Econ Exam 1 Ch 9

What is the fundamental basis for trade among nations?

comparative adv

Which of the following is not a commonly-advanced argument for trade restrictions? The jobs argument The national-security argument The infant-industry argument The efficiency argument

efficiency

The world price of a ton of steel is $1,000. Before Russia allowed trade in steel, the price of a ton of steel there was $650. Once Russia allowed trade in steel with other countries, Russia began

exporting steel and the price per ton in Russia increased to $1,000.

T/F Economists feel that national security concerns never provide a legitimate rationale for trade restrictions.

false

T/F If the world price of a good is greater than the domestic price in a country that can engage in international trade, then that country becomes an importer of that good.

false

T/F Trade can make everyone better off except in the case where one person is better at doing everything.

false

T/F ​Imposing a tariff on the import of a good is preferable to a quota because a tariff produces revenue for the government, while a quota never produces any revenue for a government.

false

T/F Without free trade, the domestic price of a good must be equal to the world price of a good.

fasle

The infant-industry argument

is based on the belief that protecting industries when they are young will pay off later.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

other countries have a comparative advantage over Vietnam and Vietnam will import textiles.

Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?

producers of steel and consumers of incense

The North American Free Trade Agreement

reduced trade restrictions among Canada, Mexico, and the United States.

When the nation of Worldova allows trade and becomes an exporter of silk,

residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.

A tax on an imported good is called a

tariff

Representative Vazquez cites the "jobs argument" when he argues before Congress in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Representative Vazquez's reasoning is that he ignores the fact that

the gains from trade are based on comparative advantage.

T/F According to the principle of comparative advantage, all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

true

T/F If a country's domestic price of a good is lower than the world price, then that country has a comparative advantage in producing that good.

true

T/F Import quotas and tariffs both cause the quantity of imports to fall.

true

T/F Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.

true

T/f In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers.

true