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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.
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.
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.
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.
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 consequence?
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.
Figure 9-1
The figure illustrates the market for coffee in Guatemala.
21. Refer to Figure 9-1. From the figure it is apparent that
a.
Guatemala will experience a shortage of coffee if trade is not allowed.
b.
Guatemala will experience a surplus of coffee if trade is not allowed.
c.
Guatemala has a comparative advantage in producing coffee, relative to the rest of the world.
d.
foreign countries have a comparative advantage in producing coffee, relative to Guatemala.
22. Refer to Figure 9-1. From the figure it is apparent that
a.
Guatemala will export coffee if trade is allowed.
b.
Guatemala will import coffee if trade is allowed.
c.
Guatemala has nothing to gain either by importing or exporting coffee.
d.
the world price will fall if Guatemala begins to allow its citizens to trade with other countries.
23. Refer to Figure 9-1. With trade, Guatemala will
a.
export 22 units of coffee.
b.
export 10 units of coffee.
c.
import 30 units of coffee.
d.
import 12 units of coffee.
24. Refer to Figure 9-1. In the absence of trade, the equilibrium price of coffee in Guatemala is
a.
$30.
b.
$90.
c.
$110.
d.
$140.
25. Refer to Figure 9-1. In the absence of trade, total surplus in Guatemala 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 coffee is allowed, consumer surplus in Guatemala
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 coffee is allowed, producer surplus in Guatemala
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.
Guatemalan producers of coffee become better off and Guatemalan consumers of coffee become worse off.
b.
Guatemalan consumers of coffee become better off and Guatemalan producers of coffee become worse off.
c.
both Guatemalan producers and consumers of coffee become better off.
d.
both Guatemalan producers and consumers of coffee become worse off.
29. Refer to Figure 9-1. Relative to the no-trade situation, trade with the rest of the world results in
a.
Guatemalan consumers paying a higher price for coffee.
b.
a decrease in producer surplus in Guatemala.
c.
a decrease in total surplus in Guatemala.
d.
All of the above are correct.
30. Refer to Figure 9-1. In the absence of trade, total surplus in the Guatemalan coffee market amounts to
a.
750.
b.
1,100.
c.
1,514.
d.
1,650.
31. Refer to Figure 9-1. With trade, total surplus in the Guatemalan coffee market amounts to
a.
1,250.
b.
1,468.
c.
1,870.
d.
1,980.
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 Iceland goes from being an isolated country to being an exporter of coats. As a result,
a.
consumer surplus increases for consumers of coats in Iceland.
b.
producer surplus increases for producers of coats in Iceland.
c.
total surplus remains unchanged in the coat market in Iceland.
d.
it is reasonable to infer that other countries have a comparative advantage over Iceland in coat production.
35. Suppose Iceland goes from being an isolated country to being an importer of coats. As a result,
a.
consumer surplus increases for consumers of coats in Iceland.
b.
producer surplus increases for producers of coats in Iceland.
c.
total surplus remains unchanged in the coat market in Iceland.
d.
it is reasonable to infer that Iceland has a comparative advantage over other countries in coat production.
36. 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.
37. Assume, for Colombia, that the domestic price of coffee without international trade is higher than the world price of
coffee. This suggests that
a.
other countries have a comparative advantage over Colombia in producing coffee.
b.
Colombia has an absolute advantage over other countries in producing coffee.
c.
Colombia will export coffee if international trade is allowed.
d.
Colombian coffee buyers will become worse off if international trade is allowed.
38. Suppose a country begins to allow international trade in steel. Which of the following outcomes will be observed
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.
39. 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.
40. 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.
41. Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television
there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began
a.
importing televisions and the price of a television in Paraguay decreased to $300.
b.
importing televisions and the price of a television in Paraguay remained at $350.
c.
exporting televisions and the price of a television in Paraguay decreased to $300.
d.
exporting televisions and the price of a television in Paraguay remained at $350.
42. The world price of a pound of almonds is $4.50. Before Uruguay allowed trade in almonds, the price of a pound of
almonds there was $3.00. Once Uruguay began allowing trade in almonds with other countries, Uruguay began
a.
exporting almonds and the price per pound in Uruguay remained at $3.00.
b.
exporting almonds and the price per pound in Uruguay increased to $4.50.
c.
importing almonds and the price per pound in Uruguay remained at $3.00.
d.
importing almonds and the price per pound in Uruguay increased to $4.50.
43. 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.
44. 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.
Figure 9-2
The figure illustrates the market for calculators in a country.
45. Refer to Figure 9-2. Without trade, consumer surplus is
a.
$423.
b.
$845.
c.
$1,690.
d.
$3,380.
46. Refer to Figure 9-2. Without trade, producer surplus is
a.
$423.
b.
$845.
c.
$1,690.
d.
$3,380.
47. Refer to Figure 9-2. With free trade, this country will
a.
import 50 calculators.
b.
import 100 calculators.
c.
export 50 calculators.
d.
export 100 calculators.
48. Refer to Figure 9-2. If this country chooses to trade, the price of calculators in this country will be
a.
$15 and 80 calculators will be sold domestically.
b.
$15 and 130 calculators will be sold domestically.
c.
$20 and 80 calculators will be sold domestically.
d.
$20 and 130 calculators will be sold domestically.
49. Refer to Figure 9-2. With free trade, consumer surplus is
a.
$320.
b.
$640.
c.
$845.
d.
$1,690.
50. Refer to Figure 9-2. With free trade, producer surplus is
a.
$845.
b.
$1,620.
c.
$1,690.
d.
$3,240.
51. Refer to Figure 9-2. As a result of trade, total surplus increases by
a.
$50.
b.
$100.
c.
$250.
d.
$500.
52. Refer to Figure 9-2. This country
a.
has a comparative advantage in calculators.
b.
should export calculators.
c.
is a price taker in the world economy.
d.
All of the above are correct.
53. Refer to Figure 9-2. The world price for calculators represents
a.
the demand for calculators from the rest of the world.
b.
the supply of calculators 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.
54. Refer to Figure 9-2. At the world price and with free trade,
a.
the domestic quantity of calculators demanded is greater than the domestic quantity of calculators supplied.
b.
the calculator market is in equilibrium.
c.
the domestic demand for calculators is perfectly inelastic.
d.
both domestic producers of calculators and domestic consumers of calculators are better off than they were
without free trade.
Figure 9-3. The domestic country is China.
55. 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.
56. 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.
57. 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.
58. Refer to Figure 9-3. With trade, producer surplus in China is
a.
$800.
b.
$1,200.
c.
$1,800.
d.
$2,700.
59. Refer to Figure 9-3. Relative to a no-trade situation, which of the following comes with trade?
a.
Consumer surplus increases by $1,800 and producer surplus increases by $1,600.
b.
Consumer surplus decreases by $1,000 and producer surplus increases by $1,500.
c.
Consumer surplus decreases by $1,000 and producer surplus increases by $1,750.
d.
Total surplus increases by $400.
60. Refer to Figure 9-3. The increase in total surplus in China when trade is allowed is
a.
$400.
b.
$500.
c.
$600.
d.
$750.
Figure 9-4. The domestic country is Nicaragua.
61. Refer to Figure 9-4. With trade, Nicaragua
a.
imports 150 calculators.
b.
imports 250 calculators.
c.
exports 100 calculators.
d.
exports 250 calculators.
