Micro - Chapter 26: International Trade

Specialization and trade between individuals or between nations leads to greater self-sufficiency. higher product prices. higher utilization of resources. higher total output.

higher total output

In a two-nation model, international equilibrium is determined by the ______ of one country and the ______ of the other country. tariffs; quotas export demand; import supply import demand, export supply industrialization; marketing environment

import demand, export supply

A limit on the amount of a good that can be imported into a country is known as a(n) ______. blockade tariff export agreement import quota

import quota

Benefits from international trade are based on differences in the following areas, except - resource endowments. - technological capabilities. - product quality and other attributes. - income levels.

income levels

The intersection of one nation's import demand curve and another nation's export supply curve represents ______. international equilibrium domestic purchasing power International exchange rates domestic equilibrium price

international equilibrium

Because China has abundant low-wage workers, it can efficiently produce ______-intensive goods. capital technologically land labor

labor

When a large amount of land is required for the affordable production of something, that product is said to be ______. labor-intensive capital-intensive resource-intensive land-intensive

land-intensive

Economizing requires that any particular good be produced by the nation having the ______ domestic opportunity cost, or the ______ advantage for that good. greatest; absolute lowest; absolute greatest; comparative lowest; comparative

lowest; comparative

Assume the domestic price of corn is $1.00 and the quantity of corn produced is 100 tons. If the world price of corn exceeds $1.00, then U.S. producers will produce ______ than 100 tons of corn, creating a ______ that will be ______. more; surplus; imported more; surplus; exported less; shortage; imported less; shortage; exported

more; surplus; exported

In a two-nation, two-good world, if both nations have identical production possibilities curves with constant costs, then one nation would have Multiple Choice - no comparative advantage over the other nation. - a comparative advantage in one good and a comparative disadvantage in the other good. - no absolute advantage over the other nation. - an absolute advantage in one good and an absolute disadvantage in the other good.

no comparative advantage over the other nation.

A(n) ______ is designed to shield domestic producers from foreign competition. import quota economic sanction revenue tariff protective tariff

protective tariff

A(n) ______ is a tax on imports, with the primary purpose of raising money for the federal government. import quota economic sanction revenue tariff protective tariff

revenue tariff

A trading possibilities line reveals the amounts of two products a nation can obtain by ______. specializing in one product and trading for the other being self-sufficient in all products shifting resources from one product to another specializing in all products

specializing in one product and trading for the other

A tax on an imported good is known as a(n) ______. import quota tariff import ban voluntary export restraint

tariff

The exchange ratio at which two countries trade their products is called the ______ of trade. surplus balance terms deficit

terms

The interaction of world supply and demand determines the equilibrium ______. export rate domestic price exchange rate world price

world price

Country Y Price Qdd Qsd $ 9.00 250 450 8.00 300 400 7.00 350 350 6.00 400 300 The accompanying table gives data for Country Y. Column 1 is the price of a product. Column 2 is the quantity demanded domestically (Qdd), and Column 3 is the quantity supplied domestically (Qsd). At what price will Country Y export 100 units of the product? $9.00 $8.00 $7.00 $6.00

$8.00

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. If the economy was opened to free trade and the world price of $1 prevailed, the price and quantity sold of this product would be - $1 and 1 unit. - $1 and 16 units. - $3 and 7 units. - $2 and 11 units.e

- $1 and 16 units.

Which statements about tariffs and quotas are true? - A quota does not generate revenue for the government. - A quota transfers revenue to foreign producers. - A tariff generates revenue for the domestic government. - A tariff produces a less desirable economic outcome for domestic consumers than a quota does.

- A quota does not generate revenue for the government. - A quota transfers revenue to foreign producers. - A tariff generates revenue for the domestic government.

Which statements about tariffs and quotas are true? - A quota transfers revenue to foreign producers. - A tariff generates revenue for the domestic government. - A tariff produces a less desirable economic outcome for domestic consumers than a quota does. - A quota does not generate revenue for the government.

- A quota transfers revenue to foreign producers. - A tariff generates revenue for the domestic government. - A quota does not generate revenue for the government.

The accompanying tables show data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied, and Qd is domestic quantity demanded. At a world price of $5, - Alpha will want to import 50 units of steel. - Beta will want to import 60 units of steel. - Alpha will want to export 50 units of steel. - neither country will want to export steel.

- Alpha will want to export 50 units of steel.

