Microeconomics Final Exam
In Figure 35.1, what is the opportunity cost of DVD players in Japan
2 motorcycles per DVD player
Over a given period of time, if imports are greater than exports, the result is
A trade deficit
To ensure mutually beneficial trade, the terms of trade between two countries should always
Be between their respective opportunity costs in production
Which of the following countries has the highest export ratio
Belgium
Assume Ireland can produce 4 units of good X or 2 units of good Y. France can produce 3 units of good X or 9 units of good Y. What would be the terms of trade between Ireland and France for 1 unit of good X?
Between 1/2 and 3 units of Y
The terms of trade between any two countries for two goods cannot be between their respective opportunity costs if there are to be any gains in trade
False
Why would the establishment of protective trade barriers be a poor way of protecting workers in domestic industries
First, protective barriers invite retaliatory trade actions by foreign countries, which can reduce exports and lower employment in exporting industries. Second, since consumer prices rise with the imposition of trade barriers, domestic workers in their role as consumers are worse off. Third, the best way to maximize the incomes of domestic workers is to allow them to specialize in what they do best (i.e. most efficiently) and trade freely.
Dumping is said to occur when
Foreign producers sell their goods abroad at prices lower than those prevailing in their own countries.
Which of the following policies would not improve the terms of trade from the point of view of import-competing industries in the United States
Freer Trade
Increased trade restrictions
Reduce total consumption possibilities.
If exports are being excluded unfairly from a market, the World Trade Organization (WTO) may authorize
Retaliatory tariffs
international trade
redistributes income from import-competing industries to export industries
Which of the following is a gain from trade
A higher standard of living for all trading countries
The infant industry argument can be justified because
A new industry may be difficult to start in the face of existing foreign competition
Consumption possibilities, during a given time period, refer to the
Alternative combinations of goods and services that a country can consumer
Refer to figure 35.5. S1 represents the U.S. domestic supply of a good and S2 represents supply in the United States under condition of free trade. If the United States imposes a tariff on this good, what will happen to quantity imported?
Imports will decline as price increases and domestic increases
Increased opportunities for trade increase production by
Improving efficiency through specialization
As a result of GATT, tariff rates in developed countries have decreased from 40 percent in 1948 to less than 4 percent today
True
Free trade benefits the nation as a whole but may hurt specific industries and workers
True
Preservation of national security is one argument in favor of trade restrictions
True
Reducing protectionism allows greater gains from free trade
True
World output will be maximized when each country pursues its comparative advantage
True
Based on export ratios, which of the following countries is closest to being a closed economy?
Myanmar
Trade restrictions
Reduce the gains from trade for the country as a whole.
The World View article "U.S. to Impose Tariffs on Tires from China" says new tariffs will be imposed on tires from China, and
U.S. tire manufacturers will benefit from the tariff
Which of the following statements about U.S. trade is true
The United States typically has a substantial trade surplus in services
The terms of trade between two countries refer to
The amount of good A given up for good B
Assume South Korea and Vietnam have the same amount of resources. In a given time period, South Korea can produce 100,000 jackets or 1,000,000 shirts. Vietnam can produce 200,000 jackets or 2,000,000 shirts. This means that
Vietnam has an absolute advantage in both jackets and shirts
Which of the following groups has an interest in encouraging free trade
Workers in export industries
An embargo is
a prohibition on exports or imports
Two countries will have zero incentive to trade if their production possibilities curves are parallel straight lines because
The opportunity costs for both countries are the same
If the United States has a trade deficit, this means that
The trade balance is negative
World output of goods and services increases with specialization because
The world's resources are being used more efficiently
Suppose China can produce either 300 telephones or 200 DVD players, and Japan can produce either 200 telephones or 100 DVD players. Implicitly, China has:
A comparative but not necessarily an absolute advantage in telephones.
Over a given period of time, if experts are greater than imports the result is
A trade surplus
When a country participates in international trade, its consumption possibilities
Always exceed its production possibilities
Assume Saudi Arabia can produce 4 units of good X or 3 units of good Y. Tunisia can produce 5 units of good X or 8 units of good Y. What would be the terms of trade between Saudi Arabia and Tunisia for 1 unit of good Y
Between 5/8 and 4/3 units of X
Based on the information in Table 35.1, assume China and the United States have the same amount of resources to produce soybeans and computers and they produce no other goods. The output of computers and soybeans would be greatest if
China specialized in producing soybeans, and the United States specialized in producing computers
If the terms of trade between any two countries lie somewhere between their respective opportunity costs, then the effects of trade will include
Consumption outside the production possibilities curve both countries
If a country is completely self-reliant in producing goods for its own consumption needs, then
Its consumption possibilities equal its production possibilities
Suppose the United States can produce 2,000 cars or 2,000 trucks. Japan can produce either 2,000 cars or 1,000 trucks. In terms of car production we can conclude that
Japan has a comparative advantage
A country with a comparative advantage in producing computer chips:
Less interdependence between the economies of the two countries
Tariffs tend to reduce the volume of imports by
Making them more expensive to domestic consumers.
