Question 1

Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of beans increases to equal the world price of beans, then

Accepted Answer

A)   that country becomes an exporter of beans.
B)   that country has a comparative advantage in producing beans.
C)   at the world price, the quantity of beans supplied in that country exceeds the quantity of beans demanded in that country.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 2

When a country allows trade and becomes an exporter of a good,

Accepted Answer

A)   domestic producers become better off, and domestic consumers become worse off.
B)   domestic producers become worse off, and domestic consumers become better off.
C)   domestic producers become better off, but the effect on the well-being of domestic consumers is ambiguous.
D)   domestic consumers become worse off, but the effect on the well-being of domestic producers is ambiguous.E) B) and C)
F) A) and D)

Question 3

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. 
-Refer to Figure 9-8. The price corresponding to the horizontal dotted line on the graph represents the price of cars

Accepted Answer

A)   after trade is allowed.
B)   before trade is allowed.
C)   that maximizes total surplus when trade is allowed.
D)   that minimizes the well-being of domestic car producers when trade is allowed.E) A) and C)
F) All of the above

Question 4

Figure 9-24
The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $20 per unit. 
-Refer to Figure 9-24. With free trade, the country

Accepted Answer

A)   exports 20 units of the good.
B)   imports 20 units of the good.
C)   exports 30 units of the good.
D)   imports 30 units of the good.E) B) and C)
F) A) and D)

Question 5

Figure 9-17 
-Refer to Figure 9-17. With free trade, total surplus is

Accepted Answer

A)   $600.
B)   $1,200.
C)   $1,800.
D)   $2,400.E) B) and C)
F) C) and D)

Question 6

Trade among nations is ultimately based on

Accepted Answer

A)   absolute advantage.
B)   strategic advantage.
C)   comparative advantage.
D)   technical advantage.E) None of the above
F) A) and D)

Question 7

Figure 9-22
The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. 
-Refer to Figure 9-22. With free trade, consumer surplus is

Accepted Answer

A)   $48,000 and producer surplus is $48,000.
B)   $18,000 and producer surplus is $12,000.
C)   $108,000 and producer surplus is $12,000.
D)   $18,000 and producer surplus is $48,000.E) None of the above
F) A) and D)

Question 8

Figure 9-21
The following diagram shows the domestic demand and domestic supply for a market. In addition, assume that the world price in this market is $40 per unit. 
-Refer to Figure 9-21. With free trade allowed, this country

Accepted Answer

A)   exports 200 units of the good.
B)   exports 400 units of the good.
C)   imports 400 units of the good.
D)   exports 800 units of the good.E) B) and C)
F) C) and D)

Question 9

Figure 9-17 
-Refer to Figure 9-17. With free trade, consumer surplus is

Accepted Answer

A)   $400 and producer surplus is $200.
B)   $400 and producer surplus is $800.
C)   $1,600 and producer surplus is $200.
D)   $1,600 and producer surplus is $800.E) None of the above
F) A) and D)

Question 10

When a country moves away from a free trade position and imposes a tariff on imports, it causes

Accepted Answer

A)   a decrease in total surplus in the market.
B)   a decrease in producer surplus in the market.
C)   an increase in consumer surplus in the market.
D)   a decrease in revenue to the government.E) B) and C)
F) A) and D)

Question 11

A tariff

Accepted Answer

A)   lowers the domestic price of the exported good below the world price.
B)   keeps the domestic price of the exported good the same as the world price.
C)   raises the domestic price of the imported good above the world price.
D)   lowers the domestic price of the imported good below the world price.E) B) and D)
F) A) and B)

Question 12

Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests

Accepted Answer

A)   Russia has a comparative advantage over Brazil in producing coffee, and Ireland has a comparative advantage over Russia in producing sunflower seeds.
B)   Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee.
C)   Russia has an absolute advantage over Ireland in producing sunflower seeds, and Brazil has an absolute advantage over Russia in producing coffee.
D)   Russia has an absolute advantage over Brazil in producing coffee, and Ireland has an absolute advantage over Russia in producing sunflower seeds.E) A) and B)
F) B) and D)

Question 13

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to

Accepted Answer

A)   cause these factories to pay the U.S. minimum wage.
B)   increase the rate of technological advance in poor countries so that they can afford to pay higher wages.
C)   increase poverty in poor countries and benefit U.S. firms which compete with these imports.
D)   harm U.S. firms which compete with these imports.E) All of the above
F) A) and B)

Question 14

What is the fundamental basis for trade among nations?

