Application: International Trade 2425
11.
Countries that restrict foreign trade are likely to
a.
forgo the additional surplus that trade allows, but will probably enjoy economies of scale.
b.
forgo the additional surplus that trade allows, but will be compensated by a higher rate of
technological
change.
c.
forgo the additional surplus that trade allows, but will have a lower rate of unemployment.
d.
have more firms with domestic market power.
12.
Opponents of free trade often want the United States to prohibit the import of goods made in
overseas factories that
pay wages below the U.S. minimum wage. Prohibiting such goods is likely
to
a.
cause these factories to pay the U.S. minimum wage.
b.
increase the rate of technological advance in poor countries so that they can afford to pay
higher wages.
c.
increase poverty in poor countries and benefit U.S. firms which compete with these imports.
d.
harm U.S. firms which compete with these imports.
13.
Several arguments for restricting trade have been advanced. Those arguments do not include
a.
the jobs argument.
b.
the protection-as–a-bargaining-chip argument.
c.
the no-deadweight-loss argument.
d.
the infant-industry argument.
14.
Critics of free trade sometimes argue that allowing imports from foreign countries causes a
reduction in the number
of domestic jobs. An economist would argue that
a.
foreign competition may cause unemployment in import-competing industries, but the effect is
temporary
because other industries, especially exporting industries, will be expanding.
b.
foreign competition may cause unemployment in import-competing industries, but the increase
in consumer
surplus due to free trade is more valuable than the lost jobs.
c.
the critics are correct, so countries must protect their industries with tariffs or quotas.
d.
foreign competition may cause unemployment in import-competing industries, but the increase
in the variety of
goods consumers can choose from is more valuable than the lost jobs.
15.
Which of the following is not a commonly-advanced argument for trade restrictions?
a.
the jobs argument
b.
the national-security argument
c.
the infant-industry argument
d.
the efficiency argument
16.
Workers displaced by trade eventually find jobs in
a.
another country.
b.
the government sector.
c.
the industries in which the country has a comparative advantage.
d.
a different company in the same industry.
17.
The infant-industry argument
a.
is based on the belief that protecting industries when they are young will pay off later.
b.
is based on the belief that protecting industries producing goods and services for infants is
necessary if a
country is to have healthy children.
c.
has the support of most economists.
d.
is an argument that is advanced by advocates of free trade.
18.
Which of the following is the most accurate statement?
a.
Protection is necessary in order for young industries to grow up and be successful.
b.
Protection is not necessary for an industry to grow.
c.
Protection is necessary because if young industries are not protected, they may suffer losses.
d.
Protection may not always be necessary for infant industries, but it has proven to be useful in
most cases.
19.
If the Korean steel industry subsidizes the steel that it sells to the United States, the
a.
United States should protect its domestic steel industry from this unfair competition.
b.
harm done to U.S. steel producers from this unfair competition exceeds the gain to U.S.
consumers of cheap
Korean steel.
c.
harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of
steel.
d.
United States should subsidize the products it sells to Korea.
20.
The two basic approaches that a country can take as a means to achieve free trade are the
a.
unilateral approach and the multilateral approach.
b.
short-run approach and the long–run approach.
c.
continental approach and the global approach.
d.
industry approach and the security approach.
21.
When a country takes a multilateral approach to free trade, it
a.
removes trade restrictions on its own.
b.
reduces its trade restrictions while other countries do the same.
c.
does not remove trade restrictions no matter what other countries do.
d.
is willing to trade with multiple countries at once.
22.
Which of the following is not an advantage of a multilateral approach to free trade over a
unilateral approach?
a.
A multilateral approach can reduce trade restrictions abroad as well as at home.
b.
A multilateral approach has the potential to result in freer trade.
c.
A multilateral approach requires the agreement of two or more nations.
d.
A multilateral approach may have political advantages.
23.
When a country takes a unilateral approach to free trade, it
a.
removes trade restrictions on its own.
b.
reduces its trade restrictions while other countries do the same.
c.
does not remove trade restrictions no matter what other countries do.
d.
is willing to trade with multiple countries at once.
24.
A possible outcome of the multilateral approach to free trade is that such an approach can
a.
win political support when a unilateral approach cannot.
b.
result in more restricted trade than under a unilateral approach, when international negotiations
fail.
c.
result in drastic reductions in tariffs for many countries.
d.
