INT BUS

The Nobel Prize-winning economist Paul Samuelson argued that contrary to the standard interpretation, in certain circumstances the theory of comparative advantage predicts that a rich country might actually be worse off by switching to a free trade regime with a poor nation. TRUE OR FALSE

TRUE

The yen/dollar exchange rate is ×120 = $1 in London and ×123 = $1 in New York at the same time. What is the net profit if a dealer takes $1,000,000 to purchase ×123,000,000 in New York and engages in arbitrage by selling it in London? A. $34,000 B. $20,390 C. $25,000 D. $46,666 E. $39,454

The purchase of securities in one market for immediate resale in another to profit from a price discrepancy is known as arbitrage. ×123 million could be sold for dollars in London to get $1,025,000 (×123 million ÷ 120). Net profit = $1,025,000 - $1,000,000 = $25,000.

Which of the following does NOT reinforce that the best interests of international business are served by a free trade stance? A. The increasing integration of the world economy B. The internationalization of production C. The trend toward greater protectionism D. The drawbacks of government intervention E. The dispersion of production activities

C. The trend toward greater protectionism

According to Ricardo's theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to import goods that it produces less efficiently. TRUE OR FALSE

TRUE

Animax Limited got an order to sell 50,000 central processing units (CPUs) to Palladia, but the Palladian government stipulated that 15 percent of the component parts of those CPUs must be produced in Palladia. This stipulation by the Palladian government would be example of a(n): A. voluntary export restraint. B. quota rent. C. import quota. D. local content requirement. E. antidumping policy.

local content requirement.

The interest rate on borrowings in Rhodia is 2 percent and the interest rate on bank deposits in Maritia is 7.5 percent. In this scenario, a carry trade would be to: A. borrow money in Maritian currency, convert it into Rhodian currency, and deposit it in a Rhodian bank. B. borrow money in Rhodian currency and invest in stocks with good growth potential in Rhodia. C. borrow money in Rhodian currency, convert it into Maritian currency, and deposit it in a Maritian bank. D. invest in bank deposits of Maritia and reinvest the earnings in Rhodia. E. invest in bank deposits of Rhodia and reinvest the earnings in Maritia.

A kind of speculation that has become more common in recent years is known as the carry trade. The carry trade involves borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are high.

Which of the following is true of the determination of exchange rates?

A. Differences in relative demand and supply do not explain the determination of exchange rates. B. Differences in relative demand and supply explain the factors underlying the phenomenon behind the demand for and supply of a currency. C. The differences in relative demand and supply alone provide a high-level understanding of what's behind the determination of exchange rates. D. While the differences in relative demand and supply provide an accurate explanation for appreciation of currencies, they fail to explain depreciation. E. The differences in relative demand and supply cannot explain or predict the conditions under which a particular currency will be in demand or not.

Meitneria and Seaboria specialize in the production of heavy machinery and textiles respectively. While Meitneria doesn't produce textiles, Seaboria is not as technologically advanced as Meitneria. In this situation, according to the Heckscher-Ohlin theory: A. Meitneria will import textiles from Seaboria and export heavy machinery to it. B. Meitneria will invest more than Seaboria in the production of textiles to exploit its comparative advantage. C. Meitneria and Seaboria will raise their trade barriers to protect their economies. D. Seaboria will recruit experts from Meitneria to specialize in the production of heavy machinery. E. Meitneria will recruit workers from Seaboria to improve its standing in the textile industry.

A. Meitneria will import textiles from Seaboria and export heavy machinery to it. B. Meitneria will invest more than Seaboria in the production of textiles to exploit its comparative advantage. C. Meitneria and Seaboria will raise their trade barriers to protect their economies. D. Seaboria will recruit experts from Meitneria to specialize in the production of heavy machinery. E. Meitneria will recruit workers from Seaboria to improve its standing in the textile industry.

