ittp final

Opening up free trade does hurt people in import competing industries in the short run. But in the long run, when people and resources can move between industries, everybody ends up gaining from free trade." Do you agree or disagree. Explain.

3. "Opening up free trade does hurt people in import compeing industries in the short run. But in the long run, when people and resources can move between industries, everybody ends up gaining from free trade." In theory, agree. Actuality, disagree. Producers will lose in long run, but producers who survive has access to more markets. Trade is net gain. People who have land and labor abundant countries, would shift their resources and gain benefit. But in the real world, there is a loser. People and resources can move between industries is a big assumption. Labor does not move easily between countries.

24) 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 bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles Calculate the government revenue from the tariff. A) $250,000 B) $1.25 million C) $3.75 million D) $125,000

A) $250,000

34) 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 A) fall. B) rise. C) remain unaffected. D) become equal to the tariff-inclusive price in Country A.

A) fall.

9) Suppose the amount of exports of textile machinery from Italy to the rest of the world equals 60 billion tons. The amount of imports of textile machinery into Italy from the rest of the world is 40 billion tons. Therefore, the intra-industry trade share for machinery is A) 0.2. B) 0.8. C) 1.5. D) 0.67.

B) 0.8.

1) Which of the following statements is true? A) Free trade causes contraction of the export-oriented sector. B) Free trade causes contraction in the import-competing sector. C) Free trade restricts consumption choices of domestic consumers. D) All domestic producers benefit when a country engages in free trade.

B) Free trade causes contraction in the import-competing sector.

8) Which of the following is the formula for the intra-industry trade (IIT) share in a product's total trade? A) 1 - |X - M| B) 1 - (X + M) C) 1 - [ |X - M| / (X + M)] D) 1 - [ |X + M| / (X - M)]

C) 1 - [ |X - M| / (X + M)]

10) The figure below shows the market for shoes in a small importing country. Dd and Sd are the domestic demand and supply curves of shoes, respectively. The tariff revenue of the country's government is shown by area A) (a + b + c + d). B) (a + b). C) c. D) (b + c + d).

C) c.

14) 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. Under free trade the country imported ________ computers but following the imposition of the tariff the country began to import ________ computers. A) 100,000; 70,000 B) 70,000; 100,000 C) 200,000; 190,000 D) 90,000; 100,000

D) 90,000; 100,000

8) Which of the following refers to the positive or negative effect on parties who are not directly involved in a transaction? A) Invisible hand B) Incentive distortions C) Consumption effect D) Externality

D) Externality

38) ________ first presented the product cycle hypothesis. A) Adam Smith B) David Ricardo C) Eli Heckscher D) Raymond Vernon

D) Raymond Vernon

21) 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) the deadweight loss will be smaller with a quota. B) after the imposition of the tariff the price of the imported good declines in the domestic market. C) unlike a tariff, a quota does not generate revenue for the government. D) a quota allows the monopoly to charge a higher price.

D) a quota allows the monopoly to charge a higher price.

54) Discuss two reasons why a country's government could conclude that imposing an export duty on a product the country exports is a good idea.

54. To encourage an infant sector, say the product was an input into another product domestically. If there is shortage of domestic supply and the world prices increase, they want to lower prices for domestic consumers by preventing export. Reasons to have export duty: 1. Lowers domestic price for domestic consumers 2. Foster industry within country How would it affect terms of trade: paying a tax to send it overseas, so you would have to charge a higher price to cover additional cost, raising price of export and sending less it out. It would improve terms of trade, if imports on average doesn't change but ratio changes. If getting taxed to export and seinding stuff overseas, then tend to send production overseas. Terms of trade: ratio between price of exports and imports. Just a term to help you identify. Good for directions. Way of thinking about overall patterns then dig in, what is nature of problem. Between countries and comparing ToT to each country. Our price is in a direction, can prices compete and sustain? Ie. trade deficits: not really a bad thing, just a thing. Good terms of trade is bad from your point of view if for some reason your value of exports are going down compared to value of imports. There are a lot of reasons why this happens, but it becomes issue for policy people. It means that your exports aren't doing well as your imports. Why is this happening? Is our productivity lacking? We are all mercantilists, so we want to make sure that our exports are ok. More often, should be fixed by exchange rates. But not all countries want a flexible exchange rate. If europe, want to keep stable. Becomes a macroeconomic issue. Then becomes position in value chain issue. Is using terms of trade an indicator for the market place? What does it mean for overall efficiency?: when it's extremely imbalanced, if you have a drop in exports, but still need to import for opportunity cost. Countries in africa import rice but export something else, but who buys rice? Ie. immiserizing growth.

20) 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 500,000 to 600,000. The increase in external benefits to the nation of the increased production of mopeds because of the tariff is A) $13.25 million. B) $2.5 million. C) $5 million. D) $7.5 million. The figure below shows the marginal external benefit curve (MEB) of the country from the production of domestic mopeds. If there is initially free trade, and then a $50 per unit subsidy is given to the domestic producers of mopeds, domestic consumption of mopeds would A) increase by 100,000 units. B) decrease by 200,000 units. C) decrease by 800,000 units. D) remain unchanged.

A) $13.25 million.

20) 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 A) $2 million. B) $4 million. C) $76 million. D) $78 million.

A) $2 million.

26) 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 bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles The production effect of the tariff on wine is worth about A) $250,000. B) $500,000. C) $2.5 million. D) $2.75 million.

A) $250,000.

14) The tax-or-subsidy approach for solving externality problems was developed by A) Arthur Pigou. B) Ronald Coase. C) Eli Heckscher. D) Bertil Ohlin.

A) Arthur Pigou.

6) Which of the following can best explain the clustering of some industries, such as banking and finance in New York City and high-technology computer production in Silicon Valley? A) External scale economies B) Perfect competition C) Intra-industry trade D) Comparative advantage

A) External scale economies

7) Which of the following is a means of allocating import licenses by assigning the licenses without competition, applications, or negotiation? A) Fixed favoritism B) Resource-using application procedures C) Domestic content requirements D) None of the above

A) Fixed favoritism

4) Which of the following statements is true? A) Increases in a country's endowments of land, labor, and capital will lead to long-run economic growth. B) Improvements in the technology used in production can lead to increases in current output levels but are not a source of long-run economic growth. C) Improvements in production technology do not affect the shape or position of the production-possibility curve. D) Biased growth leads to a proportionate shift in the production-possibility curve.

A) Increases in a country's endowments of land, labor, and capital will lead to long-run economic growth.

12) Which of the following indicates the difference between the volume of exports and imports of a product? A) Net trade B) Intra-industry trade C) Total trade D) Terms of trade

A) Net trade

27) Under which of the following situations will the infant industry argument for protection be valid? A) New firms are unable to obtain funds from the financial market owing to inherent imperfections in the banking system. B) Benefits from early business investments accrue to the firms making these early investments. C) Firms that produce important military hardware have substantial political support. D) The more a country exports, the more the price of its exports falls relative to its imports.

A) New firms are unable to obtain funds from the financial market owing to inherent imperfections in the banking system.

