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True / False
1. Consumers receive more consumers' surplus when tariffs exist than when they do not exist.
a.
True
b.
False
2. As a result of a quota, both consumers' surplus and producers’ surplus fall.
a.
True
b.
False
3. Major U.S. exports include automobiles and aircraft.
a.
True
b.
False
4. Countries that engage in specialization and trade can consume at a level beyond their production possibilities frontier.
a.
True
b.
False
5. It is necessary for government officials to analyze cost data to determine what their country should specialize in
producing.
a.
True
b.
False
6. When countries engage in specialization and international trade, every individual person in those countries will gain.
a.
True
b.
False
7. The law of comparative advantage can be used to explain why many couples divide up their household duties along
gender lines.
a.
True
b.
False
8. Tariffs raise the price of imported goods, but quotas rarely do.
a.
True
b.
False
9. One of the arguments in favor of trade restrictions is the foreign export subsidies argument.
a.
True
b.
False
10. Dumping occurs when a firm sells goods abroad at a price below their cost and below the price charged in their
domestic market.
a.
True
b.
False
11. Alexander Hamilton used the infant-industry argument to support trade restrictions.
a.
True
b.
False
12. Comparative advantage is the ability to produce a good at a lower opportunity cost than others.
a.
True
b.
False
13. The term outsourcing is used to describe work done for a company by individuals working for another company in a
different country.
a.
True
b.
False
14. A tariff raises the price of the product on which the tariff has been placed, decreases consumers’ surplus, increases
producers’ surplus, and generates tariff revenue for the government.
a.
True
b.
False
15. A quota raises the price of the product on which the quota has been placed, decreases consumers’ surplus, increases
producers’ surplus, and generates tariff revenue for the government.
a.
True
b.
False
16. The national defense argument has been used in the past to justify trade restrictions by firms in the peanut industry
and the pottery industry.
a.
True
b.
False
17. Global technologies, such as electronics, have made up a significant portion of the recent wave of manufacturing
offshoring.
a.
True
b.
False
Multiple Choice
18. Two major exports for the United States are
a.
clothing and office machines.
b.
soybeans and scientific instruments.
c.
footwear and fish.
d.
coffee and diamonds.
e.
none of the above
19. Which of the following is a major import for the United States?
a.
corn
b.
soybeans
c.
coal
d.
fish
e.
none of the above
Exhibit 34-1
Country A
Country B
Good X
Good Y
Good X
Good Y
90
0
30
0
60
30
20
20
30
60
10
40
0
90
0
60
20. Refer to Exhibit 34-1. The opportunity cost of one unit of Y in country A is
a.
1 unit of X.
b.
0.75 units of X.
c.
2 units of X.
d.
10 units of X.
21. Refer to Exhibit 34-1. The opportunity cost of one unit of Y in country B is
a.
0.5 units of X.
b.
1 unit of X.
c.
2 units of X.
d.
20 units of X.
22. Refer to Exhibit 34-1. Country A is the lower opportunity cost producer of
a.
good X.
b.
good Y.
c.
goods X and Y.
d.
neither good X nor good Y.
23. Refer to Exhibit 34-1. The opportunity cost of one unit of X in country A is
a.
1 unit of Y.
b.
2 units of Y.
c.
10 units of Y.
d.
0.50 units of Y.
24. Refer to Exhibit 34-1. Country B is the lower opportunity cost producer of
a.
good Y.
b.
both goods.
c.
neither good.
d.
good X.
25. Refer to Exhibit 34-1. If country A is to specialize in the production of one of the two goods (and then trade that good
with Country B), which good should it be and why? If Country B is to specialize in the production of one of the two goods
(and then trade that good to with Country A), which good should it be and why?
a.
Good X for Country A because it is the higher opportunity cost producer of good X; good Y for Country B
because it is the higher opportunity cost producer of good Y.
b.
Good Y for Country A because it is the lower opportunity cost producer of good Y; good X for Country B
because it is the lower opportunity cost producer of good X.
c.
Good X for Country A because it is the lower opportunity cost producer of good X; good Y for Country B
because it is the lower opportunity cost producer of good Y.
d.
