Question 1

Which of the following best describes the concept of comparative advantage?

Accepted Answer

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

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 $$1.00 per gallon and the U.S. domestic price without trade is 2.00 $$per gallon, what happens to consumer and producer surplus when the U.S. allows free trade in ethanol?

Accepted Answer

Consumer surplus increases and producer surplus decreases.

Question 4

Which of the following is NOT a reason why countries do not completely specialize in the production of goods in which they have a comparative advantage?

Accepted Answer

Countries always have an absolute advantage in all goods.

Question 5

A tariff is best defined as:

Accepted Answer

A tax imposed by a government on imports.

Question 6

Refer to the diagram of the U.S. ethanol market under autarky. If the equilibrium price is $2.00 per gallon, what area represents consumer surplus?

Accepted Answer

The area below the demand curve and above the price line up to the equilibrium quantity.

Question 7

If the U.S. imposes a $$0.50 per gallon tariff on ethanol imports, raising the domestic price to 1.50 $$per gallon, what is the effect on total economic surplus?

Accepted Answer

Total economic surplus decreases by the deadweight loss areas $$C + D.$$

Question 8

Which of the following is a likely effect of a quota on sugar imports in the U.S.?

Accepted Answer

U.S. sugar producers gain surplus while U.S. sugar consumers lose surplus.

Question 9

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

Accepted Answer

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

Question 10

Suppose the U.S. and China agree to trade at a one-for-one ratio of smartphones for wheat. If China specializes in smartphones and the U.S. in wheat, what is a possible outcome for both countries?

Accepted Answer

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

Question 11

Which of the following is an example of an external economy that can create comparative advantage?

Accepted Answer

A region where many firms in the same industry cluster, reducing costs for all.

Question 12

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

Accepted Answer

To oversee international trade agreements and provide dispute resolution.

Question 13

Which of the following is a normative argument against globalization?

Accepted Answer

Globalization may destroy distinctive cultures.

Question 14

If a country unilaterally eliminates all tariffs and quotas, what is the expected effect according to economic theory?

Accepted Answer

The country will gain from trade even if other countries do not reciprocate.

Question 15

Dumping is defined as:

Accepted Answer

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

Question 16

Which of the following is an example of a trade barrier based on health and safety standards?

Accepted Answer

A country requires imported food to meet stricter safety standards than domestic food.

Question 17

Suppose the U.S. government imposes a sugar quota, raising the domestic price above the world price. According to the diagram, what is the deadweight loss caused by the quota?

Accepted Answer

The area labeled $$C + D$$

Question 18

Which of the following best describes the political economy of trade restrictions?

Accepted Answer

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

Question 19

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

Accepted Answer

International trade increases total economic surplus in a country.

Question 20

If the U.S. imposes a tariff on steel imports to address climate change, what is a potential unintended consequence according to critics?

Accepted Answer

It may provoke retaliatory tariffs from other countries.

Chapter 9 Study Guide

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