True / False
1. The history of the textile industry raises important questions for economic policy.
a.
True
b.
False
2. Trade decisions are based on the principle of absolute advantage.
a.
True
b.
False
3. The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive from participating
in a market.
a.
True
b.
False
4. According to the principle of comparative advantage, all countries can benefit from trading with one another because
trade allows each country to specialize in doing what it does best.
a.
True
b.
False
5. The world price of cotton is the highest price of cotton observed anywhere in the world.
a.
True
b.
False
6. If the world price of a good is greater than the domestic price in a country that can engage in international trade, then
that country becomes an importer of that good.
a.
True
b.
False
7. Without free trade, the domestic price of a good must be equal to the world price of a good.
a.
True
b.
False
8. The nation of Aviana soon will abandon its no-trade policy and adopt a free-trade policy. If the world price of goose
meat is $3 per pound and the domestic price of goose meat without trade is $2 per pound, then Aviana should export
goose meat.
a.
True
b.
False
9. If a country allows free trade and its domestic price for a given good is lower than the world price, then it will import
that good.
a.
True
b.
False
10. “Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the
losers.” This statement is correct for a nation that exports manufactured goods, but it is not correct for a nation that
imports manufactured goods.
a.
True
b.
False
11. The nation of Loneland does not allow international trade. In Loneland, you can buy 1 pound of beef for 2 pounds of
cheese. In neighboring countries, you can buy 2 pounds of beef for 3 pounds of cheese. If Loneland were to allow free
trade, it would export cheese.
a.
True
b.
False
12. If Argentina exports oranges to the rest of the world, Argentina’s producers of oranges are worse off, and Argentina’s
consumers of oranges are better off, as a result of trade.
a.
True
b.
False
13. If a country’s domestic price of a good is lower than the world price, then that country has a comparative advantage in
producing that good.
a.
True
b.
False
14. When a country allows international trade and becomes an importer of a good, domestic producers of the good are
better off, and domestic consumers of the good are worse off.
a.
True
b.
False
15. If the United Kingdom imports tea cups from other countries, then U.K. producers of tea cups are better off, and U.K.
consumers of tea cups are worse off, as a result of trade.
a.
True
b.
False
16. If Belgium exports chocolate to the rest of the world, then Belgian chocolate producers benefit from higher producer
surplus, Belgian chocolate consumers are worse off because of lower consumer surplus, and total surplus in Belgium
increases because of the exports of chocolate.
a.
True
b.
False
17. In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers.
a.
True
b.
False
18. Suppose the Ivory Coast, a small country, imports wheat at the world price of $4 per bushel. If the Ivory Coast
imposes a tariff of $1 per bushel on imported wheat, then, other things equal, the price of wheat in Ivory Coast will
increase, but by less than $1.
a.
True
b.
False
19. The small-economy assumption is necessary to analyze the gains and losses from international trade.
a.
True
b.
False
20. The greater the elasticities of supply and demand, the smaller are the gains from trade.
a.
True
b.
False
21. If a tariff is placed on watches, the price of both domestic and imported watches will rise by the amount of the tariff.
a.
True
b.
False
22. When a government imposes a tariff on a product, the domestic price will equal the world price.
a.
True
b.
False
23. A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade.
a.
True
b.
False
24. When a country abandons no-trade policies in favor of free-trade policies and becomes an importer of steel, then the
domestic price of steel will increase as a result.
a.
True
b.
False
25. When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off.
a.
True
b.
False
26. When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off and
sellers of shoes in that country become better off.
a.
True
b.
False
27. Deadweight loss measures the decrease in total surplus that results from a tariff or quota.
a.
True
b.
False
28. If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government
will gain tariff revenue, and domestic consumers will gain consumer surplus.
a.
True
b.
False
29. Domestic consumers gain and domestic producers lose when the government imposes a tariff on imports.
a.
True
b.
False
30. The imposition of a tariff on imported wine will increase the domestic price of wine, decrease the quantity of wine
imported, and increase the quantity of wine produced domestically.
a.
True
b.
False
31. Suppose that Australia imposes a tariff on imported beef. If the increase in producer surplus is $100 million, the
increase in tariff revenue is $200 million, and the reduction in consumer surplus is $500 million, the deadweight loss of
the tariff is $300 million.
a.
True
b.
False
32. Suppose Ecuador imposes a tariff on imported bananas. If the increase in producer surplus is $50 million, the
reduction in consumer surplus is $150 million, and the deadweight loss of the tariff is $30 million, then the tariff generates
$130 million in revenue for the government.
a.
True
b.
False
33. Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without
trade, thus reducing the gains from trade.
a.
True
b.
False
34. Import quotas and tariffs both cause the quantity of imports to fall.
a.
