Macroeconomics Ch 5 Quiz

The main difference between a tariff and an import quota is that:

a tariff generates tax revenue, while an import quota generates rents to the license holders.

Comparative advantage arises from:

differences in climate, factor endowments, and technology.

The United States must give up the production of 500 bicycles to produce 20 additional tractors. The opportunity cost of producing 5 tractors is _____ bicycles. 5 125 20 100

125

(Figure: Comparative Advantage and the Production Possibility Frontier) Look at the figure Comparative Advantage and the Production Possibility Frontier. _____ has an absolute advantage in the production of _____ and a comparative advantage in the production of _____.

Colombia; roses; roses

If a market begins to engage in international trade, we can assume that:

producers in the importing industry may be worse off.

If a nation exports a good when the economy is opened to trade, relative to the autarky price, the domestic price of the good will _____ and domestic consumption will _____.

rise; fall

Mexico produces lettuce but can also import it. If Mexico imports some lettuce:

the world price is lower than the domestic price.

Honduras exports clothing to the United States, and the United States exports bulldozers to Honduras. Proponents of the Heckscher-Ohlin model would explain this pattern of trade by stating that:

Honduras has a relatively large endowment of factors of production for making clothing, while the United States has a relatively large endowment of factors of production for making bulldozers.

(Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The Production Possibilities for Tractors and Crude Oil. _____ has (have) an absolute advantage in producing tractors.

The United States

The job creation argument for protection against free trade:

is that keeping out foreign imports allows the goods and services to be produced by domestic workers.

(Scenario: The Production of Wheat and Toys) Look at the scenario Production of Wheat and Toys. If each country specializes in the good for which it has the comparative advantage, then the price of wheat in terms of toys will be:

between two units of toys and three units of toys.

(Figure: The Domestic Supply and Demand for SUVs in the United States) Look at the figure The Domestic Supply and Demand for SUVs in the United States. Suppose the world price equals $50,000 and there is free trade. The United States would _____ SUVs.

export 6 million

Assume that the United States imposes an import quota on Columbian coffee. Relative to the equilibrium world price that would prevail in the absence of import quotas, it is likely that the equilibrium price of coffee in the United States will _____ and the equilibrium price of coffee in Columbia will _____.

increase; decrease

According to the Heckscher-Ohlin model, Brazil will have a comparative advantage in oranges if the factors _____ in the production of oranges are _____.

intensive; abundant

(Table: Production Possibilities for Machinery and Petroleum) Look at the table Production Possibilities for Machinery and Petroleum. The opportunity cost of _____ is _____ in the United States as (than) in Mexico.

machinery; less

(Figure: A Tariff on Oranges in South Africa) Look at the figure A Tariff on Oranges in South Africa. When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and domestic producer surplus _____ to _____.

rises; G + H

In a Ricardian model of international trade, the production possibility frontiers are _____, indicating that the opportunity cost of increasing the production of one item relative to another _____. straight lines; is constant straight lines; decreases convex; is constant concave; increases

straight lines; is constant

(Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. Jackson has an absolute advantage in producing:

wheat only.