Refer to figure 35.3 for the production possibilities curve for the United States and Mexico. These two curves indicate that
Mexico does not have an absolute advantage in the production of either good
Refer to figure 35.3 for the production possibilities curve for the United States and Mexico. These two curves indicates that
Mexico should specialize in the production of machinery
Based on the information in table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no further goods. For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 computer will exchange for
More than 1/5 of a ton of soybeans but less than 1/3
Based on the information in table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no further goods. For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 ton of soybean will exchange for
More than 3 computers but less than 5
Which of the following countries have the lowest export ratio
Myanmar
Suppose China can produce either 600 telephones or 400 DVD players, and Japan can produce either 400 telephones or 200 DVD players. Implicitly, China has:
Neither
From a consumer's point of view, which of the following policies would be least desirable
No trade
Describe the pressures that discourage trade
One pressure occurs because trade hurts workers and producers who compete with imported products and provides them with and economic interest in restricting trade. The national security argument against trade is that we can't depend on foreign suppliers to provide us with defense-related goods or food in time of war, so we should protect these industries by discouraging trade. The dumping argument against free trade is that domestic production may be undercut when foreign producers sell their products at lower prices lower than domestic prices, in order to drive the domestic producers out of business. The infant industries argument against free trade is that imports may make it difficult or impossible for a new domestic industry to develop.
Protectionism achieves which of the following goals?
Protection of infant industries
Producers of paper products are most likely to be in favor of
Protectionism in the paper product market but free trade in the lumber market
Quotas are a greater threat to competition than tariffs because
Quotas preclude additional imports at any price
The elimination of import restrictions will
Redistribute income from import-competing industries to export industries.
A principal objective of the World Trade Organization is to
Reduce barriers to trade
What is a "beggar thy neighbor" policy, and why is it a problem for the country that caused it
The 'beggar-thy-neighbor' phenomenon is the act of transferring unemployment problems to other countries by instituting tariffs on imports. The problem is that the resultant loss of business in other countries leaves them less able to purchase the exports of the country that initiated the policy.
beggar-thy-neighbor policy is
The imposition of trade barriers ro increase domestic employment
A country can consume outside its production possibilities curve by trading
True
Quotas are a much greater threat to competition than are tariffs because quotas preclude additional imports at any price
True
Gary Galles in the article "End the Import Quotas on Sugar" argues that
U.S. sugar quotas raise the price of sugar in the United States and are above world prices
If S1 represents the U.S. domestic supply of a good, what does S2 most likely represent?
U.S. supply under quota-restricted trade
Refer to Figure 35.5. If S1 represents the U.S. domestic supply of a good and S2 represents supply in the United States under conditions of free trade, what does S3 most likely represent
U.S. supply under tariff-restricted trade
The United States is capable of producing many goods and services that it imports, but it does not because
We can import those goods at a lower opportunity cost than if we make them ourselves
When tariffs are imposed, the losers include
domestic consumers and foreign producers
A country's export ratio is
The ratio of exports to GDP
According to the text, which of the following are both imports and exports for the United States
Cars, computers, and auto parts
Specialization in production and then trading with other countries
Change the mix of output for each country and increase total world output
The General Agreement on Tariffs and Trade (GATT)
Committed GATT members to a reduction of protectionism
Which of the following is not a reason to restrict trade
Concern about high prices for consumers
Goods and services sold in foreign buyers are
Exports
The primary purpose of NAFTA is to
Increase employment and income in Mexico, Canada, and the United States by encouraging free trade.
Explain how it is possible for a country to consume a greater quantity of goods and services than it is actually capable of producing
It is possible for a country to consume more than it is actually capable of producing when countries engage in specialization and trade. When countries specialize in what they produce most efficiently (i.e. lower opportunity costs), total world production is increased. We are essentially squeezing more goods and services out of the world's scarce resources. Trading countries will have more goods and services available for consumption than they can produce indavidually.
The United States exports more than it imports
Only in services
The United States has an absolute advantage in producing t-shirts, but not a comparative advantage, because
Other countries, such as China, can produce t-shirts at a lower opportunity cost relative to the United States