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Introduction to Economic Reasoning, 8e (Rohlf)
Chapter 16: International Trade
1) In 2008, approximately what percentage of the U.S. GDP was made up of exports of goods
and services?
A) 50 percent
B) 3 percent
C) 13 percent
D) 30 percent
E) less than 3 percent
2) In 2008, U.S. imports of goods and services amounted to approximately
A) $15 billion.
B) $150 billion.
C) $2.5 trillion.
D) $250 million.
E) $12 trillion.
3) If a nation has an "absolute advantage" in the production of a product, then
A) it can produce the product at a lower opportunity cost than other nations.
B) other nations must lack the resources to produce the product.
C) it can produce the product with fewer resources than other nations.
D) it must be the only source of this product among the trading nations.
E) other nations are required by international law to trade with it.
4) A nation has a "comparative advantage" in the production of a product if
A) it can produce the product while other nations cannot.
B) it can produce the product at a lower opportunity cost than other nations.
C) it can produce the product but at a higher opportunity cost than other nations.
D) it can produce the product with fewer resources than other nations.
E) the government protects the domestic producers of that product by erecting trade barriers.
5) According to the principle of comparative advantage, a nation should specialize in producing
those products
A) which other nations are unable to produce.
B) which use the scarcest resources.
C) which it can produce at a lower opportunity cost than its trading partners.
D) which it can produce more efficiently with fewer resources than its trading partners.
E) which are easiest to protect through trade barriers.
6) Frank can build either 3 bookcases or 1 kitchen table per week. Jim can build either 4
bookcases or 2 kitchen tables in a week's time. We can say that
A) Frank has an absolute advantage in the production of both bookcases and kitchen tables.
B) Frank has an absolute advantage in the production of bookcases and a comparative advantage
in the production of kitchen tables.
C) Jim has an absolute advantage in the production of both products and a comparative
advantage in the production of bookcases.
D) Jim has a comparative advantage in the production of kitchen tables, and Frank has a
comparative advantage in the production of bookcases.
E) Jim has a comparative advantage in the production of both products.
7) Sally can write 2 novels or 6 songs in 1 year. Allan can write 1 novel or 4 songs in a year's
time. Which of the following is true?
A) Allan has an absolute advantage in the production of songs.
B) Sally has an absolute advantage in the production of both novels and songs and a comparative
advantage in the production of songs.
C) Allan has a comparative advantage in the production of novels.
D) Sally has a comparative advantage in the production of novels.
E) Allan has an absolute advantage in the production of novels.
The following diagrams show the production possibilities for two countries, Widget World and
Econ Land. Use the diagrams in answering the following question(s). All figures are in millions.
8) Based on the diagrams found above, the opportunity cost of producing a ton of food in Econ
Land is
A) 400 units of clothing.
B) 200 units of clothing.
C) 1/2 unit of clothing.
D) 2 units of clothing.
E) 1 unit of clothing.
9) Based on the diagrams found above, the opportunity cost of a unit of clothing in Widget
World is
A) 1/3 ton of food.
B) 3 tons of food.
C) 120 tons of food.
D) 1/2 ton of food.
E) None of the above.
10) According to the diagrams above,
A) Widget World has a comparative in food.
B) Econ Land has a comparative advantage in clothing.
C) Widget World has a comparative advantage in clothing.
D) Econ Land has a comparative advantage in both food and clothing.
E) Widget World has a comparative advantage in both food and clothing.
11) Based on the diagrams above, according to the principle of comparative advantage,
A) Widget World should specialize in food and Econ Land should specialize in clothing.
B) each country should continue to produce both food and clothing.
C) Widget World should specialize in clothing and Econ Land should specialize in food.
D) Econ Land should specialize in clothing and Widget World should specialize in food.
E) Widget World should ask to be annexed by Econ Land.
12) Which of the following represents terms of trade that both countries would agree to accept?
A) 1 ton of food exchanges for 1 unit of clothing
B) 1 ton of food exchanges for 2 units of clothing
C) 1 ton of food exchanges for 2 1/2 units of clothing
D) 1 ton of food exchanges for 3 units of clothing
E) 1 ton of food exchanges for 3 1/2 units of clothing
13) A tariff is
A) a legal limit on the amount of a product that may be imported into a country.
B) a tax on an imported product.
C) a law prohibiting the importation of a particular product.
D) a subsidy paid to importers of foreign products.
E) a subsidy paid to exporters.
14) An import quota protects domestic producers by
A) taxing imported products and thereby raising their prices.
