For Questions 1 - 8, make the following assumptions about the Domestic Market for Avocados:
A) The world Price for Avocados is $5 per bushel
B) Mexico has Comparative Advantage in the production of Avocados
C) In the U.S. Domestic market for Avocados (with NO imports), the Equilibrium Price of Avocados is $10 per bushel, and the Equilibrium Quantity is 2,500 bushels per month.
1) Under an Embargo, the price for Avocados in the US would be
a) Under $5
b) about $5
c) Between $5 and $10
d) about $10
e) More than $10
2) Under a Free Trade scenario, the price for Avocados in the US would be
a) Under $5
b) about $5
c) Between $5 and $10
d) about $10
e) More than $10
3) If the U.S. permitted Mexican imports, but enacted a $2/bushel Tariff, the price for Avocados in the US would be
a) Under $5
b) about $5
c) Between $5 and $10
d) about $10
e) More than $10
4) If the U.S. permitted Mexican imports, but enacted an import Quota, the price that Mexican Producers selling Avocados in the US would receive would be
a) less than the world price
b) the same as the world price
c) higher than the world price, but less than the US Domestic Equilibrium Price under an embargo
d) the same as the Domestic Equilibrium Price under an embargo
e) higher than the Domestic Equilibrium Price under an embargo
5) If the U.S. permitted Mexican imports, the EQUILIBRIUM QUANTITY of Avocados sold in the US would be
a) Less than 2,500 bushels
b) 2,500 bushels
c) More than 2,500 bushels
d) Impossible to determine
e) Higher than 2,500 bushels in the eastern US, but lower in western states
6) American Consumers would pay the least amount for Avocados under which scenario?
a) Embargo of all Imports
b) Tariff on Imports
c) An Import Quota
d) Free Trade
7) American Consumers would buy the largest quantity of Avocados under which scenario?
a) Embargo of all Imports
b) Tariff on Imports
c) An Import Quota
d) Free Trade
8) American Avocado Growers would receive the highest price for their product under which scenario?
a) Embargo of all Imports
b) Tariff on Imports
c) An Import Quota
d) Free Trade
9) If China has Comparative Advantage in shoes and the United States has comparative advantage in light bulbs, then
a) China will export shoes to the US, and the US will export light bulbs to China
b) China will export light bulbs to the US, and the US will export shoes to China
c) China will export both products to the US
d) The US will export both products to China
e) Trade will not take place
10) Ecuador has Comparative Advantage in Limes. Portugal has Comparative Advantage in Wine. However, Ecuador has Absolute advantage in both products. Which is the most likely scenario under free trade?
a) Ecuador will export both products to Portugal
b) Portugal will export both products to Ecuador
c) No trade will take place
d) Ecuador will export Wine to Portugal, and Portugal will export Limes to Ecuador
e) Ecuador will export Limes to Portugal, and Portugal will export Wine to Ecuador