ECON - International Trade Smartbook

Tariff revenue is the product of the tariff rate and the quantity of goods imported. True False

True

When a domestic country is small relative to world markets, is a price taker, and its consumption and production do not affect the world price, it can be studied using: an input-output model. a production possibilities model. a circular flow model. a small-country model.

a small-country model.

______ revenue equals a tariff times the quantity imported. (Use one word for the blank.)

tariff

When trade occurs, ______ is created.

wealth

The price of a good, service, or resource that prevails in the world market is the ____ price.

world

A numerical limit on the amount of a good that can be imported is an import _____

quota

Without ______ (use one word for the blank), our standard of living would be lower and we would enjoy fewer goods and less variety.

trade

Kate has a 20-square-foot plot of land in her backyard that she uses to grow tomatoes and lettuce. Every square foot of land can produce either 5 tomatoes or 3 heads of lettuce each summer. Her neighbor, Jim, has a 30-square-foot plot of land that has a lot more shade than Kate's, which is better for lettuce but worse for tomatoes. Every square foot of Jim's land can produce either 3 tomatoes or 6 heads of lettuce. If Kate and Jim decide to specialize, ______ should produce lettuce and ______ should produce tomatoes. Jim; Kate Kate; Jim Jim; Jim Kate; Kate

Kate; Jim

When a tariff is eliminated, we would expect the price to decrease and the quantity traded to increase. True False

True

The market price will be highest and the quantity traded lowest: a domestic market in autarky. a market with free trade. a market with a quota. a market with a tariff.

a domestic market in autarky.

The market price will be highest and the quantity traded lowest: a market with free trade. a market with a tariff. a market with a quota. a domestic market in autarky.

a domestic market in autarky.

The market has the largest possible number of suppliers and the most competition in the case of: a domestic market in autarky. a market with a quota. a market with a tariff. a market with free trade.

a market with free trade.

The ability to produce more output given similar resources than another producer describes ______ advantage.

absolute

The effect of a tariff is: an increase in the cost for domestic producers. a decrease in the price consumers pay. an increase in the price consumers pay. a decrease in the cost for foreign producers.

an increase in the price consumers pay.

Before international travel via ships, many island countries existed in a state of self-sufficiency known as ______

autarky

Because people and businesses sometimes oppose international trade, governments create trade _____

barriers

When there are barriers to trade,: both consumers and producers gain but total wealth decreases. consumers suffer producers gain and total wealth decreases. both consumers and producers suffer but total wealth increases. consumers gain producers suffer and total wealth increases.

consumers suffer producers gain and total wealth decreases.

Whenever the government places a tax on a good or service, it will create _____ loss.

deadweight

With a quota,: foreign consumers lose because they must pay less and consume more. foreign consumers lose because they must pay more and consume less. domestic consumers gain because they must pay less and consume less. domestic consumers lose because they must pay more and consume less.

domestic consumers lose because they must pay more and consume less.

When domestic trade barriers are imposed: domestic producers are harmed because trade barriers represent a restriction on their competition. foreign producers are harmed because trade barriers represent a restriction on their prices. foreign producers benefit because trade barriers represent a restriction on their competition. domestic producers benefit because trade barriers represent a restriction on their competition.

domestic producers benefit because trade barriers represent a restriction on their competition.

With a quota,: domestic producers gain because they sell more at higher prices. domestic producers lose because they sell more at higher prices. domestic producers lose because they sell more at lower prices. domestic producers gain because they sell more at lower prices.

domestic producers gain because they sell more at higher prices.

When there is a quota, the quota price is (lower/higher) than the world price and the total quantity traded is (lower/higher).

higher lower

Barriers to trade reduce the amount of output that can be supplied by foreign companies and, as a result, cause prices in the market to be ______ than they would otherwise be. This results in consumers buying ______ output. higher; more lower; less higher; less lower; more

higher; less

In the 1980s, the U.S. government established a type of ______ quota called a voluntary export restriction in the market.

import

A quota is a numerical limit on the amount of a good that can be ____

imported

A quota is a numerical limit on the amount of a good that can be _____

imported

The country that benefits ______ from trade is the one that trades at or near the other country's opportunity cost.

more

When a country opens its markets to international trade, if the world price is ____ than the domestic equilibrium price, domestic quantity supplied will rise.

more

In the context of international trade, the competitive equilibrium is the free-trade equilibrium with: no barriers to trade. barriers to trade.

no barriers to trade.