Which of the following statements are true about the economic basis of trade? - Most countries have the same comparative advantage in producing goods. - Efficient production of various goods requires different technologies or combinations of resources. - The distribution of natural, human, and capital resources among nations is uneven. - Products are differentiated as to quality and other nonprice attributes

- Efficient production of various goods requires different technologies or combinations of resources. - The distribution of natural, human, and capital resources among nations is uneven. - Products are differentiated as to quality and other nonprice attributes

The accompanying table shows the output (either machines or wine) that each unit of input in France and Germany can produce. We see that - France has an absolute advantage over Germany in producing either output. - Germany has an absolute disadvantage in producing wine. - Germany has no absolute advantage over France in producing either output. - France will see no economic basis for trading with Germany.

- Germany has no absolute advantage over France in producing either output.

In a two-nation, two-good world, which of the following statements is true? - One nation cannot possibly have an absolute advantage over the other nation in both products. - If one nation has the comparative advantage in one product, then the other nation would have the comparative advantage in the other product. - One nation will always have the comparative advantage over the other nation in one of the products.If one nation has the absolute advantage in one product, then the other nation would have the absolute advantage in the other product.

- If one nation has the comparative advantage in one product, then the other nation would have the comparative advantage in the other product.

How does free trade tend to benefit society? - It encourages businesses to use low-cost production techniques. - It spurs economic growth by encouraging business to innovate. - It reduces animosity among nations that trade with each other. - It helps businesses succeed by monopolizing their industries.

- It encourages businesses to use low-cost production techniques. - It spurs economic growth by encouraging business to innovate. - It reduces animosity among nations that trade with each other.

The graph shows the production possibilities curves for two hypothetical nations, Orin and Pohl, which each make two hypothetical products, jaxs and keps. Which of the following statements is correct? - Orin has a comparative advantage in both jaxs and keps. - Pohl has a comparative advantage in jaxs. - The opportunity cost of making jaxs is lower in Orin than in Pohl. - Orin is more efficient than Pohl.

- Pohl has a comparative advantage in jaxs.

If the domestic price in Canada is $0.75 and the domestic price in the United States is $1.00, what will Canadian companies do? - Produce less than Canadian customers will buy, and import additional product from the United States - Produce more than Canadian customers will buy, and sell the surplus to the United States - Continue to produce at their usual rate and sell mostly to Canadian customers - Increase production but experience decreasing profits

- Produce more than Canadian customers will buy, and sell the surplus to the United States

What are the basic reasons why nations trade with each other? - Most nations have roughly the same level of technology, but they lack natural resources. - Some people prefer to buy imported merchandise. - Nations do not have the same resources to develop. - Expertise varies among the nations.

- Some people prefer to buy imported merchandise. - Nations do not have the same resources to develop. - Expertise varies among the nations.

According to various studies, how do trade protections, such as tariffs and quotas, tend to affect domestic society? - A few producers benefit, but most suffer devastating losses. - Some trade protections increase government revenues. - The cost to consumers and society exceeds the gains to producers and the government. - Consumers and government benefit while producers experience dwindling profits.

- Some trade protections increase government revenues. - The cost to consumers and society exceeds the gains to producers and the government.

What tends to happen to a nation that increases its participation in an open economy with an international sector? - The country imports fewer products in all categories. - The standard of living deteriorates. - The country's labor resources focus mostly on domestic sales. - The country produces more of its most profitable goods.

- The country produces more of its most profitable goods.

What is the equilibrium world price? - An average of the highest and lowest prices being paid for a product anywhere in the world - The price that equates the quantities supplied and demanded globally through international trade - The price that would prevail in a closed economy that does not engage in international trade - The price that prevails when all nations involved have established trade barriers

- The price that equates the quantities supplied and demanded globally through international trade

Assume the domestic price of corn is $1.00 and the quantity of corn produced is 100 tons. What will happen if the world price of corn exceeds $1.00? - U.S. firms will produce more than 100 tons of corn and export the excess, selling it for less than the world price. - U.S. firms will continue to produce the same amount of corn and sell it at a higher price within the United Sates. - U.S. firms will produce less than 100 tons of corn and import more corn. - U.S. firms will produce more than 100 tons of corn and export the excess, selling it at the world price.

- U.S. firms will produce more than 100 tons of corn and export the excess, selling it at the world price.

Country X Price Qdd Qsd $ 5.00 200 400 4.00 250 350 3.00 300 300 2.00 350 250 1.00 400 200 The accompanying table gives data for Country X. Column 1 of the table is the price of a product. Column 2 is the quantity demanded domestically (Qdd), and Column 3 is the quantity supplied domestically (Qsd). If the world price is $5.00, there will be - a domestic surplus of 100 units that will be exported. - a domestic shortage of 100 units that will be imported. - a domestic surplus of 200 units that will be exported. - neither a domestic surplus nor a shortage.

- a domestic surplus of 200 units that will be exported.

