Transcript Multiple Choice Tutorial Chapter 33 International Trade

Multiple Choice Tutorial
Chapter 19
International Trade
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1. Exports account for what percentage of these
countries’ gross domestic products?
a. 50% in the United States and 12% in the
Netherlands
b. 33% in both the United and Germany
c. 25% in the United States and 50% in
Japan
d. 12% in the United States and 13% in
Japan
D. The four main U.S. exports are: hightechnology products, industrial supplies,
agricultural products, entertainment
products.
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2. The United States is a major exporter of
a. diamonds
b. bauxite
c. coffee
d. corn
D. The two agricultural products exported the
most are corn and soybeans.
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3. Autarky means that
a. a country’s consumption possibilities are
the same as its production possibilities
b. equilibrium has been reached with the
maximum gains from specialization and
trade
c. equilibrium has been reached with the
maximum amount of international trade
d. the nation has such a high standard of
living that there are technically no poor
people
A. Autarky is a situation of national selfsufficiency in which there is no economic
interaction with foreigners.
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4. The terms of trade are
a. the length of time two individuals or
countries have been trading
b. the countries’ production possibilities
curve
c. the autarky equilibrium
d. the exchange rates of two goods
D. The value of different country’s currency
differ from one another in terms of what each
currency can buy. For example, an American
dollar may buy a pound of coffee, but it
might take ten Mexican pesos to buy the
same pound of coffee, the exchange rate
between the two currencies is 1 to 10.
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5. A nation’s consumption possibilities frontier is
a. always the same as its production
possibilities frontier
b. never the same as its production possibilities
frontier
c. the same as its production possibilities
frontier only if there is advantageous trade
d. the same as its production possibilities
frontier only if there is no international trade
D. If there is international trade a country’s
consumption possibilities exceeds its
production possibilities.
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6. The gains from trade are due primarily to the
fact that
a. the wealth of large, industrialized nations
can be spread throughout the world
b. total world output increases when each
country specializes
c. countries can boost their economies by
increasing exports
B. By each county specializing each country
becomes more efficient for several reasons;
one reason is that non productive activity is
eliminated. Total world output increases
because of the resultant greater efficiency.
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7. The source of gains from trade is
a. tariffs
b. self-sufficiency
c. autarky equilibrium
d. comparative advantage
D. Comparative advantage is the ability of a
country to produce something at a lower
opportunity cost than other producers face.
Even if Americans could make hand made
wicker baskets better than any other
country, we should not manufacture them
because our opportunity costs would be so
high, for example, time spent with the baskets
would be time not spent on high technology
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products.
8. Mutually beneficial trade cannot occur
a. when each country has its own comparative
advantage
b. if one country has absolute advantages in
the production of every good
c. when the opportunity costs of producing
each good are equal for both trading
partners
d. if total world production equals total world
consumption
C. Countries trade because they have
different opportunity costs in producing
goods and services.
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9. To maximize worldwide gains from trade, the
country which should produce a good is the
country that
a. has the lowest opportunity cost of
producing that good
b. can produce that good using the fewest
resources
c. will produce that good using the most
expensive resources
A. Since specialization makes possible an
increase in productivity, the question
becomes, what should a country specialize
in? The answer is - in has the lowest
opportunity cost.
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10. Comparative advantage
a. exists only when one producer can make
the product using fewer resources than any
other producer
b. leads to the most efficient allocation of
resources and the greatest combined output
c. eliminates specialization, so that each
country produces all of its own needs
independently
B. When a country produces a good that it has
low opportunity cost, it is taking advantage of
its comparative advantage. By producing
goods with low opportunity costs it is giving
up less in terms of foregone production than
producing alternative goods.
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11. Izodians can produce 8 units of food per day
or 12 units of clothing per day. Valentians can
produce 5 units of food per day or 10 units of
clothing per day. Which of the following is true?
a. mutually beneficial trade is not possible
b. to maximize world production, Izodians
should produce only food, Valentians should
produce only clothing, and they should trade
c. both countries should produce both goods
and they should trade
B. Izodians should produce food because its
opportunity costs of clothing is higher than
Valentia. Valentia should produce clothing
because its opportunity costs of food is higher
than Izodia.