B) limiting the amount of a foreign-made product that can be imported into a country.
C) banning the importation of a particular foreign product.
D) lowering the prices of domestically produced goods.
E) artificially lowering their production costs, thus allowing them to sell their products at lower
prices.
15) Which of the following is an accurate statement regarding import quotas?
A) A global quota limits the amount of a product that can be imported from the rest of the world.
B) Domestic producers generally favor tariffs over quotas.
C) A selective quota limits the amount of a product that can be imported from a single foreign
firm.
D) Economists generally support quotas as a method of improving consumer welfare.
E) Quotas help to encourage nations to pursue their comparative advantage.
16) Which of the following accurately describes the impact of protective tariffs?
A) They tend to lower the prices of imported products that are subject to the tariff.
B) They help to eliminate inefficient domestic producers.
C) They tend to raise the prices of domestically produced products that are comparable to those
being taxed.
D) They prohibit the importation of certain foreign products.
E) They encourage domestic firms to search for ways to lower their production costs.
17) Suppose that the United States imposed a tariff on shoes. Which of the following would be
most likely to occur? (Assume all shoes are alike in quality and style.)
A) The price of imported shoes would rise, but the price of U.S.-made shoes would remain
constant.
B) The price of imported shoes would rise, but the price of U.S.-made shoes would fall.
C) The price of imported shoes would remain constant, but the price of U.S.-made shoes would
rise.
D) The prices of imported shoes and U.S.-made shoes would tend to rise.
E) Inefficient U.S. shoe producers would get the boot.
18) Suppose that trade barriers against imported flowers were reduced. Which of the following
would be most likely to occur? (Assume that there is no difference between imported flowers
and domestically produced flowers.)
A) The prices of imported flowers would tend to rise, and the prices of domestically produced
flowers would tend to fall.
B) The prices of imported and domestically produced flowers would tend to fall.
C) The prices of imported flowers would tend to fall and the prices of domestically produced
flowers would be unchanged.
D) The prices of imported flowers would tend to fall and the prices of domestically produced
flowers would tend to rise.
E) The prices of imported and domestically produced flowers would tend to rise.
19) Which of the following is true?
A) Economists generally prefer quotas to tariffs because quotas help to keep out shoddy goods.
B) Economists see tariffs and quotas as equally undesirable.
C) Economists prefer tariffs to quotas because consumers can still buy the taxed item.
D) Economists prefer tariffs to quotas because tariffs are more effective in keeping out foreign
goods.
E) Economists favor tariff protection rather than free trade because tariffs can be used to gain tax
revenue.
20) In international trade, the term "dumping" refers to
A) transporting wastes to other countries for disposal.
B) charging foreign customers higher prices than domestic consumers.
C) selling foreign customers lower-quality products than are sold to domestic customers.
D) charging foreign customers lower prices than domestic customers.
E) selling to foreign customers products that domestic customers are unwilling to purchase.
21) The GATT agreements have
A) encouraged the use of quotas.
B) substantially increased tariffs worldwide.
C) had no significant impact on the use of either tariffs or quotas.
D) reduced both tariff and quota barriers.
E) increased both tariff and quota barriers.
22) The World Trade Organization
A) was formed in 1944.
B) replaced GATT.
C) preceded GATT.
D) replaced NAFTA.
E) was formed in 1908.
23) Economists have been more supportive of
A) quotas than tariffs.
B) the WTO than the NAFTA.
C) antidumping duties than tariffs.
D) the NAFTA than the WTO.
E) protective tariffs than revenue tariffs.
24) The GATT and NAFTA agreements are
A) similar because both attempt to reduce trade barriers worldwide.
B) similar because both attempt to increase trade barriers worldwide.
C) different because the GATT agreement is a regional agreement while the NAFTA is not.
D) different because the NAFTA agreement is a regional agreement while the GATT is not.
E) different because the NAFTA agreement attempts to promote more open trade while the
GATT does not.
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25) The WTO and the NAFTA agreements have
A) identical objectives because both attempt to reduce trade barriers worldwide.
B) identical objectives because both attempt to increase trade barriers worldwide.
C) different objectives because the WTO encourages trade among a block of countries while the
NAFTA agreement attempts to encourage trade worldwide.
D) different objectives because the NAFTA agreement is a regional agreement while the WTO
attempts to encourage trade worldwide.
E) different because the NAFTA agreement attempts to promote more open trade while the WTO
does not.
26) The exchange rate is
A) the rate at which one product exchanges for another product within a foreign country.
