Principles of Macroeconomics, 9E - TB1 (Case/Fair/Oster) s2

Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster) Chapter 19

1 Internation s al Trade, m Comparati ve Advantage, and Protectioni

2 Trad 1

3 M h ul o ti i pl c e e C

4 A country has a trade surplus when A)

5 its exports exceed its imports. B)

6 its exports equal its imports. C)

7 its government spending exceeds its tax revenues. D)

8 its exports are less than its imports. Answer:

9 A Diff: 1 Topic:

10 Trade Surpluses and Deficits Skill:

11 Definition

12 A country's trade is balanced when A)

13 its imports exceeds its exports. B)

14 its government expenditures are equal to its tax revenues. C)

15 its net exports equal to zero. D)

16 its net exports are greater than zero. Answer:

17 C Diff: 1 Topic:

19 Definition

20 A country has a trade deficit when A)

21 its exports exceed its imports. B)

22 its exports equal its imports. C)

23 its exports are less than its imports. D)

24 government spending is greater than tax receipts. Answer:

25 C Diff: 1 Topic:

27 Definition

28 If a country has a trade surplus of $40 billion, which of the following can be true? A)

29 The country's exports are $160 billion and its imports are $120 billion. B)

30 The country's exports are $110 billion and its imports are $150 billion. C)

31 The country's exports are $120 billion and its imports are $140 billion. D)

32 The country's exports are $140 billion and its imports are $40 billion. Answer:

33 A Diff: 1 Topic:

35 Conceptual AACSB:

36 Reflective Thinking

38 If a country has a trade deficit of $30 billion, which of the following can be true? A)

39 The country's exports are $150 billion and its imports are $120 billion. B)

40 The country's exports are $110 billion and its imports are $140 billion. C)

41 The country's exports are $120 billion and its imports are $140 billion. D)

42 The country's exports are $140 billion and its imports are $40 billion. Answer:

43 B Diff: 1 Topic:

47 In the ______, the United States switched from running a trade surplus to running a trade deficit. year A)

48 1950 B)

49 1966 C)

50 1976 D)

51 1994 Answer:

52 C Diff: 1 Topic:

54 Fact

55 Tr s ue e /F al

56 If has exports of 50 billion euros and imports of 40 billion euros, then it is running a trade deficit. Belgium Answer:

57 FALSE Diff: 2 Topic:

61 If Japan has a exports of 70 billion yen and imports of 60 billion yen, it is running a trade surplus. Answer:

62 TRUE Diff: 2 Topic:

66 If a country's imports are greater than its exports, a country has a trade deficit. Answer:

71 A country's balance of trade must be balanced. Answer:

77 If a country's imports are less than its exports, a country has a trade surplus. Answer:

82 The Econ omic Basis for Trad e: Com parat ive Adv anta ge

85 The purpose of the Corn Laws was to A)

86 encourage imports and discourage exports, and thus keep the price of food low. B)

87 encourage and imports in order to integrate the British economy with the rest of Europe. both exports C)

88 discourage both imports and exports in order to promote economic self-sufficiency in Britain. D)

89 discourage imports and encourage exports, and thus keep the price of food high. Answer:

90 D Diff: 1 Topic:

91 The Economic Basis for Trade: Comparative Advantage Skill:

92 Fact

93 The theory of comparative advantage is credited to A)

94 Adam Smith. B)

95 David Ricardo. C)

96 John Maynard Keynes. D)

97 Milton Friedman. Answer:

98 B Diff: 1 Topic:

100 Fact

101 Country A would have an absolute advantage compared to Country B in the production of corn if A)

102 corn can be produced at lower cost in terms of other goods than it could be in Country B. B)

103 Country A uses fewer resources to produce corn than Country B does. C)

104 the demand for corn is higher in Country A than in Country B. D)

105 corn sells for a higher price in Country A than in Country B. Answer:

106 B Diff: 1 Topic:

110 4)

111 The e in the production of a product enjoyed by one country over another when it uses fewer advantag resources to produce that product than the other country does is A)

112 an absolute advantage. B)

113 a comparative advantage. C)

114 a relative advantage. D)

115 a productive advantage. Answer:

116 A Diff: 1 Topic:

118 Definition

119 Accordin g to the theory of comparative advantage, a country A)

120 exports the goods in which its has a comparative advantage. B)

121 imposes tariffs on goods in which it does not have comparative advantage. C)

122 imports the goods in which it has a comparative advantage. D)

123 exports goods in which it has absolute advantage. Answer:

126 Fact

127 China comparative advantage in textile and an absolute advantage in radios. Japan has a comparative has a advantage in radios and an absolute advantage in textiles. According to this scenario A)

128 Japan should export both radios and textiles. B)

129 China should import both radios and textiles. C)

130 China should export textiles and import radios. D)

131 Japan should export textiles and import radios. Answer:

132 C Diff: 2 Topic:

134 Analytic AACSB:

135 Analytic Skills

136 Country A has a comparative advantage compared to Country B in the production of shoes, if A)

137 Country A can produce shoes at a lower monetary cost than Country B can. B)

138 Country A can produce shoes using fewer resources than Country B can. C)

139 the demand for shoes is higher in Country A than in Country B. D)

140 Country A can produce shoes at a lower cost in terms of other goods than Country B can. Answer:

141 D Diff: 2 Topic:

143 Analytic AACSB:

144 Analytic Skills

145 8)

146 Accordin g to the theory of comparative advantage, a country should A)

147 specialize and export goods with the highest opportunity cost. B)

148 specialize and export goods with the lowest production cost. C)

149 specialize and export goods with the lowest opportunity cost. D)

150 specialize and export goods with the lowest average cost. Answer:

153 Fact

154 When country can produce a product at a lower cost in terms of other goods, that country is said to one have A)

155 an absolute advantage. B)

156 a comparative advantage. C)