Adam Smith recognized the benefits from trade based on ____, and David Ricardo recognized the benefits from trade based on ____. - comparative advantage; resource endowments - absolute advantage; comparative advantage - absolute advantage; resource endowments - comparative advantage; absolute advantage

- absolute advantage; comparative advantage

A tariff imposed on Chinese imports into the United States tends to ______. - penalize both U.S. and Chinese producers - penalize U.S. producers and benefit Chinese producers - benefit both U.S. and Chinese producers - benefit U.S. producers and penalize Chinese producers

- benefit U.S. producers and penalize Chinese producers

In recent years, the United States has - exported more services abroad than it has imported. - had a small goods trade surplus with Japan. - had a large goods trade surplus with the rest of the world. - maintained an overall trade surplus (goods and services combined) with the rest of the world.

- exported more services abroad than it has imported.

The term trade deficit refers to a situation where - government spending (including transfer payments) exceeds tax revenues. - a nation's purchases from other nations are less than its sales to other nations. - assets are less than liabilities. - exports are less than imports.

- exports are less than imports.

Import quotas on products will reduce the quantity of the imported products and - decrease the price to the consumers. - increase the price to the consumers. - will not affect the price to the consumers. - increase the total quantity of the product consumed.

- increase the price to the consumers.

Tariffs - may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs). - are also called import quotas. - are excise taxes on goods exported abroad. - are per-unit subsidies designed to promote exports.

- may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

The principle of comparative advantage indicates that mutually beneficial international trade can take place only when - tariffs are eliminated. - transportation costs are almost zero. - relative costs of production differ between nations. - a country can produce more of some product than other nations can.

- relative costs of production differ between nations.

What other economic process needs to accompany international trade, for nations to benefit from such trade? - specialization in production - nationalization of industries - regulation of production and trade - spreading out of resources in more industries

- specialization in production

In a hypothetical situation, the United States and Mexico have labor forces of the same size. The production possibilities curves in the figure show that the United States has an absolute advantage over Mexico in vegetables and beef. This means that if both countries use the same amount of resources on those products, ______. - Mexico can produce more of both goods before specialization - the United States can produce more of both goods - Mexico can produce both products at a lower opportunity cost - the United States can produce both products at a lower opportunity cost

- the United States can produce more of both goods

In a hypothetical situation, the United States and Mexico have labor forces of the same size. The production possibilities curves in the figure show that the United States has an absolute advantage over Mexico in vegetables and beef. This means that if both countries use the same amount of resources on those products, ______. - Mexico can produce more of both goods before specialization - the United States can produce more of both goods - the United States can produce both products at a lower opportunity cost - Mexico can produce both products at a lower opportunity cost

- the United States can produce more of both goods

Refer to the diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. The effect of the import quota on domestic price and domestic consumption is - the same as that of a tariff of PcPt. - the same as that of a tariff of PtPa. - the same as that of a tariff of PcPa. -to raise price by more and reduce consumption less than a tariff of PcPt.

- the same as that of a tariff of PcPt.

In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber sold to the United States. This is an example of a(n) - import quota. - export subsidy. - voluntary export restriction. - protective tariff.

- voluntary export restriction.

The accompanying tables give production possibilities data for Gamma and Sigma. All data are in tons. Gamma's production possibilities A B C D E Tea 120 90 60 30 0 Pots 0 30 60 90 120 Sigma's production possibilities A B C D E Tea 40 30 20 10 0 Pots 0 30 60 90 120 Assume that before specialization and trade, Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be 40 tons of pots. 20 tons of tea and 20 tons of pots. 20 tons of tea. 40 tons of tea.

40 tons of tea.

Germany Production Possibilities (Production Alternatives) Product A B C D E F Autos 0 4 8 12 16 20 Chemicals 40 32 24 16 8 0 U.S. Production Possibilities (Production Alternatives) Product A B C D E F Autos 0 3 6 9 12 15 Chemicals 60 48 36 24 12 0 Refer to the accompanying production possibilities tables. Data are in millions of units. Assume that prior to specialization and trade, Germany and the United States both choose production possibility C. Now if each specializes according to its comparative advantage, the resulting gains from specialization and trade will be 8 million units of autos. 6 million units of autos. 6 million units of autos and 8 million units of chemicals. 8 million units of autos and 6 million units of chemicals.

6 million units of autos.

When the world price for a product is below the Canadian price, what will Canada experience? More exports A domestic surplus A domestic shortage More imports

A domestic shortage More imports

Why are beef and wool considered to be land-intensive goods? They can be produced only where the land is most fertile. A large amount of land is required to produce them. Cattle and sheep improve the condition of the land where they live. Cattle and sheep cause substantial environmental damage.

A large amount of land is required to produce them.

What is the main economic difference between a tariff and a quota? A tariff generates revenue for the domestic government. A tariff will cause higher prices than a quota. A quota reduces imports more sharply than a tariff. A tariff will cause lower prices than a quota.