True
b.
False
35. Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.
a.
True
b.
False
36. If a country allows free trade and imports cars, then it is the case that the gains to domestic producers outweigh the
losses to domestic consumers.
a.
True
b.
False
37. The nation of Cranolia used to prohibit international trade, but now trade is allowed, and Cranolia is exporting
furniture. Relative to the previous no-trade situation, buyers of furniture in Cranolia are now better off.
a.
True
b.
False
38. The nation of Spritzland used to prohibit international trade, but now trade is allowed, and Spritzland is exporting
wristwatches. Relative to the previous no-trade situation, total surplus in the market for wristwatches in Spritzland has
increased.
a.
True
b.
False
39. Free trade allows firms to realize economies of scale, resulting in higher costs of production.
a.
True
b.
False
40. For a given country, comparing the world price of aluminum and the domestic price of aluminum before trade
indicates whether that country’s demand for aluminum exceeds the demand for aluminum in other countries.
a.
True
b.
False
41. For Country A, the world price of soybeans exceeds the domestic equilibrium price of soybeans. As a result,
international trade allows buyers of soybeans in Country A to experience greater consumer surplus than they otherwise
would experience.
a.
True
b.
False
42. For Country A, the world price of textiles exceeds the domestic equilibrium price of textiles. As a result, international
trade allows sellers of textiles in Country A to experience greater producer surplus than they otherwise would experience.
a.
True
b.
False
43. William and Jamal live in the country of Dumexia. As a result of Dumexia’s legalization of international trade in
bananas, William becomes better off and Jamal becomes worse off. It follows that William is a seller, and Jamal is a
buyer, of bananas.
a.
True
b.
False
44. William and Jamal live in the country of Dumexia. When Dumexia legalized international trade in bananas, the price
of bananas in Dumexia increased. As a result, William became better off and Jamal became worse off. It follows that
William is a seller, and Jamal is a buyer, of bananas.
a.
True
b.
False
45. Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of
foreign competition.
a.
True
b.
False
46. Free trade causes job losses in industries in which a country does not have a comparative advantage, but it also causes
job gains in industries in which the country has a comparative advantage.
a.
True
b.
False
47. Most economists support the infant-industry argument because it is so easy to implement in practice.
a.
True
b.
False
48. If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices, the
Swedish economy would be worse off.
a.
True
b.
False
49. Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors.
a.
True
b.
False
50. GATT is an example of a successful unilateral approach to achieving free trade.
a.
True
b.
False
51. NAFTA is an example of a multilateral approach to achieving free trade.
a.
True
b.
False
52. The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced by an international
body called the World Trade Organization (WTO).
a.
True
b.
False
53. A multilateral approach to free trade has greater potential to increase the gains from trade than a unilateral approach,
because the multilateral approach can reduce trade restrictions abroad as well as at home.
a.
True
b.
False
54. Economists feel that national security concerns never provide a legitimate rationale for trade restrictions.
a.
True
b.
False
55. Economists view free trade as a way to raise living standards both at home and abroad.
a.
True
b.
False
56. The results of a 2008 Los Angeles Times poll suggest that a significant majority of Americans believe that free
international trade helps the American economy.
a.
True
b.
False
57. The results of a 2008 Los Angeles Times poll suggest that the percentage of Americans who believe trade is harmful to
the economy exceeds the percentage of Americans who believe trade is beneficial to the economy.
a.
True
b.
False
58. Most economists view the United States as an ongoing experiment that raises serious doubts about the virtues of free
trade.
a.
True
b.
False
59. If a country is exporting a good, this is because the country has an absolute advantage in the production of that good.
a.
True
b.
False
60. When markets open up to international trade, we know that consumer surplus will rise.
a.
True
b.
False
61. When markets open up to international trade, we know that total surplus will rise.
a.
True
b.
False
62. Since a tariff can increase employment in an industry, the result is a net increase in total surplus.
a.
True
b.
False
63. There are only increases in total surplus when a country exports a good, since more units of the country’s output of
that good are produced.
a.
True
b.
False
64. If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off
than they would be in the absence of trade.
a.
True
b.
False
65. Imposing a quota on the import of a good is preferable to a tariff because a tariff creates a deadweight loss while a
quota does not.
a.
True
b.
False
66. Imposing a tariff on the import of a good is preferable to a quota because a tariff produces revenue for the
government, while a quota never produces any revenue for a government.
a.
True
b.
False
67. The small country assumption is made in developing models of international trade because it applies to US markets.
a.
True
b.
False
68. We can conclude that international trade is beneficial because, regardless of whether the country imports or exports a
good, the overall increase in well-being outweighs the losses associated with trade.
a.
True
b.
False