TEST BANK chapter 9 application international trade

82 ❖ Chapter /Application: International Trade Chapter Application: International Trade TRUE/FALSE Trade decisions are based on the principle of absolute advantage ANS: F DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Absolute advantage MSC: Interpretive The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive from participating in a market ANS: T DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Total surplus MSC: Interpretive 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 ANS: T DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Comparative advantage MSC: Interpretive The world price of cotton is the highest price of cotton observed anywhere in the world ANS: F DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Prices MSC: Definitional 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 ANS: F DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Prices MSC: Interpretive Without free trade, the domestic price of a good must be equal to the world price of a good ANS: F DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Prices MSC: Interpretive The nation of Aviana soon will abandon its no-trade policy and adopt a free-trade policy If the world price of goose meat is $3 per pound and the domestic price of goose meat without trade is $2 per pound, then Aviana should export goose meat ANS: T DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Prices | Comparative advantage | Exports MSC: Interpretive If Argentina exports oranges to the rest of the world, Argentina's producers of oranges are worse off, and Argentina's consumers of oranges are better off, as a result of trade ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade | Economic welfare MSC: Applicative 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 ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Comparative advantage | Prices MSC: Interpretive 83 ❖ Chapter /Application: International Trade 10 When a country allows international trade and becomes an importer of a good, domestic producers of the good are better off, and domestic consumers of the good are worse off ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Gains from trade MSC: Interpretive 11 If the United Kingdom imports tea cups from other countries, then U.K producers of tea cups are better off, and U.K consumers of tea cups are worse off, as a result of trade ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade | Economic welfare MSC: Applicative 12 If Belgium exports chocolate to the rest of the world, then Belgian chocolate producers benefit from higher producer surplus, Belgian chocolate consumers are worse off because of lower consumer surplus, and total surplus in Belgium increases because of the exports of chocolate ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade | Economic welfare MSC: Applicative 13 In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade | Economic welfare MSC: Interpretive 14 Suppose the Ivory Coast, a small country, imports wheat at the world price of $4 per bushel If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat, then, other things equal, the price of wheat in Ivory Coast will increase, but by less than $1 ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Prices MSC: Interpretive 15 The small-economy assumption is necessary to analyze the gains and losses from international trade ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Assumptions MSC: Interpretive 16 The greater the elasticities of supply and demand, the smaller are the gains from trade ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Gains from trade | Price elasticities of demand and supply MSC: Applicative 17 If a tariff is placed on watches, the price of both domestic and imported watches will rise by the amount of the tariff ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Prices MSC: Interpretive 18 When a government imposes a tariff on a product, the domestic price will equal the world price ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Prices MSC: Interpretive 19 A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Imports MSC: Applicative Chapter /Application: International Trade ❖ 84 20 When a country abandons no-trade policies in favor of free-trade policies and becomes an importer of steel, then the domestic price of steel will increase as a result ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Imports | Prices MSC: Interpretive 21 When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Tariffs MSC: Interpretive 22 When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off and sellers of shoes in that country become better off ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Tariffs MSC: Interpretive 23 Deadweight loss measures the decrease in total surplus that results from a tariff or quota ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Deadweight losses MSC: Interpretive 24 If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue, and domestic consumers will gain consumer surplus ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Economic welfare MSC: Applicative 25 Domestic consumers gain and domestic producers lose when the government imposes a tariff on imports ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs MSC: Interpretive 26 The imposition of a tariff on imported wine will increase the domestic price of wine, decrease the quantity of wine imported, and increase the quantity of wine produced domestically ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Prices | Imports | Tariffs MSC: Interpretive 27 Suppose that Australia imposes a tariff on imported beef If the increase in producer surplus is $100 million, the increase in tariff revenue is $200 million, and the reduction in consumer surplus is $500 million, the deadweight loss of the tariff is $300 million ANS: F DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Deadweight losses MSC: Applicative 28 Suppose Ecuador imposes a tariff on imported bananas If the increase in producer surplus is $50 million, the reduction in consumer surplus is $150 million, and the deadweight loss of the tariff is $30 million, then the tariff generates $130 million in revenue for the government ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Deadweight losses MSC: Applicative 29 Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade, thus reducing the gains from trade ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Deadweight losses MSC: Interpretive 85 ❖ Chapter /Application: International Trade 30 Import quotas and tariffs both cause the quantity of imports to fall ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Import quotas MSC: Interpretive 31 Import quotas and tariffs make domestic sellers better off and domestic buyers worse off ANS: T DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Import quotas | Economic welfare MSC: Interpretive 32 Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition ANS: F DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy | Employment MSC: Interpretive 