Exam 2 Comprehensive
The Price of the U.S. Vehicle is $10,000. U.S. exports vehicle to Japan and Japan imposes 15% tariff on vehicle. What is the amount of tariff?
$1,500
John is willing to sell his used textbook for $50 and Amy is willing to sell her used textbook for $30. The price of the textbook on Amazon is $45. What is the total producer surplus?
$15
Moving between two points on a PPF, a country gains 8 desktop computers and forgoes 4 laptop computers. The opportunity cost of 1 desktop computer is
1/2 of a laptop
While moving on the production possibilities frontier, if the opportunity cost of producing one good is 1/2, the opportunity cost of producing the other good (in the same range) is
2
On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of bananas?
2 pounds of apples
Assume the U.S. currently grows 2.3 million tons of fresh winter fruit and that the resources absorbed in the production of this fruit could have produced 225,000 laptop computers. Therefore, the opportunity cost of those 2.3 million tons of fruit is
225,000 computers
Which of the following statements is false?
A country can never raise its standard of living by imposing a tariff.
Which of the following is correct about comparative advantage?
A country has a comparative advantage in the production of a good if it can produce the good at lower opportunity cost than any other country.
Which of the following statements is FALSE?
A country that possesses an absolute advantage will always have a comparative advantage
If two countries agree to specialize and trade based on comparative advantage, which of the following is most likely to be TRUE?
Both of the countries will consume outside their respective production possibilities curves.
Suppose that Brazil is capital abundant and Chile is natural resource abundant. If timber is natural resource intensive and computers are capital intensive, then
Chile will produce more timber after trade begins with Brazil.
Which of the following is FALSE?
Consumer surplus increases after a tariff is placed on imports.
If the autarky price of S (in terms of T) were lower in country A than in country B,
Country A has a comparative advantage in S. Country B has a comparative advantage in T. & Country A has a comparative disadvantage in T.
A pure economic loss, with no corresponding gain elsewhere in the economy is
Dead weight loss
Suppose that there are two factors of production, capital and land, and that the United States has a relatively large land endowment while the European Union has a relatively large capital endowment. According to the Stolper-Samuelson Theorem,
European capitalists should support U.S.-European free trade.
The HO theorem states that a country will have comparative advantage in the good whose production is relatively intensive in the ________ with which the country is relatively abundant.
Factor
A nation must have an absolute advantage in order to have a comparative advantage in producing a good or service.
False
Which of the following statements is true?
Final goods typically have higher tariffs than intermediate ones.
Dead weight loss results from:
Higher domestic production, Lower domestic consumption, & tariff is imposed
Hank requires 1 hour to cut the grass and 3 hours to clean the house. His sister Holly requires 1 hour to cut the grass and 4 hours to clean the house. Which of the following statements is true?
Holly has a comparative advantage in cutting the grass.
Starting from free trade, when a tariff is applied to imports in a small country, which of the following increase? I. Domestic output II. Domestic demand III. Domestic price IV. Tariff revenue V. Quantity of imports
I, III, and IV only
A tariff on imports benefits domestic producers of the imported good because
It raises the price for which they can sell their product on the domestic market.
Let Kj and Lj denote the capital and labor stocks of country j (j = A,B), then country A is said to be capital abundant relative to country B if
KA/LA> KB/LB.
Mac can bake more cookies than Monica per hour. It must be true that
Mac has an absolute advantage in baking cookies.
For country North, the opportunity cost incurred when 3 tractors are produced is 21 watches. For country South, the opportunity cost incurred when 5 tractors are produced is 100 watches. Which country has the comparative advantage in the production of tractors?
North
Given that Sandy can produce 10 economics reports or 2 sales calls and Tim can produce 2 economics reports or 1 sales call, which of the following is FALSE?
Sandy has a comparative advantage in sales calls.
Given that Sandy can produce 10 economics reports or make 2 sales calls and Tim can produce 2 economics reports or make 1 sales call, we can conclude that
Sandy should specialize in economics reports, and Tim should specialize in sales calls.
