MULTIPLE CHOICE

1. A primary reason why nations conduct international trade is because:

a. Some nations prefer to produce one thing while others produce other things
b. Resources are not equally distributed among all trading nations
c. Trade enhances opportunities to accumulate profits
d. Interest rates are not identical in all trading nations

2. A main advantage of specialization results from:

a. Economies of large-scale production
b. The specializing country behaving as a monopoly
c. Smaller production runs resulting in lower unit costs
d. High wages paid to foreign workers

3. International trade in goods and services is sometimes used as a substitute for all of the following except:

a. International movements of capital
b. International movements of labor
c. Domestic production of the same goods and services
d. Domestic production of different goods and services

4. If a nation has an open economy, it means that the nation:

a. Allows private ownership of capital
b. Has flexible exchange rates
c. Has fixed exchange rates
d. Conducts trade with other countries

5. International trade forces domestic firms to become more competitive in terms of:

a. The introduction of new products
b. Product design and quality
c. Product price
d. All of the above

6. The mercantilists would have objected to:

a. Export promotion policies initiated by the government
b. The use of tariffs or quotas to restrict imports
c. Trade policies designed to accumulate gold and other precious metals
d. International trade based on open markets

7. A nation that gains from trade will find its consumption point being located:

a. Inside its production possibilities curve
b. Along its production possibilities curve
c. Outside its production possibilities curve
d. None of the above

Table 2.1. Output Possibilities of the U.S. and the U.K.

Output per Worker per day

Country Tons of Steel Televisions

United States 5 45

United Kingdom 10 20

8. Referring to Table 2.1, the United States has the absolute advantage in the production of:

a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions

9. Referring to Table 2.1, the United Kingdom has a comparative advantage in the production of:

a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions

10. Refer to Table 2.1. If trade opens up between the United States and the United Kingdom, American firms should specialize in producing:

a. Steel
b. Televisions
c. Both steel and televisions
d. Neither steel nor televisions

11. Referring to Table 2.1, the opportunity cost of producing one ton of steel in the United States is:

a. 3 televisions
b. 10 televisions
c. 20 televisions
d. 45 televisions

12. Refer to Table 2.1. Mutually advantageous trade will occur between the United States and the United Kingdom so long as one ton of steel trades for:

a. At least 1 television, but no more than 2 televisions
b. At least 2 televisions, but no more than 3 televisions
c. At least 3 televisions, but no more than 4 televisions
d. At least 4 televisions, but no more than 5 televisions

13. Referring to Table 2.1, the United Kingdom gains most from trade if:

a. 1 ton of steel trades for 2 televisions
b. 1 ton of steel trades for 3 televisions
c. 2 tons of steel trade for 4 televisions
d. 2 tons of steel trade for 5 televisions

14. The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries':

a. Economies of large-scale production
b. Relative abundance of various resources
c. Relative costs of labor

d. Research and development

15. The imposition of tariffs on imports results in deadweight welfare losses for the home economy. These losses consist of the:

a. Protective effect plus consumption effect
b. Redistribution effect plus revenue effect
c. Revenue effect plus protective effect
d. Consumption effect plus redistribution effect

16. Suppose that the United States eliminates its tariff on steel imports, permitting foreign-produced steel to enter the U.S. market. Steel prices to U.S. consumers would be expected to:

a. Increase, and the foreign demand for U.S. exports would increase
b. Decrease, and the foreign demand for U.S. exports would increase
c. Increase, and the foreign demand for U.S. exports would decrease
d. Decrease, and the foreign demand for U.S. exports would decrease

17. A $100 specific tariff provides home producers more protection from foreign competition when:

a. The home market buys cheaper products rather than expensive products
b. It is applied to a commodity with many grade variations
c. The home demand for a good is elastic with respect to price changes
d. It is levied on manufactured goods rather than primary products

18. A lower tariff on imported aluminum would most likely benefit:

a. Foreign producers at the expense of domestic consumers
b. Domestic manufacturers of aluminum
c. Domestic consumers of aluminum
d. Workers in the domestic aluminum industry

19. When a government allows raw materials and other intermediate products to enter a country duty free, its tariff policy generally results in a:

a. Effective tariff rate less than the nominal tariff rate
b. Nominal tariff rate less than the effective tariff rate
c. Rise in both nominal and effective tariff rates
d. Fall in both nominal and effective tariff rates

20. Of the many arguments in favor of tariffs, the one that has enjoyed the most significant economic justification has been the:

a. Infant industry argument
b. Cheap foreign labor argument
c. Balance of payments argument
d. Domestic living standard argument