Good Y for Country A because it is the higher opportunity cost producer of good Y; good X for Country B
because it is the higher opportunity cost producer of good X.
26. Refer to Exhibit 34-1. Considering the data, which of the following terms of trade would both countries agree to?
a.
1 unit of Y for 1 unit of X
b.
1 unit of Y for 0.75 units of X
c.
1 unit of Y for 0.25 units of X
d.
1 unit of Y for 1.50 units of X
e.
all of the above
27. Refer to Exhibit 34-1. The opportunity cost of one unit of X in country B is
a.
1 unit of Y.
b.
0.33 units of Y.
c.
2 units of Y.
d.
20 units of Y.
28. Refer to Exhibit 34-1. Considering the data, which of the following terms of trade would both countries agree to?
a.
1 unit of X for 2 units of Y
b.
1 unit of X for 3 units of Y
c.
1 unit of X for 1 unit of Y
d.
1 unit of X for 1.50 units of Y
e.
all of the above
29. One country has a comparative advantage over another country in the production of a good if it
a.
has a curved production possibilities curve and the other country has a linear production possibilities curve.
b.
has a linear production possibilities curve and the other country has a curved production possibilities curve.
c.
is a lower opportunity cost producer of the good.
d.
has lower fixed costs than the other country.
30. The ability to produce a good at a lower opportunity cost than others is called a(n) __________ advantage.
a.
complementary
b.
comparative
c.
natural
d.
indigenous
31. Countries tend to specialize in the production of goods in which they have a comparative advantage because
a.
government officials calculate opportunity costs and suggest to people what they ought to produce.
b.
people want to make a profit.
c.
the Economic Development Office of the United Nations hires economic experts to calculate the opportunity
costs of different goods in different countries and then suggests to countries what they ought to produce.
d.
the United Nations hires economic experts to calculate the opportunity costs of different goods in different
countries and then suggests to countries what they ought to produce.
e.
none of the above
32. The difference between the highest amount a buyer would be willing to pay for a good and the amount she actually
pays for it is
a.
producers’ surplus.
b.
consumers' surplus.
c.
marginal revenue.
d.
marginal utility.
33. The difference between the amount a seller receives for a good and the lowest amount for which he would sell the
good is called
a.
producers' surplus.
b.
windfall gain.
c.
consumers’ surplus.
d.
excess profit.
34. Raquel, who earns $900 a week, bought a television set and gained $70 consumers' surplus. What price did she pay for
the good?
a.
$40
b.
$830
c.
$160
d.
$5
e.
There is not enough information to answer the question.
35. Producers' surplus is the difference between the price __________ receive for a good and the __________ price for
which they would have __________ the good.
a.
sellers; maximum; sold
b.
buyers; maximum; bought
c.
sellers; minimum; sold
d.
buyers; minimum; bought
36. The sale of goods abroad at a price below their cost and below the price charged in the domestic market is called
a.
priming.
b.
coping.
c.
invading.
d.
dumping.
37. "Dumping" refers to
a.
the sale of goods abroad at a price below their cost and below the price charged in the domestic market.
b.
unloading of foreign goods on domestic docks.
c.
government actions to remedy "unfair" trade practices.
d.
buying goods at low prices in foreign countries and selling them at high prices in the United States.
38. "New industries need to be protected or they won't have the opportunity to grow up." This is a statement of the
__________ argument for trade restrictions.
a.
national-defense
b.
infant-industry
c.
anti-dumping
d.
tariff
e.
none of the above
39. The national defense argument for trade restriction holds that
a.
the president should have the authority to erect trade barriers in case of war or national emergency.
b.
free trade is a danger to the national defense because open borders increase the likelihood that spies will get
into the country.
c.
a country should produce those goods necessary for national defense purposes even if it doesn't have a
comparative advantage in them.
d.
if your enemy erects trade restrictions, so should you.
40. A tariff is a tax on
a.
savings.
b.
capital goods.
c.
imports.
d.
land.
