Question 1

Which of the following is the most accurate statement?
A)The one argument for restricting trade that almost all economists accept as valid is the infant-industry argument.
B)Almost all economists insist that it is never appropriate to protect "key" industries, even when there are legitimate concerns about national security.
C)The idea that one nation might want to threaten another nation with a trade restriction is associated with the protection-as-a-bargaining-chip argument for restricting trade.
D)The protection-as-a-bargaining-chip argument for restricting trade is also known as the infant-industry argument.

Accepted Answer

The statement that best reflects economists' views on trade restrictions is C. The infant-industry argument is a more contentious issue among economists, with some supporting it and others rejecting it. However, almost all economists agree that using trade restrictions as a bargaining chip is not an appropriate reason for restricting trade. Option B is therefore incorrect. Option D is also incorrect because the protection-as-a-bargaining-chip argument is not the same as the infant-industry argument; these are two distinct arguments for restricting trade.

Question 2

When, in our analysis of the gains and losses from international trade, we assume that a particular country is small, we are
A)assuming the domestic price before trade will continue to prevail once that country is opened up to trade with other countries.
B)assuming there is no demand for that country's domestically-produced goods by other countries.
C)assuming international trade can benefit producers, but not consumers, in that country.
D)making an assumption that is not necessary to analyze the gains and losses from international trade.

Accepted Answer

The answer of When, in our analysis of the gains...

Question 3

In a December 2007 New York Times column, Paul Krugman noted that
A)it is difficult to find instances of trade between high-wage countries in the modern era.
B)it is difficult to find instances of trade between high-wage countries and low-wage countries in the modern era.
C)the United States now imports more oil and other raw materials from other advanced countries than from the third world.
D)the United States now imports more manufactured goods from the third world than from other advanced countries.

Accepted Answer

Paul Krugman noted that the United States now imports more manufactured goods from the third world than from other advanced countries in his December 2007 New York Times column.

Question 4

A common argument in favor of restricting international trade in good x is based on the premise that
A)international trade reduces total surplus in countries that export good x.
B)international trade reduces total surplus in countries that import good x.
C)international trade is desirable only when countries with different domestic supplies of natural resources play by different rules when trading with one another.
D)trade restrictions can be useful when one country bargains with its trading partners.

Accepted Answer

The answer of A common argument in favor of restricting...

Question 5

In recent years, which countries have taken a unilateral approach to the removal of trade restrictions?
A)China and North Korea
B)Chile and South Korea
C)Russia and Japan
D)the United States and Mexico

Accepted Answer

The answer of In recent years, which countries have taken...

Question 6

When a country allows trade and becomes an importer of a good,
A)both domestic producers and domestic consumers become better off.
B)domestic producers become better off, and domestic consumers become worse off.
C)domestic producers become worse off, and domestic consumers become better off.
D)both domestic producers and domestic consumers become worse off.

Accepted Answer

When a country allows trade and becomes an importer of a good, domestic producers become worse off as they face competition from foreign producers who can offer the same good at a lower price. However, domestic consumers become better off as they have access to a wider variety of goods and can purchase the imported good at a lower price. Therefore, choice C, where domestic producers become worse off and domestic consumers become better off, is the best choice.

Question 7

Suppose Ukraine subsidizes Ukrainian wheat farmers, while Russia offers no subsidy to Russian wheat farmers. As a result of the Ukrainian subsidy, sales of Ukrainian wheat to Russia
A)may prompt Russian farmers to invoke the infant-industry argument.
B)increase the consumer surplus of Russian buyers of wheat.
C)decrease the total surplus of the Russian people.
D)All of the above are correct.

Accepted Answer

The answer of Suppose Ukraine subsidizes Ukrainian wheat farmers, while...

Question 8

If the United States threatens to impose a tariff on Colombian coffee if Colombia does not remove agricultural subsidies, the United States will be
A)better off regardless of how Colombia responds.
B)better off if Colombia removes the subsidies, and will be no worse off if it doesn't.
C)worse off if Colombia doesn't remove the subsidies in response to the threat.
D)worse off regardless of how Colombia responds.

Accepted Answer

The answer of If the United States threatens to impose...

Question 9

A common argument in favor of restricting trade
A)concerns the strategy of bargaining.
B)is that efforts should be made to get new industries started.
C)emphasizes the belief that all countries should play by the same rules.
D)All of the above are correct.

Accepted Answer

The answer of A common argument in favor of restricting...

Question 10

When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,
A)this is an indication that the world price of soybeans exceeds the nation's domestic price of soybeans in the absence of trade.
B)this is an indication that the nation has a comparative advantage in producing soybeans.
C)the nation's consumers of soybeans become worse off and the nation's producers of soybeans become better off.
D)All of the above are correct.

Accepted Answer

The answer of When a nation first begins to trade...

Question 11

When the nation of Duxembourg allows trade and becomes an importer of software,
A)residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.
B)residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg falls.
C)residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg rises.
D)residents of Duxembourg who produce software become better off; residents of Duxembourg who buy software become worse off; and the economic well-being of Duxembourg falls.

Accepted Answer

When Duxembourg becomes an importer of software, the residents who produce software become worse off as they face increased competition from foreign suppliers. However, the residents who buy software become better off as they have access to a larger variety of software at lower prices. Overall, the economic well-being of Duxembourg rises as trade allows for gains from specialization and access to cheaper imports.

