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Chapter 9 Application: International Trade
MULTIPLE CHOICE
1. An important factor in the decline of the U.S. textile industry over the past 100 or so years is
a.
foreign competitors that can produce quality textile goods at low cost.
b.
lower prices of goods that are substitutes for clothing.
c.
a decrease in Americans’ demand for clothing, due to increased incomes and the fact that clothing
is an inferior good.
d.
the fact that the minimum wage in the U.S. has failed to keep pace with the cost of living.
2. With which of the Ten Principles of Economics is the study of international trade most closely connected?
a.
People face tradeoffs.
b.
Trade can make everyone better off.
c.
Governments can sometimes improve market outcomes.
d.
Prices rise when the government prints too much money.
3. Which of the following tools and concepts is useful in the analysis of international trade?
a.
total surplus
b.
domestic supply
c.
equilibrium price
d.
All of the above are correct.
4. A logical starting point from which the study of international trade begins is
a.
the recognition that not all markets are competitive.
b.
the recognition that government intervention in markets sometimes enhances the economic welfare
of the society.
c.
the principle of absolute advantage.
d.
the principle of comparative advantage.
5. Which of the following is not an important question for economic policy raised by the experience of the textile
industry?
a.
How does international trade affect consumer well-being?
b.
Who gains and who loses from free trade among countries?
c.
How do the gains from trade compare to the losses?
d.
Which argument for restricting free trade is politically feasible?
2 ❖ Chapter 9/Application: International Trade
THE DETERMINANTS OF TRADE
1. What is the fundamental basis for trade among nations?
a.
shortages or surpluses in nations that do not trade
b.
misguided economic policies
c.
absolute advantage
d.
comparative advantage
2. Patterns of trade among nations are primarily determined by
a.
cultural considerations.
b.
political considerations.
c.
comparative advantage.
d.
differences in the income elasticity of demand among nations.
3. The market for corn in Wheatland consists solely of domestic buyers of corn and domestic sellers of corn if
a.
consumer surplus equals producer surplus in the Wheatland corn market.
b.
total surplus exceeds consumer surplus in the Wheatland corn market.
c.
Wheatland permits international trade in corn.
d.
Wheatland forbids international trade in corn.
4. The nation of Pineland forbids international trade. In Pineland, you can buy 1 pound of fish for 2 pounds of
pineapples. In other countries, you can buy 1 pound of fish for 1.5 pounds of pineapples. These facts indicate
that
a.
Pineland has a comparative advantage, relative to other countries, in producing fish.
b.
other countries have a comparative advantage, relative to Pineland, in producing pineapples.
c.
the price of pineapples in Pineland exceeds the world price of pineapples.
d.
if Pineland were to allow trade, it would import fish.
5. The nation of Falconia forbids international trade. In Falconia, you can obtain a computer by trading 3 bicy-
cles. In other countries, you can obtain a computer by trading 5 bicycles. These facts indicate that
a.
if Falconia were to allow trade, it would export computers.
b.
Falconia has an absolute advantage, relative to other countries, in producing computers.
c.
Falconia has a comparative advantage, relative to other countries, in producing bicycles.
d.
All of the above are correct.
Chapter 9/Application: International Trade ❖ 3
6. The principle of comparative advantage asserts that
a.
not all countries can benefit from trade with other countries.
b.
the world price of a good will prevail in all countries, regardless of whether those countries allow
international trade in that good.
c.
countries can become better off by exporting goods, but they cannot become better off by importing
goods.
d.
countries can become better off by specializing in what they do best.
7. A tax on an imported good is called a
a.
quota.
b.
tariff.
c.
supply tax.
d.
trade tax.
8. A tariff is a
a.
limit on how much of a good can be exported.
b.
limit on how much of a good can be imported.
c.
tax on an exported good.
d.
tax on an imported good.
9. The price of a good that prevails in a world market is called the
a.
absolute price.
b.
relative price.
c.
comparative price.
d.
world price.