6) Which of the following is the basis for the consumption effect of a tariff imposed on imported automobiles? A) The decline in the purchase of the product due to the increase in its price B) The net increase in the availability of the domestic automobiles for the consumers owing to higher prices C) The net increase in the government revenue by taxing the domestic consumers who buy the imported automobiles D) The net increase in the consumption of imported automobiles by the domestic consumers

A) The decline in the purchase of the product due to the increase in its price

33) Which of the following arguments for protection is derived from the fact that funding of public goods in some countries is difficult given little or no means to collect income or sales taxes? A) The developing government argument B) The infant industry argument C) The dying industry argument D) The national defense argument

A) The developing government argument

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

A) all workers in the two countries earning the same wage rate.

27) When economic growth in a large country lowers its willingness to trade, it can result in A) an improvement in the country's terms of trade. B) a biased growth. C) immiserizing growth. D) the Dutch Disease.

A) an improvement in the country's terms of trade.

2) In the figure below, we see an expansion of the production-possibility curve (from PPC1 to PPC2). The two goods produced are wheat and cloth, which are land-intensive and labor-intensive, respectively. The outward shift of the production-possibility curve shows A) biased growth. B) balanced growth. C) a move from a no-trade situation to free trade. D) an increase in the production costs of both goods.

A) biased growth.

36) Technology-based comparative advantage A) can help explain how the United States went from being a net exporter of steel to become a net importer of steel. B) is totally contradictory to the Heckscher-Ohlin (H-O) theory of comparative advantage. C) usually results in immiserizing growth. D) emphasizes that poorer and less industrialized nations cannot compete in world markets with richer and more industrialized nations.

A) can help explain how the United States went from being a net exporter of steel to become a net importer of steel.

3) Internal scale economies occur when A) expansion of output by a firm leads to greater specialization of labor. B) expansion in an industry drives down input prices. C) industry growth leads to a greater diffusion of knowledge among firms. D) a firm pays higher input prices to expand production.

A) expansion of output by a firm leads to greater specialization of labor.

25) If international trade is based on product differentiation, for a country the basis for A) exporting is the domestic production of unique models or varieties demanded by some consumers in foreign markets. B) importing is that the price of the imports is the same as the price of the domestic products. C) importing is that foreign firms usually enjoy external scale economies. D) exporting is that domestic producers can charge a much higher price in the international market.

A) exporting is the domestic production of unique models or varieties demanded by some consumers in foreign markets.

38) When external scale economies exist in an industry, new trade opportunities will cause consumers A) in both the exporting and importing countries to gain. B) in the exporting country to gain but consumers in the importing country to lose. C) in both the importing and exporting countries to lose. D) in the importing country to gain but the consumers in the exporting country to lose.

A) in both the exporting and importing countries to gain.

8) The figure below shows the market for shoes in a small importing country. Dd and Sd are the domestic demand and supply curves of shoes, respectively. Following the imposition of a tariff, the domestic producer surplus ________ by the area A) increases; a. B) decreases; a. C) increases; (a + b). D) increases; (S1 - S0).

A) increases; a.

11) According to the factor-price equalization theorem, free trade between any two countries equalizes A) product prices as well as the prices of individual factors of production between the countries. B) product prices between the countries but not the prices of individual factors of production. C) product prices between the countries and factor prices within each country but not between the countries. D) average national income per person in the countries.

A) product prices as well as the prices of individual factors of production between the countries.

1) Restricting imports into a small country by the government A) protects domestic producers from foreign competition. B) increases consumer welfare in the country. C) increases the general welfare of the importing nation. D) all of the above.

A) protects domestic producers from foreign competition.

31) In the United States, trade adjustment assistance A) provides workers who have been displaced from import-competing firms with additional months of unemployment compensation. B) provides subsidies to firms who produce exportable commodities. C) provides incentives for workers to search for new jobs outside an import-competing industry before they lose their jobs in this industry. D) is often criticized on the ground that it provides benefits to millions of workers each year who have not actually been affected by increased imports.

A) provides workers who have been displaced from import-competing firms with additional months of unemployment compensation.

16) Suppose Country X produces only two goods, food and clothing. At the initial free-trade equilibrium, the country produced 40 units of food and 20 units of clothing, and it exports 10 units of food and imports 10 units of clothing. Now suppose technological innovation in Country X leads to a balanced growth while leaving the relative prices of food and clothing unchanged in the international market. Production of food in Country X rises to 50 units. If consumption of food rises to 42 units, the consumption of clothing A) rises to 33 units. B) declines to 28 units. C) rises to more than 35 units. D) declines to less than 20 units.

A) rises to 33 units.

5) If Social Marginal Cost (SMC) > Price (P) = Buyer's Private Marginal Benefit (MB) = Seller's Private Marginal Cost (MC) = Social Marginal Benefit (SMB), it implies that A) the product is oversupplied. B) there is an excess demand for the product. C) the socially optimal amount of the product is supplied. D) firms are not maximizing profits.

A) the product is oversupplied.

14) Suppose Country A produces two goods, Good X and Good Y. Production of Good X involves an intensive use of skilled workers. Good Y is a relatively capital-intensive good. If the country experiences a wave of immigration of skilled workers, capital remaining unchanged, the Rybczynski theorem predicts that: A) the production of Good Y will contract. B) the production of both the goods will expand in the same proportion. C) the production of Good X will contract. D) the production of both goods will increase, but increase in Good X will be much higher than increase in Good Y.

A) the production of Good Y will contract.

33) 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 A) the rental rate of land will increase by 15 percent. B) the rental rate of land will increase by more than 15 percent. C) the wage rate will increase by more than 15 percent. D) the wage rate will remain unchanged.

A) the rental rate of land will increase by 15 percent.

36) Direct democracy makes tariffs less likely to be voted into law because A) the size of the individual losses would be larger than the individual gains from any potential protectionist measure. B) domestic producers threatened by increased imports will lobby against the trade agreements entered into by the countries. C) each person does not vote on the basis of his/her direct interest as a winner or loser from protection. D) the number of people who are hurt by protectionist measures exceeds the number of people who gain from protectionist measures.

A) the size of the individual losses would be larger than the individual gains from any potential protectionist measure.

39) Import tariff rates are typically higher on final consumption goods than on intermediate goods and raw materials sold to manufacturing firms. This tendency is known as A) the tariff escalation pattern. B) the terms of trade effect. C) the spillover effect. D) the sudden-damage effect.

A) the tariff escalation pattern.

13) Suppose that the domestic production of computer games creates enjoyment for those who play the games. Domestic production of computer games also results in knowledge spillovers that positively impact many other industries. One possible policy that could be employed to encourage increased production of computer games by domestic firms is A) to impose tariffs on computer game imports. B) to tax the production of computer games. C) to tax the consumption of computer games. D) to eliminate all restrictions on the importation of computer games.

A) to impose tariffs on computer game imports.

34) The French highly value domestic production of traditional French cheese made by high-cost, traditional production methods. According to the specificity rule, the most efficient policy tool to protect this traditional industry would be A) to provide a production subsidy to the domestic firms. B) to impose an import tariff on cheeses produced in other countries. C) to impose an import ban on cheeses produced in other countries. D) to tax French exports of non-traditional cheeses.