157 a productive advantage. D)

158 an unfair advantage. Answer:

161 Definition

162 The imports televisions from Japan and Japan imports computer chips from the United States. If the United theory of comparative advantage guides trade between the two countries, it must be true that States A)

163 the opportunity cost of producing televisions in Japan is higher than that in the United States. B)

164 the cost of producing computer chips in the United States is higher than that in Japan. opportunity C)

165 the United States has comparative advantage in producing computer chips. D)

166 the United States has comparative advantage in producing televisions. Answer:

171 If Russia absolute advantage in the production of wheat and China has an absolute advantage in the has an production of textiles, then A)

172 neither country has anything to gain from specialization and trade. B)

173 it is reasonable to expect that specialization will benefit both countries, but trade will not. C)

174 it is reasonable to expect that specialization and trade will benefit both countries. D)

175 it is reasonable to expect that trade will benefit both countries, but specialization will not. Answer:

180 12)

181 If Brazil has a comparative advantage in the production of coffee compared to the United States, then A)

182 Brazil also has an absolute advantage in the production of coffee. B)

183 the United States has an absolute advantage in the production of coffee. C)

184 Brazil can produce coffee at a lower opportunity cost than the United States. D)

185 the United States cannot produce coffee. Answer:

190 The has a comparative advantage in the production of wheat, and Haiti has a comparative United advantage in the production of sugar. If both countries specialize based on the theory of States comparative advantage, A)

191 only the production of wheat will increase. B)

192 the production and consumption of both goods will increase. C)

193 only the production of both goods will increase. D)

194 only the consumption of both goods will increase. Answer:

199 Suppose and India are both engaged in the production of radios and rice, and that Japan has an absolute that advantage in the production of both goods. If India has a lower opportunity cost for producing Japan rice, then A)

200 India has a advantage in rice production, but there will be no gains from specialization and trade. comparative B)

201 Japan has a comparative advantage in the production of both goods. C)

202 India has a advantage in the production of rice, but it is outweighed by Japan's absolute advantage in comparative rice production. D)

203 India has a advantage in the production of rice, and specialization and trade between the two comparative countries can be mutually beneficial. Answer:

206 Analytic AACSB:

207 Analytic Skills

208 If the the production possibility frontiers involving sugar and rice in countries A and B are equal, slopes of A)

209 the opportunity cost of producing sugar is less in Country A. B)

210 the opportunity cost of producing rice is less in Country B. C)

211 specialization does not benefit either country. D)

212 each country will produce identical quantities of sugar and rice. Answer:

217 16)

218 Suppose a and Chile are both engaged in the production of copper and wheat, and that Argentina has an that absolute advantage in the production of both goods. If Chile has a comparative advantage in Argentin the production of copper, then Chile A)

219 has a lower cost for copper, which means that it should specialize in production of copper and engage opportunity in trade. B)

220 has a lower cost for producing copper, but specialization is not feasible because Argentina has a lower opportunity monetary cost of copper production. C)

221 has a higher cost for copper, which means it should specialize in the production of wheat and engage opportunity in trade. D)

222 should produce copper, but only for domestic consumption, because trade is not a viable option. continue to Answer:

225 Analytic AACSB:

226 Analytic Skills

Refer to the information provided in Table 19.1 below to answer the questions that follow.

Table 19.1

227 Refer to Table 19.1. In Mexico, the opportunity cost of 1 bushel of bananas is A)

228 1/2 bushel of oranges. B)

229 1 bushels of oranges. C)

230 2 bushel of oranges. D)

231 5 bushels of oranges. Answer:

234 Analytic AACSB:

235 Analytic Skills

236 Refer to Table 19.1. In Guatemala, the opportunity cost of 1 bushel of oranges is A)

237 1/2 bushel of bananas. B)

238 1 bushels of bananas. C)

239 2 bushel of bananas. D)

240 4 bushels of bananas. Answer:

243 Analytic AACSB:

244 Analytic Skills

245 19)

246 Refer to Table 19.1. In Mexico, the opportunity cost of 1 bushel of oranges is A)

247 1/2 bushel of bananas. B)

249 2 bushel of bananas. D)

253 Analytic AACSB:

254 Analytic Skills

255 Refer to Table 19.1. In Guatemala, the opportunity cost of 1 bushel of bananas is A)

256 1/2 bushel of oranges. B)

258 2 bushel of oranges. D)

262 Analytic AACSB:

263 Analytic Skills

264 Refer to Table 19.1. The opportunity cost of producing a bushel of oranges in Mexico is A)

265 twice as much as that in Guatemala. B)

266 half as much as that in Guatemala. C)

267 the same as that in Guatemala. D)

268 four times as much as that in Guatemala. Answer:

271 Analytic AACSB:

272 Analytic Skills

273 Refer to Table 19.1. Guatemala has A)

274 a comparative advantage in orange production. B)

275 an absolute advantage in orange production. C)

276 an absolute advantage in banana production. D)

277 a comparative advantage in banana production. Answer:

280 Analytic AACSB:

281 Analytic Skills

282 Refer to Table 19.1. Guatemala has A)

283 a comparative advantage but not an absolute advantage in orange production. B)

284 a comparative advantage but not an absolute advantage in banana production. C)

285 an absolute advantage and a comparative advantage in banana production. D)

286 an absolute advantage and a comparative advantage in orange production. Answer:

289 Analytic AACSB:

290 Analytic Skills

291 Refer to Table 19.1. Mexico has A)

292 a comparative advantage but not an absolute advantage in orange production. B)

293 a comparative advantage but not an absolute advantage in banana production. C)

294 an absolute advantage and a comparative advantage in banana production. D)

295 an absolute advantage and a comparative advantage in orange production. Answer:

298 Analytic AACSB:

299 Analytic Skills

300 Refer to 19.1. Guatemala should specialize in and export ______, and Mexico should specialize in and Table export ______. A)