10. The price of sugar that prevails in international markets is called the
a.
export price of sugar.
b.
import price of sugar.
c.
comparative-advantage price of sugar.
d.
world price of sugar.
11. If a country allows trade and, for a certain good, the domestic price without trade is higher than the world
price,
a.
the country will be an exporter of the good.
b.
the country will be an importer of the good.
c.
the country will be neither an exporter nor an importer of the good.
d.
Additional information is needed about demand to determine whether the country will be an
exporter of the good, an importer of the good, or neither.
4 ❖ Chapter 9/Application: International Trade
12. If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price,
a.
the country will be an exporter of the good.
b.
the country will be an importer of the good.
c.
the country will be neither an exporter nor an importer of the good.
d.
Additional information is needed about demand to determine whether the country will be an
exporter of the good, an importer of the good, or neither.
13. For any country, if the world price of zinc is higher than the domestic price of zinc without trade, that country
should
a.
export zinc, since that country has a comparative advantage in zinc.
b.
import zinc, since that country has a comparative advantage in zinc.
c.
neither export nor import zinc, since that country cannot gain from trade.
d.
neither export nor import zinc, since that country already produces zinc at a low cost compared to
other countries.
14. If the world price of textiles is higher than Vietnam’s domestic price of textiles without trade, then Vietnam
a.
should import textiles.
b.
has a comparative advantage in textiles.
c.
should produce just enough textiles to meet its domestic demand.
d.
should refrain altogether from producing textiles.
15. Assume, for Singapore, that the domestic price of soybeans without international trade is higher than the world
price of soybeans. This suggests that, in the production of soybeans,
a.
Singapore has a comparative advantage over other countries and Singapore will import soybeans.
b.
Singapore has a comparative advantage over other countries and Singapore will export soybeans.
c.
other countries have a comparative advantage over Singapore and Singapore will import soybeans.
d.
other countries have a comparative advantage over Singapore and Singapore will export soybeans.
16. Assume, for the U.S., that the domestic price of pineapples without international trade is lower than the world
price of pineapples. This suggests that, in the production of pineapples,
a.
the U.S. has a comparative advantage over other countries and the U.S. will export pineapples.
b.
the U.S. has a comparative advantage over other countries and the U.S. will import pineapples.
c.
other countries have a comparative advantage over the U.S. and the U.S. will export pineapples.
d.
other countries have a comparative advantage over the U.S. and the U.S. will import pineapples.
Chapter 9/Application: International Trade ❖ 5
17. Suppose England exports cars to Australia and imports cheese from Mexico. This situation suggests that
a.
England has a comparative advantage relative to Mexico in producing cheese, and Australia has a
comparative advantage relative to England in producing cars.
b.
England has a comparative advantage relative to Australia in producing cars, and Mexico has a
comparative advantage relative to England in producing cheese.
c.
England has an absolute advantage relative to Mexico in producing cheese, and Australia has an
absolute advantage relative to England in producing cars.
d.
England has an absolute advantage relative to Australia in producing cars, and Mexico has an
absolute advantage relative to England in producing cheese.
18. Trade among nations is ultimately based on
a.
absolute advantage.
b.
strategic advantage.
c.
comparative advantage.
d.
technical advantage.
19. A country has a comparative advantage in a product if the world price is
a.
lower than that country’s domestic price without trade.
b.
higher than that country’s domestic price without trade.
c.
equal to that country’s domestic price without trade.
d.
not subject to manipulation by organizations that govern international trade.
20. Suppose Guatemala has an absolute advantage over other countries in producing sugar, but other countries
have a comparative advantage over Guatemala in producing sugar. If trade in sugar is allowed, Guatemala
a.
will import sugar.
b.
will export sugar.
c.
will either export sugar or export sugar, but it is not clear from the given information.
d.
would have nothing to gain either from exporting or importing sugar.
21. Suppose Haiti has an absolute advantage over other countries in producing oranges, but other countries have a
comparative advantage over Haiti in producing oranges. If trade in oranges is allowed, Haiti
a.
will import oranges.
b.
will export oranges.
c.
will either export oranges or export oranges, but it is not clear from the given information.
d.
would have nothing to gain either from exporting or importing oranges.