A) to provide a production subsidy to the domestic firms.

12. A small country initially has free trade in motorcycles, it has one local motorcycle producer, and imports account for over half of local motorcycle sales. The government has decided to impose a tariff of 20 percent, aimed to reduce motorcycle imports by about a third. The local producer proposes that a quota equal to two-thirds of the free-trade level of imports be imposed instead of the tariff because the quota will benefit the country by providing certainty about the import quantity. You are employed in the Ministry of the Economy and have been asked to provide a briefing on whether the government should use a tariff or a quota. What will you say in your presentation?

Advocate for tariff- raising revenue via consumers and can raise it however much they want.

11) The figure below shows the market for MP3 players in a small country. Dd and Sd are the domestic demand and domestic supply curves of the MP3 players. QQ is the quota quantity. According to the figure, how much revenue can the government expect to receive if the import licenses are auctioned? A) $20 million B) $50 million C) $120 million D) $170 million D) increase; $195 million.

B) $50 million

30) Calculate the effective rate of protection for the domestic MP3 player industry following the imposition of a 20 percent tariff on the imports of MP3 players. The cost of material inputs used in the production of MP3 players in the country is $100 per unit, and there is free trade in these material inputs. The world price of MP3 players is $175 per unit. Assume that the country is a small country. A) 20% B) 46⅔% C) 35% D) 72⅔%

B) 46⅔%

8) The figure below shows the market for MP3 players in a small country. Dd and Sd are the domestic demand and domestic supply curves of the MP3 players. QQ is the quota quantity. How many MP3 players can be imported from abroad after the quota is imposed? A) 2 million B) 5 million C) 12 million D) 17 million

B) 5 million

33) Which of the following mandates that an import distributor must buy a certain percentage of the product locally? A) An import quota B) A mixing requirement C) A voluntary export restraint D) None of the above

B) A mixing requirement

30) Which of the following is true of a voluntary export restraint (VER)? A) A voluntary export restraint ensures that foreign exporting firms are unable to exercise monopoly power. B) A voluntary export restraint usually requires that the foreign exporting firms act like a cartel, restricting sales and raising prices. C) A voluntary export restraint generates more revenue for the government of the importing country than would a tariff or quota. D) Voluntary export restraints have mostly been used by developing countries to protect their domestic industries.

B) A voluntary export restraint usually requires that the foreign exporting firms act like a cartel, restricting sales and raising prices.

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

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

9) Let's assume that cloth-making (labor-intensive) and farming (land-intensive) are the only two sectors of production in a country. If this country is labor-abundant, and if trade corresponds to the Heckscher-Ohlin theory, which of the following groups will gain in the short run, but lose in the long run, from the opening of trade? A) Domestic landowners in the domestic farming sector B) Domestic landowners in the domestic cloth-making sector C) Foreign landowners in the foreign farming sector D) Foreign workers in the foreign cloth-making sector

B) Domestic landowners in the domestic cloth-making sector

30) Which of the following statements is correct? A) In a first-best world, imports would not cause import-competing firms to go out of business and workers in these industries to lose their jobs. B) If we want to help workers who lose jobs when a domestic industry shrinks, the specificity rule suggests that the government should provide subsidies to those workers to retrain or to relocate to areas where jobs are available. C) The most efficient policy to maintain production in import-competing industries is to impose barriers on imports. D) In a first-best world, if rising import competition is driving domestic producers out of business, the government must intervene to protect the domestic firms.

B) If we want to help workers who lose jobs when a domestic industry shrinks, the specificity rule suggests that the government should provide subsidies to those workers to retrain or to relocate to areas where jobs are available.

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

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

37) When external scale economies exist in an industry, which of the following groups is most likely to be left worse off after the opening of free trade? A) Consumers in the importing country B) Producers in the importing country C) Consumers in the exporting country D) Producers in the exporting country

B) Producers in the importing country

39) Which of the following correctly identifies an impact of the opening of trade for an industry with external economies? A) Consumers of the product in the exporting country lose consumer surplus. B) Producers of the product in the importing countries lose producer surplus. C) Consumers of the product in the importing country lose consumer surplus. D) Producers of the product in the exporting country lose producer surplus.

B) Producers of the product in the importing countries lose producer surplus.

11) Which of the following can help explain the rise of intra-industry trade? A) Recent recessions and increases in the price of oil have led to lower national income levels. B) The demand for product variety has increased substantially over time. C) Countries widely vary in terms of their resource endowments. D) The developed nations have recently implemented more conservative fiscal policies.

B) The demand for product variety has increased substantially over time.

24) Which of the following is most likely to be predicted by the Heckscher-Ohlin theory? A) The industrialized nations will mainly export labor-intensive goods. B) The developing countries will mainly export labor-intensive goods. C) The wage rate of the low-skilled workers will be higher in the developing countries than in the developed countries. D) Countries like China will completely specialize in the production of primary products.

B) The developing countries will mainly export labor-intensive goods.

18) The following input-requirements data are for Country A, a capital-abundant country that produces nothing but bread and wine using only capital and labor as inputs. Which of the following is most likely to happen if Country A engages in free trade with other countries? A) The prices of both bread and wine will fall in the domestic market. B) The price of bread will fall but the price of wine will rise in the domestic market. C) The prices of both bread and wine will rise in the domestic market. D) The price of bread will rise but the price of wine will fall in the domestic market.

B) The price of bread will fall but the price of wine will rise in the domestic market.

6) The Rybczynski theorem asserts that in a two-good model, assuming that product prices stay constant, growth in the endowment of one factor of production with the other factor remaining unchanged, will result in A) an equal increase in the output of both goods. B) an increase in the output of the good that uses the growing factor intensively and a decrease in the output of the other good. C) an increase in the output of both goods, but a relatively greater increase in the output of the good that uses the growing factor intensively. D) an increase in the output of the good that uses the growing factor intensively, but the output level of the other good will remain unchanged.

B) an increase in the output of the good that uses the growing factor intensively and a decrease in the output of the other good.

29) An industry in which a few firms make almost all of the market sales is called: A) a monopoly. B) an oligopoly. C) a perfectly competitive market. D) a monopsony.

B) an oligopoly.

12) The figure below shows the market for shoes in a small importing country. Dd and Sd are the domestic demand and supply curves of shoes, respectively. The production effect of the tariff on shoes is measured by the area A) a. B) b. C) c. D) (a + b).

B) b.

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

B) be rather limited in volume.

32) According to the developing government argument, tariffs imposed by a developing country A) benefit the country because they represent an efficient mechanism for the country's rulers to obtain funds for their personal use. B) can benefit the country by creating net social gains. C) will be as inefficient as tariffs imposed by developed countries. D) are likely to represent only a very small fraction of government revenues because the volume of imports in developing countries is relatively small.

B) can benefit the country by creating net social gains.

18) 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 impose 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 government auctions the import licenses, the national well-being will ________ by A) increase; $40 million. B) decrease; $12 million. C) increase; $65 million. D) decrease; $5 million.

B) decrease; $12 million.