Question 12

When a nation first begins to trade with other countries and the nation becomes an importer of corn,
A)this is an indication that the world price of corn exceeds the nation's domestic price of corn in the absence of trade.
B)this is an indication that the nation has a comparative advantage in producing corn.
C)the nation's consumers of corn become better off and the nation's producers of corn become worse off.
D)All of the above are correct.

Accepted Answer

The answer of When a nation first begins to trade...

Question 13

Trade enhances the economic well-being of a nation in the sense that
A)both domestic producers and domestic consumers of a good become better off with trade, regardless of whether the nation imports or exports the good in question.
B)the gains of domestic producers of a good exceed the losses of domestic consumers of a good, regardless of whether the nation imports or exports the good in question.
C)trade results in an increase in total surplus.
D)trade puts downward pressure on the prices of all goods.

Accepted Answer

The answer of Trade enhances the economic well-being of a...

Question 14

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,
A)producer surplus increases and total surplus increases in the market for that good.
B)producer surplus increases and total surplus decreases in the market for that good.
C)producer surplus decreases and total surplus increases in the market for that good.
D)producer surplus decreases and total surplus decreases in the market for that good.

Accepted Answer

The answer of When a country that imported a particular...

Question 15

When a country allows trade and becomes an importer of a good,
A)everyone in the country benefits.
B)the gains of the winners exceed the losses of the losers.
C)the losses of the losers exceed the gains of the winners.
D)everyone in the country loses.

Accepted Answer

When a country allows trade and becomes an importer of a good, the gains of the winners (i.e. consumers who benefit from lower prices) generally exceed the losses of the losers (i.e. domestic producers who face increased competition). Therefore, overall there is a net gain from trade. However, it is possible for some producers to experience significant losses and may require government intervention to mitigate their losses.

Question 16

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so
A)because it is impossible to analyze the gains and losses from international trade without making this assumption.
B)because then we can assume that world prices of goods are unaffected by that country's participation in international trade.
C)in order to rule out the possibility of tariffs or quotas.
D)All of the above are correct.

Accepted Answer

By assuming that the economy is small relative to the rest of the world, we can assume that it cannot affect world prices of goods. This enables us to analyze the gains and losses from international trade without the complication of changes in world prices due to the country's participation in trade. Tariffs or quotas may or may not be present, so this cannot be a reason to focus on a small economy.

Question 17

When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country
A)cannot experience significant gains or losses by trading with other countries.
B)cannot have a significant comparative advantage over other countries.
C)cannot affect world prices by trading with other countries.
D)All of the above are correct.

Accepted Answer

When we assume that a country is small, we are essentially assuming that it is a price taker in the global market, meaning it cannot affect world prices by trading with other countries. This is because the country's production and consumption are too small to have any significant impact on the world market. However, it is still possible for a small country to experience gains or losses from international trade if it has a comparative advantage in certain goods or services. Therefore, options A and B are incorrect.

Question 18

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that
A)Moldova can only import goods; it cannot export goods.
B)Moldova's choice of which goods to export and which goods to import is not based on the principle of comparative advantage.
C)only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant.
D)Moldova is a price taker.

Accepted Answer

Being a small country implies that Moldova is not large enough to influence the world price of goods, and must therefore take the world price (i.e. be a price taker) when engaging in international trade. The other options do not necessarily follow from Moldova being a small country.

Question 19

When the nation of Worldova allows trade and becomes an exporter of silk,
A)residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova rises.
B)residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova falls.
C)residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.
D)residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova falls.

Accepted Answer

When Worldova becomes an exporter of silk, it means the country has a comparative advantage in producing silk, leading to higher profits for silk producers (they become better off). However, this may increase the domestic price of silk, making silk buyers worse off. Overall, exporting silk increases the economic well-being of Worldova through gains from trade.

Question 20

When a country allows trade and becomes an exporter of a good,
A)domestic producers gain and domestic consumers lose.
B)domestic producers lose and domestic consumers gain.
C)domestic producers and domestic consumers both gain.
D)domestic producers and domestic consumers both lose.

Accepted Answer

When a country allows trade and becomes an exporter of a good, the domestic producers gain because they can sell at a higher price in the international market. However, domestic consumers lose because they have to buy the good at a higher price due to the increased demand for the good in the international market.

Quiz 9: Application: International Trade

Which of the following is the most accurate statement?

When, in our analysis of the gains and losses from international trade, we assume that a particular country is small, we are

In a December 2007 New York Times column, Paul Krugman noted that

A common argument in favor of restricting international trade in good x is based on the premise that

In recent years, which countries have taken a unilateral approach to the removal of trade restrictions?

When a country allows trade and becomes an importer of a good,

Suppose Ukraine subsidizes Ukrainian wheat farmers, while Russia offers no subsidy to Russian wheat farmers. As a result of the Ukrainian subsidy, sales of Ukrainian wheat to Russia

If the United States threatens to impose a tariff on Colombian coffee if Colombia does not remove agricultural subsidies, the United States will be

A common argument in favor of restricting trade

When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,

When the nation of Duxembourg allows trade and becomes an importer of software,

When a nation first begins to trade with other countries and the nation becomes an importer of corn,

Trade enhances the economic well-being of a nation in the sense that

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

When a country allows trade and becomes an importer of a good,

In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so

When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that

When the nation of Worldova allows trade and becomes an exporter of silk,

When a country allows trade and becomes an exporter of a good,