Exam 1

The following table shoes the number of labor hours required to produce one gallon of wine and one pound of cheese in the United States and France. If the United States and France engage in free trade with each other, the international price of wine will lie between _____ and 0.5 pound of cheese per gallon, two pounds of cheese per gallon 0.5 pound of cheese per gallon; four pounds of cheese per gallon one pound of cheese per gallon; two pounds of cheese per gallon one pound of cheese per gallon; four pounds of cheese per gallon

0.5 pound of cheese per gallon; 4 pounds of cheese per gallon

The following figure shows the production-possibility curves for Canada (AB) and the rest of the world (CD). Suppose Canada begins to trade with the rest of the world. If, in the international market, one bushel of corn is exchanged for one liter of maple syrup, Canada will produce _____ bushels of corn and the rest of the world will produce _____ liters of maple syrup. 90, 100 0, 0 70,50 35, 32,5

0;0

Suppose the domestic supply (QSU.S.) and demand (QDU.S)for bicycles in the United States are given by the following set of equations:QSU.S. = 2PQDU.S. = 200 - 2P.Demand (QD) and supply (QS) in the Rest of the World are given by the equations:QS = PQD =160 - P.Quantities are measured in thousands and price in U.S. dollars. In the absence of international trade ____ thousand bicycles will be sold in the US at a per unit price of 50; $50 100; $100 150; $50 100; $50

100, 50

The figure shown below shows the national market for mopeds in a small country. Dd and Sd are the domestic demand and supply curves of mopeds respectively. If there is initially free trade, and then a $50 per unit subsidy is given to the domestix producers of mopeds, domestix production will increase by 700,000 600,000 100,000 1,200,000

100,000

The figure below shoes the market for computers in a small importing country. Dd and Sd are the domestic demand and supply curves of computers, respectively. Under the free trade the country imported _____ computers but following the imposition of the tariff the country began to import ______ computers 90,000 ; 100,000 100,000: 70,000 70,000 ; 100,000 200,000; 190,000

100,000 70,000

In absence of trade with the rest of the world, the consumer surplus in the U.S. skateboard market equals ___ and the producer surplus 31,500, 9,450 7050, 11,525 20,474 7,350 11,025 7,350

11,025; 7,350

The figure below shows the marginal external benefit curve (MEB) from the domestic production of mopeds. A tariff has caused domestic production to increase from 500,00 to 600,00 The increase in external benefits to the nation of the increased production of mopeds because of the tariff is 7.5 million 13.25 million 2.5 million 5 million

13.25 million

The figure below shows the market for computers in a small importing country. Dd and Sd are the domestic demand and supply curves of computers, respectively. The consumption effect of the tariff on computers is worth: 78 million 76 million 4 million 2 million

2 million

Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations: QS = -60 + 3P QD = 390 - 2P In the absence of international trade in skateboards how many skateboards will be sold in the United States? 138 258 210 930

210

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade):$20 per bottleDomestic production (free trade):500,000 bottlesDomestic production (after tariff):600,000 bottlesDomestic consumption (free trade):750,000 bottlesDomestic consumption (after tariff):650,000 bottles Before the tariff is imposed, the country imports _____ bottles of wine, but following the imposition of the tariff, the country will import _____ bottles of wine. 100,000 100,000 750,000 650,000 150,000 50,000 250,000 50,000

250,000; 50,000

A small country imports t-shirts. With free trade at a world price of $10, domestic production is 10 million t-shirts and domestic consumption is 42 million t-shirts. The country's government now decides to imipose a quota to limit t-shirt imports to 20 million per year. With the import quota in place the domestic price rises to $12 per t-shirt and domestic production rises to 15 million t-shirts per year. If the import licenses are allocated for free based on fixed favoritism, how much will be gained by the importers with the quota licenses? 240 million 70 million 200 million 40 million

40 million

The figure below shows the free-trade production and consumption in Country Y. AB is the production-possibility curve of Country Y. I1 is the community indifference curve of country Y. Country Y imports fifty gallons of wine seventy pounds of cheese forty gallons of wine twenty pounds of cheese