19) When the average cost of a typical firm declines as the output of the industry within a geographic area increases it is referred to as A) internal scale economies. B) external scale economies. C) internal scale diseconomies. D) constant returns to scale.

B) external scale economies.

3) In the short-run, following the opening of trade A) inputs move across sectors, but input returns remain constant. B) factor payments in the import-competing sectors will decline. C) the supply of resources to the export-oriented sectors will decline. D) workers in all sectors will receive lower wages due to cheap imports.

B) factor payments in the import-competing sectors will decline.

8) Assume that a large capital-abundant country trades only two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. An increase in the country's endowment of capital will cause the price of medical equipment relative to the price of corn to A) rise. B) fall. C) stay the same. D) rise at first and then fall.

B) fall.

16) 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 imposition of a tariff on computers caused the surplus of the country's consumers to ________ by A) fall; $10 million. B) fall; $40 million. C) rise; $76 million. D) fall; $78 million.

B) fall; $40 million.

18) 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 imposition of a tariff on computers caused economic well-being in the country to ________ by A) fall; $4 million. B) fall; $6 million. C) rise; $34 million. D) fall; $34 million.

B) fall; $6 million.

27) Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and food is relatively land-intensive. According to the Heckscher-Ohlin theory, Beta has a comparative advantage in the production of A) drink. B) food. C) both goods. D) neither good.

B) food.

25) The figure below shows the domestic demand (Dd) and domestic supply (Sd) 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 QQ. After the quota is imposed by the government, the domestic producers A) lose $2.5 million. B) gain $27.5 million. C) gain $42.5 million. D) lose $45 million.

B) gain $27.5 million.

29) Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and food is relatively land-intensive. If the countries engage in free trade, Beta will A) import both food and drink. B) import drink and export food. C) export both food and drink. D) export drink and import food.\

B) import drink and export food.

18) Suppose a large country experiences economic growth which results in a reduced willingness to trade. The country's terms of trade will ________ because the fall in demand for imports will cause the price of its exports to ________ relative to the price that it has to pay for its imports. A) worsen; fall B) improve; rise C) improve; fall D) worsen; rise

B) improve; rise

25) Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and food is relatively land-intensive. The no-trade wage rate relative to land rents in Alpha is ________ the relative wage rate in Beta. A) greater than B) less than C) equal to D) double

B) less than

35) Relative to standard competitive trade, trade based on monopolistic competition has ________ impact on relative factor incomes. A) greater B) lower C) the same D) no

B) lower

12) The rapid accumulation of capital and worker skills in the United States in the 1800s A) resulted in an increase in the export of natural resources by the country. B) made the United States more dependent on imported minerals. C) made the United States more self-sufficient and led to a reduction in its trade volume. D) resulted in rapid deindustrialization in the country.

B) made the United States more dependent on imported minerals.

In Country A, the product with the highest intra-industry trade (IIT) share is ________ and the product with the lowest IIT share is A) automobiles; pharmaceuticals. B) pharmaceuticals; clothing. C) clothing; automobiles. D) clothing; pharmaceuticals.

B) pharmaceuticals; clothing.

22) Suppose the market for personal computers in Country A is monopolistically competitive. Country A exports as well as imports personal computers from the rest of the world. After full adjustment to the opening of trade, a firm in this industry probably will A) receive a higher price for its product. B) receive a lower price for its product. C) enjoy a greater market share. D) go out of business.

B) receive a lower price for its product.

40) Countries that are open to international trade A) cannot suffer from immiserizing growth. B) tend to grow faster than the closed economies. C) tend to lose out on the benefits of technological diffusion. D) do not experience biased growth.

B) tend to grow faster than the closed economies.

4) The theory which predicts that trade occurs because of differences in the availability of factor inputs across countries and the differences in the proportions in which the inputs are used in producing different products is called A) the Stolper-Samuelson theory. B) the Heckscher-Ohlin theory. C) the theory of comparative advantage. D) the theory of factor price equalization.

B) the Heckscher-Ohlin theory.

37) Tariffs are more likely to be imposed when A) the lobbying efforts of consumer advocacy groups are much stronger than those of the producers. B) the average gain per proponent far exceeds the average cost per opponent. C) the number of people who are hurt by protectionist measures exceeds the number of people who gain from protectionist measures. D) import-competing producers are unorganized.

B) the average gain per proponent far exceeds the average cost per opponent.

5) When Firm X doubled its output, it was found that its cost per unit declined by 10 percent. It can be concluded that A) the firm was facing external scale diseconomies. B) the firm was enjoying internal scale economies. C) the firm was operating on the inelastic portion of the demand curve. D) the marginal cost of production at the initial output level was constant.

B) the firm was enjoying internal scale economies.

6) In the case of a small country, the effects of a quota and a tariff are (almost) identical if A) the government allocates licenses for free to importers using a rule or process that involves (almost) no resource cost. B) the government auctions off import licenses to the highest bidder. C) the government allocates licenses to importers through application and selection procedures that require the use of substantial resources. D) the government allocates import licenses directly to the public using a free lottery system.

B) the government auctions off import licenses to the highest bidder.

24) When a large country imposes an import quota A) the product's world price rises. B) the product's world price falls. C) the product's domestic price falls. D) domestic production of the product falls.

B) the product's world price falls.

38) Instead of placing a tariff on the imports of steel, a government has decided to offer steel workers trade adjustment assistance which will allow them to pre-qualify for unemployment benefits and retraining. Such a policy is consistent with A) the developing worker argument. B) the specificity rule. C) the infant industry argument. D) the national pride argument.

B) the specificity rule.

15) With a shift from no trade to free trade, if Country X is relatively labor-abundant and relatively land-scarce and Country Y is relatively labor-scarce and relatively land-abundant, the factor-price equalization theorem predicts that A) rents will rise in Country X and fall in Country Y until they equalize. B) wages will rise in Country X and fall in Country Y until they equalize. C) rents will fall in Country Y but will remain unchanged in Country X. D) wages will increase in Country Y but will remain unchanged in Country X.

B) wages will rise in Country X and fall in Country Y until they equalize.

20) 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 then compels the exporting country to limit its T-shirt exports to 20 million per year. With the voluntary export restraint (VER) in place, the domestic price rises to $12 per T-shirt and domestic production rises to 15 million T-shirts per year. How much does the importing nation lose as a result of the VER? A) $12 million B) $20 million C) $52 million D) $77 million

C) $52 million

28) Which of the following statements is true? A) If new firms are struggling to obtain funds from underdeveloped financial markets, the most efficient policy solution would be to offer a production subsidy to these firms. B) If the government's goal is to induce early production, even when the new firms are not cost-competitive by world standards, a barrier to the import of the product produced by these firms would be an ideal policy. C) If young firms are struggling to retain their trained workers, then government should offer a subsidy to offset the costs of training workers. D) If the domestic firms do not supply anything at the world price, the government should lower the barriers to importing the product to spur domestic production.

C) If young firms are struggling to retain their trained workers, then government should offer a subsidy to offset the costs of training workers.

