Chapter 15 Macro

The 1930 passing of the Smoot-Hawley tariffs in the United States has been credited with adding to the severity of: A) inflation. B) World War II. C) the Great Depression. D) homelessness.

C) the Great Depression.

Over the long run, the liberalization of trade has caused incomes to _______, leading to ________ environmental damage. A) fall; more B) rise; less C) fall; less D) rise; more

B) rise; less

When a tariff is imposed on a good, domestic output of the good _______ and government revenue _____________. A) falls; decreases B) rises; increases C) rises; decreases D) falls; increases

B) rises; increases

If the United States begins importing motorcycles from Tanzania, where workers are paid just 50 cents a day, which group is likely to be hurt the most? A) American motorcycle workers B) Tanzanian motorcycle producers C) Tanzanian motorcycle workers D) American motorcycle consumers

A) American motorcycle workers

24. (Figure: Corn and Watches in the United States and Canada) Referring to the graphs, we see that ____ will benefit from free trade, but ______ will not. A) Both the United States and Canada will benefit from free trade. B) Neither the United States nor Canada will benefit from free trade. C) Canada; the United States D) the United States; Canada

A) Both the United States and Canada will benefit from free trade.

A tariff placed on imported foreign vehicles will have what effect? A) It will entice Americans to buy more domestic vehicles due to the higher price of foreign vehicles. B) It will cause foreign car producers to produce more. C) It will entice Americans to buy more foreign vehicles due to lower costs. D) It will cause foreign producers to generate higher revenues on the imported vehicles.

A) It will entice Americans to buy more domestic vehicles due to the higher price of foreign vehicles.

If the United States can produce more of both bread and milk than Germany can, then: A) Germany should buy all its bread and milk from the United States. B) the United States can still benefit from trade with Germany because of comparative advantage. C) Germany can't benefit from trade with the United States. D) the United States can't benefit from trade with Germany.

B) the United States can still benefit from trade with Germany because of comparative advantage.

Suppose that the United States and Italy are considering trade in two products: grain and oranges. Suppose that before trade, the United States produces 800 million bushels of grain and 200 million bushels of oranges. At the same time, Italy produces 200 million bushels of grain and 100 million bushels of oranges. Which of the following statements regarding comparative advantage is TRUE? A) Italy has a comparative advantage in producing oranges only. B) The United States has a comparative advantage in producing oranges only. C) The United States has a comparative advantage in producing both grain and oranges. D) Italy has a comparative advantage in producing both grain and oranges.

A) Italy has a comparative advantage in producing oranges only.

On which of the following commodities has the United States imposed quotas? A) copper B) Japanese automobiles C) Malaysian automobiles D) refined gasoline

A) copper

Textile workers in the United States would offer which of the following arguments to restrain international trade in textiles? A) low foreign wages B) antidumping C) infant industry D) national defense

A) low foreign wages

If the steel industry argues for tariff protection by saying that steel is necessary to build military vehicles, it is using the: A) national defense argument. B) protection against low foreign wages argument. C) infant industry argument. D) antidumping argument.

A) national defense argument.

If a country has an absolute advantage in producing all goods: A) there are still benefits to specialization and trade. B) it should produce all those goods. C) it should ask its trading partners which goods it should specialize in. D) it would not gain from trade.

A) there are still benefits to specialization and trade.

The Trade Adjustment Assistance (TAA) program is an American trade policy intended to deal with: A) trade and domestic employment concerns. B) environmental concerns of free trade. C) the poor working conditions in developing nations. D) the infant industry concern.

A) trade and domestic employment concerns.