301 oranges; oranges B)

302 bananas; bananas C)

303 bananas; oranges D)

304 oranges; bananas Answer:

307 Analytic AACSB:

308 Analytic Skills

309 Refer to Before specialization, Mexico produces 120 bushels of oranges and 80 bushels of bananas, and Table Guatemala produces 40 bushels of oranges and 20 bushels of bananas. After specialization, the 19.1. increase in orange production is A)

310 10 bushels of oranges. B)

312 25 bushels of oranges. D)

316 Analytic AACSB:

317 Analytic Skills

318 Refer to Before specialization, Mexico produces 160 bushels of oranges and 40 bushels of bananas, and Table Guatemala produces 30 bushels of oranges and 40 bushels of bananas. After specialization, the 19.1. increase in banana production is A)

319 10 bushels of bananas. B)

321 20 bushels of bananas. D)

325 Analytic AACSB:

326 Analytic Skills

327 28)

328 Refer to 19.1. For both countries to benefit from trade, the terms of trade must be between ______Table bushel(s) of oranges to bushel(s) of bananas. A)

329 1:1/2 and 1:4 B)

330 2:3 and 2:1 C)

331 1:1 and 1:1/2 D)

332 1:1 and 1:2. Answer:

335 Analytic AACSB:

336 Analytic Skills

Table 19.2

337 Refer to Table 19.2. In China, the opportunity cost of A)

338 a tractor is 1 motorcycle. B)

339 a motorcycle is 10 tractors. C)

340 a tractor is 10 motorcycles. D)

341 a motorcycle is 1/30 of a tractor. Answer:

344 Analytic AACSB:

345 Analytic Skills

346 Refer to Table 19.2. In Thailand, the opportunity cost of A)

347 a motorcycle is 1/15 of a tractor. B)

348 a motorcycle is 15 tractors. C)

349 a motorcycle is 1/30 of a tractor. D)

350 a tractor is 20 motorcycles. Answer:

353 Analytic AACSB:

354 Analytic Skills

355 31)

356 Refer to 19.2. ______has a comparative advantage in motorcycles and ______has an absolute Table advantage in motorcycles. A)

357 China; neither B)

358 Neither; neither C)

359 Thailand; neither D)

360 Thailand; China Answer:

363 Analytic AACSB:

364 Analytic Skills

365 Refer to 19.2. If both countries specialize and trade with each other, Thailand will export ______and Table China will import ______. A)

366 motorcycles; tractors B)

367 tractors; motorcycles C)

368 tractors; tractors D)

369 motorcycles; motorcycles Answer:

372 Analytic AACSB:

373 Analytic Skills

374 Refer to Table 19.2. The most that Thailand will be willing to pay for a tractor is A)

375 5 motorcycles. B)

376 10 motorcycles. C)

377 15 motorcycles. D)

378 20 motorcycles. Answer:

381 Analytic AACSB:

382 Analytic Skills

383 Refer to Table 19.2. The most that China will be willing to pay for a motorcycle is A)

384 1/20 of a tractor. B)

385 1/10 of a tractor. C)

386 1/30 of a tractor. D)

387 1/5 of a tractor. Answer:

390 Analytic AACSB:

391 Analytic Skills

392 35)

393 Refer to Table 19.2. Which terms of trade benefits both countries? A)

394 1 tractor for 10 motorcycles B)

395 1 tractor for 12.5 motorcycles C)

396 1 motorcycle for 10 tractors D)

397 1 motorcycle for 1/5 of a tractor Answer:

400 Analytic AACSB:

401 Analytic Skills

402 The terms of trade refers to A)

403 the documents that two countries sign in order to facilitate trade. B)

404 the conditions imposed by the importing country regarding the quality of the imported goods. C)

405 the exchange rate determined by the exporting and the importing countries. D)

406 the ratio at which one country trades a domestic product for imported product. Answer:

409 Definition

410 Specializ ation and trade allow a country to A)

411 produce and consume on its production possibility frontier. B)

412 produce and consume inside its production possibility frontier. C)

413 produce and consume outside its production possibility frontier. D)

414 produce on its production possibility frontier and consume outside it. Answer:

419 The main advantage of trade between two countries is that A)

420 trade makes both countries more self-sufficient. B)

421 employment in both countries will increase. C)

422 both countries have consumption choices beyond their current resource and production constraints. D)

423 trade will lead to a more equitable distribution of income in both countries. Answer:

428 39)

429 Accordin g to comparative advantage, trade between two countries A)

430 maximizes the amount of inputs that are used in the production of all products. B)

431 guarantees that consumption levels will be equal in the two countries. C)

432 will benefit all the industries in each of the countries. D)

433 allows each of the trading countries to use its resources most efficiently. Answer:

438 When specialize in producing those goods in which they have a comparative advantage, they countries A)

439 maximize combined output, but they do not necessarily allocate their resources more efficiently. their B)

440 maximize their combined output and allocate their resources more efficiently. C)

441 allocate their resources more efficiently, but they do not necessarily maximize their combined output. D)

442 do not maximize their combined output, and they also do not necessarily allocate their resources necessarily more efficiently. Answer:

447 Refer to the information provided in Figure 19.1 below to answer the questions that follow.

Figure 19.1

448 Refer to Figure 19.1. Which of the following statements is TRUE? A)

449 The United an absolute advantage and a comparative advantage in the production of soybeans and States has both alfalfa. B)

450 The United absolute advantage in the production of soybeans and alfalfa, but a comparative States has an advantage only in the production of soybeans. C)

451 The United absolute advantage in the production of soybeans and alfalfa, but a comparative States has an advantage only in the production of alfalfa. D)

452 The United comparative advantage in the production of both soybeans and alfalfa, but an absolute States has a advantage only in the production of soybeans. Answer:

