TEST 3

Suppose that the supply curve for widgets is described by this equation: P = 1/2Q. What is the value of producer surplus when P = 5?

$25

(Figure: The Soybean Market) A quota generates a protective effect just like a tariff. Using the graph, calculate the "equivalent import tariff" that would produce the same result as an import quota of 200 units.

$3

(Figure: The Import-Competing Industry) What is the increase in producer surplus if the demand for the product increases and the new equilibrium price is 30 and quantity is 50?

$475

Suppose that consumer demand is given by this equation: P = 10 - Q. What is the value of consumer surplus when P = 5?

12.50

Offshoring of very-high-skill medical and technology services to other nations seems to contradict the value chain model of offshoring. Which of the following could be a reason? The wages of higher-skilled workers (such as accountants) in these other nations are relatively lower than in the United States. Higher-skilled workers in India earn top money for what they do. The ratio of wages of lower-skilled workers to higher-skilled workers in these other nations is relatively lower than the same ratio for the United States. The wages of higher-skilled workers (such as accountants) in these other nations are relatively higher than in the United States.

A

The most important reason why firms consider offshoring is to decrease their: A. labor costs. B. construction costs. C. transportation costs. D. "trade costs."

A

Which of the following groups of Ford Motor Company employees will be most adversely affected by Ford's offshoring of part of its operations to Mexico? A. Ford assembly line workers B. Ford accountants C. Ford engineers and scientists D. Ford managers

A

(Figure: A Firm's Production With and Without Offshoring II) Suppose the home country is open to trade and producing more R&D and less components than at A. If the price of R&D decreases, then it is likely that the home country: A. could see an increase in the amount of output produced. B. could see a decline in the amount of output produced and a loss in comparative advantage in R&D. C. will see a loss in comparative advantage in R&D. D. could see a decline in the amount of output produced.

B

How will an increase in offshoring affect the demand for skilled labor and the wages of skilled labor in the home country? A. The demand for skilled labor will decrease, but the wages of skilled labor will increase. B. The demand for skilled labor and the wages of skilled labor will both increase. C. The demand for skilled labor will increase, but the wages of skilled labor will decrease. D. The demand for skilled labor and the wages of skilled labor will both decrease.

B

The economist Paul Samuelson analyzed a scenario in which R&D production suffers from foreign competition, thus lowering its price. Samuelson notes that foreign competition in R&D will generally _____ the terms of trade and national welfare if the nation exports R&D. A. not affect B. lower C. raise D. help

B

To predict which activities a U.S. firm will find profitable to offshore, we must assume that it can use relatively lower-cost labor in a foreign nation. This is usually _____ labor. skilled unskilled economical unnecessary

B

A major finding of the offshoring model is that an increase in offshoring will raise the relative demand and relative wage for skilled labor in both countries. Does evidence from the 1980s confirm this result? A. Partially since the relative wage of U.S. nonproduction workers decreased while the relative demand increased. B. Partially since the relative wage of U.S. nonproduction workers increased but the relative demand decreased. C. Yes, both the wage and employment of U.S. nonproduction workers increased during the 1980s. D. No, relative wages for all U.S. workers fell during the 1980s.

C

After NAFTA went into effect and increased U.S. offshoring, what was expected to happen to wages of unskilled labor relative to wages of skilled labor in Mexico and in the United States? Wages of unskilled Mexican labor would rise, and wages of unskilled U.S. labor would fall. Both would rise. Both would fall. Wages of unskilled Mexican labor would fall, and wages of unskilled U.S. labor would rise.

C

High-skill U.S. medical workers worry over losing their jobs to foreign competition. Although some of these activities can be offshored, the text makes which point about medical offshoring? A. The text makes all these points. B. The medical profession would never allow foreign medical workers to read X-rays or process lab work. C. The scope for offshoring is limited because many patient-care activities must be done onsite. D. Foreign medical workers do not have the same training.

C

The ability to offshore some high-skill jobs to other nations is often a factor in: keeping taxes low for U.S. firms. preventing those workers from coming to the United States. allowing U.S. firms to continue the major portion of their work and employment inside the United States. causing unemployment in the medical and legal fields.

C

An increase in offshoring will raise the relative wage of skilled labor in both the home and offshored nations because: A. activities that used higher-priced, higher-skilled workers in the home nation now use lower-priced, lower-skilled workers in the offshored nation. B. the home nation will shift resources from higher-skilled to lower-skilled domestic workers, and the offshored nation will see a shift in demand from higher-skilled to lower-skilled workers. C. the home nation will shift resources from lower-skilled to higher-skilled domestic workers, while activities that used higher-priced, higher-skilled workers in the offshored nation will now use lower-priced, lower-skilled workers. D. the home nation will shift resources from lower-skilled to higher-skilled domestic workers, and the offshored nation will see a shift in in demand from lower-skilled to higher-skilled workers.

