C. decrease from 4,800 to 3,600.
D. decrease from 7,400 to 6,100.
43. Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting
from a free trade equilibrium, an import quota of 2,500 would cause domestic consumption to:
A. increase from 6,100 to 7,400.
B. increase from 2,400 to 3,600.
C. decrease from 4,800 to 3,600.
D. decrease from 7,400 to 6,100.
44. A voluntary restraint agreement:
A. is prohibited under the GATT treaty and has become less common recently.
B. does not, unlike a quota, affect the quantity of imports.
C. does not, unlike a tariff, affect the price of imports.
D. raises the price of imports in the same way as a quota.
45. The voluntary export restraints on autos by Japan in the early 1980s were:
A. prohibited under the GATT treaty
B. unlike an import quota and did not affect the quantity of cars imported .
C. unlike a tariff and did not affect the price of imports.
D. probably approved of by the Japanese car companies since it increased their profits.
46. Which of the following groups would be most likely to benefit from a tariff on Japanese-
manufactured light trucks (i.e., pickup trucks)?
A. U.S. domestic pickup truck manufacturers
B. Japanese auto workers
C. U.S. consumers of pickup trucks
D. U.S. firms that export products to Japan
47. The voluntary export restraints on autos by Japan in the early 1980s were:
A. prohibited by the WTO.
B. unlike an import quota and did not affect the price of cars imported.
C. unlike a tariff and did not affect the price of imports.
D. a bad deal for the U.S. consumers.
48. Voluntary restraint agreements:
A. are prohibited by NAFTA.
B. do not affect imports in both the short run and the long run.
C. hurt consumers in both the short run and the long run.
D. hurt workers in both the short run and the long run.
49. In general, why are trade embargoes implemented?
A. To benefit emerging industries.
B. To lower domestic unemployment rates.
C. For political reasons.
D. To raise revenue from trade.
50. The United States does not allow U.S. citizens to trade with Iraq. This is an example of:
A. a quota.
B. a tariff.
C. an embargo.
D. a regulatory trade restriction.
51. Cuba is known for its tobacco products. Which of the following results would we expect to
see from a U.S. embargo on Cuba?
A. Transshipment of Cuban cigars to the United States occurring through other nations.
B. Cigar producers in Cuba being better off since their product is scarcer in the United States
and therefore commands a higher price.
C. Cuba’s economy gaining because its own citizens enjoy less expensive tobacco.
D. The U.S. government benefiting from tariff revenue on Cuban tobacco products.
52. Which of the following groups might be expected to support high United States Department
of Agriculture standards for imported citrus fruit?
A. Orange and grapefruit producers in other nations.
B. Citrus fruit consumers in New England, where citrus cannot be grown easily.
C. Orange growers in Florida.
D. Shipping companies that import agricultural goods from other countries.
53. Which of the following is not a regulatory trade restriction?
A. Vegetables prohibited because of excess pesticide usage
B. Inspections designed to impede trade processes
C. A limit on the number of imported cars
D. Leather products banned because of tanning by urine
54. Regulatory trade restrictions:
A. are always justified.
B. are never justified.
C. may be justified depending on the nature of the restriction.
D. are irrelevant since they are seldom used.
55. All of the following are arguments in support of protectionist legislation except:
A. supporting infant industries
B. preserving domestic employment
C. increasing global trade
D. promoting national security
56. All of the following are arguments in support of protectionist legislation except:
A. increasing competition for domestic producers
B. increasing political pressure on rogue nations
C. increasing income equality
D. increasing tax revenues
57. One reason trade restrictions exist is that:
A. workers can be shifted easily from one industry to another.
B. workers cannot be shifted easily from one industry to another.
C. the long-run gains from free trade are small relative to the short-run costs.
D. the short-run gains from free trade are small relative to the long-run costs.
58. Which of the following is not an argument in favor of protecting domestic industries from
foreign competition?
A. National security.
B. Reducing structural unemployment.
C. Protection against subsidized foreign producers.
D. Making domestic firms more efficient.
59. Countries restrict international trade for all of the following reasons except:
A. international trade probably will lead to the displacement of workers.
B. the benefits of trade usually are limited to small groups, whereas the costs are widely
scattered across the population.
C. it is sometimes difficult to decide where a country’s comparative advantage lies when
“learning by doing” effects are important.
D. economies of scale can mean that a country is able to develop a comparative advantage by
protecting infant industries.
60. Trade adjustment assistance is:
A. difficult to implement because the adjustment costs of international trade are generally
greater than the gains from trade.
B. difficult to implement because claims of injury are easy to make and may be politically
difficult to reject.
C. easy to implement because the adjustment costs of international trade are typically less than
the gains from trade.
D. easy to implement because it is easy to identify the few industries genuinely injured by
international trade.
