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1. Exports account for what percentage of these countries’ gross domestic products?

a.  50% in the United States and 12% in the Netherlands

b.  33% in both the United and Germany

c.  25% in the United States and 50% in Japan

d.  12% in the United States and 13% in Japan

 

2. The United States is a major exporter of

a.  diamonds

b.  bauxite

c.  coffee

d.  corn

 

3. Autarky means that

a. a country’s consumption possibilities are the same as its production possibilities

b. equilibrium has been reached with the maximum gains from specialization and trade

c. equilibrium has been reached with the maximum amount of international trade

d. the nation has such a high standard of living that there are technically no poor people

 

4. The terms of trade are

a. the length of time two individuals or countries have been trading

b. the countries’ production possibilities curve

c. the autarky equilibrium

d. the exchange rates of two goods

 

5. A nation’s consumption possibilities frontier is

a. always the same as its production possibilities frontier 

b. never the same as its production possibilities frontier

c. the same as its production possibilities frontier only if there is advantageous trade

d. the same as its production possibilities frontier only if there is no international trade

 

6. The gains from trade are due primarily to the fact that

    a. the wealth of large, industrialized nations can be spread throughout the world

b. total world output increases when each country specializes

c. countries can boost their economies by increasing exports

 

7. The source of gains from trade is

a. tariffs

b. self-sufficiency

c. autarky equilibrium

d. comparative advantage

 

8. Mutually beneficial trade cannot occur

a. when each country has its own comparative advantage

b. if one country has absolute advantages in the production of every good

c. when the opportunity costs of producing each good are equal for both trading partners

d. if total world production equals total world consumption

 

9.To maximize worldwide gains from trade, the country which should produce a good is the country that

a. has the lowest opportunity cost of producing that good

b. can produce that good using the fewest resources

c. will produce that good using the most expensive resources

10. Comparative advantage

a. exists only when one producer can make the product using fewer resources than any other producer

b. leads to the most efficient allocation of resources and the greatest combined output

c. eliminates specialization, so that each country produces all of its own needs independently

 

11. Izodians can produce 8 units of food per day or 12 units of clothing per day. Valentians can produce 5 units of food per day or 10 units of clothing per day. Which of the following is true?

a. mutually beneficial trade is not possible

b. to maximize world production, Izodians should produce only food,  Valentians should produce only clothing, and they should trade

c. both countries should produce both goods and they should trade

 

12. Which of the following is not an economic reason for international specialization?

a. some countries have educated, trained workers, which other countries have unskilled workers

b. tastes and preferences tend to be different in different countries

c. the world price of a good is determined by the world supply and demand for the product

 

13. When the world price of an internationally traded product is greater than a country’s domestic equilibrium price,

a. the domestic price will prevail, and the world price is irrelevant

b. the country’s import line is horizontal

c. the country’s exports of the product will increase

 

14. The world price is in equilibrium when

a. half of the individual countries’ domestic prices are higher and half of the individual countries’ domestic prices are lower

b. the desired level of total world exports of the good equal the desired level of total world imports of the good

c. each countries’ exports of this good equal its import of this good

 

15. Producer surplus is the

a. excess supply which exists when price is maintained above the world price

b. difference between the marginal benefit of a product and the marginal cost producers incur in supplying the product

c. difference between the actual revenue a producer receives and the minimum sum they would accept for a quantity of a good

 

16. Consumer surplus result when

a. the the quantity demanded of a product equals the quantity supplied of that product.

b. the quantity demand of a product is greater than the quantity supplied of that product.

c. a consumer buys a good for less money then he was willing to pay.       