33 Free trade causes job losses in industries in which a country does not have a comparative advantage, but it also causes job gains in industries in which the country has a comparative advantage ANS: T DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Comparative advantage | Employment MSC: Interpretive 34 Most economists support the infant-industry argument because it is so easy to implement in practice ANS: F DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy MSC: Interpretive 35 If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices, the Swedish economy would be worse off ANS: F DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy | Economic welfare MSC: Interpretive 36 Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors ANS: T DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy MSC: Interpretive 37 GATT is an example of a successful unilateral approach to achieving free trade ANS: F DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: GATT MSC: Interpretive 38 NAFTA is an example of a multilateral approach to achieving free trade ANS: T DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: NAFTA MSC: Interpretive 39 The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced by an international body called the World Trade Organization (WTO) ANS: T DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: GATT | WTO MSC: Definitional 40 A multilateral approach to free trade has greater potential to increase the gains from trade than a unilateral approach, because the multilateral approach can reduce trade restrictions abroad as well as at home ANS: T DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy MSC: Interpretive Chapter /Application: International Trade ❖ 86 41 The results of a 2007 Los Angeles Times poll suggest that a significant majority of Americans believe that free international trade helps the American economy ANS: F DIF: REF: 9-4 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy MSC: Interpretive 42 The results of a 2007 Los Angeles Times poll suggest that the percentage of Americans who believe trade is harmful to the economy exceeds the percentage of Americans who believe trade is beneficial to the economy ANS: T DIF: REF: 9-4 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy MSC: Interpretive 43 Most economists view the United States as an ongoing experiment that raises serious doubts about the virtues of free trade ANS: F DIF: REF: 9-4 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Trade policy MSC: Interpretive SHORT ANSWER Use the graph to answer the following questions about CDs a b c d e f g h i j k What is the equilibrium price of CDs before trade? What is the equilibrium quantity of CDs before trade? What is the price of CDs after trade is allowed? What is the quantity of CDs exported after trade is allowed? What is the amount of consumer surplus before trade? What is the amount of consumer surplus after trade? What is the amount of producer surplus before trade? What is the amount of producer surplus after trade? What is the amount of total surplus before trade? What is the amount of total surplus after trade? What is the change in total surplus because of trade? 87 ❖ Chapter /Application: International Trade ANS: a b c d e f g h i j k $12 50 $15 30 $250 $122.50 $250 $422.50 $500 $545 $45 DIF: REF: 9-2 NAT: LOC: Gains from trade, specialization and trade MSC: Applicative Analytic TOP: Using the graph below, answer the following questions about hammers a b c d e f g h i j k What is the equilibrium price of hammers before trade? What is the equilibrium quantity of hammers before trade? What is the price of hammers after trade is allowed? What is the quantity of hammers imported after trade is allowed? What is the amount of consumer surplus before trade? What is the amount of consumer surplus after trade? What is the amount of producer surplus before trade? What is the amount of producer surplus after trade? What is the amount of total surplus before trade? What is the amount of total surplus after trade? What is the change in total surplus because of trade? Exports | Economic welfare Chapter /Application: International Trade ❖ 88 ANS: a b c d e f g h i j k $14 90 $10 85 $360 $810 $405 $125 $765 $935 $170 DIF: REF: 9-2 NAT: LOC: Gains from trade, specialization and trade MSC: Applicative Analytic TOP: Imports | Economic welfare Using the graph, assume that the government imposes a $1 tariff on hammers Answer the following questions given this information a b c d e f g h i What is the domestic price and quantity demanded of hammers after the tariff is imposed? What is the quantity of hammers imported before the tariff? What is the quantity of hammers imported after the tariff? What would be the amount of consumer surplus before the tariff? What would be the amount of consumer surplus after the tariff? What would be the amount of producer surplus before the tariff? What would be the amount of producer surplus after the tariff? What would be the amount of government revenue because of the tariff? What would be the total amount of deadweight loss due to the tariff? a b c d e f g h i $6, 84 66 44 $384 $294 $45 $80 $44 $11 ANS: 89 ❖ Chapter /Application: International Trade DIF: REF: 9-2 NAT: LOC: Gains from trade, specialization and trade MSC: Applicative Analytic TOP: Tariffs | Economic welfare How does an import quota differ from an equivalent tariff? ANS: Both the import quota and the tariff raise the domestic price of the good, reduce the welfare of domestic consumers, increase the welfare of domestic producers, and cause deadweight losses The only difference for the economy is that the tariff raises revenue for the government, while the import quota creates surplus for license holders DIF: REF: 9-2 NAT: LOC: Gains from trade, specialization and trade MSC: Interpretive Analytic TOP: Tariffs | Import quotas Characterize the two different approaches a nation can take to achieve free trade Does one approach have an advantage over the other? ANS: A unilateral approach is when a country removes its trade restrictions on its own A multilateral approach is when a country removes its trade restrictions while other countries the same A multilateral approach has two advantages The first is that it has the potential to result in freer trade because it can reduce trade restrictions abroad as well as at home If international negotiations fail, however, the result could be more restricted trade than under a unilateral approach Also, the multilateral approach may have a political advantage and can sometimes win political support when a unilateral reduction cannot DIF: REF: 9-3 NAT: LOC: Gains from trade, specialization and trade MSC: Interpretive Analytic TOP: Trade policy What are the arguments in favor of trade restrictions, and what are the counterarguments? According to most economists, any of these arguments really justify trade restrictions? Explain ANS: Arguments mentioned in the text include the jobs argument, the national security argument, the infant industry argument, the unfair competition