Ch

T/F: If free trade is allowed and a country exports a good, domestic producers of the good are worse off and domestic consumers of the good are better off when compared to the before-trade domestic equilibrium

False; producers gain, consumers lose

T/F: An import quota that restricts imports to the same degree as an equivalent tariff, even if the government gives away the import licenses

False; at most, a quota can raise the same revenue if the government sells the import licenses for the maximum amount possible (the difference between the world price and the domestic price)

T/F: Countries should import products for which they have a comparative advantage in production

False; countries should export goods for which they have a comparative advantage

T/F: Trade makes everyone better off

False; some gain and some lose but the gains of the winners outweigh the losses of the losers

T/F: Tariffs tend to benefit consumers

False; tariffs benefit producers

T/F: A tariff raises the price of a good, reduces the domestic quantity demanded, increases the domestic supplied, and increases the quantity imported

False; tariffs decrease imports

T/F: If the world price for a good exceeds a country's before-trade domestic price for that good, the country should import that good

False; the country should export that good

Market Participants that cannot influence the price so they view the price as given

Price Takers

A tax on goods produced abroad and sold domestically

Tariff

T/F: If a foreign country subsidizes its export industries, its taxpayers are paying to improve of welfare consumers in the importing countries

True

T/F: If a worker in Brazil can produce 6 oranges or 2 apples in an hour while a worker in Mexico can produce 2 oranges or 1 apple in an hour, then Brazil should export oranges and Mexico should export apples

True

T/F: If free trade is allowed and a country exports a good, the gains of domestic producers exceed the losses of domestic consumers and total surplus rises

True

T/F: If free trade is allowed and a country imports wheat, domestic buyers of bread are better off and domestic farmers are worse off when compared to the before-trade domestic equilibrium

True

T/F: Opponents of free trade often argue that free trade destroys domestic jobs

True

T/F: Tariffs cause deadweight losses because they raise the price of the imported good and cause overproduction and under consumption of the good in the importing country

True

T/F: Trade can make everyone better off if the winners from trade compensate the losers from trade

True

T/F: Trade increases the economic well-being of a nation because the gains of the winners exceed the losses of the losers

True

The price of a good that prevails in the world market for that good

World Price

Which of the following statements about a tariff is true? a. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus b. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and reduces total surplus. c. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government and increases total surplus. d. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and increases total surplus.

a. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government,and reduces total surplus

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good, a. consumers will gain and producers will lose. b. produces will gain and consumers will lose. c. both producers and consumers will gain. d. both producers an consumers will lose.

a. consumers will gain and producers will lose

If a free trade is allowed, a country will export a good if the world price is a. below the before-trade domestic price of the good. b. above the before-trade domestic price of the good. c. equal to the before-trade domestic price of the good. d. none of the above.

b. above the before-trade domestic price of the good

Because producers are better able to organize than consumers are, we would expect there to be political pressure to create a. free trade b. import restrictions c. export restrictions d. none of the above

b. import restrictions

When politicians argue that outsourcing or offshoring of technical support to India by Dell Computer Corporation is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade? a. the infant-industry argument b. the jobs argument c. the national-security argument d. the deadweight-loss argument

b. the jobs argument

Which of the following statements about import quotas is true? a. Import quotas are preferred to tariffs because they raise more revenue for the imposing government b. Voluntary quotas established by the exporting country generate no deadweight loss for the importing country. c. For every tariff, there is an import quota that could have generated a similar result. d. An import quota reduces the price to the domestic consumers.

c. For every tariff, there is an import quota that could have generated a similar result

Which of the following is not employed as an argument in support of trade restrictions? a. Free trade destroys domestic jobs. b. Free trade harms the national security if vital products are imported. c. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus. d. Free trade harms infant industries in an importing country. c. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.

c. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus

If the world price for a good exceeds the before -trade domestic price for a good, then that country must have a. an absolute advantage in the production of the good. b. an absolute disadvantage in the production of the good. c. a comparative advantage in the production of the good. d. a comparative disadvantage in the production of the good.

c. a comparative advantage in the production of the good

When a country allows trade and exports a good, a. domestic consumers are better off, domestic producers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. b. domestic consumers are better off, domestic producers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers. c. domestic producers are better off, domestic consumers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. d. domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.

d. domestic producers are better off, domestic consumers are worse off, and the nation s better off because the gains of the winners exceed the losses of the losers