50 gallons of wine

The table below shoes the number of labor hours required to produce one umbrella and one bushel of corn in the United Kingdom and the rest of the world. Calculate the opportunity cost of producing an umbrella in the rest of the world eight bushels of corn 1/3 bushel of corn three bushels of corn 1/8 of a bushel of corn

8 bushels of corn

What is the effect of a country's saving rate on trade deficits A heigh savings rate means there is more money available for investment, resulting in greater production and increased international sales which in turn leads to lower trade deficits A low savings rate means that consumers are buying more and more buying leads to an increase in a country's trade deficit a low savings rate means people are spending more than they earn, and that results in increased financial difficulties for consumers, higher interest rates, and fewer international sales, resulting in a decrease in a country's trade deficit a country's savings rate has no effect on the country's trade deficit

A low savings rate means that consumers are buying more and more buying leads to an increase in a country's trade deficit

The UK is composed of the following individual countries

England, Scotland, Wales and Northern Ireland.

Suppose country A, a labor-abundant country, produces only wheat and cloth. The following equations illustrate the prices and costs of wheat and cloth in the country, where the numbers indicate the amounts of labor and land needed to produce a unit of wheat and cloth. 'w' is the wage rate and 'r' is the rental rate of land. Price of drink = 1w + 2r Price of furniture= 2w + 1r According to this information, which of the following statements is true? Labor is used relatively intensively in the production of cloth. The inputs are used in the same proportion in producing both the commodities The land to labor ratio in the production of cloth is higher than that in the production of wheat. The opportunity cost of producing cloth is higher than the opportunity cost of producing wheat in country A.

Labor is used relatively intensively in the production of cloth.

____ is a market structure in which a large number of firms compete vigorously with each other in producing and selling different varieties of a basic product Perfect competition Monopoly Oligopoly Monopolistic competition

Monopolistic competition

Which of the following features is common to both perfect competition and monopolistic competition? An individual firm faces a horizontal demand curve New firms are free to enter the market in the long run Each firm produces a perfectly homogeneous product The firms earn positive economic profit in the long run.

New firms are free to enter the market in the long run.

Which of the following is an example of arbitrage?

Romi buys a DVD from Walmart at $10 and sells it on Ebay for $20

Which of the following statements is NOT correct? tariffs can increase, decrease, or leave unchanged the country's economic well-being if imposed by a large country tariffs hurt producers and help consumers in the country imposing the tariff tariffs are likely to decrease world economic well-being tariffs always decrease economic domestic well-being if imposed by a small country

Tariffs hurt producers and help consumers in the country imposing the tariff.

Which of the following theories predicts that a country will export those goods that use the countrys abundant factors intensively and import those goods that use the country's scarce factors intensively .The theory of absolute advantage The theory of comparative advantage The Heckscher-Ohlin theory The theory of purchasing power parity

The Heckscher-Ohlin theory

One bottle of wine can be produced in France with two labor hours, and in the United States with four labor hours. A pound of beef can be produced in France with one labor hours, and in the United States with 1/2 labor hours. Given this context, which of the following is true France has an absolute advantage in the production of beef the United States has both a comparative advantage and absolute advantage in the production of beef france has a comparative advantage in the production of beef the united states has an absolute but not a comparative advantage in the production of beef

The US has both a comparative advantage and absolute advantage in the production of beef

The table below shoes the number of labor hours required to produce one umbrella and one bushel of corn in the United Kingdom and the rest of the world. Which of the following statements is true? the United Kingdom has a comparative advantage in the production of corn the United Kingdom has a comparative advantage in the production of umbrellas the United Kingdom has a comparative advantage in the production of both goods The United Kingdom has an absolute advantage in the production of umbrellas

The United Kingdom has a comparative advantage in the production of umbrellas

If trade corresponds to the Heckscher-Ohlin theory, which of the following is most likely to happen in the long run after a labor-abundant country engages in free trade? The rate of unemployment in the country is most likely to increase The total output in the economy will decline The capital to labor ratio in the export sector will increase The rental rates of capital will increase but the wage rates will decline.

The capital to labor ratio in the export sector will increase.

