Chapter 9 Application: International Trade

TRUE/FALSE 1. Trade decisions are based on the principle of absolute advantage. ANS: F DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Absolute advantage +S%: Interpretive ,. The su' of consu'er and producer surplus 'easures the total benefits that bu"ers and sellers receive fro' participating in a 'ar-et. ANS: T DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Total surplus +S%: Interpretive .. According to the principle of co'parative advantage( all countries can benefit fro' trading /ith one another because trade allo/s each countr" to speciali)e in doing /hat it does best. ANS: T DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage +S%: Interpretive 0. The world price of cotton is the highest price of cotton observed an"/here in the /orld. ANS: F DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: *rices +S%: Definitional 1. If the /orld price of a good is greater than the do'estic price in a countr" that can engage in international trade( then that countr" beco'es an i'porter of that good. ANS: F DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *rices +S%: Interpretive 3. 4ithout free trade( the do'estic price of a good 'ust be e5ual to the /orld price of a good. ANS: F DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices +S%: Interpretive 6. The nation of Aviana soon /ill abandon its no!trade polic" and adopt a free!trade polic". If the /orld price of goose 'eat is 7. per pound and the do'estic price of goose 'eat /ithout trade is 7, per pound( then Aviana should e8port goose 'eat. ANS: T DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 %o'parative advantage 2 E8ports +S%: Interpretive 9. If Argentina e8ports oranges to the rest of the /orld( Argentina:s producers of oranges are /orse off( and Argentina:s consu'ers of oranges are better off( as a result of trade. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade 2 Econo'ic /elfare +S%: Applicative If a countr";s do'estic price of a good is lo/er than the /orld price( then that countr" has a co'parative advantage in producing that good. ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 *rices +S%: Interpretive .

9,

9.
1=.

%hapter

<Application: International Trade

4hen a countr" allo/s international trade and beco'es an i'porter of a good( do'estic producers of the good are better off( and do'estic consu'ers of the good are /orse off. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ains fro' trade +S%: Interpretive 11. If the >nited ?ingdo' i'ports tea cups fro' other countries( then >.?. producers of tea cups are better off( and >.?. consu'ers of tea cups are /orse off( as a result of trade. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade 2 Econo'ic /elfare +S%: Applicative 1,. If @elgiu' e8ports chocolate to the rest of the /orld( then @elgian chocolate producers benefit fro' higher producer surplus( @elgian chocolate consu'ers are /orse off because of lo/er consu'er surplus( and total surplus in @elgiu' increases because of the e8ports of chocolate. ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade 2 Econo'ic /elfare +S%: Applicative 1.. In principle( trade can 'a-e a nation better off( because the gains to the /inners e8ceed the losses to the losers. ANS: T DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade 2 Econo'ic /elfare +S%: Interpretive 10. Suppose the Ivor" %oast( a s'all countr"( i'ports /heat at the /orld price of 70 per bushel. If the Ivor" %oast i'poses a tariff of 71 per bushel on i'ported /heat( then( other things e5ual( the price of /heat in Ivor" %oast /ill increase( but b" less than 71. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *rices +S%: Interpretive 11. The s'all!econo'" assu'ption is necessar" to anal")e the gains and losses fro' international trade. ANS: F DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Assu'ptions +S%: Interpretive 13. The greater the elasticities of suppl" and de'and( the s'aller are the gains fro' trade. ANS: F DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade 2 *rice elasticities of de'and and suppl" +S%: Applicative 16. If a tariff is placed on /atches( the price of both do'estic and i'ported /atches /ill rise b" the a'ount of the tariff. ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *rices +S%: Interpretive 19. 4hen a govern'ent i'poses a tariff on a product( the do'estic price /ill e5ual the /orld price. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *rices +S%: Interpretive 1 . A tariff increases the 5uantit" of i'ports and 'oves the 'ar-et farther fro' its e5uilibriu' /ithout trade. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'ports +S%: Applicative

%hapter ,=.

<Application: International Trade

90

4hen a countr" abandons no!trade policies in favor of free!trade policies and beco'es an i'porter of steel( then the do'estic price of steel /ill increase as a result. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: I'ports 2 *rices +S%: Interpretive ,1. 4hen a countr" that i'ports shoes i'poses a tariff on shoes( bu"ers of shoes in that countr" beco'e /orse off. ANS: T DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Tariffs +S%: Interpretive ,,. 4hen a countr" that i'ports shoes i'poses a tariff on shoes( bu"ers of shoes in that countr" beco'e /orse off and sellers of shoes in that countr" beco'e better off. ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Tariffs +S%: Interpretive ,.. Dead/eight loss 'easures the decrease in total surplus that results fro' a tariff or 5uota. ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Dead/eight losses +S%: Interpretive ,0. If a s'all countr" i'poses a tariff on an i'ported good( do'estic sellers /ill gain producer surplus( the govern'ent /ill gain tariff revenue( and do'estic consu'ers /ill gain consu'er surplus. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Applicative ,1. Do'estic consu'ers gain and do'estic producers lose /hen the govern'ent i'poses a tariff on i'ports. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs +S%: Interpretive ,3. The i'position of a tariff on i'ported /ine /ill increase the do'estic price of /ine( decrease the 5uantit" of /ine i'ported( and increase the 5uantit" of /ine produced do'esticall". ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 I'ports 2 Tariffs +S%: Interpretive ,6. Suppose that Australia i'poses a tariff on i'ported beef. If the increase in producer surplus is 71== 'illion( the increase in tariff revenue is 7,== 'illion( and the reduction in consu'er surplus is 71== 'illion( the dead/eight loss of the tariff is 7.== 'illion. ANS: F DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight losses +S%: Applicative ,9. Suppose Ecuador i'poses a tariff on i'ported bananas. If the increase in producer surplus is 71= 'illion( the reduction in consu'er surplus is 711= 'illion( and the dead/eight loss of the tariff is 7.= 'illion( then the tariff generates 71.= 'illion in revenue for the govern'ent. ANS: T DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight losses +S%: Applicative , . Tariffs cause dead/eight loss because the" 'ove the price of an i'ported product closer to the e5uilibriu' /ithout trade( thus reducing the gains fro' trade. ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight losses +S%: Interpretive

91

%hapter

<Application: International Trade

.=. I'port 5uotas and tariffs both cause the 5uantit" of i'ports to fall. ANS: T DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'port 5uotas +S%: Interpretive .1. I'port 5uotas and tariffs 'a-e do'estic sellers better off and do'estic bu"ers /orse off. ANS: T DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'port 5uotas 2 Econo'ic /elfare +S%: Interpretive .,. Econo'ists agree that trade ought to be restricted if free trade 'eans that do'estic Aobs 'ight be lost because of foreign co'petition. ANS: F DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" 2 E'plo"'ent +S%: Interpretive ... Free trade causes Aob losses in industries in /hich a countr" does not have a co'parative advantage( but it also causes Aob gains in industries in /hich the countr" has a co'parative advantage. ANS: T DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 E'plo"'ent +S%: Interpretive .0. +ost econo'ists support the infant!industr" argu'ent because it is so eas" to i'ple'ent in practice. ANS: F DIF: 1 REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" +S%: Interpretive .1. If Bonduras /ere to subsidi)e the production of /ool blan-ets and sell the' in S/eden at artificiall" lo/ prices( the S/edish econo'" /ould be /orse off. ANS: F DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" 2 Econo'ic /elfare +S%: Interpretive .3. *olic"'a-ers often consider trade restrictions in order to protect do'estic producers fro' foreign co'petitors. ANS: T DIF: 1 REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" +S%: Interpretive .6. &ATT is an e8a'ple of a successful unilateral approach to achieving free trade. ANS: F DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ATT +S%: Interpretive .9. NAFTA is an e8a'ple of a 'ultilateral approach to achieving free trade. ANS: T DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: NAFTA +S%: Interpretive . . The rules established under the &eneral Agree'ent on Tariffs and Trade C&ATTD are enforced b" an international bod" called the 4orld Trade $rgani)ation C4T$D. ANS: T DIF: 1 REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ATT 2 4T$ +S%: Definitional 0=. A 'ultilateral approach to free trade has greater potential to increase the gains fro' trade than a unilateral approach( because the 'ultilateral approach can reduce trade restrictions abroad as /ell as at ho'e. ANS: T DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" +S%: Interpretive

%hapter 01.

<Application: International Trade

93

The results of a ,==6 Los Angeles Times poll suggest that a significant 'aAorit" of A'ericans believe that free international trade helps the A'erican econo'". ANS: F DIF: , REF: !0 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" +S%: Interpretive 0,. The results of a ,==6 Los Angeles Times poll suggest that the percentage of A'ericans /ho believe trade is har'ful to the econo'" e8ceeds the percentage of A'ericans /ho believe trade is beneficial to the econo'". ANS: T DIF: , REF: !0 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" +S%: Interpretive 0.. +ost econo'ists vie/ the >nited States as an ongoing e8peri'ent that raises serious doubts about the virtues of free trade. ANS: F DIF: 1 REF: !0 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade polic" +S%: Interpretive SHORT ANSWER 1. >se the graph to ans/er the follo/ing 5uestions about %Ds.

a. b. c. d. e. f. g. h. i. A. -.

4hat is the e5uilibriu' price of %Ds before tradeE 4hat is the e5uilibriu' 5uantit" of %Ds before tradeE 4hat is the price of %Ds after trade is allo/edE 4hat is the 5uantit" of %Ds e8ported after trade is allo/edE 4hat is the a'ount of consu'er surplus before tradeE 4hat is the a'ount of consu'er surplus after tradeE 4hat is the a'ount of producer surplus before tradeE 4hat is the a'ount of producer surplus after tradeE 4hat is the a'ount of total surplus before tradeE 4hat is the a'ount of total surplus after tradeE 4hat is the change in total surplus because of tradeE

96
ANS:

%hapter a. b. c. d. e. f. g. h. i. A. -.

<Application: International Trade

71, 1= 711 .= 7,1= 71,,.1= 7,1= 70,,.1= 71== 7101 701 T$*: E8ports 2 Econo'ic /elfare

DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative ,.

>sing the graph belo/( ans/er the follo/ing 5uestions about ha''ers.

a. b. c. d. e. f. g. h. i. A. -.

4hat is the e5uilibriu' price of ha''ers before tradeE 4hat is the e5uilibriu' 5uantit" of ha''ers before tradeE 4hat is the price of ha''ers after trade is allo/edE 4hat is the 5uantit" of ha''ers i'ported after trade is allo/edE 4hat is the a'ount of consu'er surplus before tradeE 4hat is the a'ount of consu'er surplus after tradeE 4hat is the a'ount of producer surplus before tradeE 4hat is the a'ount of producer surplus after tradeE 4hat is the a'ount of total surplus before tradeE 4hat is the a'ount of total surplus after tradeE 4hat is the change in total surplus because of tradeE

%hapter ANS: a. b. c. d. e. f. g. h. i. A. -. 710 = 71= 91 7.3= 791= 70=1 71,1 7631 7 .1 716=

<Application: International Trade

99

DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative ..

T$*:

I'ports 2 Econo'ic /elfare

>sing the graph( assu'e that the govern'ent i'poses a 71 tariff on ha''ers. Ans/er the follo/ing 5uestions given this infor'ation.

a. b. c. d. e. f. g. h. i. ANS: a. b. c. d. e. f. g. h. i.

4hat is the do'estic price and 5uantit" de'anded of ha''ers after the tariff is i'posedE 4hat is the 5uantit" of ha''ers i'ported before the tariffE 4hat is the 5uantit" of ha''ers i'ported after the tariffE 4hat /ould be the a'ount of consu'er surplus before the tariffE 4hat /ould be the a'ount of consu'er surplus after the tariffE 4hat /ould be the a'ount of producer surplus before the tariffE 4hat /ould be the a'ount of producer surplus after the tariffE 4hat /ould be the a'ount of govern'ent revenue because of the tariffE 4hat /ould be the total a'ount of dead/eight loss due to the tariffE 73( 90 33 00 7.90 7, 0 701 79= 700 711

%hapter

<Application: International Trade T$*: Tariffs 2 Econo'ic /elfare

DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

0. Bo/ does an i'port 5uota differ fro' an e5uivalent tariffE ANS: @oth the i'port 5uota and the tariff raise the do'estic price of the good( reduce the /elfare of do'estic consu'ers( increase the /elfare of do'estic producers( and cause dead/eight losses. The onl" difference for the econo'" is that the tariff raises revenue for the govern'ent( /hile the i'port 5uota creates surplus for license holders. DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive 1. T$*: Tariffs 2 I'port 5uotas

%haracteri)e the t/o different approaches a nation can ta-e to achieve free trade. Does one approach have an advantage over the otherE

ANS: A unilateral approach is /hen a countr" re'oves its trade restrictions on its o/n. A 'ultilateral approach is /hen a countr" re'oves its trade restrictions /hile other countries do the sa'e. A 'ultilateral approach has t/o advantages. The first is that it has the potential to result in freer trade because it can reduce trade restrictions abroad as /ell as at ho'e. If international negotiations fail( ho/ever( the result could be 'ore restricted trade than under a unilateral approach. Also( the 'ultilateral approach 'a" have a political advantage and can so'eti'es /in political support /hen a unilateral reduction cannot. DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive 3. T$*: Trade polic"

4hat are the argu'ents in favor of trade restrictions( and /hat are the counterargu'entsE According to 'ost econo'ists( do an" of these argu'ents reall" Austif" trade restrictionsE E8plain.

ANS: Argu'ents 'entioned in the te8t include the Aobs argu'ent( the national securit" argu'ent( the infant industr" argu'ent( the unfair co'petition argu'ent( and the protection!as!a!bargaining!chip argu'ent. These argu'ents and counter!argu'ents are outlined in section !. of the te8t. +ost econo'ists /ould dis'iss the Aobs argu'ent( the infant industr" argu'ent( and the unfair co'petition argu'ent on strictl" econo'ic grounds. The bargaining!chip argu'ent carries high ris-s of econo'ic har' if the threat doesn:t /or-. The national!securit" argu'ent balances econo'ic loss fro' trade restriction against the benefit of long!ter' national survival( and is probabl" the argu'ent that econo'ists /ould 'ost li-el" bu" if it /ere clear that the industr" being protected /as clearl" crucial to national securit". DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive T$*: Trade polic"

Sec00 Application: International Trade

!ULTI"LE CHOICE 1. An i'portant factor in the decline of the >.S. te8tile industr" over the past 1== or so "ears is a. foreign co'petitors that can produce 5ualit" te8tile goods at lo/ cost. b. lo/er prices of goods that are substitutes for clothing. c. a decrease in A'ericans; de'and for clothing( due to increased inco'es and the fact that clothing is an inferior good. d. the fact that the 'ini'u' /age in the >.S. has failed to -eep pace /ith the cost of living.

ANS: A DIF: 1 REF: != NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade +S%: Interpretive

%hapter ,.

<Application: International Trade

4ith /hich of the Ten Principles of Economics is the stud" of international trade 'ost closel" connectedE a. *eople face tradeoffs. b. Trade can 'a-e ever"one better off. c. &overn'ents can so'eti'es i'prove 'ar-et outco'es. d. *rices rise /hen the govern'ent prints too 'uch 'one".

ANS: @ DIF: 1 REF: != NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade +S%: Interpretive .. 4hich of the follo/ing tools and concepts is useful in the anal"sis of international tradeE a. total surplus b. do'estic suppl" c. e5uilibriu' price d. All of the above are correct.

ANS: D DIF: 1 REF: != NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade +S%: Interpretive 0. A logical starting point fro' /hich the stud" of international trade begins is a. the recognition that not all 'ar-ets are co'petitive. b. the recognition that govern'ent intervention in 'ar-ets so'eti'es enhances the econo'ic /elfare of the societ". c. the principle of absolute advantage. d. the principle of co'parative advantage.

ANS: D DIF: 1 REF: != NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %o'parative advantage +S%: Interpretive

Sec0# Application: International Trade The $eter%inant& o' Trade

!ULTI"LE CHOICE 1. 4hat is the funda'ental basis for trade a'ong nationsE a. shortages or surpluses in nations that do not trade b. 'isguided econo'ic policies c. absolute advantage d. co'parative advantage

ANS: D DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %o'parative advantage +S%: Interpretive ,. *atterns of trade a'ong nations are pri'aril" deter'ined b" a. cultural considerations. b. political considerations. c. co'parative advantage. d. differences in the inco'e elasticit" of de'and a'ong nations.

