Quiz 13: International Trade
Which of the following is true of predatory dumping?
It may drive out established firms.
A nation's producers can compete effectively with imports from other nations if:
the labor cost per unit of output is low.
Autarky is:
the situation of national self-sufficiency, in which there is no economic interaction with foreign producers or consumers.
The American Tire Company has been experiencing a steady loss of market over the past 40 years due to imports of lower-priced tires. Which of the following arguments would American Tire most likely present to Congress when it lobbies for trade restrictions?
The declining industry argument
During a year, the government of a country imposed a tariff on imported steel. The rationale behind this policy was that lower-priced imports had put the country's established steel industries in jeopardy of closing. This government policy was based on:
the declining industries argument.
One reason for international specialization is:
the different resource endowments throughout the world.
If quota rights accrue to foreigners, then _____.
the domestic economy is worse off with a quota than with a tariff
Economies of scale in the production of a good implies that:
the long-run average cost of production falls as the scale of operation expands.
If a manufacturer sells goods abroad for a lesser price than they sell for at home, it implies that _____.
the manufacturer is engaged in dumping
If there are no trade restrictions, a country will import a particular good if:
there is excess domestic quantity demanded at the world price.
Some industries have argued that since their output is vital for national defense, _____.
they should be entitled to additional trade protection
According to some economists, the protection granted to infant industries should be:
to protect emerging domestic industries.
The difference between the effects of an import quota and a tariff is that:
under a quota, part of the decrease in consumer surplus is redistributed to foreign producers; under a tariff, it is redistributed to the domestic government.
Unless there are barriers to prevent free international trade, a country becomes an importer:
when the domestic price exceeds the world price.
The United States is a major exporter of _____.
corn
The source of gains from trade is _____.
comparative advantage
International trade increases the variety of goods and services available in a country.
true
Differences in resource endowments are differences in:
the quality and quantity of resources available in different nations.
If production is subject to economies of scale, countries can gain from trade if each nation specializes in the production of a good.
TRUE
Whenever the opportunity costs of goods are significantly different in different countries, there are gains from specialization and trade.
true
When a country imposes a per-unit tariff on an imported good or service, _____.
the quantity of the good or service imported into the country declines
The production possibilities curve of a country will be a straight line if _____.
the resources in the country are equally adaptable to the production of each commodity
A World Trade Organization (WTO) member country must offer to all other member countries:
the same trade concessions.
The terms of trade refers to:
the world price of a good determined by the world supply and demand for the good.
Tariffs and quotas are the only two devices used to restrict foreign trade.
false
The world price of a good refers to the quantity of one good exchanged for a unit of another good.
false
Which of the following factors is most significant in determining the pattern of international trade?
Comparative advantage
If resources are equally adaptable to the production of different goods, the production possibilities frontier of a country will be an upward-sloping, concave curve.
false
If the United States has an absolute advantage in producing computer components, it should export them worldwide.
false
Which of the following reasons best explains U.S. imports of crude oil from Saudi Arabia and diamonds from South Africa?
Differences in resource endowments
Differences in tastes among nations:
make gains from trade possible even in the absence of differences in resource endowments.
Regional trading bloc agreements:
make special trade deals between countries in that region and discriminate against countries outside the region.
International trade between countries typically produces a winner and a loser. Generally, it is the more economically advanced country that gains at the expense of the less developed nation.
false
International trade equalizes the opportunity cost of producing any good around the world.
false
It is possible for one country to have a comparative advantage in the production of all products.
false
Suppose workers in Transylvania can produce only two goods—yo-yos or sweatsocks. If the Transylvanian currency is the daler, then the opportunity cost of producing yo-yos is measured in terms of _____.
sweatlocks
The industry for computers has just started growing in the nation of Verdana, and there is potential for the industry to flourish in the near future. However, there is stiff competition from other foreign nations that provide computers to the domestic market. The government is considering imposing a tariff. Which of the following arguments justifies the government's decision to impose a tariff on the import of computers?
The infant industry argument
U.S. auto workers sometimes experience structural unemployment because of the popularity of foreign cars. Which of the following arguments would most likely be presented by an auto workers' union lobbying for trade restrictions to Congress?
The jobs and income argument
A legal limit on the amount of a commodity that can be imported is known as:
an import quota.
The basis of the benefits of specialization is:
comparative advantage.