455 Analytic AACSB:

456 Analytic Skills

457 Refer to Figure 19.1. Which of the following statements is TRUE? A)

458 Only Canada from trade because the United States has an absolute advantage in the production of both can benefit soybeans and alfalfa. B)

459 Trade will countries because the United States has a comparative advantage in the production of benefit both soybeans and Canada has a comparative advantage in the production of alfalfa. C)

460 Trade will countries because the United States has a comparative advantage in the production of benefit both alfalfa and Canada has a comparative advantage in the production of soybeans. D)

461 Trade will because the United States has an absolute advantage in the production of both soybeans benefit neither and alfalfa, but Canada has a comparative advantage in the production of both soybeans country and alfalfa. Answer:

464 Analytic AACSB:

465 Analytic Skills

466 43)

467 Refer to Figure 19.1. The opportunity cost of producing a bushel of alfalfa in the United States is A)

468 twice as much as that in Canada. B)

469 half as much as that in Canada. C)

470 the same as that in Canada. D)

471 four times as much as that in Canada. Answer:

474 Analytic AACSB:

475 Analytic Skills

476 Refer to Figure 19.1. The opportunity cost of producing a bushel of alfalfa in the United States is A)

477 half a bushel of soybeans. B)

478 1 bushel of soybeans. C)

479 2 bushels of soybeans. D)

480 300 bushels of soybeans. Answer:

483 Analytic AACSB:

484 Analytic Skills

485 Refer to Figure 19.1. The opportunity cost of producing a bushel of alfalfa in Canada is A)

486 half a bushel of soybeans. B)

487 1 bushel of soybeans. C)

488 2 bushels of soybeans. D)

489 zero. Answer:

492 Analytic AACSB:

493 Analytic Skills

494 Refer to Figure 19.1. The opportunity cost of producing a bushel of soybeans in the United States is A)

495 half a bushel of alfalfa. B)

496 1 bushel of alfalfa. C)

497 2 bushels of alfalfa. D)

498 300 bushels of alfalfa. Answer:

501 Analytic AACSB:

502 Analytic Skills

503 Refer to the information provided in Figure 19.2 below to answer the questions that follow.

Figure 19.2

504 Refer to 19.2. The opportunity cost of a truck is ______car(s) in the United States and ______car(s) Figure in England. A)

505 6; 4 B)

506 4; 1.5 C)

507 4; 6 D)

508 .25; 1.5 Answer:

511 Analytic AACSB:

512 Analytic Skills

513 Refer to Figure 19.2. the theory of comparative advantage suggests that A)

514 England should import trucks and export cars. B)

515 England should export both trucks and cars. C)

516 the United States should export both trucks and cars. D)

517 the United States should export cars and import trucks. Answer:

520 Analytic AACSB:

521 Analytic Skills

522 Refer to 19.2. The opportunity cost of a car is ______truck(s) in the United States and ______Figure truck(s) in England A)

523 6; 4 B)

524 4; 1.5 C)

525 4; 6 D)

526 .25; .67 Answer:

529 Analytic AACSB:

530 Analytic Skills

531 50)

532 Refer to Figure 19.2. England has A)

533 a comparative advantage in producing trucks. B)

534 an absolute advantage in producing cars. C)

535 a comparative advantage in producing cars. D)

536 no comparative advantage in producing either cars or trucks. Answer:

539 Analytic AACSB:

540 Analytic Skills

541 Refer to Figure 19.2. the U.S. has A)

542 a comparative advantage in producing trucks. B)

543 an absolute advantage in producing trucks. C)

544 a comparative advantage in producing cars. D)

545 no comparative advantage in producing either cars or trucks. Answer:

548 Analytic AACSB:

549 Analytic Skills

550 Assume Runner specializes in producing in-line skates and Hang Ten specializes in producing that surfboards. After trade Blade Runner exports 800 pairs of in-line skates and imports 200 Blade surfboards. The terms of trade A)

551 are 1:4 in-line skates to surfboards. B)

552 are 4:1 in-line skates to surfboards. C)

553 are 1/4:1 in- line skates to surfboards. D)

554 cannot be determined from this information. Answer:

557 Analytic AACSB:

558 Analytic Skills

559 When trade is free, patterns of trade and trade flows result from A)

560 the collective few importers and exporters, as well as the governments of the countries in which they decisions of a reside. B)

561 the collective few importers and exporters, as well as millions of private households and firms. decisions of a C)

562 the decisions of thousands of importers and exporters, as well as millions of private independent households and firms. D)

563 the decisions of thousands of importers and exporters, as well as the governments of the independent countries in which they reside. Answer:

568 54)

569 If you traveling in China and you purchase a meal that costs 140 yuan and the current exchange rate are is 7 yuan to the dollar, then the price of the meal in U.S. currency is A)

570 $200. B)

571 $20. C)

572 $10. D)

573 $2 Answer:

576 Analytic AACSB:

577 Analytic Skills

578 Suppose a U.S. dollar exchanges for 2 British pounds, then each pound is worth A)

579 $.25. B)

580 $.50. C)

581 $1. D)

582 $4. Answer:

585 Analytic AACSB:

586 Analytic Skills

587 If the car in the United States is $26,000, and the exchange rate between the dollar and the British price of a pound rises from $1.50 to $2.00 per pound, then the price of the American car in Britain will A)

588 fall. B)

589 rise. C)

590 remain the same. D)

591 be irrelevant, British government will impose restrictions on imports from the United States. because the Answer:

594 Analytic AACSB:

595 Analytic Skills

596 If the car in the United States is $22,000, and the exchange rate between the dollar and the Japanese price of a yen falls from 125 yen to 105 yen per dollar, then the price of the American car in Japan will A)

597 fall. B)

598 rise. C)

599 remain the same. D)

600 be irrelevant, Japanese government will impose restrictions on imports from the United States. because the Answer:

603 Analytic AACSB:

604 Analytic Skills

605 58)

