Question 1

Suppose Canada can produce either 10 million T-shirts or 5 million regional jets with its resources, while China can produce either 20 million T-shirts or 2 million regional jets. Which country has the comparative advantage in producing T-shirts, and why?

Accepted Answer

China, because its opportunity cost of producing T-shirts is lower.

Question 2

If the world price of a T-shirt is $$5 and the domestic equilibrium price in Canada without trade is 8$$, what will happen to the quantity of T-shirts produced and consumed in Canada when trade is allowed?

Accepted Answer

Production will decrease, consumption will increase, and imports will fill the gap.

Question 3

Which of the following best describes the effect of a tariff on imported goods?

Accepted Answer

It raises the domestic price, decreases imports, and creates a deadweight loss.

Question 4

A Canadian import quota on dairy products will most likely result in which of the following outcomes?

Accepted Answer

Higher prices for consumers, increased domestic production, and profits for importers.

Question 5

Suppose the Canadian government imposes a $$2 tariff on imported T-shirts, raising the domestic price from 5 to$$ $7. If imports fall from 4 million to 1 million T-shirts, what is the government’s tariff revenue?

Accepted Answer

$2 million

Question 6

Which area on a supply and demand diagram represents the deadweight loss from a tariff?

Accepted Answer

$$C + E$$

Question 7

What is the main economic argument against the use of tariffs to protect domestic jobs?

Accepted Answer

Tariffs destroy some jobs but create others, and protection is costly.

Question 8

Which of the following is NOT a valid justification for restricting international trade, according to economic theory?

Accepted Answer

To maximize consumer surplus at the expense of producer surplus.

Question 9

If Canada exports aircraft at a world price higher than the domestic equilibrium price, what happens to consumer and producer surplus?

Accepted Answer

Consumer surplus decreases, producer surplus increases.

Question 10

Which of the following best explains the concept of rent seeking in the context of international trade?

Accepted Answer

Producers lobbying for trade restrictions to capture surplus.

Question 11

Suppose the opportunity cost of producing 1 T-shirt in Canada is 0.25 jets, and in China it is 0.1 jets. Which country should specialize in T-shirt production according to comparative advantage?

Accepted Answer

China, because it has a lower opportunity cost.

Question 12

Which of the following is a likely effect of an export subsidy?

Accepted Answer

It increases domestic producer surplus but creates a deadweight loss.

Question 13

If a country imposes an import quota, who are the main beneficiaries?

Accepted Answer

Domestic producers and importers with quota rights

Question 14

Which formula correctly represents the calculation of tariff revenue for the government?

Accepted Answer

$$	ext{Tariff Revenue} = 	ext{Tariff Rate} 	imes 	ext{Quantity of Imports}$$

Question 15

Which of the following statements about comparative advantage is correct?

Accepted Answer

Comparative advantage is determined by opportunity cost, not absolute cost.

Question 16

Which of the following is a direct result of free international trade for consumers in the importing country?

Accepted Answer

Lower prices and higher consumer surplus.

Question 17

If the area $$D on a $$supply and demand diagram represents the increase in total surplus from imports, what does area $$B$$ represent when trade is allowed?

Accepted Answer

A transfer from producers to consumers.

Question 18

Which of the following is NOT a tool used by governments to restrict international trade?

Accepted Answer

Price ceilings

Question 19

Why do producers of import-competing goods have a stronger incentive to lobby for trade restrictions than consumers have to lobby for free trade?

Accepted Answer

The benefit per producer is large, while the benefit per consumer is small.

Question 20

Which of the following best describes the net effect of a tariff on total surplus in the importing country?

Accepted Answer

Total surplus decreases due to deadweight loss.

chapter 7

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