61. What are trade adjustment assistance programs?
A. Away of subsidizing exports.
B. A form of regulatory trade restriction.
C. The use of exchange rate policies to equalize exports and imports.
D. Attempts to compensate those who suffer losses when trade restrictions are reduced.
62. Strategic bargaining:
A. always produces freer trade.
B. always increases a country’s gains from trade.
C. may reduce trade if it is unsuccessful.
D. always reduces a country’s gains from trade.
63. Strategic bargaining:
A. always reduces the number of trade restrictions.
B. always increases the number of trade restrictions.
C. may increase the number of trade restrictions if it is successful.
D. may reduce the number of trade restrictions if it is successful.
64. Threats to put tariffs on a nation in an attempt to get that nation to reduce its restrictions on
trade are called:
A. strategic trade policies.
B. trade adjustment assistance programs.
C. learning by doing.
D. inertia and cachet.
65. Becoming better at a task the more often you perform is referred to as:
A. inherent advantage.
B. economies of scope.
C. learning by doing.
D. economies of performance.
66. When per-unit output costs fall as output increases, this is called:
A. economies of scale.
B. economies of scope.
C. learning by doing.
D. diminishing marginal returns.
67. Infant industry protection can be justified in theory by:
A. both the “learning by doing” argument and the existence of economies of scale.
B. the “learning by doing” argument but not by the existence of economies of scale.
C. the existence of economies of scale but not by the “learning by doing” argument.
D. neither the “learning by doing” argument nor the existence of economies of scale.
68. A developing country can be expected to rely more on:
A. tariffs than quotas since tariffs are an easy way to raise tax revenue.
B. tariffs than quotas because tariffs are more effective means of reducing imports.
C. quotas than tariffs since quotas provide better protection for infant industries.
D. quotas than tariffs since quotas are easier to enforce and give rise to less corruption among
officials.
69. Economists generally agree that:
A. trade restrictions will increase the welfare of a large country even if other countries retaliate.
B. trade between two nations generally benefits one at the expense of the other.
C. infant industry protection, although justified in theory, often becomes permanent because
infant industries fail to grow up.
D. trade embargoes are not an effective way of achieving international political objectives.
70. The infant industry argument for protection is rejected by:
A. many economists because they oppose any government intervention.
B. most economists because historical experience supports it.
C. by most economists because many infant industries become reliant on protection and do not
mature.
D. by most economists because protection usually is provided only temporarily.
71. Most economists:
A. oppose free trade.
B. favor free trade.
C. have no opinion on free trade.
D. would prefer to have no trade with other nations.
72. If the United States were to impose 100 percent tariffs on imports of Chinese shrimp, what
would most economists conclude?
A. This decision can be justified by using the infant-industry argument.
B. This decision can be justified by using the national defense argument.
C. This policy is a way to keep foreign producers from being exploited by Americans.
D. This decision is not justified in terms of economic well-being but may make sense for
political reasons.
73. Most economists support free trade in part because trade restrictions:
A. provide no revenue for the government.
B. result in larger trade deficits for the nations imposing them.
C. increase international competition.
D. reduce international competition.
74. When the United States imposed restrictions on imported steel in the 1950s and 1960s, the
U.S. steel industry responded by:
A. raising prices and investing more in steel production.
B. raising prices and channeling profits from their steel production into other activities.
C. lowering prices and investing more in steel production.
D. lowering prices and channeling profits from their steel production into other activities.
75. One reason economists oppose trade restrictions is that:
A. it is difficult to limit trade restrictions to instances when their use is justified.
B. they are an ineffective way to raise tax revenue.
C. they protect national security, particularly in wartime.
D. no nation can benefit from trade restrictions.
76. Transshipments, which are used commonly in international trade, tend to:
A. undermine the effectiveness of an embargo.
B. strengthen the national security argument for trade restrictions.
C. increase the effectiveness of trade restrictions.
D. reduce the volume of world trade.
77. Which of the following is not a free trade association?
A. EU
B. NAFTA
C. Mercosur
D. NATO
78. Economists believe free trade areas such as NAFTA and the European Union are
problematic because they
A. tend to lead to free trade rather than fair trade.
B. can lead to regional trading blocs that restrict trade with outsiders.
C. lead to globalization.
D. encourage countries to rely on others rather than being self-sufficient.
79. What does NAFTA stand for?
A. North African Fair Trade Association
B. North Atlantic Favored Trade Association
C. North Atlantic Flat Tax Association
D. North American Free Trade Agreement
80. If Japan has most-favored nation status with the United States, its exports are:
A. subject to lower U.S. tariffs than are exports from any other country.
B. subject to the same U.S. tariffs as other nations that have been granted most-favored nation
status by the United States.
C. subject to higher U.S. tariffs than exports from any other country.
D. not subject to any U.S. tariffs.
81. A group of countries that allows free trade among its members and puts up common barriers
against all other countries’ goods is called:
A. a tariff-free zone.
B. a most-favored-nation agreement.
C. an autarky.
D. a free trade association.
82. Country A has most-favored-nation (MFN) trade agreements with countries C and D, and it
has just lowered its tariff on imports of cars from country C. It has violated its MFN agreement
with country D unless it also:
A. allows country D to raise tariffs on country C’s cars.
B. reduces its tariff on country D’s cars by the same amount.
C. raises its tariff on other goods imported from country C.
D. raises its tariff on other goods imported from country D.
