Question 1

The quantity supplied by domestic producers in an importing country must be less than the quantity demanded by its population.

Accepted Answer

True

Question 2

Import quotas contribute to higher prices of products imported into the U.S., but tariffs do not.

Accepted Answer

Both import quotas and tariffs can contribute to higher prices of products imported into the U.S. by limiting supply or adding extra costs, respectively.

Question 3

When a country allows trade and becomes an importer of goods everyone benefits.

Accepted Answer

While trade can bring benefits such as lower prices and a greater variety of goods, not everyone benefits equally. Some domestic industries may suffer due to competition from imports, leading to job losses or lower wages in those sectors.

Question 4

One difference between a tariff and a quota is that the tariff brings in revenue to
the government while the quota benefits the foreign producer who is lucky enough to receive an import license.

Accepted Answer

A tariff is a tax on imports, which generates revenue for the government imposing it. A quota limits the quantity of goods that can be imported, and the limited import licenses can indeed benefit foreign producers who receive them, often allowing them to charge higher prices.

Question 5

When a country allows trade and becomes an exporter of goods, producers gain more than consumers lose.

Accepted Answer

When a country becomes an exporter of goods, its producers benefit from increased demand and higher prices for their products. Meanwhile, consumers may face higher prices due to reduced domestic supply and increased competition for the remaining goods. However, overall, the gains for producers tend to outweigh the losses for consumers, resulting in a net benefit for the economy as a whole. Additionally, increased trade can lead to greater efficiency and innovation, further boosting economic growth and prosperity.

Question 6

If it can be shown that a tariff on steel imports will increase employment in the steel industry, we can be sure that the effect of the tariff on U.S. employment will also be positive.

Accepted Answer

The statement only considers the impact on employment in the steel industry, but does not take into account the potential negative effects on employment in other industries that rely on steel imports, such as manufacturing or construction. The overall effect on U.S. employment cannot be determined simply by looking at the impact on one industry.

Question 7

A U.S. tariff on French wine will likely benefit U.S. wine producers and the U.S. government (by increasing tax revenue), but harm U.S. wine drinkers and French wine producers.

Accepted Answer

The tariff would make French wine more expensive for U.S. consumers, potentially leading them to switch to domestically-produced wines. Meanwhile, French wine producers might see a decrease in demand from the U.S. market, negatively impacting their sales. Additionally, the U.S. government would collect additional revenue through taxes on the imported French wine.

Question 8

A country has an absolute advantage over another if it can produce a good with fewer resources.

Accepted Answer

This is the definition of absolute advantage in international trade theory.

Question 9

Import tariffs in the United States are likely to reduce U.S. exports, both because of the resulting decrease in foreign earnings of dollars from exports to the United States and because of the likelihood of increases in other countries' import restrictions against U.S. goods.

Accepted Answer

Import tariffs can lead to retaliation from other countries, which can then limit exports from the United States. This means that the decrease in foreign earnings of dollars from exports to the United States and the increases in other countries' import restrictions against U.S. goods are likely to reduce U.S. exports. Therefore, the statement is true.

Question 10

If two countries produce both wheat and sugar and one country has the comparative advantage in producing wheat then the other country must have the comparative advantage producing sugar.

Accepted Answer

According to the principle of comparative advantage, if one country has a lower opportunity cost (in terms of alternative goods forgone) of producing a certain good than another country, then it has a comparative advantage in producing that good. If Country A has a lower opportunity cost of producing wheat than Country B, then Country B must have a lower opportunity cost of producing sugar than Country A. Therefore, Country B has a comparative advantage in producing sugar.

Question 11

Major U.S. exporters would be likely to oppose the sort of protectionist policies favored by domestic producers that compete with imports.

Accepted Answer

Major U.S. exporters benefit from free trade policies and would likely oppose protectionist policies that restrict imports and may result in retaliatory actions by trading partners.

Question 12

The inevitable cost of protecting domestic industries from foreign competition will be higher prices for domestic consumers.

Accepted Answer

When protectionist measures such as tariffs or quotas are implemented to protect domestic industries, it limits competition from foreign competitors, which can result in higher prices for domestic consumers. This is because the protected domestic industries no longer have to compete with lower-priced foreign alternatives, so they can increase their prices without fear of losing business. Therefore, the cost of protectionism is ultimately passed on to domestic consumers in the form of higher prices.

Question 13

The intended gains from U.S. tariffs and other trade restrictions can backfire if foreign governments retaliate by imposing additional trade restrictions on U.S. goods sold in their countries.

Accepted Answer

When the U.S. imposes tariffs and trade restrictions on foreign goods, it can lead to retaliation from foreign governments. This retaliation can come in the form of additional trade restrictions on U.S. goods sold in their countries, which can harm U.S. businesses and exporters. Therefore, the intended gains from U.S. tariffs and other trade restrictions can backfire in this way.

Question 14

When a country allows trade and becomes an exporter of goods consumers gain more than producers lose.

Accepted Answer

When a country becomes an exporter, producers typically gain more than consumers lose because they can sell at higher prices internationally, while consumers may face higher prices domestically.

Question 15

A country that is half as productive at producing some goods as another country, but is one quarter as productive at producing others, will not be able to gain from trade.

Accepted Answer

Even though the country may be half as productive in some areas and a quarter as productive in others, it may still have a comparative advantage in producing some goods. It can specialize in producing those goods where it has a comparative advantage and trade with the other country to gain from trade.

Question 16

A nation can gain from international trade when the relative domestic prices of the nation differs from that in other countries, and it imports goods for which it is a high opportunity cost producer.

Accepted Answer

This statement is true according to the theory of comparative advantage in economics. When a country imports goods that it is less efficient at producing than other countries, it can benefit from the lower prices of those goods in the global market. By focusing on producing the goods it is relatively better at making, the country can increase its overall output and living standards.

Question 17

A tariff on a good increases the domestic price of the good, increases domestic production of the good, reduces the amount of the good sold, and decreases imports of the good.

Accepted Answer

A tariff is a tax on imported goods, which makes the price of the imported good more expensive in the domestic market. This price increase can make domestic production relatively cheaper, and therefore increase domestic production of the same good. With domestic production being competitive, some customers (perhaps not all) will switch to buying domestic instead of imported goods, reducing the amount of the good sold, and also decreasing the amount of imports.

Question 18

Trade occurs when a country has an absolute advantage and not just a comparative advantage over another country.

Accepted Answer

Trade can occur even if a country does not have an absolute advantage over another country but has a comparative advantage in producing certain goods or services. Comparative advantage means that a country can produce a good or service at a lower opportunity cost than another country. This allows both countries to benefit from trading goods or services with each other.

Question 19

Tariffs contribute to higher prices of textile products imported into the United States, but import quotas on textiles brought into the United States do not.

Accepted Answer

Import quotas limit the quantity of a particular product that can be imported into the United States, which can lead to increased competition and potentially lower prices. However, tariffs impose a tax on imported goods, which raises their price and makes domestic products more competitive. Therefore, tariffs contribute to higher prices of textile products imported into the United States, but import quotas do not.

Question 20

When a country allows trade and becomes an exporter of goods both domestic consumers and domestic producers benefit.

Accepted Answer

When a country allows trade and becomes an exporter of a good, domestic producers benefit because they gain a larger market to sell to, which often leads to higher revenues. However, domestic consumers may face higher prices for the good, as domestic supply is partially diverted to foreign markets, reducing the benefit to consumers.

Quiz 20: Economic Growth in the Global Economy