606 For any pair of countries, there is A)

607 a range of that can lead automatically to both countries realizing the gains from specialization and exchange rates comparative advantage. B)

608 one single that will lead indirectly to one country realizing the gains from specialization and exchange rate comparative advantage, but not the other country. C)

609 a range of that can lead indirectly to one country realizing the gains from specialization and exchange rates comparative advantage, but not the other country. D)

610 one single that will lead automatically to both countries realizing the gains from specialization and exchange rate comparative advantage. Answer:

Table 19.3

615 Refer to Table 19.3. If the exchange rate is $1 = 1 euro, then A)

616 the United States will import both raspberries and chocolate. B)

617 Belgium will import both raspberries and chocolate. C)

618 the United States will import chocolate and Belgium will import raspberries. D)

619 Belgium will import chocolate. Answer:

622 Analytic AACSB:

623 Analytic Skills

624 Refer to Table 19.3. If the exchange rate is $1 = 3 euros, then A)

627 the United States will import chocolate and Belgium will import raspberries. D)

628 the United States will import raspberries and Belgium will import chocolate. Answer:

631 Analytic AACSB:

632 Analytic Skills

633 Refer to Table 19.3. If the exchange rate is $1 = 2 euros, then A)

636 the United States will import raspberries and Belgium will import chocolate. D)

637 Belgium will import chocolate. Answer:

640 Analytic AACSB:

641 Analytic Skills

642 Refer to 19.3. Trade will flow in both directions between countries only if the price of the euro is Table between A)

643 $.40 and $.50. B)

644 $1.00 and $2.25. C)

645 $.60 and $.75. D)

646 $.44 and $1.00 Answer:

649 Analytic AACSB:

650 Analytic Skills

651 If the rate between the United States and Japan changes from $1 = 100 yen to $1 = 110 yen, then, exchange ceteris paribus, the price of American goods in Japan A)

652 could either increase or decrease. B)

653 will decrease. C)

654 will remain the same. D)

655 will increase. Answer:

658 Analytic AACSB:

659 Analytic Skills

660 If the rate between the United States and Mexico changes from $1 = 100 peso to $1 = 5 pesos, ceteris exchange paribus, A)

661 the United States imports from Mexico increase. B)

662 Mexican exports to the United States increase. C)

663 the United States exports to Mexico increase. D)

664 the trade deficit in the United States increases. Answer:

667 Analytic AACSB:

668 Analytic Skills

669 If trade the United States and Canada is balanced and the U.S. dollar appreciates against the Canadian between dollar, ceteris paribus, we would expect A)

670 a trade surplus in the United States. B)

671 a trade surplus in Canada. C)

672 a trade deficit in Canada. D)

673 a trade deficit in both countries. Answer:

676 Analytic AACSB:

677 Analytic Skills

678 66)

679 Suppose States and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle that the and shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros United a pair. If the current exchange rate is 0.8 euro to the dollar, then A)

680 Italy will import both shoes and wine from the United States. B)

681 the United States will import both shoes and wine from Italy. C)

682 the United States will import shoes from Italy and Italy will import wine from the United States. D)

683 the United States will import wine from Italy and Italy will import shoes from the United States. Answer:

686 Analytic AACSB:

687 Analytic Skills

688 Suppose and Italy both produce wine and shoes. In the United States, wine sells for $10 a bottle and that the shoes sell for $40 a pair. In Italy, wine sells for 15 euros a bottle and shoes sell for 20 euros a United pair. Given this information, trade will flow in both directions if the price of a dollar is between States A)

689 .5 and .75 euro. B)

690 .67 and 2 euros. C)

691 1.5 and 2.5 euros. D)

692 2.0 and 3.0 euros. Answer:

695 Analytic AACSB:

696 Analytic Skills

697 Tr s ue e /F al

698 In for any two countries, there are many exchange rates that will lead to gains from trade, based general, on comparative advantage. Answer:

703 Trade allows the people of a country to consume outside their production possibility curve. Answer:

708 If the rate between the United States and Greece changes from $1 = 1 euro to $1 = 2 euros, then exchange holding everything else constant, the price of U.S. goods in Greece will increase. Answer:

713 4)

714 If Spain decreases subsidies to its olive growers, the price of olives in the U.S. will fall. Answer:

719 A is said to enjoy a comparative advantage over another country in the production of a product if country it uses fewer resources to produce that product than the other country does. Answer:

724 A enjoys a comparative advantage in the production of a good if that good can be produced at a country lower cost in terms of other goods. Answer:

729 For any nations and goods, if each country has an absolute advantage in the production of one product, pair of it is reasonable to expect that specialization and trade will benefit both countries. Answer:

734 For any countries, there is only one single exchange rate that can lead automatically to both countries pair of realizing the gains from specialization and comparative advantage. Answer:

739 Within of exchange rates that permits specialization and trade to take place, the exchange rate will the range determine which country gains the most from trade. Answer:

744 If rates end up in the right ranges, the free market will drive each country to shift resources into exchange those sectors in which it enjoys a comparative advantage. Answer:

749 Only products in which a country has an absolute advantage will be competitive in world markets. those Answer:

754 If the price is below the world price of a certain product, the domestic country will export the domestic product. Answer:

759 The 1

761 The quantity and quality of labor, land, and natural resources of a country are its A)

762 capital stock. B)

763 productive capacity. C)

764 factor endowments. D)

765 economic potential. Answer:

767 The Sources of Comparative Advantage Skill:

768 Definition

769 The depends on highly trained workers, who are abundantly available in Country A. The heavy software equipment industry depends on the availability of a large stock of physical capital with which industry Country B is well endowed. According to Heckscher-Ohlin theorem A)

770 Country A should export heavy equipment. B)

771 Country B should import software. C)

772 Country B should import heavy equipment. D)

773 Country A should import software. Answer:

778 A significant portion of actual world trade patterns results from A)

779 different factor endowments between countries. B)

