Microeconomics Final Exam

In Figure 35.1, what is the opportunity cost of DVD players in Japan

2 motorcycles per DVD player

Over a given period of time, if imports are greater than exports, the result is

A trade deficit

To ensure mutually beneficial trade, the terms of trade between two countries should always

Be between their respective opportunity costs in production

Which of the following countries has the highest export ratio

Belgium

Assume Ireland can produce 4 units of good X or 2 units of good Y. France can produce 3 units of good X or 9 units of good Y. What would be the terms of trade between Ireland and France for 1 unit of good X?

Between 1/2 and 3 units of Y

The terms of trade between any two countries for two goods cannot be between their respective opportunity costs if there are to be any gains in trade

False

Why would the establishment of protective trade barriers be a poor way of protecting workers in domestic industries

First, protective barriers invite retaliatory trade actions by foreign countries, which can reduce exports and lower employment in exporting industries. Second, since consumer prices rise with the imposition of trade barriers, domestic workers in their role as consumers are worse off. Third, the best way to maximize the incomes of domestic workers is to allow them to specialize in what they do best (i.e. most efficiently) and trade freely.

Dumping is said to occur when

Foreign producers sell their goods abroad at prices lower than those prevailing in their own countries.

Which of the following policies would not improve the terms of trade from the point of view of import-competing industries in the United States

Freer Trade

Increased trade restrictions

Reduce total consumption possibilities.

If exports are being excluded unfairly from a market, the World Trade Organization (WTO) may authorize

Retaliatory tariffs

international trade

redistributes income from import-competing industries to export industries

Which of the following is a gain from trade

A higher standard of living for all trading countries

The infant industry argument can be justified because

A new industry may be difficult to start in the face of existing foreign competition

Consumption possibilities, during a given time period, refer to the

Alternative combinations of goods and services that a country can consumer

Refer to figure 35.5. S1 represents the U.S. domestic supply of a good and S2 represents supply in the United States under condition of free trade. If the United States imposes a tariff on this good, what will happen to quantity imported?

Imports will decline as price increases and domestic increases

Increased opportunities for trade increase production by

Improving efficiency through specialization

As a result of GATT, tariff rates in developed countries have decreased from 40 percent in 1948 to less than 4 percent today

True

Free trade benefits the nation as a whole but may hurt specific industries and workers

True

Preservation of national security is one argument in favor of trade restrictions

True

Reducing protectionism allows greater gains from free trade

True

World output will be maximized when each country pursues its comparative advantage

True

Based on export ratios, which of the following countries is closest to being a closed economy?

Myanmar

Trade restrictions

Reduce the gains from trade for the country as a whole.

The World View article "U.S. to Impose Tariffs on Tires from China" says new tariffs will be imposed on tires from China, and

U.S. tire manufacturers will benefit from the tariff

Which of the following statements about U.S. trade is true

The United States typically has a substantial trade surplus in services

The terms of trade between two countries refer to

The amount of good A given up for good B

Assume South Korea and Vietnam have the same amount of resources. In a given time period, South Korea can produce 100,000 jackets or 1,000,000 shirts. Vietnam can produce 200,000 jackets or 2,000,000 shirts. This means that

Vietnam has an absolute advantage in both jackets and shirts

Which of the following groups has an interest in encouraging free trade

Workers in export industries

An embargo is

a prohibition on exports or imports

Two countries will have zero incentive to trade if their production possibilities curves are parallel straight lines because

The opportunity costs for both countries are the same

If the United States has a trade deficit, this means that

The trade balance is negative

World output of goods and services increases with specialization because

The world's resources are being used more efficiently

Suppose China can produce either 300 telephones or 200 DVD players, and Japan can produce either 200 telephones or 100 DVD players. Implicitly, China has:

A comparative but not necessarily an absolute advantage in telephones.

Over a given period of time, if experts are greater than imports the result is

A trade surplus

When a country participates in international trade, its consumption possibilities

Always exceed its production possibilities

Assume Saudi Arabia can produce 4 units of good X or 3 units of good Y. Tunisia can produce 5 units of good X or 8 units of good Y. What would be the terms of trade between Saudi Arabia and Tunisia for 1 unit of good Y

Between 5/8 and 4/3 units of X

Based on the information in Table 35.1, assume China and the United States have the same amount of resources to produce soybeans and computers and they produce no other goods. The output of computers and soybeans would be greatest if

China specialized in producing soybeans, and the United States specialized in producing computers

If the terms of trade between any two countries lie somewhere between their respective opportunity costs, then the effects of trade will include

Consumption outside the production possibilities curve both countries

If a country is completely self-reliant in producing goods for its own consumption needs, then

Its consumption possibilities equal its production possibilities

Suppose the United States can produce 2,000 cars or 2,000 trucks. Japan can produce either 2,000 cars or 1,000 trucks. In terms of car production we can conclude that

Japan has a comparative advantage

A country with a comparative advantage in producing computer chips:

Less interdependence between the economies of the two countries

Tariffs tend to reduce the volume of imports by

Making them more expensive to domestic consumers.