ANS: % DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %o'parative advantage +S%: Interpretive .. The nation of *ineland forbids international trade. In *ineland( "ou can bu" 1 pound of fish for , pounds of beef. In other countries( "ou can bu" 1 pound of fish for 1.1 pounds of beef. These facts indicate that a. *ineland has a co'parative advantage( relative to other countries( in producing fish. b. other countries have a co'parative advantage( relative to *ineland( in producing beef. c. the price of beef in *ineland e8ceeds the /orld price of beef. d. if *ineland /ere to allo/ trade( it /ould i'port fish.

ANS: D DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 4orld price +S%: Applicative

1
0.

%hapter

<Application: International Trade

The nation of 4aterland forbids international trade. In 4aterland( "ou can obtain a co'puter b" trading , bic"cles. In other countries( "ou can obtain a co'puter b" trading . bic"cles. These facts indicate that a. if 4aterland /ere to allo/ trade( it /ould e8port co'puters. b. 4aterland has an absolute advantage( relative to other countries( in producing co'puters. c. 4aterland has a co'parative advantage( relative to other countries( in producing bic"cles. d. All of the above are correct.

ANS: A DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage +S%: Applicative 1. The principle of co'parative advantage asserts that a. not all countries can benefit fro' trade /ith other countries. b. the /orld price of a good /ill prevail in all countries( regardless of /hether those countries allo/ international trade in that good. c. countries can beco'e better off b" e8porting goods( but the" cannot beco'e better off b" i'porting goods. d. countries can beco'e better off b" speciali)ing in /hat the" do best.

ANS: D DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage +S%: Interpretive 3. A ta8 on an i'ported good is called a a. 5uota. b. tariff. c. suppl" ta8. d. trade ta8. DIF: 1 REF: !1 #$%: &ains fro' trade( speciali)ation and trade +S%: Definitional

ANS: @ NAT: Anal"tic T$*: Tariffs 6.

A tariff is a a. li'it on ho/ 'uch of a good can be e8ported. b. li'it on ho/ 'uch of a good can be i'ported. c. ta8 on an e8ported good. d. ta8 on an i'ported good. DIF: 1 REF: !1 #$%: &ains fro' trade( speciali)ation and trade +S%: Definitional

ANS: D NAT: Anal"tic T$*: Tariffs 9.

The price of a good that prevails in a /orld 'ar-et is called the a. absolute price. b. relative price. c. co'parative price. d. /orld price.

ANS: D DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rice 2 International trade +S%: Definitional . The price of sugar that prevails in international 'ar-ets is called the a. e8port price of sugar. b. i'port price of sugar. c. co'parative!advantage price of sugar. d. /orld price of sugar.

ANS: D DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rice 2 International trade +S%: Definitional

%hapter 1=.

<Application: International Trade

If a countr" allo/s trade and( for a certain good( the do'estic price /ithout trade is higher than the /orld price( a. the countr" /ill be an e8porter of the good. b. the countr" /ill be an i'porter of the good. c. the countr" /ill be neither an e8porter nor an i'porter of the good. d. Additional infor'ation is needed about de'and to deter'ine /hether the countr" /ill be an e8porter of the good( an i'porter of the good( or neither.

ANS: @ DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 I'ports +S%: Interpretive 11. If a countr" allo/s trade and( for a certain good( the do'estic price /ithout trade is lo/er than the /orld price( a. the countr" /ill be an e8porter of the good. b. the countr" /ill be an i'porter of the good. c. the countr" /ill be neither an e8porter nor an i'porter of the good. d. Additional infor'ation is needed about de'and to deter'ine /hether the countr" /ill be an e8porter of the good( an i'porter of the good( or neither.

ANS: A DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 E8ports +S%: Interpretive 1,. For an" countr"( if the /orld price of )inc is higher than the do'estic price of )inc /ithout trade( that countr" should a. e8port )inc( since that countr" has a co'parative advantage in )inc. b. i'port )inc( since that countr" has a co'parative advantage in )inc. c. neither e8port nor i'port )inc( since that countr" cannot gain fro' trade. d. neither e8port nor i'port )inc( since that countr" alread" produces )inc at a lo/ cost co'pared to other countries.

ANS: A DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 %o'parative advantage +S%: Applicative 1.. If the /orld price of te8tiles is higher than Fietna';s do'estic price of te8tiles /ithout trade( then Fietna' a. should i'port te8tiles. b. has a co'parative advantage in te8tiles. c. should produce Aust enough te8tiles to 'eet its do'estic de'and. d. should refrain altogether fro' producing te8tiles.

ANS: @ DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 %o'parative advantage +S%: Interpretive 10. Assu'e( for Singapore( that the do'estic price of so"beans /ithout international trade is higher than the /orld price of so"beans. This suggests that( in the production of so"beans( a. Singapore has a co'parative advantage over other countries and Singapore /ill i'port so"beans. b. Singapore has a co'parative advantage over other countries and Singapore /ill e8port so"beans. c. other countries have a co'parative advantage over Singapore and Singapore /ill i'port so"beans. d. other countries have a co'parative advantage over Singapore and Singapore /ill e8port so"beans.

ANS: % DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 %o'parative advantage +S%: Applicative 11. Assu'e( for the >.S.( that the do'estic price of beef /ithout international trade is lo/er than the /orld price of beef. This suggests that( in the production of beef( a. the >.S. has a co'parative advantage over other countries and the >.S. /ill e8port beef. b. the >.S. has a co'parative advantage over other countries and the >.S. /ill i'port beef. c. other countries have a co'parative advantage over the >.S. and the >.S. /ill e8port beef. d. other countries have a co'parative advantage over the >.S. and the >.S. /ill i'port beef.

%hapter

<Application: International Trade

ANS: A DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 %o'parative advantage +S%: Applicative 13. Suppose the >nited States e8ports cars to France and i'ports cheese fro' S/it)erland. This situation suggests that a. the >nited States has a co'parative advantage relative to S/it)erland in producing cheese( and France has a co'parative advantage relative to the >nited States in producing cars. b. the >nited States has a co'parative advantage relative to France in producing cars( and S/it)erland has a co'parative advantage relative to the >nited States in producing cheese. c. the >nited States has an absolute advantage relative to S/it)erland in producing cheese( and France has an absolute advantage relative to the >nited States in producing cars. d. the >nited States has an absolute advantage relative to France in producing cars( and S/it)erland has an absolute advantage relative to the >nited States in producing cheese.

ANS: @ DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %o'parative advantage +S%: Interpretive 16. Trade a'ong nations is ulti'atel" based on a. absolute advantage. b. strategic advantage. c. co'parative advantage. d. technical advantage.

ANS: % DIF: 1 REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %o'parative advantage +S%: Interpretive 19. A countr" has a co'parative advantage in a product if the /orld price is a. lo/er than that countr";s do'estic price /ithout trade. b. higher than that countr";s do'estic price /ithout trade. c. e5ual to that countr";s do'estic price /ithout trade. d. not subAect to 'anipulation b" organi)ations that govern international trade.

ANS: @ DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rice 2 %o'parative advantage +S%: Interpretive 1 . Suppose *uerto Rico has a co'parative advantage over other countries in producing sugar( but other countries have an absolute advantage over *uerto Rico in producing sugar. If trade in sugar is allo/ed( *uerto Rico a. /ill i'port sugar. b. /ill e8port sugar. c. /ill either e8port sugar or e8port sugar( but it is not clear fro' the given infor'ation. d. /ould have nothing to gain either fro' e8porting or i'porting sugar.

ANS: @ DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 Absolute advantage +S%: Interpretive ,=. Suppose Baiti has an absolute advantage over other countries in producing oranges( but other countries have a co'parative advantage over Baiti in producing oranges. If trade in oranges is allo/ed( Baiti a. /ill i'port oranges. b. /ill e8port oranges. c. /ill either e8port oranges or e8port oranges( but it is not clear fro' the given infor'ation. d. /ould have nothing to gain either fro' e8porting or i'porting oranges.

ANS: A DIF: , REF: !1 NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 Absolute advantage +S%: Interpretive

%hapter

<Application: International Trade

Sec0( Application: International Trade The Winner& and Lo&er& 'ro% Trade
!ULTI"LE CHOICE 1. 4hen a countr" that i'ported a particular good abandons a free!trade polic" and adopts a no!trade polic"( a. producer surplus increases and total surplus increases in the 'ar-et for that good. b. producer surplus increases and total surplus decreases in the 'ar-et for that good. c. producer surplus decreases and total surplus increases in the 'ar-et for that good. d. producer surplus decreases and total surplus decreases in the 'ar-et for that good.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus 2 Total surplus +S%: Interpretive ,. 4hen( in our anal"sis of the gains and losses fro' international trade( /e assu'e that a countr" is small( /e are in effect assu'ing that the countr" a. cannot e8perience significant gains or losses b" trading /ith other countries. b. cannot have a significant co'parative advantage over other countries. c. cannot affect /orld prices b" trading /ith other countries. d. All of the above are correct.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 International trade +S%: Interpretive .. 4hen( in our anal"sis of the gains and losses fro' international trade( /e assu'e that a particular countr" is small( /e are a. assu'ing the do'estic price before trade /ill continue to prevail once that countr" is opened up to trade /ith other countries. b. assu'ing there is no de'and for that countr";s do'esticall"!produced goods b" other countries. c. assu'ing international trade can benefit producers( but not consu'ers( in that countr". d. 'a-ing an assu'ption that is not necessar" to anal")e the gains and losses fro' international trade.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Assu'ptions 2 International trade +S%: Interpretive 0. In anal")ing international trade( /e often focus on a countr" /hose econo'" is s'all relative to the rest of the /orld. 4e do so a. because it is i'possible to anal")e the gains and losses fro' international trade /ithout 'a-ing this assu'ption. b. because then /e can assu'e that /orld prices of goods are unaffected b" that countr";s participation in international trade. c. in order to rule out the possibilit" of tariffs or 5uotas. d. All of the above are correct.

ANS: @ DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Assu'ptions 2 International trade +S%: Interpretive 1. In anal")ing the gains and losses fro' international trade( to sa" that +oldova is a small countr" is to sa" that a. +oldova can onl" i'port goodsG it cannot e8port goods. b. +oldova;s choice of /hich goods to e8port and /hich goods to i'port is not based on the principle of co'parative advantage. c. onl" the do'estic price of a good is relevant for +oldovaG the /orld price of a good is irrelevant. d. +oldova is a price ta-er.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rices 2 International trade +S%: Interpretive

1
3.

%hapter

<Application: International Trade

4hen a countr" allo/s trade and beco'es an e8porter of a good( a. do'estic producers gain and do'estic consu'ers lose. b. do'estic producers lose and do'estic consu'ers gain. c. do'estic producers and do'estic consu'ers both gain. d. do'estic producers and do'estic consu'ers both lose.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 &ains fro' trade +S%: Interpretive 6. Trade enhances the econo'ic /ell!being of a nation in the sense that a. both do'estic producers and do'estic consu'ers of a good beco'e better off /ith trade( regardless of /hether the nation i'ports or e8ports the good in 5uestion. b. the gains of do'estic producers of a good e8ceed the losses of do'estic consu'ers of a good( regardless of /hether the nation i'ports or e8ports the good in 5uestion. c. trade results in an increase in total surplus. d. trade puts do/n/ard pressure on the prices of all goods.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Interpretive 9. 4hen a countr" allo/s trade and beco'es an i'porter of a good( a. both do'estic producers and do'estic consu'ers beco'e better off. b. do'estic producers beco'e better off( and do'estic consu'ers beco'e /orse off. c. do'estic producers beco'e /orse off( and do'estic consu'ers beco'e better off. d. both do'estic producers and do'estic consu'ers beco'e /orse off.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 &ains fro' trade +S%: Interpretive . 4hen a countr" allo/s trade and beco'es an i'porter of a good( a. ever"one in the countr" benefits. b. the gains of the /inners e8ceed the losses of the losers. c. the losses of the losers e8ceed the gains of the /inners. d. ever"one in the countr" loses.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 &ains fro' trade +S%: Interpretive 1=. 4hen the nation of 4orldova allo/s trade and beco'es an e8porter of sil-( a. residents of 4orldova /ho produce sil- beco'e /orse offG residents of 4orldova /ho bu" silbeco'e better offG and the econo'ic /ell!being of 4orldova rises. b. residents of 4orldova /ho produce sil- beco'e /orse offG residents of 4orldova /ho bu" silbeco'e better offG and the econo'ic /ell!being of 4orldova falls. c. residents of 4orldova /ho produce sil- beco'e better offG residents of 4orldova /ho bu" silbeco'e /orse offG and the econo'ic /ell!being of 4orldova rises. d. residents of 4orldova /ho produce sil- beco'e better offG residents of 4orldova /ho bu" silbeco'e /orse offG and the econo'ic /ell!being of 4orldova falls.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic /elfare +S%: Applicative

%hapter 11.

<Application: International Trade

4hen the nation of Du8e'bourg allo/s trade and beco'es an i'porter of soft/are( a. residents of Du8e'bourg /ho produce soft/are beco'e /orse offG residents of Du8e'bourg /ho bu" soft/are beco'e better offG and the econo'ic /ell!being of Du8e'bourg rises. b. residents of Du8e'bourg /ho produce soft/are beco'e /orse offG residents of Du8e'bourg /ho bu" soft/are beco'e better offG and the econo'ic /ell!being of Du8e'bourg falls. c. residents of Du8e'bourg /ho produce soft/are beco'e better offG residents of Du8e'bourg /ho bu" soft/are beco'e /orse offG and the econo'ic /ell!being of Du8e'bourg rises. d. residents of Du8e'bourg /ho produce soft/are beco'e better offG residents of Du8e'bourg /ho bu" soft/are beco'e /orse offG and the econo'ic /ell!being of Du8e'bourg falls.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 Econo'ic /elfare +S%: Applicative 1,. 4hen a nation first begins to trade /ith other countries and the nation beco'es an i'porter of corn( a. this is an indication that the /orld price of corn e8ceeds the nation;s do'estic price of corn in the absence of trade. b. this is an indication that the nation has a co'parative advantage in producing corn. c. the nation;s consu'ers of corn beco'e better off and the nation;s producers of corn beco'e /orse off. d. All of the above are correct.

ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 Econo'ic /elfare +S%: Applicative 1.. 4hen a nation first begins to trade /ith other countries and the nation beco'es an e8porter of so"beans( a. this is an indication that the /orld price of so"beans e8ceeds the nation;s do'estic price of so"beans in the absence of trade. b. this is an indication that the nation has a co'parative advantage in producing so"beans. c. the nation;s consu'ers of so"beans beco'e /orse off and the nation;s producers of so"beans beco'e better off. d. All of the above are correct.

ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 %o'parative advantage 2 Econo'ic /elfare +S%: Applicative 10. Trade raises the econo'ic /ell!being of a nation in the sense that a. the gains of the /inners e8ceed the losses of the losers. b. ever"one in an econo'" gains fro' trade. c. since countries can choose /hat products to trade( the" /ill pic- those products that are 'ost beneficial to societ". d. the nation Aoins the international co''unit" /hen it begins to engage in trade.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic /elfare +S%: Interpretive 11. 4hen a countr" allo/s trade and beco'es an e8porter of a good( a. the gains of the do'estic producers of the good e8ceed the losses of the do'estic consu'ers of the good. b. the gains of the do'estic consu'ers of the good e8ceed the losses of the do'estic producers of the good. c. the losses of the do'estic producers of the good e8ceed the gains of the do'estic consu'ers of the good. d. the losses of the do'estic consu'ers of the good e8ceed the gains of the do'estic producers of the good.

ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic /elfare +S%: Applicative

6
13.

%hapter

<Application: International Trade

4hen a countr" allo/s trade and beco'es an i'porter of steel( a. the losses of the do'estic producers of steel e8ceed the gains of the do'estic consu'ers of steel. b. the losses of the do'estic consu'ers of steel e8ceed the gains of the do'estic producers of steel. c. the gains of the do'estic producers of steel e8ceed the losses of the do'estic consu'ers of steel. d. the gains of the do'estic consu'ers of steel e8ceed the losses of the do'estic producers of steel.

ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 Econo'ic /elfare +S%: Applicative 16. 4hen a countr" allo/s trade and beco'es an e8porter of a good( /hich of the follo/ing is not a conse5uenceE a. The price paid b" do'estic consu'ers of the good increases. b. The price received b" do'estic producers of the good increases. c. The losses of do'estic consu'ers of the good e8ceed the gains of do'estic producers of the good. d. The gains of do'estic producers of the good e8ceed the losses of do'estic consu'ers of the good.

ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic /elfare +S%: Applicative 19. 4hen a countr" allo/s trade and beco'es an i'porter of bottled /ater( /hich of the follo/ing is not a conse5uenceE a. The gains of do'estic consu'ers of bottled /ater e8ceed the losses of do'estic producers of bottled /ater. b. The losses of do'estic producers of bottled /ater e8ceed the gains of do'estic consu'ers of bottled /ater. c. The price paid b" do'estic consu'ers of bottled /ater decreases. d. The price received b" do'estic producers of bottled /ater decreases.

ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 Econo'ic /elfare +S%: Applicative 1 . 4hen a countr" allo/s trade and beco'es an e8porter of a good( a. consu'er surplus and producer surplus both increase. b. consu'er surplus and producer surplus both decrease. c. consu'er surplus increases and producer surplus decreases. d. consu'er surplus decreases and producer surplus increases.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 %onsu'er surplus 2 *roducer surplus +S%: Interpretive ,=. 4hen a countr" allo/s trade and beco'es an i'porter of a good( a. consu'er surplus and producer surplus both increase. b. consu'er surplus and producer surplus both decrease. c. consu'er surplus increases and producer surplus decreases. d. consu'er surplus decreases and producer surplus increases.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 %onsu'er surplus 2 *roducer surplus +S%: Interpretive

%hapter Figure 9-1 The figure illustrates the 'ar-et for /ool in Ne/ Healand.
Price 61 6= 31 3= 11 1= 01 0= .1 .= ,1 ,= 11 1= 1 1 , . 0 1 3 6 9 1= 11 1, 1. 10 11 13 16 19 1 % @ D F & B A

<Application: International Trade

Do'estic suppl" 4orld price

Do'estic de'and

,= ,1 ,, ,. ,0 ,1 ,3

Quantity

,1.

Re'er to Fi)*re 9 #. Fro' the figure it is apparent that a. Ne/ Healand /ill e8perience a shortage of /ool if trade is not allo/ed. b. Ne/ Healand /ill e8perience a surplus of /ool if trade is not allo/ed. c. Ne/ Healand has a co'parative advantage in producing /ool( relative to the rest of the /orld. d. foreign countries have a co'parative advantage in producing /ool( relative to Ne/ Healand.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage +S%: Interpretive ,,. Re'er to Fi)*re 9 #. Fro' the figure it is apparent that a. Ne/ Healand /ill e8port /ool if trade is allo/ed. b. Ne/ Healand /ill i'port /ool if trade is allo/ed. c. Ne/ Healand has nothing to gain either b" i'porting or e8porting /ool. d. the /orld price /ill fall if Ne/ Healand begins to allo/ its citi)ens to trade /ith other countries.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 &ains fro' trade +S%: Interpretive ,.. Re'er to Fi)*re 9 #. 4ith trade( Ne/ Healand /ill a. e8port 11 units of /ool. b. e8port 1 units of /ool. c. i'port 11 units of /ool. d. i'port 3 units of /ool. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

ANS: A NAT: Anal"tic T$*: E8ports

 ,0.

%hapter

<Application: International Trade

Re'er to Fi)*re 9 #. In the absence of trade( the e5uilibriu' price of /ool in Ne/ Healand is a. 711. b. 701. c. 711. d. 76=. DIF: 1 REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

ANS: @ NAT: Anal"tic T$*: E5uilibriu' ,1.

Re'er to Fi)*re 9 #. In the absence of trade( total surplus in Ne/ Healand is represented b" the area a. A I @ I %. b. A I @ I % I D I F. c. A I @ I % I D I F I &. d. A I @ I % I D I F I & I B. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

ANS: @ NAT: Anal"tic T$*: Total surplus ,3.

Re'er to Fi)*re 9 #. 4hen trade in /ool is allo/ed( consu'er surplus in Ne/ Healand a. increases b" the area @ I D. b. increases b" the area % I F. c. decreases b" the area @ I D. d. decreases b" the area D I &.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Interpretive ,6. Re'er to Fi)*re 9 #. 4hen trade in /ool is allo/ed( producer surplus in Ne/ Healand a. increases b" the area @ I D. b. increases b" the area @ I D I &. c. decreases b" the area % I F. d. decreases b" the area &.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Interpretive ,9. Re'er to Fi)*re 9 #. 4hen trade is allo/ed( a. Ne/ Healand producers of /ool beco'e better off and Ne/ Healand consu'ers of /ool beco'e /orse off. b. Ne/ Healand consu'ers of /ool beco'e better off and Ne/ Healand producers of /ool beco'e /orse off. c. both Ne/ Healand producers and consu'ers of /ool beco'e better off. d. both Ne/ Healand producers and consu'ers of /ool beco'e /orse off.

ANS: A DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Econo'ic /elfare +S%: Interpretive , . Re'er to Fi)*re 9 #. Relative to the no!trade situation( trade /ith the rest of the /orld results in a. Ne/ Healand consu'ers pa"ing a higher price for /ool. b. a decrease in producer surplus in Ne/ Healand. c. a decrease in total surplus in Ne/ Healand. d. All of the above are correct. DIF: 1 REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

ANS: A NAT: Anal"tic T$*: *rice

%hapter .=.

<Application: International Trade

1==

Re'er to Fi)*re 9 #. In the absence of trade( total surplus in the Ne/ Healand /ool 'ar-et a'ounts to a. 196.1 b. ,61.= c. .69.1 d. 01,.1 DIF: . REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: D NAT: Anal"tic T$*: Total surplus .1.

Re'er to Fi)*re 9 #. 4ith trade( total surplus in the Ne/ Healand /ool 'ar-et a'ounts to a. .1,.1. b. .36.=. c. 036.1. d. 0 1.=. DIF: . REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: % NAT: Anal"tic T$*: Total surplus .,.

4hich of the follo/ing state'ents is trueE a. Free trade benefits a countr" /hen it e8ports but har's it /hen it i'ports. b. JFoluntar"J li'its on %anadian e8ports of hogs are better for the >nited States than >.S. tariffs placed on %anadian hog e8ports. c. Tariffs and 5uotas differ in that tariffs /or- li-e a ta8 and therefore i'pose dead/eight losses( /hereas 5uotas do not i'pose dead/eight losses. d. Free trade benefits a countr" both /hen it e8ports and /hen it i'ports.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Applicative ... 4hen a countr" allo/s international trade and beco'es an e8porter of a good( a. do'estic producers of the good beco'e better off. b. do'estic consu'ers of the good beco'e /orse off. c. the gains of the /inners e8ceed the losses of the losers. d. All of the above are correct.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic 4elfare +S%: Applicative .0. Suppose Scotland goes fro' being an isolated countr" to being an e8porter of /ool. As a result( a. consu'er surplus of Scottish consu'ers of /ool increases. b. producer surplus of Scottish producers of /ool increases. c. total surplus of Scottish /ool consu'ers and producers re'ains constant. d. it is reasonable to infer that other countries have a co'parative advantage over Scotland in /ool production.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic 4elfare +S%: Applicative .1. 4hen a countr" allo/s international trade and beco'es an i'porter of a good( a. do'estic producers of the good beco'e better off. b. do'estic consu'ers of the good beco'e /orse off. c. the gains of the /inners e8ceed the losses of the losers. d. All of the above are correct.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 Econo'ic 4elfare +S%: Applicative

1=1
.3.

%hapter

<Application: International Trade

Assu'e( for France( that the do'estic price of tea /ithout international trade is higher than the /orld price of tea. This suggests that a. other countries have a co'parative advantage over France in producing tea. b. France has an absolute advantage over other countries in producing tea. c. France /ill e8port tea if international trade is allo/ed. d. French tea bu"ers /ill beco'e /orse off if international trade is allo/ed.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 *rices +S%: Applicative .6. Suppose a countr" begins to allo/ international trade in steel. 4hich of the follo/ing outco'es /ill be observed regardless of /hether the countr" finds itself i'porting steel or e8porting steelE a. The su' of consu'er surplus and producer surplus for do'estic traders of steel increases. b. The 5uantit" of steel de'anded b" do'estic consu'ers increases. c. Do'estic producers of steel receive a higher price for steel. d. The losses of the losers e8ceed the gains of the /inners.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic 4elfare +S%: Applicative .9. After a countr" goes fro' disallo/ing trade in coffee /ith other countries to allo/ing trade in coffee /ith other countries( a. the do'estic price of coffee /ill be greater than the /orld price of coffee. b. the do'estic price of coffee /ill be lo/er than the /orld price of coffee. c. the do'estic price of coffee /ill e5ual the /orld price of coffee. d. The /orld price of coffee does not 'atterG the do'estic price of coffee prevails.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *rices +S%: Interpretive . . 4ithin a countr"( the do'estic price of a product /ill e5ual the /orld price if a. trade restrictions are i'posed on the product. b. the countr" allo/s free trade. c. the countr" chooses to i'port( but not e8port( the product. d. the countr" chooses to e8port( but not i'port( the product.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *rices +S%: Interpretive 0=. The /orld price of a si'ple electronic calculator is 71.==. @efore Singapore allo/ed trade in calculators( the price of a calculator there /as 70.==. $nce Singapore began allo/ing trade in calculators /ith other countries(Singapore began a. i'porting calculators and the price of a calculator in Singapore increased to 71.==. b. i'porting calculators and the price of a calculator in Singapore re'ained at 70.==. c. e8porting calculators and the price of a calculator in Singapore increased to 71.==. d. e8porting calculators and the price of a calculator in Singapore re'ained at 70.==.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 *rices +S%: Applicative 01. The /orld price of a pound of T!bone stea- is 7 .==. @efore #atvia allo/ed trade in beef( the price of a pound of T!bone stea- there /as 76.1=. $nce #atvia began allo/ing trade in beef /ith other countries( #atvia began a. e8porting T!bone stea- and the price per pound in #atvia re'ained at 76.1=. b. e8porting T!bone stea- and the price per pound in #atvia increased to 7 .==. c. i'porting T!bone stea- and the price per pound in #atvia re'ained at 76.1=. d. i'porting T!bone stea- and the price per pound in #atvia increased to 7 .==.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 *rices +S%: Applicative

%hapter 0,.

<Application: International Trade

1=,

Suppose a countr" abandons a no!trade polic" in favor of a free!trade polic". If( as a result( the do'estic price of beans increases to e5ual the /orld price of beans( then a. that countr" beco'es an e8porter of beans. b. that countr" has a co'parative advantage in producing beans. c. at the /orld price( the 5uantit" of beans supplied in that countr" e8ceeds the 5uantit" of beans de'anded in that countr". d. All of the above are correct.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 %o'parative advantage +S%: Applicative 0.. Suppose a countr" abandons a no!trade polic" in favor of a free!trade polic". If( as a result( the do'estic price of pistachios decreases to e5ual the /orld price of pistachios( then a. that countr" beco'es an i'porter of pistachios. b. that countr" has a co'parative advantage in producing pistachios. c. at the /orld price( the 5uantit" of pistachios supplied in that countr" e8ceeds the 5uantit" of pistachios de'anded in that countr". d. All of the above are correct.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 *rices +S%: Applicative Figure 9-2

00.

Re'er to Fi)*re 9 (. 4ithout trade( consu'er surplus is a. 7,1=. b. 7,01. c. 7011. d. 70 =.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Applicative 01. Re'er to Fi)*re 9 (. 4ithout trade( producer surplus is a. 7,1=. b. 7,01. c. 7011. d. 70 =.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Applicative

1=.
03.

%hapter

<Application: International Trade

Re'er to Fi)*re 9 (. 4ith free trade( this countr" /ill a. i'port 0= bas-ets. b. i'port 6= bas-ets. c. e8port .1 bas-ets. d. e8port 31 bas-ets. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: D NAT: Anal"tic T$*: E8ports 06.

Re'er to Fi)*re 9 (. If this countr" chooses to trade( the price of bas-ets in this countr" /ill be a. 71= and 0= bas-ets /ill be sold do'esticall". b. 71= and 1=1 bas-ets /ill be sold do'esticall". c. 76 and 6= bas-ets /ill be sold do'esticall". d. 76 and 0= bas-ets /ill be sold do'esticall".

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *rice 2 Kuantit" de'anded +S%: Applicative 09. Re'er to Fi)*re 9 (. 4ith free trade( consu'er surplus is a. 701. b. 79=. c. 7,1=. d. 7,01.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative 0 . Re'er to Fi)*re 9 (. 4ith free trade( producer surplus is a. 79=.==. b. 7,1=.==. c. 7,01.1=. d. 706,.1=.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative 1=. Re'er to Fi)*re 9 (. As a result of trade( total surplus increases b" a. 79=. b. 7 6.1=. c. 713,.1=. d. 70 1.1=.

ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 11. Re'er to Fi)*re 9 (. This countr" a. has a co'parative advantage in bas-ets. b. should e8port bas-ets. c. is a price ta-er in the /orld econo'". d. All of the above are correct.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 %o'parative advantage +S%: Applicative

%hapter 1,.

<Application: International Trade

1=0

Re'er to Fi)*re 9 (. The /orld price for bas-ets represents a. the de'and for bas-ets fro' the rest of the /orld. b. the suppl" of bas-ets fro' the rest of the /orld. c. the level of inefficienc" in the do'estic 'ar-et caused b" trade. d. the gap bet/een do'estic 5uantit" de'anded and do'estic 5uantit" supplied and the resulting shortage.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *rice +S%: Interpretive 1.. Re'er to Fi)*re 9 (. At the /orld price and /ith free trade( a. the do'estic 5uantit" of bas-ets de'anded is greater than the do'estic 5uantit" of bas-ets supplied. b. the bas-et 'ar-et is in e5uilibriu'. c. the do'estic de'and for bas-ets is perfectl" inelastic. d. both do'estic producers of bas-ets and do'estic consu'ers of bas-ets are better off than the" /ere /ithout free trade.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade 2 E5uilibriu' +S%: Interpretive Figure 9-3. The domestic country is China.

10.

Re'er to Fi)*re 9 +. 4ith no international trade( a. the e5uilibriu' price is 71, and the e5uilibriu' 5uantit" is .==. b. the e5uilibriu' price is 713 and the e5uilibriu' 5uantit" is ,==. c. the e5uilibriu' price is 713 and the e5uilibriu' 5uantit" is .==. d. the e5uilibriu' price is 713 and the e5uilibriu' 5uantit" is 01=.

ANS: A DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E5uilibriu' price 2 E5uilibriu' 5uantit" +S%: Interpretive 11. Re'er to Fi)*re 9 +. If %hina /ere to abandon a no!trade polic" in favor of a free!trade polic"( a. %hinese producers of pencil sharpeners /ould beco'e /orse off. b. %hinese consu'ers of pencil sharpeners /ould beco'e better off. c. total surplus in the %hinese econo'" /ould increase. d. All of the above are correct. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

ANS: % NAT: Anal"tic T$*: Total surplus

1=1
13.

%hapter

<Application: International Trade

Re'er to Fi)*re 9 +. 4ith trade( %hina /ill a. i'port 1== pencil sharpeners. b. i'port ,1= pencil sharpeners. c. e8port 11= pencil sharpeners. d. e8port ,1= pencil sharpeners. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: D NAT: Anal"tic T$*: E8ports 16.

Re'er to Fi)*re 9 +. 4ith trade( producer surplus in %hina is a. 79==. b. 71(,==. c. 71(9==. d. 7,(6==.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative 19. Re'er to Fi)*re 9 +. Relative to a no!trade situation( /hich of the follo/ing co'es /ith tradeE a. %onsu'er surplus increases b" 71(9== and producer surplus increases b" 71(3==. b. %onsu'er surplus decreases b" 71(=== and producer surplus increases b" 71(1==. c. %onsu'er surplus decreases b" 71(=== and producer surplus increases b" 71(61=. d. Total surplus increases b" 70==.

ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus 2 *roducer surplus +S%: Applicative 1 . Re'er to Fi)*re 9 +. The increase in total surplus in %hina /hen trade is allo/ed is a. 70==. b. 71==. c. 73==. d. 761=. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: @ NAT: Anal"tic T$*: Total surplus

%hapter Figure 9-4. The domestic country is Jamaica.

