Micro economics

exports

Goods and Services sold to other countries

comparative advantage

The ability of a country to produce a good at a lower cost than another country can. David Ricardo

The amount of government revenue created by the tariff is a. B. b. E. c. D + F. d. B + D + E + F.

b

Producer surplus in this market after trade is a. A. b. A + B. c. B + C + D. d. C.

c

Arguments for restricting trade

-The Jobs Argument -The National-Security Argument -The Infant-Industry Argument -The Unfair-Competition Argument -The Protection-As-A-Bargaining-Chip Argument

Effects of an import quota

-domestic producers are better off -domestic consumers are worse off -license holders are better off -deadweight loss

WTO

..., an international organization based in Geneva that monitors and enforces rules governing global trade

GATT

1947- General Agreement on Tariffs and Trade (low tariffs)

NAFTA

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.

The effects of a tariff

Domestic Producers Are Better Off Domestic Consumers Are Worse Off The Government Raises Revenue Deadweight Loss

THe equilibrium without trade

Domestic buyers and domestic sellers determine equilibrium price and equilibrium. Total benefits = consumer surplus + producer surplus

Absolute advantage

Exists when a country can produce a good or service at a lower cost than other countries.

Winners and losers from trade

Exporters Producers Are Better Off Consumers Are Worse Off Importers Producers Are Worse Off Consumers Are Better Off Trade Raises The Economic Well-Being Of A Nation

imports

Goods and services bought domestically but produced in other countries

The price and quantity of rifles in Mexico before trade is a. P0 and Q0. b. P1 and Q1. c. P2 and Q2. d. P1 and Q0.

a

Consumer surplus in this market before trade is a. A b. A + B c. A + B +D d. C

b

As a result of the tariff, there is a deadweight loss that amounts to a. B. b. E. c. D + F. d. B + D + E + F.

c

World price

the price of a good that prevails in the world market

relative price

The price of a good in terms of another good.

When a nation opens itself to trade in a good and becomes an importer, a. producer surplus decreases, but consumer surplus and total surplus both increase. b. producer surplus decreases, consumer surplus increases, and so the impact on total surplus is ambiguous. c. producer surplus and total surplus increase, but consumer surplus decreases. d. producer surplus, consumer surplus, and total surplus all increase.

a

Production possibilities frontier

a curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed

The change in total surplus in this market because of trade is a. D, and this area represents a loss of total surplus because of trade. b. D, and this area represents a gain in total surplus because of trade. c. B + D, and this area represents a loss of total surplus because of trade. d. B + D, and this area represents a gain in total surplus because of trade.

b

A result of the tariff is that, relative to the free-trade situation, the quantity of saddles imported decreases by a. Q2 - Q1. b. Q3 - Q2. c. Q4 - Q3. d. Q4 - Q3 + Q2 - Q1.

d

EU

European Union trade agreement

With the tariff, the domestic price and domestic quantity demanded are a. P1 and Q1. b. P1 and Q4. c. P2 and Q2. d. P2 and Q3.

d

three questions

If The Government Allows Trade, What Will Happen To Price And Quantity Sold In The Domestic Market? Who Will Gain And Lose From Trade And Will The Gains Exceed The Losses? Should A Tariff Be Imposed?

other benefits of international trade

Increased Variety Of Goods Lower Costs Through Economies Of Scale Increased Competition Enhanced Flow Of Ideas

If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then a. the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade. b. the nation has a comparative advantage in producing steel and would become a steel importer if it opened up trade. c. the nation does not have a comparative advantage in producing steel and would become a steel exporter if it opened up trade. d. the nation does not have a comparative advantage in producing steel and would become a steel importer if it opened up trade.

a

When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage, a. they both obtain consumption outside their production possibilities frontier. b. they both obtain consumption inside their production possibilities frontier. c. one individual consumes inside her production possibilities frontier, while the other consumes outside hers. d. each individual consumes a point on her own production possibilities frontier.

a

Multilateral approach

an approach to achieving free trade in which a nation reduces its trade restrictions while other countries do the same; it can bargain with its trading partners in order to reduce worldwide trade restrictions

unilateral approach

an approach to achieving free trade in which a nation removes its trade restrictions on its own

Consumer surplus with the tariff is a. A. b. A + B. c. A + C + G. d. A + B + C + D +E + F.

b

If a nation that imports a good imposes a tariff, it will increase a. the domestic quantity demanded. b. the domestic quantity supplied. c. the quantity imported from abroad. d. all of the above.

b

Once again, in an hour, David can wash cars or mow lawn, and Ron can wash cars or mow lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing? a. David in washing, Ron in mowing. b. Ron in washing, David in mowing. c. David in washing, neither in mowing. d. Ron in washing, neither in mowing.

b

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these nations trade? a. China will export aircraft, and the United States will export shirts. b. China will export shirts, and the United States will export aircraft. c. Both nations will export shirts. d. There are no gains from trade in this situation.

b

With trade, the equilibrium price of rifles and the equilibrium quantity of rifles demanded in Mexico are a. P1 and Q1. b. P1 and Q2. c. P2 and Q2. d. P0 and Q0.

b

Mexico's gains from trade are represented by the area that is bounded by the points a. (0, P0), (Q0, P0), (Q2, P1), and (0, P1). b. (0, P1), (0, P2), (Q0, P0), and (Q1, P1). c. (Q0, P0), (Q2, P1), and (Q1, P1). d. (0, P0), (0, P2), and (Q0, P0).

c

When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation? a. Domestic production of coffee rises, and Ectenia becomes a coffee importer. b. Domestic production of coffee rises, and Ectenia becomes a coffee exporter. c. Domestic production of coffee falls, and Ectenia becomes a coffee importer. d. Domestic production of coffee falls, and Ectenia becomes a coffee exporter.

c

Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade? a. the increase of a tariff in an importing country b. the reduction of a tariff in an importing country c. starting to allow trade when the world price is greater than the domestic price d. starting to allow trade when the world price is less than the domestic price

c

In an hour, David can wash cars or mow lawn, and Ron can wash cars or mow lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing? a. David in washing, Ron in mowing. b.Ron in washing, David in mowing. c. David in washing, neither in mowing. d. Ron in washing, neither in mowing.

d

Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes. His roommate takes half as long to do each task. How should the roommates allocate the work? a. Mark should do more of the cooking based on his comparative advantage. b. Mark should do more of the washing based on his comparative advantage. c. Mark should do more of the washing based on his absolute advantage. d. There are no gains from trade in this situation.

d

The main difference between imposing a tariff and handing out licenses under an import quota is that a tariff increases a. consumer surplus. b. producer surplus. c. international trade. d. government revenue.

d

When trade takes place, the quantity Q2 - Q1 is a. The number of rifles bought and sold in Mexico. b. The number of rifles produced in Mexico. c. The number of rifles exported by Mexico. d. The number of rifles imported by Mexico

d

Which goods will a nation typically import? a. those goods in which the nation has an absolute advantage b. those goods in which the nation has a comparative advantage c. those goods in which other nations have an absolute advantage d. those goods in which other nations have a comparative advantage

d