Salcia is a country that depends heavily on domestic products. The Salcian government decides on the products that can be imported and ensures that any product that can be produced at home is not imported. A major part of Salcia's trade is concentrated on exporting agricultural produce and textiles. Which of the following influences Salcia's approach to international trade? A. Mercantilism B. Leontief's paradox C. Product life-cycle theory D. New trade theory E. Neo-Ricardian trade theory

A. Mercantilism

Which of the following refers to currency speculation? A. The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates B. The exchange rate at which a foreign exchange dealer will convert one currency into another that particular day C. Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates D. The purchase of securities in one market for immediate resale in another to profit from a price discrepancy E. The growth in a country's money supply exceeding the growth in its output, leading to price inflation

A. The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates

Consider two countries Daria and Atlantis. Daria is a major producer of wheat and rice while Atlantis specializes in the production of fertilizers and manufacturing equipment. Engaging in free trade benefits both countries since Daria is an agrarian nation and Atlantis lacks arable land. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it. Which of the following is an inaccurate assumption on which this conclusion is based? A. We have assumed a simple world in which there are only two countries. B. We have assumed the prices of resources and exchange rates in the two countries are dynamic. C. We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. D. We have assumed that agrarian nations do not specialize in producing fertilizers. E. We have assumed diminishing returns to specialization.

A. We have assumed a simple world in which there are only two countries.

According to Krugman, the ideal way for a country to respond, when the foreign competitors of its companies are already being supported by government subsidies, is probably not to engage in retaliatory action, but to: A. help establish rules that minimize the use of trade-distorting subsidies. B. adopt the strategic trade policy as a way to establish domestic firms in a dominant position in the global industry. C. provide a subsidy to a new industry where the foreign competitors have not had the benefit of such strategic trade policies. D. use a combination of home-market protection and export-promoting subsidies. E. provide high levels of subsidies to the oldest industry in the country.

A. help establish rules that minimize the use of trade-distorting subsidies.

Vernon argues that pioneering firms in the United States kept production facilities closer to the market and centers of decision making because: A. of the uncertainty and risks inherent in introducing new products. B. they believed that foreign production facilities were inferior in technical skills. C. they believed that U.S. labor costs were much lower than those in foreign markets. D. the U.S. government was critical of outsourcing production to other countries. E. of the high trade barriers implemented by several Asian and European countries.

A. of the uncertainty and risks inherent in introducing new products.

One of the reasons why protectionist pressures arose around the world during the 1980s was: A. the different ways many countries found to get around GATT regulations. B. the opening up of national markets to cheap products from China. C. the fall of the Soviet Union. D. the persistent trade lead taken by the United States. E. the Japanese failure in industries such as automobiles and semiconductors that strained the world trading system.

A. the different ways many countries found to get around GATT regulations.

The United States accused Libya and Iran of supporting terrorist action and building weapons of mass destruction. The U.S. government, therefore, imposed trade sanctions against the two countries. Which of the following political arguments does this exemplify? A. Retaliation and trade war B. Furthering foreign policy objectives C. Strategic trade policy D. Corporate security E. Protecting infant industries

B. Furthering foreign policy objectives

Myra is a firm producing premium handbags for women. These bags are manufactured and patented in the country of Ceria. Manufacturers in the country of Argonia create counterfeit Myra bags and sell them in the local markets of Argonia. These bags are sold at almost similar prices to the original in other countries. Which of the following is likely to happen? A. Expansion of world market for Cerian products B. Reduction in the export opportunities for Myra's hand bags in Argonia C. Reduction in import of all Argonian goods D. Increase in the prices of handbags produced by Myra in Argonia E. Reduction in opportunities of export from Argonia to other countries

B. Reduction in the export opportunities for Myra's hand bags in Argonia

A French company wants to invest 20 million euros for three months. The company found that investing in a Thai money market account would give it a higher interest rate than domestic investments. Which of the following is true about this investment? A. The investment is risk-free because money market investments are considered to be equivalent to bank deposits. B. The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm. C. The investment is risk-free because such investments also lock foreign exchange rates for the duration of the investment. D. The investment is not risk-free because money market instruments are considered to be the most speculative of all investments. E. The investment is risk-free because the Thai money market is considered to be more stable and secure than other markets.