6 ❖ Chapter 9/Application: International Trade
22. Assume, for Taiwan, that the domestic price of soybeans without international trade is lower than the world
price of soybeans. This suggests that, in the production of soybeans,
a.
Taiwan has a comparative advantage over other countries and Taiwan will import soybeans.
b.
Taiwan has a comparative advantage over other countries and Taiwan will export soybeans.
c.
other countries have a comparative advantage over Taiwan and Taiwan will import soybeans.
d.
other countries have a comparative advantage over Taiwan and Taiwan will export soybeans.
23. Assume, for Canada, that the domestic price of tomatoes without international trade is higher than the world
price of tomatoes. This suggests that, in the production of tomatoes,
a.
Canada has a comparative advantage over other countries and Canada will export tomatoes.
b.
Canada has a comparative advantage over other countries and Canada will import tomatoes.
c.
other countries have a comparative advantage over Canada and Canada will export tomatoes.
d.
other countries have a comparative advantage over Canada and Canada will import tomatoes.
24. Assume, for the U.S., that the domestic price of wheat without international trade is higher than the world
price of wheat. This suggests that, in the production of wheat,
a.
the U.S. has a comparative advantage over other countries and the U.S. will export wheat.
b.
the U.S. has a comparative advantage over other countries and the U.S. will import wheat.
c.
other countries have a comparative advantage over the U.S. and the U.S. will export wheat.
d.
other countries have a comparative advantage over the U.S. and the U.S. will import wheat.
25. Assume, for Canada, that the domestic price of wheat without international trade is lower than the world price
of wheat. This suggests that, in the production of wheat,
a.
Canada has a comparative advantage over other countries and Canada will export wheat.
b.
Canada has a comparative advantage over other countries and Canada will import wheat.
c.
other countries have a comparative advantage over Canada and Canada will export wheat.
d.
other countries have a comparative advantage over Canada and Canada will import wheat.
26. If the world price of sugar is lower than Brazil’s domestic price of sugar without trade, then Brazil
a.
should import sugar.
b.
has a comparative advantage in sugar.
c.
should produce just enough sugar to satisfy domestic demand.
d.
should produce no sugar domestically.
27. If a country is an exporter of a good, then it must be the case that
a.
the world price is less than its domestic price.
b.
consumer surplus is higher than a no trade situation.
c.
the world price is greater than its domestic price.
d.
they used an infant-industry argument to protect its producers.
Chapter 9/Application: International Trade ❖ 7
28. Suppose the United States exports cars to Switzerland and imports cheese from France. This situation suggests
a.
the United States has a comparative advantage relative to France in producing cheese, and
Switzerland has a comparative advantage to the United States in producing cars.
b.
the United States has a comparative advantage relative to Switzerland in producing cars, and France
has a comparative advantage relative to the United States in producing cheese.
c.
the United States has an absolute advantage relative to Switzerland in producing cars, and France
has an absolute advantage relative to the United States in producing cheese.
d.
the United States has an absolute advantage relative to France in producing cheese, and Switzerland
has an absolute advantage relative to the United States in producing cars.
29. Suppose the United States exports cars to Canada and imports bananas from Mexico. This situation suggests
a.
the United States has a comparative advantage relative to Canada in producing cars, and Mexico
has a comparative advantage relative to the United States in producing bananas.
b.
the United States has a comparative advantage relative to Canada in producing bananas, and
Mexico has a comparative advantage relative to the United States in producing cars.
c.
the United States has an absolute advantage relative to Canada in producing cars, and Mexico has
an absolute advantage relative to the United States in producing bananas.
d.
the United States has an absolute advantage relative to Mexico in producing bananas, and Canada
has an absolute advantage relative to the United States in producing cars.
30. Assume the nation of Cropland does not trade with the rest of the world. By comparing the world price of
corn to the price of corn in Cropland, we can determine whether
a.
consumer surplus exceeds producer surplus in Cropland.
b.
