Ch. 37 Practice MC
1.
In recent years the United States has:
A. exported more services abroad than it has imported.
B. had a small goods trade surplus with Japan.
C. had a large goods trade surplus with the rest of the world.
D. maintained an overall trade surplus (goods and services combined) with the rest of the world.
2.
Which of the following statements is false?
A. In recent years the United States has had large annual trade deficits in goods and services.
B. The United States imports some of the same categories of goods as it exports.
C. China has the largest share of world exports.
D. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.
3.
Which country has the largest share of total world exports?
A. Japan
B. Germany
C. United States
D. China
4.
In 2009, the United States:
A. imported more services than it exported.
B. imported more goods than it exported.
C. traded mainly with developing nations such as Mexico and India.
D. had a small trade surplus in goods and services.
5.
Which of the following is an example of a capital-intensive commodity?
A. clothing
B. wool
C. sunflower seeds
D. chemicals
6.
In order for mutually beneficial trade to occur between two otherwise isolated nations:
A. each nation must be able to produce at least one good absolutely cheaper than the other.
B. each nation must be able to produce at least one good relatively cheaper than the other.
C. each nation must face constant costs in the production of the good it exports.
D. one nation's production must be labor-intensive while the other nation's production is capital-intensive.
7.
If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of
resources, than can country B:
A. mutually advantageous specialization and trade between A and B may still be possible.
B. we can conclude that A is an industrially advanced economy and B is a developing economy.
C. it will necessarily be advantageous for B to import both X and Y from A.
D. then there is no possible basis for mutually advantageous specialization and trade between A and B.
Answer the question on the basis of the following production possibilities tables for two
countries, Latalia and Trombonia:
8.
Refer to the above tables. In Latalia the domestic real cost of 1 ton of pork:
A. is 3 tons of beans.
B. diminishes with the level of pork production.
C. is 5 tons of beans.
D. is 1/5of a ton of beans.
9.
In the theory of comparative advantage, a good should be produced in that nation where:
A. the production possibilities line lies further to the right than the trading possibilities line.
B. its cost is least in terms of alternative goods that might otherwise be produced.
C. its absolute cost in terms of real resources used is least.
D. its absolute money cost of production is least.
10. Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are
trading possibilities curves. The opportunity cost of producing a:
A. pizza is 2 beers in both countries.
B. beer is 1/2a pizza in both countries.
C. pizza in East Lothian is 1 beer.
D. beer in West Lothian is 1/2a pizza.
11. Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are
trading possibilities curves. The trading possibilities curves suggest that the terms of trade are:
A. 1.5 beers for 1 pizza.
B. 1 beer for 2 pizzas.
C. 2 beers for 1 pizza.
D. 1 beer for 1.5 pizzas.
12. The fact that international specialization and trade based on comparative advantage can increase world
output is demonstrated by the reality that:
A. the production possibilities curve of any two nations are identical.
B. a nation's production possibilities and trading possibilities lines coincide.
C. a nation's trading possibilities line lies to the right of its production possibilities line.
D. a nation's production possibilities line lies to the right of its trading possibilities line.
Answer the question on the basis of the following information about the cost ratios for two products-fish
(F) and chicken (C)-in countries Singsong and Harmony. Assume that production occurs under conditions
of constant costs and these are the only two nations in the world.
Singsong: 1F = 2C
Harmony: 1F = 4C
13. Refer to the above information. In Singsong the domestic real cost of each chicken:
A. is 1/2a fish.
B. is 2 fish.
C. increases with the level of fish caught.
D. decreases with the level of fish caught.
14. The primary gain from international trade is:
A. increased employment in the domestic export sector.
B. more goods than would be attainable through domestic production alone.
C. tariff revenue.
D. increased employment in the domestic import sector.
15. Refer to the above graphs. These production possibilities curves:
A. demonstrate that there can be gains from specialization and trade between the two nations.
B. reflect the law of increasing opportunity costs.
C. reflect the law of diminishing marginal utility.
D. imply that specialization will be incomplete.
Answer the question on the basis of the following production possibilities data for two countries, Alpha
and Beta, which have populations of equal size.
16. The above data show that:
A. Beta has a comparative advantage in producing chips.
B. Alpha has a comparative advantage in catching fish.
C. Alpha is subject to constant costs and Beta is subject to increasing costs.
D. Beta is more efficient than Alpha both in catching fish and in producing chips.
17. Refer to the above data. The domestic opportunity cost of:
A. producing a ton of chips in Alpha is 1/5of a ton of fish.
B. producing a ton of chips in Beta is 6 tons of fish.
C. catching a ton of fish in Alpha is 5 tons of chips.
D. catching a ton of fish in Beta is 6 tons of chips.
18. Refer to the above data. Beta:
A. should specialize in catching fish and trade with Alpha for chips.
B. should specialize in producing chips and trade with Alpha for fish.
C. will not realize gains from specialization and trade.
D. will export both fish and chips to Alpha.
19. Refer to the above data. Suppose that before specialization and trade Alpha chose production alternative
C and Beta chose production alternative B. After specialization and trade the gains will be:
A. 20 tons of fish.
B. 20 tons of chips.
C. 20 tons of fish and 20 tons of chips.
D. 240 tons of fish and 20 tons of chips.
20. Refer to the above diagram in which line AB is the United States production possibility curve and AC is
its trading possibilities curve. We can conclude that the United States:
