Question 1

Which of the following best describes the concept of comparative advantage in international trade?

Accepted Answer

The ability of a country to produce a good or service at a lower opportunity cost than competitors.

Question 2

Suppose the U.S. 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 the same amount of labor. What is the opportunity cost for the U.S. to produce one smartphone?

Accepted Answer

$$6$$ bushels of wheat

Question 3

If the world price of ethanol is $$1.00 per gallon and the U.S. imposes a 0.50 $$per gallon tariff, what will be the new price of ethanol in the U.S. market?

Accepted Answer

$$1.50$$

Question 4

Which of the following is NOT a likely source of comparative advantage for a country?

Accepted Answer

High domestic consumption of imported goods

Question 5

A country is said to be in autarky when:

Accepted Answer

It does not trade with other countries.

Question 6

If the U.S. eliminates its sugar quota, which of the following is the most likely outcome according to economic theory?

Accepted Answer

U.S. sugar consumers will gain, and U.S. sugar producers will lose.

Question 7

Which of the following equations correctly represents the deadweight loss from a tariff, as shown in the ethanol market diagrams?

Accepted Answer

$$C + D$$

Question 8

Why do some industries lobby for tariffs or quotas even though these policies reduce overall economic surplus?

Accepted Answer

Because the benefits to the protected industry are concentrated, while the costs are spread across many consumers.

Question 9

Suppose the U.S. and China specialize according to their comparative advantages and trade 1,500 smartphones for 1,500 bushels of wheat. What is the main benefit of this trade?

Accepted Answer

Both countries can consume outside their production possibilities frontiers.

Question 10

Which of the following is an example of a voluntary export restraint (VER)?

Accepted Answer

Two countries negotiate a limit on the quantity of a good exported from one to the other.

Question 11

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

Accepted Answer

Increasing opportunity costs and differences in tastes prevent complete specialization.

Question 12

If a country imposes a quota on sugar imports, what is the likely effect on domestic sugar prices and consumer surplus?

Accepted Answer

Domestic sugar prices rise and consumer surplus falls.

Question 13

Which of the following is a normative argument against globalization?

Accepted Answer

Globalization may destroy distinctive cultures.

Question 14

Suppose the U.S. government is considering a carbon border adjustment mechanism (CBAM) on imported steel. Which of the following is a potential drawback of this policy?

Accepted Answer

It may lead to retaliatory tariffs from other countries.

Question 15

Which of the following best describes the effect of the Smoot-Hawley Tariff Act of 1930?

Accepted Answer

It raised tariffs to their highest level in U.S. history and led to retaliatory tariffs from other countries.

Question 16

If the opportunity cost of producing one bushel of wheat in China is $$\frac{2}{3}$$ smartphones, and in the U.S. it is $$0.167$$ smartphones, which country has the comparative advantage in producing wheat?

Accepted Answer

United States

Question 17

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

Accepted Answer

Selling a product abroad for a price below its cost of production.

Question 18

Which of the following best explains why the cost per job saved by tariffs or quotas is often very high?

Accepted Answer

The cost is spread over many consumers, while the benefit is concentrated among a few workers.

Question 19

Which of the following is a positive analysis statement regarding international trade?

Accepted Answer

Tariffs on imports reduce consumer surplus.

Question 20

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

Accepted Answer

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

chapter 7

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