Chapter 26 Microeconomics Multiple Choice

What was the value of Chinese exports in 2020?

$2.7 trillion

Dumping occurs in which of the following situations?

- A firm charges a lower price to a foreign market than what it would charge in its home market. - A firm charges a price to a foreign market that is lower than its production costs.

How does free trade tend to benefit society?

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

How do critics respond to the cheap foreign labor argument, which favors trade barriers?

- Labor cost per unit is more significant than labor cost per hour - The differences in labor costs are offset by differences in productivity

According to the diversification-for-stability argument, why should some nations impose protective tariffs and import quotas?

- Their economies are highly specialized and depend on international trade for their income. - Their economies are unusually disrupted by fluctuations in world supply and demand. - Diversification of their industries would increase domestic stability.

Suppose the opportunity cost for 1 ton of beef is 1 ton of vegetables in the United States, and the opportunity cost for 1 ton of beef is 2 tons of vegetables in Mexico. What possible terms of trade would allow both countries to gain from trade? (select all that apply) 1 ton of beef for 1.25 tons of vegetables. 1 ton of beef for 2 tons of vegetables 1 ton of beef for 0.5 tons of vegetables 1 ton of beef for 1.5 tons of vegetables

1 ton of beef for 1.25 tons of vegetables 1 ton of beef for 1.5 tons of vegetables

Suppose that in the United States, the opportunity cost for 1 ton of beef is 1 ton of vegetables. Which of these prices would make it worthwhile for the United States to trade its beef internationally?

1 ton of beef for 2 tons of vegetables

Why are beef and wool considered to be land-intensive goods?

A large amount of land is required to produce them

Through free trade based on the principle of comparative advantage, what can the world economy achieve?

A more efficient allocation of resources

What type of graph shows the amounts of two products a nation can obtain by specializing in one product and trading for the other?

A trading possibilities line

Beef and wool

Australia (land intensive)

Which of these are examples of labor-intensive goods? (select all that apply) Electronics Beef Textiles Toys

Electronics Textiles Toys

What are the basic reasons why nations trade with each other? (select all that apply) Most nations have roughly the same level of technology, but they lack natural resources. 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. Some people prefer to buy imported merchandise. Nations do not have the same resources to develop.

True or false: The diversification for stability argument for protection is a valid one for the U.S

False

What is it called when two countries each specialize in a product, exchange them, and end up obtaining more of both products than they would have accomplished on their own?

Gains from trade

cars and airplanes

Germany (capital intensive)

What do critics say is one shortcoming of the domestic employment argument for trade barriers?

Imports eliminate some jobs, but they create just as many others

Which argument against free trade becomes particularly popular when the economy goes into a recession?

Increased domestic employment

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

It encourages innovation. It promotes competition.

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

Large amounts of capital An industrially advanced economy

What is the main effect of increasing opportunity costs?

Less-than-complete specialization

Which products are capital-intensive goods? (select all that apply) Machinery Clothing Chemicals Automobiles

Machinery Chemicals Automobiles

What do critics say is a flaw in the military self-sufficiency argument for protective tariffs to encourage domestic production of goods needed for national security?

Many industries can claim they make contributions to national security and deserve protection.

Which statement is true about the U.S. imports and exports?

Many products and services are both imported and exported

Which of these are land-intensive goods? (select all that apply) Agricultural Equipment Meat Wool Sporting Goods

Meat Wool

Vegetables

Mexico (land intensive)

What happens when government trade barriers prevent nations from trading freely? (select all that apply) Income increases among all nations affected by the trade barriers. Nations must dedicate more resources to high-cost uses Gains from specialization are reduced or eliminated Monopolies are eliminated

Nations must dedicate more resources to high-cost uses. Gains from specialization are reduced or eliminated.

How did the Smoot-Hawley Tariff Act affect the economy? (select all that apply) Nations retaliated with high tariffs on U.S. exports. International trade was reduced worldwide. Incomes and outputs of nations fell. The United States never reached its previous level of international trade again.

Nations retaliated with high tariffs on U.S. exports. International trade was reduced worldwide. Incomes and outputs of nations fell.

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?

Production possibilities curves

What tends to happen to a nation that increases its participation in an open economy with an international sector?