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12. Which of the following is not an economic
reason for international specialization?
a. some countries have educated, trained
workers, which other countries have
unskilled workers
b. tastes and preferences tend to be different
in different countries
c. the world price of a good is determined by
the world supply and demand for the
product
C. Even though C is a truthful statement, it
does not explain why a country should
specialize in the production of a particular
good or service.
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13. When the world price of an internationally
traded product is greater than a country’s
domestic equilibrium price,
a. the domestic price will prevail, and the
world price is irrelevant
b. the country’s import line is horizontal
c. the country’s exports of the product will
increase
C. Goods are most often bought based on
relative price differences between
alternatives. If a country’s price of a good is
less expensive that the alternative goods
offered in the world market, demand will
increase along with exports of that good. 14
14. The world price is in equilibrium when
a. half of the individual countries’ domestic
prices are higher and half of the individual
countries’ domestic prices are lower
b. the desired level of total world exports of
the good equal the desired level of total
world imports of the good
c. each countries’ exports of this good equal
its import of this good
B. The key word is desired. When desired
exports are greater than desired imports,
prices will decrease to encourage more
exports; when desired imports are greater
than desired exports, prices of exports will
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increase.
15. Producer surplus is the
a. excess supply which exists when price is
maintained above the world price
b. difference between the marginal benefit of
a product and the marginal cost producers
incur in supplying the product
c. difference between the actual revenue a
producer receives and the minimum sum
they would accept for a quantity of a good
C. If you were willing to sell something for $100
but sold it for $150, the $50 difference is what
is called producer surplus.
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16. Consumer surplus result when
a. the the quantity demanded of a product
equals the quantity supplied of that
product.
b. the quantity demand of a product is
greater than the quantity supplied of that
product.
c. a consumer buys a good for less money
then he was willing to pay.
C. Consumer surplus results when a consumer
buys something for a lower price than he was
willing to pay.
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17. With international trade
a. producer surplus increases in both the
exporting and importing countries
b. consumer surplus increases in exporting
countries and decreases in importing countries
c. consumer surplus increases in the importing
countries and producer surplus increases in the
exporting countries
C. Consumer surplus increases because the
importing countries can buy goods at lower
prices than they would pay otherwise. Producer
surplus increases for the exporting countries
because the greater demand allows them to sell
the good for more than they could get for the
good without international trade.
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18. International trade
a. benefits countries which export goods and
hurts countries which import goods
b. benefits poor, undeveloped countries and
hurts wealthy, industrialized countries
c. increases both producer surplus and
consumer surplus throughout the world
d. has a net beneficial effect only for countries
with an autarky equilibrium
C. Both consumer surplus and producer
surplus increases because of the greater
efficiency and the increase in the size of the
market.
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19. Trade restrictions in the real world
a. are extremely rare, due to the economic
benefits of specialization and trade
b. hurt domestic producers and benefit
foreign consumers
c. hurt domestic producers and benefit
domestic consumers
d. hurt domestic consumers and benefit
domestic producers
D. Domestic consumers are hurt because they
are forced to pay higher prices than they
would pay otherwise. Domestic producers
benefit because of less foreign competition.
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20. A tariff is
a. a tax on imports only
b. a tax on exports only
c. a on either imports or exports
d. a luxury tax
C. When a country places a tax on an
import or export, the tax is called a tariff.
A tariff would be placed on an import to
discourage the importation of a
particular good; a tariff would be placed
on an export to discourage the
exportation of a product.
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21. The difference between a specific tariff and
an ad valorem tariff is that a specific tariff
a. is a set amount of money per unit of a
product, while an ad valorem tariff is a set
percentage of product price.
b. is a set percentage of product price, while
an ad valorem tariff is a set total amount
c. names a particular good to which the tariff
applies, while an ad valorem tariff applies
to large classes of products.
A. A tariff is a a tax on imports or exports. An
example of a specific tariff would be $5 on a
barrel of oil; an example of an ad valorem
tariff would be a percentage of the price of
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imports at the port of entry.
22.Which of the following is not an effect of a
specific import tariff
a. the domestic price is higher after the tariff
is imposed
b. there is no net welfare loss to society as a
whole
c. government collects revenue from the tariff
d. the country’s imports of the product
decline
B. There is a net welfare loss because
consumers are forced to pay higher prices
than they would if it were not for the import
tariff.