B. The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm.

Argonia and Selenia have specialized in the production of industrial equipment and pharmaceuticals respectively. Argonia exports industrial equipment to Selenia, which in turn exports chemicals and medicines to Argonia. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates: A. the significance of trade barriers B. a positive-sum game C. a first-mover advantage D. the advantages of mercantilism E. a zero-sum game

B. a positive-sum game

During inflation, an increase in the amount of currency available leads to: A. overheating of the economy thereby reducing the production levels in the economy. B. changes in the relative demand-and-supply conditions in the foreign exchange market. C. a reduction in the rate of inflation thus leading to an appreciation of the currency. D. decreased lending by banks thereby resulting in more savings. E. a decrease in the demand for goods and services, which drives currency value higher.

B. changes in the relative demand-and-supply conditions in the foreign exchange market.

The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should: A. appreciate by 3 percent against the Japanese yen. B. depreciate by 3 percent against the Japanese yen. C. appreciate by 1.5 percent against the Japanese yen. D. depreciate by 1.5 percent against the Japanese yen. E. appreciate by 15 percent against the Japanese yen.

B. depreciate by 3 percent against the Japanese yen.

If Argonia exports vast quantities of cheap toys to Cadmia, selling them at below their costs of production, it would constitute: A. monopolism. B. dumping. C. offshoring. D. nearshoring. E. subsidizing.

B. dumping.

The new trade theory states that: A. the locus of global production initially switches from the United States to other advanced nations. B. world trade in certain products may be dominated by countries whose firms were first movers in their production. C. differences in technology may lead to differences in productivity, which in turn drives international trade patterns. D. differences in labor productivity between nations underlie the notion of comparative advantage. E. a rich country might actually be worse off by switching to a free trade regime with a poor nation.

B. world trade in certain products may be dominated by countries whose firms were first movers in their production.

Steven converted $1,000 to ×105,000 for a trip to Japan. However, he spent only ×50,000. During this period, the value of the dollar weakened against the yen. Considering a current exchange rate of $1 = ×100, how many dollars did Steven spend on the trip? A. $550 B. $523 C. $450 D. $600 E. $500

C. $450

Which of the following states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries? A. Bandwagon effect B. Law of one price C. International Fisher effect D. Helms-Burton Act E. Purchasing power parity (PPP) theory

C. International Fisher effect

Why did telecommunications companies welcome the telecommunication deal brokered by WTO in 1997? A. It enhanced protection of patents, copyrights, and trademarks (intellectual property). B. It helped resolve deadlock situations arising out of the unwillingness to lower trade barriers between neighboring countries. C. It offered a greater ability for companies to offer a global, seamless service for all their corporate needs. D. It liberalized trade policies by eliminating tariffs, subsidies, import quotas, antidumping duties, and local content requirements. E. It reduced the export of pirated imitations of patented innovations pioneered in a different country.

C. It offered a greater ability for companies to offer a global, seamless service for all their corporate needs.

If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses? A. It would concentrate its productive activities mostly in developing countries. B. It would concentrate its productive activities in its home country. C. It would disperse its productive activities to those countries where they can be performed most efficiently. D. It would disperse its productive activities across all countries that serve as its market. E. It would concentrate its productive activities mostly in developed countries.

C. It would disperse its productive activities to those countries where they can be performed most efficiently.

The country of Cadmia, which is a leading producer of bauxite, had to impose trade sanctions on Cerian soda cans in order to get the government of Ceria to enforce export restraints. This imposition by Cadmian government was undertaken to protect domestic producers of soda cans. Which of the following government intervention is being used by Cadmia? \ A. Diversification B. Deregulation C. Retaliation D. Liberalization E. Monopolization