41. "New industries should be protected from older established foreign competitors until they are mature enough to
compete on an equal basis." This argument for trade restrictions is called the __________ argument.
a.
low-foreign-wages
b.
foreign export-subsidies
c.
anti-dumping
d.
infant-industry
42. Which of the following founders of the United States used the infant-industry argument to support trade restrictions?
a.
Thomas Jefferson
b.
Alexander Hamilton
c.
James Madison
d.
John Jay
43. It is argued that certain industries should be protected from foreign competition because they are needed to secure the
United States from foreign aggression. This argument is called the __________ argument.
a.
saving domestic-jobs
b.
low foreign wages
c.
foreign export subsidies
d.
national defense
44. Which of the following is not an argument for trade restrictions?
a.
the national defense argument
b.
the infant industry argument
c.
the comparative advantage argument
d.
the antidumping argument
Exhibit 34-2
45. Refer to Exhibit 34-2. The U.S. demand and supply for a good are shown. Under a policy of free trade, the world price
is PW. At this price, consumers' surplus equals the area of
a.
PW DE.
b.
PW AB.
c.
PW AC.
d.
PW PNBD.
46. Refer to Exhibit 34-2. The U.S. demand and supply for a good are shown. Under a policy of free trade, the world price
is PW. At this price, producers' surplus equals the area of
a.
PNBDPW.
b.
DBC.
c.
PWCBPN.
d.
PWDE.
47. Refer to Exhibit 34-2. The U.S. demand and supply for a good are shown. Under a policy of free trade, the world price
is PW. At this price, what quantity of this good do U.S. consumers buy from U.S. producers and what quantity do they
import from foreign producers?
a.
Q1 from U.S. producers and (Q3 - Q1) from foreign producers
b.
Q2 from U.S. producers and (Q3 - Q1) from foreign producers
c.
(Q3 - Q1) from U.S. producers and Q1 from foreign producers
d.
Q3 from U.S. producers and nothing from foreign producers
48. Refer to Exhibit 34-2. The U.S. demand and supply for a good are shown. Under a policy of free trade, the world price
is PW. If there is a policy change such that imports are prohibited, the price becomes PN, U.S. consumers are worse off if
imports are __________; specifically, their consumers' surplus changes by area __________.
a.
prohibited; PWABD
b.
permitted; PWDE
c.
prohibited; PNBCPW
d.
permitted; PN BDPW
e.
none of the above
49. Refer to Exhibit 34-2. The U.S. demand and supply for a good are shown. Under a policy of free trade, where imports
are permitted, the world price is PW. If there is a policy change such that imports are prohibited, the price becomes PN,
consumers' surplus equals __________ and producers' surplus equals __________.
a.
PNAB; PNBE
b.
BCD; PNDE
c.
PNAD; BCD
d.
PNAD; PWBDE
e.
none of the above
50. Refer to Exhibit 34-2. The U.S. demand and supply for a good are shown. Under a policy of free trade, the world price
is PW. If there is a policy change such that imports are prohibited, the price becomes PN. U.S. producers are better off if
imports are __________; specifically, their producers' surplus changes by area __________.
a.
permitted; PWDE
b.
permitted; PN BDPW
c.
prohibited; BDC
d.
prohibited; PNBDPW
Exhibit 34-3
51. Refer to Exhibit 34-3. The world price is PW. If a tariff is imposed, the price rises to PW + T. Because of the tariff,
producers' surplus is __________ by an amount equal to the area of __________.
a.
increased; 1 + 2
b.
decreased; 1
c.
increased; 3 + 4
d.
increased; 1
e.
decreased; 3
52. Refer to Exhibit 34-3. The world price is PW. If a tariff is imposed the price rises to PW + T. Because of the tariff,
consumers' surplus is reduced by an amount equal to the area of
a.
1 + 2 + 3.
b.
1 + 2.
c.
1 + 2 + 3 + 4.
d.
3 + 4.
e.
2 + 3 + 4.
53. Refer to Exhibit 34-3. The world price is PW. At this price, Americans purchase Q1 from U.S. producers and import
the quantity __________ from foreign producers.
a.
Q4 - Q1
b.
Q2 - Q1
c.
Q2 - Q4
d.