The country produces more of its most profitable goods

The outcomes of international specialization and trade are equivalent to which of the following? (select all that apply) An increase in the quantity of resources An improvement in the quality of resources The discovery of improved production techniques The equalization of prices of products

The discovery of improved production techniques An increase in the quantity of resources An improvement in the quality of resources

Because China has abundant low-wage workers, it can efficiently produce ______intensive goods

labor

The cheap foreign ______ argument says that trade protection is required to ensure that cheap imports do not flood U.S. markets, dragging down prices of goods and U.S. wages

labor

Drag each type of good to the resources typically required to produce it An abundant, inexpensive workforce

labor intensive

Wheat, wool, and meat are examples of what type of goods?

land intensive

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

land intensive

vast amounts of land

land intensive

The principle of comparative advantage says that total output will be greatest when each good is produced by the country that has the ______ for that good

lowest domestic opportunity cost

Economizing requires that any particular good be produced by the nation having the ______ domestic opportunity cost, or the ______ advantage for that good

lowest; comparative

The idea that protective tariffs are needed to preserve industries that produce the materials essential for national defense is called the _____ argument

military self-sufficiency

Specialization and trade allow two countries to create a new exchange ratio and supplement their own domestic production possibilities. In the end, they will likely produce ______ they would if they were self-sufficient

more than

The principle of comparative advantage says that total output will be greatest when each good is produced by the country that has the lowest domestic for that good

opportunity cost

Government trade barriers ______ gains from specialization

reduce

A trading possibilities line reveals the amounts of two products a nation can obtain by ______

specializing in one product and trading for the other

A trade ______ occurs when exports exceed imports.

surplus

The exchange ratio at which two countries trade their products is called the ______ of trade

terms

What is the exchange ratio at which two countries trade their products?

the terms of trade

True or false: National economies will evolve in terms of the distribution of resources, quality of resources and technologies

true

When does a trade surplus occur?

when exports exceed imports

When does a trade deficit occur?

when imports exceed exports

In 2021, which country was the most important trading partner of the United States by volume of trade?

Canada

What type of products are most often made in countries that have industrially advanced economies and large amounts of capital?

Capital-intensive goods

What argument says that domestic firms and workers must be shielded from competition from countries where wages are low?

Cheap foreign labor argument

Which country has an abundant labor force suited to produce labor-intensive goods?

China

Drag each country to the products most likely to be important to its economy. Textiles and Toys

China (labor intensive)

What is the key determinant in whether a country can gain from specialization in international trade?

Comparative advantage

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

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

Why is arguing for a tariff to save U.S. jobs popular during a recession?

Reduced spending on imports can be diverted to domestic spending and increase domestic employment.

Which nations, outside of China and Japan, are part of a growing Asian international trade? (select all that apply) South Korea Singapore Somalia Taiwan

South Korea Singapore Taiwan

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. If both countries use the same amount of resources on those products, which of the following statements is true?

The United States can produce more of both goods

According to the diversification-for-stability argument, why should some nations impose protective tariffs and import quotas? (select all that apply) Their economies are unusually disrupted by fluctuations in world supply and demand Their economies are highly specialized and depend on international trade for their income Diversification of their industries would increase domestic stability They have no products that could compete in the global marketplace

Their economies are unusually disrupted by fluctuations in world supply and demand. Their economies are highly specialized and depend on international trade for their income. Diversification of their industries would increase domestic stabilit

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

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

What are two reasons why a company might dump its product in a foreign country? (select all that apply) To gain monopoly power by charging a high price To be rid of defective merchandise and still claim a tax credit for it To gain monopoly power by driving out competitors To achieve large-scale production, which will reduce per-unit costs

To gain monopoly power by driving out competitors To achieve large-scale production, which will reduce per-unit costs

By what measure was Canada the most important trading partner for the United States in 2021?

Total volume of trade

According to the infant industry argument, why is import protection needed?

Trade barriers allow protected industries the time to become efficient and competitive.

What do critics say regarding the cheap foreign labor argument against free trade? (select all that apply) What matters is labor cost per unit, not per hour. Gains from trade are not based on comparative advantage, they are based on absolute advantage. Low-wage foreign workers are typically far less productive than well-paid workers in an industrialized country. It is not beneficial for rich and poor individuals or countries to trade with each other.

What matters is labor cost per unit, not per hour. Low-wage foreign workers are typically far less productive than well-paid workers in an industrialized country.

Which goods are considered labor-intensive? (select all that apply) Winter coats Wool Broccoli Bicycles

Winter coats Bicycles

Over time, changes in a country's labor force, capital stocks, technologies, and natural resources can affect its comparative___________

advantage

Which product is a capital-intensive good?

airplanes

An industrialized economy with plentiful equipment and buildings

capital intensive

Specialization on the basis of ______ leads to more efficient allocation of world resources

comparative advantage

A trade ______ occurs when imports exceed exports

deficit

What ploy do firms sometimes use in an attempt to drive out competing businesses in a foreign country?

dump their goods

If a firm charges a foreign market a lower price than it charges the domestic market, that firm is said to be ______ its product

dumping

The high number of foreign students hosted by the United States demonstrates the importance of___________________ services as a principal export.

education

The world economy can achieve a more efficient allocation of resources and a higher level of material well-being with ______ trade based on ______ advantage

free; comparative

The primary effect of ______ opportunity costs is less-than-complete specialization.

increasing

The ______ argument calls for the trade protection of newly developing industries

infant industry