A tax equal to a fixed amount of money per unit sold is called_________________.
Specific tariff
The HO model assumes that ________ are identical between countries.
Tastes & Technology sets
Chile and the United States use capital (K) and labor (L) to produce wheat and cars. The United States is capital abundant, and Chile is labor abundant. Wheat production is more labor intensive than car production. Which statement below is correct?
The K/L ratio used in the production of cars is higher than the K/L ratio used in the production of wheat.
Which of the following is TRUE?
The Ricardian model assumes labor is perfectly mobile.
The United States can use all its resources to produce 250 DVDs or 500 shoes. China can use all of its resources to produce 30 DVDs or 300 shoes. The opportunity cost of producing a DVD in the United States is
The United States can use all its resources to produce 250 DVDs or 500 shoes. China can use all of its resources to produce 30 DVDs or 300 shoes. The opportunity cost of producing a DVD in the United States is
Which of the following would be a deadweight loss from a tariff?
The decrease in consumer surplus due to a drop in consumption
When a large country levies a tariff on imports
The world price falls. Demanders of the good on the domestic market are hurt Foreigners are hurt. & The domestic price rises by less than the tariff
Which of the following statements is true about an import tariff?
The world price of the good does not change if a small country imposes a tariff. The domestic price in a large country increases. & A tariff by a large country reduces world price by reducing its imports.
Imposing a tariff on an imported good leads to
a decrease in domestic consumption and a decrease in the quantity of the good that is imported.
When a person has a comparative advantage in producing a good or service, the person
a lower opportunity cost in producing that product than someone else
Suppose that South America could have instead produced those 2.3 million tons of fruit at an opportunity cost of 150,000 laptops. Because of the difference in opportunity costs between the two regions, it can be shown that trade gives the possibility of
a mutually beneficial rearrangement of world production
Ad valorem tariffs are collected as
a percentage of the price of the product.
Producer surplus is equal to the area
above the supply curve and below the price line.
Using the HO model, assume that the United States is capital abundant and Mexico is labor abundant. If soybeans are capital intensive and avocados are labor intensive,
avocado prices in the United States will fall once trade begins.
Small country________
cannot change world price when imposing tariff
Suppose that Brazil is capital abundant and Chile is natural resource abundant. If timber is natural resource intensive and computers are capital intensive, then according to the Stolperminus−Samuelson Theorem, the incomes of the owners of __________ are likely to rise in Brazil after trade with Chile begins.
capital
Assume that the two factors of production in Gambinia are labor and capital. Gambinia produces two types of goods: food and clothing. Assume that food production is relatively capital intensive. If Gambinia has many workers but very little capital, then, following the HO model, we know that Gambinia has a comparative advantage in
clothing
A production possibilities curve that is a straight line represents the case of
constant costs.
The difference between what consumers are willing to pay for a particular good and what they have to pay for that good, is known as
consumer surplus.
Tariffs reallocate income from
consumers to producers.
A country gains from international trade if its post-trade ________ point lies outside its production possibility frontier.
consumption
A country gains from international trade if its post-trade ________ point lies outside its production possibility frontier.
consumption
Assume that only two countries (A and B) exist and that only two goods, Soybeans (S) and automobiles (A) are produced. Country A has a labor force of 50 and a capital stock of 25. Country B has a labor force of 30 and a capital stock of 10. If Soybean production is labor intensive, then following the Heckscher-Ohlin Theory,
country B will export good S.
The potential for gains from the rearrangement of production among countries is due to
differing opportunity costs.
The HO theorem states that a country will have comparative advantage in the good whose production is relatively intensive in the ________ with which the country is relatively abundant.
factor
According to the Heckscher-Ohlin (HO) model the source of comparative advantage is a country's
factor endowments
Specific tariffs are collected as
fixed amounts of money per unit traded.