40) Which of the following nontariff barriers (NTBs) may generate revenue for the government? A) Government procurement B) Voluntary export restraint C) Import quota D) Domestic content requirement

C) Import quota

11) Which of the following is a plausible solution to a distortion? A) Centralizing the privately owned enterprises B) Shutting down any industry which is contributing to atmospheric pollution C) Imposing a tax or subsidy on the activity if the social marginal cost or the social marginal benefit exceeds the market price D) Imposing an importation ban on manufactured goods

C) Imposing a tax or subsidy on the activity if the social marginal cost or the social marginal benefit exceeds the market price

7) Which of the following refers to a two-way trade in which a country both exports and imports the same or very similar products? A) Net trade B) Inter-industry trade C) Intra-industry trade D) Internal trade

C) Intra-industry trade

4) Which of the following is valid for a "first-best" world? A) Social Marginal Benefit (SMB) > Price (P) = Buyer's Private Marginal Benefit (MB) = Seller's Private Marginal Cost (MC) = Social Marginal Cost (SMC) B) Social Marginal Cost (SMC) > Price (P) = Buyer's Private Marginal Benefit (MB) = Seller's Private Marginal Cost (MC) = Social Marginal Benefit (SMB) C) Price (P) = Buyer's Private Marginal Benefit (MB) = Seller's Private Marginal Cost (MC) = Social Marginal Cost (SMC) = Social Marginal Benefit (SMB) D) Social Marginal Benefit (SMB) > Social Marginal Cost (SMC)

C) Price (P) = Buyer's Private Marginal Benefit (MB) = Seller's Private Marginal Cost (MC) = Social Marginal Cost (SMC) = Social Marginal Benefit (SMB)

42) Country A is a large country that imports good-quality processed chicken from Country B. Suddenly, Country A's government decides to impose a tariff on this import. Who among the following will be adversely affected by this policy? A) Consumers of chicken in Country B B) Consumers of ham in Country B C) Producers of chicken in Country B D) Producers of chicken in Country A

C) Producers of chicken in Country B

36) Which of the following allows the president of the United States to negotiate to eliminate unfair trade practices put in place by foreign governments? A) Tariff-quota requirements B) The General Agreement on Tariffs and Trade C) Section 301 of the Trade Act of 1974 D) The United Nations

C) Section 301 of the Trade Act of 1974

2) Which of the following is an impact of tariffs on the country imposing them? A) The domestic producers of import-competing products are forced to charge a lower price for their products to retain market share. B) The supply of the domestic import-competing products declines. C) The domestic consumers pay a higher price for the imported products. D) The demand for the imported goods by the domestic consumers increases.

C) The domestic consumers pay a higher price for the imported products.

33) Suppose Country A had been traditionally enjoying a comparative advantage in the production of Good X. As a result, most of the large firms manufacturing and exporting Good X were concentrated in Country A. However, recently it has been observed that the comparative advantage in the production of Good X has shifted to Country B owing to better factor availability and lower input prices. Some new firms are contemplating to start operating in Country B. Which of the following, if it happens, makes it more likely that the new firms in Country B will not be able to operate profitably? A) The firms in Country A expand production beyond the optimum point and will experience an increase in per unit cost with a further increase in output. B) The demand for Good X increases substantially in Country A in the near future. C) The firms in Country A lower the prices for their products. D) The input prices in Country A increase significantly in the near future.

C) The firms in Country A lower the prices for their products.

32) The figure below shows a shift in the production-possibility curve of a country from AB to AC. Here, S1 and C1 are the initial production and consumption points, respectively. S2 and C2 are the final production and consumption points, respectively. Which of the following is illustrated by this figure? A) The mechanism of reversal in trade pattern B) The validity of the product cycle hypothesis C) The immiserizing growth effect in a large country D) The benefits of trade in a small country

C) The immiserizing growth effect in a large country

26) Which of the following is NOT an effect of intra-industry trade if the concerned industry is monopolistically competitive? A) There are considerable national gains that arise from trade because there is an increase in the number of varieties of products available in the country. B) Domestic consumers gain because such trade results in lower prices of domestic varieties of the good. C) Total output of the domestic industry increases as a result of such trade. D) There are few shifts in production among industries that put pressures on factor prices.

C) Total output of the domestic industry increases as a result of such trade.

2) Scale economies are said to be present when A) an increase in output leads to an increase in average cost. B) an increase in output has no impact on average cost. C) an increase in output leads to a decrease in average cost. D) there is a single firm in an industry.

C) an increase in output leads to a decrease in average cost.

10) Assume a country produces only wine and cups. Both wine and cup production use land and labor as their only inputs. Wine production is relatively land-intensive while cup production is relatively labor-intensive. According to the Rybczynski theorem, a significant rise in immigration is most likely to lead to A) an increase in the production of both wine and cups. B) an increase in wine production by a greater proportion than the increase in the size of the labor force due to immigration. C) an increase in the production of cups by a greater proportion than the increase in the size of the labor force due to immigration. D) an incr

C) an increase in the production of cups by a greater proportion than the increase in the size of the labor force due to immigration.

20) Suppose a small country experiences economic growth which leads to an increased willingness to trade. The country's terms of trade will ________ because the prices of its exports will ________ relative to the price that it has to pay for its imports. A) worsen; fall B) improve; not change C) be unaffected; not change D) remain constant; fall

C) be unaffected; not change

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

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

34) Consumers of the exportable product in the exporting country are most likely to gain when trade is based on A) different factor endowments. B) technological differences. C) external scale economies. D) increasing-cost industries.

C) external scale economies.

40) Whenever the benefits of group effort fall on every member of a large dispersed group, regardless of individual contributions, there can be a A) sudden-damage effect. B) spillover effect. C) free-rider problem. D) negative externality.

C) free-rider problem.

9) The figure below shows the market for MP3 players in a small country. Dd and Sd are the domestic demand and domestic supply curves of the MP3 players. QQ is the quota quantity. The quota on MP3 players will cause domestic producers to A) gain $150 million. B) lose $100 million. C) gain $110 million. D) lose $120 million.

C) gain $110 million.

15) 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 impose 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 producers to A) gain $5 million. B) lose $5 million. C) gain $25 million. D) gain $30 million

C) gain $25 million.

17) Suppose that the training, skills, and attitudes received by employees in the computer gaming development industry have positive spillover effects as workers leave the industry and move to other jobs. The specificity rule suggests that the best way to achieve more employment in this industry is to A) impose a tariff on the importation of computer games. B) remove all sales taxes from the purchases of computer games. C) give computer game developing firms a subsidy tied to their level of employment. D) tax the production of computer games.

C) give computer game developing firms a subsidy tied to their level of employment.

27) The ________ posits that trade flows between countries will be larger as the economic sizes of the two countries are larger and the geographic distance between the two countries is smaller. A) Heckscher-Ohlin model B) theory of absolute advantage C) gravity model D) Stolper-Samuelson theorem

C) gravity model

13) The figure below shows the market for MP3 players in a small country. Dd and Sd are the domestic demand and domestic supply curves of the MP3 players. QQ is the quota quantity. According to the figure, if import licenses are allocated based on a resource-using procedure, the loss to the economy will be A) $35 million. B) less than $10 million. C) greater than $35 million. D) $25 million.

C) greater than $35 million.