 

17. With international trade

a. producer surplus increases in both the exporting and importing countries

b. consumer surplus increases in exporting countries and decreases in importing countries

c. consumer surplus increases in the importing countries and producer surplus increases in the exporting countries

 

18. International trade

a. benefits countries which export goods and hurts countries which import goods

b. benefits poor, undeveloped countries and hurts wealthy, industrialized countries

c. increases both producer surplus and consumer surplus throughout the world

d. has a net beneficial effect only for countries with an autarky equilibrium

 

19. Trade restrictions in the real world

a. are extremely rare, due to the economic benefits of specialization and trade

b. hurt domestic producers and benefit foreign consumers

c. hurt domestic producers and benefit domestic consumers

d. hurt domestic consumers and benefit domestic producers

 

20. A tariff is

a. a tax on imports only

b. a tax on exports only

c. a on either imports or exports

d. a luxury tax

 

21. The difference between a specific tariff and  an ad valorem tariff is that a specific tariff

a. is a set amount of money per unit of a product, while an ad valorem tariff is a set percentage of product price.

b. is a set percentage of product price, while an ad valorem tariff is a set total amount

c. names a particular good to which the tariff applies, while an ad valorem tariff applies to large classes of products.

 

22.Which of the following is not an effect of a specific import tariff

a. the domestic price is higher after the tariff is imposed

b. there is no net welfare loss to society as a whole

c. government collects revenue from the tariff

d. the country’s imports of the product decline

 

23. An import quota is a

a. legal limit on the quantity of a good that can be imported per year

b. legal requirement that a specified percentage of a final good’s value must be produced domestically

c. legal requirements that exports to a specific country must exceed a specific value before the country’s product may be imported

 

24. To be effective, an import quota must

a. reduce the price and increase the quantity of imports

b. set the price of the imported good higher than the domestic equilibrium price

c. restrict imports to less than would be imported under free trade

d. restrict imports to less than exports in trade with that particular country

 

25. An effective import quota

a. increases consumer surplus and reduces produces surplus

b. increases producer surplus and reduces consumer surplus

c. increases both producer surplus and consumer surplus

 

26. The primary difference between an import tariff and an import quota is that

a. tariffs cause prices to rise, but quotas do not

b. quotas cause prices to rise, but tariffs do not

c. tariff revenues go to government, but quotas benefit those with the right to sell foreign goods domestically

 

27. Which of the following is not a type of trade restriction?

a. low-interest loans to foreign buyers

b. export subsidies for domestic firms

c. domestic content requirements

d. economies of scale

 

28. The General Agreement on Tariffs and Trade (GATT) was established in

a. 1870 to protect U.S. industries and decrease world trade

b. 1921 to manage legal and accounting requirements for U.S. tariffs and quotas

c. 1947 to reduce trade restrictions among 23 countries

 

29. The World Trade Organization (WTO)

a. became, in 1995, the institutionalized and more comprehensive successor to the General Agreement on Tariffs and Trade (GATT)

b. was established in 1947 to reduce trade restrictions among 23 member countries

c. was established in 1980 to oppose and counteract the policies of the General Agreement on Tariffs and Trade (GATT)

 

30. The most-favored nation clause of the World Trade Organization requires that each member must 

a. offer to all member countries the same trade concessions offered to any member country

b. choose one foreign member as its most-favored trading nation, and give that country its most generous trade concessions

c. offer some trade concession to any other member country offering it a trade concession

 

31. Regional trading bloc agreements

a. are not considered trade restrictions

b. are required by World Trade Organization rules

c. exist primarily in Russia, Africa, and South America

d. make special trade deals between countries in that region and discriminate against countries outside the region

 

32. Which of the following is not used as an argument for trade restrictions?

a. emerging domestic industries, especially those with economies of scale, could not gain entry in some world markets without protection during the early years

b. trade restrictions are required to prevent some countries from exporting a commodity at a price below its cost of production

c. consumer surplus is maximized only when strict import tariffs and quotas ensure that exports exceed imports

 

33. Rent seeking involves

a. influencing public policy to redistribute income in one’s favor

b. reducing costs and increase profit through greater efficiency

c. raising price and increase profit by restricting output

d. increasing market demand through advertising

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