In the small-country model, each country has a(n) ______ -sloping supply of a product and _____ cost is not constant.

upward opportunity

A quota: reduces imports and domestic consumption while increasing prices and domestic output. increases imports and domestic consumption while increasing prices and domestic output. reduces imports and domestic consumption while decreasing prices and domestic output. increases imports and domestic consumption while decreasing prices and domestic output.

reduces imports and domestic consumption while increasing prices and domestic output.

When a tariff is imposed on imports, the price in the market ______ by the full amount of the tariff. rises is not affected falls

rises

When a tariff is imposed on imports, the price in the market: falls by the full amount of the tariff. rises by the amount of the tariff minus the existing price. rises by the full amount of the tariff. falls by the amount of the tariff minus the existing price.

rises by the full amount of the tariff.

When a tariff is imposed on imports, the price in the market: rises by the amount of the tariff minus the existing price. falls by the amount of the tariff minus the existing price. falls by the full amount of the tariff. rises by the full amount of the tariff.

rises by the full amount of the tariff.

The model and concepts used to develop the economics of international trade are: not similar to those used to illustrate the effects of trade between two individuals. similar to those used to illustrate the effects of trade between two individuals. similar to the circular flow model. similar to the production possibilities model.

similar to those used to illustrate the effects of trade between two individuals.

Quotas can have unintended consequences, such as: higher domestic prices. increased domestic production. substituting less expensive goods for the good that has a quota. a reduction in imports.

substituting less expensive goods for the good that has a quota.

Quotas can have unintended consequences, such as: substituting less expensive goods for the good that has a quota. higher domestic prices. a reduction in imports. increased domestic production.

substituting less expensive goods for the good that has a quota.

Deadweight loss (DWL) is the value of economic _____ that is forgone when a market is not allowed to adjust to its competitive equilibrium.

surplus

Deadweight loss (DWL) is the value of economic ______ that is forgone when a market is not allowed to adjust to its competitive equilibrium.

surplus

A tax or fee that must be paid on goods imported from other countries is a(n) ______

tariff

The effect of one trade barrier, a(n) ______ , is an increase in the price consumers pay since it forces importers to raise their prices.

tariff

When the United States imposes a(n) _____ on foreign steel, any foreign producers that want to sell their steel in the U.S. have to pay an extra fee making it more expensive for them to sell their products.

tariff

When two people specialize,: total production between the two people increases. the total production increases for one person and decreases for the other. total production between the two people decreases. total production between the two people does not change

total production between the two people increases.

If the government wants to maximize the amount of tariff revenue it collects on any one good, it has to: pay attention to the size of the tariff it sets. get input from all parties. negotiate with importers. consult federal state and local governments.

pay attention to the size of the tariff it sets.

Generally, a(n) _____ is designed to protect or encourage the growth of a specific industry.

quota

In the 1980s, the U.S. government established a type of import ______ called a voluntary export restriction in the market.

quota

Sugar is significantly more expensive in the United States than it is in Mexico and Canada because of the sugar _____

quota

There is a(n) _____ on sugar imports in the United States.

quota

To be binding, a(n) ______ must be set at a quantity that is lower than the amount of imports that are sold under free trade.

quota

______ ______ is the income earned by whoever has the right to import the good at the world price and sell it in the domestic market at the higher quota price

quota rent

Imposing trade restrictions seems attractive to some people, but the end result will be (reduced/increased) international trade and as a result (reduced/increased) global wealth is created.

reduced reduced

Consumer surplus can be thought of as the ______ (one word) that trade creates for consumers in a market.

wealth

In international markets, since a firm can always sell its output at the ______ price, there is no incentive to sell it for less.

world

When Congress failed to renew the ethanol tariff in 2012, we expected ethanol prices to _____ and output to _____ .

fall rise

In 2014, the United States imposed tariffs on nine different steel-producing countries because: firms from these countries were "dumping" their products on the U.S. market. the steel they were producing was inferior to what the U.S. could produce. those countries had imposed tariffs on the U.S. firms from these countries were selling at exceptionally high prices.

firms from these countries were "dumping" their products on the U.S. market.

In 2014, the United States imposed tariffs on nine different steel-producing countries because: those countries had imposed tariffs on the U.S. firms from these countries were selling at exceptionally high prices. the steel they were producing was inferior to what the U.S. could produce. firms from these countries were "dumping" their products on the U.S. market.

firms from these countries were "dumping" their products on the U.S. market.

In 2014, the United States imposed tariffs on nine different steel-producing countries because: firms from these countries were selling their steel in the United States at a price below their total cost. firms from these countries were selling their steel in the United States at a price below their average cost. the steel they were producing was inferior to what the U.S. could produce. those countries had imposed tariffs on the U.S.

firms from these countries were selling their steel in the United States at a price below their average cost.