argument, and the protection-as-a-bargaining-chip argument These arguments and counter-arguments are outlined in section 9-3 of the text Most economists would dismiss the jobs argument, the infant industry argument, and the unfair competition argument on strictly economic grounds The bargaining-chip argument carries high risks of economic harm if the threat doesn't work The national-security argument balances economic loss from trade restriction against the benefit of long-term national survival, and is probably the argument that economists would most likely buy if it were clear that the industry being protected was clearly crucial to national security DIF: REF: 9-3 NAT: LOC: Gains from trade, specialization and trade MSC: Interpretive Analytic TOP: Trade policy Sec00 - Application: International Trade MULTIPLE CHOICE An important factor in the decline of the U.S textile industry over the past 100 or so years is a foreign competitors that can produce quality textile goods at low cost b lower prices of goods that are substitutes for clothing c a decrease in Americans’ demand for clothing, due to increased incomes and the fact that clothing is an inferior good d the fact that the minimum wage in the U.S has failed to keep pace with the cost of living ANS: A DIF: REF: 9-0 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade MSC: Interpretive Chapter /Application: International Trade ❖ 90 With which of the Ten Principles of Economics is the study of international trade most closely connected? a People face tradeoffs b Trade can make everyone better off c Governments can sometimes improve market outcomes d Prices rise when the government prints too much money ANS: B DIF: REF: 9-0 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade MSC: Interpretive Which of the following tools and concepts is useful in the analysis of international trade? a total surplus b domestic supply c equilibrium price d All of the above are correct ANS: D DIF: REF: 9-0 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade MSC: Interpretive A logical starting point from which the study of international trade begins is a the recognition that not all markets are competitive b the recognition that government intervention in markets sometimes enhances the economic welfare of the society c the principle of absolute advantage d the principle of comparative advantage ANS: D DIF: REF: 9-0 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Comparative advantage MSC: Interpretive Sec01 - Application: International Trade - The Determinants of Trade MULTIPLE CHOICE What is the fundamental basis for trade among nations? a shortages or surpluses in nations that not trade b misguided economic policies c absolute advantage d comparative advantage ANS: D DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Comparative advantage MSC: Interpretive Patterns of trade among nations are primarily determined by a cultural considerations b political considerations c comparative advantage d differences in the income elasticity of demand among nations ANS: C DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Comparative advantage MSC: Interpretive The nation of Pineland forbids international trade In Pineland, you can buy pound of fish for pounds of beef In other countries, you can buy pound of fish for 1.5 pounds of beef These facts indicate that a Pineland has a comparative advantage, relative to other countries, in producing fish b other countries have a comparative advantage, relative to Pineland, in producing beef c the price of beef in Pineland exceeds the world price of beef d if Pineland were to allow trade, it would import fish ANS: D DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Comparative advantage | World price MSC: Applicative 91 ❖ Chapter /Application: International Trade The nation of Waterland forbids international trade In Waterland, you can obtain a computer by trading bicycles In other countries, you can obtain a computer by trading bicycles These facts indicate that a if Waterland were to allow trade, it would export computers b Waterland has an absolute advantage, relative to other countries, in producing computers c Waterland has a comparative advantage, relative to other countries, in producing bicycles d All of the above are correct ANS: A DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Comparative advantage MSC: Applicative The principle of comparative advantage asserts that a not all countries can benefit from trade with other countries b the world price of a good will prevail in all countries, regardless of whether those countries allow international trade in that good c countries can become better off by exporting goods, but they cannot become better off by importing goods d countries can become better off by specializing in what they best ANS: D DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Comparative advantage MSC: Interpretive A tax on an imported good is called a a quota b tariff c supply tax d trade tax ANS: B NAT: Analytic TOP: Tariffs A tariff is a a limit on how much of a good can be exported b limit on how much of a good can be imported c tax on an exported good d tax on an imported good ANS: D NAT: Analytic TOP: Tariffs DIF: REF: 9-1 LOC: Gains from trade, specialization and trade MSC: Definitional DIF: REF: 9-1 LOC: Gains from trade, specialization and trade MSC: Definitional The price of a good that prevails in a world market is called the a absolute price b relative price c comparative price d world price ANS: D DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Price | International trade MSC: Definitional The price of sugar that prevails in international markets is called the a export price of sugar b import price of sugar c comparative-advantage price of sugar d world price of sugar ANS: D DIF: REF: 9-1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Price | International trade MSC: Definitional 133 ❖ Chapter /Application: International Trade ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Economic welfare MSC: Applicative 189 The nation of Aquilonia 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 rice, exporting steel, and neither importing nor exporting TVs We can conclude that producer surplus in Aquilonia is now a higher in the steel market, lower in the rice market, and unchanged in the TV market b higher in the rice and steel markets, and unchanged in the TV market c lower in the rice and TV markets, and higher in the steel market d lower in the rice and steel markets, and the same in the TV market ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Producer surplus MSC: Applicative 190 Aquilonia 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 Aquilonia are better off as a result of the new free-trade policy? a producers of incense and consumers of steel b consumers of all three goods c consumers of incense and producers of rugs d producers of steel and consumers of incense ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Economic welfare MSC: Applicative 191 The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production