allows international trade and the world price of peaches is $5,
then
a. producer surplus will be smaller than it would be if Isoland banned trade.
b. consumer surplus will be smaller than it would be if Isoland banned trade.
c. the domestic quantity of peaches demanded will exceed the domestic quantity of peaches
supplied.
d. Isoland will be an importer of peaches.
217. Refer to Figure 9-18. Suppose Isoland changes from a no–trade policy to a policy that allows
international trade.
If the world price of peaches is $5, then the policy change results in
a. a decrease in consumer surplus.
b. an increase in producer surplus.
c. an increase in total surplus.
d. All of the above are correct.
Application: International Trade 2379
218. Refer to Figure 9-18. Suppose Isoland changes from a no-trade policy to a policy that allows
international trade.
If the world price of peaches is $5, then the policy change results in a
a. $25 decrease in consumer surplus.
b. $20 increase in consumer surplus.
c. $25 decrease in producer surplus.
d. $20 increase in producer surplus.
219. Refer to Figure 9-18. Suppose Isoland changes from a no-trade policy to a policy that allows
international trade.
If the world price of peaches is $3, then the policy change results in a
a. $15.00 decrease in producer surplus.
b. $45.00 increase in consumer surplus.
c. $20.00 increase in total surplus.
d. $12.50 increase in total surplus.
2380 Application: International Trade
220. Suppose a certain country imposes a tariff on a good. Which of the following results of the tariff
is possible?
a. Consumer surplus decreases by $100; producer surplus increases by $100; and government
revenue from the tariff amounts to $50.
b. Consumer surplus decreases by $200; producer surplus increases by $100; and government
revenue from the tariff amounts to $50.
c. Consumer surplus increases by $100; producer surplus decreases by $200; and government
revenue from the tariff amounts to $50.
d. Consumer surplus decreases by $50; producer surplus increases by $200; and government
revenue from the tariff amounts to $150.
221. Suppose France imposes a tariff on wine of 3 euros per bottle. If government revenue from the
tariff amounts to 30 million euros per year and if the quantity of wine supplied by French wine
producers, with the tariff, is 8 million bottles per year, then we can conclude that
a. the quantity of wine demanded by France, with the tariff, is 18 million bottles per year.
b. the quantity of wine demanded by France, without the tariff, would be 24 million bottles per
year.
c. the amount of the deadweight loss is 24 million euros per year.
d. the tariff causes French buyers of wine to pay 2 euros more per bottle than they would pay
without the tariff.
Application: International Trade 2381
222. For a country that is considering the adoption of either a tariff or an import quota on a particular
good, an important difference is that
a. an import quota has no effect on consumer surplus, while a tariff decreases consumer surplus.
b. an import quota has no effect on producer surplus, while a tariff decreases producer surplus.
c. a tariff raises total surplus, while an import quota does not.
d. a tariff raises revenue for that country’s government, while an import quota does not.
223. For any country that allows free trade,
a. domestic quantity demanded is equal to domestic quantity supplied at the world price.
b. domestic quantity demanded is greater than domestic quantity supplied at the world price.
c. both producers and consumers in that country gain when domestic products are exported, but
both groups lose when foreign products are imported.
d. the domestic price is equal to the world price.
2382 Application: International Trade
Figure 9-19. On the diagram below, Q represents the quantity of textiles and P represents the
price of textiles.
224. Refer to Figure 9-19. With free trade, the country for which the figure is drawn will
a. export 30 units of textiles.
b. export 50 units of textiles.
c. import 30 units of textiles.
d. import 50 units of textiles.
Application: International Trade 2383
225. Refer to Figure 9-19. With free trade, consumer surplus in the textile market amounts to
a. $210.
b. $320.
c. $405.
d. $910.
226. When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an
exporter of a particular good,
a. consumer surplus increases and total surplus increases in the market for that good.
b. consumer surplus increases and total surplus decreases in the market for that good.
c. consumer surplus decreases and total surplus increases in the market for that good.
d. consumer surplus decreases and total surplus decreases in the market for that good.
2384 Application: International Trade
227. When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an
exporter of a particular good,
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.
228. When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an importer
of a particular good,
a. consumer surplus increases and total surplus increases in the market for that good.
b. consumer surplus increases and total surplus decreases in the market for that good.
c. consumer surplus decreases and total surplus increases in the market for that good.
d. consumer surplus decreases and total surplus decreases in the market for that good.