D

Samuelson's example of an analysis of a fall in the relative price of R&D exports leads to a(n) _____ in the terms of trade and a _____ in export volume. Samuelson's point is that a country will be _____ than in the absence of trade. A. improvement; reduction; better off B. worsening; reduction; worse off C. improvement; reduction; worse off D. worsening; reduction; better off

D

To analyze offshoring by firms, economists line up activities that a firm must undertake to produce a product in the order of the ratio of: low-cost to high-cost activities. variable cost to fixed cost. manufacturing versus service activities. high-skilled labor to low-skilled labor required for the activity.

D

Which of the following is an example of offshoring? A.Nike closes its Indonesian factory and moves production to the United States to produce tennis shoes for the U.S. market. B. Ford establishes a factory in Germany to produce automobiles for the European market. C. Intel undertakes direct foreign investment in China to produce computer chips for the Chinese market. D. General Motors moves assembly operations for Chevrolets from Detroit to its plant in Mexico.

D

Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the euro, a common currency used in 19 European countries, including Finland.) Finland, a small country, imposes a €60-per-ton specific tariff on imported steel. With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.

It will increase.

Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the euro, a common currency used in 19 European countries, including Finland.) Finland, a small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.

It will not change.

What does the text predict for future growth rates for routine and nonroutine jobs in the United States?

The growth rate of nonroutine jobs will be greater than that of routine jobs.

Suppose that the U.S. government imposes a 20% tariff to protect U.S. clothing manufacturers adversely affected by the expiration of the Multifibre Arrangement. Compared with a free-trade situation, what will happen to the price of clothing in the United States and to U.S. production of clothing?

The price of clothing will rise and U.S. clothing production will rise.

What will happen to wages of skilled workers domestically when offshoring occurs?

They will rise.

Downgrading refers to:

a decline in average quality when protection is eliminated.

Suppose that the United States is a large country and it wishes to impose optimal tariffs on its imports of avocados, bananas, and cherries. The export supply elasticities of avocados, bananas, and cherries are 1, 2, and 3, respectively. Which of the following ranks the products on the basis of their optimal tariffs from lowest to highest tariff?

avocados, bananas, cherries

Reductions in trade costs will tend to:

encourage offshoring.

If we assume perfect competition in the product markets, producer surplus is:

equal to the return to the fixed factors of production.

The U.S. terms of trade for merchandise goods _____ after 2009.

improved

(Figure: A Firm's Production With and Without Offshoring II) According to the combination of output shown by the isoquant, Y1:

is beyond the firm's capabilities to produce domestically but could be achieved by trading with another country.

Rent-seeking activities are:

landowners' efforts to receive higher returns for their land.

The escape clause in U.S. trade law:

permits the U.S. government to impose trade barriers if fairly traded imports are the cause of significant injury to a U.S. industry and its workers.

After 2004, the relative wages of skilled (nonproduction) workers in the United States:

rose compared with wages of less-skilled (production) workers.

During the 1990s, the relative wage of U. S. nonproduction workers _____ and the relative employment of U. S. nonproduction workers _____.

rose; fell

The offshoring model is mainly useful to:

study changes in wage payments to both high-skilled and low-skilled workers in capital-abundant and labor-abundant countries.

We can measure producer and consumer gains by looking at a graph of supply and demand. Total welfare in the economy would be:

the combined triangular area below the demand curve and above the supply curve.

Quota rents are:

the extra return to quota license holders following imposition of a quota.

An increase in offshoring will raise the relative wage of skilled labor in both the home and offshored nations because:

the home nation will shift resources from lower-skilled to higher-skilled domestic workers, and the offshored nation will see a shift in in demand from lower-skilled to higher-skilled workers.

China is now a member of the World Trade Organization. For China, one of the benefits of WTO membership is: the right to impose antidumping duties on its exports. the right to increase tariffs on all its imports. the right to subsidize all its exports. the right to impose antidumping duties on its imports.

the right to impose antidumping duties on its imports.

If a large country imposes a tariff:

the terms-of-trade effect may offset deadweight losses on its economy.

If a quota license is awarded to a domestic firm without an auction, it may generate bribes or lobbying spending to earn this revenue. Economists call this a(n) ____ activity.

wasteful rent-seeking