780 the different tastes and preferences of people in different countries. C)

781 the industrial policies of governments. D)

782 different sizes of the countries. Answer:

787 An example of an acquired comparative advantage is A)

788 the United producing more agricultural products than other countries because land is more States abundant in the United States than in other countries. B)

789 United States buying television sets produced in Japan because Japanese companies have a reputation consumers for producing a higher-quality TV than those produced in the United States. C)

790 United States selling to other countries chemical products that cannot be sold in the United States. companies D)

791 the United purchasing coconuts from other countries, because they cannot be produced in the United States States. Answer:

796 An example of acquired comparative advantage is that A)

797 the United States imports coffee beans because coffee beans cannot be grown in the United States. B)

798 some U.S. prefer German cars over American cars because German cars have a reputation for being consumers very safe. C)

799 China the production of labor-intensive goods because of the amount of labor available in the specializes in country relative to capital. D)

800 the U.S. provides a subsidy to firms that are trying to increase their exports to other countries. government Answer:

805 Which of following phenomena CANNOT be explained by the simple comparative advantage theory? the A)

806 A country that does not have much farmland tends to import agricultural goods. B)

807 A country with a lot of skilled labor tends to export highly technical goods. C)

808 A country tends to export the goods that it can produce at a lower opportunity cost. D)

809 A country imports and exports the same goods. Answer:

814 The Heckscher-Ohlin theorem looks to ______to explain trade flows. A)

815 relative factor endowments B)

816 the existence of trade barriers C)

817 acquired comparative advantage D)

818 the differences in preferences among consumers Answer:

821 Fact

822 8)

823 Which of the following is NOT a valid explanation for the existence of international trade? A)

824 the existence of natural comparative advantage B)

825 the existence of acquired comparative advantage C)

826 some scale that are available when producing for a domestic market may not be available when economies of producing for a world market D)

827 industries differentiate their products in order to please the wide variety of tastes that exist may worldwide Answer:

832 Tr s ue e /F al

833 A with a lot of human capital is likely to have a comparative advantage in highly technical goods. country Answer:

838 The er-Ohlin theorem says that a country is likely to have a comparative advantage in a labor Hecksch intensive product, if it has a large labor supply. Answer:

841 Fact

842 The Heckscher-Ohlin theorem explains why the U.S. both imports and exports cars. Answer:

847 Internati trade can be spurred by economies of scale giving a cost advantage to one large producer onal exporting to the whole world. Answer:

852 Acquired comparative advantage come from factor endowments. Answer:

857 19.4

858 Trad e Barri ers: Tarif fs, Expo rt Subs idies, and Quot as

861 A tariff is A)

862 a limit on the quantity of a good that can be imported into a country. B)

863 a tax on imports. C)

864 a government payment made to domestic firms to encourage exports. D)

865 a payment made by the government to producers of the product. Answer:

867 Trade Barriers: Tariffs, Export Subsidies, and Quotas Skill:

868 Definition

869 Govern ment payments made to domestic firms in order to encourage exports are called A)

870 tariffs. B)

871 bribes. C)

872 quotas. D)

873 subsidies. Answer:

876 Definition

877 It costs a r manufacturer $3,000 to produce a personal computer. This manufacturer sells these compute computers abroad for $2,500. This is an example of A)

878 a negative tariff. B)

879 export subsidy. C)

880 dumping. D)

881 a trade-related economy of scale. Answer:

886 If the United States decreases the tariff on imported tuna steaks, this will A)

887 reduce the tuna steaks imported into the United States and reduce production of tuna steaks in the number of United States. B)

888 increase the tuna steaks imported in the United States and increase the production of tuna steaks in number of the United States. C)

889 reduce the tuna steaks imported in the United States and increase the production of tuna steaks in number of the United States. D)

890 increase the tuna steaks imported in the United States and reduce the production of tuna steaks in the number of United States. Answer:

895 5)

896 The States placed a limit on the amount of cars that can be imported into the United States. This is United an example of A)

897 a tariff. B)

898 an export subsidy. C)

899 a quota. D)

900 dumping. Answer:

905 Which of the following is TRUE? A)

906 An import quota generates government revenue. B)

907 Tariffs on generate government revenue as long as the domestic price is larger than the world price imports plus the tariff. C)

908 Tariffs on generate government revenue if the domestic price is larger than the world price plus the imports do not tariff. D)

909 Tariffs on imports never generate government revenue. Answer:

914 Which of the following statements is FALSE? A)

915 If the United a tariff on Japanese car imports, the price of cars in the United States is likely to increase. States imposes B)

916 If the United a quota on Japanese car imports, the price of cars in the United States is likely to increase. States imposes C)

917 If Japan subsidy on car exports to the United States, the price of cars in the United States is likely imposes a to increase. D)

918 If Japan "voluntary export restraint" on car exports to the United States, the price of cars in the imposes a United States is likely to increase. Answer:

923 Dumpin g involves a country selling its exports A)

924 at a price lower than its cost of production. B)

925 to nations without a comparative advantage in producing the products. C)

926 to nations that regularly impose tariffs. D)

927 to nations that have no need for the products. Answer:

930 Definition

931 9)

932 The U.S. tariff law that set off an international trade war in the 1930s was the A)

933 Taft-Hartley tariff. B)

934 Bentsen- Gephardt tariff. C)

935 Smoot- Hawley tariff. D)

936 Landrum- Griffin tariff. Answer:

939 Fact

940 The onal agreement signed by the United States and 22 other countries in 1947 to promote the internati liberalization of foreign trade is known by its initials as A)

941 GATT. B)

942 START. C)

943 SALT. D)

944 IMF. Answer:

947 Fact

948 Every who has held office since the General Agreement on Tariffs and Trade was signed has president A)

949 argued for policies, but only Eisenhower and Reagan successfully resisted all calls for protection free-trade from various sectors of the economy. B)