C. Retaliation

Palladia specializes in the production of beef and produces beef more efficiently than any other country. It buys wheat, which it produces less efficiently than beef, from Rhodia, even though it produces wheat more efficiently than Rhodia. Which of the following theories of international trade supports Palladia's decision to buy wheat from Rhodia? A. The Samuelson critique B. Mercantilism C. Ricardo's theory of comparative advantage D. Adam Smith's theory of absolute advantage E. The Leontief paradox

C. Ricardo's theory of comparative advantage

Which of the following advantages is most likely to be enjoyed by a company as a part of the first-mover advantages? A. Increasing returns to specialization B. A positive-sum game due to lack of competition C. The ability to capture scale economies ahead of later entrants D. Absolute advantage and higher efficiency E. The ability to specialize in the production of a particular product

C. The ability to capture scale economies ahead of later entrants

Which of the following indicates that the dollar is selling at a discount on the 30-day forward market? A. The spot exchange rate is $1 = ×120 currently and $1 = ×130 after 30 days. B. The spot exchange rate is $1 = ×120 currently and $1 = ×100 after 30 days. C. The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×110 after 30 days. D. The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×130 after 30 days. E. The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×120 after 30 days.

C. The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×110 after 30 days.

Which of the following is true of the purchasing power parity (PPP) theory? A. A country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I). B. The exchange rate will not change if relative prices change. C. The price of a "basket of goods" should be roughly equivalent in each country in relatively efficient markets. D. In competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price. E. If the law of one price were true for all goods and services, the PPP exchange rate could not be found from any individual set of prices.

C. The price of a "basket of goods" should be roughly equivalent in each country in relatively efficient markets.

The Palladian government required that all imported products that came from Lovaskiya be checked by Palladian customs inspectors. The inspection was done at a container freight station that was both remote and poorly staffed. This delayed the Lovaskiyan consignment from reaching the consumers in Palladia. The inspection strategy adopted by the customs officers in Palladia is an example of a(n): A. antidumping policy. B. voluntary export restraint policy. C. administrative trade policy. D. monopolistic competition policy. E. tariff rent policy.

C. administrative trade policy.

Dumping involves foreign producers: A. attempting hostile takeovers of domestic firms and usurping the available resources for production. B. indiscriminately exploiting the natural resources of a foreign country to create a later demand that can be met only by imports. C. eliminating competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits. D. capturing the niche market rather than the masses. E. exporting only a small quantity of their products into an importing country.

C. eliminating competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits.

An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that: A. the volume of a country's imports increases as an indirect consequence of mercantilism. B. the exclusion of government influence in matters pertaining to trade is not ideal. C. in the long run, no country could sustain a surplus on the balance of trade. D. it was not backed by either sound political principles or social ideologies. E. trade is a zero-sum game rather than a positive-sum game as postulated by the theory.

C. in the long run, no country could sustain a surplus on the balance of trade.

According to Paul Krugman, a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to: A. dominate the industry. B. move away from protectionism. C. provoke retaliation. D. incur huge financial debts. E. upset the special-interest groups within the economy.

C. provoke retaliation.

An American company imports laptop computers from Japan. The company knows that after a shipment arrives, it must pay in yen to the Japanese supplier within 30 days. In a particular exchange, the American company must pay the Japanese supplier ×150,000 for each computer at the current dollar/yen spot exchange rate of $1 = ×110. The company intends to resell the computers the day they arrive for $1,600 each but it does not have the funds to pay the Japanese supplier until the computers have been sold. Which of the following will happen if the exchange rate after 30 days is $1 = ×90? A. The importer will earn a profit of approximately $236 per computer. B. The importer will earn a profit of approximately $67 per computer. C. The importer will incur a loss of approximately $236 per computer. D. The importer will incur a loss of approximately $67 per computer. E. The importer will incur a loss of approximately $90 per computer.

Changes in spot exchange rates can be problematic for an international business. Initially, the American importer had estimated a profit of $236 per computer ($1,600 - $1,364). However, at an exchange rate of $1 = ×90, the importer will have to pay $1,667 per computer (×150,000/90). The outcome will be a loss of $67 ($1,600 - $1,667).