It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car. It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car. If Greg and Melissa each work 48 hours in one week and produce only the good for which they have the comparative advantage, how much corn is produced and how many cars are washed in total? A) eight bushels of corn and 48 washed cars B) six bushels of corn and 48 washed cars C) six bushels of corn and 24 washed cars D) eight bushels of corn and 24 washed cars

B) six bushels of corn and 48 washed cars

11. (Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that after free trade, the price of watches in Country A is _____ and the price of watches in Country B is _____. A) $150; $200 B) $150; $150 C) $100; $150 D) $100; $200

B) $150; $150

30. (Table) Referring to the table, we see that after trade England will be able to consume _____ units of wine. A) 40 B) 15 C) 60 D) 20

B) 15

International trade accounts for what percentage of total U.S. GDP? A) 50% B) 30% C) 10% D) 20%

B) 30%

If Canada is using all its resources to their fullest extent, it can produce either 10 million iPads or 5 million HDTVs. If Mexico is using all its resources to their fullest extent, it can produce either 6 million iPads or 6 million HDTVs. Thus: A) Mexico has an absolute advantage in producing both goods. B) Canada has a comparative advantage in producing iPads. C) Mexico has a comparative advantage in producing iPads. D) Canada has an absolute advantage in producing both goods and a comparative advantage in producing HDTVs.

B) Canada has a comparative advantage in producing iPads.

It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car. It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car. Therefore: A) Melissa has an absolute advantage in producing corn. B) Melissa has a comparative advantage in producing corn. C) Melissa has an absolute advantage in washing cars. D) Melissa has a comparative advantage in washing cars.

B) Melissa has a comparative advantage in producing corn.

Suppose that the United States and Italy are considering trade in two products: grain and oranges. Suppose that before trade, the United States produces 800 million bushels of grain and 200 million bushels of oranges. At the same time, Italy produces 200 million bushels of grain and 100 million bushels of oranges. Which of the following statements regarding absolute advantage is TRUE? A) Italy has an absolute advantage in producing oranges only. B) The United States has an absolute advantage in producing both grain and oranges. C) Italy has an absolute advantage in producing both grain and oranges. D) The United States has an absolute advantage in producing grain only.

B) The United States has an absolute advantage in producing both grain and oranges.

If the economic arguments against tariffs and quotas are that they are very costly for the macroeconomy, why are they imposed? A) The costs to individual consumers are large, whereas individual producers gain little from such protection. B) The costs to individual consumers are small, whereas individual producers gain much from such trade barriers. C) The domestic prices of protected goods fall after the tariff or quota is imposed. D) Consumers have very large lobbying budgets.

B) The costs to individual consumers are small, whereas individual producers gain much from such trade barriers.

If free trade occurs, producers in the net exporting country will be _________ off, and producers in the net importing country will be _________ off than before trade. A) better; better B) better; worse C) worse; worse D) worse; better

B) better; worse

Computer game cartridges produced in EconomyLand sell for $50 each. The same cartridges made in MarketLand have a price of $100. If free trade were allowed, we would expect the prices in both countries to: A) remain unchanged. B) converge to somewhere between $50 and $100. C) move to the higher price of $100. D) move to the lower price of $50.

B) converge to somewhere between $50 and $100.

If the domestic price of a good is below the prices in other countries and free trade is opened up, then in terms of pricing: A) foreign consumers lose and foreign producers gain. B) domestic consumers lose and domestic producers gain. C) domestic producers lose and foreign producers gain. D) both foreign and domestic consumers lose.

B) domestic consumers lose and domestic producers gain.

Environmental protection is an income-elastic good. This means that as income ______, demand for environmental protection ______. A) increases; remains constant B) increases; increases C) decreases; increases D) increases; decreases

B) increases; increases

Suppose a tariff is imposed on avocados. This has the effect of ____ the domestic price of avocados. It has the effect of ___ the imported price of avocados. A) decreasing; increasing B) increasing; increasing C) increasing; decreasing D) decreasing; decreasing

B) increasing; increasing

If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. If it used all its resources to produce milk, it could produce 20 million gallons of milk. Then Germany's opportunity cost of producing a ______ is ______. A) gallon of milk; 1/2 a loaf of bread B) loaf of bread; 1/2 a gallon of milk C) gallon of milk; 1 loaf of bread D) loaf of bread; 2 gallons of milk

B) loaf of bread; 1/2 a gallon of milk

Tariffs are designed to achieve all of the following results, EXCEPT: A) increase the price of the imported commodity. B) prohibit the importation of foreign-made commodities. C) increase revenues for the government. D) protect domestic workers from the full impact of international competition.

