Gaining from international trade

International trade refers to the exchange of goods and services between countries. It allows countries to access goods and resources that they may not have domestically, and to sell goods and resources that they do have in abundance. By specializing in the production of certain goods and services, countries can gain from trade by being able to produce them at a lower cost than other countries. Additionally, international trade can lead to increased economic growth and development, as well as improved living standards for the citizens of the countries involved.

1.Data on trade barriers and the growth of per capita GDP indicate that

economies that have imposed high trade barriers have, on average, grown more rapidly than economies that are more open to international trade

countries with higher trade barriers have been able to achieve higher levels of per capita GDP than those that are more open to international trade

there is no link between the degree of a country’s trade openness and its economic growth

more open economies have grown more rapidly than those that have imposed substantial barriers restricting trade

2.The import quotas imposed on sugar in the United States have resulted in:

increase in total employment in the United States

lower domestic prices of products that contain sugar

increase in the number of large candy makers in the United States

a domestic price of sugar that is substantially higher than the world price

3.Which of the following provides the most accurate statement of the infant industry argument for trade restrictions?

Industries require protection from foreign competition for a period of time so that they can compete effectively with foreign producers in the future

Industries require protection from foreign competition for a period of time so that they can operate at the minimum point of their short-run average total cost curve

Industries require protection from foreign competition so that they can produce more goods at lower prices, which will increase their revenues

Industries require protection from foreign competition in order to ensure the maximum utilization of resources available in an economy

4.Identify the correct statement regarding the affects of imposing an import quota on a good.

It increases the consumer surplus enjoyed by domestic consumers

It encourages foreign producers to engage in rent-seeking activities in an effort to secure the right to sell at a premium price in domestic markets

It results in an increase in the domestic output of goods for which the country has a comparative advantage

It reduces the producer surplus enjoyed by domestic producers

5.Which of the following is true of exchange rate controls?

They lead to black-market currency exchanges

They are not considered a trade barrier, even though they reduce the volume of trade

They result in a decrease in exports

They result in an increase in imports

6.The United States is the world’s leading grain-producing nation. Exporting U.S. grain causes the

price of grain to domestic consumers to rise because of the added foreign demand

standard of living of foreigners to fall because they lose purchasing power

domestic consumption of grain to rise because of the added foreign demand

price of grain in the domestic market to fall because foreigners are now taking some of the domestic demand

7.International trade between countries is most likely to result in an:

outward rotation of their consumption possibilities frontiers

inward rotation of their consumption possibilities frontiers

outward shift of their production possibilities constraints

inward shift of their production possibilities constraints

8.Opening trade between a low-wage country and a high-wage country will:

raise the standard of living in the low-wage country and lower the standard of living in the high-wage country

raise the standard of living in the high-wage country and lower the standard of living in the low-wage country

lower the standard of living in both countries

raise the standard of living in both countries

9.Identify the correct statement about the gains and losses of producers and consumers under free trade.

When a country exports a good, domestic consumers gain, domestic producers lose, and the losses offset the gains

When a country exports a good, domestic consumers gain, but domestic producers lose an equal amount

When a country imports a good, domestic consumers gain, domestic producers lose, and the gains exceed the losses

When a country imports a good, domestic consumers lose, domestic producers gain, and the gains exceed the losses

10.The argument that import restrictions save jobs and increase total employment fails to recognize that

import restrictions cannot create jobs in any industries

U.S. imports provide people in other countries with the purchasing power required for the purchase of U.S. exports

trade restrictions are a special interest issue

import restrictions will lower prices in the protected industries

11.Mutual gains from international trade and specialization are possible as long as:

one nation can produce a good more cheaply than other nations

one nation can produce a good that generates more social benefits than costs

the relative production costs of two goods differ between two countries

the relative prices of two goods are the same between two countries

12.Suppose Petrovia produces two goods: Good X and Good Y. If Good X is measured along the horizontal axis and Good Y is measured along the vertical axis, then the slope of Petrovia’s production possibilities constraint reflects:

the relative price of Good Y and Good X

the relative price of Good X and Good Y

the opportunity cost of Good Y relative to Good X

the opportunity cost of Good X relative to Good Y

13.Which of the following is likely to be true when a tariff is imposed on the import of a good?