2) In the short-run, following the opening of trade A) workers in the country can change jobs but will receive the same wage. B) workers will suffer from lower wages, but landowners will benefit from higher rents. C) groups tied to declining sectors of the economy will suffer from lower returns. D) gross output remains constant.

C) groups tied to declining sectors of the economy will suffer from lower returns.

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

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

10) 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 A) higher wages in both countries. B) lower wages in both countries. C) higher wages in Mexico and lower wages in the United States. D) lower wages in Mexico and higher wages in the United States.

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

23) In a monopolistically competitive market, as the number of product variants decreases, the price of a particular firm's product is likely to ________ because the demand for each variety becomes more A) increase; elastic. B) decrease; elastic. C) increase; inelastic. D) decrease; inelastic.

C) increase; inelastic.

22) Suppose a labor-abundant small country, exporting a labor-intensive good, experiences a significant increase in its capital stock. This change in endowments can A) lead to an immiserizing growth. B) lead to an increase in the export of labor-intensive goods by the country. C) lead to a reversal of the country's trade pattern. D) lead to reduced growth rates.

C) lead to a reversal of the country's trade pattern.

29) The figure below shows the international market for moped. DM is a country's demand for imports curve and SX is the foreign export supply curve. The importing country now imposes an import quota of 0.9 million, with the licenses given for free to the existing import distributors. As a result of the quota being imposed on moped imports by this country, the world as a whole will A) lose $7 million. B) gain $10 million. C) lose $17 million. D) gain $31.5 million.

C) lose $17 million.

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

C) only clothing.

24) Suppose the global market for personal computers is monopolistically competitive. If a country engages in a two-way trade in personal computers, such trade is usually based on A) external scale economies. B) comparative advantage. C) product differentiation. D) constant returns to scale.

C) product differentiation.

4) If a small country imposes a tariff on imported motorcycles, the world price of motorcycles will ________ and the domestic price of motorcycles will A) rise; fall. B) fall; rise. C) remain constant; rise. D) remain constant; fall.

C) remain constant; rise.

35) The United States produces some of the electronic components used as inputs in its fighter planes. But due to the limited number of companies that produce these items, it imports these parts from Japan as well. There is concern that in the case of a prolonged war, these important imports may not be available. Fearing that the Air Force may be unable to fulfill its tasks in the case of a prolonged war, the specificity rule suggests that the United States should A) ban the importation of these electronics parts to protect jobs in this industry. B) impose tariffs on the imports of these electronic parts. C) subsidize the domestic production of these electronics parts. D) impose high taxes on the production of these electronic parts.

C) subsidize the domestic production of these electronics parts.

36) A large country can gain from imposing a tariff on the import of a good if A) the tariff drives the quantity imported to zero. B) the tariff is high enough that the country becomes an exporter of the product. C) the part of the tariff paid by the foreign exporters is greater than the losses arising from the production and consumption effects of the tariff in the domestic market D) the tariff revenue collected by the domestic government is equal to the losses caused by the production and consumption effects of the tariff.

C) the part of the tariff paid by the foreign exporters is greater than the losses arising from the production and consumption effects of the tariff in the domestic market

2) If there is something extra bad about local consumption of a product, then a tariff can be good for the country because A) the tariff makes all residents richer. B) the tariff brings down the domestic price of the product. C) the tariff leads to higher domestic price for the product. D) the tariff revenue is invested in the production of substitute products.

C) the tariff leads to higher domestic price for the product.

17) The following input-requirements data are for Country A, a capital-abundant country that produces nothing but bread and wine using only capital and labor as inputs. According to the H-O theory, Country A has a comparative advantage in the production of A) both bread and wine. B) neither bread nor wine. C) wine. D) bread.

C) wine.

18) The figure below shows the national market for mopeds in a country. Dd and Sd are the domestic demand and supply curves of mopeds, respectively. Calculate the welfare loss arising from the production effect of the tariff. A) $14 million B) $2.5 million C) $5 million D) $7.5 million

D) $7.5 million

38) 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. Calculate the tariff revenue collected by the domestic government. A) $13.5 million B) $4 million C) $10 million D) $8 million

D) $8 million

30) The figure below shows a shift in the production-possibility curve of a country from AB to AC. Here, S1 and C1 are the initial production and consumption points, respectively. S2 and C2 are the final production and consumption points, respectively. Which of the following is illustrated by this figure? A) A small country experiencing a balanced growth B) A large country experiencing a balanced growth C) A small country experiencing growth biased toward cloth production D) A large country experiencing growth biased toward wheat production

D) A large country experiencing growth biased toward wheat production

28) Suppose Country X is one of the largest exporters of coffee in the world. A recent massive cyclone has destroyed much of the coffee crop in Country X and has considerably lowered its exports. Which of the following is a likely consequence of this disaster? A) The size of Country X's trade triangle will increase. B) The price of coffee in the international market will decline. C) The price of Country X's imports relative to the price of its exports will increase unambiguously. D) Country X's terms of trade will improve.

D) Country X's terms of trade will improve.

4) ________ 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. A) Perfect competition B) Monopoly C) Oligopoly D) Monopolistic competition

D) Monopolistic competition

35) Which of the following refers to efforts by businesses that focus on improvements in production technologies for existing products and on new production technologies for new or improved products? A) Balanced growth B) Diffusion C) Import competition D) Research and development

D) Research and development

10) Which of the following statements reflects a situation in which there are external costs? A) Suzanne invites her neighbors to a party on her birthday. B) Suzanne paints her house and landscapes her yard. Her newly beautified house and yard help her neighbors to sell their house for more than the asking price. C) Suzanne pays for a professional fireworks show for her family. Her neighbors also enjoy the show. D) Suzanne dumps her household garbage around the corner of the street.

D) Suzanne dumps her household garbage around the corner of the street.

23) Considering the United States to be a capital-abundant country, which of the following facts would contradict the predictions of the Heckscher-Ohlin theory? A) The United States is a net importer of labor-intensive products. B) The United States is a net importer of products that use farmland intensively. C) The United States is a net importer of certain natural resources such as petroleum. D) The United States is a net importer of capital-intensive products.

D) The United States is a net importer of capital-intensive products.

37) Which of the following is NOT true of the Uruguay Round of the multilateral trade negotiations? A) The Uruguay Round initiated a process of liberalizing trade in services. B) The Uruguay Round agreements began a process of liberalizing trade in agricultural products. C) The Uruguay Round included agreement requiring member countries to provide minimum levels of ownership protection for intellectual property. D) The Uruguay Round narrowed down the set of nontariff barrier (NTB) codes as set up by the Kennedy Round and the Tokyo Round.

D) The Uruguay Round narrowed down the set of nontariff barrier (NTB) codes as set up by the Kennedy Round and the Tokyo Round.

5) Under which of the following situations will a tariff imposed by a country fail to reduce imports by as much as expected? A) The current tariff rate is less than the prohibitive tariff rate. B) The foreign export quantity supplied of the good imported by this country is more responsive to changes in the world price than was expected. C) The domestic supply of the import-competing products is more price-elastic than was expected. D) The domestic quantity demanded of the imported product is less responsive to price changes than was expected.