<Application: International Trade

1=3

3=.

Re'er to Fi)*re 9 ,. 4ith trade( La'aica a. i'ports 11= calculators. b. i'ports ,1= calculators. c. e8ports 1== calculators. d. e8ports ,1= calculators. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: @ NAT: Anal"tic T$*: I'ports 31.

Re'er to Fi)*re 9 ,. %onsu'er surplus in La'aica /ithout trade is a. 7.61. b. 7,(===. c. 7,(,1=. d. 79(6==.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Applicative 3,. Re'er to Fi)*re 9 ,. The change in total surplus in La'aica because of trade is a. 73,1( and this is an increase in total surplus. b. 761=( and this is an increase in total surplus. c. 73,1( and this is a decrease in total surplus. d. 761=( and this is a decrease in total surplus.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 3.. Re'er to Fi)*re 9 ,. 4hich of the follo/ing state'ents is accurateE a. %onsu'er surplus /ith trade is 7.(,==. b. *roducer surplus /ith trade is 7.61. c. The gains fro' trade a'ount to 79==. d. The gains fro' trade are represented on the graph b" the area bounded b" the points C=( 71,D( C.==( 71,D( C.==( 76D and C=( 76D.

ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Applicative

1=6

%hapter

<Application: International Trade

Scenario 9-1 The before!trade do'estic price of to'atoes in the >nited States is 71== per ton. The /orld price of to'atoes is 73== per ton. The >.S. is a price!ta-er in the 'ar-et for to'atoes. 30. Re'er to Scenario 9 #. If trade in to'atoes is allo/ed( the >nited States a. /ill beco'e an i'porter of to'atoes. b. /ill beco'e an e8porter of to'atoes. c. 'a" beco'e either an i'porter or an e8porter of to'atoes( but this cannot be deter'ined. d. /ill e8perience increases in both consu'er surplus and producer surplus. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: @ NAT: Anal"tic T$*: E8ports 31.

Re'er to Scenario 9 #. If trade in to'atoes is allo/ed( the price of to'atoes in the >nited States a. /ill increase( and this /ill cause consu'er surplus to decrease. b. /ill decrease( and this /ill cause consu'er surplus to increase. c. /ill be unaffected( and consu'er surplus /ill be unaffected as /ell. d. could increase or decrease or be unaffectedG this cannot be deter'ined.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *rices 2 %onsu'er surplus +S%: Applicative 33. Re'er to Scenario 9 #. If trade in to'atoes is allo/ed( the price of to'atoes in the >nited States a. /ill be greater than the /orld price. b. /ill be e5ual to the /orld price. c. /ill be less than the /orld price. d. could be greater than( e5ual to( or less than the /orld priceG this cannot be deter'ined. REF: !, +S%: Interpretive

ANS: @ DIF: , T$*: International trade 2 *rices 36.

Re'er to Scenario 9 #. If trade in to'atoes is allo/ed( >.S. producers of to'atoes a. /ill be better off. b. /ill be /orse off. c. /ill be unaffected. d. /ill e8perience a decrease in their collective producer surplus.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Interpretive 39. Re'er to Scenario 9 #. If trade in to'atoes is allo/ed( the a. price paid b" A'erican consu'ers of to'atoes is unchanged relative to the no!trade situation. b. total /ell!being of A'erican producers of to'atoes is di'inished relative to the no!trade situation. c. total /ell!being of A'erican consu'ers of to'atoes is enhanced relative to the no!trade situation. d. total /ell!being of the >nited States is enhanced relative to the no!trade situation.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic 4elfare +S%: Applicative

%hapter Figure 9-5

<Application: International Trade

1=9

3 .

Re'er to Fi)*re 9 -. The hori)ontal line at the /orld price of /agons represents the a. de'and for /agons fro' the rest of the /orld. b. suppl" of /agons fro' the rest of the /orld. c. level of inefficienc" in the do'estic 'ar-et caused b" trade. d. surplus in the do'estic /agon 'ar-et.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *rices +S%: Interpretive 6=. Re'er to Fi)*re 9 -. 4ith trade( this countr" a. e8ports ,= /agons. b. e8ports 1= /agons. c. i'ports .= /agons. d. i'ports 1= /agons. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: D NAT: Anal"tic T$*: I'ports 61.

Re'er to Fi)*re 9 -. 4ithout trade( consu'er surplus a'ounts to a. 7,1=.1=. b. 7,01.1=. c. 7.36.1=. d. 73=6.1=.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Applicative 6,. Re'er to Fi)*re 9 -. 4ithout trade( producer surplus a'ounts to a. 7,1=. b. 7,01. c. 701=. d. 7011.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Applicative

1=
6..

%hapter

<Application: International Trade

Re'er to Fi)*re 9 -. 4ithout trade( total surplus a'ounts to a. 71,,.1=. b. 7,01. c. 7.36.1=. d. 731,.1=. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: D NAT: Anal"tic T$*: Total surplus 60.

Re'er to Fi)*re 9 -. 4ith trade( the price of /agons in this countr" is a. 79( /ith 6= /agons produced in this countr"( ,= of /hich are e8ported. b. 79( /ith = /agons produced in this countr"( 1= of /hich are e8ported. c. 71( /ith 0= /agons produced in this countr" and another .= /agons i'ported. d. 71( /ith 0= /agons produced in this countr" and another 1= /agons i'ported.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 *rices +S%: Applicative 61. Re'er to Fi)*re 9 -. 4ith trade( consu'er surplus is a. 7,01. b. 7.3,.1=. c. 7.36.1=. d. 73=6.1=.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative 63. Re'er to Fi)*re 9 -. 4ith trade( producer surplus is a. 79=. b. 711=. c. 7,1=. d. 7,01.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative 66. Re'er to Fi)*re 9 -. 4ith trade( total surplus is a. 7,01. b. 7.36.1=. c. 73=6.1=. d. 7396.1=.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 69. Re'er to Fi)*re 9 -. Total surplus /ith trade e8ceeds total surplus /ithout trade b" a. 73=. b. 761. c. 71.1. d. 7,1=.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 6 . Re'er to Fi)*re 9 -. The increase in total surplus resulting fro' trade is a. 73=( since producer surplus increases b" 719= and consu'er surplus falls b" 7,0=. b. 73=( since consu'er surplus increases b" 719= and producer surplus falls b" 7,0=. c. 761( since consu'er surplus increases b" 7,0= and producer surplus falls b" 7131. d. 761( since consu'er surplus increases b" 7.== and producer surplus falls b" 7,,1.

%hapter ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 9=. Re'er to Fi)*re 9 -. If this countr" allo/s free trade in /agons( a. consu'ers /ill gain and producers /ill lose. b. consu'ers /ill lose and producers /ill gain. c. both consu'ers and producers /ill gain. d. both consu'ers and producers /ill lose.

<Application: International Trade

11=

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic /elfare +S%: Interpretive 91. Re'er to Fi)*re 9 -. If this countr" allo/s free trade in /agons( a. consu'ers /ill gain 'ore than producers /ill lose. b. producers /ill gain 'ore than consu'ers /ill lose. c. producers and consu'ers /ill both gain e5uall". d. producers and consu'ers /ill both lose e5uall".

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic /elfare +S%: Interpretive 9,. Re'er to Fi)*re 9 -. @earing in 'ind that this countr" is Ms'all(N /hich of the follo/ing events conceivabl" could cause the countr" to s/itch fro' being an i'porter of /agons to an e8porter of /agonsE a. Inco'es of do'estic citi)ens increase( and /agons are a nor'al good. b. 4ithin this countr"( the price of a substitute for /agons decreases. c. 4ithin this countr"( the price of a co'ple'ent to /agons decreases. d. 4ages increase for do'estic /or-ers /ho produce /agons.

ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Substitutes 2 I'ports 2 E8ports +S%: Anal"tical 9.. Re'er to Fi)*re 9 -. @earing in 'ind that this countr" is Ms'all(N /hat /ould happen if there /ere a decrease in the price of horses /ithin this countr"( given that /agons and horses are co'ple'entsE a. The 5uantit" of /agons that this countr" i'ports /ould increase. b. The 5uantit" of /agons that this countr" i'ports /ould decrease( but the countr" /ould still be an i'porter of /agons. c. This countr" /ould s/itch fro' being an i'porter of /agons to an e8porter of /agons. d. The do'estic price /ithout trade /ould 'ove closer to the /orld price.

ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'ple'ents 2 I'ports +S%: Anal"tical

111

%hapter

<Application: International Trade

Figure 9-6

90.

Re'er to Fi)*re 9 /. 4ithout trade( the e5uilibriu' price of carnations is a. 79 and the e5uilibriu' 5uantit" is .==. b. 73 and the e5uilibriu' 5uantit" is ,==. c. 73 and the e5uilibriu' 5uantit" is 0==. d. 70 and the e5uilibriu' 5uantit" is 1==.

ANS: A DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E5uilibriu' price 2 E5uilibriu' 5uantit" +S%: Interpretive 91. Re'er to Fi)*re 9 /. 4ith trade and /ithout a tariff( a. the do'estic price is e5ual to the /orld price. b. carnations are sold at 79 in this 'ar-et. c. there is a shortage of 0== carnations in this 'ar-et. d. this countr" i'ports ,== carnations.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *rices +S%: Interpretive 93. Re'er to Fi)*re 9 /. @efore the tariff is i'posed( this countr" a. i'ports ,== carnations. b. i'ports 0== carnations. c. e8ports ,== carnations. d. e8ports 0== carnations. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

ANS: @ NAT: Anal"tic T$*: I'ports 96.

Re'er to Fi)*re 9 /. The si)e of the tariff on carnations is a. 79 per do)en. b. 73 per do)en. c. 70 per do)en. d. 7, per do)en. DIF: 1 REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

ANS: D NAT: Anal"tic T$*: Tariffs

%hapter 99. Re'er to Fi)*re 9 /. The i'position of a tariff on carnations a. increases the nu'ber of carnations i'ported b" 1==. b. increases the nu'ber of carnations i'ported b" ,==. c. decreases the nu'ber of carnations i'ported b" ,==. d. decreases the nu'ber of carnations i'ported b" 0==.

<Application: International Trade

11,

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'ports +S%: Applicative 9 . Re'er to Fi)*re 9 /. The a'ount of revenue collected b" the govern'ent fro' the tariff is a. 7,==. b. 70==. c. 71==. d. 73==.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 &overn'ent +S%: Applicative =. Re'er to Fi)*re 9 /. 4hen a tariff is i'posed in the 'ar-et( do'estic producers a. gain b" 71==. b. gain b" 7,==. c. gain b" 7.==. d. lose b" 71==.

ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *roducer surplus +S%: Applicative 1. Re'er to Fi)*re 9 /. The a'ount of dead/eight loss caused b" the tariff e5uals a. 71==. b. 7,==. c. 70==. d. 71==.

ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight losses +S%: Applicative ,. Re'er to Fi)*re 9 /. 4hen the tariff is i'posed( do'estic consu'ers a. lose b" 71==. b. lose b" 7 ==. c. gain b" 71==. d. gain b" 7 ==.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 %onsu'er surplus +S%: Applicative .. The before!trade price of fish in &er'an" is 79.== per pound. The /orld price of fish is 73.== per pound. &er'an" is a price!ta-er in the fish 'ar-et. If &er'an" allo/s trade in fish( then &er'an" /ill beco'e an a. i'porter of fish and the price of fish in &er'an" /ill be 73.==. b. i'porter of fish and the price of fish in &er'an" /ill be 79.==. c. e8porter of fish and the price of fish in &er'an" /ill be 73.==. d. e8porter of fish and the price of fish in &er'an" /ill be 79.==.

ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 *rices +S%: Applicative

11.
0.

%hapter

<Application: International Trade

The before!trade price of fish in Den'ar- is 71=.== per pound. The /orld price of fish is 73.== per pound. Den'ar- is a price!ta-er in the fish 'ar-et. If Den'ar- begins to allo/ trade in fish( its consu'ers of fish /ill beco'e a. better off( its producers of fish /ill beco'e better off( and on balance the citi)ens of Den'ar- /ill beco'e better off. b. /orse off( its producers of fish /ill beco'e better off( and on balance the citi)ens of Den'ar- /ill beco'e /orse off. c. /orse off( its producers of fish /ill beco'e better off( and on balance the citi)ens of Den'ar- /ill beco'e /orse off. d. better off( its producers of fish /ill beco'e /orse off( and on balance the citi)ens of Den'ar- /ill beco'e better off.

ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 *rices 2 Econo'ic /elfare +S%: Applicative Figure 9-7. The igure a!!"ies to the nation o #a"es and the good is cheese.

1.

Re'er to Fi)*re 9 0. The e5uilibriu' price and the e5uilibriu' 5uantit" of cheese in 4ales before trade are a. P1 and Q,. b. P1 and Q1. c. P= and Q=. d. P= and Q1.

ANS: % DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E5uilibriu' price 2 E5uilibriu' 5uantit" +S%: Interpretive 3. Re'er to Fi)*re 9 0. 4ith trade( the 4elsh price of cheese and the 4elsh 5uantit" of cheese de'anded are a. P1 and Q,. b. P1 and Q1. c. P= and Q=. d. P. and Q1.

ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 E5uilibriu' +S%: Interpretive 6. Re'er to Fi)*re 9 0. 4ith trade( 4ales a. i'ports Q, ! Q1 units of cheese. b. e8ports Q, ! Q1 units of cheese. c. i'ports Q, ! Q= units of cheese. d. e8ports Q, ! Q= units of cheese.

%hapter ANS: @ NAT: Anal"tic T$*: E8ports 9. DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

<Application: International Trade

110

Re'er to Fi)*re 9 0. 4hich of the follo/ing is a valid e5uation for 4elsh consu'er surplus /ith tradeE a. %onsu'er surplus /ith trade O C1<,DCQ=DCP1 ! P=D. b. %onsu'er surplus /ith trade O C1<,DCQ=DCP. ! P=D. c. %onsu'er surplus /ith trade O C1<,DCQ1DCP. ! P1D. d. None of the above is correct.

ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Anal"tical . Re'er to Fi)*re 9 0. 4hich of the follo/ing is a valid e5uation for 4elsh producer surplus /ith tradeE a. *roducer surplus /ith trade O C1<,DP=Q=. b. *roducer surplus /ith trade O C1<,DP1Q1. c. *roducer surplus /ith trade O C1<,DP1Q,. d. None of the above is correct.

ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Anal"tical 1==. Re'er to Fi)*re 9 0. 4hich of the follo/ing is a valid e5uation for the gains fro' tradeE a. &ains fro' trade O C1<,DCP1 ! P=DCQ, ! Q1D. b. &ains fro' trade O C1<,DCP1 ! P=DCQ, ! Q=D c. &ains fro' trade O C1<,DCP1 ! P=DCQ1 I Q,D. d. &ains fro' trade O C1<,DCQ1DCP. ! P1D. ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Anal"tical Figure 9-$. $n the diagra' belo/( Q represents the 5uantit" of cars and P represents the price of cars.

1=1. Re'er to Fi)*re 9 1. The price corresponding to the hori)ontal dotted line on the graph represents the price of cars a. after trade is allo/ed. b. before trade is allo/ed. c. that 'a8i'i)es total surplus /hen trade is allo/ed. d. that 'ini'i)es the /ell!being of do'estic car producers /hen trade is allo/ed.