All of the above are correct.
25.
Which of the following assertions is not correct about the multilateral approach to free trade?
a.
The multilateral approach has the potential to result in freer trade than does the unilateral
approach.
b.
The multilateral approach may have a political advantage over the unilateral approach.
c.
The multilateral approach is simpler than the unilateral approach.
d.
NAFTA and GATT both represent multilateral approaches to free trade.
26.
The North American Free Trade Agreement
a.
is an example of the unilateral approach to free trade.
b.
eliminated tariffs on imports to North America from the rest of the world.
c.
reduced trade restrictions among Canada, Mexico and the United States.
d.
All of the above are correct.
27.
Since World War II, GATT has been responsible for reducing the average tariff among member
countries from
about
a.
40 percent to about 5 percent.
b.
40 percent to about 20 percent.
c.
80 percent to about 20 percent.
d.
20 percent to about 10 percent.
28.
The General Agreement on Tariffs and Trade (GATT) was initiated in response to
a.
in increase in exports of low-priced goods from developing countries to developed countries.
b.
the replacement of manufacturing jobs with service jobs in developed countries.
c.
economic dislocations caused by the North American Free Trade Agreement (NAFTA) in the
1990s.
d.
high tariffs imposed during the Great Depression of the 1930s.
29.
The rules established under GATT are enforced by the
a.
governments of the nations that are involved in GATT.
b.
North American Free Trade Association.
c.
World Trade Organization.
d.
European Union.
30.
President Bush imposed temporary tariffs on imported steel in 2002. The reasons for this trade
restriction is most
consistent with the
a.
national-security argument.
b.
infant-industry argument.
c.
unfair competition argument.
d.
protection-as–a-bargaining chip-argument.
31.
The problem with the protection-as-a-bargaining-chip argument for trade restrictions is
a.
if it works consumer surplus will decline.
b.
if it works producer surplus falls.
c.
if it fails the country faces a choice between two bad options.
d.
if it fails total surplus will increase.
32.
In a 2007 New York Times article Paul Krugman wrote that
a.
the infant-industry argument works well as an argument in favor of protection for the U.S. steel
industry.
b.
the negative effects of third world exports on U.S. wages may be increasing.
c.
there are social gains to the U.S. from free trade.
d.
high wage countries account for a growing share of U.S. imports of manufactured goods.
33.
In a December 2007 New York Times column Paul Krugman argued in favor of
a.
protectionism based on the national-security argument.
b.
protectionism based on the infant-industry argument.
c.
protectionism based on the unfair-competition argument.
d.
keeping world markets relatively open.
34.
In a December 2007 New York Times column, Paul Krugman noted that
a.
it is difficult to find instances of trade between high-wage countries in the modern era.
b.
it is difficult to find instances of trade between high-wage countries and low-wage countries in
the modern
era.
c.
the United States now imports more oil and other raw materials from other advanced countries
than from the
third world.
d.
the United States now imports more manufactured goods from the third world than from other
advanced
countries.
35.
In recent years, which countries have taken a unilateral approach to the removal of trade
restrictions?
a.
China and North Korea
b.
Chile and South Korea
c.
Russia and Japan
d.
the United States and Mexico
36.
Which of the following is the most accurate statement?
a.
The one argument for restricting trade that almost all economists accept as valid is the infant–
industry
argument.
b.
Almost all economists insist that it is never appropriate to protect “key” industries, even when
there are legitimate concerns about national security.
c.
The idea that one nation might want to threaten another nation with a trade restriction is
associated with the
protection-as-a-bargaining-chip argument for restricting trade.
d.
The protection-as-a-bargaining-chip argument for restricting trade is also known as the infant-
industry
argument.
37.
Suppose Ukraine subsidizes Ukrainian wheat farmers, while Russia offers no subsidy to Russian
wheat farmers. As
a result of the Ukrainian subsidy, sales of Ukrainian wheat to Russia
a.
may prompt Russian farmers to invoke the infant-industry argument.
b.
increase the consumer surplus of Russian buyers of wheat.
c.
decrease the total surplus of the Russian people.
d.
All of the above are correct.
38.
A common argument in favor of restricting trade
a.
concerns the strategy of bargaining.
b.
is that efforts should be made to get new industries started.
c.
emphasizes the belief that all countries should play by the same rules.
d.