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23. An import quota is a
a. legal limit on the quantity of a good that
can be imported per year
b. legal requirement that a specified
percentage of a final good’s value must be
produced domestically
c. legal requirements that exports to a specific
country must exceed a specific value before
the country’s product may be imported
A. A second way to discourage the importation
of a product is to limit the number of units
that can be imported. With fewer units, the
price will be higher than would be the case
otherwise. This is called an import quota.
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24. To be effective, an import quota must
a. reduce the price and increase the quantity
of imports
b. set the price of the imported good higher
than the domestic equilibrium price
c. restrict imports to less than would be
imported under free trade
d. restrict imports to less than exports in
trade with that particular country
C. An import quota will not be effective unless
it limits the amount of a product imported to
less than otherwise would be the case.
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25. An effective import quota
a. increases consumer surplus and reduces
produces surplus
b. increases producer surplus and reduces
consumer surplus
c. increases both producer surplus and
consumer surplus
B. Producer surplus is the amount by which total
revenue from production exceeds total variable
costs. Consumer surplus is the difference
between the maximum amount that a
consumer is willing to pay for a given quantity
of a good and what the consumer actually pays.
The import quota will raise the price of the
product above the price without the quota. 26
26. The primary difference between an import
tariff and an import quota is that
a. tariffs cause prices to rise, but quotas do
not
b. quotas cause prices to rise, but tariffs do
not
c. tariff revenues go to government, but
quotas benefit those with the right to sell
foreign goods domestically
C. As a tax, tariffs bring in revenue for the
government. A quota, on the other hand,
benefits the sellers because they can now sell
the imported product for more money.
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27. Which of the following is not a type of trade
restriction?
a. low-interest loans to foreign buyers
b. export subsidies for domestic firms
c. domestic content requirements
d. economies of scale
D. Economies of scale exists when the large size
of a producer enables it to gain greater
efficiencies. This can result from trade
restrictions, but is not a type of trade
restriction.
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28. The General Agreement on Tariffs and
Trade (GATT) was established in
a. 1870 to protect U.S. industries and
decrease world trade
b. 1921 to manage legal and accounting
requirements for U.S. tariffs and quotas
c. 1947 to reduce trade restrictions among 23
countries
C. After WWII, which ended in June of 1945,
countries could see the advantages of lower
tariffs. However, they also recognized that
this would not happen unless there was a
great deal of cooperation, thus GATT.
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29. The World Trade Organization (WTO)
a. became, in 1995, the institutionalized and
more comprehensive successor to the
General Agreement on Tariffs and Trade
(GATT)
b. was established in 1947 to reduce trade
restrictions among 23 member countries
c. was established in 1980 to oppose and
counteract the policies of the General
Agreement on Tariffs and Trade (GATT)
A. With a new round of agreements among
participating nations, a name change was
made.
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30. The most-favored nation clause of the World
Trade Organization requires that each
member must
a. offer to all member countries the same
trade concessions offered to any member
country
b. choose one foreign member as its mostfavored trading nation, and give that
country its most generous trade concessions
c. offer some trade concession to any other
member country offering it a trade
concession
A. This most-favored nation clause sealed the
cooperation among all the members.
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31. Regional trading bloc agreements
a. are not considered trade restrictions
b. are required by World Trade Organization
rules
c. exist primarily in Russia, Africa, and South
America
d. make special trade deals between countries
in that region and discriminate against
countries outside the region
D. Regional trade blocs is an attempt of several
countries to ban together and act as if they were
one country as far as trade is concerned.
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32. Which of the following is not used as an
argument for trade restrictions?
a. emerging domestic industries, especially
those with economies of scale, could not
gain entry in some world markets without
protection during the early years
b. trade restrictions are required to prevent
some countries from exporting a commodity
at a price below its cost of production
c. consumer surplus is maximized only when
strict import tariffs and quotas ensure that
exports exceed imports
C. Import tariffs and quotas lower consumer
surplus because of the resultant higher price.
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33. Rent seeking involves
a. influencing public policy to redistribute
income in one’s favor
b. reducing costs and increase profit through
greater efficiency
c. raising price and increase profit by
restricting output
d. increasing market demand through
advertising
A. When a company, or an industry, sends
lobbyists to Washington DC to influence
politicians to vote for programs that will
benefit them, this practice is an example of
rent seeking.
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END
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