With a quota,: the loss to society is represented by the foregone deadweight loss. the loss to society is represented by the deadweight loss. the gain to society is represented by the foregone deadweight loss. the gain to society is represented by the deadweight loss.

the loss to society is represented by the deadweight loss.

The dollar value of a quota rent is equal to the size of the quota: minus the sum of the quota price and the world price. plus the difference between the quota price and the world price. times the difference between the quota price and the world price. plus the sum of the quota price and the world price.

times the difference between the quota price and the world price.

The dollar value of a quota rent is equal to the size of the quota: minus the sum of the quota price and the world price. plus the sum of the quota price and the world price. plus the difference between the quota price and the world price. times the difference between the quota price and the world price.

times the difference between the quota price and the world price.

A situation in which a country is closed to any international trade due to self-sufficiency is referred to as: bureaucracy embargo. autarky. autocracy

autarky.

When a country is opening up to trade, resources in the economy flow: away from the goods for which producers do not have a high-cost production advantage. away from the goods for which producers have a comparative advantage. toward the goods for which producers do not have a comparative advantage. away from the goods for which producers do not have a comparative advantage.

away from the goods for which producers do not have a comparative advantage.

A(n) ______ to _____ is any policy that is designed to reduce the competitiveness of foreign producers that wish to sell their goods or services in the domestic market.

barrier trade

Any policy that is designed to reduce the competitiveness of foreign producers who wish to sell their goods or services in the domestic market is a: collaborative policy. price prop. barrier to trade. obstacle to domestic producers.

barrier to trade.

Because people and businesses sometimes oppose international trade, governments create trade ______

barriers

Comparative advantage refers to: being the highest relative opportunity cost producer of a good. being the one who can produce the most. being the lowest relative opportunity cost producer of a good. being the producer who has been in the market the longest.

being the lowest relative opportunity cost producer of a good.

Graphically, total economic surplus is the entire area ____ the supply and demand curves from a quantity of zero to the quantity traded.

between

Free trade is trade: that frees up resources. allocates gains from trade equally. between nations that is free from barriers. that has no expense to either country.

between nations that is free from barriers.

Suppose the U.S. specializes in producing lumber and its neighbor Canada specializes in producing steel. When they trade with each other: the U.S. likely consumes less steel and Canada consumes more lumber. both countries will likely consume less lumber and steel. the U.S. likely consumes more steel and Canada consumes less lumber. both countries will likely consume more lumber and steel.

both countries will likely consume more lumber and steel.

When calculating producer surplus for the market,: add the market price to the firm's willingness to accept. calculate the area below the supply curve and below the equilibrium price from zero to the quantity traded. calculate the area above the supply curve and below the equilibrium price from zero to the quantity traded. subtract the market price from the firm's willingness to accept.

calculate the area above the supply curve and below the equilibrium price from zero to the quantity traded.

As long as there are differences in opportunity costs, there are _____ advantages and there will be potential for trade to make both parties better off.

comparative

Given the option of being self-sufficient or trading with others as long as a(n) ______ advantage exists, there will be potential for trade to make both parties better off.

comparative

If you are relatively better at something, then you are said to have a(n) _____ advantage in that activity.

comparative

In an economy of two goods, a country cannot have the _____ advantage in both goods.

comparative

Specialization is based on __ advantage not necessarily on whether one country can produce more of a good than another country. comparative competitive total absolute

comparative

Specialization is based on _____ advantage.

comparative

Trade between people in different countries is driven by ______ advantage.

comparative

______ advantage identifies the producer that has the low relative opportunity cost for a specific good in the market.

comparative

______ advantage is defined as having a lower relative opportunity cost than another producer.

comparative

______ advantage is the foundation of establishing the benefits of trade.

comparative

Given the option of being self-sufficient or trading with others as long as a(n) ____ ____ exists, there will be potential for trade to make both parties better off.

comparative advantage

Given the option of being self-sufficient or trading with others as long as a(n) ____ ____exist there will be potential for trade to make both parties better off.

comparative advantage

Given the option of being self-sufficient or trading with others as long as a(n)_____ _____ exists, there will be potential for trade to make both parties better off.

comparative advantage

When there are barriers to trade,: consumers gain producers suffer and total wealth increases. consumers suffer producers gain and total wealth decreases. both consumers and producers suffer but total wealth increases. both consumers and producers gain but total wealth decreases.

consumers suffer producers gain and total wealth decreases.