Robben Inc. converts $1,000,000 into euros when the exchange rate is $1 = €0.75. After three months, the company converts this back into dollars when the exchange rate is $1 = €0.80. Which of the following is the outcome of this transaction? A. A loss of $62,500 B. A loss of $66,667 C. A gain of $50,000 D. A gain of $62,500 E. A loss of $50,000

Currency speculation typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. In the first transaction, the company receives €750,000. These euros when converted back into dollars yield only $937,500 (€750,000 ÷ 0.80). Net loss = $1,000,000 - $937,500.

Assume that the yen/dollar exchange rate quoted in London at 3 p.m. is ×120 = $1, and the New York yen/dollar exchange rate at the same time (10 a.m. New York time) is ×123 = $1. Which of the following transactions would yield immediate profit? A. Forward exchange B. Carry trade C. Currency swap D. Arbitrage E. Currency speculation

D. Arbitrage

Which of the following is a provision of the Uruguay Round Agreement? A. A wide range of services were to be excluded from GATT fair trade and market access rules. B. Tariffs on industrial goods were to be raised by more than one-third, and tariffs were to be scrapped on more than 50 percent on a wide range of services. C. The International Monetary Fund (IMF) was to be created to implement the GATT agreement. D. Barriers on trade in textiles were to be significantly reduced over 10 years. E. Average tariff rates imposed by developed nations on manufactured goods were to be raised by 20 percent of the value, the highest level in modern history.

D. Barriers on trade in textiles were to be significantly reduced over 10 years.

Which of the following is true of factor endowments according to Porter? A. Basic factors, unlike advanced factors, are the most significant for competitive advantage. B. Basic factors can be upgraded by nations, while advanced factors are endowed by nature. C. The initial advantage provided by advanced factors is extended by investment in basic factors. D. Disadvantages in basic factors can create pressures to invest in advanced factors. E. Advanced factors include climate, location, and demographics.

D. Disadvantages in basic factors can create pressures to invest in advanced factors.

Australia is a major producer of agricultural and dairy products and exports coffee, tea, spices, and milk products to the United States. United States is the world's third largest supplier of machinery and exports heavy machinery to Australia. What explains the trade equation between Australia and the United States? A. Tariff barriers determine the flow of goods and services between nations. B. Countries are simultaneously encouraging exports and discouraging imports. C. First entrants to the industry ensure their nations have the first-mover advantages. D. Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries. E. Gold and silver are the mainstays of national wealth and essential to vigorous commerce.

D. Nations with an absolute advantage in producing certain goods trade them for goods produced by other countries.

One of the rebuttals to Samuelson's critique of the free trade model is that: A. the United States' ability to achieve constant returns to specialization is unparalleled. B. the strict immigration policies of the United States help insulate the economy from inward migration. C. introducing trade barriers may in fact be beneficial to developed nations to some extent. D. developing nations are unlikely to upgrade the skill level of their workforce rapidly enough. E. the developing nations are unlikely to run into diminishing returns in a near future.

D. developing nations are unlikely to upgrade the skill level of their workforce rapidly enough.

The Smoot-Hawley Act had a damaging effect on: A. the balance-of-payment of the United States. B. cash flow in the domestic economy of the United States. C. prices of natural resources in the United States. D. employment abroad. E. accrued liabilities of the United States.

D. employment abroad.

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that: A. protection of manufacturing from foreign competition is harmful. B. absolute advantage cannot sustain productivity of an industry. C. foreign firms too come under the definition of infant industry when they newly enter a foreign market. D. firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets. E. foreign competition will eventually cause domestic firms to improve the quality of their products.

D. firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.

Vernon predicts that as the demand for a new product starts to grow in other advanced countries, in the long run: A. the cost of labor in these advanced countries begins to increase. B. it becomes profitable for foreign firms to invest in production facilities in the United States. C. the firms in the United States begin to gain an absolute advantage. D. it begins to limit the potential for exports from the United States. E. the same product will begin to command a higher price.