The establishment of GATT resulted in:
lower tariff rates
In the United States, dumping:
is prohibited by the Trade Agreements Act of 1979.
Which of the following statements is true of free trade zones?
North American Free Trade Agreement (NAFTA) is a free trade agreement between the U.S., Canada, and Mexico that has reduced illegal migration of Mexicans to the U.S.
Some countries export products at prices below the cost of production or the price charged in the domestic market. This practice is called:
dumping
An import quota is a tax on imports.
false
Countries export products they can produce cheaply in return for products that are unavailable domestically or are cheaper elsewhere.
false
If a country has an absolute advantage in the production of every good, it cannot benefit from trade with other countries.
false
If a tariff increases, everybody loses except the government imposing the tariff.
false
Japan is generally considered a closed economy.
false
Quotas and tariffs discourage foreign governments from retaliating with quotas and tariffs of their own.
false
Relative to quotas, tariffs lead to a greater change in the quantity of a good demanded by consumers.
false
Specialization based on absolute advantage leads to gains from trade.
false
The declining industries argument was formulated as a rationale for protecting emerging domestic industries from foreign competition.
false
U.S. consumers would be better off if they bought only U.S.-produced goods.
false
The temporary sale of products in a foreign market at prices below cost to eliminate competitors in that foreign market is referred to as:
predatory dumping
The cost of the resources used by domestic producer groups, including lobbying fees, propaganda, and legal restrictions, is collectively referred to as the cost of:
rent seeking
Which of the following does not result in a mutually beneficial trade between two countries?
One country having an absolute advantage over the other
A tariff is a tax on either imports or exports.
true
Ad valorem tariffs on imports are based on a percentage of an import's value, while specific tariffs are based on a lump sum per physical unit imported.
true
Domestic producers of goods who compete with cheaper imports benefit from protectionism in the short run.
true
If wage rates are lower in Mexico than in Germany, labor costs per unit of output can still be higher in Mexico.
true
In 2012, exports amounted to about 14 percent of U.S. GDP.
true
International trade increases world economic efficiency for the same reasons that domestic trade increases national economic efficiency.
true
When a country imposes trade restrictions, the domestic producers who compete with imports may lose in the long run if protection stifles innovation and leaves the industry vulnerable.
true
The world demand for and the world supply of a good will together determine the _____.
world price
The imported question text for this question was too long.
0.025 ton of rice 10 T-shirts 0.01 ton of rice 40 T-shirts Bodoni has an absolute advantage in the production of both rice and T-shirts.
Suppose one worker in New Ralph Island can produce 40 walking sticks or 10 boomerangs each hour. The opportunity cost of producing 1 walking stick is _____.
0.25 boomerangs
The General Agreement on Tariffs and Trade (GATT) was established in:
1947 by 23 countries to reduce trade restrictions.
Which of the following is not true of dumping?
A major difficulty with dumping by firms in other countries is that it drives up prices for the domestic consumer.
Which of the following reasons best explains why the United States is a net importer of crude oil and metals and a net exporter of farm crops?
Differences in resource endowments
Which of the following results in international specialization?
Differing consumer tastes
Which of the following is true of autarky?
Each country's consumption possibilities are the same as its production possibilities.
Which of the following is not a type of trade restriction?
Economies of scale
Which of the following reasons explains why many countries with relatively small populations import automobiles from Japan, U.S., and Germany rather than produce them domestically?
Economies of scale
The largest regional trading bloc is the _____.
European Community
Which of the following is a difference between the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)?
GATT was involved only in merchandise trade, while the WTO covers services and trade-related aspects of intellectual property.
The international treaty established to negotiate lower trade restrictions is known as the:
General Agreement on Tariffs and Trade (GATT).
Which of the following is a type of trade restriction?
Health, safety, or technical standards
Which of the following is not an argument in favor of restricting trade?
Increasing consumer surplus
Which of the following is true of a country's production possibilities frontier?
International trade makes it possible for a country's consumption possibilities to exceed its production possibilities.
Which of the following is true of international trade?
It allows a country to specialize in the production of certain goods and services.
Which of the following is true of the terms of trade?
It is determined by supply and demand factors.
Which of the following is true of an export subsidy?
It slows economic progress and reduces the net welfare in an economy.
Which of the following is not correct about quotas?
Lobbying efforts by domestic producers and foreign exporters are vigorously fought by domestic consumers.
