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1) the following diagram shows a fixed-quantity production-possibilities frontier, a
community indifference curve and the associated autarky price line.
suppose that this country is opened to trade from this initial situation where the dashed
line indicates autarky prices [(px/py)autarky]. with this opening to trade,
a. the country can gain from trade if px/py on the world market is less than
(px/py)autarky but cannot gain from trade if px/py on the world market is greater than
(px/py)autarky
b. the country can gain from trade if px/py on the world market is greater than
(px/py)autarky but cannot gain from trade if px/py on the world market is less than
(px/py)autarky
c. the country can gain from trade if px/py on the world market is less than
(px/py)autarky and also can gain from trade if px/py on the world market is greater than
(px/py)autarky
d. the country cannot gain from trade if px/py on the world market is less than
(px/py)autarky and also cannot gain from trade if px/py on the world market is greater
than (px/py)autarky
2) suppose that the nominal tariff rate on final good x is 10 percent and that the
weighted average of the nominal tariff rates on the inputs used in producing good x is 6
percent. in this situation, the effective rate of protection (erp) for final good industry x
a. will be greater than 10 percent
b. will be greater than 6 percent but less than 10 percent
c. will be less than 6 percent but greater than zero percent
d. can be negative
3) an implication of the heckscher-ohlin theorem is that
a. if two countries have identical tastes, then no trade will occur between them.
b. the relative price of a countrys scarce factor of production will rise when the
country is opened to trade.
c. income distribution in a country does not change when a country is opened to trade.
d. two countries with identical tastes can still have a basis for trade if factor
endowments of the countries differ and if factor intensities of the commodities differ.
4) a eurodollar interest rate put option, which was purchased at a strike price of 93,
a. would not be exercised if the market interest rate was 6 percent on the contract date
b. gives the buyer the option of acquiring a lending rate of 9.3 percent on the contract
date
c. gives the buyer the option of receiving a 7 percent deposit rate on the contract date
d. would cost the buyer 93 basis points
5) a criticism of the argument that trade has been an important cause of increased u.s.
wage inequality in recent decades is that, if trade were an important cause, the
nontraded goods industries would have responded to the __________ in the price of
skilled labor relative to unskilled labor by using skilled labor relative to unskilled labor.
a. rise; more
b. rise; less
c. fall; more
d. fall; less
6) the optimum tariff rate for a country is that rate which, assuming no retaliation,
a. maximizes the countrys terms of trade
b. maximizes the countrys quantity of imports
c. maximizes the countrys balance of trade
d. maximizes the countrys welfare
7) the following diagram pertains to good x for country a, where da is the demand for x
by a's consumers, sa is the supply curve of x from a's home producers, sb is the
horizontal supply curve of x to country a from country b, sc is the horizontal supply
curve of x to country a from country c, and sb and sc are the horizontal supply curves
from b and c, respectively, with a tariff in place.
when the tariffs are in place for both countries b and c, the tariff revenue being collected
by country as government consists of __________.
a. area b
b. area f
c. areas (b + f)
d. areas (e + f + g)
8) the 2012 u.s. mfn/normal trade relations tariff on mens knitted wool blazers was 38.6
per kilogram of weight plus 10 percent of the value of the blazer. this is an example of
__________.
a. a specific tariff
b. an ad valorem tariff
c. a combination of a specific tariff and an ad valorem tariff
d. a nontariff barrier
9) in the following edgeworth box diagram for a countrys production,
a movement from point s to point t will lead to __________ in the capital/labor ratio
used in the production of good a and __________ in the capital/labor ratio used in the
production of good b.
a. an increase; will lead to a decrease
b. an increase; also will lead to an increase
c. a decrease; also will lead to a decrease
d. a decrease; will lead to an increase
10) in empirical tests of the linder hypothesis for a given test country, a finding that
conforms to the hypothesis would be that the test country trades more intensely with
countries in which per capita income is __________ the per capita income of the test
country. if the test country does not trade with some countries that have similar per
capita incomes to the test country and these other countries are excluded from the
empirical test, then the results of the empirical test will be __________ confirmation of
the linder hypothesis.
a. different from rather than similar to; biased against
b. different from rather than similar to; biased toward
c. similar to rather than different from; biased against
d. similar to rather than different from; biased toward
11) in the following diagram showing the relationship between the price of good x
relative to the price of good (px/py) and the wage rate relative to the return to capital or
rental rate on capital (w/r),
good x is the relatively __________ good at (w/r) values less than (w/r)*, and good x is
__________ good at (w/r) values greater than (w/r)*. [note: the (px/py) associated with
(w/r)* is the highest (px/py) on the graph.]
a. labor-intensive; also the relatively labor-intensive
b. labor-intensive; the relatively capital-intensive
c. capital-intensive; the relatively labor-intensive
d. capital-intensive; also the relatively capital-intensive
12) you are given the following dornbusch-fischer-samuelson (dfs) graph, where a1 =
the labor-time needed per unit of output in any given industry in the home country, a2 =
the labor-time needed per unit of output in any given industry in the foreign country, w1
= the wage rate in the home country, and w2 = the wage rate in the foreign country. the
exchange rate e is assumed = 1.
i
n the dornbusch-fischer-samuelson model above, a shift in tastes and preferences
towards home country goods will cause the __________ schedule to pivot __________.
a. a; downward and to the left
b. a; upward and to the right
c. c; downward and to the right
d. c; upward and to the left
13) if national income is greater than spending by domestic residents, then the country
will have, in its balance of trade (or balance on current account)
a. a deficit
b. a surplus
c. neither a deficit nor a surplus
d. either a deficit or a surplus cannot be determined without more information
you are given the following information pertaining to large country b with respect to good
w (which is produced at home and also imported), both under free trade and with a $10.00
import tariff in place:
given this information, and assuming that demand and supply curves are straight lines,
what is the loss of consumer surplus in country b that occurs because of the imposition of
the tariff?
a. $44
b. $72
c. $448
d. $464
15) according to the department of commerce information given in the textbook, the
industry in which the largest amount of foreign direct investment (fdi) in the united
states has been made is __________.
a. finance (except depository institutions) and insurance
b. information
c. manufacturing
d. wholesale trade
16) the following diagram pertains to good x for country a, where da is the demand for
x by a's consumers, sa is the supply curve of x from a's home producers, sb is the
horizontal supply curve of x to country a from country b, sc is the horizontal supply
curve of x to country a from country c, and sb and sc are the horizontal supply curves
from b and c, respectively, with a tariff in place.
in the diagram above, suppose that country a, from this initial situation where its tariff
is applied to both countries b and c, now forms a customs union with country b. the net
welfare effect on country a from the formation of this customs union with country b
would be __________.
a. areas (a + b + c) minus area f
b. areas (a + c) minus areas (b + f)
c. areas (a + c) minus area f
d. areas (a + c + d + e + g + h) minus area f
you are given the following information pertaining to large country b with respect to good
w (which is produced at home and also imported), both under free trade and with a $10.00
import tariff in place:
given this information, and assuming that demand and supply curves are straight lines, the
impact of the imposition of the tariff is that tariff revenue of the government increases by
__________. further, the net welfare effect of the imposition of the tariff is a __________.
a. $72; loss of $44
b. $72; gain of $64
c. $180; loss of $44
d. $180; gain of $64
18) a mercantilist policymaker would be in favor of which of the following policies or
events pertaining to his/her country?
a. a decrease in the size of the population
b. a minimum wage bill to protect the standard of living of workers
c. a prohibition on the export of manufactured goods
d. an increase in the percentage of factors of production devoted to adding value to
imported raw materials in order to later export the resulting manufactured goods