Domestic producers will expand their output in response to the higher domestic market price

The quantity demanded of the good by domestic consumers will increase

Resources will flow from the sector in which the tariff is imposed to other sectors of an economy

Domestic consumers and the government will gain at the expense of producers

14.Relative to a no-trade situation, if the United States imported jeans, the U.S. domestic price of jeans would

decline as would domestic output

rise as would domestic output

rise, but domestic output would fall

decline, but domestic output would rise

15.According to public choice theory, tariffs, quotas, and other trade restrictions are primarily the result of the

political power of special interest groups, particularly producers and workers in the industries benefitting from the restrictions

political desire for economic efficiency

political clout of foreigners

political clout of domestic consumers

16.Which of the following Correctly describes the major problem associated with the infant-industry argument?

A protection once granted to an industry is demanded by the other industries in an economy

A protection once granted is very difficult to remove

The protection of infant industries sometimes leads to economies of scope, threatening the existence of other industries in an economy

The protection of infant industries leads to diseconomies of scale in production

17.Which of the following is true of trade restrictions?

They generate a higher per capita income for an economy

They result in the maximization of total welfare in an economy and potential gains from international trade

They provide benefits to consumers in the form of lower prices of goods

They provide concentrated benefits to the producers in industries they are designed to protect

18.Trade restrictions:

reduce the quantity of goods demanded by consumers in domestic markets

decrease the domestic price of goods

reduce the supply of goods in domestic markets and the gains from potential trade

benefit domestic consumers at the expense of domestic producers

19.Which of the following is an example of a capital good?

Technology

Sporting goods

Pharmaceuticals

Automobiles

20.International trade and competition from abroad

will make it more difficult for domestic consumers in small countries to purchase from large scale producers

typically results in high costs and lower quality products

provide domestic producers with a strong incentive to improve the quality of their products and keep their costs low

will make it more difficult for domestic producers to realize fully the potential gains from economies of scale in production

21.Which of the following occurred after the North American Free Trade Agreement (NAFTA) took affect in 1994?

Employment in the United States was unchanged after the agreement

NAFTA did not apply to Mexico and Canada

U.S. trade with both Mexico and Canada increased

Employment in the United States is now slightly lower than before the agreement

22.Opportunity costs differ among countries primarily because countries have different:

political structures

exchange rates for currencies

currencies and the purchasing power of their currencies differ

endowments of resources and labor-force skills

23.Which of the following is true of tariffs, quotas, and other trade barriers?

While trade barriers are most likely to increase the amount of imports of a country, sales to foreigners are most likely to increase

While trade barriers are most likely to result in a decrease in producer surplus, they also result in an increase in consumer surplus

While trade barriers increase the overall efficiency of domestic markets, they also distort the market structure of the domestic economy

While trade barriers foster employment in the industries shielded from competition, jobs in other domestic sectors will be destroyed

24.Which of the following will occur when a restrictive quota is imposed on a good?

A decrease in producer surplus

An increase in consumer surplus

A decrease in the supply of the good in the domestic market

An increase in domestic consumption

25.Which of the following is a difference between a tariff and a quota?

In contrast with a tariff, a quota does not result in deadweight losses

While a tariff increases the size of the consumer surplus, a quota reduces it

In contrast with a tariff, a quota does not generate revenue for the government

While a tariff causes domestic prices to increase, a quota causes domestic prices to decrease below their free-trade level

26.The import quotas imposed on the U.S. steel industry during 2002–2003 benefitted:

the domestic industry producing steel barrels

the domestic appliance-manufacturing industries

the foreign producers of steel

the domestic steel industry

27.Identify the correct statement about the trade sector of the United States.

Exports of goods and services as a share of GDP were approximately 12 percent in 2019

Exports of goods and services as a share of GDP were approximately 40 percent in 2019

Imports of goods and services as a share of GDP increased to almost 50 percent in 2019

Imports of goods and services as a share of GDP increased to 30 percent in 2019

28.Which of the following is true of the U.S. tariff code?