These taxes a benefit the United States as a whole, because they generate revenue for the government In addition, because the goods are priced below cost, the taxes not harm domestic consumers b benefit the United States as a whole, because they generate revenue for the government and increase producer surplus c harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue d harm the United States as a whole, because they reduce producer surplus by an amount that exceeds the gain in consumer surplus and government revenue ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Economic welfare MSC: Applicative 192 Some goods can be produced at low cost only if they are produced in large quantities This phenomenon is called a marginal cost of production b marginal benefit of size c economies of scale d economies of production ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Economies of scale MSC: Definitional 193 Relative to a situation in which domestic firms not compete with foreign firms, firms in countries that engage in free trade a can realize economies of scale more fully b have greater market power c experience larger producer surplus d All of the above are correct ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Economies of scale | International trade MSC: Interpretive Chapter /Application: International Trade ❖ 134 Figure 9-17 Price Domestic Supply 76 72 68 64 60 56 52 48 44 40 36 32 World price + tariff 28 24 World Price 20 Domestic Demand 16 12 4 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 194 Refer to Figure 9-17 Without trade, consumer surplus is a $100 and producer surplus is $50 b $100 and producer surplus is $200 c $400 and producer surplus is $50 d $400 and producer surplus is $200 ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Consumer surplus | Producer surplus MSC: Applicative 195 Refer to Figure 9-17 With free trade, consumer surplus is a $100 and producer surplus is $50 b $100 and producer surplus is $200 c $400 and producer surplus is $50 d $400 and producer surplus is $200 ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Consumer surplus | Producer surplus MSC: Applicative 196 Refer to Figure 9-17 With trade and a tariff, consumer surplus is a $202 and producer surplus is $50 b $202 and producer surplus is $98 c $256 and producer surplus is $50 d $256 and producer surplus is $98 ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Consumer surplus | Producer surplus MSC: Applicative 25 Quantity 135 ❖ Chapter /Application: International Trade 197 Refer to Figure 9-17 Without trade, total surplus is a $150 b $300 c $450 d $600 ANS: B NAT: Analytic TOP: Total surplus DIF: REF: 9-2 LOC: Gains from trade, specialization and trade MSC: Applicative 198 Refer to Figure 9-17 With free trade, total surplus is a $150 b $300 c $450 d $600 ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Total surplus MSC: Applicative 199 Refer to Figure 9-17 With trade and a tariff, total surplus is a $306 b $354 c $378 d $426 ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Total surplus MSC: Applicative 200 Refer to Figure 9-17 With free trade, the country imports a units of the good b 10 units of the good c 15 units of the good d 20 units of the good ANS: C NAT: Analytic TOP: Imports DIF: REF: 9-2 LOC: Gains from trade, specialization and trade MSC: Applicative 201 Refer to Figure 9-17 The imposition of the tariff a decreases imports of the good by units and increases domestic production of the good by units b decreases imports of the good by units and increases domestic production of the good by units c decreases imports of the good by units and increases domestic production of the good by units d decreases imports of the good by units and increases domestic production of the good by units ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Imports MSC: Applicative 202 Refer to Figure 9-17 The amount of revenue collected by the government from the tariff is a $8 b $72 c $180 d $252 ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Government MSC: Applicative 203 Refer to Figure 9-17 The deadweight loss caused by the tariff is a $24 b $72 c $96 d $150 Chapter /Application: International Trade ❖ 136 ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Deadweight loss MSC: Applicative 204 Refer to Figure 9-17 When comparing no trade to free trade, the gain from trade is a $72 b $100 c $150 d $450 ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Gains from trade MSC: Applicative 205 Refer to Figure 9-17 When the country moves from no trade to free trade, consumer surplus a increases by $300 and producer surplus increases by $150 b increases by $300 and producer surplus decreases by $150 c decreases by $300 and producer surplus increases by $150 d decreases by $300 and producer surplus decreases by $150 ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Economic welfare MSC: Applicative 206 Refer to Figure 9-17 When the country moves from free trade to trade and a tariff, consumer surplus a decreases by $144 and producer surplus does not change b decreases by $144 and producer surplus increases by $48 c decreases by $198 and producer surplus does not change d decreases by $198 and producer surplus increases by $48 ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Tariffs | Consumer surplus | Producer surplus MSC: Applicative 207 When a certain nation abandoned a policy of prohibiting international trade in automobiles in favor of a freetree policy, the result was that the country began to import automobiles The change in policy improved the well-being of that nation in the sense that a both producers of automobiles and consumers of automobiles in that nation became better off as a result b the gains to automobile producers in that nation exceeded the losses of the automobile consumers in that nation c the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation d even though total surplus in that nation decreased, it was still true that consumer surplus and producer surplus increased ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Gains from trade MSC: Interpretive 208 After a certain nation changed its policy from one that banned international trade in wheat to one that allowed international trade in wheat, the nation began importing wheat As a result, total surplus in the wheat market increased by $10 million Which of the following changes could have occurred as well? a The price of wheat in that nation increased with the adoption of the new policy b The domestic quantity of wheat supplied increased with the adoption of the new policy c Consumer surplus in the wheat market increased by $7 million and producer surplus in the wheat market increased by $3 million d Consumer surplus in the wheat market increased by $15 million and producer surplus in the wheat market decreased by $5 million ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Gains from trade | Economic welfare MSC: Applicative 137 ❖ Chapter /Application: International Trade 209 When the nation of Isoland opens up its