Refer to figure 35.3 for the production possibilities curve for the United States and Mexico. These two curves indicate that

Mexico does not have an absolute advantage in the production of either good

Refer to figure 35.3 for the production possibilities curve for the United States and Mexico. These two curves indicates that

Mexico should specialize in the production of machinery

Based on the information in table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no further goods. For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 computer will exchange for

More than 1/5 of a ton of soybeans but less than 1/3

Based on the information in table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no further goods. For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 ton of soybean will exchange for

More than 3 computers but less than 5

Which of the following countries have the lowest export ratio

Myanmar

Suppose China can produce either 600 telephones or 400 DVD players, and Japan can produce either 400 telephones or 200 DVD players. Implicitly, China has:

Neither

From a consumer's point of view, which of the following policies would be least desirable

No trade

Describe the pressures that discourage trade

One pressure occurs because trade hurts workers and producers who compete with imported products and provides them with and economic interest in restricting trade. The national security argument against trade is that we can't depend on foreign suppliers to provide us with defense-related goods or food in time of war, so we should protect these industries by discouraging trade. The dumping argument against free trade is that domestic production may be undercut when foreign producers sell their products at lower prices lower than domestic prices, in order to drive the domestic producers out of business. The infant industries argument against free trade is that imports may make it difficult or impossible for a new domestic industry to develop.

Protectionism achieves which of the following goals?

Protection of infant industries

Producers of paper products are most likely to be in favor of

Protectionism in the paper product market but free trade in the lumber market

Quotas are a greater threat to competition than tariffs because

Quotas preclude additional imports at any price

The elimination of import restrictions will

Redistribute income from import-competing industries to export industries.

A principal objective of the World Trade Organization is to

Reduce barriers to trade

What is a "beggar thy neighbor" policy, and why is it a problem for the country that caused it

The 'beggar-thy-neighbor' phenomenon is the act of transferring unemployment problems to other countries by instituting tariffs on imports. The problem is that the resultant loss of business in other countries leaves them less able to purchase the exports of the country that initiated the policy.

beggar-thy-neighbor policy is

The imposition of trade barriers ro increase domestic employment

A country can consume outside its production possibilities curve by trading

True

Quotas are a much greater threat to competition than are tariffs because quotas preclude additional imports at any price

True

Gary Galles in the article "End the Import Quotas on Sugar" argues that

U.S. sugar quotas raise the price of sugar in the United States and are above world prices

If S1 represents the U.S. domestic supply of a good, what does S2 most likely represent?

U.S. supply under quota-restricted trade

Refer to Figure 35.5. If S1 represents the U.S. domestic supply of a good and S2 represents supply in the United States under conditions of free trade, what does S3 most likely represent

U.S. supply under tariff-restricted trade

The United States is capable of producing many goods and services that it imports, but it does not because

We can import those goods at a lower opportunity cost than if we make them ourselves

When tariffs are imposed, the losers include

domestic consumers and foreign producers

A country's export ratio is

The ratio of exports to GDP

According to the text, which of the following are both imports and exports for the United States

Cars, computers, and auto parts

Specialization in production and then trading with other countries

Change the mix of output for each country and increase total world output

The General Agreement on Tariffs and Trade (GATT)

Committed GATT members to a reduction of protectionism

Which of the following is not a reason to restrict trade

Concern about high prices for consumers

Goods and services sold in foreign buyers are

Exports

The primary purpose of NAFTA is to

Increase employment and income in Mexico, Canada, and the United States by encouraging free trade.

Explain how it is possible for a country to consume a greater quantity of goods and services than it is actually capable of producing

It is possible for a country to consume more than it is actually capable of producing when countries engage in specialization and trade. When countries specialize in what they produce most efficiently (i.e. lower opportunity costs), total world production is increased. We are essentially squeezing more goods and services out of the world's scarce resources. Trading countries will have more goods and services available for consumption than they can produce indavidually.

The United States exports more than it imports

Only in services

The United States has an absolute advantage in producing t-shirts, but not a comparative advantage, because

Other countries, such as China, can produce t-shirts at a lower opportunity cost relative to the United States