CH. 7 REVIEW

Denmark is an importer of computer chips and adds a $5 per chip tariff to the world price of $12 per chip. Suppose Denmark removes the tariff. Which of the following outcomes is not possible? a. More Danish-produced chips are sold in Denmark. b. More foreign-produced chips are sold in Denmark. c. Danish consumers of chips become better off. d. Total surplus in the Danish chip market increases.

a. More Danish-produced chips are sold in Denmark.

When the nation of Isoland opens up its steel market to international trade, that change a. creates winners and losers, regardless of whether Isoland ends up exporting or importing steel. b. results in a decrease in total surplus, regardless of whether Isoland ends up exporting or importing steel. c. creates winners, but no losers, if Isoland ends up exporting steel. d. creates losers, but no winners, if Isoland ends up importing steel.

a. creates winners and losers, regardless of whether Isoland ends up exporting or importing steel.

When a country takes a unilateral approach to free trade, it a. removes trade restrictions on its own. b. reduces its trade restrictions while other countries do the same. c. does not remove trade restrictions no matter what other countries do. d. is willing to trade with multiple countries at once.

a. removes trade restrictions on its own.

Import quotas and tariffs produce similar results. Which of the following is not one of those results? a. The domestic price of the good increases. b. Consumer surplus of domestic consumers increases. c. Producer surplus of domestic producers increases. d. A deadweight loss is experienced by the domestic country.

b. Consumer surplus of domestic consumers increases.

Suppose Ireland exports beer to China and imports pineapples from the United States. This situation suggests that a. Ireland has a comparative advantage relative to the United States in producing pineapples, and China has a comparative advantage relative to Ireland in producing beer. b. Ireland has a comparative advantage relative to China in producing beer, and the United States has a comparative advantage relative to Ireland in producing pineapples. c. Ireland has an absolute advantage relative to the United States in producing pineapples, and China has an absolute advantage relative to Ireland in producing beer. d. Ireland has an absolute advantage relative to China in producing beer, and the United States has an absolute advantage relative to Ireland in producing pineapples.

b. Ireland has a comparative advantage relative to China in producing beer, and the United States has a comparative advantage relative to Ireland in producing pineapples.

Suppose Japan exports cars to Russia and imports wine from France. This situation suggests a. Japan has a comparative advantage relative to France in producing wine, and Russia has a comparative advantage to Japan in producing cars. b. Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine. c. Japan has an absolute advantage relative to Russia in producing cars, and France has an absolute advantage relative to Japan in producing wine. d. Japan has an absolute advantage relative to France in producing wine, and Russia has an absolute advantage relative to Japan in producing cars.

b. Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine.

At present, the United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true? a. The quotas are probably the result of lobbying from U.S. consumers of sugar. The quotas increase consumer surplus for the United States, reduce producer surplus for the United States, and harm foreign sugar producers. b. The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers. c. The quotas are probably the result of lobbying from foreign producers of sugar. The quotas reduce producer surplus for the United States, increase consumer surplus for the United States, and benefit foreign sugar producers. d. U.S. lawmakers did not need to be lobbied to impose the quotas because total surplus for the United States is higher with the quotas than without them.

b. The quotas are probably the result of lobbying from U.S. producers of sugar. The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers.

President Bush imposed temporary tariffs on imported steel in 2002. The reasons for this trade restriction is most consistent with the a. national-security argument. b. infant-industry argument. c. unfair competition argument. d. protection-as-a-bargaining chip-argument.

b. infant-industry argument.

A tax on an imported good is called a. quota. b. tariff. c. supply tax. d. trade tax.

b. tariff.

Most economists view the United States' experience with trade as a. one from which no firm conclusions about the virtues of free trade can be reached, due to the relatively short history of international trade in the U.S. b. one from which no firm conclusions about the virtues of free trade can be reached, due to the lack of trade within the U.S. throughout most of the early history of the U.S. c. an ongoing experiment that confirms the virtues of free trade. d. an ongoing experiment that calls into serious question the notion that free trade enhances the economic well-being of a nation.

c. an ongoing experiment that confirms the virtues of free trade.

Trade among nations is ultimately based on a. absolute advantage. b. strategic advantage. c. comparative advantage. d. technical advantage.

c. comparative advantage.

When the nation of Worldova allows trade and becomes an exporter of silk, a. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova rises. b. residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova falls. c. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises. d. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova falls.

c. residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.

Several arguments for restricting trade have been advanced. Those arguments do not include a. the jobs argument. b. the protection-as-a-bargaining-chip argument. c. the no-deadweight-loss argument. d. the infant-industry argument.

c. the no-deadweight-loss argument.

The principle of comparative advantage asserts that a. not all countries can benefit from trade with other countries. b. the world price of a good will prevail in all countries, regardless of whether those countries allow international trade in that good. c. countries can become better off by exporting goods, but they cannot become better off by importing goods. d. countries can become better off by specializing in what they do best.

d. countries can become better off by specializing in what they do best.

In a December 2007 New York Times column Paul Krugman argued in favor of a. protectionism based on the national-security argument. b. protectionism based on the infant-industry argument. c. protectionism based on the unfair-competition argument. d. keeping world markets relatively open.

d. keeping world markets relatively open.

A logical starting point from which the study of international trade begins is a. the recognition that not all markets are competitive. b. the recognition that government intervention in markets sometimes enhances the economic welfare of the society. c. the principle of absolute advantage. d. the principle of comparative advantage.

d. the principle of comparative advantage.