A tariff generates revenue for the domestic government.

What is a tariff? A tax on a domestically produced good A limit on the amount of a good that can be imported A voluntary reduction of exports A tax on an imported good

A tax on an imported good

What type of graphic shows the amounts of two products a nation can obtain by specializing in one product and trading for the other? A domestic production possibilities curve A trading possibilities line A trade with increasing costs line A projected gains from trade curve

A trading possibilities line

Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that the terms of trade will be 3X equals 1Y. Alpha should specialize in Y and Beta in X. Alpha should specialize in X and Beta in Y. there is no basis for mutually beneficial specialization and trade.

Alpha should specialize in Y and Beta in X.

What type of products are most often made in countries that have industrially advanced economies and large amounts of capital? Labor-intensive goods Capital-intensive goods Resource-intensive goods Land-intensive goods

Capital-intensive goods

What type of products are most often made in countries that have industrially advanced economies and large amounts of capital? Land-intensive goods Labor-intensive goods Capital-intensive goods Resource-intensive goods

Capital-intensive goods

Which country has an abundant labor force suited to produce labor-intensive goods? China United States Denmark Australia

China

What is the key determinant in whether a country can gain from specialization in international trade? Comparative advantage Terms of trade Absolute advantage Tariffs and quotas

Comparative advantage

What type of trade barrier completely prohibits imports once a certain limit has been reached? Import licensing Tariff Import quota Export quota

Import quota

In addition to the benefits of human and geographical specialization, what are some side benefits to free trade? It offers consumers a narrow range of product choices. It promotes monopolies. It promotes competition. It encourages innovation.

It promotes competition. It encourages innovation.

What resources are important for a country to produce capital-intensive goods? An abundance of inexpensive labor Large amounts of capital Vast amounts of land An industrially advanced economy

Large amounts of capital An industrially advanced economy

When the world price for a product is below the Canadian price, what will Canada experience? A domestic surplus More exports More imports A domestic shortage

More imports A domestic shortage

In a model compiled to show the economic relationship between two nations, what can be used to determine whether each country has an absolute advantage or comparative advantage? Terms of trade Gains from trade Production possibilities curves Equilibrium world price

Production possibilities curves

What type of tariff is applied to an import, with the purpose of raising money for the federal government? Protective tariff Import quota tariff Revenue tariff Tax tariff

Revenue tariff

What tends to happen to a nation that increases its participation in an open economy with an international sector? The country's labor resources focus mostly on domestic sales. The standard of living deteriorates. The country produces more of its most profitable goods. The country imports fewer products in all categories.

The country produces more of its most profitable goods.

What is the exchange ratio at which two countries trade their products? The terms of trade The comparative exchange rate The absolute exchange rate The gains from trade

The terms of trade

How do nations benefit from international trade? They can improve their self-sufficiency. They can specialize their production. They can enhance their resource productivity. They can acquire more goods and services.

They can specialize their production. They can enhance their resource productivity. They can acquire more goods and services.

What is the purpose of a protective tariff? To shield domestic producers from foreign competition To shield consumers from poor quality imports To prevent producers from being sued by consumers in foreign countries To raise revenue for the federal government

To shield domestic producers from foreign competition

In the accompanying diagrams, solid lines are production possibilities curves, and the dashed lines are trading possibilities curves. The data suggest that West Lothian should specialize in, and export, beer. both countries will be better off if they do not engage in specialization and trade involving these two products. West Lothian should specialize in, and export, pizza. East Lothian should specialize in, and export, beer.

West Lothian should specialize in, and export, beer.

When does a trade deficit occur? When an economy exports services only When there is a positive trade balance When exports exceed imports When imports exceed exports

When imports exceed exports

Which of the following product groups is a leading export of the United States? home appliances metals airplanes toys

airplanes

Tariffs and/or quotas tend to impose ______ on domestic consumers, and ______ to the producers of the protected goods in the importing economy. costs; costs costs; gains gains; costs gains; gains

costs; gains

Tariffs and/or quotas tend to impose ______ on domestic consumers, and ______ to the producers of the protected goods in the importing economy. gains; costs gains; gains costs; gains costs; costs

costs; gains

The four direct effects of tariffs are: a decline in consumption, increased domestic production, tariff revenue, and a(n) ______. decrease in prices decline in domestic profits decline in imports increase in imports

decline in imports

A trade ______ occurs when imports exceed exports. budget deficit surplus balance

deficit

Refer to the graph, which shows the domestic demand and supply curves for a specific product in a hypothetical nation called Econland. If the world price for this product is $2.00, then Econland will export 200 units. export 400 units. import 200 units. import 400 units.

export 200 units.