B) the price of one nation's currency stated in terms of another nation's currency.
C) the ratio of one country's balance of trade to another country's balance of trade.
D) the value of a nation's currency after it has been adjusted for inflation.
E) the ratio of one country's balance of payments to another country's balance of payments.
27) If $1 exchanges for 10 Mexican pesos, then a case of Mexican beer that sells for 150 pesos
would cost
A) $1500.
B) $150.
C) $15.
D) $5.
E) $20.
28) If $1 exchanges for 50 Indian rupees, then an American computer selling for $1500 would
cost a Indian consumer
A) 300 rupees.
B) 1500 rupees.
C) 75,000 rupees.
D) 90,000 rupees.
E) more than 90,000 rupees.
29) If our imports exceed our exports, the United States is experiencing a
A) balance of payments deficit.
B) balance of payments surplus.
C) trade deficit.
D) trade surplus.
30) Which of the following is not a source of foreign exchange for the United States?
A) U.S. exports to Germany
B) Japanese investments in the United States
C) U.S. imports from Korea
D) Italian tourists visiting the United States
E) U.S. military sales to Israel.
31) Americans must acquire British pounds for all of the following EXCEPT
A) to make a tourist visit to London.
B) to invest in England.
C) to finance exports to England.
D) to make interest payments to British citizens.
E) to purchase automobiles from Britain.
32) Americans require foreign exchange is to
A) make investments abroad.
B) purchase imports.
C) travel abroad.
D) make interest payments to foreigners.
E) All of the above require foreign exchange.
33) If the dollar depreciates in relation to the British pound, then
A) it takes fewer dollars than before to buy a pound.
B) it takes more dollars than before to buy a pound.
C) British products have become less expensive for Americans.
D) the inflation-adjusted value of the pound has fallen.
E) American products have become more expensive for the British.
34) If the euro appreciates relative to the American dollar, then
A) it takes more euros than before to buy each dollar.
B) it takes fewer dollars than before to buy each euro.
C) European products have become less expensive for Americans.
D) the inflation-adjusted value of the euro has fallen.
E) it will be less expensive than before for Europeans to travel in the United States.
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35) Under a system of flexible exchange rates, a decision by Americans to purchase more
Japanese cars would
A) tend to shift the demand curve for Japanese yen to the left.
B) increase the yen price of the dollar (the price of a dollar stated in yen).
C) cause the yen to depreciate in relation to the dollar.
D) increase the dollar price of Japanese yen (the price of yen stated in dollars).
E) cause the dollar to appreciate in relation to the yen.
36) Under a system of flexible exchange rates, a decision by Americans to purchase fewer Swiss
watches would
A) increase the demand for Swiss francs.
B) increase the supply of dollars.
C) cause the Swiss franc to depreciate relative to the dollar.
D) cause the dollar to depreciate relative to Swiss franc.
E) increase the demand for dollars.
37) Under a system of flexible exchange rates, an increase in British exports to America would
shift the demand curve for British pounds
A) to the right, causing the pound to depreciate in relation to the dollar.
B) to the left, causing the pound to appreciate in relation to the dollar.
C) to the right, causing the pound to appreciate in relation to the dollar.
D) to the left, causing the pound to depreciate in relation to the dollar.
E) to the right, increasing the pound price of the dollar (the price of a dollar stated in pounds).
38) Under a system of flexible exchange rates, which of the following would cause the dollar to
depreciate in value relative to the Japanese yen?
A) gifts by the Japanese government to American universities
B) an increase in the number of Japanese tourists visiting the United States
C) an increase in American exports to Japan
D) increased investment by American firms in Japan
E) Japanese purchases of American businesses
39) If the dollar was to appreciate in value in relation to the euro,
A) Americans would find it cheaper to travel in Europe.
B) American products would become cheaper for Europeans to purchase.
C) More European tourists would choose to visit America.
D) American students would find it more expensive to study in Europe.
E) European companies would find it more attractive to purchase American machinery.
40) If the dollar price of the yen (the price of the yen stated in dollars) rises, then we would say
that
A) the dollar has appreciated relative to the yen.
B) the inflation adjusted value of the dollar has fallen.
C) the yen has appreciated relative to the dollar.
D) the yen has depreciated relative to the dollar.
E) the Japanese have a yen for dollars.
41) If more American citizens chose to vacation in Britain, this would cause
A) a decrease in the demand for British pounds and an appreciation in the value of the pound
relative to the dollar.