Which of the following is true of the gravity model? The gravity model states that the trade flows between two countries are proportional to the countries' land masses. The gravity model emphasizes the role of the government to generate adequate gains from trade. The gravity model states that trade flows between a developing and a developed nation are usually unidirectional. The gravity model states that the trade flows between two countries are directly proportional to their gross domestic product (GDP).

The gravity model states that the trade flows between two countries are directly proportional to their gross domestic product (GDP).

Which of the following events would lead to a decrease in demand for air travel? A decrease in the number of people who are afraid to fly A decrease in oil prices A decrease in rail fares An increase in income levels

a decrease in rail fares

A domestic monopoly producing a close substitute of an imported product would prefer to be protected by a quota than a tariff that results in the same amount of imports because a quota allows the monopoly to charge a higher price unlike a tariff, a quota does not generate revenue for the government after the imposition of the tariff the price of the imported good declines in the domestic market the deadweight loss will be smaller with a quota

a quota allows the monopoly to charge a higher price

The factor-price equalization theorem tells us that free trade between two countries should result in all workers in the two countries earning the same wage rate all workers in the two countries having the same skill level all workers of the same skill level earning the same wage rate in the two countries all input prices being equal within each country.

all workers of the same skill level earning the same wage rate in the two countries.

The exchange-rate policy of a "crawling peg" adopted by the Chinese government in 2005 means that the government allowed small and controlled changes in the exchange-rate value over time pegged the Yuan to the U.S. dollar at the equilibrium exchange rate. held a balanced portfolio of assets including a variety of foreign currencies caved in to pressures from foreign governments.

allowed small and controlled changes in the exchange-rate value over time

Which of the following is an expected effect of a tariff or a nontariff barrier (NTB) on a product? a decrease in the domestic production of the product an increase in domestic consumption of the imported product an increase in the employment of labor and other resources used in the import-competing industry in the tariff-imposing country a decrease in government revenue

an increase in the employment of labor and other resources used in the import-competing industry in the tariff-imposing country

The table below shows the units of land and labor required to produce a unit of bread and cheese respectively in Country X. If Country X is land-abundant, the opening up of free trade would result in 1 Unit of Bread 1 Unit of CheeseLabor Input 5 units 20 unitsLand Input 4 units 10 units a decline in the production of both bread and cheese in the country an increase in the production of bread but a decline in the production in cheese in the country an increase in the production of both bread and cheese in the coutnry, but production of cheese will rise at a lesser pace than the production of bread a decline in the production of bread but an increase in the production of cheese in the country

an increase in the production of bread but a decline in the production of cheese in the country

The Heckscher-Ohlin theory predicts that trade between similar industrialized countries should i be much greater than trade between developed and developing countries. be rather limited in volume. consist mainly of highly sophisticated manufactured goods. consists mainly of manufactured products intensive in low- and medium-skill labor.

be rather limited in volume.

The table below shoes the number of labor hours required to produce one umbrella and one bushel of corn in the United Kingdom and the rest of the world. The rest of the world has an absolute advantage in the production of only umbrellas only corn nether corn nor umbrellas both corn and umbrellas

both corn and umbrellas

If the initial prices of wheat and cloth are $3 per unit then both the wage rate and the rental rate are equal to $1. the wage rate and the rental rate are $1 and $2, respectively. the wage rate and the rental rate are $2 and $3, respectively. both the wage rate and the rental rate are equal to $2.

both the wage rate and the rental rate are equal to $1

In a two-country, two-commodity model; if a country has a comparative advantage in the production of a certain good, it implies that this country also has an absolute advantage in the production of this good. will start importing this good from the other country. can produce this good at a lower opportunity cost than the other country. uses most of its resources in the production of this good .

