Unit 7 Quiz

The size of the tariff on roses is $4 $3 $2 $1

$1 Feedback: The size of the tariff is the difference between the world price ($2) and the world price plus tariff ($3).

A country has $100 million of net exports and $170 million of saving. Net capital outflow is $70 million and domestic investment is $170 million. $70 million and domestic investment is $270 million. $100 million and domestic investment is $70 million. None of the above is correct.

$100 million and domestic investment is $70 million. Feedback: NCO = Net Exports. Also, net exports = saving - investment $100,000,000 = $170,000,000 - Investment $0 = $70,000,000 - Investment Investment = $70,000,000

If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is -.3 trillion euros, so it must have a trade deficit. -.3 trillion euros, so it must have a trade surplus. .3 trillion euros, so it must have a trade deficit. .3 trillion euros, so it must have a trade surplus.

-.3 trillion euros, so it must have a trade deficit. Feedback: NCO = purchases of assets - sale of assets. In this case, NCO = 1.2 million - 1.5 million = -0.3 million Also, NCO = Net Exports Net Exports = -0.3 million Since this is negative, it is a trade deficit.

Which of the following is an example of U.S. foreign direct investment? A U.S. based mutual fund buys stock in Eastern European companies. A U.S. citizen builds and operates a coffee shop in the Netherlands. A Swiss bank buys a U.S. government bond. A German tractor factory opens a plant in Waterloo, Iowa.

A U.S. citizen builds and operates a coffee shop in the Netherlands. Feedback: Foreign direct investment is buying physical capital/businesses in a foreign country. This is distinct from foreign portfolio investment, which is the purchase of foreign financial assets.

The market for soybeans in Canada consists solely of domestic buyers of soybeans and domestic sellers of soybeans if consumer surplus equals producer surplus in the Canadian soybean market. total surplus exceeds consumer surplus in the Canadian soybean market. Canada permits international trade in soybeans. Canada forbids international trade in soybeans.

Canada forbids international trade in soybeans.

The world price of a good is $7.Quantity demanded (domestically) at $7: 600Quantity supplied (domestically) at $7: 1500 Based on this information, the country will: Export 600 units of the good. Export 900 units of the good. Import 900 units of the good. Import 1500 units of the good.

Export 900 units of the good. Feedback: Domestic sellers are producing more than the quantity demanded. This implies that the price is greater than the domestic market equilibrium price. This means that the sellers will export. The number of exports if the difference between quantity supplied and quantity demanded (1500 - 600 = 900)

Which of the following statements is true? Free trade benefits a country when it exports but harms it when it imports. "Voluntary" limits on Canadian exports of hogs are better for the United States than U.S. tariffs placed on Canadian hog exports. Tariffs and quotas differ in that tariffs work like a tax and therefore impose deadweight losses, whereas quotas do not impose deadweight losses. Free trade benefits a country both when it exports and when it imports.

Free trade benefits a country both when it exports and when it imports. Feedback: (A): Importing helps countries overall. Consumers get cheaper products that make use of productivity and specialization. (B) Export restrictions work almost the same as tariffs. Both policies raise the price of goods domestically and protect domestic firms. (C) Tariffs and quotas work more or less the same. (D) Correct: Both exporting and importing have benefits.

If the number of South Korean Won it takes to buy a U.S. dollar rises and the prices of U.S. goods rise more than the prices of South Korean goods. then the US real exchange rate appreciates and so U.S. net exports fall. appreciates and so U.S. net exports rise. depreciates and so U.S. net exports fall. depreciates and so U.S. net exports rise.

appreciates and so U.S. net exports fall.

When a country allows trade and becomes an exporter of a good, domestic producers gain and domestic consumers lose. domestic producers lose and domestic consumers gain. domestic producers and domestic consumers both gain. domestic producers and domestic consumers both lose.

domestic producers gain and domestic consumers lose. Feedback: Countries will export when the world price of a good or service exceeds the domestic equilibrium price. This creates an incentive for sellers to raise prices and sell their excess production as exports. Since firms are selling more and at higher prices, they benefit from exports. Consumers lose, since the price rises above the existing equilibrium.

Purchasing-power parity describes the forces that determine prices in the short run. prices in the long run. exchange rates in the short run. exchange rates in the long run.

exchange rates in the long run. Feedback: Trade will cause exchange rates to balance out relative prices. However, this will take time.

If Canada's national saving exceeds its domestic investment, then Canada has positive net capital outflows and negative net exports. positive net capital outflows and positive net exports. negative net capital outflows and negative net exports. negative net capital outflows and positive net exports.

positive net capital outflows and positive net exports. Feedback: saving - investment = net exports If saving exceeds investment, then the left side (and therefore net exports) is a positive number. NCO = net exports.

An import quota is preferable to a tariff since an import quota does not create a deadweight loss. is a tax on imported goods. reduces the welfare of domestic consumers. reduces the welfare of domestic producers.

reduces the welfare of domestic consumers. Feedback: A quota acts very similarly to a tariff. By reducing the availability of cheaper imports, it will cause price to rise. This reduces the welfare of domestic consumers. Domestic producers are better off since they are protected, at least partly, from import competition.

Jamaica has a comparative advantage in the production of aluminum, but currently allows no international trade in aluminum. We can conclude that the domestic price of aluminum in Jamaica is higher than the world price for aluminum. ​Jamaica has an absolute advantage in the production of aluminum. Jamaica should import aluminum. ​the domestic price of aluminum in Jamaica is lower than the world price for aluminum.

​the domestic price of aluminum in Jamaica is lower than the world price for aluminum. Feedback: (B) - Just because a country has a comparative advantage does not necessarily mean it has an absolute advantage. (C) Countries should export goods in which they have a comparative advantage. (D) If a country has a comparative advantage, it will be able to produce a good more cheaply than the world price. Countries without a comparative advantage will need a higher price to compensate for higher opportunity cost.