Q2 - Q3
54. Refer to Exhibit 34-3. The world price is PW. If a tariff is imposed, the price rises to PW + T. Because of the tariff,
government collects tariff revenues equal to the area of
a.
1.
b.
1 + 2.
c.
3.
d.
1 + 2 + 4.
e.
1 + 3.
55. Company Z is a U.S. company that has just entered the market for a given good and is the first in this country to
produce that good. The good is already being produced in many foreign countries is exported to the United States. If
company Z wants to restrict this foreign competition, it will most likely use which of the following arguments?
a.
anti-dumping
b.
national-defense
c.
job-creation
d.
infant-industry
e.
low-foreign-wages
56. A tariff is a
a.
tax imposed on domestic producers of export goods.
b.
legal limit on the amount of a good that can be imported.
c.
tax imposed on imported goods.
d.
legal limit on the amount of a good that can be produced by foreign owners of a firm located in a host country.
57. A quota is
a.
a tax imposed on imported goods.
b.
a legal limit on the amount of a good that can be produced by foreign owners of a firm located in a host
country.
c.
a legal limit on the amount of a good that can be imported.
d.
an agreement between two countries in which the exporting country voluntarily agrees to limit its exports to
the importing country.
58. Suppose that a tariff is imposed on imported cheese. This will have the effect of __________ the price of cheese,
__________ consumers' surplus, and __________ producers' surplus.
a.
increasing; increasing; increasing
b.
decreasing; decreasing; decreasing
c.
increasing; increasing; decreasing
d.
increasing; decreasing; increasing
e.
decreasing; decreasing; increasing
59. Suppose that a tariff is imposed on imported cheese. This will have the effect of __________ the quantity consumed
of cheese, __________ consumers' surplus, and __________ the government's tariff revenues.
a.
increasing; increasing; increasing
b.
decreasing; decreasing; increasing
c.
increasing; decreasing; decreasing
d.
decreasing; increasing; increasing
e.
decreasing; increasing; decreasing
60. Evidence indicates that tariffs and quotas are
a.
beneficial for producers in a protected industry, but not beneficial for the workers in the industry.
b.
beneficial for producers in a protected industry, but not beneficial for consumers.
c.
beneficial for workers in a protected industry, but not beneficial for consumers.
d.
not beneficial for the workers in a protected industry or for consumers.
e.
b and c
61. If there is no comparative advantage in the production of either of the two goods produced by countries 1 and 2, then
a.
the benefits resulting from trade between the two countries are increased.
b.
there are no gains from specialization and trade between the two countries.
c.
one country must be more productive in producing all goods than the other.
d.
each country should specialize in the production of a particular good.
e.
none of the above
62. Arguments made against free trade include all of the following except
a.
national defense considerations justify producing certain goods domestically whether the country has a
comparative advantage in their production or not.
b.
infant industries should be protected from free trade so that they may have time to develop and compete on an
even basis with older, more established foreign industries.
c.
dumping is an unfair trade practice that puts domestic producers of substitute goods at a disadvantage that they
should be protected against.
d.
free trade is inflationary and should be restricted in the domestic interest.
e.
if foreign governments subsidize their exports, foreign firms that export are given an unfair advantage that
domestic producers should be protected against.
63. Dumping refers to a country
a.
imposing a retaliatory tariff against the subsidized products of a foreign country.
b.
selling a good abroad at a price that is below its cost and lower than the price charged in the domestic market.
c.
selling a good abroad at a price that is above its cost and higher than the price charged in the domestic market.
d.
a and c
e.
all of the above
64. Which of the following statements about a tariff and a quota is true?
a.
With a tariff the government collects revenues, but not with a quota.
b.
With a quota the quantity of imports falls, but not with a tariff.
c.
With a tariff the domestic price of the good increases, but not with a quota.
d.
With a quota the domestic production of the good increases, but not with a tariff.
e.
all of the above
65. The effects of tariffs and quotas are: a(n) __________ in the prices of imported goods to domestic consumers, and a(n)
__________ in imports.
a.
increase; increase
b.
increase; decrease
c.
decrease; increase
d.
decrease; decrease