111

%hapter

<Application: International Trade DIF: 1 REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

ANS: @ NAT: Anal"tic T$*: *rices

1=,. Re'er to Fi)*re 9 1. The countr" for /hich the figure is dra/n a. has a co'parative advantage relative to other countries in the production of cars and it /ill e8port cars. b. has a co'parative advantage relative to other countries in the production of cars and it /ill i'port cars. c. has a co'parative disadvantage relative to other countries in the production of cars and it /ill e8port cars. d. has a co'parative disadvantage relative to other countries in the production of cars and it /ill i'port cars. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 I'ports +S%: Applicative 1=.. Re'er to Fi)*re 9 1. 4hen the countr" for /hich the figure is dra/n allo/s international trade in cars( a. consu'er surplus increases b" the area @. b. producer surplus decreases b" the area @ I D. c. total surplus increases b" the area D. d. All of the above are correct. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 Econo'ic 4elfare +S%: Applicative 1=0. Re'er to Fi)*re 9 1. In the countr" for /hich the figure is dra/n( total surplus /ith international trade in cars a. is represented b" the area A I @ I %. b. is represented b" the area A I @ I D. c. is s'aller than producer surplus /ithout international trade in cars. d. is larger than total surplus /ithout international trade in cars. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 Econo'ic 4elfare +S%: Applicative

%hapter Figure 9-9

<Application: International Trade

113

1=1. Re'er to Fi)*re 9 9. %onsu'er surplus in this 'ar-et before trade is a. A. b. A I @. c. A I @ I D. d. %. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Applicative 1=3. Re'er to Fi)*re 9 9. %onsu'er surplus in this 'ar-et after trade is a. A. b. A I @. c. A I @ I D. d. %. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative 1=6. Re'er to Fi)*re 9 9. *roducer surplus in this 'ar-et before trade is a. A. b. A I @. c. @ I % I D. d. %. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Applicative 1=9. Re'er to Fi)*re 9 9. *roducer surplus in this 'ar-et after trade is a. A. b. A I @. c. @ I % I D. d. %. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative

116

%hapter

<Application: International Trade

1= . Re'er to Fi)*re 9 9. Total surplus in this 'ar-et before trade is a. A I @. b. A I @ I %. c. A I @ I % I D. d. @ I % I D. ANS: @ NAT: Anal"tic T$*: Total surplus DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

11=. Re'er to Fi)*re 9 9. Total surplus in this 'ar-et after trade is a. A I @. b. A I @ I %. c. A I @ I % I D. d. @ I % I D. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 111. Re'er to Fi)*re 9 9. The change in total surplus in this 'ar-et because of trade is a. D( and this area represents a loss of total surplus because of trade. b. D( and this area represents a gain in total surplus because of trade. c. @ I D( and this area represents a loss of total surplus because of trade. d. @ I D( and this area represents a gain in total surplus because of trade. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative Figure 9-1%. The igure a!!"ies to the nation o &ustra"ia and the good is cameras.

11,. Re'er to Fi)*re 9 #0. The price and 5uantit" of ca'eras in Australia before trade is a. P= and Q=. b. P1 and Q1. c. P, and Q,. d. P1 and Q=. ANS: A DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E5uilibriu' price 2 E5uilibriu' 5uantit" +S%: Interpretive

%hapter

<Application: International Trade

119

11.. Re'er to Fi)*re 9 #0. 4ith trade( the e5uilibriu' price of ca'eras and the e5uilibriu' 5uantit" of ca'eras de'anded in Australia are a. P1 and Q1. b. P1 and Q,. c. P, and Q,. d. P= and Q=. ANS: NAT: T$*: +S%: @ DIF: , REF: !, Anal"tic #$%: &ains fro' trade( speciali)ation and trade International trade 2 E5uilibriu' price 2 E5uilibriu' 5uantit" Interpretive

110. Re'er to Fi)*re 9 #0. 4hen trade ta-es place( the 5uantit" Q, ! Q1 is a. the nu'ber of ca'eras bought and sold in Australia. b. the nu'ber of ca'eras produced in Australia. c. the nu'ber of ca'eras e8ported b" Australia. d. the nu'ber of ca'eras i'ported b" Australia. ANS: D NAT: Anal"tic T$*: I'ports DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

111. Re'er to Fi)*re 9 #0. Australia;s gains fro' trade are represented b" the area that is bounded b" the points a. C=( P=D( CQ=( P=D( CQ,( P1D( and C=( P1D. b. C=( P1D( C=( P,D( CQ=( P=D( and CQ1( P1D. c. CQ=( P=D( CQ,( P1D( and CQ1( P1D. d. C=( P=D( C=( P,D( and CQ=( P=D. ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Anal"tical 113. Re'er to Fi)*re 9 #0. The area bounded b" the points CQ=( P=D( CQ,( P1D( and CQ1( P1D represents a. Australia;s gains fro' trade. b. the a'ount b" /hich Australia;s gain in consu'er surplus e8ceeds its loss in producer surplus due to trade. c. Australia;s gain in total surplus due to trade. d. All of the above are correct. ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Anal"tical 116. Re'er to Fi)*re 9 #0. The area bounded b" the points CQ=( P=D( CQ,( P1D( and CQ1( P1D represents a. Australia;s gains fro' trade. b. the a'ount b" /hich Australia;s gain in producer surplus e8ceeds its loss in consu'er surplus due to trade. c. Australia;s loss in total surplus due to trade. d. All of the above are correct. ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Anal"tical

11

%hapter

<Application: International Trade

Figure 9-11

119. Re'er to Fi)*re 9 ##. %onsu'er surplus in this 'ar-et before trade is a. A. b. @ I %. c. A I @ I D. d. %. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Applicative 11 . Re'er to Fi)*re 9 ##. %onsu'er surplus in this 'ar-et after trade is a. A. b. % I @. c. A I @ I D. d. @ I % I D. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative 1,=. Re'er to Fi)*re 9 ##. *roducer surplus in this 'ar-et before trade is a. %. b. @ I %. c. A I @ I D. d. @ I % I D. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Applicative 1,1. Re'er to Fi)*re 9 ##. *roducer surplus in this 'ar-et after trade is a. %. b. % I @. c. A I @ I D. d. @ I % I D. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative

%hapter

<Application: International Trade

1,=

1,,. Re'er to Fi)*re 9 ##. *roducer surplus plus consu'er surplus in this 'ar-et before trade is a. A I @. b. A I @ I %. c. A I @ I % I D. d. @ I % I D. ANS: @ NAT: Anal"tic T$*: Total surplus DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

1,.. Re'er to Fi)*re 9 ##. *roducer surplus plus consu'er surplus in this 'ar-et after trade is a. A I @. b. A I @ I %. c. @ I % I D. d. A I @ I % I D. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 1,0. Re'er to Fi)*re 9 ##. The change in total surplus in this 'ar-et because of trade is a. A( and this area represents a loss of total surplus. b. @( and this area represents a gain in total surplus. c. %( and this area represents a loss of total surplus. d. D( and this area represents a gain in total surplus. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative Figure 9-12

1,1. Re'er to Fi)*re 9 #(. E5uilibriu' price and e5uilibriu' 5uantit" /ithout trade are a. 719 and 0==. b. 719 and 9==. c. 710 and 0==. d. 710 and 3==. ANS: D DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E5uilibriu' price 2 E5uilibriu' 5uantit" +S%: Interpretive

1,1

%hapter

<Application: International Trade

1,3. Re'er to Fi)*re 9 #(. 4ith trade( the do'estic price and do'estic 5uantit" de'anded are a. 719 and 0==. b. 719 and 9==. c. 710 and 0==. d. 710 and 3==. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 E5uilibriu' +S%: Interpretive 1,6. Re'er to Fi)*re 9 #(. 4ith trade( do'estic production and do'estic consu'ption( respectivel"( are a. 3== and 0==. b. 9== and 0==. c. 0== and 3==. d. 0== and 9==. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 E5uilibriu' 5uantit" +S%: Applicative 1,9. Re'er to Fi)*re 9 #(. %onsu'er surplus before trade is a. 71(3==. b. 7,(0==. c. 7.(,==. d. 7.(3==. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Applicative 1, . Re'er to Fi)*re 9 #(. %onsu'er surplus after trade is a. 71(3==. b. 7,(0==. c. 7.(,==. d. 7.(3==. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative 1.=. Re'er to Fi)*re 9 #(. *roducer surplus before trade is a. 7.(3==. b. 70(0==. c. 71(,==. d. 73(3==. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Applicative 1.1. Re'er to Fi)*re 9 #(. *roducer surplus after trade is a. 70(9==. b. 71(3==. c. 73(0==. d. 76(===. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative 1.,. Re'er to Fi)*re 9 #(. 4ith trade allo/ed( this countr" a. e8ports ,== units of the good. b. e8ports 0== units of the good. c. i'ports ,== units of the good. d. e8ports 9== units of the good.

%hapter ANS: @ NAT: Anal"tic T$*: E8ports Figure 9-13 DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

<Application: International Trade

1,,

1... Re'er to Fi)*re 9 #+. The price and do'estic 5uantit" de'anded after trade are a. 79 and .==. b. 79 and ==. c. 710 and ==. d. 710 and 3==. ANS: NAT: T$*: +S%: @ DIF: , REF: !, Anal"tic #$%: &ains fro' trade( speciali)ation and trade International trade 2 E5uilibriu' price 2 E5uilibriu' 5uantit" Applicative

1.0. Re'er to Fi)*re 9 #+. 4ith trade( do'estic production and do'estic consu'ption( respectivel"( are a. 3== and 3==. b. 3== and .==. c. .== and ==. d. 3== and ==. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade 2 E5uilibriu' +S%: Applicative 1.1. Re'er to Fi)*re 9 #+. %onsu'er surplus before trade is a. 71(3==. b. 7(,0==. c. 7.(,==. d. 7.(3==. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus +S%: Applicative 1.3. Re'er to Fi)*re 9 #+. %onsu'er surplus after trade is a. 7.(3==. b. 71(0==. c. 76(,==. d. 79(1==.

1,.

%hapter

<Application: International Trade

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative 1.6. Re'er to Fi)*re 9 #+. *roducer surplus before trade is a. 7.(3==. b. 70(0==. c. 71(,==. d. 73(3==. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: *roducer surplus +S%: Applicative 1.9. Re'er to Fi)*re 9 #+. 4ith trade( producer surplus is a. 7 ==. b. 71(1==. c. 71(1==. d. 7,(===. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative 1. . Re'er to Fi)*re 9 #+. 4ith trade( the countr" a. e8ports ,== units of the good. b. e8ports 0== units of the good. c. i'ports 0== units of the good. d. i'ports 3== units of the good. ANS: D NAT: Anal"tic T$*: I'ports DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

Figure 9-14. $n the diagra' belo/( Q represents the 5uantit" of co'puters and P represents the price of co'puters.

10=. Re'er to Fi)*re 9 #,. 4hen the countr" for /hich the figure is dra/n allo/s international trade in co'puters( a. consu'er surplus for do'estic co'puter consu'ers decreases. b. the de'and for co'puters b" do'estic co'puter consu'ers decreases. c. the losses of the do'estic losers out/eigh the gains of the do'estic /inners. d. do'estic co'puter producers sell fe/er co'puters.

%hapter ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic 4elfare +S%: Applicative

<Application: International Trade

1,0

101. Re'er to Fi)*re 9 #,. 4hen the countr" for /hich the figure is dra/n allo/s international trade in co'puters( a. consu'er surplus changes fro' the area A I @ I D to the area A. b. producer surplus changes fro' the area % to the area @ I % I D. c. total surplus decreases b" the area D. d. All of the above are correct. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic 4elfare +S%: Applicative 10,. Re'er to Fi)*re 9 #,. The countr" for /hich the figure is dra/n a. has a co'parative advantage relative to other countries in the production of co'puters and it /ill e8port co'puters. b. has a co'parative advantage relative to other countries in the production of co'puters and it /ill i'port co'puters. c. has a co'parative disadvantage relative to other countries in the production of co'puters and it /ill e8port co'puters. d. has a co'parative disadvantage relative to other countries in the production of co'puters and it /ill i'port co'puters. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage 2 E8ports +S%: Applicative 10.. Re'er to Fi)*re 9 #,. A result of this countr" allo/ing international trade in co'puters is as follo/s: a. The /ell!being of do'estic co'puter producers is no/ higher in that the" no/ sell 'ore co'puters at a higher price per co'puter. b. The effect on the /ell!being of do'estic co'puter consu'ers is unclear in that the" no/ bu" 'ore co'puters( but at a higher price per co'puter. c. The effect on the /ell!being of the countr" is unclear in that do'estic producer surplus increases( /hile the effect on do'estic consu'er surplus is unclear. d. All of the above are correct. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 Econo'ic /elfare +S%: Applicative 100. A tariff on a product 'a-es a. do'estic sellers better off and do'estic bu"ers /orse off. b. do'estic sellers /orse off and do'estic bu"ers /orse off. c. do'estic sellers better off and do'estic bu"ers better off. d. do'estic sellers /orse off and do'estic bu"ers better off. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Interpretive 101. A tariff on a product a. is a direct 5uantitative restriction on the a'ount of a good that can be i'ported. b. increases the do'estic 5uantit" supplied. c. increases do'estic consu'er surplus. d. All of the above are correct. ANS: @ NAT: Anal"tic T$*: Tariffs DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

1,1

%hapter

<Application: International Trade

103. A tariff on a product a. enhances the econo'ic /ell!being of the do'estic econo'". b. increases the do'estic 5uantit" supplied. c. increases the do'estic 5uantit" de'anded. d. results in an increase in producer surplus that is greater than the resulting decrease in consu'er surplus. ANS: @ NAT: Anal"tic T$*: Tariffs DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

106. If the >nited States i'poses a tariff on auto'obiles( then a. total surplus in the A'erican auto'obile 'ar-et decreases. b. producer surplus in the A'erican auto'obile 'ar-et increases. c. >.S. i'ports of foreign auto'obiles decrease. d. All of the above are correct. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Interpretive 109. 4hen a countr" that i'ports a particular good i'poses a tariff on that good( a. consu'er surplus increases and total surplus increases in the 'ar-et for that good. b. consu'er surplus increases and total surplus decreases in the 'ar-et for that good. c. consu'er surplus decreases and total surplus increases in the 'ar-et for that good. d. consu'er surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 %onsu'er surplus 2 Total surplus +S%: Interpretive 10 . 4hen a countr" that i'ports a particular good i'poses a tariff on that good( a. producer surplus increases and total surplus increases in the 'ar-et for that good. b. producer surplus increases and total surplus decreases in the 'ar-et for that good. c. producer surplus decreases and total surplus increases in the 'ar-et for that good. d. producer surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *roducer surplus 2 Total surplus +S%: Interpretive 11=. 4hen a countr" that i'ports a particular good i'poses an i'port 5uota on that good( a. consu'er surplus increases and total surplus increases in the 'ar-et for that good. b. consu'er surplus increases and total surplus decreases in the 'ar-et for that good. c. consu'er surplus decreases and total surplus increases in the 'ar-et for that good. d. consu'er surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'port 5uotas 2 %onsu'er surplus 2 Total surplus +S%: Interpretive 111. 4hen a countr" that i'ports a particular good i'poses an i'port 5uota on that good( a. producer surplus increases and total surplus increases in the 'ar-et for that good. b. producer surplus increases and total surplus decreases in the 'ar-et for that good. c. producer surplus decreases and total surplus increases in the 'ar-et for that good. d. producer surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'port 5uotas 2 *roducer surplus 2 Total surplus +S%: Interpretive

%hapter

<Application: International Trade

1,3

11,. A tariff is a ta8 placed on a. an e8ported good and it lo/ers the do'estic price of the good belo/ the /orld price. b. an e8ported good and it ensures that the do'estic price of the good sta"s the sa'e as the /orld price. c. an i'ported good and it lo/ers the do'estic price of the good belo/ the /orld price. d. an i'ported good and it raises the do'estic price of the good above the /orld price. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *rices +S%: Interpretive 11.. A tariff a. lo/ers the do'estic price of the e8ported good belo/ the /orld price. b. -eeps the do'estic price of the e8ported good the sa'e as the /orld price. c. raises the do'estic price of the i'ported good above the /orld price. d. lo/ers the do'estic price of the i'ported good belo/ the /orld price. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *rices +S%: Interpretive 110. 4hen a countr" 'oves a/a" fro' a free trade position and i'poses a tariff on i'ports( it causes a. a decrease in total surplus in the 'ar-et. b. a decrease in producer surplus in the 'ar-et. c. an increase in consu'er surplus in the 'ar-et. d. a decrease in revenue to the govern'ent. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Interpretive 111. If the de'and curve and the suppl" curve for a good are straight lines( then the dead/eight loss that results fro' a tariff is represented on the suppl"!and!de'and graph b" a. the area of one triangle. b. the area of one rectangle. c. the co'bined areas of t/o different triangles. d. the co'bined areas of t/o different rectangles. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight losses +S%: Interpretive 113. Suppose +e8ico i'poses a tariff on lu'ber. For the tariff to have an" effect( it 'ust be the case that a. +e8ico is an e8porter of lu'ber. b. the do'estic 5uantit" of lu'ber supplied e8ceeds the do'estic 5uantit" of lu'ber de'anded at the /orld price /ithout the tariff. c. the /orld price /ithout the tariff is less than the price of lu'ber /ithout trade. d. the /orld price /ithout the tariff is greater than the price of lu'ber /ithout trade. ANS: % NAT: Anal"tic T$*: Tariffs DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