can produce this good at a lower opportunity cost than the other country

Cooperation between oligopolistic firms is difficult because firms gain more through competition each firm has a monopoly power on its own product each firm has an incentive to cheat on the agreements made firms rarely have mutual interests

each firm has an incentive to "cheat" on the agreements made

Suppose the domestic supply (QSU.S.) and demand (QDU.S)for bicycles in the United States are given by the following set of equations:QSU.S. = 2PQDU.S. = 200 - 2P.Demand (QD) and supply (QS) in the Rest of the World are given by the equations:QS = PQD =160 - P.Quantities are measured in thousands and price in U.S. dollars.After the opening of free trade with the United States, if the world price of the bicycles settles at $60, the Rest of the World will: export 40,000 bicycles export 60,000 bicycles import 60,000 bicycles import 40,000 bicycles.

export 40,000

Country Y has 15 thousand acres of land and 45 thousand laborers, whereas the Rest of the World has 100 thousand acres of land and 200 thousand laborers. These countries produce a labor-intensive good A, and a land-intensive good B. When trade opens up between these countries, it can be inferred that country Y will export both goods export good B, and import good A. export good A, and import good B import both goods.

export good A and import Good B

Suppose Country A collectively enjoys monopsony power in Good X. If Country A imposes a tariff on the imports of Good X, the world price of Good X will rise remain unaffected fall become equal to the tariff inclusive price in Country A

fall

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade):$20 per bottleDomestic production (free trade):500,000 bottlesDomestic production (after tariff):600,000 bottlesDomestic consumption (free trade):750,000 bottlesDomestic consumption (after tariff):650,000 bottles The imposition of the tariff on wine will cause the country's economic well-being to _____ by about rise, 0.75 million fall 0.5 million fall 0.75 million fall, 100,000

fall; $0.5 million.

In a first best world free trade is economically efficent each economy is self-sufficient enough not to indulge in free trade free trade benefits only the exporting nations free trade benefits only the consumers of the importing country

free trade is econ efficient

The figure below shows the domestic demand and domestic supply curves of mopeds in a country before an import quota is imposed by the government. After the imposition of the quota, the maximum import quantity is Dd if the government auctions the quota licences, the change in total welfare will be a loss of 29.75 million loss of 10 million gain of 31.5 million gain of 21.5 million

gain of 21.5 million

Since the late 1990s, to prevent the yuan from appreciating against the U.S. dollar, the Chinese central bank has been buying dollars and selling yuan in the foreign exchange market has purchased Chinese government bonds has been selling foreign assets to replenish its dollar reserves has been trying to hold euros and British pounds as foreign assets

has been buying dollars and selling yuan in the foreign exchange market

The Stolper-Samuelson theorem predicts that free trade between the United States, a capital-abundant country, and Mexico, a labor-abundant country, would ultimately result in: higher wages in both countries. lower wages in both countries higher wages in Mexico and lower wages in the United States lower wages in Mexico and higher wages in the United States.

higher wages in Mexico and lower wages in the United States.

The Heckscher-Ohlin theory predicts that the opening of trade between a land-abundant country and a labor-abundant country should result in higher rents and wages in both countries lower rents and wages in both countries higher rents in the labor-abundant country and higher wages in the land-abundant country higher wages in the labor-abundant country and higher rents in the land-abundant country.

higher wages in the labor-abundant country and higher rents in the land-abundant country.

The European Central Bank is responsible for the bailout of European Union countries in financial trouble. assuring full employment in the European Union implementing European Union monetary policy protecting European Union member countries from unfair trade practices.

implementing European Union Monetary Policy

Which of the following is not a fiscal policy increasing tariffs to reduce imports increasing the money supply to expand aggregate demand offering subsidies to export firms lowering personal tax rates to influence labor supply

increasing the money supply to expand aggregate demand

A small country imports t-shirts. With free trade at a world price of $10, domestic production is 10 million t-shirts and domestic consumption is 42 million t-shirts. The country's government now decides to imipose a quota to limit t-shirt imports to 20 million per year. With the import quota in place the domestic price rises to $12 per t-shirt and domestic production rises to 15 million t-shirts per year. The quota on t-shirts causes domestic consumers to lose 77 million lose 70 million gain 7 million lose 7 million

lose 77 million

If social marginal benefit (SMB)>Price(P) = buyer's private marginal benefit (MB) =seller's private marginal cost (MC) = social marginal cost (SMC), it implies that the socially optimal amount is supplied not enough of a good is being demanded the buyers are not maximizing utility too much of the product is supplied

not enough of a good is being demanded

an industry in which a few firms make almost all of the market sales is called oligopoly monopsony perfectively competitive market monopoly

oligopoly

Country B has a higher intra-industry trade (IIT) share compared to Country A for only automobiles only pharmaceuticals only clothing both pharmaceuticals and clothing.

only clothing.

