Deck 9: Application: International Trade

Question 1

If a country allows free trade and its domestic price for a given good is lower than the world price, then it will import that good.

Answer 1

False

Question 2

The world price of cotton is the highest price of cotton observed anywhere in the world.

Answer 2

False

Question 3

Trade decisions are based on the principle of absolute advantage.

Answer 3

False

Question 4

The sum of consumer and producer surplus measures the total benefits that buyers and sellers receive from participating in a market.

Question 5

If Argentina exports oranges to the rest of the world, Argentina's producers of oranges are worse off, and Argentina's consumers of oranges are better off, as a result of trade.

Question 6

The greater the elasticities of supply and demand, the smaller are the gains from trade.

Question 7

When a country allows international trade and becomes an importer of a good, domestic producers of the good are better off, and domestic consumers of the good are worse off.

Question 8

Suppose the Ivory Coast, a small country, imports wheat at the world price of $4 per bushel. If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat, then, other things equal, the price of wheat in Ivory Coast will increase, but by less than $1.

Question 9

If the world price of a good is greater than the domestic price in a country that can engage in international trade, then that country becomes an importer of that good.

Question 10

The small-economy assumption is necessary to analyze the gains and losses from international trade.

Question 11

If a country's domestic price of a good is lower than the world price, then that country has a comparative advantage in producing that good.

Question 12

In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers.

Question 13

If the United Kingdom imports tea cups from other countries, then U.K. producers of tea cups are better off, and U.K. consumers of tea cups are worse off, as a result of trade.

Question 14

According to the principle of comparative advantage, all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

Question 15

The nation of Loneland does not allow international trade. In Loneland, you can buy 1 pound of beef for 2 pounds of cheese. In neighboring countries, you can buy 2 pounds of beef for 3 pounds of cheese. If Loneland were to allow free trade, it would export cheese.

Question 16

The history of the textile industry raises important questions for economic policy.

Question 17

The nation of Aviana soon will abandon its no-trade policy and adopt a free-trade policy. If the world price of goose meat is $3 per pound and the domestic price of goose meat without trade is $2 per pound, then Aviana should export goose meat.

Question 18

Without free trade, the domestic price of a good must be equal to the world price of a good.

Question 19

"Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers." This statement is correct for a nation that exports manufactured goods, but it is not correct for a nation that imports manufactured goods.

Question 20

If Belgium exports chocolate to the rest of the world, then Belgian chocolate producers benefit from higher producer surplus, Belgian chocolate consumers are worse off because of lower consumer surplus, and total surplus in Belgium increases because of the exports of chocolate.

Question 21

Free trade allows firms to realize economies of scale, resulting in higher costs of production.

Question 22

The nation of Cranolia used to prohibit international trade, but now trade is allowed, and Cranolia is exporting furniture. Relative to the previous no-trade situation, buyers of furniture in Cranolia are now better off.

Question 23

When a government imposes a tariff on a product, the domestic price will equal the world price.

Question 24

Suppose that Australia imposes a tariff on imported beef. If the increase in producer surplus is $100 million, the increase in tariff revenue is $200 million, and the reduction in consumer surplus is $500 million, the deadweight loss of the tariff is $300 million.

Question 25

If a country allows free trade and imports cars, then it is the case that the gains to domestic producers outweigh the losses to domestic consumers.

Question 26

Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade, thus reducing the gains from trade.

Question 27

If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue, and domestic consumers will gain consumer surplus.

Question 28

When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off.

Question 29

Deadweight loss measures the decrease in total surplus that results from a tariff or quota.

Question 30

The nation of Spritzland used to prohibit international trade, but now trade is allowed, and Spritzland is exporting wristwatches. Relative to the previous no-trade situation, total surplus in the market for wristwatches in Spritzland has increased.

Question 31

Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.

Question 32

When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off and sellers of shoes in that country become better off.

Question 33

Import quotas and tariffs both cause the quantity of imports to fall.

Question 34

Domestic consumers gain and domestic producers lose when the government imposes a tariff on imports.

Question 35

For a given country, comparing the world price of aluminum and the domestic price of aluminum before trade indicates whether that country's demand for aluminum exceeds the demand for aluminum in other countries.

Question 36

When a country abandons no-trade policies in favor of free-trade policies and becomes an importer of steel, then the domestic price of steel will increase as a result.

Question 37

Suppose Ecuador imposes a tariff on imported bananas. If the increase in producer surplus is $50 million, the reduction in consumer surplus is $150 million, and the deadweight loss of the tariff is $30 million, then the tariff generates $130 million in revenue for the government.

Question 38

The imposition of a tariff on imported wine will increase the domestic price of wine, decrease the quantity of wine imported, and increase the quantity of wine produced domestically.

Question 39

A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade.

Question 40

If a tariff is placed on watches, the price of both domestic and imported watches will rise by the amount of the tariff.

Question 41

The results of a 2008 Los Angeles Times poll suggest that the percentage of Americans who believe trade is harmful to the economy exceeds the percentage of Americans who believe trade is beneficial to the economy.

Question 42

Policymakers often consider trade restrictions in order to protect domestic producers from foreign competitors.

Question 43

If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices, the Swedish economy would be worse off.

