MACRO CHAPTER 18

Which of the following is likely to be an impact of a quota on a good? An increase in consumer surplus A decrease in producer surplus An increase in domestic consumption A decrease in imports

A decrease in imports

Which of the following is likely to be an impact of a tariff on a good? An increase in consumer surplus A decrease in producer surplus A higher level of domestic consumption A higher domestic price of the good

A higher domestic price of the good

Which of the following correctly describes the major problem associated with the infant-industry argument? A protection once granted is very difficult to remove. A protection once granted to an industry is demanded by the other industries in an economy. The protection of infant industries leads to diseconomies to scale in production. The protection of infant industries sometimes leads to economies of scope, threatening the existence of other industries in an economy.

A protection once granted is very difficult to remove.

Which of the following goods is most likely to have highly restrictive quotas? Brooms Light trucks Agricultural products Apparel

Agricultural products

Which of the following is an example of a capital good? Sporting goods Technology Automobiles Pharmaceuticals

Automobiles

Which of the following countries is one of the four largest trading partners of the United States? Saudi Arabia China France Brazil

China

Which of the following items is among the leading products exported by the United States? Shoes Civilian aircraft Diamonds Crude oil

Civilian aircraft

Which of the following is likely to be true when a tariff is imposed on the import of a good? The quantity demanded of the good by domestic consumers will increase. Domestic producers will expand their output in response to the higher market price. Domestic consumers and the government will gain at the expense of producers. Resources will flow from the sector in which the tariff is imposed to other sectors of an economy.

Domestic producers will expand their output in response to the higher market price.

Identify the correct statement about the trade sector of the United States. Exports of goods and services as a share of GDP has increased to 40 percent in 2015. Exports of goods and services as a share of GDP has increased to 13 percent in 2015. Imports of goods and services as a share of GDP has increased to 30 percent in 2015. Imports of goods and services as a share of GDP has increased to 50 percent in 2015.

Exports of goods and services as a share of GDP has increased to 13 percent in 2015.

Which of the following is a difference between a tariff and a quota? While a tariff results in an increase in consumer surplus, a quota results in a decrease in consumer surplus. In contrast to a tariff, a quota does not result in deadweight losses for a society. While a tariff causes domestic prices to increase, a quota causes domestic prices to decrease below their free-trade level. In contrast to a tariff, a quota generates no revenue for a government.

In contrast to a tariff, a quota generates no revenue for a government.

Which of the following is a valid argument for restricting free trade in an economy? Industries require protection from foreign competition for a period of time so that they can operate at the minimum point of their short-run average total cost curve. Industries require protection from foreign competition for a period of time so that they can compete effectively with foreign producers in the future. Industries require protection from foreign competition in order to ensure the maximum utilization of resources available in an economy. Industries require protection from foreign competition so that they can produce more goods at lower prices, which will increase their revenues.

Industries require protection from foreign competition for a period of time so that they can compete effectively with foreign producers in the future.

Which of the following is an argument generally put forward by economists for restricting free trade? Industries should be protected from foreign competition to bring down the level of unemployment in an economy below its natural rate and maximize total surplus. Industries should be protected from foreign competition to ensure a fair and equitable allocation of resources in an economy. Industries should be protected from foreign competitors so that a domestic supply of necessary materials would be available in case of an international conflict. Industries should be protected from foreign competitors so that the government can earn some revenue from trade barriers.

Industries should be protected from foreign competitors so that a domestic supply of necessary materials would be available in case of an international conflict.

Identify the correct statement about an import quota. It encourages foreign producers to engage in rent-seeking activities in an effort to secure the right to sell at a premium price in domestic markets. It results in an increase in the surplus enjoyed by domestic consumers. It results in a decrease in the surplus enjoyed by domestic producers. It results in an increase in the production of the goods for which an economy has a comparative advantage and a decrease in the production of the goods for which the economy is a high-cost producer.

It encourages foreign producers to engage in rent-seeking activities in an effort to secure the right to sell at a premium price in domestic markets.