Cropland has an absolute advantage in producing corn.
c.
Cropland has a comparative advantage in producing corn.
d.
All of the above are correct.
31. By comparing the world price of horseradish to Cropland’s domestic price of horseradish, we can determine
whether Cropland
a.
will export horseradish (assuming trade is allowed).
b.
will import horseradish (assuming trade is allowed).
c.
has a comparative advantage in producing horseradish.
d.
All of the above are correct.
8 ❖ Chapter 9/Application: International Trade
32. Finland allows trade with the rest of the world. We can determine whether Finland has a comparative ad-
vantage in producing pork if we
a.
know whether Finland imports or exports pork.
b.
compare the world price of pork to the price of pork that would prevail in Finland if trade with the
rest of the world were not allowed.
c.
compare the quantity of pork consumed in Finland with the quantity of pork that would be
consumed in Finland if trade with the rest of the world were not allowed.
d.
All of the above are correct.
33. Chile allows trade with the rest of the world. We know that Chile has a comparative advantage in producing
lemons if we know that
a.
Chile imports lemons.
b.
the world price of lemons is higher than the price of lemons that would prevail in Chile if trade with
other countries were not allowed.
c.
consumer surplus in Chile would exceed producer surplus in Chile if trade with other countries
were not allowed.
d.
All of the above are correct.
34. The nation of Woodland forbids international trade. In Woodland, you can exchange 1 pound of chicken for 5
pounds of salt. In other countries, you can exchange 1 pound of chicken for 7 pounds of salt. These facts in-
dicate that
a.
Woodland has a comparative advantage, relative to other countries, in producing chicken.
b.
other countries have an absolute advantage, relative to Woodland, in producing chicken.
c.
the price of chicken in Woodland exceeds the world price of chicken.
d.
if Woodland were to allow trade, it would export salt.
35. The nation of Fastbrooke forbids international trade. In Fastbrooke, you can exchange 1 television for 3 com-
puters. In other countries, you can exchange 1 television for 2 computers. These facts indicate that
a.
other countries have an absolute advantage, relative to Fastbrooke, in producing televisions.
b.
Fastbrooke has a comparative advantage, relative to other countries, in producing televisions.
c.
if Fastbrooke were to allow trade, it would import computers.
d.
the world price of computers exceeds the price of computers in Fastbrooke.
THE WINNERS AND LOSERS FROM TRADE (PART I)
1. When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,
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.
Chapter 9/Application: International Trade ❖ 9
2. When, in our analysis of the gains and losses from international trade, we assume that a country is small, we
are in effect assuming that the country
a.
cannot experience significant gains or losses by trading with other countries.
b.
cannot have a significant comparative advantage over other countries.
c.
cannot affect world prices by trading with other countries.
d.
All of the above are correct.
3. When, in our analysis of the gains and losses from international trade, we assume that a particular country is
small, we are
a.
assuming the domestic price before trade will continue to prevail once that country is opened up to
trade with other countries.
b.
assuming there is no demand for that country’s domestically-produced goods by other countries.
c.
assuming international trade can benefit producers, but not consumers, in that country.
d.
making an assumption that is not necessary to analyze the gains and losses from international trade.
4. In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the
world. We do so
a.
because it is impossible to analyze the gains and losses from international trade without making this
assumption.
b.
because then we can assume that world prices of goods are unaffected by that country’s
participation in international trade.
c.
in order to rule out the possibility of tariffs or quotas.
d.
All of the above are correct.
5. In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that
a.
Moldova can only import goods; it cannot export goods.
b.
Moldova’s choice of which goods to export and which goods to import is not based on the principle
of comparative advantage.
c.
only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant.
d.
Moldova is a price taker.
6. When a country allows trade and becomes an exporter of a good,
a.
domestic producers gain and domestic consumers lose.
b.
domestic producers lose and domestic consumers gain.
c.
domestic producers and domestic consumers both gain.
d.
domestic producers and domestic consumers both lose.