steel market to international trade, that change a creates winners and losers, regardless of whether Isoland ends up exporting or importing steel b results in a decrease in total surplus, regardless of whether Isoland ends up exporting or importing steel c creates winners, but no losers, if Isoland ends up exporting steel d creates losers, but no winners, if Isoland ends up importing steel ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Gains from trade MSC: Interpretive 210 Some time ago, the nation of Republica opened up its paper market to international trade Which of the following results of this policy change is consistent with the notion that Republica has a comparative advantage over other countries in producing paper? a The price of paper in Republica decreased as a result of the policy change b Republica began exporting paper as a result of the policy change c The domestic demand curve for paper shifted to the right as a result of the policy change d The domestic quantity of paper demanded increased as a result of the policy change ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Comparative advantage MSC: Interpretive 211 Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and a the country becomes an importer of the good as a result b the world price exceeds the domestic price of the good that prevailed before international trade was allowed c other countries have a comparative advantage, relative to the country in question, in producing the good d total surplus does not change as a result ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Gains from trade | Prices MSC: Interpretive Figure 9-18 On the diagram below, Q represents the quantity of peaches and P represents the price of peaches The domestic country is Isoland P Domestic supply Domestic demand 10 20 30 40 50 60 Q 212 Refer to Figure 9-18 If Isoland allows international trade and if the world price of peaches is $5, then a Isoland has a comparative advantage, relative to other countries, in producing peaches b Isoland will import peaches c consumer surplus with trade exceeds consumer surplus without trade d All of the above are correct ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Comparative advantage | Price MSC: Applicative Chapter /Application: International Trade ❖ 138 213 Refer to Figure 9-18 If Isoland allows international trade and if the world price of peaches is $3, then a Isoland has a comparative advantage, relative to other countries, in producing peaches b Isoland will export peaches c producer surplus with trade exceeds producer surplus without trade d consumer surplus with trade exceeds consumer surplus without trade ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Gains from trade | Consumer surplus MSC: Applicative 214 Refer to Figure 9-18 If Isoland allows international trade, then it will be an exporter of peaches if and only if the world price of peaches is a above $2 b below $4 c above $4 d below $7 ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Price | Exports MSC: Interpretive 215 Refer to Figure 9-18 If Isoland allows international trade and the world price of peaches is $5, then a producer surplus will be smaller than it would be if Isoland banned trade b consumer surplus will be smaller than it would be if Isoland banned trade c the domestic quantity of peaches demanded will exceed the domestic quantity of peaches supplied d Isoland will be an importer of peaches ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Prices | Consumer surplus | Producer surplus MSC: Applicative 216 Refer to Figure 9-18 Suppose Isoland changes from a no-trade policy to a policy that allows international trade If the world price of peaches is $5, then the policy change results in a a decrease in consumer surplus b an increase in producer surplus c an increase in total surplus d All of the above are correct ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Prices | Consumer surplus | Producer surplus MSC: Applicative 217 Refer to Figure 9-18 Suppose Isoland changes from a no-trade policy to a policy that allows international trade If the world price of peaches is $5, then the policy change results in a a $25 decrease in consumer surplus b $20 increase in consumer surplus c $25 decrease in producer surplus d $20 increase in producer surplus ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Consumer surplus MSC: Analytical 218 Refer to Figure 9-18 Suppose Isoland changes from a no-trade policy to a policy that allows international trade If the world price of peaches is $3, then the policy change results in a a $15.00 decrease in producer surplus b $45.00 increase in consumer surplus c $20.00 increase in total surplus d $12.50 increase in total surplus ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Gains from trade | Economic welfare MSC: Analytical 139 ❖ Chapter /Application: International Trade 219 Suppose a certain country imposes a tariff on a good Which of the following results of the tariff is possible? a Consumer surplus decreases by $100; producer surplus increases by $100; and government revenue from the tariff amounts to $50 b Consumer surplus decreases by $200; producer surplus increases by $100; and government revenue from the tariff amounts to $50 c Consumer surplus increases by $100; producer surplus decreases by $200; and government revenue from the tariff amounts to $50 d Consumer surplus decreases by $50; producer surplus increases by $200; and government revenue from the tariff amounts to $150 ANS: NAT: TOP: MSC: B DIF: REF: 9-2 Analytic LOC: Gains from trade, specialization, and trade Tariffs | Consumer surplus | Producer surplus | Government Applicative 220 Suppose France imposes a tariff on wine of euros per bottle If government revenue from the tariff amounts to 30 million euros per year and if the quantity of wine supplied by French wine producers, with the tariff, is million bottles per year, then we can conclude that a the quantity of wine demanded by France, with the tariff, is 18 million bottles per year b the quantity of wine demanded by France, without the tariff, would be 24 million bottles per year c the amount of the deadweight loss is 24 million euros per year d the tariff causes French buyers of wine to pay euros more per bottle than they would pay without the tariff ANS: A NAT: Analytic TOP: Tariffs DIF: REF: 9-2 LOC: Gains from trade, specialization, and trade MSC: Analytical 221 For a country that is considering the adoption of either a tariff or an import quota on a particular good, an important difference is that a an import quota has no effect on consumer surplus, while a tariff decreases consumer surplus b an import quota has no effect on producer surplus, while a tariff decreases producer surplus c a tariff raises total surplus, while an import quota does not d a tariff raises revenue for that country’s government, while an import quota does not ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Tariffs | Import quotas MSC: Interpretive 222 For any country that allows free trade, a domestic quantity demanded