Assume a two-country two-good two-input model where the following relationships hold:(K/L)U.S. > (K/L)ROW (K/L)automobiles > (K/L)shoes Where (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the capital-labor ratio in the Rest of the World, (K/L)automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. Which of the following statements is true? Production of automobiles is relatively labor-intensive Production of shoes is relatively labor-intensive Production of shoes is relatively cheaper in the U.S than the rest of the world The laborers in the United States are less productive than the laborers in the Rest of theW orld.

production of shoes is relatively labor-intensive

Assume a two-country two-good two-input model where the following relationships hold:(K/L)U.S. > (K/L)ROW (K/L)automobiles > (K/L)shoes Where (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the capital-labor ratio in the Rest of the World, (K/L)automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L)shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. If trade opens up between the United States and the Rest of the World, according to the Heckscher-Ohlin model, the United States will export _____ and import _____. both the goods; neither good shoes; automobiles automobiles; shoes neither good; both of the goods

shoes; automobiles

Under free trade, a large country produces one million leather bags per year and imports another two million bags per year at the world price of $60 per bag. Assume the country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather bags decreases to $58 in the international market and the import of leather bags drops to 1.6 million. The domestic production, on the other hand, increases to 1.1 million. As a result of the tariff being imposed the country gains national well-being because the tariff increases domestic production the country gains national well-being because the amount of the tariff revenue effectively paid by the exporters more than offsets the consumption and the production effects the country loses national well-being because the government revenue from the tariff is insufficient to compensate for the losses arising from the production and consumption effects the country loses national well-being because the tariff hurts the domestic consumers

the country gains national well-being because the amount of the tariff revenue effectively paid by the exporters more than offsets the consumption and the production effects.

With a voluntary export restraint (VER) the markup revenue (economic rent) created for the quantitatively limited trade is collected by the government of the importing country the producers in the importing country the exporting firms in the foreign countries the consumers in the importing country

the exporting firms in the foreign countries

The united states is relatively capital-abundant because the United States has more capital than the rest of the world the ratio of capital to other inputs is greater in the United States that that in the rest of the world capital costs more in the US than in the rest of the world the United States produces and exports primary products to the rest of the world and imports manufactured goods

the ratio of capital to other inputs is greater in the US than that in the rest of the world

The general formula used for calculating the net national loss from a trade barrier as a percentage of GDP may fail to account for the consumption effect of the trade barrier the government revenue generated from the trade barrier the production effect of the trade barrier the rent seeking costs of local firms

the rent seeking costs of local firms

Suppose Country Y produces only corn and clothing using only two inputs-land and labor. Production of corn requires an intensive use of land whereas clothing is a labor-intensive good. If the price of corn increases by 15 percent and the price of clothing remains constant, the Stolper-Samuelson theorem predicts that in the long run the rental rate of land will increase by 15 percent the rental rate of land will increase by more than 15 percent the wage rate will increase by more than 15 percent the wage rate will remain unchanged.

the rental rate of land will increase by more than 15 percent.

Suppose manufacturing of paper results in substantial ground-water pollution. One possible policy that can be used to reduce the inefficiency caused by this externality is to provide tax benefits to the firms exporting paper to impose a tax on the production of paper to subsidize the production of paper by the domestic firm to raise tariff barriers on paper imports

to impose a tax on the production of paper

Which of the following is NOT true of nontariff barriers to import? life tariffs, nontariff barriers result in a net welfare loss in a small country some nontariff barriers create uncertainty about the conditions under which imports will be permitted unlike tariffs nontariff barriers do not increase the price of imported goods in their domestic markets nontariff barriers can limit imports with greater certainty than tariffs

unlike tariffs, nontarrif barriers do not increase the price of imported goods in the domestic markets