Question 44

NAFTA is an example of a multilateral approach to achieving free trade.

Question 45

William and Jamal live in the country of Dumexia. When Dumexia legalized international trade in bananas, the price of bananas in Dumexia increased. As a result, William became better off and Jamal became worse off. It follows that William is a seller, and Jamal is a buyer, of bananas.

Question 46

Most economists view the United States as an ongoing experiment that raises serious doubts about the virtues of free trade.

Question 47

Most economists support the infant-industry argument because it is so easy to implement in practice.

Question 48

William and Jamal live in the country of Dumexia. As a result of Dumexia's legalization of international trade in bananas, William becomes better off and Jamal becomes worse off. It follows that William is a seller, and Jamal is a buyer, of bananas.

Question 49

Economists view free trade as a way to raise living standards both at home and abroad.

Question 50

The results of a 2008 Los Angeles Times poll suggest that a significant majority of Americans believe that free international trade helps the American economy.

Question 51

For Country A, the world price of textiles exceeds the domestic equilibrium price of textiles. As a result, international trade allows sellers of textiles in Country A to experience greater producer surplus than they otherwise would experience.

Question 52

When markets open up to international trade, we know that consumer surplus will rise.
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Question 53

Economists feel that national security concerns never provide a legitimate rationale for trade restrictions.

Question 54

A multilateral approach to free trade has greater potential to increase the gains from trade than a unilateral approach, because the multilateral approach can reduce trade restrictions abroad as well as at home.

Question 55

Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

Question 56

If a country is exporting a good, this is because the country has an absolute advantage in the production of that good.
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Question 57

Free trade causes job losses in industries in which a country does not have a comparative advantage, but it also causes job gains in industries in which the country has a comparative advantage.

Question 58

The rules established under the General Agreement on Tariffs and Trade (GATT) are enforced by an international body called the World Trade Organization (WTO).

Question 59

GATT is an example of a successful unilateral approach to achieving free trade.

Question 60

For Country A, the world price of soybeans exceeds the domestic equilibrium price of soybeans. As a result, international trade allows buyers of soybeans in Country A to experience greater consumer surplus than they otherwise would experience.

Question 61

​The small country assumption is made in developing models of international trade because it applies to US markets.

Question 62

Suppose in the country of Jumanji that the price of coffee with no trade allowed is below the world price of coffee. If Jumanji allows free trade, will Jumanji be an importer or an exporter of coffee?

Question 63

Suppose the world price of coffee is $2 per pound and Brazil's domestic price of coffee without trade is $3 per pound. If Brazil allows free trade, will Brazil be an importer or an exporter of coffee?

Question 64

Figure 9-26
The following diagram shows the domestic demand and domestic supply curves in a market.
Refer to Figure 9-26. With no trade allowed, what are the equilibrium price and equilibrium quantity in this market?

Question 65

​There are only increases in total surplus when a country exports a good, since more units of the country's output of that good are produced.

Question 66

​We can conclude that international trade is beneficial because, regardless of whether the country imports or exports a good, the overall increase in well-being outweighs the losses associated with trade.

Question 67

Suppose in the country of Nash that the price of oranges is $8 per bushel with no trade allowed. If the world price of oranges is $10 per bushel and if Nash allows free trade, will Nash be an importer or an exporter of oranges?

Question 68

Figure 9-26
The following diagram shows the domestic demand and domestic supply curves in a market.
Refer to Figure 9-26. Suppose the world price in this market is $7. If the country allows free trade, how many units will domestic consumers demand, and how many units will domestic producers produce?

Question 69

Suppose the world price of coffee is $3 per pound and Brazil's domestic price of coffee without trade is $2 per pound. If Brazil allows free trade, will Brazil be an importer or an exporter of coffee?

Question 70

​Since a tariff can increase employment in an industry, the result is a net increase in total surplus.

Question 71

When markets open up to international trade, we know that total surplus will rise.
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Question 72

​Imposing a quota on the import of a good is preferable to a tariff because a tariff creates a deadweight loss while a quota does not.

Question 73

​If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.

Question 74

Figure 9-26
The following diagram shows the domestic demand and domestic supply curves in a market.
Refer to Figure 9-26. With no trade allowed, how much are consumer surplus, producer surplus, and total surplus in this market?

Question 75

Suppose in the country of Nash that the price of corn is $4 per bushel with no trade allowed. If the world price of corn is $3 per bushel and if Nash allows free trade, will Nash be an importer or an exporter of corn?

Question 76

A tax on an imported good is called a ______ .

Question 77

​Imposing a tariff on the import of a good is preferable to a quota because a tariff produces revenue for the government, while a quota never produces any revenue for a government.

Question 78

A country has a comparative advantage in a product if the world price is _____ than that country's domestic price without trade.

Question 79

Suppose in the country of Jumanji that the price of wheat with no trade allowed is above the world price of wheat. If Jumanji allows free trade, will Jumanji be an importer or an exporter of wheat?

Question 80

Figure 9-26
The following diagram shows the domestic demand and domestic supply curves in a market.
Refer to Figure 9-26. Suppose the world price in this market is $7. If the country allows free trade, will the country import or export this good, and how many units will be imported/exported?