When using the _____ -country model, the country adopts the world price for any good service or resource as the domestic price. (Use only one word.)

country

International trade involves exchanging: currencies. ambassadors. theories. celebrities.

currencies.

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is the ____ loss.

deadweight

The wealth or additional well-being created by trade: cannot be measured. is nonmonetary. is monetary. does not have to be monetary.

does not have to be monetary.

The unit used to measure producer surplus is _____

dollars

In the small-country model, the _______ price equals the world price if the country is open to trade.

domestic

The price of a good, service, or resource that prevails in the domestic market is the ____ price.

domestic

When a country opens its markets to international trade, if the world price is greater than the domestic equilibrium price,: domestic producers make more output to sell abroad so total output increases. quantity supplied from foreign producers will rise so total output decreases. domestic producers make less output to sell abroad so total output increases. quantity demanded from foreign producers will fall so total output increases.

domestic producers make more output to sell abroad so total output increases.

A measure of the total welfare or wealth that trade creates for consumers and producers in a market is known as _____ surplus.

economic

Goods and services that are manufactured domestically but sold abroad are called ______

exports

The goods and services made in other countries that we purchase are called ______ . (Enter only one word in the blank.)

imports

When two people specialize, total production between the two people (increases/decreases)

increases

Any time the terms of trade change and move closer to a country's opportunity cost, that country is going to benefit ____ from trade than it did before.

less

The United States, a high-cost producer of oil, imports roughly half of the oil needed to produce the nation's gasoline. The benefit of international trade that applies in this case is: access to scarce resources. lower-cost goods. increased variety of goods.

lower-cost goods.

The United States, a high-cost producer of oil, imports roughly half of the oil needed to produce the nation's gasoline. The benefit of international trade that applies in this case is: lower-cost goods. access to scarce resources. increased variety of goods.

lower-cost goods.

Consumer surplus is the difference between the: minimum price consumers are willing and able to pay for a good or a service and the price they used to pay. maximum price consumers are willing and able to pay for a good or a service and the price they actually pay. maximum price consumers are willing and able to pay for a good or a service and the price they used to pay. minimum price consumers are willing and able to pay for a good or a service and the price they actually pay.

maximum price consumers are willing and able to pay for a good or a service and the price they actually pay.

The model and concepts used to develop the economics of international trade are: similar to the circular flow model. similar to those used to illustrate the effects of trade between two individuals. similar to the production possibilities model. not similar to those used to illustrate the effects of trade between two individuals.

similar to those used to illustrate the effects of trade between two individuals.

The practice of producing a single good or service rather than producing multiple goods or services is called _____

specialization

Comparative advantage identifies the producer that has the low relative opportunity cost for a specific good in the market. The low-relative-cost producer ______ in producing that good.

specializes

Some economists say the United States should not even try to produce its own clothing because: the clothing that we make is not the same quality as that made in other countries. other countries can produce clothing much more inexpensively than the United States. our labor force is so skilled that we don't have workers that will accept jobs in clothing production. the labor and capital that the U.S. uses to produce expensive goods could be used to produce other goods that the U.S. can produce more efficiently.

the labor and capital that the U.S. uses to produce expensive goods could be used to produce other goods that the U.S. can produce more efficiently. other countries can produce clothing much more inexpensively than the United States.

When a country is opening up to trade, resources in the economy flow: toward the goods for which producers do not have a low-cost production advantage. toward the goods for which producers have a comparative advantage. away from the goods for which producers have a comparative advantage. toward the goods for which producers do not have an absolute advantage.

toward the goods for which producers have a comparative advantage.

Because people and businesses sometimes oppose international trade, governments create _____ barriers.

trade

Growth is the key to better consumption possibilities and one important key to better consumption possibilities is _____ . (Use one word for the blank.)

trade

Markets form between people in different countries to facilitate _____

trade

One of the major themes in economics is that _____ creates wealth. (Use one word for the blank.)

trade

People in different countries _____ to increase the diversity of their choices.

trade

The model and concepts used to develop the economics of international ______ are similar to those used to illustrate the effects of trade between two individuals.

trade

Trade allows the economy as a whole to consume previously impossible combinations of output. True False

True

Which of the following describes world price? The price of a good service or resource that prevails in a domestic market. It is the same as world price in the small market if the country is open to trade. It is greater than domestic price in the small market if the country is open to trade. The price of a good service or resource that prevails in the world market.

The price of a good service or resource that prevails in the world market.