It is both lengthy and highly complex

It is short but very difficult to comprehend

It is lengthy but easy to understand

It is written in a very lucid language

29.Identify the correct statement about international trade.

The Internet and other technological changes reduce transport and communications costs and thereby encourage trade

Economic theory indicates that trade restrictions will increase the total employment of a country

Opening trade between a low-wage country and a high-wage country will raise the standard of living in the low-wage country and lower the standard of living in the high-wage country

Closed economies have grown more rapidly and have achieved higher per capita income levels than economies more open to international trade

30.Dumping involves:

the sale of goods by a domestic firm at a price below cost, resulting in the elimination of competitors in the domestic market

the sale of goods by a domestic firm at a price that ensures supernormal profits for the firm in the short run

the sale of goods by a foreign firm at a price that equals its marginal cost of production

the sale of goods by a foreign firm at a price below cost or below the price charged in the firm’s home-base market

31.Which of the following countries is one of the four largest trading partners of the United States?

China

Saudi Arabia

Brazil

France

32.According to international trade theory, a country can gain

by importing goods when they can be obtained more economically from foreign producers

if it maximizes the employment in domestic industries that face competition from foreign producers who have lower costs

if it protects domestic industries from low-wage foreign producers

only if the trade harms its trading partners

33.Which of the following will result when a tariff is imposed on a good?

A decrease in producer surplus

An increase in consumer surplus

A higher domestic price of the good

An increase in the quantity of the good consumed domestically

34.The law of comparative advantage states that a nation can gain from the specialization and exchange of a good:

if it can produce the good with less labor than producers in other nations

if production of the good generates more tax revenues than production of other goods

if the consumers of the nation have a strong demand for the good

if it can produce the good at a lower opportunity cost than producers in other nations

35.Which of the following most accurately reflects the national defence argument for trade restrictions?

Industries should be protected from foreign competition to ensure a fair and equitable allocation of resources in an economy

Industries should be protected from foreign competition to bring down the level of unemployment in an economy below its natural rate and maximize total surplus

Industries should be protected from foreign competitors so that the government can earn some revenue from trade barriers

Industries should be protected from foreign competitors so that a domestic supply of necessary materials would be available in case of an international conflict

36.Proponents of the antidumping argument argue that:

consumer surplus is reduced to zero because of the higher prices of goods

competition from foreign producers decreases the amount of tax revenue earned by the government

foreign producers exploit their market power by charging consumers a very high price

foreign producers temporarily cut prices, drive domestic firms out of the market, and then use their monopoly position to gouge consumers

37.Which of the following would be expected if the tariff on foreign-produced automobiles was increased?

The number of unemployed workers in the domestic automobile industry would rise

The demand for foreign-produced automobiles would increase, causing the price of automobiles to increase in other nations

The domestic price of automobiles would fall

The supply of foreign automobiles to the domestic market would decline, causing auto prices to rise

38.Which one of the following items is among the leading products exported by the United States?

Civilian aircraft

Shoes

Toys

Diamonds

39.A convex production possibilities frontier indicates the:

increasing opportunity cost of producing an extra unit of the good on the horizontal axis

decreasing relative price of the good on the horizontal axis to that on the vertical axis

increasing relative price of the good on the horizontal axis to that on the vertical axis

decreasing opportunity cost of producing an extra unit of the good on the horizontal axis

40.International trade leads to mutual gains because it allows residents of different countries to:

export goods for which they have a high opportunity cost of production

specialize in the production of the goods for which they have an absolute advantage

specialize in the production of the goods for which they have a comparative advantage

import goods for which they have a low opportunity cost of production

41.The law of comparative advantage indicates that specialization and trade will lead to:

an increase in total output if a nation is a net exporter but a decline if it is a net importer of goods and services

an increase in total output because the trading partners will be able to produce more when each specializes in production of the goods for which it is a low-cost producer

a decline in total output because specialization is costly

an increase in total output if the nation is running a trade surplus, but a decline in total output if it has a trade deficit

Gaining from international trade

Gaining from international trade

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