Question 1

Suppose the United States can produce 1,500 smartphones or 9,000 bushels of wheat with 1,000 hours of labor, while China can produce 1,000 smartphones or 1,500 bushels of wheat with 1,000 hours. What is the opportunity cost for the U.S. to produce one smartphone?

Accepted Answer

$$6$$ bushels of wheat

Question 2

If the world price of ethanol is $1.00 per gallon and the U.S. allows free trade, what happens to consumer surplus in the U.S. ethanol market compared to autarky?

Accepted Answer

Consumer surplus increases because the price falls from $$2.00 to 1.00 $$per gallon.

Question 3

Which of the following best describes comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than another producer.

Question 4

A country imposes a quota on sugar imports, raising the domestic price from $$0.18 to 0.36 $$per pound. Which group benefits the most from this policy?

Accepted Answer

Domestic sugar producers

Question 5

If the U.S. government imposes a $$0.50 per gallon tariff on ethanol, raising the domestic price from 1.00 to$$ $1.50, what is the deadweight loss caused by the tariff?

Accepted Answer

$$C + D$$

Question 6

Which of the following is NOT a source of comparative advantage?

Accepted Answer

High domestic consumer demand for a product

Question 7

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. If the U.S. consumes 42 million pounds of rice without the tariff and 31 million pounds with the tariff, by how much does consumption fall?

Accepted Answer

$$11$$ million pounds

Question 8

Which of the following is a likely effect of a tariff on imported shoes in the U.S.?

Accepted Answer

The cost per job saved in the shoe industry is very high for consumers.

Question 9

What is the main argument for using tariffs to protect 'infant industries'?

Accepted Answer

To allow new industries time to become competitive before facing international competition.

Question 10

If the U.S. specializes in wheat and China specializes in smartphones, and they trade at a one-for-one ratio, which of the following is true?

Accepted Answer

Both countries can consume more of both goods than they could without trade.

Question 11

Which of the following is a normative statement about international trade?

Accepted Answer

The government should protect domestic industries to preserve jobs.

Question 12

What is the effect of a sugar quota on U.S. consumers?

Accepted Answer

Consumer surplus decreases due to higher prices and lower consumption.

Question 13

Which of the following best explains why not all goods are completely specialized in one country under free trade?

Accepted Answer

Some goods have increasing opportunity costs and not all goods can be traded internationally.

Question 14

What is the main function of the World Trade Organization (WTO)?

Accepted Answer

To oversee international trade agreements and provide dispute resolution.

Question 15

Which of the following is an example of 'dumping' in international trade?

Accepted Answer

A foreign firm sells a product in the U.S. for less than its cost of production.

Question 16

If the U.S. removes all tariffs and quotas unilaterally, what is the likely effect according to economic theory?

Accepted Answer

The U.S. economy would gain overall, even if other countries do not reduce their trade barriers.

Question 17

Which of the following is a real-world example of an external economy creating comparative advantage?

Accepted Answer

The concentration of technology firms in Silicon Valley.

Question 18

Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. The loss in domestic consumer surplus as a result of the tariff is equal to which area on the supply and demand graph?

Accepted Answer

$$B + D + E + F$$

Question 19

Which of the following is a likely political reason why trade restrictions persist even when they reduce overall economic welfare?

Accepted Answer

The benefits of trade restrictions are concentrated among a few, while the costs are spread across many.

Comparative Advantage and the Gains from International Trade: Study Notes

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