For each watch Marina produces, it gives up the opportunity to make 50 pounds of cheese. Cambria can produce one watch for every 100 pounds of cheese it produces. If specialization and trade were to occur between these two countries, which of the following is true with regard to opportunity costs in the two countries?
The opportunity cost of producing cheese is higher in Marina than Cambria.
For each pound of blueberry cheesecake Abura produces, it gives up the opportunity to make 150 screwdrivers. Mayo can produce one pound of blueberry cheesecake for every 300 screwdrivers it produces. If specialization and trade were to occur between these two countries, which of the following is true with regard to opportunity costs in the two countries?
The opportunity cost of producing cheesecakes is lower in Abura than Mayo.
For each pair of jeans Casina produces, it gives up the opportunity to make 50 pounds of chocolate truffle. Marina can produce one pair of jeans for every 100 pounds of chocolate truffle it produces. Suppose the data is converted into production possibilities frontiers (PPFs), with constant opportunity costs, for both countries. While the pounds of chocolate truffle produced is measured on the vertical axis, the pairs of jeans produced are measured along the horizontal axis. Identify the correct statement in this case.
The slope of Marina's production possibilities frontier is steeper than Casina's.
Suppose the government of an importing country is considering imposing either a tariff that would result in imports falling to 1 million units per year or an import quota of 1 million units per year.Which of the following would be true in such a case?
The tariff revenue would go to U.S. government; quota benefits may go to foreign producers.
Suppose the government of an importing country is considering imposing either a tariff that would result in imports falling to 1 million units per year or an import quota of 1 million units per year. Which of the following would be true?
The tariff will increase the revenue of the government of the importing country, while the quota will increase the profits of the foreign exporting firms with quota rights.
Which of the following is not a reason for international specialization?
The world price of a good is determined by the world supply and demand for it.
Which of the following was a motive of the United States to negotiate a free trade agreement with Mexico?
To gain increased access to Mexican consumers
Which of the following was one of the objectives of the North American Free Trade Agreement (NAFTA)?
To gain increased access to Mexico's huge oil reserves
A country should export only those goods for which it has _____ relative to its trading partners.
a lower opportunity cost
The consumption possibilities frontier shows:
a nation's possible combinations of goods available as a result of specialization and exchange.
A charge levied on imports in terms of a fixed percentage of value is known as a(n):
ad valorem tariff.
In the case of declining industries, wage subsidies or special tax breaks that decline over time:
can be more efficient than tariffs.
If production is subject to economies of scale, _____.
countries can gain from trade if each nation specializes
In a two-country, two-commodity framework, when one country has an absolute advantage in the production of both commodities, _____.
differences in the opportunity cost of production between the two countries ensure that specialization and trade result in mutual gains
Quotas are favoured over free international trade by:
domestic producers in the importing country and foreign producers with quota rights.
The law of comparative advantage states that:
each country should specialize in producing the good with the lowest opportunity cost.
International trade is most likely to occur whenever:
each of the trading nations gains from trade.
One of the main motives for the United States to negotiate a free trade agreement with Mexico was to:
encourage Mexico's recent drive to achieve a more market-oriented economy.
Economists argue that U.S. government can earn federal revenue:
from quotas by auctioning off quotas to foreign producers.
Suppose there is a policy debate over imposing trade restrictions on imported semiconductors in the United States. A congresswoman argues that it is necessary to impose trade restrictions, such as a tariff, on the semiconductor industry to protect workers in the domestic semiconductor industry. The congresswoman claims that without trade protection, there will be layoffs, causing many U.S. workers in the semiconductor industry to be unemployed. She is basing her preference for trade restrictions on the:
jobs and income argument.
An effective import quota:
lowers the quantity of the imported good.
In determining comparative advantage, the cost of producing a good is measured in terms of:
opportunities forgone.
Tariffs and quotas:
reduce consumer surplus and increase producer surplus in the importing country.
Retaliation of trade restrictions can:
set off still greater trade restrictions, leading to an outright trade war.
World output will be maximized if each country:
specializes in producing those goods in which it has a comparative advantage.
The World Trade Organization (WTO):
supervises trade in merchandise and in services. became, in 1995, the institutionalized and more comprehensive successor to the General Agreement on Tariffs and Trade (GATT).
If a country has an absolute advantage in producing a good, _____.
the country is able to produce that good using fewer resources than other countries