D) The domestic quantity demanded of the imported product is less responsive to price changes than was expected.

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

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

25) Which of the following asserts that temporary protection from international competition is needed for a nascent industry that initially has high costs? A) The developing government argument B) The infant industry argument C) The dying industry argument D) The optimal tariff argument

D) The optimal tariff argument

32) Suppose Country A had been traditionally enjoying a comparative advantage in the production of Good X. As a result, most of the large firms manufacturing and exporting Good X were concentrated in Country A. However, recently it has been observed that the comparative advantage in the production of Good X has shifted to Country B owing to better factor availability and lower input prices. Some new firms are contemplating to start operating in Country B. Which of the following conditions probably must be fulfilled to ascertain that these new firms will enjoy a cost advantage over the established firms in Country A? A) The number of firms to begin operation in Country B must be greater than the number of firms operating in Country A. B) The consumers in Country B should have a relatively elastic demand compared to the consumers in Country A. C) The new firms in Country B should have a higher input-output ratio than the firms operating in Country A. D) The output level of the new firms in Country B should be large enough to enable them to achieve scale economies.

D) The output level of the new firms in Country B should be large enough to enable them to achieve scale economies.

24) Suppose a capital-abundant large country experiences a significant increase in its capital stock. This change in endowments is most likely to lead to A) an improvement in the country's terms of trade. B) a decreased willingness to trade. C) no change in the price of the labor-intensive good relative to the price of the capital-intensive good. D) an increased willingness to trade.

D) an increased willingness to trade.

30) In oligopoly pricing, firms are caught in a situation called prisoner's dilemma when they A) cooperate to maximize profits. B) cooperate to minimize prices. C) compete aggressively and earn high profits. D) compete aggressively and earn low profits.

D) compete aggressively and earn low profits.

20) A typical monopolistically competitive firm A) sets the price of its product equal to its marginal cost of production. B) sells a homogeneous product in the market. C) faces a perfectly elastic demand curve. D) earns zero economic profits in the long run.

D) earns zero economic profits in the long run.

26) Immiserizing growth is most likely to occur when A) the import payments of a country decline relative to its export earnings B) the increase in population equals the increase in national income of a country. C) the benefits of economic growth are not shared equally by all residents of the country. D) economic growth leads to a deterioration of a country's terms of trade.

D) economic growth leads to a deterioration of a country's terms of trade.

30) Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. If the countries engage in free trade, the price of food will A) rise in Alpha and fall in Beta. B) rise in both countries. C) fall in both countries. D) fall in Alpha and rise in Beta.

D) fall in Alpha and rise in Beta.

7) In a "second-best" world A) tariffs are economically optimal. B) private actions are dictated by government agencies. C) social marginal cost of a transaction equals social marginal benefit. D) private actions do not lead to the best possible outcomes for society.

D) private actions do not lead to the best possible outcomes for society.

13) According to the Stolper-Samuelson theorem, an increase in the price of a country's imports will A) have no impact on the returns to factors of production within the country. B) raise the returns to all factors of production within the country. C) reduce the returns to the factor of production used relatively intensively in the import-competing industry. D) raise the returns to the factor of production used intensively in the import-competing industry.

D) raise the returns to the factor of production used intensively in the import-competing industry.

7) Country A is relatively land-abundant, and wheat is relatively land-intensive. Given the assumptions of the Heckscher-Ohlin model, the opening of trade by this country will cause the domestic price of wheat to A) fall. B) rise. C) remain unaffected. D) rise at first, but then fall back to its original level.

D) rise at first, but then fall back to its original level.

22) 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 bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles The imposition of the tariff on wine will cause the surplus of the domestic producers to ________ by about A) rise; $1 million. B) rise; $500,000. C) fall; $2.5 million. D) rise; $2.75 million. .

D) rise; $2.75 million.

15) The ________ states that it is usually more efficient to use the government policy tool that acts as directly as possible on the source of the distortion that is separating private and social benefits or costs. A) Pigou effect B) spillover effect C) sudden-damage effect D) specificity rule

D) specificity rule

28) If the imposition of a tariff on a commodity alters the relative international prices of the imposing country's exports to its imports, it is referred to as the A) total price effect of the tariff. B) production effect of the tariff. C) consumption effect of the tariff. D) terms-of-trade effect of the tariff.

D) terms-of-trade effect of the tariff.

40) The nationally optimal tariff is the tariff for which A) the production effect is equal to the consumption effect of the tariff. B) the government collects the highest tariff revenue. C) the difference between the government tariff revenue and the sum of consumption and production effect is the highest. D) the difference between the part of the tariff paid by the exporters and the welfare loss associated with the consumption and production effects is the highest.

D) the difference between the part of the tariff paid by the exporters and the welfare loss associated with the consumption and production effects is the highest.

8) The Stolper-Samuelson theorem indicates that, after a country shifts to free trade A) the real return to the factor used intensively in the import-competing industry will rise in the long run. B) the real return to the factor used intensively in the export industry will fluctuate around a long-run trend. C) the real return to all the resources in an economy will increase. D) the real return to the factor used intensively in the export industry will rise in the long run.

D) the real return to the factor used intensively in the export industry will rise in the long run.

39) The general formula used for calculating the net national loss from a trade barrier as a percentage of gross domestic product (GDP) may fail to account for A) the production effect of the trade barrier. B) the consumption effect of the trade barrier. C) the government revenue generated from the trade barrier. D) the rent-seeking costs of local firms.

D) the rent-seeking costs of local firms.

58) International outsourcing—the shifting of service activities from one country to another—was not an issue when the factor-price equalization theory was developed. Does the existence of outsourcing change the implications of the theory? Justify your answer.

Factor price equalization theorem, outsourcing (one task, not offshoring) doesn't change implications of wage loss. But opportunity cost could be cost difference, not change in wages or change in rents. Doesn't mean each country has same capabilities. Difference between outsourcing and off shoring Ie. call center in idaho vs. bangladesh There is a tendency to the equalization to their wages Maybe a barrier for india to equalize price. There are impediments to equalization for open trade.

Indian exports of computer software development services have grown rapidly since the early 2000s. In the early 2000s the cost to employ programmers in india was about half the cost of programmers with comparable sklls in the US. in 2013 the cost of india was aobut ⅔ the cost in the US. What trade theory or theories help us to understand the change?

Factor price equilization

One of your relatives suggests to you that our country should stop trading with other ocuntries because imports take away jobs and lower our national well-being. How would you try to convince him that this is probably not the right way to look at international trade and its effects on the country?

Producers are the biggest losers. Bernie sanders - coal miners would get training in other industries. International trade would keep costs down. Lower cost and specific job that you're losing.

4. Define each of the following import policies and describe its likely effects on the well-being of the importing country as a whole: (a) product standards and (b) domestic content requirements.

