Chapter 18

Compared to the no-trade situation, when a country imports a good, which of the following will occur? a. Domestic consumers gain, domestic producers lose, and the gains outweigh the losses. b. Domestic consumers lose, domestic producers gain, and the gains outweigh the losses. c. Domestic consumers gain, domestic producers lose, and the losses outweigh the gains. d. Domestic consumers gain, but domestic producers lose an equal amount.

a

Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average, a. low rates of economic growth. b. high rates of economic growth. c. a large import sector. d. a large export sector.

a

Economically speaking, tariffs are a. obstacles that limit voluntary exchange. b. a means to promote economic efficiency. c. necessary to keep the industries of an economy healthy. d. the same as import quotas.

a

The theory of comparative advantage suggests that nations should produce a good if they a. have the lowest opportunity cost. b. have the most resources. c. can produce more of the good than any other nation. d. have the lowest wages.

a

What is dumping? a. The sale of a good by a foreign supplier in another country at a price below that charged by the supplier in its home market. b. An inappropriate method for getting rid of byproducts from a production process. c. A method to increase competitiveness in a market. d. All of the above. e. Both a and c above.

a

Why is globalization becoming more of a worldwide phenomenon? a. Technological advancements are decreasing transportation costs. b. Trade hurts workers in poor countries. c. Less-developed countries are increasing their trade restrictions. d. More countries want to become self-sufficient.

a

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, which of the following conclusions can be made? a. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. b. The country will be an importer of the good. c. The country will be an exporter of the good. d. The country will be neither an exporter nor an importer of the good.

b

Which of the following provides the foundation of the case for free trade? a. the law of diminishing marginal utility b. the law of comparative advantage c. the anti-dumping argument d. the industrial diversity argument

b

A major difference between a tariff and a quota is that a tariff a. will reduce imports, but a quota generally will not. b. can easily be rescinded, but a quota cannot. c. typically generates tax revenue, while a quota does not. d. will reduce the ability of foreigners to obtain the purchasing power to buy a nation's export goods, but a quota will not affect the foreign demand for the nation's exports.

c

In recent years, the largest trading partners of the United States have been a. Russia, Venezuela, Saudi Arabia, and Indonesia. b. Canada, Brazil, Argentina, and Chile. c. Canada, Mexico, China, and Japan. d. Germany, France, Spain, and the United Kingdom.

c

The agreement of the United States, Canada, and Mexico to eliminate tariffs on the shipment of most products among the three countries by 2004 is called the a. Tariff Reduction Act of 1993. b. General Agreement on Tariffs and Trade. c. North American Free Trade Agreement. d. Uruguay Round.

c

What does the law of comparative advantage indicate? a. Countries should export products for which they are high-opportunity cost producers. b. A nation can gain from trade only when its trading partners are not low-wage countries. c. Specialization and exchange will permit trading partners to maximize their joint output. d. A nation can gain from trade only if it is not at an absolute disadvantage in producing all goods.

c

Why do opportunity costs primarily differ among nations? a. Nations have different political institutions. b. Nations employ different currencies. c. Nations have different endowments of land, labor skills, capital, and technology. d. Work-leisure preferences vary considerably from one nation to another.

c

A tax levied on imported goods is called a. a foreign profits tax. b. a quota. c. an excise tax. d. a tariff.

d

International trade does all the following except a. allow a country to specialize in producing certain goods and services. b. allow a country to move to higher consumption levels. c. increase world output. d. reduce world output.

d

Large quantities of many products produced in the United States are exported to purchasers in other countries. Exports account for the largest share of which one of the following products produced in the United States? a. petroleum b. radio and television sets c. shoes d. civilian aircraft

d

The primary source of purchasing power used to buy imported goods is a. the balance of payments deficit. b. the monetary sector. c. taxation and other revenue-generating activities. d. the exports of a nation.

d

What is the difference between a tariff and a quota? a. A tariff is a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported. b. A tariff is levied on exports, whereas a quota is imposed on imports. c. A tariff is levied on imports, whereas a quota is imposed on exports. d. A tariff is a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

d

What would opening trade between two nations do? a. Trade would shift their production possibilities curves outward. b. Trade would leave the production possibilities unchanged and decreased their consumption possibilities. c. Trade would shift their production possibilities curves inward. d. Trade would leave the production possibilities unchanged and increase their consumption possibilities.

d

Which of the following about trade is true? a. Countries will have a higher standard of living when they produce as many goods as possible domestically. b. Protectionism (i.e., policies that limit trade in certain goods) promotes both economic prosperity and greater employment. c. Countries that have a lot of resources, like the United States, are always hurt by trade. d. Specialization and trade leads to mutual gains for countries.

d

Which of the following is a basic problem with the infant-industry argument? a. The amount of the tariff is unlikely to have much impact on the success of an infant industry. b. Domestic consumers will continue to buy the foreign products anyway, regardless of the tariff. c. Most industries need protection when they are mature, not when they are first established. d. Political pressure will likely prevent the withdrawal of the tariff when the industry matures.

d

Which of the following restricts the volume of international trade? a. an increase in the rate of economic growth b. well-enforced property rights c. a stable international monetary framework d. quotas

d

Which of the following would be expected if the tariff on foreign-produced automobiles were increased? a. The domestic price of automobiles would fall. b. The demand for foreign-produced automobiles would increase, causing the price of automobiles to increase in other nations. c. The number of unemployed workers in the domestic automobile industry would rise. d. The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise.

d

Who would most likely be helped by an increase in the tariff on foreign-produced automobiles? a. Steel producers that sell most of their output to foreign producers of automobiles. b. Workers in the foreign automobile industry. c. Consumers looking for alternatives to domestic automobiles. d. The domestic producers of automobiles.

d

Firms in a high-wage nation such as the U.S. can compete effectively with imports from low-wage nations if a. labor productivity is higher in the low-wage nation b. the U.S. reduces tariffs on imports c. skill levels are identical in the nations d. low-wage nations impose tariffs on U.S. made goods e. labor productivity is higher in the U.S.

e