116. Spain is an i'porter of co'puter chips( ta-ing the /orld price of 71, per chip as given. Suppose Spain i'poses a 71 tariff on chips. As a result( a. Spanish consu'ers of chips and Spanish producers of chips both gain. b. Spanish consu'ers of chips gain and Spanish producers of chips lose. c. Spanish consu'ers of chips lose and Spanish producers of chips gain. d. Spanish consu'ers of chips and Spanish producers of chips both lose. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Interpretive

1,6

%hapter

<Application: International Trade

119. Den'ar- is an i'porter of co'puter chips( ta-ing the /orld price of 71, per chip as given. Suppose Den'ari'poses a 71 tariff on chips. 4hich of the follo/ing outco'es is possibleE a. +ore Danish!produced chips are sold in Den'ar-. b. +ore foreign!produced chips are sold in Den'ar-. c. Danish consu'ers of chips beco'e better off. d. Total surplus in the Danish chip 'ar-et increases. ANS: A NAT: Anal"tic T$*: Tariffs DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

11 . %hile is an i'porter of co'puter chips( ta-ing the /orld price of 71, per chip as given. Suppose %hile i'poses a 76 tariff on chips. 4hich of the follo/ing outco'es is possibleE a. The price of chips in %hile increases to 71 G the 5uantit" of %hilean!produced chips decreasesG and the 5uantit" of chips i'ported b" %hile decreases. b. The price of chips in %hile increases to 713G the 5uantit" of %hilean!produced chips increasesG and the 5uantit" of chips i'ported b" %hile decreases. c. The price of chips in %hile increases to 71 G the 5uantit" of %hilean!produced chips increasesG and the 5uantit" of chips i'ported b" %hile decreases. d. The price of chips in %hile increases to 713G the 5uantit" of %hilean!produced chips increasesG and the 5uantit" of chips i'ported b" %hile does not change. ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *rices +S%: Anal"tical 13=. Bonduras is an i'porter of goose!do/n pillo/s. The /orld price of these pillo/s is 71=. Bonduras i'poses a 76 tariff on pillo/s. Bonduras is a price!ta-er in the pillo/ 'ar-et. As a result of the tariff( the price of goose! do/n pillo/s in Bonduras a. re'ains at 71= and the 5uantit" of goose!do/n pillo/s purchased in Bonduras decreases. b. increases to 716 and the 5uantit" of goose!do/n pillo/s purchased in Bonduras decreases. c. increases to a ne/ price bet/een 71= and 716 and the 5uantit" of goose!do/n pillo/s purchased in Bonduras decreases. d. increases to a ne/ price above 716 and the 5uantit" of goose!do/n pillo/s purchased in Bonduras re'ains the sa'e. ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 E5uilibriu' +S%: Applicative 131. Tur-e" is an i'porter of /heat. The /orld price of a bushel of /heat is 76. Tur-e" i'poses a 7.!per!bushel tariff on /heat. Tur-e" is a price!ta-er in the /heat 'ar-et. As a result of the tariff( a. Tur-ish consu'ers of /heat beco'e /orse off and Tur-ish producers of /heat beco'e /orse off. b. Tur-ish consu'ers of /heat beco'e /orse off and Tur-ish producers of /heat beco'e better off. c. Tur-ish consu'ers of /heat beco'e better off and Tur-ish producers of /heat beco'e /orse off. d. Tur-ish consu'ers of /heat beco'e better off and Tur-ish producers of /heat beco'e better off. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Interpretive 13,. 4hen the nation of @ro/nland first per'itted trade /ith other nations( do'estic producers of /heat e8perienced an increase in producer surplus of 70 'illion and total surplus in @ro/nland;s /heat 'ar-et increased b" 71 'illion. 4e can conclude that a. @ro/nland beca'e an e8porter of /heat. b. consu'er surplus in @ro/nland increased b" 7. 'illion. c. the opening of trade caused the do'estic suppl" curve for /heat in @ro/nland to shift to the left. d. this e8a'ple is inconsistent /ith the econo'ic theor" of international trade. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: E8ports 2 &ains fro' trade +S%: Applicative

%hapter

<Application: International Trade

1,9

13.. 4hen the nation of +ooseland first per'itted trade /ith other nations( do'estic producers of sugar e8perienced a decrease in producer surplus of 71 'illion and total surplus in +ooseland;s sugar 'ar-et increased b" 7, 'illion. 4e can conclude that a. +ooseland beca'e an e8porter of sugar. b. the overall econo'ic /ell!being of participants in the sugar 'ar-et in +ooseland fell because of trade. c. consu'er surplus in +ooseland increased b" 76 'illion. d. the opening of trade caused the do'estic de'and curve for sugar in +ooseland to shift to the right. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: I'ports 2 &ains fro' trade +S%: Applicative Figure 9-15

130. Re'er to Fi)*re 9 #-. 4ith trade and /ithout a tariff( the price and do'estic 5uantit" de'anded are a. P1 and Q1. b. P1 and Q0. c. P, and Q,. d. P, and Q.. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Trade 2 E5uilibriu' +S%: Interpretive 131. Re'er to Fi)*re 9 #-. 4ith the tariff( the do'estic price and do'estic 5uantit" de'anded are a. P1 and Q1. b. P1 and Q0. c. P, and Q,. d. P, and Q.. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 E5uilibriu' +S%: Applicative 133. Re'er to Fi)*re 9 #-. 4ith the tariff( the 5uantit" of saddles i'ported is a. Q. ! Q1. b. Q. ! Q,. c. Q0 ! Q1. d. Q0 ! Q,. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'ports +S%: Applicative

1,

%hapter

<Application: International Trade

136. Re'er to Fi)*re 9 #-. A result of the tariff is that( relative to the free!trade situation( the 5uantit" of saddles i'ported decreases b" a. Q, ! Q1. b. Q. ! Q,. c. Q0 ! Q.. d. Q0 ! Q. I Q, ! Q1. ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'ports +S%: Applicative 139. Re'er to Fi)*re 9 #-. %onsu'er surplus /ith trade and /ithout a tariff is a. A. b. A I @. c. A I % I &. d. A I @ I % I D I E I F. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative 13 . Re'er to Fi)*re 9 #-. *roducer surplus /ith trade and /ithout a tariff is a. &. b. % I &. c. A I % I &. d. A I @ I % I &. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative 16=. Re'er to Fi)*re 9 #-. %onsu'er surplus /ith the tariff is a. A. b. A I @. c. A I % I &. d. A I @ I % I D IE I F. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 %onsu'er surplus +S%: Applicative 161. Re'er to Fi)*re 9 #-. *roducer surplus /ith the tariff is a. &. b. % I &. c. A I % I &. d. A I @ I % I &. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 *roducer surplus +S%: Applicative 16,. Re'er to Fi)*re 9 #-. The a'ount of govern'ent revenue created b" the tariff is a. @. b. E. c. D I F. d. @ I D I E I F. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 &overn'ent +S%: Applicative

%hapter

<Application: International Trade

1.=

16.. Re'er to Fi)*re 9 #-. As a result of the tariff( there is a dead/eight loss that a'ounts to a. @. b. E. c. D I F. d. @ I D I E I F. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight losses +S%: Applicative 160. Re'er to Fi)*re 9 #-. For the saddle 'ar-et( area @ represents a. govern'ent;s revenue fro' the tariff. b. the dead/eight loss of the tariff. c. the increase in producer surplus( relative to the free!trade situation( as a result of the tariff. d. None of the above is correct. ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Tariffs +S%: Applicative 161. Re'er to Fi)*re 9 #-. For the saddle 'ar-et( area E represents a. govern'ent;s revenue fro' the tariff. b. producer surplus after the tariff beco'es effective. c. the decrease in consu'er surplus( relative to the free!trade situation( as a result of the tariff. d. the decrease in total surplus( relative to the free!trade situation( as a result of the tariff. ANS: A DIF: T$*: Tariffs 2 &overn'ent . REF: !, +S%: Applicative

Figure 9-16. The figure belo/ illustrates a tariff. $n the graph( Q represents 5uantit" and P represents price.

163. Re'er to Fi)*re 9 #/. &overn'ent revenue raised b" the tariff is represented b" the area a. E. b. @ I E. c. D I E I F. d. @ I D I E I F. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 &overn'ent +S%: Applicative

1.1

%hapter

<Application: International Trade

166. Re'er to Fi)*re 9 #/. The tariff a. decreases producer surplus b" the area % and decreases consu'er surplus b" the area % I D I E I F. b. decreases producer surplus b" the area % I D and decreases consu'er surplus b" the area D I E I F. c. increases producer surplus b" the area % and decreases consu'er surplus b" the area % I D I E I F. d. increases producer surplus b" the area @ I % and decrease consu'er surplus b" the area D I E I F. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic 4elfare +S%: Applicative 169. Re'er to Fi)*re 9 #/. The tariff a. decreases producer surplus b" the area %( decreases consu'er surplus b" the area % I D I E( and decreases total surplus b" the area D I F. b. increases producer surplus b" the area %( decreases consu'er surplus b" the area % I D I E I F( and decreases total surplus b" the area D I F.. c. creates govern'ent revenue represented b" the area @ I E and decreases total surplus b" the area D I E I F. d. increases producer surplus b" the area % I & and creates govern'ent revenue represented b" the area D I E I F. ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic 4elfare +S%: Applicative 16 . Re'er to Fi)*re 9 #/. The dead/eight loss created b" the tariff is represented b" the area a. @. b. D I F. c. D I E I F. d. @ I D I E I F. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight losses +S%: Applicative 19=. Re'er to Fi)*re 9 #/. The area % I D I E I F represents a. the decrease in consu'er surplus caused b" the tariff. b. the decrease in total surplus caused b" the tariff. c. the dead/eight loss of the tariff 'inus govern'ent revenue raised b" the tariff. d. the dead/eight loss of the tariff plus govern'ent revenue raised b" the tariff. ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Applicative 191. A 5uota is a. a ta8 placed on i'ports. b. a li'it on the 5uantit" of i'ports. c. a ta8 on e8ports to other countries. d. an e8cess of e8ports over i'ports. ANS: @ NAT: Anal"tic T$*: I'port 5uotas DIF: 1 REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Definitional

19,. @oth tariffs and i'port 5uotas a. increase the 5uantit" of i'ports and raise the do'estic price of the good. b. increase the 5uantit" of i'ports and lo/er the do'estic price of the good. c. decrease the 5uantit" of i'ports and raise the do'estic price of the good. d. decrease the 5uantit" of i'ports and lo/er the do'estic price of the good.

%hapter ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'port 5uotas +S%: Interpretive

<Application: International Trade

1.,

19.. A 'aAor difference bet/een tariffs and i'port 5uotas is that a. tariffs create dead/eight losses( but i'port 5uotas do not. b. tariffs help do'estic consu'ers( and i'port 5uotas help do'estic producers. c. tariffs raise revenue for the govern'ent( but i'port 5uotas create surplus for those /ho get the licenses to i'port. d. All of the above are correct. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'port 5uotas +S%: Interpretive 190. Tariffs and 5uotas are different in the sense that a. tariffs cause dead/eight losses( /hile 5uotas do not cause dead/eight losses. b. tariffs raise revenue for the govern'ent( /hile 5uotas do not raise revenue for the govern'ent. c. tariffs enhance the /ell!being of do'estic consu'ers( /hile 5uotas di'inish the /ell!being of do'estic consu'ers. d. tariffs enhance the /ell!being of do'estic producers( /hile 5uotas di'inish the /ell!being of do'estic producers. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'port 5uotas +S%: Interpretive 191. I'port 5uotas and tariffs produce si'ilar results. 4hich of the follo/ing is not one of those resultsE a. The do'estic price of the good increases. b. %onsu'er surplus of do'estic consu'ers increases. c. *roducer surplus of do'estic producers increases. d. A dead/eight loss is e8perienced b" the do'estic countr". ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'port 5uotas +S%: Interpretive 193. I'port 5uotas and tariffs produce so'e co''on results. 4hich of the follo/ing is not one of those co''on resultsE a. Total surplus in the do'estic countr" falls. b. *roducer surplus in the do'estic countr" increases. c. The do'estic countr" e8periences a dead/eight loss. d. Revenue is raised for the do'estic govern'ent. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'port 5uotas +S%: Interpretive 196. An i'port 5uota a. is preferable to a tariff since an i'port 5uota does not create a dead/eight loss. b. is a ta8 on i'ported goods. c. reduces the /elfare of do'estic consu'ers. d. reduces the /elfare of do'estic producers. ANS: % NAT: Anal"tic T$*: I'port 5uotas DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Interpretive

1..

%hapter

<Application: International Trade

199. The nation of Hel)ar has decided to end its polic" of not trading /ith the rest of the /orld. 4hen it ends its trade restrictions( it discovers that it is i'porting incense( e8porting steel( and neither i'porting nor e8porting rugs. 4e can conclude that Hel)ar;s ne/ free!trade polic" has a. increased consu'er surplus and producer surplus in the incense 'ar-et. b. increased consu'er surplus in the steel 'ar-et and left producer surplus in the rug 'ar-et unchanged. c. decreased consu'er surplus in both the steel and rug 'ar-ets. d. decreased consu'er surplus in the steel 'ar-et and increased total surplus in the incense 'ar-et. ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic /elfare +S%: Applicative 19 . The nation of A5uilonia has decided to end its polic" of not trading /ith the rest of the /orld. 4hen it ends its trade restrictions( it discovers that it is i'porting rice( e8porting steel( and neither i'porting nor e8porting TFs. 4e can conclude that producer surplus in A5uilonia is no/ a. higher in the steel 'ar-et( lo/er in the rice 'ar-et( and unchanged in the TF 'ar-et. b. higher in the rice and steel 'ar-ets( and unchanged in the TF 'ar-et. c. lo/er in the rice and TF 'ar-ets( and higher in the steel 'ar-et. d. lo/er in the rice and steel 'ar-ets( and the sa'e in the TF 'ar-et. ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus +S%: Applicative 1 =. A5uilonia has decided to end its polic" of not trading /ith the rest of the /orld. 4hen it ends its trade restrictions( it discovers that it is i'porting incense( e8porting steel( and neither i'porting nor e8porting rugs. 4hich groups in A5uilonia are better off as a result of the ne/ free!trade polic"E a. producers of incense and consu'ers of steel b. consu'ers of all three goods c. consu'ers of incense and producers of rugs d. producers of steel and consu'ers of incense ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic /elfare +S%: Applicative 1 1. The >nited States has i'posed ta8es on so'e i'ported goods that have been sold here b" foreign countries at belo/ their cost of production. These ta8es a. benefit the >nited States as a /hole( because the" generate revenue for the govern'ent. In addition( because the goods are priced belo/ cost( the ta8es do not har' do'estic consu'ers. b. benefit the >nited States as a /hole( because the" generate revenue for the govern'ent and increase producer surplus. c. har' the >nited States as a /hole( because the" reduce consu'er surplus b" an a'ount that e8ceeds the gain in producer surplus and govern'ent revenue. d. har' the >nited States as a /hole( because the" reduce producer surplus b" an a'ount that e8ceeds the gain in consu'er surplus and govern'ent revenue. ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Econo'ic /elfare +S%: Applicative 1 ,. So'e goods can be produced at lo/ cost onl" if the" are produced in large 5uantities. This pheno'enon is called a. 'arginal cost of production. b. 'arginal benefit of si)e. c. econo'ies of scale. d. econo'ies of production. ANS: % DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Econo'ies of scale +S%: Definitional

%hapter

<Application: International Trade

1.0

1 .. Relative to a situation in /hich do'estic fir's do not co'pete /ith foreign fir's( fir's in countries that engage in free trade a. can reali)e econo'ies of scale 'ore full". b. have greater 'ar-et po/er. c. e8perience larger producer surplus. d. All of the above are correct. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Econo'ies of scale 2 International trade +S%: Interpretive Figure 9-17
Price 63 6, 39 30 3= 13 1, 09 00 0= .3 ., ,9 ,0 ,= 13 1, 9 0 1 , . 0 1 3 6 9 1= 11 1, 1. 10 11 13 16 19 1 ,= ,1 ,, ,. ,0 ,1 Quantity

Do'estic Suppl"

4orld price I tariff 4orld *rice Do'estic De'and

1 0. Re'er to Fi)*re 9 #0. 4ithout trade( consu'er surplus is a. 71== and producer surplus is 71=. b. 71== and producer surplus is 7,==. c. 70== and producer surplus is 71=. d. 70== and producer surplus is 7,==. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %onsu'er surplus 2 *roducer surplus +S%: Applicative 1 1. Re'er to Fi)*re 9 #0. 4ith free trade( consu'er surplus is a. 71== and producer surplus is 71=. b. 71== and producer surplus is 7,==. c. 70== and producer surplus is 71=. d. 70== and producer surplus is 7,==. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus 2 *roducer surplus +S%: Applicative

1.1

%hapter

<Application: International Trade

1 3. Re'er to Fi)*re 9 #0. 4ith trade and a tariff( consu'er surplus is a. 7,=, and producer surplus is 71=. b. 7,=, and producer surplus is 7 9. c. 7,13 and producer surplus is 71=. d. 7,13 and producer surplus is 7 9. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 %onsu'er surplus 2 *roducer surplus +S%: Applicative 1 6. Re'er to Fi)*re 9 #0. 4ithout trade( total surplus is a. 711=. b. 7.==. c. 701=. d. 73==. ANS: @ NAT: Anal"tic T$*: Total surplus DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

1 9. Re'er to Fi)*re 9 #0. 4ith free trade( total surplus is a. 711=. b. 7.==. c. 701=. d. 73==. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Total surplus +S%: Applicative 1 . Re'er to Fi)*re 9 #0. 4ith trade and a tariff( total surplus is a. 7.=3. b. 7.10. c. 7.69. d. 70,3.

ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Total surplus +S%: Applicative ,==. Re'er to Fi)*re 9 #0. 4ith free trade( the countr" i'ports a. 1 units of the good. b. 1= units of the good. c. 11 units of the good. d. ,= units of the good. ANS: % NAT: Anal"tic T$*: I'ports DIF: , REF: !, #$%: &ains fro' trade( speciali)ation and trade +S%: Applicative

,=1. Re'er to Fi)*re 9 #0. The i'position of the tariff a. decreases i'ports of the good b" 0 units and increases do'estic production of the good b" , units. b. decreases i'ports of the good b" 0 units and increases do'estic production of the good b" 0 units. c. decreases i'ports of the good b" 3 units and increases do'estic production of the good b" , units. d. decreases i'ports of the good b" 3 units and increases do'estic production of the good b" 3 units. ANS: % DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 I'ports +S%: Applicative ,=,. Re'er to Fi)*re 9 #0. The a'ount of revenue collected b" the govern'ent fro' the tariff is a. 79. b. 76,. c. 719=. d. 7,1,.

%hapter ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 &overn'ent +S%: Applicative ,=.. Re'er to Fi)*re 9 #0. The dead/eight loss caused b" the tariff is a. 7,0. b. 76,. c. 7 3. d. 711=. ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 Dead/eight loss +S%: Applicative

<Application: International Trade

1.3

,=0. Re'er to Fi)*re 9 #0. 4hen co'paring no trade to free trade( the gain fro' trade is a. 76,. b. 71==. c. 711=. d. 701=. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade +S%: Applicative ,=1. Re'er to Fi)*re 9 #0. 4hen the countr" 'oves fro' no trade to free trade( consu'er surplus a. increases b" 7.== and producer surplus increases b" 711=. b. increases b" 7.== and producer surplus decreases b" 711=. c. decreases b" 7.== and producer surplus increases b" 711=. d. decreases b" 7.== and producer surplus decreases b" 711=. ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 Econo'ic /elfare +S%: Applicative ,=3. Re'er to Fi)*re 9 #0. 4hen the countr" 'oves fro' free trade to trade and a tariff( consu'er surplus a. decreases b" 7100 and producer surplus does not change. b. decreases b" 7100 and producer surplus increases b" 709. c. decreases b" 71 9 and producer surplus does not change. d. decreases b" 71 9 and producer surplus increases b" 709. ANS: @ DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: Tariffs 2 %onsu'er surplus 2 *roducer surplus +S%: Applicative ,=6. 4hen a certain nation abandoned a polic" of prohibiting international trade in auto'obiles in favor of a free! tree polic"( the result /as that the countr" began to i'port auto'obiles. The change in polic" i'proved the /ell!being of that nation in the sense that a. both producers of auto'obiles and consu'ers of auto'obiles in that nation beca'e better off as a result. b. the gains to auto'obile producers in that nation e8ceeded the losses of the auto'obile consu'ers in that nation. c. the gains to auto'obile consu'ers in that nation e8ceeded the losses of the auto'obile producers in that nation. d. even though total surplus in that nation decreased( it /as still true that consu'er surplus and producer surplus increased. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ains fro' trade +S%: Interpretive

1.6

%hapter

<Application: International Trade

,=9. After a certain nation changed its polic" fro' one that banned international trade in /heat to one that allo/ed international trade in /heat( the nation began i'porting /heat. As a result( total surplus in the /heat 'ar-et increased b" 71= 'illion. 4hich of the follo/ing changes could have occurred as /ellE a. The price of /heat in that nation increased /ith the adoption of the ne/ polic". b. The do'estic 5uantit" of /heat supplied increased /ith the adoption of the ne/ polic". c. %onsu'er surplus in the /heat 'ar-et increased b" 76 'illion and producer surplus in the /heat 'ar-et increased b" 7. 'illion. d. %onsu'er surplus in the /heat 'ar-et increased b" 711 'illion and producer surplus in the /heat 'ar-et decreased b" 71 'illion. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ains fro' trade 2 Econo'ic /elfare +S%: Applicative ,= . 4hen the nation of Isoland opens up its steel 'ar-et to international trade( that change a. creates /inners and losers( regardless of /hether Isoland ends up e8porting or i'porting steel. b. results in a decrease in total surplus( regardless of /hether Isoland ends up e8porting or i'porting steel. c. creates /inners( but no losers( if Isoland ends up e8porting steel. d. creates losers( but no /inners( if Isoland ends up i'porting steel. ANS: A DIF: 1 REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ains fro' trade +S%: Interpretive ,1=. So'e ti'e ago( the nation of Republica opened up its paper 'ar-et to international trade. 4hich of the follo/ing results of this polic" change is consistent /ith the notion that Republica has a co'parative advantage over other countries in producing paperE a. The price of paper in Republica decreased as a result of the polic" change. b. Republica began e8porting paper as a result of the polic" change. c. The do'estic de'and curve for paper shifted to the right as a result of the polic" change. d. The do'estic 5uantit" of paper de'anded increased as a result of the polic" change. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: %o'parative advantage +S%: Interpretive ,11. Do'estic producers of a good beco'e better off( and do'estic consu'ers of a good beco'e /orse off( /hen a countr" begins allo/ing international trade in that good and a. the countr" beco'es an i'porter of the good as a result. b. the /orld price e8ceeds the do'estic price of the good that prevailed before international trade /as allo/ed. c. other countries have a co'parative advantage( relative to the countr" in 5uestion( in producing the good. d. total surplus does not change as a result. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: &ains fro' trade 2 *rices +S%: Interpretive

%hapter

<Application: International Trade

1.9

Fi)*re 9 #1. $n the diagra' belo/( Q represents the 5uantit" of peaches and P represents the price of peaches. The do'estic countr" is Isoland.

P 6 3 1 0 . , 1 1= ,= .= 0= Do'estic de'and 1= 3= Q Do'estic suppl"

,1,. Re'er to Fi)*re 9 #1. If Isoland allo/s international trade and if the /orld price of peaches is 71( then a. Isoland has a co'parative advantage( relative to other countries( in producing peaches. b. Isoland /ill i'port peaches. c. consu'er surplus /ith trade e8ceeds consu'er surplus /ithout trade. d. All of the above are correct. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: %o'parative advantage 2 *rice +S%: Applicative ,1.. Re'er to Fi)*re 9 #1. If Isoland allo/s international trade and if the /orld price of peaches is 7.( then a. Isoland has a co'parative advantage( relative to other countries( in producing peaches. b. Isoland /ill e8port peaches. c. producer surplus /ith trade e8ceeds producer surplus /ithout trade. d. consu'er surplus /ith trade e8ceeds consu'er surplus /ithout trade. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ains fro' trade 2 %onsu'er surplus +S%: Applicative ,10. Re'er to Fi)*re 9 #1. If Isoland allo/s international trade( then it /ill be an e8porter of peaches if and onl" if the /orld price of peaches is a. above 7,. b. belo/ 70. c. above 70. d. belo/ 76. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: *rice 2 E8ports +S%: Interpretive ,11. Re'er to Fi)*re 9 #1. If Isoland allo/s international trade and the /orld price of peaches is 71( then a. producer surplus /ill be s'aller than it /ould be if Isoland banned trade. b. consu'er surplus /ill be s'aller than it /ould be if Isoland banned trade. c. the do'estic 5uantit" of peaches de'anded /ill e8ceed the do'estic 5uantit" of peaches supplied. d. Isoland /ill be an i'porter of peaches. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: *rices 2 %onsu'er surplus 2 *roducer surplus +S%: Applicative

1.

%hapter

<Application: International Trade

,13. Re'er to Fi)*re 9 #1. Suppose Isoland changes fro' a no!trade polic" to a polic" that allo/s international trade. If the /orld price of peaches is 71( then the polic" change results in a. a decrease in consu'er surplus. b. an increase in producer surplus. c. an increase in total surplus. d. All of the above are correct. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: *rices 2 %onsu'er surplus 2 *roducer surplus +S%: Applicative ,16. Re'er to Fi)*re 9 #1. Suppose Isoland changes fro' a no!trade polic" to a polic" that allo/s international trade. If the /orld price of peaches is 71( then the polic" change results in a a. 7,1 decrease in consu'er surplus. b. 7,= increase in consu'er surplus. c. 7,1 decrease in producer surplus. d. 7,= increase in producer surplus. ANS: A DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: %onsu'er surplus +S%: Anal"tical ,19. Re'er to Fi)*re 9 #1. Suppose Isoland changes fro' a no!trade polic" to a polic" that allo/s international trade. If the /orld price of peaches is 7.( then the polic" change results in a a. 711.== decrease in producer surplus. b. 701.== increase in consu'er surplus. c. 7,=.== increase in total surplus. d. 71,.1= increase in total surplus. ANS: D DIF: . REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ains fro' trade 2 Econo'ic /elfare +S%: Anal"tical ,1 . Suppose a certain countr" i'poses a tariff on a good. 4hich of the follo/ing results of the tariff is possibleE a. %onsu'er surplus decreases b" 71==G producer surplus increases b" 71==G and govern'ent revenue fro' the tariff a'ounts to 71=. b. %onsu'er surplus decreases b" 7,==G producer surplus increases b" 71==G and govern'ent revenue fro' the tariff a'ounts to 71=. c. %onsu'er surplus increases b" 71==G producer surplus decreases b" 7,==G and govern'ent revenue fro' the tariff a'ounts to 71=. d. %onsu'er surplus decreases b" 71=G producer surplus increases b" 7,==G and govern'ent revenue fro' the tariff a'ounts to 711=. ANS: NAT: T$*: +S%: @ DIF: . REF: !, Anal"tic #$%: &ains fro' trade( speciali)ation( and trade Tariffs 2 %onsu'er surplus 2 *roducer surplus 2 &overn'ent Applicative

,,=. Suppose France i'poses a tariff on /ine of . euros per bottle. If govern'ent revenue fro' the tariff a'ounts to .= 'illion euros per "ear and if the 5uantit" of /ine supplied b" French /ine producers( /ith the tariff( is 9 'illion bottles per "ear( then /e can conclude that a. the 5uantit" of /ine de'anded b" France( /ith the tariff( is 19 'illion bottles per "ear. b. the 5uantit" of /ine de'anded b" France( /ithout the tariff( /ould be ,0 'illion bottles per "ear. c. the a'ount of the dead/eight loss is ,0 'illion euros per "ear. d. the tariff causes French bu"ers of /ine to pa" , euros 'ore per bottle than the" /ould pa" /ithout the tariff. ANS: A NAT: Anal"tic T$*: Tariffs DIF: . REF: !, #$%: &ains fro' trade( speciali)ation( and trade +S%: Anal"tical

%hapter

<Application: International Trade

10=

,,1. For a countr" that is considering the adoption of either a tariff or an i'port 5uota on a particular good( an i'portant difference is that a. an i'port 5uota has no effect on consu'er surplus( /hile a tariff decreases consu'er surplus. b. an i'port 5uota has no effect on producer surplus( /hile a tariff decreases producer surplus. c. a tariff raises total surplus( /hile an i'port 5uota does not. d. a tariff raises revenue for that countr";s govern'ent( /hile an i'port 5uota does not. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Tariffs 2 I'port 5uotas +S%: Interpretive ,,,. For an" countr" that allo/s free trade( a. do'estic 5uantit" de'anded is e5ual to do'estic 5uantit" supplied at the /orld price. b. do'estic 5uantit" de'anded is greater than do'estic 5uantit" supplied at the /orld price. c. both producers and consu'ers in that countr" gain /hen do'estic products are e8ported( but both groups lose /hen foreign products are i'ported. d. the do'estic price is e5ual to the /orld price. ANS: D DIF: , T$*: International trade 2 *rices REF: !, +S%: Interpretive

Fi)*re 9 #9. $n the diagra' belo/( Q represents the 5uantit" of te8tiles and P represents the price of te8tiles.

,0 P ,1 19 11 1, 3 . ,= 0= 3= 9= 1== 1,= 10= Q 4orld *rice Do'estic de'and Do'estic suppl"

,,.. Re'er to Fi)*re 9 #9. 4ith free trade( the countr" for /hich the figure is dra/n /ill a. e8port .= units of te8tiles. b. e8port 1= units of te8tiles. c. i'port .= units of te8tiles. d. i'port 1= units of te8tiles. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: International trade 2 I'ports +S%: Applicative ,,0. Re'er to Fi)*re 9 #9. 4ith free trade( consu'er surplus in the te8tile 'ar-et a'ounts to a. 7,1=. b. 7.,=. c. 70=1. d. 7 1=. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: International trade 2 %onsu'er surplus +S%: Applicative

101

%hapter

<Application: International Trade

,,1. 4hen a countr" abandons a no!trade polic"( adopts a free!trade polic"( and beco'es an e8porter of a particular good( a. consu'er surplus increases and total surplus increases in the 'ar-et for that good. b. consu'er surplus increases and total surplus decreases in the 'ar-et for that good. c. consu'er surplus decreases and total surplus increases in the 'ar-et for that good. d. consu'er surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus 2 Total surplus +S%: Interpretive ,,3. 4hen a countr" abandons a no!trade polic"( adopts a free!trade polic"( and beco'es an e8porter of a particular good( a. producer surplus increases and total surplus increases in the 'ar-et for that good. b. producer surplus increases and total surplus decreases in the 'ar-et for that good. c. producer surplus decreases and total surplus increases in the 'ar-et for that good. d. producer surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus 2 Total surplus +S%: Interpretive ,,6. 4hen a countr" abandons a no!trade polic"( adopts a free!trade polic"( and beco'es an i'porter of a particular good( a. consu'er surplus increases and total surplus increases in the 'ar-et for that good. b. consu'er surplus increases and total surplus decreases in the 'ar-et for that good. c. consu'er surplus decreases and total surplus increases in the 'ar-et for that good. d. consu'er surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: A DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus 2 Total surplus +S%: Interpretive ,,9. 4hen a countr" abandons a no!trade polic"( adopts a free!trade polic"( and beco'es an i'porter of a particular good( a. producer surplus increases and total surplus increases in the 'ar-et for that good. b. producer surplus increases and total surplus decreases in the 'ar-et for that good. c. producer surplus decreases and total surplus increases in the 'ar-et for that good. d. producer surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: % DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus 2 Total surplus +S%: Interpretive ,, . 4hen a countr" that e8ported a particular good abandons a free!trade polic" and adopts a no!trade polic"( a. consu'er surplus increases and total surplus increases in the 'ar-et for that good. b. consu'er surplus increases and total surplus decreases in the 'ar-et for that good. c. consu'er surplus decreases and total surplus increases in the 'ar-et for that good. d. consu'er surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: @ DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus 2 Total surplus +S%: Interpretive ,.=. 4hen a countr" that e8ported a particular good abandons a free!trade polic" and adopts a no!trade polic"( a. producer surplus increases and total surplus increases in the 'ar-et for that good. b. producer surplus increases and total surplus decreases in the 'ar-et for that good. c. producer surplus decreases and total surplus increases in the 'ar-et for that good. d. producer surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 *roducer surplus 2 Total surplus +S%: Interpretive

%hapter

<Application: International Trade

10,

,.1. 4hen a countr" that i'ported a particular good abandons a free!trade polic" and adopts a no!trade polic"( a. consu'er surplus increases and total surplus increases in the 'ar-et for that good. b. consu'er surplus increases and total surplus decreases in the 'ar-et for that good. c. consu'er surplus decreases and total surplus increases in the 'ar-et for that good. d. consu'er surplus decreases and total surplus decreases in the 'ar-et for that good. ANS: D DIF: , REF: !, NAT: Anal"tic #$%: &ains fro' trade( speciali)ation and trade T$*: International trade 2 %onsu'er surplus 2 Total surplus +S%: Interpretive

Sec0+ Application: International Trade The Ar)*%ent& 'or Re&trictin) Trade

!ULTI"LE CHOICE 1. %ongress'an S'ith cites the MAobs argu'entN /hen he argues in favor of restrictions on tradeG he argues that everything can be produced at lo/er cost in other countries. The li-el" fla/ in %ongress'an S'ith;s reasoning is that he ignores the fact that a. there is no evidence that an" /or-er ever lost his or her Aob because of free trade. b. une'plo"'ent of labor is not a serious proble' relative to other econo'ic proble's. c. the gains fro' trade are based on co'parative advantage. d. the gains fro' trade are based on absolute advantage.