950 argued that domestic industries deserve protection, yet each one has been reluctant to use his powers certain to protect individual sectors of the economy. C)

951 argued for policies, yet each one has used his powers to protect various sectors of the economy. free-trade D)

952 argued for policies, but only Kennedy and Carter successfully resisted all calls for protection from free-trade various sectors of the economy. Answer:

955 Fact

956 In 2003, ruled that U.S. tariffs on ______were unfair and allowed retaliatory tariffs on U.S. products. the WTO A)

957 steel imported from the EU B)

958 beef imported from Argentina C)

959 automobiles imported from Japan D)

960 diamonds imported from South Africa Answer:

963 Fact

964 13)

965 Over time, the general movement in the United States has been toward A)

966 higher tariffs and stricter import quotas. B)

967 managed trade. C)

968 relatively more free trade. D)

969 complete elimination of tariffs, import quotas, and export subsidies. Answer:

972 Fact

973 If a nation has most-favored-nation status conferred on it, then exports from that country A)

974 will be priced higher than products exported from countries without most-favored-nation status. B)

975 are exempt from all safety regulations. C)

976 are sold below cost. D)

977 are taxed at the lowest negotiated tariff rates. Answer:

980 Fact

981 Economi c integration A)

982 occurs when two or more nations join to form a free-trade zone. B)

983 occurs when develop an acquired comparative advantage that makes their industries more competitive countries in international markets. C)

984 occurs when countries are granted most-favored-nation status. D)

985 occurs when one country voluntarily agrees to reduce its exports to another country. Answer:

988 Definition

989 The idea U.S.-Canadian Free-Trade Agreement that removed all barriers to trade including tariffs and of the quotas between the United States and Canada by 1998 was to A)

990 increase the price of Canadian goods sold in the United States. B)

991 increase the price of U.S. goods sold in Canada. C)

992 increase the the United States exports to Canada and the amount that the United States imports from amount that Canada. D)

993 increase the the United States exports to Canada and decrease the amount that the United States amount that imports from Canada. Answer:

996 Fact

997 17)

998 In 1991, what group of countries began the process of forming the largest free-trade zone in the world? A)

999 the European Community B)

1000 the North Atlantic Treaty Organization C)

1001 the United States, Canada, and Mexico D)

1002 the Organization of Petroleum Exporting Countries Answer:

1005 Fact

1006 Which of the following can be considered a free-trade zone? A)

1007 countries that are members of GATT B)

1008 the United States C)

1009 all English- speaking nations D)

1010 the industrialized OECD nations Answer:

1013 Fact

1014 Related Economics in Practice on p. 366 [678]: A rise in global food prices would most likely result in to the pressure to A)

1015 increase tariffs on imported food. B)

1016 decrease tariffs on imported food. C)

1017 decrease quotas on imported food. D)

1018 decrease export duties on food. Answer:

1020 Trade Barriers: Tariffs, Export Subsidies, and Quotas: Economics in Practice Skill:

1022 Analytic Skills

1023 Tr s ue e /F al

1024 An export subsidy raises the domestic price of the product. Answer:

1029 A tariff is a tax on imports. Answer:

1032 Definition

1033 Dumpin g refers to a country selling its exports at a price lower than its selling price at home. Answer:

1036 Definition

1037 4)

1038 A quota is a restriction that allows women and minorities to import a certain percentage of imports. Answer:

1041 Definition

1042 Tariffs, quotas and exports subsidies all increase domestic production. Answer:

1047 A quota on sugar harms domestic producers of sugar. Answer:

1052 Related Economics in Practice on p. 366 [678]: To keep domestic food markets well-stocked, China has to the recently increased export duties on food products. Answer:

1054 Trade Barriers: Tariffs, Export Subsidies, and Quotas: Economics in Practice Skill:

1055 Fact

1056 Free 1

1058 The case for free trade is based on the A)

1059 theory of balanced growth. B)

1060 theory of absolute advantage. C)

1061 argument for a diversified economy. D)

1062 theory of comparative advantage. Answer:

1064 Free Trade or Protection? Skill:

1065 Fact

1066 Which of the following statements is NOT true? A)

1067 Trade is beneficial because it allows more efficient production. B)

1068 Trade is beneficial because it allows consumers to buy goods at cheaper prices. C)

1069 Trade is beneficial because it allows all domestic industries to increase production. D)

1070 Trade is beneficial because it allows consumption beyond the production possibility frontier. Answer:

1075 3)

1076 A tariff on imported shoes will cause the domestic price of shoes to ______and the domestic imposed production of shoes to ______. A)

1077 increase; increase B)

1078 increase; decrease C)

1079 decrease; increase D)

1080 decrease; decrease Answer:

Refer to the information provided in Figure 19.3 below to answer the questions that follow.

Figure 19.3

1085 Refer to 19.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. After Figure trade this country will import A)

1086 100 pairs of shoes. B)

1087 200 pairs of shoes. C)

1088 300 pairs of shoes. D)

1089 1,300 pairs of shoes. Answer:

1092 Analytic AACSB:

1094 Refer to domestic price of shoes is $80. After trade the price of a pair of shoes is $60. Now domestic Figure production costs fall so that the equilibrium domestic price of a pair of shoes is $70. This would 19.3. The cause A)

1095 the number of pairs of shoes imported into this country to increase. B)

1096 the number of pairs of shoes imported into this country to decrease. C)

1097 the number of pairs of shoes exported from this country to increase. D)

1098 the number of pairs of shoes exported from this country to decrease. Answer:

1103 6)

1104 Refer to 19.3. The domestic price of shoes is $80. After trade the price of a pair of shoes is $60. If shoes Figure are a normal good and income in this country rises, then we would expect A)

1105 the number of pairs of shoes imported into this country to increase. B)

