Question 1

Which of the following best explains why international trade allows countries to consume beyond their production possibilities curve (PPC)?

Accepted Answer

Trade enables countries to specialize in goods where they have a comparative advantage and exchange for other goods, expanding consumption possibilities.

Question 2

Suppose the U.S. can produce 2 units of food or 1 unit of clothing per worker per day, while Japan can produce 3 units of food or 9 units of clothing per worker per day. According to the law of comparative advantage, which good should the U.S. specialize in?

Accepted Answer

Food, because the U.S. has a lower opportunity cost in producing food.

Question 3

If the world price of soybeans ($$P_w) is $$higher than the domestic price without trade ($$P_n$$), what is the effect of opening up to free trade on U.S. soybean producers and consumers?

Accepted Answer

Producers gain from higher prices and increased exports, while consumers face higher prices and reduced consumption.

Question 4

Which of the following is a likely result of imposing a tariff on imported automobiles?

Accepted Answer

Domestic producers gain, government collects tariff revenue, but there are deadweight losses to society.

Question 5

What is the main difference between a tariff and a quota as trade restrictions?

Accepted Answer

A tariff generates revenue for the government, while a quota creates rents for foreign producers with import permits.

Question 6

Which of the following best describes the 'special interest effect' as it relates to trade restrictions?

Accepted Answer

Trade restrictions provide concentrated benefits to a small group while spreading costs widely across the public.

Question 7

According to the data on trade openness and economic growth, what is the relationship between a country's openness to trade and its income growth?

Accepted Answer

More open economies tend to have higher income levels and faster growth.

Question 8

If the U.S. imposes a quota on peanut imports, which of the following is a likely outcome?

Accepted Answer

Domestic producers gain, foreign producers with import permits gain, but consumers lose due to higher prices and deadweight losses occur.

Question 9

Which of the following is a common fallacy about international trade?

Accepted Answer

Restricting imports will not affect exports.

Question 10

Suppose the U.S. specializes in food and Japan specializes in clothing, and they trade at a 1-for-1 rate. If the U.S. exports 200 million units of food to Japan and imports 200 million units of clothing, what is the effect on their consumption possibilities?

Accepted Answer

Both countries can consume more than they could produce on their own.

Question 11

Which of the following is NOT a valid argument for trade restrictions?

Accepted Answer

Increasing consumer surplus for all citizens.

Question 12

If a country has an absolute advantage in producing both goods, what does the law of comparative advantage suggest?

Accepted Answer

The country should specialize in the good for which it has the lowest opportunity cost.

Question 13

Which of the following best describes the effect of lower transportation and communication costs on international trade?

Accepted Answer

They increase the volume of international trade by making it easier and cheaper to exchange goods.

Question 14

If the U.S. imposes a tariff that raises the domestic price of imported cars from $$P_w to$$ $$P_w + t$$, what happens to consumer surplus?

Accepted Answer

Consumer surplus decreases due to higher prices and reduced quantity purchased.

Question 15

Which of the following is a real-world example of a country benefiting from trade openness?

Accepted Answer

Hong Kong's open trade policies and high income growth.

Question 16

What is the opportunity cost for Japan to produce one unit of food, given the data: Japan can produce 3 units of food or 9 units of clothing per worker per day?

Accepted Answer

$$3$$ units of clothing

Question 17

Which of the following best explains why trade restrictions often persist despite their overall inefficiency?

Accepted Answer

They provide large, visible benefits to a small group while spreading costs across many.

Question 18

If the U.S. exports more soybeans due to a higher world price, what happens to the domestic price and quantity consumed domestically?

Accepted Answer

Domestic price rises and domestic consumption falls.

Question 19

Which of the following is a secondary effect of restricting imports?

Accepted Answer

Exports are also restricted due to the interconnectedness of trade flows.

Gaining from International Trade: Macroeconomic Perspectives

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