is equal to domestic quantity supplied at the world price b domestic quantity demanded is greater than domestic quantity supplied at the world price c both producers and consumers in that country gain when domestic products are exported, but both groups lose when foreign products are imported d the domestic price is equal to the world price ANS: D DIF: TOP: International trade | Prices REF: 9-2 MSC: Interpretive Chapter /Application: International Trade ❖ 140 Figure 9-19 On the diagram below, Q represents the quantity of textiles and P represents the price of textiles 24 P 21 Domestic supply 18 15 12 World Price Domestic demand 20 40 60 80 100 120 140 Q 223 Refer to Figure 9-19 With free trade, the country for which the figure is drawn will a export 30 units of textiles b export 50 units of textiles c import 30 units of textiles d import 50 units of textiles ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: International trade | Imports MSC: Applicative 224 Refer to Figure 9-19 With free trade, consumer surplus in the textile market amounts to a $210 b $320 c $405 d $910 ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: International trade | Consumer surplus MSC: Applicative 225 When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an exporter of a particular good, a consumer surplus increases and total surplus increases in the market for that good b consumer surplus increases and total surplus decreases in the market for that good c consumer surplus decreases and total surplus increases in the market for that good d consumer surplus decreases and total surplus decreases in the market for that good ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Consumer surplus | Total surplus MSC: Interpretive 226 When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an exporter of a particular good, a producer surplus increases and total surplus increases in the market for that good b producer surplus increases and total surplus decreases in the market for that good c producer surplus decreases and total surplus increases in the market for that good d producer surplus decreases and total surplus decreases in the market for that good ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Producer surplus | Total surplus MSC: Interpretive 141 ❖ Chapter /Application: International Trade 227 When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an importer of a particular good, a consumer surplus increases and total surplus increases in the market for that good b consumer surplus increases and total surplus decreases in the market for that good c consumer surplus decreases and total surplus increases in the market for that good d consumer surplus decreases and total surplus decreases in the market for that good ANS: A DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Consumer surplus | Total surplus MSC: Interpretive 228 When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an importer of a particular good, a producer surplus increases and total surplus increases in the market for that good b producer surplus increases and total surplus decreases in the market for that good c producer surplus decreases and total surplus increases in the market for that good d producer surplus decreases and total surplus decreases in the market for that good ANS: C DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Producer surplus | Total surplus MSC: Interpretive 229 When a country that exported a particular good abandons a free-trade policy and adopts a no-trade policy, a consumer surplus increases and total surplus increases in the market for that good b consumer surplus increases and total surplus decreases in the market for that good c consumer surplus decreases and total surplus increases in the market for that good d consumer surplus decreases and total surplus decreases in the market for that good ANS: B DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Consumer surplus | Total surplus MSC: Interpretive 230 When a country that exported a particular good abandons a free-trade policy and adopts a no-trade policy, a producer surplus increases and total surplus increases in the market for that good b producer surplus increases and total surplus decreases in the market for that good c producer surplus decreases and total surplus increases in the market for that good d producer surplus decreases and total surplus decreases in the market for that good ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Producer surplus | Total surplus MSC: Interpretive 231 When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy, a consumer surplus increases and total surplus increases in the market for that good b consumer surplus increases and total surplus decreases in the market for that good c consumer surplus decreases and total surplus increases in the market for that good d consumer surplus decreases and total surplus decreases in the market for that good ANS: D DIF: REF: 9-2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: International trade | Consumer surplus | Total surplus MSC: Interpretive Sec03 - Application: International Trade - The Arguments for Restricting Trade MULTIPLE CHOICE Congressman Smith cites the “jobs argument” when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries The likely flaw in Congressman Smith’s reasoning is that he ignores the fact that a there is no evidence that any worker ever lost his or her job because of free trade b unemployment of labor is not a serious problem relative to other economic problems c the gains from trade are based on comparative advantage d the gains from trade are based on absolute advantage Chapter /Application: International Trade ❖ 142 ANS: C DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Trade restriction MSC: Interpretive “Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run.” This observation helps to explain why many economists are skeptical about the a national-security argument b infant-industry argument c unfair-competition argument d jobs argument ANS: B DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Trade restriction MSC: Interpretive One should be especially wary of the national-security argument for restricting trade when that argument is made by a representatives of industry b representatives of the defense establishment c members of households d foreign government officials ANS: A DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Trade restriction MSC: Interpretive The “unfair-competition” argument might be cited by an American who believes that a almost every country has a comparative advantage, relative to the United States, in producing almost all goods b young industries should be protected against foreign competition until they become profitable c the American automobile industry should be protected against Japanese firms that are able to produce automobiles at relatively low cost d the French government’s subsidies to French farmers justify restrictions on American imports of French agricultural products ANS: D DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Trade