Econ 306: International Economics

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles Calculate the government revenue from the tariff.

250,000

A specification of a maximum amount of a foreign produced good that will be allowed to enter the country over a given period is referred to as

An import quota

Concerning the restrictive impact of an import quota, assume there occurs an increase in the domestic demand for the import product. As long as the quota falls short of what would be imported under free market conditions, the economy's adjustment to the increase in demand would take the form of

An increase in the domestic price of the import good

The high point of U.S. protectionism occurred with the passage of the Kennedy Act in the 1960s.

False

Import quotas

increase the price to the domestic consumer.

Each trading nation can gain by specializing in producing those things for which it is a low-opportunity cost producer. This statement best describes the implications of the

law of comparative advantage

Celine buys a new MP3 player for $90. She receives consumer surplus of $15 on her purchase if her willingness to pay is

$105

Section 301 of the Trade Act of 1974 emphasized

unfair trading practices of American trading partners.

If Canada produces computers at a lower relative cost than Germany, Canada is said to have a comparative disadvantage in computers

False

If country A is relatively land-abundant and country B is relatively labor-abundant, the Heckscher-Ohlin theory predicts that country A will export textiles (a relatively labor-intensive good) and country B will export corn (a relatively land-intensive good).

False

Trade creation would occur if Canada and the United States form a free trade area and the Canadians then import less steel from the United States while importing more steel from Japan.

False

With a quota placed on imported sugar, increased domestic demand leads to increased sugar imports but NOT to higher sugar prices.

False

With a regional trading arrangement, a group of countries agrees to unilaterally reduce tariffs applied to imports from all countries of the world.

False

With a specific tariff, the degree of protection afforded domestic producers varies directly with changes in import prices.

False

The formation of the European Monetary Union is expected to entail benefits for member countries which include all of the following EXCEPT

Independent monetary policies run by the central bank of each member country

According to Ricardo, a country will have a comparative advantage in the product in which its

Labor productivity is relatively high

Which of the following can be concluded from the relationships given below? (U.K. capital stock) < (Rest of the World's capital stock) (U.K. labor supply) > (Rest of the World's labor supply)

The U.K is relatively labor-abundant compared to the Rest of the World.

An elimination of nontariff barriers on apples tends to increase apple imports, reduce profits of import-competing apple producers, and generate job losses for domestic apple workers.

True

If the United Kingdom and Italy eliminate all tariffs on each other's goods and all restrictions to factor movements between them and if they implement a uniform system of import restrictions against the rest of the world, these countries have formed a common market.

True

Sporadic (distress) dumping would occur if domestic orange producers dispose of an excess quantity of oranges, resulting from an abnormally large harvest, by selling them at lower prices abroad than at home.

True

U.S. labor unions argued against the North American Free Trade Agreement on the grounds that it would result in U.S. companies relocating in Mexico in order to take advantage of lower wage rates.

True

With a compound tariff, a domestic importer of an automobile might be required to pay a duty of $200 plus 4 percent of the value of the automobile.

True

Table 2.1. Output Possibilities of the U.S. and the U.K. Output per Worker per labor hour Country I Wine I Cloth United States: 5 bottles I 20 yards United Kingdom: 15 bottles I 10 yards Referring to Table 2.1, the United Kingdom has a comparative advantage in the production of

Wine

In 1995, the ______________ was established to administer the new global trade rules agreed in the Uruguay Round of multilateral trade negotiations.

World Trade Organization

Which of the following is a fixed percentage of the value of an imported product as it enters the country?

ad valorem tariff

Regarding governmental subsidies applied to commercial jetliners, the World Trade Organization ruled that during 2010-2012

both Airbus and Boeing had received illegal subsidies.

Suppose there are only two goods in the world, corn and shirts. If it is true that with its vast resources the United States could produce both more corn and more shirts than Mexico

both countries will be able to gain from specialization and trade as long as relative costs of producing the two goods are different in Mexico than in the United States.

If a production possibilities frontier appears as a downward sloping straight line, which of the following occurs?

constant opportunity cost

On a graph, the area below a demand curve and above the price measures

consumer surplus

Compared to the no-trade situation, when a country imports a good

domestic consumers gain, domestic producers lose, and the gains outweigh the losses.

In U.S. trade law, which measure permits the levying of restrictions on fairly traded imports that harm or threaten to harm American manufacturers?

escape clause

As industry output increases, suppose that new knowledge about production technology spreads among firms in the area through direct contacts among firms or as workers transfer from firm to firm. Which concept does this example demonstrate?

external economies of scale

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles The imposition of the tariff on wine will cause the surplus of the domestic consumers to _____ by _____.

fall; $3.5 million

"Cheap foreign wages" is a poor argument for protection because it fails to recognize the importance of productivity. Which of the following does NOT contribute to increasing productivity?

government subsidies

The theory of comparative advantage suggests that nations should produce a good if they

have the lowest opportunity cost.

Assume that Country A, in the absence of trade, finds itself relatively abundant in labor and relatively scarce in land. The factor endowment theory reasons that, with free trade, the internal distribution of national income in Country A will change in favor of

labor

Table 2.2. Output possibilities for South Korea and Japan Output per worker per day Country Tons of steel I VCRs South Korea: 80 I 40 Japan: 20 I 20 Refer to Table 2.2. According to the principle of absolute advantage, Japan should

not trade in anything, as there is no basis for gainful trade.

Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product matures?

product life-cycle theory

An importer of computers is required to pay a duty to the government of $100 per computer regardless of the price of the computer. Which type of tariff is described in this example?

specific tariff

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

Historically, one of the most common reasons for countries to impose tariffs was

to raise revenue for the government