Which of the following is true of the U.S. tariff code? It is short but very difficult to comprehend. It is both lengthy and highly complex. It is written in a very lucid language. It is lengthy but easy to understand.

It is both lengthy and highly complex.

Which of the following is true of an exchange rate control? It is not considered a trade barrier, even though it decreases the volume of trade. It leads to black-market currency exchanges. It results in an increase in imports. It results in a decrease in exports.

It leads to black-market currency exchanges.

The agreement of the United States, Canada, and Mexico to eliminate tariffs on most goods moving among the three countries is called the: Tariff Reduction Act of 1993. North American Free Trade Agreement. Uruguay Round. General Agreement on Tariffs and Trade.

North American Free Trade Agreement.

Identify the correct statement about international trade. Protectionist proponents—particularly those in high-income countries—have not been able to successfully lobby to impose labor and environmental regulations that block trade liberalization. The Internet and other technological changes reduce transport and communications costs and thereby encourage trade. Closed economies have grown more rapidly and have achieved higher per capita income levels than economies more open to international trade. Opening trade between a low-wage country and a high-wage country will raise the standard of living in the low-wage country and lower the standard of living in the high-wage country.

The Internet and other technological changes reduce transport and communications costs and thereby encourage trade.

Which of the following is most likely to be an argument put forward against antidumping legislation? The legislation will result in a decrease in the quantity of goods supplied in an economy. The legislation will result in a decrease in the producer surplus of domestic firms. The legislation will eventually result in an increase in the domestic price of goods. The legislation will result in the equal distribution of resources available in an economy.

The legislation will eventually result in an increase in the domestic price of goods.

Which of the following is true of trade restrictions? They result in the maximization of total welfare in an economy and potential gains from international trade. They generate a higher per capita income for an economy. They provide concentrated benefits to the producers in industries they are designed to protect. They provide benefits to consumers in the form of lower prices of goods.

They provide concentrated benefits to the producers in industries they are designed to protect.

Identify the correct statement about the gains and losses of producers and consumers under free trade. When a country exports a good, domestic consumers gain, but domestic producers lose an equal amount. When a country exports a good, domestic consumers gain, domestic producers lose, and the losses offset the gains. When a country imports a good, domestic consumers lose, domestic producers gain, and the gains exceed the losses. When a country imports a good, domestic consumers gain, domestic producers lose, and the gains exceed the losses.

When a country imports a good, domestic consumers gain, domestic producers lose, and the gains exceed the losses.

Which of the following is true about trade barriers? While trade barriers are most likely to result in a decrease in producer surplus, they also result in an increase in consumer surplus. While trade barriers are most likely to increase the amount of imports of a country, sales to foreigners are most likely to increase. While trade barriers are most likely to foster employment in the industries shielded from competition, jobs in other domestic sectors are likely to be destroyed. While trade barriers are most likely to increase the overall efficiency of domestic markets, they also distort the market structure of the domestic economy.

While trade barriers are most likely to foster employment in the industries shielded from competition, jobs in other domestic sectors are likely to be destroyed.

Antidumping legislation: results in an increase in the cost of production of the goods produced by domestic firms. encourages rent-seeking activities in an economy. increases the productive efficiency of domestic firms. results in an increase in the surplus enjoyed by consumers in an economy.

encourages rent-seeking activities in an economy.

Opportunity costs differ among countries primarily because countries have different: exchange rates for currencies. political structures. endowments of resources and labor-force skills. purchasing powers of money.

endowments of resources and labor-force skills.

Proponents of the antidumping argument argue that: competition from foreign producers decreases the amount of tax revenue earned by the government. consumer surplus is reduced to zero because of the higher prices of goods. foreign producers temporarily cut prices, drive domestic firms out of the market, and then use their monopoly position to gouge consumers. foreign producers exploit their market power by charging consumers a very high price.

foreign producers temporarily cut prices, drive domestic firms out of the market, and then use their monopoly position to gouge consumers.