10 ❖ Chapter 9/Application: International Trade
7. Trade enhances the economic well-being of a nation in the sense that
a.
both domestic producers and domestic consumers of a good become better off with trade,
regardless of whether the nation imports or exports the good in question.
b.
the gains of domestic producers of a good exceed the losses of domestic consumers of a good,
regardless of whether the nation imports or exports the good in question.
c.
trade results in an increase in total surplus.
d.
trade puts downward pressure on the prices of all goods.
8. When a country allows trade and becomes an importer of a good,
a.
both domestic producers and domestic consumers become better off.
b.
domestic producers become better off, and domestic consumers become worse off.
c.
domestic producers become worse off, and domestic consumers become better off.
d.
both domestic producers and domestic consumers become worse off.
9. When a country allows trade and becomes an importer of a good,
a.
everyone in the country benefits.
b.
the gains of the winners exceed the losses of the losers.
c.
the losses of the losers exceed the gains of the winners.
d.
everyone in the country loses.
10. When the nation of Worldova allows trade and becomes an exporter of silk,
a.
residents of Worldova who produce silk become worse off; residents of Worldova who buy silk
become better off; and the economic well-being of Worldova rises.
b.
residents of Worldova who produce silk become worse off; residents of Worldova who buy silk
become better off; and the economic well-being of Worldova falls.
c.
residents of Worldova who produce silk become better off; residents of Worldova who buy silk
become worse off; and the economic well-being of Worldova rises.
d.
residents of Worldova who produce silk become better off; residents of Worldova who buy silk
become worse off; and the economic well-being of Worldova falls.
11. When the nation of Duxembourg allows trade and becomes an importer of software,
a.
residents of Duxembourg who produce software become worse off; residents of Duxembourg who
buy software become better off; and the economic well-being of Duxembourg rises.
b.
residents of Duxembourg who produce software become worse off; residents of Duxembourg who
buy software become better off; and the economic well-being of Duxembourg falls.
c.
residents of Duxembourg who produce software become better off; residents of Duxembourg who
buy software become worse off; and the economic well-being of Duxembourg rises.
d.
residents of Duxembourg who produce software become better off; residents of Duxembourg who
buy software become worse off; and the economic well-being of Duxembourg falls.
Chapter 9/Application: International Trade ❖ 11
12. When a nation first begins to trade with other countries and the nation becomes an importer of corn,
a.
this is an indication that the world price of corn exceeds the nation’s domestic price of corn in the
absence of trade.
b.
this is an indication that the nation has a comparative advantage in producing corn.
c.
the nation’s consumers of corn become better off and the nation’s producers of corn become worse
off.
d.
All of the above are correct.
13. When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,
a.
this is an indication that the world price of soybeans exceeds the nation’s domestic price of
soybeans in the absence of trade.
b.
this is an indication that the nation has a comparative advantage in producing soybeans.
c.
the nation’s consumers of soybeans become worse off and the nation’s producers of soybeans
become better off.
d.
All of the above are correct.
14. Trade raises the economic well-being of a nation in the sense that
a.
the gains of the winners exceed the losses of the losers.
b.
everyone in an economy gains from trade.
c.
since countries can choose what products to trade, they will pick those products that are most
beneficial to society.
d.
the nation joins the international community when it begins to engage in trade.
15. When a country allows trade and becomes an exporter of a good,
a.
the gains of the domestic producers of the good exceed the losses of the domestic consumers of the
good.
b.
the gains of the domestic consumers of the good exceed the losses of the domestic producers of the
good.
c.
the losses of the domestic producers of the good exceed the gains of the domestic consumers of the
good.
d.
the losses of the domestic consumers of the good exceed the gains of the domestic producers of the
good.
16. When a country allows trade and becomes an importer of coal,
a.
the losses of the domestic producers of coal exceed the gains of the domestic consumers of coal.
b.
the losses of the domestic consumers of coal exceed the gains of the domestic producers of coal.
c.
the gains of the domestic producers of coal exceed the losses of the domestic consumers of coal.
d.
the gains of the domestic consumers of coal exceed the losses of the domestic producers of coal.