B) prohibit the importation of foreign-made commodities.

One of the MAIN purposes of a tariff is to: A) increase the supply of imports. B) raise the price of an import above the world price. C) compensate importers for losses due to fluctuating exchange rates. D) reduce the price of imports to make them more affordable.

B) raise the price of an import above the world price.

One reason a firm might dump its product in another country's market is: A) to seek out firms to merge with. B) to drive competitors out of that market. C) to escape sales tax at its home market. D) All of these are reasons.

B) to drive competitors out of that market.

The average price of exports divided by the average price of imports is called the: A) average cost ratio. B) trade balance. C) terms of trade. D) export-import ratio.

B) trade balance.

In a two-country model, consumers in the exporting country will be _____ and producers in the exporting country will be _____ with the opening of free trade. A) unhappy; unhappy B) unhappy; happy C) happy; unhappy D) happy; happy

B) unhappy; happy

49. (Table) Referring to the table and assuming that the countries want to produce the same total amount of cheese after trade, we see that after specialization France will produce _____ units of cheese. A) 60 B) 15 C) 20 D) 40

C) 20

Which of the following statements regarding workers is TRUE? A) Cutting off trade with countries where workers are paid low wages improves the economic condition of these workers. B) Living conditions in poor countries are unrelated to the degree of economic freedom and a strong and fair legal system. C) An important reason why workers in developing countries earn low wages is because of limited investment in human capital. D) Competition from low-wage nations does not cost some U.S. workers their jobs.

C) An important reason why workers in developing countries earn low wages is because of limited investment in human capital.

In Canada, the average worker can produce 10 computers or six cars a year. In the United States, the average worker can produce 12 computers or 10 cars a year. Thus: A) the United States has a comparative advantage in the production of computers. B) Canada has a comparative advantage in producing both goods. C) Canada has a comparative advantage in the production of computers. D) the United States has a comparative advantage in producing both goods.

C) Canada has a comparative advantage in the production of computers.

It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car. It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car. Therefore: A) Melissa has an absolute advantage in producing corn. B) Greg has a comparative advantage in producing corn. C) Greg has an absolute advantage in washing cars. D) Melissa has a comparative advantage in washing cars.

C) Greg has an absolute advantage in washing cars.

A foreign firm sells its product in the United States for $50 per unit. Its cost per unit is $60. A) The cost-price difference is enough evidence to prove predatory pricing. B) The best policy in these cases is always to impose a tariff. C) It may possibly be dumping. D) It is definitely dumping.

C) It may possibly be dumping.

Suppose a Chinese clothing manufacturer wants to sell a shirt to a U.S. customer, but the U.S. government adds a tax of $.50 to the price of the shirt at the U.S. border. This is an example of: A) dumping. B) a quota. C) a unit tax tariff. D) an ad valorem tariff.

C) a unit tax tariff.

Average U.S. tariffs are currently: A) zero, having been eliminated by the World Trade Organization. B) about 10%. C) about 2%. D) double the value of the import.

C) about 2%.

The maximum amount of a good that may be imported during a specified period of time is called: A) an infant industry agreement. B) dumping. C) an import quota. D) comparative advantage.

C) an import quota.

According to international trade theory: A) trade is based on absolute advantage. B) less developed countries cannot trade successfully with developed countries. C) every country has a comparative advantage in something. D) comparative advantage is based on absolute advantage.

C) every country has a comparative advantage in something.

20. (Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that, after free trade, producers in Country A will _____ and producers in Country B will _____. A) produce the same number of watches; increase the production of watches B) produce the same number of watches; decrease the production of watches C) increase production of watches; decrease production of watches D) increase production of watches; produce the same amount of watches

C) increase production of watches; decrease production of watches

If Japan has a comparative advantage over the United States in the production of new cars and can sell a new car for an average price of $22,000, while the United States has an average price of a new car at $25,000, then if the two countries engage in trade, the terms of trade will: A) be more than $25,000. B) certainly be $23,500. C) lie somewhere between $22,000 and $25,000. D) be less than $22,000.