restriction MSC: Interpretive If the United States threatens to impose a tariff on German cars if Germany does not remove agricultural subsidies, the United States will be a better off no matter how Germany responds b better off if Germany gives in, and will be no worse off if it doesn't c worse off if Germany doesn't give in to the threat d worse off no matter how Germany responds ANS: C NAT: Analytic TOP: Trade policy DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive Which of the following arguments for trade restrictions is often advanced? a Trade restrictions make all Americans better off b Trade restrictions increase economic efficiency c Trade restrictions are necessary for economic growth d Trade restrictions are sometimes necessary for national security ANS: D NAT: Analytic TOP: Trade policy DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive 143 ❖ Chapter /Application: International Trade About what percent of total world trade is accounted for by countries that belong to the World Trade Organization? a 54 percent b 72 percent c 89 percent d 97 percent ANS: D NAT: Analytic TOP: WTO At present, the United States uses a system of quotas to limit the amount of sugar imported into the country Which of the following statements is most likely true? a The quotas are probably the result of lobbying from U.S consumers of sugar The quotas increase consumer surplus for the United States, reduce producer surplus for the United States, and harm foreign sugar producers b The quotas are probably the result of lobbying from U.S producers of sugar The quotas increase producer surplus for the United States, reduce consumer surplus for the United States, and harm foreign sugar producers c The quotas are probably the result of lobbying from foreign producers of sugar The quotas reduce producer surplus for the United States, increase consumer surplus for the United States, and benefit foreign sugar producers d U.S lawmakers did not need to be lobbied to impose the quotas because total surplus for the United States is higher with the quotas than without them ANS: B NAT: Analytic TOP: Trade policy DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Applicative Suppose France subsidizes French wheat farmers, while Germany offers no subsidy to German wheat farmers As a result of the French subsidy, sales of French wheat to Germany a may prompt German farmers to invoke the unfair-competition argument b increase the consumer surplus of German buyers of wheat c increase the total surplus of the German people d All of the above are correct ANS: D DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Trade policy | Economic Welfare MSC: Applicative 10 Senator Blowhard represents a state in which many textile firms are located He wants to impose tariffs on all imported textiles Which of the following is the least likely consequence of such tariffs? a Domestic textile buyers will lose consumer surplus, have less variety, and will pay higher prices b Domestic textile sellers will gain producer surplus c Domestic textile sellers will have a higher rate of technological advance d Domestic textile sellers will have more market power ANS: C DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Tariffs | Technology MSC: Applicative 11 Countries that restrict foreign trade are likely to a forgo the additional surplus that trade allows, but will probably enjoy economies of scale b forgo the additional surplus that trade allows, but will be compensated by a higher rate of technological change c forgo the additional surplus that trade allows, but will have a lower rate of unemployment d have more firms with domestic market power ANS: D NAT: Analytic TOP: Trade policy DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive Chapter /Application: International Trade ❖ 144 12 Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S minimum wage Prohibiting such goods is likely to a cause these factories to pay the U.S minimum wage b increase the rate of technological advance in poor countries so that they can afford to pay higher wages c increase poverty in poor countries and benefit U.S firms which compete with these imports d harm U.S firms which compete with these imports ANS: C NAT: Analytic TOP: Trade policy 13 Several arguments for restricting trade have been advanced Those arguments not include a the jobs argument b the protection-as-a-bargaining-chip argument c the no-deadweight-loss argument d the infant-industry argument ANS: C NAT: Analytic TOP: Trade policy 14 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs An economist would argue that a foreign competition may cause unemployment in import-competing industries, but the effect is temporary because other industries, especially exporting industries, will be expanding b foreign competition may cause unemployment in import-competing industries, but the increase in consumer surplus due to free trade is more valuable than the lost jobs c the critics are correct, so countries must protect their industries with tariffs or quotas d foreign competition may cause unemployment in import-competing industries, but the increase in the variety of goods consumers can choose from is more valuable than the lost jobs ANS: A DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Trade policy | Employment MSC: Interpretive 15 Which of the following is not a commonly-advanced argument for trade restrictions? a the jobs argument b the national-security argument c the infant-industry argument d the efficiency argument ANS: D NAT: Analytic TOP: Trade policy 16 In a December 2007 New York Times column, Paul Krugman noted that a it is difficult to find instances of trade between high-wage countries in the modern era b it is difficult to find instances of trade between high-wage countries and low-wage countries in the modern era c the United States now imports more oil and other raw materials from other advanced countries than from the third world d the United States now imports more manufactured goods from the third world than from other advanced countries ANS: D NAT: Analytic TOP: Trade 17 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional Workers displaced by trade eventually find jobs in a another country b the government sector c the industries in which the country has a comparative advantage d a different company in the same industry 145 ❖ Chapter /Application: International Trade ANS: C DIF: REF: 9-3 NAT: Analytic LOC: Gains from trade, specialization, and trade TOP: Trade | Employment MSC: Interpretive 18 The infant-industry argument a is based on the belief that protecting industries when they are young will pay off later b is based on the belief that protecting industries producing goods and services for infants is necessary if a country is to have healthy children c has the support of most economists d is an argument that is advanced by advocates of free trade ANS: A NAT: Analytic TOP: Trade policy 19 Which of the following is the most accurate statement? a Protection is necessary in order for young