All of the above are correct.
39.
A common argument in favor of restricting international trade in good x is based on the premise
that
a.
international trade reduces total surplus in countries that export good x.
b.
international trade reduces total surplus in countries that import good x.
c.
international trade is desirable only when countries with different domestic supplies of natural
resources play
by different rules when trading with one another.
d.
trade restrictions can be useful when one country bargains with its trading partners.
40.
If the United States threatens to impose a tariff on Colombian coffee if Colombia does not
remove agricultural
subsidies, the United States will be
a.
better off regardless of how Colombia responds.
b.
better off if Colombia removes the subsidies, and will be no worse off if it doesn’t.
c.
worse off if Colombia doesn’t remove the subsidies in response to the threat.
d.
worse off regardless of how Colombia responds.
Multiple Choice – Section 04: Conclusion
1.
In 2008, the Los Angeles Times asked members of the American public whether free international
trade has helped
or hurt the economy. Of those surveyed,
a.
57 percent said free international trade helped the economy.
b.
26 percent said free international trade helped the economy.
c.
30 percent said free international trade hurt the economy.
d.
16 percent said free international trade hurt the economy.
2.
Most economists view the United States’ experience with trade as
a.
one from which no firm conclusions about the virtues of free trade can be reached, due to the
relatively short
history of international trade in the U.S.
b.
one from which no firm conclusions about the virtues of free trade can be reached, due to the
lack of trade
within the U.S. throughout most of the early history of the U.S.
c.
an ongoing experiment that confirms the virtues of free trade.
d.
an ongoing experiment that calls into serious question the notion that free trade enhances the
economic well-
being of a nation.
3.
Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine
as
a.
confirmation of the virtues of free trade.
b.
confirmation of the infant-industry argument.
c.
confirmation that free trade agreements are not necessary.
d.
confirmation that specialization in absolute advantage works.
2440 Application: International Trade
True/False and Short Answer
1.
The history of the textile industry raises important questions for economic policy.
a.
True
b.
False
2.
Trade decisions are based on the principle of absolute advantage.
a.
True
b.
False
3.
The sum of consumer and producer surplus measures the total benefits that buyers and sellers
receive from
participating in a market.
a.
True
b.
False
4.
According to the principle of comparative advantage, all countries can benefit from trading with
one another because
trade allows each country to specialize in doing what it does best.
a.
True
b.
False
5.
The world price of cotton is the highest price of cotton observed anywhere in the world.
a.
True
b.
False
6.
If the world price of a good is greater than the domestic price in a country that can engage in
international trade,
then that country becomes an importer of that good.
a.
True
b.
False
7.
Without free trade, the domestic price of a good must be equal to the world price of a good.
a.
True
b.
False
8.
The nation of Aviana soon will abandon its no-trade policy and adopt a free-trade policy. If the
world price of goose
meat is $3 per pound and the domestic price of goose meat without trade is $2
per pound, then Aviana should export
goose meat.
a.
True
b.
False
9.
If a country allows free trade and its domestic price for a given good is lower than the world price,
then it will import
that good.
a.
True
b.
False
10.
“Trade raises the economic well-being of a nation in the sense that the gains of the winners
exceed the losses of the
losers.” This statement is correct for a nation that exports manufactured
goods, but it is not correct for a nation that
imports manufactured goods.
a.
True
b.
False
11.
The nation of Loneland does not allow international trade. In Loneland, you can buy 1 pound of
beef for 2 pounds of
cheese. In neighboring countries, you can buy 2 pounds of beef for 3 pounds
of cheese. If Loneland were to allow
free trade, it would export cheese.
a.
True
b.
False
12.
If Argentina exports oranges to the rest of the world, Argentina’s producers of oranges are worse
off, and
Argentina’s consumers of oranges are better off, as a result of trade.
a.
True
b.
False
13.
If a country’s domestic price of a good is lower than the world price, then that country has a
comparative advantage in producing that good.
a.
True
b.
False
14.
When a country allows international trade and becomes an importer of a good, domestic
producers of the good are
better off, and domestic consumers of the good are worse off.
a.
True
b.
False
15.
If the United Kingdom imports tea cups from other countries, then U.K. producers of tea cups
are better off, and U.K. consumers of tea cups are worse off, as a result of trade.
a.
True
b.
False