Tariffs are generally___________for agricultural product than manufactured product
higher
A production possibilities curve that is bowed out represents the case of
increasing costs.
Large countries can improve their welfare by levying a tariff only if it does not
lead to retaliation by the nation's trading partners.
If a nation has an absolute advantage in producing a good, then it
might or might not have a comparative advantage in producing that good.
The opportunity cost of one more slice of pizza in terms of sodas is the
number of sodas we have to give up in order to get one extra pizza slice.
A prohibitive tariff has
only protective effects
Specialization and trade make a country better off because with trade the country can consume at a point
outside its production possibilities frontier
Assume that bananas are imported into The United States (a large country) from Colombia (a small country). When the U.S. imposes a tariff on imported bananas, this
raises the price of bananas in the U.S. and lowers the price of bananas in Colombia
Assume that bananas are imported into The United States (a large country) from Colombia (a small country). When the U.S. imposes a tariff on imported bananas, this:
raises the price of bananas in the U.S. and lowers the price of bananas in Colombia.
Gains from trade
result in being able to consume beyond the trading individuals' production possibilities frontiers.
Once you find the opportunity cost of producing one unit of a good, to find the opportunity cost of producing the other good, you must
take the inverse
Which of the following is false?
tariff tends to decrease a country's welfare if the country's demand is elastic.
Before trade, suppose the cost of steel is 7 loaves of bread per ton in Japan. When Japan trades with the rest of the world, the world price of steel is 9 loaves of bread per ton. This information allows you to conclude
that Japan will export steel.
For each hour worked, a U.S. worker can produce 4 loaves of bread, or 2 tons of steel. Canadian workers can produce 2 loaves of bread, or 1 ton of steel per hour. The information indicates that
the U.S. has absolute advantage in bread, and the U.S also has absolute advantage in steel.
When economists talk about the gains from trade they mean that
the benefits of trade outweigh the losses.
Efficiency losses are
the deadweight loss that is created because domestic firms have to charge higher prices to produce units of output than foreign firms would have to charge.
A nation gains from trade even though some individuals benefit while others are hurt because
the economic gains of the winners exceed the economic losses of the losers.
The production side efficiency loss of a tariff is caused by
the expansion of relative inefficient domestic production.
A country possesses a comparative advantage in the production of a product if
the opportunity cost, in terms of the amount of other products that it gives up to produce this product, is lower than it is for its trading partners
Assume that Australia is relatively labor abundant, and that Belgium is relatively capital abundant. If free trade were to open up between these two countries,
the relative price of the labor intensive product would fall in Belgium.
Consider the large country case, graphical analysis from class. When the large country imposes a tariff, the result is that:
there is an increase in total surplus (welfare) if the value of the deadweight loss is less than the portion of the tariff revenue paid by foreigners.
Consider the large country case, when the large country imposes a tariff, the result is that
there is an increase in total surplus (welfare) if the value of the deadweight loss is less than the portion of the tariff revenue paid by foreigners.
If Toni has an absolute advantage in both sewing and ironing when compared to Tom, then
they might benefit from trading, but we need more information to determine in which task they should specialize.
Consumer surplus is equal to the area
under the demand curve and above the price line.
If the world price for a good is above a nation's pre−trade equilibrium price, then the nation
will export the good
Assume that only two countries, A and B exist, and that there are only two goods, beer and wine. Both countries face constant opportunity cost production possibilities frontiers. In Country A, producing 1 additional beer requires 3 labor hours, whereas in Country B, producing 1 additional beer requires 6 labor hours. Both countries can also make wine. In Country A, producing 1 additional wine requires 6 labor hours, however in Country B, producing 1 additional wine only requires 2 labor hours. Country B has a comparative advantage in
wine production
In our simple trade model, having a comparative advantage in a product implies that a country will specialize completely in the product
with the lowest opportunity cost.
If Canada imposes a tariff on coffee and if no coffee is grown in Canada, this tariff:
would be considered a pure revenue tariff.