industries to grow up and be successful b Protection is not necessary for an industry to grow c Protection is necessary because if young industries are not protected, they may suffer losses d Protection may not always be necessary for infant industries, but it has proven to be useful in most cases ANS: B NAT: Analytic TOP: Trade policy 20 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive When a country takes a multilateral approach to free trade, it a removes trade restrictions on its own b reduces its trade restrictions while other countries the same c does not remove trade restrictions no matter what other countries d is willing to trade with multiple countries at once ANS: B NAT: Analytic TOP: Trade policy 23 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Applicative The two basic approaches that a country can take as a means to achieve free trade are the a unilateral approach and the multilateral approach b short-run approach and the long-run approach c continental approach and the global approach d industry approach and the security approach ANS: A NAT: Analytic TOP: Trade 22 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive If the Japanese steel industry subsidizes the steel that it sells to the United States, the a United States should protect its domestic steel industry from this unfair competition b harm done to U.S steel producers from this unfair competition exceeds the gain to U.S consumers of cheap Japanese steel c harm done to U.S steel producers is less than the benefit that accrues to U.S consumers of steel d United States should subsidize the products it sells to Japan ANS: C NAT: Analytic TOP: Trade policy 21 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional Which of the following is not an advantage of a multilateral approach to free trade over a unilateral approach? a A multilateral approach can reduce trade restrictions abroad as well as at home b A multilateral approach has the potential to result in freer trade c A multilateral approach requires the agreement of two or more nations d A multilateral approach may have political advantages Chapter /Application: International Trade ❖ 146 ANS: C NAT: Analytic TOP: Trade policy 24 When a country takes a unilateral approach to free trade, it a removes trade restrictions on its own b reduces its trade restrictions while other countries the same c does not remove trade restrictions no matter what other countries d is willing to trade with multiple countries at once ANS: A NAT: Analytic TOP: Trade policy 25 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional Since World War II, GATT has been responsible for reducing the average tariff among member countries from about a 40 percent to about percent b 40 percent to about 20 percent c 80 percent to about 20 percent d 20 percent to about 10 percent ANS: A NAT: Analytic TOP: GATT 29 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive The North American Free Trade Agreement a is an example of the unilateral approach to free trade b eliminated tariffs on imports to North America from the rest of the world c reduced trade restrictions among Canada, Mexico and the United States d All of the above are correct ANS: C NAT: Analytic TOP: NAFTA 28 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive Which of the following assertions is not correct about the multilateral approach to free trade? a The multilateral approach has the potential to result in freer trade than does the unilateral approach b The multilateral approach may have a political advantage over the unilateral approach c The multilateral approach is simpler than the unilateral approach d NAFTA and GATT both represent multilateral approaches to free trade ANS: C NAT: Analytic TOP: Trade policy 27 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional A possible outcome of the multilateral approach to free trade is that such an approach can a win political support when a unilateral approach cannot b result in more restricted trade than under a unilateral approach, when international negotiations fail c result in drastic reductions in tariffs for many countries d All of the above are correct ANS: D NAT: Analytic TOP: Trade policy 26 DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Interpretive DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional The General Agreement on Tariffs and Trade (GATT) was initiated in response to a in increase in exports of low-priced goods from developing countries to developed countries b the replacement of manufacturing jobs with service jobs in developed countries c economic dislocations caused by the North American Free Trade Agreement (NAFTA) in the 1990s d high tariffs imposed during the Great Depression of the 1930s ANS: D NAT: Analytic TOP: GATT DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional 147 ❖ Chapter /Application: International Trade 30 The rules established under GATT are enforced by the a governments of the nations that are involved in GATT b North American Free Trade Association c World Trade Organization d European Union ANS: C NAT: Analytic TOP: GATT | WTO DIF: REF: 9-3 LOC: Gains from trade, specialization, and trade MSC: Definitional Sec04 - Application: International Trade - Conclusion MULTIPLE CHOICE In December 2007, the Los Angeles Times asked members of the American public whether free international trade has helped or hurt the economy Of those surveyed, a 57 percent said free international trade helped the economy b 27 percent said free international trade helped the economy c 30 percent said free international trade hurt the economy d 16 percent said free international trade hurt the economy ANS: B NAT: Analytic TOP: Trade DIF: REF: 9-4 LOC: Gains from trade, specialization, and trade MSC: Definitional Most economists view the United States’ experience with trade as a one from which no firm conclusions about the virtues of free trade can be reached, due to the relatively short history of international trade in the U.S b one from which no firm conclusions about the virtues of free trade can be reached, due to the lack of trade within the U.S throughout most of the early history of the U.S c an ongoing experiment that confirms the virtues of free trade d an ongoing experiment that calls into serious question the notion that free trade enhances the economic well-being of a nation ANS: C NAT: Analytic TOP: Trade DIF: REF: 9-4 LOC: Gains from trade, specialization, and trade MSC: Interpretive ... REF: 9- 1 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Price | International trade MSC: Definitional Chapter /Application: International Trade ❖ 92 10 If a country allows trade. .. REF: 9- 2 NAT: Analytic LOC: Gains from trade, specialization and trade TOP: Prices | International trade MSC: Interpretive 95 ❖ Chapter /Application: International Trade When a country allows trade. .. Exports DIF: REF: 9- 2 LOC: Gains from trade, specialization and trade MSC: Interpretive 99 ❖ Chapter /Application: International Trade 24 Refer to Figure 9- 1 In the absence of trade, the equilibrium