12 ❖ Chapter 9/Application: International Trade
17. When a country allows trade and becomes an exporter of a good, which of the following is not a consequence?
a.
The price paid by domestic consumers of the good increases.
b.
The price received by domestic producers of the good increases.
c.
The losses of domestic consumers of the good exceed the gains of domestic producers of the good.
d.
The gains of domestic producers of the good exceed the losses of domestic consumers of the good.
18. When a country allows trade and becomes an importer of bottled water, which of the following is not a conse-
quence?
a.
The gains of domestic consumers of bottled water exceed the losses of domestic producers of
bottled water.
b.
The losses of domestic producers of bottled water exceed the gains of domestic consumers of
bottled water.
c.
The price paid by domestic consumers of bottled water decreases.
d.
The price received by domestic producers of bottled water decreases.
19. When a country allows trade and becomes an exporter of a good,
a.
consumer surplus and producer surplus both increase.
b.
consumer surplus and producer surplus both decrease.
c.
consumer surplus increases and producer surplus decreases.
d.
consumer surplus decreases and producer surplus increases.
20. When a country allows trade and becomes an importer of a good,
a.
consumer surplus and producer surplus both increase.
b.
consumer surplus and producer surplus both decrease.
c.
consumer surplus increases and producer surplus decreases.
d.
consumer surplus decreases and producer surplus increases.
Chapter 9/Application: International Trade ❖ 13
Figure 9-1
The figure illustrates the market for wool in Scotland.
Domestic supply
Domestic demand
World
price
A
B
C
D
F
G
H
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Quantity
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
Price
21. Refer to Figure 9-1. From the figure it is apparent that
a.
Scotland will experience a shortage of wool if trade is not allowed.
b.
Scotland will experience a surplus of wool if trade is not allowed.
c.
Scotland has a comparative advantage in producing wool, relative to the rest of the world.
d.
foreign countries have a comparative advantage in producing wool, relative to Scotland.
22. Refer to Figure 9-1. From the figure it is apparent that
a.
Scotland will export wool if trade is allowed.
b.
Scotland will import wool if trade is allowed.
c.
Scotland has nothing to gain either by importing or exporting wool.
d.
the world price will fall if Scotland begins to allow its citizens to trade with other countries.
14 ❖ Chapter 9/Application: International Trade
23. Refer to Figure 9-1. With trade, Scotland will
a.
export 11 units of wool.
b.
export 5 units of wool.
c.
import 15 units of wool.
d.
import 6 units of wool.
24. Refer to Figure 9-1. In the absence of trade, the equilibrium price of wool in Scotland is
a.
$15.
b.
$45.
c.
$55.
d.
$70.
25. Refer to Figure 9-1. In the absence of trade, total surplus in Scotland is represented by the area
a.
A + B + C.
b.
A + B + C + D + F.
c.
A + B + C + D + F + G.
d.
A + B + C + D + F + G + H.
26. Refer to Figure 9-1. When trade in wool is allowed, consumer surplus in Scotland
a.
increases by the area B + D.
b.
increases by the area C + F.
c.
decreases by the area B + D.
d.
decreases by the area D + G.
27. Refer to Figure 9-1. When trade in wool is allowed, producer surplus in Scotland
a.
increases by the area B + D.
b.
increases by the area B + D + G.
c.
decreases by the area C + F.
d.
decreases by the area G.
28. Refer to Figure 9-1. When trade is allowed,
a.
Scotland producers of wool become better off and Scotland consumers of wool become worse off.
b.
Scotland consumers of wool become better off and Scotland producers of wool become worse off.
c.
both Scotland producers and consumers of wool become better off.
d.
both Scotland producers and consumers of wool become worse off.
Chapter 9/Application: International Trade ❖ 15
29. Refer to Figure 9-1. Relative to the no-trade situation, trade with the rest of the world results in
a.
Scotland consumers paying a higher price for wool.
b.
a decrease in producer surplus in Scotland.
c.
a decrease in total surplus in Scotland.
d.
All of the above are correct.