B) an increase in the supply of American dollars and a depreciation in the value of the dollar
relative to the British pound.
C) a decrease in the supply of American dollars and a depreciation in the value of the dollar
relative to the British pound.
D) an increase in the demand for British pounds and a depreciation in the value of the pound
relative to the dollar.
E) an increase in the supply of American dollars and an appreciation of the value of the dollar
relative to the British pound.
42) If interest rates in Japan increased relative to those in the United States,
A) Americans would tend to demand fewer Japanese yen.
B) Japanese citizens would tend to supply more yen.
C) the yen would tend to appreciate relative to the dollar.
D) the supply curve of Japenese yen would tend to shift to the right.
E) the dollar would tend to appreciate relative to the yen.
43) Which of the following will tend to depreciate the dollar relative to the euro?
A) European consumers decide to take more vacations in the United States.
B) European interest rates rise relative to those in the United States.
C) Consumers in Europe increase their purchases of American products.
D) The price level in Europe increases more rapidly than the price level in the United States.
E) U.S. firms increase their exports to Europe.
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44) If the price level in Europe increases more rapidly than the price level in the United States,
A) Europeans will tend to supply more euros, appreciating the dollar relative to the yen.
B) Europeans will tend to supply fewer euros, appreciating the dollar relative to the yen.
C) U.S. consumers will tend to demand more euros, depreciating the dollar relative to the euro.
D) U.S. consumers will tend to demand more euros, appreciating the dollar relative to the euro.
E) None of the above are true.
45) Which of the following would shift both the demand and supply curves for euros?
A) U.S. incomes increase dramatically.
B) U.S. consumers demand more European products.
C) Prices in Europe rise more rapidly than prices in the United States.
D) More Europeans decide to vacation in the United States.
E) U.S. fashions become more popular with Europeans.
46) Suppose the euro appreciates relative to the peso. Which of the following is true?
A) Mexicans will find it cheaper to visit Rome.
B) Mexican importers will find German products less expensive.
C) European exporters will find it easier to sell their products.
D) European investors will find it easier to purchase Mexican companies.
E) Italian tourists will find it more expensive to vacation in Mexico.
The following diagrams show the production possibilities of country A and country B. Use the
diagrams in answering the following question(s). All figures are in millions.
1) Based on the diagrams above, in country A, the opportunity cost of a ton of food is
A) 4 units of clothing.
B) 60 units of clothing.
C) 240 units of clothing.
D) 1 unit of clothing.
2) According to the diagrams above,
A) country A has a comparative advantage in food.
B) country B has a comparative advantage in clothing.
C) country A has a comparative advantage in clothing.
D) country B has a comparative advantage in both food and clothing.
3) Based on the diagrams above, according to the principle of comparative advantage,
A) country A should specialize in food, and country B should specialize in clothing.
B) countries A and B should each continue to produce both food and clothing.
C) country A should specialize in clothing, and country B should specialize in food.
D) countries A and B both should specialize in clothing.
4) Based on the diagrams above, which of the following is most likely to represent terms of trade
that both countries would agree to accept?
A) 1 ton of food exchanges for 4 units of clothing
B) 1 ton of food exchanges for 3 units of clothing
C) 1 ton of food exchanges for 5 units of clothing
D) 1 ton of food exchanges for 3 1/2 units of clothing
5) Which of the following is is not a correct statement about trade barriers?
A) Import tariffs are taxes on imports.
B) Tariffs encourage consumers to buy domestic products.
C) Quotas specify the maximum amount of a product that can be imported.
D) Tariffs are probably more harmful to consumer welfare than quotas.
6) Which of the following is an accurate description of the impact of tariffs?
A) They tend to raise the prices of imported products that are subject to the tariff.
B) They tend to raise the prices of domestically produced products that are comparable to those
being taxed.
C) They permit inefficient industries to continue to exist.
D) All of the above.
7) Suppose that Italy can produce either 20 bicycles or 100 calculators with a unit of resources
and that Taiwan can produce either 10 bicycles or 80 calculators. Which of the following
statements is true?
A) Taiwan has a comparative advantage in calculators.
B) Taiwan has an absolute advantage in bicycles.
C) Italy has a comparative advantage in calculators.
D) Taiwan has an absolute advantage in calculators.
8) Why do economists prefer tariffs to quotas?
A) Consumers may continue to buy imported products in spite of the tariff.
B) Tariffs do not really hinder trade; in fact, they may enhance trade.
C) As domestic products increase in price, foreign products become more competitive.
D) Both A and C are correct.