Accepted Answer

A)   shortages or surpluses in nations that do not trade
B)   misguided economic policies
C)   absolute advantage
D)   comparative advantageE) A) and D)
F) None of the above

Question 15

Figure 9-23
The following diagram shows the domestic demand and domestic supply for a market. Assume that the world price in this market is $120 per unit. 
-Refer to Figure 9-23. With free trade allowed, this country

Accepted Answer

A)   exports 5 units of the good.
B)   imports 5 units of the good.
C)   exports 13 units of the good.
D)   imports 13 units of the good.E) All of the above
F) A) and C)

Question 16

Figure 9-25
The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $10 per unit. 
-Refer to Figure 9-25. With free trade and a $5 per unit tariff, the country

Accepted Answer

A)   exports 20 units of the good.
B)   imports 20 units of the good.
C)   exports 40 units of the good.
D)   imports 40 units of the good.E) A) and B)
F) A) and D)

Question 17

One should be especially wary of the national-security argument for restricting trade when that argument is made by

Accepted Answer

A)   representatives of industry.
B)   representatives of the defense establishment.
C)   members of households.
D)   foreign government officials.E) B) and D)
F) B) and C)

Question 18

When the nation of Worldova allows trade and becomes an exporter of silk,

Accepted Answer

A)   residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova rises.
B)   residents of Worldova who produce silk become worse off; residents of Worldova who buy silk become better off; and the economic well-being of Worldova falls.
C)   residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.
D)   residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova falls.E) A) and C)
F) B) and C)

Question 19

Figure 9-21
The following diagram shows the domestic demand and domestic supply for a market. In addition, assume that the world price in this market is $40 per unit. 
-Refer to Figure 9-21. With free trade, domestic production and domestic consumption, respectively, are

Accepted Answer

A)   1,200 and 800.
B)   1,600 and 1,200.
C)   1,600 and 800.
D)   1,200 and 1,200E) C) and D)
F) A) and C)

Question 20

When a country that imports a particular good imposes a tariff on that good,

Accepted Answer

A)   producer surplus increases and total surplus increases in the market for that good.
B)   producer surplus increases and total surplus decreases in the market for that good.
C)   producer surplus decreases and total surplus increases in the market for that good.
D)   producer surplus decreases and total surplus decreases in the market for that good.E) B) and C)
F) A) and B)

Exam 9: Application: International Trade

Suppose a country abandons a no-trade policy in favor of a free-trade policy. If, as a result, the domestic price of beans increases to equal the world price of beans, then

Correct AnswerverifiedShow Answer

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. -Refer to Figure 9-8. The price corresponding to the horizontal dotted line on the graph represents the price of cars

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Trade among nations is ultimately based on

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Figure 9-24 The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $20 per unit. -Refer to Figure 9-24. With free trade, the country

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Figure 9-21 The following diagram shows the domestic demand and domestic supply for a market. In addition, assume that the world price in this market is $40 per unit. -Refer to Figure 9-21. With free trade allowed, this country

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Figure 9-17 -Refer to Figure 9-17. With free trade, total surplus is

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Figure 9-22 The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. -Refer to Figure 9-22. With free trade, consumer surplus is

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Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to

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What is the fundamental basis for trade among nations?

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Figure 9-25 The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $10 per unit. -Refer to Figure 9-25. With free trade and a $5 per unit tariff, the country

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When a country moves away from a free trade position and imposes a tariff on imports, it causes

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A tariff

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Figure 9-17 -Refer to Figure 9-17. With free trade, consumer surplus is

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One should be especially wary of the national-security argument for restricting trade when that argument is made by

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Figure 9-21 The following diagram shows the domestic demand and domestic supply for a market. In addition, assume that the world price in this market is $40 per unit. -Refer to Figure 9-21. With free trade, domestic production and domestic consumption, respectively, are

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Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil. This situation suggests

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When a country that imports a particular good imposes a tariff on that good,

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When the nation of Worldova allows trade and becomes an exporter of silk,

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Figure 9-23 The following diagram shows the domestic demand and domestic supply for a market. Assume that the world price in this market is $120 per unit. -Refer to Figure 9-23. With free trade allowed, this country

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When a country allows trade and becomes an exporter of a good,

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