D. it begins to limit the potential for exports from the United States.

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because: A. these nations withdrew their membership to the GATT. B. the member nations had ceased to recognize GATT as a regulatory body for international trade. C. VERs were not a recognized trade barrier under the GATT constitution. D. neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action. E. member nations erected a wall of tariff barriers.

D. neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action.

Which of the following statements is true regarding GATT? A. GATT attempted to liberalize trade restrictions in one go. B. In its early years, GATT was unsuccessful and hence was superseded by the World Bank. C. GATT regulations were mostly enforced by the EU nations rather than by a mutual monitoring mechanism. D. Tariff reductions through negotiations were completed in three rounds. E. The last round for tariff reduction, the Uruguay Round, was launched in 1986 and completed in December 1993.

E. The last round for tariff reduction, the Uruguay Round, was launched in 1986 and completed in December 1993.

Sentoria is an island nation in the Pacific Ocean. Its geographical location is advantageous since it has access to a variety of aquatic life forms and also a number of freshwater sources that provide for fisheries. The lack of arable land drives local demand for seafood. The competition in the domestic fishing industry is fierce and enables Sentoria to be one of the major exporters of seafood. Which of the following theories of international trade best explains Sentoria's dominance as an exporter of seafood? A. New trade theory B. Product life-cycle theory C. Mercantilism D. Heckscher-Ohlin theory E. Theory of national competitive advantage

E. Theory of national competitive advantage

In the context of The Economist's "Big Mac Index," assume that the average price of a Big Mac in South Korea is $2.98 at the prevailing won/dollar exchange rate. The average price of a Big Mac in the United States is $3.58. This suggests that the Korean won is overvalued against the U.S. dollar.

FALSE To calculate the "Big Mac Index," the news magazine The Economist converts the price of a Big Mac in a country into dollars at current exchange rates and divides that by the average price of a Big Mac in America. According to the PPP theorem, the prices should be the same. If they are not, it implies that the currency is either overvalued against the dollar or undervalued. Dividing the price in South Korea by the average price of a Big Mac in the United States gives 0.83, which suggests that the won is undervalued by 17 percent against the U.S. dollar.

The currency of the country of Venadia falls sharply in value against the currency of Lutetia, a neighboring country. Which of the following is a consequence of this exchange rate movement? A. Lutetia's products will achieve a competitive pricing in Venadia. B. Venadia's exports to Lutetia will increase, because Venadian goods will become cheaper in Lutetia. C. Venadia's products will cost more in Lutetia. D. There will be no difference in the volume or direction of trade. E. Lutetia's exports to Venadia will increase, because

Lutetian goods will become cheaper in Venadia. The foreign exchange market is the lubricant that enables companies based in countries that use different currencies to trade with each other. When the currency of Venadia falls in value against the currency of Lutetia, Venadian goods become cheaper in Lutetia. This will boost export sales.

The country of Argonia imposes an ad valorem tariff of 10 percent on 1 million tons of rice imports, after which an out-of-quota tariff of 80 percent is applied. Which of the following trade policy instruments is Argonia using? A. Subsidy B. Tariff rate quota C. Voluntary export restraint D. Tariff ceiling E. Local content requirement

Tariff rate quota

The euro/dollar exchange rate is €1 = $1.20. According to the law of one price, how much would a camera that retails for $300 in New York sell for in Germany? A. €320 B. €300 C. €250 D. €360 E. €150

The law of one price states that in competitive markets free of transportation costs and barriers to trade (such as tariffs), identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. Since one euro is equal to 1.2 dollars, the price of the camera should be €250 ($300/1.2).

Which of the following statements is true about voluntary export restraints (VERs)? A. VERs benefit consumers by limiting import competition. B. VERs reduce the domestic price of an imported good. C. When imports are limited to a low percentage of the market by a VER, the price is bid up for that limited foreign supply. D. Foreign producers agree to VERs because they fear economic instability in the world economy. E. VERs negatively affect domestic producers by increasing import competition.

VERs benefit consumers by limiting import competition.