ANS: % DIF: 1 REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Trade restriction +S%: Interpretive ,. M$/ners of fir's in "oung industries should be /illing to incur te'porar" losses if the" believe that those fir's /ill be profitable in the long run.N This observation helps to e8plain /h" 'an" econo'ists are s-eptical about the a. national!securit" argu'ent. b. infant!industr" argu'ent. c. unfair!co'petition argu'ent. d. Aobs argu'ent.

ANS: @ DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Trade restriction +S%: Interpretive .. $ne should be especiall" /ar" of the national!securit" argu'ent for restricting trade /hen that argu'ent is 'ade b" a. representatives of industr". b. representatives of the defense establish'ent. c. 'e'bers of households. d. foreign govern'ent officials.

ANS: A DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Trade restriction +S%: Interpretive 0. The Munfair!co'petitionN argu'ent 'ight be cited b" an A'erican /ho believes that a. al'ost ever" countr" has a co'parative advantage( relative to the >nited States( in producing al'ost all goods. b. "oung industries should be protected against foreign co'petition until the" beco'e profitable. c. the A'erican auto'obile industr" should be protected against Lapanese fir's that are able to produce auto'obiles at relativel" lo/ cost. d. the French govern'ent;s subsidies to French far'ers Austif" restrictions on A'erican i'ports of French agricultural products.

ANS: D DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Trade restriction +S%: Interpretive

10.
1.

%hapter

<Application: International Trade

If the >nited States threatens to i'pose a tariff on &er'an cars if &er'an" does not re'ove agricultural subsidies( the >nited States /ill be a. better off no 'atter ho/ &er'an" responds. b. better off if &er'an" gives in( and /ill be no /orse off if it doesn:t. c. /orse off if &er'an" doesn:t give in to the threat. d. /orse off no 'atter ho/ &er'an" responds. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: % NAT: Anal"tic T$*: Trade polic" 3.

4hich of the follo/ing argu'ents for trade restrictions is often advancedE a. Trade restrictions 'a-e all A'ericans better off. b. Trade restrictions increase econo'ic efficienc". c. Trade restrictions are necessar" for econo'ic gro/th. d. Trade restrictions are so'eti'es necessar" for national securit". DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: D NAT: Anal"tic T$*: Trade polic" 6.

About /hat percent of total /orld trade is accounted for b" countries that belong to the 4orld Trade $rgani)ationE a. 10 percent b. 6, percent c. 9 percent d. 6 percent DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: D NAT: Anal"tic T$*: 4T$ 9.

At present( the >nited States uses a s"ste' of 5uotas to li'it the a'ount of sugar i'ported into the countr". 4hich of the follo/ing state'ents is 'ost li-el" trueE a. The 5uotas are probabl" the result of lobb"ing fro' >.S. consu'ers of sugar. The 5uotas increase consu'er surplus for the >nited States( reduce producer surplus for the >nited States( and har' foreign sugar producers. b. The 5uotas are probabl" the result of lobb"ing fro' >.S. producers of sugar. The 5uotas increase producer surplus for the >nited States( reduce consu'er surplus for the >nited States( and har' foreign sugar producers. c. The 5uotas are probabl" the result of lobb"ing fro' foreign producers of sugar. The 5uotas reduce producer surplus for the >nited States( increase consu'er surplus for the >nited States( and benefit foreign sugar producers. d. >.S. la/'a-ers did not need to be lobbied to i'pose the 5uotas because total surplus for the >nited States is higher /ith the 5uotas than /ithout the'. DIF: . REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Applicative

ANS: @ NAT: Anal"tic T$*: Trade polic" .

Suppose France subsidi)es French /heat far'ers( /hile &er'an" offers no subsid" to &er'an /heat far'ers. As a result of the French subsid"( sales of French /heat to &er'an" a. 'a" pro'pt &er'an far'ers to invo-e the unfair!co'petition argu'ent. b. increase the consu'er surplus of &er'an bu"ers of /heat. c. increase the total surplus of the &er'an people. d. All of the above are correct.

ANS: D DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Trade polic" 2 Econo'ic 4elfare +S%: Applicative

%hapter 1=.

<Application: International Trade

100

Senator @lo/hard represents a state in /hich 'an" te8tile fir's are located. Be /ants to i'pose tariffs on all i'ported te8tiles. 4hich of the follo/ing is the least li-el" conse5uence of such tariffsE a. Do'estic te8tile bu"ers /ill lose consu'er surplus( have less variet"( and /ill pa" higher prices. b. Do'estic te8tile sellers /ill gain producer surplus. c. Do'estic te8tile sellers /ill have a higher rate of technological advance. d. Do'estic te8tile sellers /ill have 'ore 'ar-et po/er.

ANS: % DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Tariffs 2 Technolog" +S%: Applicative 11. %ountries that restrict foreign trade are li-el" to a. forgo the additional surplus that trade allo/s( but /ill probabl" enAo" econo'ies of scale. b. forgo the additional surplus that trade allo/s( but /ill be co'pensated b" a higher rate of technological change. c. forgo the additional surplus that trade allo/s( but /ill have a lo/er rate of une'plo"'ent. d. have 'ore fir's /ith do'estic 'ar-et po/er. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: D NAT: Anal"tic T$*: Trade polic" 1,.

$pponents of free trade often /ant the >nited States to prohibit the i'port of goods 'ade in overseas factories that pa" /ages belo/ the >.S. 'ini'u' /age. *rohibiting such goods is li-el" to a. cause these factories to pa" the >.S. 'ini'u' /age. b. increase the rate of technological advance in poor countries so that the" can afford to pa" higher /ages. c. increase povert" in poor countries and benefit >.S. fir's /hich co'pete /ith these i'ports. d. har' >.S. fir's /hich co'pete /ith these i'ports. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: % NAT: Anal"tic T$*: Trade polic" 1..

Several argu'ents for restricting trade have been advanced. Those argu'ents do not include a. the Aobs argu'ent. b. the protection!as!a!bargaining!chip argu'ent. c. the no!dead/eight!loss argu'ent. d. the infant!industr" argu'ent. DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: % NAT: Anal"tic T$*: Trade polic" 10.

%ritics of free trade so'eti'es argue that allo/ing i'ports fro' foreign countries causes a reduction in the nu'ber of do'estic Aobs. An econo'ist /ould argue that a. foreign co'petition 'a" cause une'plo"'ent in i'port!co'peting industries( but the effect is te'porar" because other industries( especiall" e8porting industries( /ill be e8panding. b. foreign co'petition 'a" cause une'plo"'ent in i'port!co'peting industries( but the increase in consu'er surplus due to free trade is 'ore valuable than the lost Aobs. c. the critics are correct( so countries 'ust protect their industries /ith tariffs or 5uotas. d. foreign co'petition 'a" cause une'plo"'ent in i'port!co'peting industries( but the increase in the variet" of goods consu'ers can choose fro' is 'ore valuable than the lost Aobs.

ANS: A DIF: , REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Trade polic" 2 E'plo"'ent +S%: Interpretive 11. 4hich of the follo/ing is not a co''onl"!advanced argu'ent for trade restrictionsE a. the Aobs argu'ent b. the national!securit" argu'ent c. the infant!industr" argu'ent d. the efficienc" argu'ent

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%hapter

<Application: International Trade DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: D NAT: Anal"tic T$*: Trade polic" 13.

In a Dece'ber ,==6 New York Times colu'n( *aul ?rug'an noted that a. it is difficult to find instances of trade bet/een high!/age countries in the 'odern era. b. it is difficult to find instances of trade bet/een high!/age countries and lo/!/age countries in the 'odern era. c. the >nited States no/ i'ports 'ore oil and other ra/ 'aterials fro' other advanced countries than fro' the third /orld. d. the >nited States no/ i'ports 'ore 'anufactured goods fro' the third /orld than fro' other advanced countries. DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: D NAT: Anal"tic T$*: Trade 16.

4or-ers displaced b" trade eventuall" find Aobs in a. another countr". b. the govern'ent sector. c. the industries in /hich the countr" has a co'parative advantage. d. a different co'pan" in the sa'e industr".

ANS: % DIF: 1 REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: Trade 2 E'plo"'ent +S%: Interpretive 19. The infant!industr" argu'ent a. is based on the belief that protecting industries /hen the" are "oung /ill pa" off later. b. is based on the belief that protecting industries producing goods and services for infants is necessar" if a countr" is to have health" children. c. has the support of 'ost econo'ists. d. is an argu'ent that is advanced b" advocates of free trade. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: A NAT: Anal"tic T$*: Trade polic" 1 .

4hich of the follo/ing is the 'ost accurate state'entE a. *rotection is necessar" in order for "oung industries to gro/ up and be successful. b. *rotection is not necessar" for an industr" to gro/. c. *rotection is necessar" because if "oung industries are not protected( the" 'a" suffer losses. d. *rotection 'a" not al/a"s be necessar" for infant industries( but it has proven to be useful in 'ost cases. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: @ NAT: Anal"tic T$*: Trade polic" ,=.

If the Lapanese steel industr" subsidi)es the steel that it sells to the >nited States( the a. >nited States should protect its do'estic steel industr" fro' this unfair co'petition. b. har' done to >.S. steel producers fro' this unfair co'petition e8ceeds the gain to >.S. consu'ers of cheap Lapanese steel. c. har' done to >.S. steel producers is less than the benefit that accrues to >.S. consu'ers of steel. d. >nited States should subsidi)e the products it sells to Lapan. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Applicative

ANS: % NAT: Anal"tic T$*: Trade polic"

%hapter ,1.

<Application: International Trade

103

The t/o basic approaches that a countr" can ta-e as a 'eans to achieve free trade are the a. unilateral approach and the 'ultilateral approach. b. short!run approach and the long!run approach. c. continental approach and the global approach. d. industr" approach and the securit" approach. DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: A NAT: Anal"tic T$*: Trade ,,.

4hen a countr" ta-es a 'ultilateral approach to free trade( it a. re'oves trade restrictions on its o/n. b. reduces its trade restrictions /hile other countries do the sa'e. c. does not re'ove trade restrictions no 'atter /hat other countries do. d. is /illing to trade /ith 'ultiple countries at once. DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: @ NAT: Anal"tic T$*: Trade polic" ,..

4hich of the follo/ing is not an advantage of a 'ultilateral approach to free trade over a unilateral approachE a. A 'ultilateral approach can reduce trade restrictions abroad as /ell as at ho'e. b. A 'ultilateral approach has the potential to result in freer trade. c. A 'ultilateral approach re5uires the agree'ent of t/o or 'ore nations. d. A 'ultilateral approach 'a" have political advantages. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: % NAT: Anal"tic T$*: Trade polic" ,0.

4hen a countr" ta-es a unilateral approach to free trade( it a. re'oves trade restrictions on its o/n. b. reduces its trade restrictions /hile other countries do the sa'e. c. does not re'ove trade restrictions no 'atter /hat other countries do. d. is /illing to trade /ith 'ultiple countries at once. DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: A NAT: Anal"tic T$*: Trade polic" ,1.

A possible outco'e of the 'ultilateral approach to free trade is that such an approach can a. /in political support /hen a unilateral approach cannot. b. result in 'ore restricted trade than under a unilateral approach( /hen international negotiations fail. c. result in drastic reductions in tariffs for 'an" countries. d. All of the above are correct. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: D NAT: Anal"tic T$*: Trade polic" ,3.

4hich of the follo/ing assertions is not correct about the 'ultilateral approach to free tradeE a. The 'ultilateral approach has the potential to result in freer trade than does the unilateral approach. b. The 'ultilateral approach 'a" have a political advantage over the unilateral approach. c. The 'ultilateral approach is si'pler than the unilateral approach. d. NAFTA and &ATT both represent 'ultilateral approaches to free trade. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: % NAT: Anal"tic T$*: Trade polic" ,6.

The North A'erican Free Trade Agree'ent a. is an e8a'ple of the unilateral approach to free trade. b. eli'inated tariffs on i'ports to North A'erica fro' the rest of the /orld. c. reduced trade restrictions a'ong %anada( +e8ico and the >nited States. d. All of the above are correct.

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%hapter

<Application: International Trade DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: % NAT: Anal"tic T$*: NAFTA ,9.

Since 4orld 4ar II( &ATT has been responsible for reducing the average tariff a'ong 'e'ber countries fro' about a. 0= percent to about 1 percent. b. 0= percent to about ,= percent. c. 9= percent to about ,= percent. d. ,= percent to about 1= percent. DIF: 1 REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: A NAT: Anal"tic T$*: &ATT , .

The &eneral Agree'ent on Tariffs and Trade C&ATTD /as initiated in response to a. in increase in e8ports of lo/!priced goods fro' developing countries to developed countries. b. the replace'ent of 'anufacturing Aobs /ith service Aobs in developed countries. c. econo'ic dislocations caused b" the North A'erican Free Trade Agree'ent CNAFTAD in the 1 =s. d. high tariffs i'posed during the &reat Depression of the 1 .=s. DIF: , REF: !. #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: D NAT: Anal"tic T$*: &ATT .=.

The rules established under &ATT are enforced b" the a. govern'ents of the nations that are involved in &ATT. b. North A'erican Free Trade Association. c. 4orld Trade $rgani)ation. d. European >nion.

ANS: % DIF: 1 REF: !. NAT: Anal"tic #$%: &ains fro' trade( speciali)ation( and trade T$*: &ATT 2 4T$ +S%: Definitional

Sec0, Application: International Trade Concl*&ion

!ULTI"LE CHOICE 1. In Dece'ber ,==6( the Los Angeles Times as-ed 'e'bers of the A'erican public /hether free international trade has helped or hurt the econo'". $f those surve"ed( a. 16 percent said free international trade helped the econo'". b. ,6 percent said free international trade helped the econo'". c. .= percent said free international trade hurt the econo'". d. 13 percent said free international trade hurt the econo'". DIF: 1 REF: !0 #$%: &ains fro' trade( speciali)ation( and trade +S%: Definitional

ANS: @ NAT: Anal"tic T$*: Trade ,.

+ost econo'ists vie/ the >nited States; e8perience /ith trade as a. one fro' /hich no fir' conclusions about the virtues of free trade can be reached( due to the relativel" short histor" of international trade in the >.S. b. one fro' /hich no fir' conclusions about the virtues of free trade can be reached( due to the lacof trade /ithin the >.S. throughout 'ost of the earl" histor" of the >.S. c. an ongoing e8peri'ent that confir's the virtues of free trade. d. an ongoing e8peri'ent that calls into serious 5uestion the notion that free trade enhances the econo'ic /ell!being of a nation. DIF: 1 REF: !0 #$%: &ains fro' trade( speciali)ation( and trade +S%: Interpretive

ANS: % NAT: Anal"tic T$*: Trade