ECON 231
Chapter 24 Study Quiz


1.
Other things equal, economists would prefer:
A.
free trade to tariffs and tariffs to import quotas.
B.
free trade to import quotas and import quotas to tariffs.
C.
import quotas to tariffs and tariffs to voluntary export restrictions.
D.
import quotas to free trade and free trade to tariffs.


Answer the next question(s) on the basis of the following information. Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y.
Reference: REF37134

2.
Refer to the above information. Alpha would prefer terms of trade at, or close to, 1X = 2/3Y.
A. True
B. False


Answer the next question(s) on the basis of the following domestic supply and demand schedules for a product. Suppose that the world price of the product is $1.

Reference: REF37092

3.
Refer to the above data. If the economy is opened to free trade and the world price of $1 prevailed, the price and quantity sold of this product would be:
A.
$1 and 1 unit.
B.
$1 and 16 units.
C.
$3 and 7 units.
D.
$2 and 11 units.


4.
The number of countries belonging to the World Trade Organization (WTO) currently is about.
A.
145.
B.
100.
C.
80.
D.
22.


5.
Studies show that:
A.
it is impossible to estimate the benefits of trade barriers.
B.
costs and benefits of trade barriers are about equal.
C.
benefits of trade barriers exceed their costs in developing nations.
D.
costs of trade barriers exceed their benefits, creating an efficiency loss for society.


6.
Export supply curves are __________________; import demand curves are ___________________.
A.
horizontal; vertical
B.
vertical; horizontal
C.
downsloping; upsloping
D.
upsloping; downsloping


7.
An excise tax on an imported good that is not produced domestically is called a:
A.
protective tariff.
B.
import quota.
C.
revenue tariff.
D.
voluntary export restriction.


         
Reference: F37103

8.
Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. A tariff of Pc Pt or an import quota of wy will:
A.
have the same effect on the volume of imports.
B.
have the same effect on domestic price.
C.
have the same effect on the revenues of domestic producers.
D.
do all of the above.


Reference: F37059

9.
Refer to the above diagram showing the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $.50, this nation will experience a domestic:
A.
shortage of 160 units, which it will meet with 160 units of imports.
B.
shortage of 160 units, which will increase the domestic price to $1.60.
C.
surplus of 160 units which it will export.
D.
surplus of 160 units, which will reduce the world price to $1.00.


10.
In the theory of comparative advantage, a good should be produced in that nation where:
A.
the production possibilities line lies further to the right than the trading possibilities line.
B.
its cost is least in terms of alternative goods that might otherwise be produced.
C.
its absolute cost in terms of real resources used is least.
D.
its absolute money cost of production is least.


11.
The terms of trade reflect the:
A.
rate at which gold exchanges internationally for any domestic currency.
B.
ratio at which nations will exchange two goods.
C.
fact that the gains from trade will be equally divided.
D.
cost conditions embodied in a single country's production possibilities curve.


12.
In a two-nation model, the equilibrium world price will occur where:
A.
one nation's export supply curve intersects the other nation's import demand curve.
B.
exports are exactly twice the level of imports.
C.
both nations' export supply curves are horizontal.
D.
both nations' import demand curves are vertical.


13.
Economists prefer free trade to tariffs and prefer tariffs to import quotas.
A. True
B. False


Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:

Reference: REF37019

14.
Refer to the above tables. Which of the following would be feasible terms for trade between Latalia and Trombonia?
A.
1 ton of beans for 1 ton of pork
B.
2 tons of beans for 1 ton of pork
C.
6 tons of beans for 1 ton of pork
D.
4 tons of beans for 1 ton of pork


Answer the next question(s) on the basis of the following domestic supply and demand schedules for a product. Suppose that the world price of the product is $1.

Reference: REF37092

15.
Refer to the above data. The total amount of revenue collected from a $1 per unit tariff on this product will be:
A.
$22.
B.
$8.
C.
$7.
D.
$14.


Reference: F37037

16.
Assuming labor forces of equal size, the production possibilities curves above suggest that workers in West Mudville will have:
A.
lower wages than workers in East Mudville before trade but equal wages after trade.
B.
higher wages than workers in East Mudville both before and after trade.
C.
lower wages than workers in East Mudville both before and after trade.
D.
higher wages than workers in East Mudville before trade but lower wages after trade.


17.
If a nation has a comparative advantage in the production of X, this means the nation:
A.
cannot benefit by producing and trading this product.
B.
must give up less of other goods than other nations in producing a unit of X.
C.
has a production possibilities curve identical to those of other nations.
D.
is not subject to increasing opportunity costs.


Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:

Reference: REF37019

18.
The above data indicate that production in:
A.
both Latalia and Trombonia is subject to constant opportunity costs.
B.
Trombonia is subject to decreasing costs, but production in Latalia occurs under increasing opportunity costs.
C.
Latalia is subject to increasing costs, but production in Trombonia occurs under constant opportunity costs.
D.
both Latalia and Trombonia are subject to the law of increasing opportunity costs.


19.
Free trade based on comparative advantage is economically beneficial because:
A.
it promotes an efficient allocation of world resources.
B.
it increases competition.
C.
it provides consumers with a wider range of products.
D.
of all of the above reasons.


20.
The impact of increasing, as opposed to constant, costs is to:
A.
intensify and prolong the comparative advantages that any nation may have initially.
B.
expand the limits of the terms of trade.
C.
cause the bases for further specialization to disappear as nations specialize according to comparative advantage.
D.
cause nations to realize economies of scale in those products in which they specialize.


21.
As it relates to international trade, dumping:
A.
is a form of price discrimination illegal under U.S. antitrust laws.
B.
is the practice of selling goods in a foreign market at less than cost.
C.
constitutes a general case for permanent tariffs.
D.
is defined as selling more goods than allowed by an import quota.


22.
Differences in production efficiencies among nations in producing a particular good result from:
A.
different endowments of fertile soil.
B.
different amounts of skilled labor.
C.
different levels of technological knowledge.
D.
all of the above.


Answer the next question(s) on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.

Gamma production possibilities:



Sigma production possibilities:

Reference: REF37013

23.
Refer to the above data. What are the limits of the terms of trade between Gamma and Sigma?
A.
1 tea = 2 pots to 1 tea = 6 pots
B.
1 tea = 3 pots to 1 tea = 6 pots
C.
1 tea = 2 pots to 1 tea = 3.5 pots
D.
1 tea = 1 pot to 1 tea = 3 pots


24.
Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect:
A.
the price of German bicycles to increase in the United States.
B.
employment to decrease in the German bicycle industry.
C.
employment to decrease in the U.S. bicycle industry.
D.
profits to rise in the U.S. bicycle industry.


Answer the next question(s) on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.

Gamma production possibilities:



Sigma production possibilities:

Reference: REF37013

25.
On the basis of the above information:
A.
Gamma should export both tea and pots to Sigma.
B.
Sigma should export tea to Gamma and Gamma should export pots to Sigma.
C.
Gamma should export tea to Sigma and Sigma should export pots to Gamma.
D.
Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.


26.
As used in strategic trade policy, tariffs are a variation of the:
A.
military self-sufficiency argument for tariffs.
B.
increased-domestic-employment argument for tariffs.
C.
diversification-for-stability argument for tariffs.
D.
infant-industry argument for tariffs.


27.
As a percentage of GDP, U.S. exports are:
A.
greater than U.S. imports.
B.
about 20 percent.
C.
considerably lower than in several other industrially advanced nations.
D.
higher than in Canada but lower than Mexico.


28.
In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber exported to the United States. This is an example of a(n):
A.
import quota.
B.
export subsidy.
C.
voluntary export restriction.
D.
protective tariff.


29.
A side benefit of international trade is that it links national interests and increases the opportunity costs of war.
A. True
B. False


         
Reference: F37083

30.
Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. With a per unit tariff in the amount PcPt, price and total quantity sold will be:
A.
Pt and x.
B.
Pc and z.
C.
Pt and y.
D.
Pa and x.


31.
Which of the following is an example of a land-intensive commodity?
A.
chemicals
B.
autos
C.
watches
D.
wool


32.
Since 1975 U.S. exports and imports have:
A.
declined as a percentage of U.S. GDP.
B.
more than doubled as a percentage of U.S. GDP.
C.
more than tripled as a percentage of U.S. GDP.
D.
remained virtually constant as a percentage of U.S. GDP.


Answer the next question(s) on the basis of the following domestic supply and demand schedules for a product. Suppose that the world price of the product is $1.

Reference: REF37092

33.
Refer to the above data. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers respectively would be:
A.
1 unit and 15 units.
B.
4 units and 7 units.
C.
7 units and 0 units.
D.
4 units and 6 units.


Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:

Reference: REF37019

34.
Refer to the above tables. In Latalia the domestic real cost of 1 ton of pork:
A.
is 3 tons of beans.
B.
diminishes with the level of pork production.
C.
is 5 tons of beans.
D.
is 1/5 of a ton of beans.


Reference: F37026

35.
Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves imply that:
A.
both countries have a trade surplus that will result in economic growth.
B.
the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources.
C.
world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage.
D.
both nations will be worse off as a result of international specialization and trade.


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