C) lie somewhere between $22,000 and $25,000.

When nations specialize according to their comparative advantage: A) consumption rises in one country but must fall in all others. B) total world production rises but total consumption in the world declines. C) total production and consumption in the world increase. D) None of these happen.

C) total production and consumption in the world increase.

59. (Figure: Gadgets and Widgets) According to the graph, which of the following statements is CORRECT? A) Total output would fall if Country B specialized in gadgets and Country A in widgets. B) There are no gains from trade. C) Total output would rise if Country A specialized in gadgets and Country B in widgets. D) Total output would rise if Country B specialized in gadgets and Country A in widgets.

D) Total output would rise if Country B specialized in gadgets and Country A in widgets.

The solution to dumping is: A) quotas against the offending commodity. B) a government subsidy to the injured industry. C) an embargo. D) a retaliatory tariff.

D) a retaliatory tariff.

"A tariff should be imposed on Chinese shirts because they are being sold in the United States below their cost of production." Which argument for trade barriers is used in this example? A) infant industry B) national defense C) low foreign wages D) anti-dumping

D) anti-dumping

Governments prefer tariffs over quotas because: A) governments don't collect revenue with a quota. B) producers lose as prices fall with a tariff. C) imports rise with a quota. D) consumers pay lower prices for more output.

D) consumers pay lower prices for more output.

If the infant industry argument is used to justify protecting an industry that has already matured, then: A) stockholders lose because the firms in that industry cannot compete with other firms. B) no one loses. C) consumers will lose because the price they will pay is less than the world price. D) consumers will lose because the price they will pay is greater than the world price.

D) consumers will lose because the price they will pay is greater than the world price.

The terms of trade: A) can determine only the price of imports. B) can determine only the price of exports. C) is equal to Pm/Px. D) determines the prices of imports and exports.

D) determines the prices of imports and exports.

Average tariff rates peaked in the United States: A) during World War I. B) during World War II. C) after the Vietnam War. D) during the Great Depression.

D) during the Great Depression.

As tariffs have been lowered throughout the world, trade has _____________, leading to __________ standards of living around the world. A) fallen; lower B) expanded; lower C) fallen; higher D) expanded; higher

D) expanded; higher

An industry that needs protection in order to become competitive is known as a(n): A) low-cost industry. B) newly developed industry. C) foreign industry. D) infant industry.

D) infant industry.

The MAIN reason for trade restrictions is to: A) increase world GDP. B) leverage each country's comparative advantage. C) improve international relationships. D) protect the jobs of workers in industries that are not globally competitive.

D) protect the jobs of workers in industries that are not globally competitive.

One of the reasons that the infant industry argument against free trade is flawed is that: A) infants should be protected by their parents and government should not get involved. B) protection is always eliminated too quickly. C) infant industry protections tend to support only labor-intensive industries. D) protections are difficult to remove even after the industry has matured.

D) protections are difficult to remove even after the industry has matured.

Which of the following occurrences has led to an increased amount of trade between countries? A) increase in the cost of telegraphic communication B) high levels of unemployment in the United States C) bowed-out production possibilities curve D) reduced transportation costs

D) reduced transportation costs

Which of these sectors is the largest component of U.S. exports? A) capital goods B) food and beverages C) consumer goods D) services

D) services

An ad valorem tax: A) taxes an import differently based upon its contribution to national defense. B) is not much different from a quota. C) taxes an export a certain percentage of its real value as it crosses the border. D) taxes an import a certain percentage of its price as it crosses the border.

D) taxes an import a certain percentage of its price as it crosses the border.

55. (Figure: Market for Watches in Countries A and B) Referring to the graphs, we see that, as a result of free trade, consumers of watches in Country A _____ and consumers of watches in Country B _____. A) The consumers in both countries will end up losing. B) The consumers in both countries will be the winners. C) will be the winners; will be the losers D) will be the losers; will be the winners

D) will be the losers; will be the winners