Airline passengers who fly on aircraft benefit from the specialization and trade that occurs between plane manufacturers since airlines can offer more routes at lower prices. True False

True

As of 2016, more than 15% of all goods and services consumed in the United States were produced abroad. True False

True

One of the major themes in economics is that international trade creates gains. True False

True

__ is/are generally found by comparing changes in consumer and producer surplus. Exchange rates Total surplus Comparative advantage Welfare effects

Welfare effects

In an economy of two goods,: one country will never have the absolute advantage in both goods. a country must have the comparative advantage in both goods. a country cannot have the comparative advantage in both goods. one country will always have the absolute advantage in both goods.

a country cannot have the comparative advantage in both goods.

Japan does not have a huge reserve of neodymium and has to import the metal from China. The benefit of international trade that applies in this case is: access to scarce resources. lower-cost goods. increased variety of goods.

access to scarce resources.

A barrier to trade reduces the ____nof foreign goods and services.

imports

When a country opens its markets to international trade, if the world price is less than the domestic equilibrium price: foreign quantity supplied will rise so total output increases. foreign quantity supplied will fall so total output decreases. domestic quantity supplied will fall so total output decreases. domestic quantity supplied will rise so total output decreases.

foreign quantity supplied will rise so total output increases.

_____ trade is trade between nations that is free from barriers such as regulations tariffs or quotas.

free

Economic surplus is the: revenue earned by all firms selling. gains associated with both consumers and producers in the market. gains from sellers minus gains from buyers. savings experienced by all consumers purchasing.

gains associated with both consumers and producers in the market.

The benefit or wealth that accrues to a buyer or a seller as a result of trading one good service or resource for another is the: source of disparity in incomes. taxable profit. comparative advantage. gains from trade.

gains from trade.

Given the option of being self-sufficient or trading with others, there will be potential for trade to make both parties better off: if a comparative advantage exists. if one party has a comparative advantage in both goods. if an absolute advantage exists. if no comparative advantage exists.

if a comparative advantage exists.

In many of the examples of specialization and trade, it sometimes seems that one country is getting a better deal than another but: sometimes they both have an absolute advantage. if they trade it must be the case that they are both better off. it may be that one country forces a trade on the other. sometimes neither has a comparative advantage.

if they trade it must be the case that they are both better off.

When a country opens up to trade, domestic industries that make products that can be: imported will expand then contract. imported will expand and industries that have products to export will contract. imported will contract and industries that have products to export will expand. exported will contract and industries that have products to import will expand.

imported will contract and industries that have products to export will expand.

When a country opens its markets to international trade, if the world price is _____ than the domestic equilibrium price, domestic quantity supplied will rise.

more

Comparative advantage is defined as having a lower relative _______ cost than another producer.

opportunity

If the terms of trade are the same as your ______ cost, you will receive no gains from the trade.

opportunity

Specialization is based on relative ______ cost not necessarily on whether one country can produce more of a good than another country.

opportunity

The producer with the lowest relative _______ cost has a comparative advantage and should specialize in the production of that good.

opportunity

The value of the next-best forgone alternative is the _____ cost.

opportunity

With trade, the person who benefits more is the person who trades at or near the other person's _____ cost.

opportunity

When spending more money on one thing means that you have less money to spend on something else, you have experienced _____ ______.

opportunity cost

In the small-country model,: opportunity cost is not constant. opportunity cost is constant. a country is either exporting or importing a good. each country has an downward-sloping supply of a product.

opportunity cost is not constant.

If you were willing to sell your used bike for $400 but someone paid you $500 for it, you received: producer surplus of $900. consumer surplus of $100. producer surplus of $100. The consumer surplus cannot be determined. consumer surplus of $90

producer surplus of $100.

The income earned by whoever has the right to import the good at the world price and sell it in the domestic market at the higher quota price is: trade rent. quota rent. economic profit. accounting profit.

quota rent.

The size of the quota times the difference between the quota price and the world price is known as the dollar value of: quota. quota floor. quota ceiling. quota rent.

quota rent.

Deadweight loss is the: value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium. unsold goods that become produced inventories. lost tax revenue from the underground economy. value of the economic surplus that is earned when a market is allowed to adjust to its competitive equilibrium.

value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.

In many of the examples of specialization and trade, it sometimes seems that one country is getting a better deal than another but: it may be that they are forced to trade even when they don't want to. sometimes there is no absolute advantage. we don't know the overall increase in the wealth or well-being generated by the trade. sometimes there is no comparative advantage.

we don't know the overall increase in the wealth or well-being generated by the trade.

One of the major themes in economics is that trade creates ____

wealth

The effects that a change in market conditions, usually price, has on the welfare or economic well-being of market participants are _____ effects.

welfare