The law of comparative advantage states that a nation can gain from the specialization and exchange of a good: if it can produce the good at a marginal cost that is lower than its price. if it can produce the good more cheaply than other nations. if it can produce the good at a lower opportunity cost than other nations. if the terms of trade favor the production of that good.

if it can produce the good at a lower opportunity cost than other nations.

The import quotas imposed on the U.S. sugar industry resulted in a(n): decrease in the domestic sugar producers operating in the economy. increase in the level of employment in the economy. increase in sugar prices to two or three times the world price. increase in the number of large candy makers in the economy.

increase in sugar prices to two or three times the world price.

When an economy imposes restrictions on exchange rate transactions, it results in a(n): increase in the foreign exchange reserves of the economy. decrease in the exchange rate value of the domestic currency. decrease in the domestic price of goods. increase in the domestic price of goods.

increase in the domestic price of goods.

A convex production possibilities frontier indicates the: decreasing relative price of the good on the horizontal axis to that on the vertical axis. increasing opportunity cost of producing an extra unit of the good on the horizontal axis. decreasing opportunity cost of producing an extra unit of the good on the horizontal axis. increasing relative price of the good on the horizontal axis to that on the vertical axis.

increasing opportunity cost of producing an extra unit of the good on the horizontal axis.

International trade between countries is most likely to result in an: inward rotation of their consumption possibilities frontiers. outward rotation of their consumption possibilities frontiers. inward shift of their production possibilities constraints. outward shift of their production possibilities constraints.

outward rotation of their consumption possibilities frontiers.

Opening trade between a low-wage country and a high-wage country will: raise the standard of living in the high-wage country and lower the standard of living in the low-wage country. raise the standard of living in the low-wage country and lower the standard of living in the high-wage country. raise the standard of living in both countries. lower the standard of living in both countries.

raise the standard of living in both countries.

Trade restrictions: decrease the domestic price of goods. reduce the quantity of goods demanded by consumers in domestic markets. benefit domestic consumers at the expense of domestic producers. reduce the supply of goods in domestic markets and the gains from potential trade.

reduce the supply of goods in domestic markets and the gains from potential trade.

International trade: promotes competition but does not provide incentives to producers to improve the quality of traded commodities. encourages the equitable distribution of wealth across trading nations. results in a decrease in the prices of traded commodities. allows producers to gain from trade by transferring all the consumer surplus to themselves.

results in a decrease in the prices of traded commodities.

International trade leads to mutual gains because it allows residents of different countries to: specialize in the production of the goods for which they have an absolute advantage. export goods for which they have a high opportunity cost of production. import goods for which they have a low opportunity cost of production. specialize in the production of the goods for which they have a comparative advantage.

specialize in the production of the goods for which they have a comparative advantage.

The import quotas imposed on the U.S. steel industry during 2002-2003 benefitted: the domestic appliance-manufacturing industries. the domestic industry producing steel barrels. the domestic steel industry. the foreign producers of steel.

the domestic steel industry.

Suppose Petrovia produces two goods: Good X and Good Y. If Good X is measured along the horizontal axis and Good Y is measured along the vertical axis, then the slope of Petrovia's production possibilities constraint reflects the: the relative price of Good X and Good Y. the relative price of Good Y and Good X. the opportunity cost of Good X relative to Good Y. the opportunity cost of Good Y relative to Good X.

the opportunity cost of Good X relative to Good Y.

Mutual gains from trade and specialization are possible as long as: one nation can produce a good that generates more social benefits than costs. one nation can produce a good more cheaply than other nations. the relative prices of two goods are the same between two countries. the relative production costs of two goods differ between two countries.

the relative production costs of two goods differ between two countries.

Dumping involves: the sale of goods by a domestic firm at a price that ensures supernormal profits for the firm in the short run. the sale of goods by a domestic firm at a price below cost, resulting in the elimination of competitors in the domestic market. the sale of goods by a foreign firm at a price below cost or below the price charged in the firm's home-base market. the sale of goods by a foreign firm at a price that equals its marginal cost of production.

the sale of goods by a foreign firm at a price below cost or below the price charged in the firm's home-base market.