30. Refer to Figure 9-1. In the absence of trade, total surplus in the Scotland wool market amounts to
a.
187.5
b.
275.0
c.
378.5
d.
412.5
31. Refer to Figure 9-1. With trade, total surplus in the Scotland wool market amounts to
a.
312.5.
b.
367.0.
c.
467.5.
d.
495.0.
32. Which of the following statements is true?
a.
Free trade benefits a country when it exports but harms it when it imports.
b.
"Voluntary" limits on Canadian exports of hogs are better for the United States than U.S. tariffs
placed on Canadian hog exports.
c.
Tariffs and quotas differ in that tariffs work like a tax and therefore impose deadweight losses,
whereas quotas do not impose deadweight losses.
d.
Free trade benefits a country both when it exports and when it imports.
33. When a country allows international trade and becomes an exporter of a good,
a.
domestic producers of the good become better off.
b.
domestic consumers of the good become worse off.
c.
the gains of the winners exceed the losses of the losers.
d.
All of the above are correct.
34. Suppose New Zealand goes from being an isolated country to being an exporter of wool. As a result,
a.
consumer surplus increases for consumers of wool in New Zealand.
b.
producer surplus increases for producers of wool in New Zealand.
c.
total surplus remains unchanged in the wool market in New Zealand.
d.
it is reasonable to infer that other countries have a comparative advantage over New Zealand in
wool production.
16 ❖ Chapter 9/Application: International Trade
35. When a country allows international trade and becomes an importer of a good,
a.
domestic producers of the good become better off.
b.
domestic consumers of the good become worse off.
c.
the gains of the winners exceed the losses of the losers.
d.
All of the above are correct.
36. Assume, for the U.S., that the domestic price of tea without international trade is higher than the world price of
tea. This suggests that
a.
other countries have a comparative advantage over the U.S. in producing tea.
b.
the U.S. has an absolute advantage over other countries in producing tea.
c.
the U.S. will export tea if international trade is allowed.
d.
American tea buyers will become worse off if international trade is allowed.
37. Suppose a country begins to allow international trade in steel. Which of the following outcomes will be ob-
served regardless of whether the country finds itself importing steel or exporting steel?
a.
The sum of consumer surplus and producer surplus for domestic traders of steel increases.
b.
The quantity of steel demanded by domestic consumers increases.
c.
Domestic producers of steel receive a higher price for steel.
d.
The losses of the losers exceed the gains of the winners.
38. After a country goes from disallowing trade in coffee with other countries to allowing trade in coffee with
other countries,
a.
the domestic price of coffee will be greater than the world price of coffee.
b.
the domestic price of coffee will be lower than the world price of coffee.
c.
the domestic price of coffee will equal the world price of coffee.
d.
The world price of coffee does not matter; the domestic price of coffee prevails.
39. Within a country, the domestic price of a product will equal the world price if
a.
trade restrictions are imposed on the product.
b.
the country allows free trade.
c.
the country chooses to import, but not export, the product.
d.
the country chooses to export, but not import, the product.
Chapter 9/Application: International Trade ❖ 17
40. The world price of a simple electronic calculator is $5.00. Before Zimbabwe allowed trade in calculators, the
price of a calculator there was $7.50. Once Zimbabwe began allowing trade in calculators with other countries,
Zimbabwe began
a.
importing calculators and the price of a calculator in Zimbabwe decreased to $5.00.
b.
importing calculators and the price of a calculator in Zimbabwe remained at $7.50.
c.
exporting calculators and the price of a calculator in Zimbabwe decreased to $5.00.
d.
exporting calculators and the price of a calculator in Zimbabwe remained at $7.50.
41. The world price of a pound of T-bone steak is $9.00. Before Latvia allowed trade in beef, the price of a pound
of T-bone steak there was $7.50. Once Latvia began allowing trade in beef with other countries, Latvia began
a.
exporting T-bone steak and the price per pound in Latvia remained at $7.50.
b.
exporting T-bone steak and the price per pound in Latvia increased to $9.00.
c.
importing T-bone steak and the price per pound in Latvia remained at $7.50.
d.
importing T-bone steak and the price per pound in Latvia increased to $9.00.
42. Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price
of beans increases to equal the world price of beans, then
a.
that country becomes an exporter of beans.
b.
that country has a comparative advantage in producing beans.
c.
at the world price, the quantity of beans supplied in that country exceeds the quantity of beans
demanded in that country.
d.
All of the above are correct.
43. Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price
of pistachios decreases to equal the world price of pistachios, then
a.
that country becomes an exporter of pistachios.
b.
that country has a comparative advantage in producing pistachios.
c.
at the world price, the quantity of pistachios demanded in that country exceeds the quantity of
pistachios supplied in that country.
d.
All of the above are correct.
18 ❖ Chapter 9/Application: International Trade
Figure 9-2
44. Refer to Figure 9-2. Without trade, consumer surplus is
a.
$210.
b.
$245.
c.
$455.
d.
$490.
45. Refer to Figure 9-2. Without trade, producer surplus is
a.
$210.
b.
$245.
c.
$455.
d.
$490.
46. Refer to Figure 9-2. With free trade, this country will
a.
import 40 baskets.
b.
import 70 baskets.
c.
export 35 baskets.
d.
export 65 baskets.
47. Refer to Figure 9-2. If this country chooses to trade, the price of baskets in this country will be
a.
$10 and 40 baskets will be sold domestically.
b.
$10 and 105 baskets will be sold domestically.
c.
$7 and 70 baskets will be sold domestically.
d.
$7 and 40 baskets will be sold domestically.
Chapter 9/Application: International Trade ❖ 19
48. Refer to Figure 9-2. With free trade, consumer surplus is
a.
$45.
b.
$80.
c.
$210.
d.
$245.
49. Refer to Figure 9-2. With free trade, producer surplus is
a.
$80.00.
b.
$210.00.
c.
$245.50.
d.
$472.50.
50. Refer to Figure 9-2. As a result of trade, total surplus increases by
a.
$80.
b.
$97.50.
c.
$162.50.
d.
$495.50.
51. Refer to Figure 9-2. This country
a.
has a comparative advantage in baskets.
b.
should export baskets.
c.
is a price taker in the world economy.
d.
All of the above are correct.
52. Refer to Figure 9-2. The world price for baskets represents
a.
the demand for baskets from the rest of the world.
b.
the supply of baskets from the rest of the world.
c.
the level of inefficiency in the domestic market caused by trade.
d.
the gap between domestic quantity demanded and domestic quantity supplied and the resulting
shortage.
53. Refer to Figure 9-2. At the world price and with free trade,
a.
the domestic quantity of baskets demanded is greater than the domestic quantity of baskets
supplied.
b.
the basket market is in equilibrium.
c.
the domestic demand for baskets is perfectly inelastic.
d.
both domestic producers of baskets and domestic consumers of baskets are better off than they were
without free trade.
20 ❖ Chapter 9/Application: International Trade
Figure 9-3. The domestic country is China.
54. Refer to Figure 9-3. With no international trade,
a.
the equilibrium price is $12 and the equilibrium quantity is 300.
b.
the equilibrium price is $16 and the equilibrium quantity is 200.
c.
the equilibrium price is $16 and the equilibrium quantity is 300.
d.
the equilibrium price is $16 and the equilibrium quantity is 450.
55. Refer to Figure 9-3. If China were to abandon a no-trade policy in favor of a free-trade policy,
a.
Chinese producers of pencil sharpeners would become worse off.
b.
Chinese consumers of pencil sharpeners would become better off.
c.
total surplus in the Chinese economy would increase.
d.
All of the above are correct.
56. Refer to Figure 9-3. With trade, China will
a.
import 100 pencil sharpeners.
b.
import 250 pencil sharpeners.
c.
export 150 pencil sharpeners.
d.
export 250 pencil sharpeners.
57. Refer to Figure 9-3. With trade, producer surplus in China is
a.
$800.
b.
$1,200.
c.
$1,800.
d.
$2,700.