Product standards : usually do not raise tariff or tax revenues for the importing country's government (p179), less choice for consumers Favor local producers Governments set product safety laws Internationally, there are private sector product standard setting bodies who are technical experts in the field who decide what is the technical standard for this item. How does it fit together. For businesses to compete on global scale, need to harmonize products. Local applications of law in building codes Domestic content requirements: (p179) mandates that a product produced and sold in a country must have a specified minimuma amount of domestic production value. Domestic content requirements can create importation at two levels: they can be a barrier to imports of the products that do not meet the content rules. They can limit the import of materials and components that otherwise could have been used in domestic production of the products. Domestic prices increase demand domestically, producers can gain from increase. A policy implemented in order to exploit the FDI coming in, in order to support the secondasry and tertiary investments. Want to protect investments and take advantage of this. In order to get the rich foreigners to invest in businesses around. Which is why developing countries oppose this, they want to be able to buy from anyplace they want. All about working for interests to get their business done as efficiently as possible.

As a result of the NAFTA, the US and Canada shifted toward free trade with Mexico. According to the Stolper-Samuelson theorem, how did this shift affect real wage of unskilled labor in Mexico? In the US or Canada? How did it affect real wage of skilled labor in Mexico? In the US or Canada?

Skilled labor in mexico fell, but imports to Canada and US rose.

56) Suppose the world price of automobiles is $20,000 and automobile manufacturers in Country A use $10,000 worth of imported inputs and no domestic inputs. What is the effective rate of protection for the automobile industry in Country A, if there is a tariff of 25 percent on imported automobiles and a tariff of 50 percent on imported inputs used in this industry?

Zero percent

55) Suppose Korea exports skilled labor-intensive goods like construction equipment to the rest of the world and imports clothing, an unskilled labor-intensive good. Both the goods use skilled labor and unskilled labor as their only inputs. Recently the skilled labor endowment of Korea has increased substantially, but the size of the unskilled labor force has remained unchanged. a. What is the effect of the change in endowment on the shape and position of the production-possibility curve of Korea? Illustrate your answer with the help of a suitable diagram. b. What is the effect of the change in factor endowment on the actual production quantities of the two goods in Korea, assuming the product price ratio remains unchanged in the international market? Explain and illustrate graphically. c. Assuming the product prices are unchanged, what is the effect of the change in factor endowment on Korea's willingness to trade? Explain, using your diagram.

a. Biased shift towards equipment b. Effect in charge of the factor endowment. Skilled labor. Results in output of using that factor would decrease. Prodcution of clothing would also decrease. The ppc is going could intersect. c. Increases because of supply and equipment (increase of inputs).

55) Consider that in Country A, there are some models of cars available in the luxury segment produced by the domestic companies. Some more models are available in the same segment in Country B as well. Explain, with the help of suitable figures, how the consumers in both countries gain if they engage in free trade.

draw figure 6.5

57) Explain whether and why you would expect each of the following groups (a. through g.) to gain or lose from trade with standard or perfect competition, monopolistic competition, and external scale economies. a. A country that exports the product b. Producers in a country that exports the product c. Consumers in a country that exports the product d. A country that imports the product e. Import-competing producers f. Consumers in a country that imports the product g. The world as a whole

draw figure 6.8

41) If it is desirable to enhance the incomes of factors used intensively in the import-competing industry, then a tariff actually lowers national welfare.

f

41) The Heckscher-Ohlin theory explains comparative advantage enjoyed by countries in the production of certain goods in terms of underlying differences in consumer tastes and preferences.

f

42) In recent decades intra-industry trade has become significantly smaller as a percentage of overall trade.

f

42) When factors of production move to better-paying sectors of the economy in the long run after the opening of trade in the country, wages and rents will be bid back to their pre-trade levels

f

43) Scale economies help explain why products are produced in a limited number of varieties in a country.

f

44) Under monopolistic competition, new firms are barred from entering the industry in the long run.

f

44) While trade restrictions for a small country do provide gains to certain segments in the economy, in a second-best world such restrictions will always lower national welfare for a small country.

f

45) Exploiting substantial scale economies is an explanation of why some industries come to be categorized as monopolistically competitive.

f

45) In a second-best world, private actions will lead to the best possible outcomes for the society.

f

46) A firm is said to operate with constant returns to scale if its production cost increases by four times when its output is doubled.

f

46) Arthur Pigou put forward the idea that positive and negative externalities can be resolved by creating new private property institutions

f

47) Too much of a good is produced if some external benefits of producing or consuming it are ignored by the private decision makers

f

47) When an importing country compels the foreign exporting country to agree "voluntarily" to restrict its exports to this country, the exporting firms in the foreign country are worse off than they would be if the importing country had instead imposed a comparable import quota.

f

49) The voluntary export restraint (VER) is not only a politically attractive way of offering protection to an import-competing industry but is also economically less harmful to the importing country than other trade barriers would be.

f

50) If additional domestic production will lead to positive spillover effects, then an import tariff that increases domestic production would better adhere to the specificity rule than would a government subsidy to domestic production.

f

50) Immiserizing growth is the situation in which the expansion of a country's exporting industry results in an increase in the world price of the exported good and a decrease in the economic well-being of the country.

f

50) The revenue earned by the government in allocating quota licenses through resource-using application procedures is approximately equal to the revenue it would earn from a tariff that resulted in the same import quantity.

f

51) The infant industry argument is valid if the present value of the stream of national benefits is less than the present value of the stream of national costs.

f

52) Evidence shows that governments usually impose the same import duties on the import of similar goods even if the goods fall under different product categories.

f

5. To protect American jobs, the U.S. government may decide to cut U.S. imports of bulldozers by 60 percent. It could do so by either (a) imposing a tariff high enough to cut bulldozer imports by 60 percent or (b) persuading Komatsu and other foreign bulldozer makers to set up a VER arrangement to cut their exports of bulldozers to the United States by 60 percent. Which of these two policies would be less damaging to the United States? Which would be less damaging to the world as a whole? Explain.

see google doc :) :( :|

41) A large amount of intra-industry trade is not compatible with the comparative-advantage theory of trade

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42) In a first-best world, for any commodity, the price of the commodity, the private marginal benefit, the private marginal cost of producing it, the social marginal benefit, and the social marginal cost are all equal at the margin.

t

43) According to the Stolper-Samuelson theorem and the Heckscher-Ohlin theory, the opening of trade will ultimately lead to lower real wages in a land-abundant country.

t

43) External effects from a transaction indicate there is a misalignment between private and social benefits or costs.

t

44) Trade makes some people absolutely better off and others absolutely worse off in each of the trading countries. However, the gainers and losers in the short run are somewhat different from those in the long run, because more adjustment can occur in the long run

t

48) In an attempt to restrict imports into a country, using a tariff is likely to be less costly to the country than using a voluntary export restraint.

t

48) Monopoly power can create distortions because a powerful seller can raise prices and profits by restricting output.

t

49) Free trade can be expected to cause a decrease in the real incomes of the owners of the factor used intensively in the import-competing industry

t

49) Tariffs and quotas are one-size-fits-all measures that work as tools to internalize external effects.

t

50) Factor-price equalization theory predicts that with free trade the input prices within a country will become the same.

t

51) Government procurement practices can restrict imports if the purchasing processes are heavily biased toward products with large local content.

t

52) Government loans are more efficient than production subsidies if a young industry faces financial markets that are unwilling to provide funding to the industry due to the high risk.

t