1106 the number of pairs of shoes imported into this country to decrease. C)

1107 the number of pairs of shoes exported from this country to increase. D)

1108 the number of pairs of shoes exported from this country to decrease. Answer:

Figure 19.4

1113 Refer to domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. If there is free trade, this country will import ______19.4. The leather wallets. A)

1114 50 B)

1115 100 C)

1116 200 D)

1117 300 Answer:

1122 Refer to domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. After the tariff is imposed, this country will import 19.4. The ______leather wallets. A)

1123 50 B)

1124 100 C)

1125 150 D)

1126 200 Answer:

1131 Refer to domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. After the tariff is imposed, tariff revenue in this country 19.4. The will be A)

1132 $50. B)

1133 $250. C)

1134 $500. D)

1135 $750. Answer:

1140 Refer to 19.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is Figure $10 and after a tariff is imposed the price is $15. After the tariff is imposed, A)

1141 domestic and consumption will increase by 50 wallets and domestic consumption will increase by production 50 wallets. B)

1142 domestic will increase by 150 wallets and domestic consumption will decrease by 250 wallets. production C)

1143 domestic will increase by 100 wallets and domestic consumption will decrease by 100 wallets. production D)

1144 domestic will increase by 50 wallets and domestic consumption will decrease by 50 wallets. production Answer:

1149 Refer to domestic price of a leather wallet is $20. With free trade the price of a leather wallet is $10 and Figure after a tariff is imposed the price is $15. If the tariff is raised so that it now equals $10, tariff 19.4. The revenue in this country will be A)

1150 $0. B)

1151 $1,000. C)

1152 $2,000. D)

1153 $3,000. Answer:

1158 Refer to 19.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is Figure $10 and after a tariff is imposed the price is $15. With free trade domestic production is A)

1159 0. B)

1160 100. C)

1161 150. D)

1162 300. Answer:

1167 Refer to 19.4. The domestic price of a leather wallet is $20. With free trade the price of a leather wallet is Figure $10 and after a tariff is imposed the price is $15. With the tariff domestic production is A)

1168 100. B)

1169 150. C)

1170 200. D)

1171 300. Answer:

Figure 19.5

1176 Refer to 19.5. The domestic price of oil is $130 per barrel. If the world price of oil is $135 per barrel, this Figure country will A)

1177 import 23 million barrels. B)

1178 import 9 million barrels. C)

1179 export 5 million barrels. D)

1180 export 14 million barrels. Answer:

1185 Refer to 19.5. The domestic price of oil is $130 per barrel. This country imports 14 million barrels if the Figure world price of oil is $______. A)

1186 120 B)

1187 125 C)

1188 135 D)

1189 140 Answer:

1194 Refer to domestic price of oil is $130 per barrel, and the world price of oil is $120 per barrel. If the Figure domestic government imposes a tariff of $______per barrel, it will eliminate all oil imports 19.5. The and achieve tariff revenues of $______. A)

1195 10; zero B)

1196 5; 20 million C)

1197 5; 45 million D)

1198 10; 120 million Answer:

Figure 19.6

1203 Refer to 19.6. Before imposing an import quota, the equilibrium price of cheese is $______per pound Figure and the equilibrium quantity is ______pounds. A)

1204 3; 12,000 B)

1205 5; 8,000 C)

1206 5; 6,000 D)

1207 3; 6,000 Answer:

1212 Refer to Suppose the government imposes an import quota of 6,000 pounds of cheese. The equilibrium Figure price changes to $______per pound, and the equilibrium quantity changes to ______19.6. pounds. A)

1213 3; 12,000 B)

1214 3, 6,000 C)

1215 5; 8,000 D)

1216 7; 6,000 Answer:

1221 Refer to 19.6. If the government does not impose an import quota of 6,000 pounds of cheese and the Figure world price of cheese is $2 per pound, this country will ______pounds of cheese. A)

1222 import 7,000 B)

1223 import 10,000 C)

1224 import 13,000 D)

1225 none of the above Answer:

1230 Refer to Figure 19.6. From a no trade position, an import quota of 6,000 pounds A)

1231 increases domestic supply by 3,000 pounds and lowers the price by $2 per pound. B)

1232 decreases domestic supply by 2,000 pounds and lowers the price by $2 per pound. C)

1233 decreases domestic supply by 2,000 pounds and raises the price by $1 per pound. D)

1234 decreases domestic supply by 3,000 pounds and lowers the price by $2 per pound. Answer:

1239 Related Economics in Practice on p. 369 [681]: If the candle makers in the petition were able to gain to the protection for their industry, the French economy would most likely A)

1240 benefit in the short run. B)

1241 become more efficient. C)

1242 benefit only if the protection was in the form of a tariff. D)

1243 have to pay higher prices for candles. Answer:

1245 Free Trade or Protection?: Economics in Practice Skill:

1248 Related Economics in Practice on p. 369 [681]: Satirist Frederic Bastiat's essay arguing for a quota on to the sunlight in order to protect domestic candle makers suggests that it is pointless to A)

1249 participate in international trade B)

1250 protect industries that cannot compete effectively C)

1251 legislate based on economic theory D)

1252 create barriers to trade in some markets but not others Answer:

1254 Free Trade or Protection?: Economics in Practice Skill:

1257 2

1258 Tr s ue e /F al

1259 It is a argument that industries need to be protected from foreign competition because foreign wages valid are substantially lower than wages paid to U.S. workers. Answer:

1264 Free trade allows the people of a country to consume outside their production possibility frontier. Answer:

1269 Free trade decreases world production and consumption. Answer:

1274 Protectio n is often temporary to help infant industries. Answer:

1277 Fact

1278 Protectio n makes the people of a country better off. Answer:

1283 Accordin g to some environmental groups, free trade policies are potentially harmful to the environment. Answer:

1286 Fact