A. has chosen to specialize in the production of cheese.
B. has chosen to specialize in the production of beef.
C. has decided to trade beef for cheese.
D. is relatively more efficient than its trading partners in producing both cheese and beef.
21. A nation's import demand curve for a specific product:
A. is upsloping.
B. shows the amount of the product it will import at prices below its domestic price.
C. lies above its export supply curve for the product.
D. depends on domestic demand for the product, but not on domestic supply.
22. Refer to the above diagram showing the domestic demand and supply curves for a specific standardized
product in a particular nation. If the world price of this product is $1, this nation will:
A. export all of the product.
B. import all of the product.
C. import some of the product and produce some of the product domestically.
D. neither export nor import the product.
23. In a two-nation model, the equilibrium world price will occur where:
A. one nation's export supply curve intersects the other nation's import demand curve.
B. exports are exactly twice the level of imports.
C. both nations' export supply curves are horizontal.
D. both nations' import demand curves are vertical.
24. Refer to the above diagram pertaining to two nations and a specific product. Lines FC and GD are:
A. domestic supply curves for two countries.
B. domestic demand curves for two countries.
C. import demand curves for two countries.
D. export supply curves for two countries.
25. Refer to the above diagram pertaining to two nations and a specific product. Point G is the:
A. domestic price for the nation represented by lines FA and FC.
B. world equilibrium price.
C. domestic price for the nation represented by lines GB and GD.
D. price above the world equilibrium price.
Answer the question on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs
is domestic quantity supplied and Qd is domestic quantity demanded.
26. Refer to the above data. Alpha's export supply is represented by:
A.
B.
C.
D.
27. Refer to the above data. Assuming that Alpha and Beta are the only two nations in the world, the
equilibrium world price must be lower than $4 because at $4:
A. both nations want to import steel.
B. both nations want to export steel.
C. Beta wants to export more than Alpha.
D. Alpha wants to import more than Beta.
28. Refer to the above data. Assuming that Alpha and Beta are the only two nations in the world, at the
equilibrium world price:
A. both nations will export steel.
B. both nations will import steel.
C. Alpha will export steel and Beta will import steel.
D. Beta will export steel and Alpha will import steel.
29. An excise tax on an imported good that is not produced domestically is called a:
A. protective tariff.
B. import quota.
C. revenue tariff.
D. voluntary export restriction.
30. Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of
a(n):
A. protective tariff.
B. export subsidy.
C. import quota.
D. voluntary export restriction.
31. In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber sold to the
United States. This is an example of a(n):
A. import quota.
B. export subsidy.
C. voluntary export restriction.
D. protective tariff.
32. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is
the world price of that product. If the economy is opened to free trade, the price and quantity sold of this
product would be:
A. Pc and v.
B. Pa and z.
C. Pt and y.
D. Pc and z.
33. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc
is the world price of that product. With free trade, that is, assuming no tariff, the outputs produced by
domestic and foreign producers respectively would be:
A. v and vz.
B. w and wy.
C. w and wz.
D. vx and xz.
34. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is
the world price of that product. With a per unit tariff in the amount PcPt, price and total quantity sold will
be:
A. Pt and x.
B. Pc and z.
C. Pt and y.
D. Pa and x.
35. Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect:
A. the price of German bicycles to increase in the United States.
B. employment to decrease in the German bicycle industry.
C. employment to decrease in the U.S. bicycle industry.
D. profits to rise in the U.S. bicycle industry.
Answer the question on the basis of the following domestic supply and demand schedules for a product.
Suppose that the world price of the product is $1.
36. Refer to the above data. With a $1 per unit tariff, price and total quantity sold will be:
A. $3 and 7 units.
B. $5 and 2 units.
C. $3 and 7 units.
D. $2 and 11 units.
37. Refer to the above data. The total amount of revenue collected from a $1 per unit tariff on this product
will be:
A. $22.
B. $8.
C. $7.
D. $14.
38. A protective tariff will:
A. increase the sales of foreign exporters.
B. increase the price and sales of domestic producers.
C. increase the welfare of domestic consumers.
D. create an efficiency gain in the domestic economy.
39. In comparing a tariff and an import quota we find that:
A. the tariff and quota both generate the same amount of revenue for the United States Treasury.
B. the tariff generates revenue for the United States Treasury but the quota does not.
C. the quota generates revenue for the United States Treasury but the tariff does not.
D. neither the tariff nor the quota generates revenue for the United States Treasury.
40. Other things equal, economists would prefer:
A. free trade to tariffs and tariffs to import quotas.
B. free trade to import quotas and import quotas to tariffs.
C. import quotas to tariffs and tariffs to voluntary export restrictions.
D. import quotas to free trade and free trade to tariffs.
41. Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc
is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. A
quota of wy will:
A. lower domestic price and increase domestic consumption.
B. increase the revenues of domestic producers by areas E + F + K.
C. increase the revenues of domestic producers by areas G + H.
D. increase the revenues of domestic producers by areas E + F + G + H + J.
42. Graphical analysis of tariffs reveals that:
A. they benefit domestic consumers at the expense of domestic producers.
B. revenue gains outweigh the costs to domestic consumers.
C. they increase domestic production of the good for which imports face tariffs.
D. although the benefits are not shared equally, everyone in the domestic economy benefits from tariffs.
43. Studies show that:
A. it is impossible to estimate the benefits of trade barriers.
B. costs and benefits of trade barriers are about equal.
C. benefits of trade barriers exceed their costs in developing nations.
D. costs of trade barriers exceed their benefits, creating an efficiency loss for society.
44. The increased-domestic-employment argument for tariff protection holds that:
A. domestic inflation is a desirable policy goal because it stimulates exports.
B. domestic deflation is a desirable policy goal because it stimulates imports.
C. an increase in tariffs will reduce net exports and stimulate domestic employment.
D. an increase in tariffs will increase net exports and stimulate domestic employment.
45. Dumping of goods abroad:
A. constitutes a general case for permanent tariffs.
B. may be part of a firm's price discrimination strategy.
C. may be part of a nation's strategy to rectify its trade deficit.
D. drives up prices of the dumped goods.
46. The number of countries belonging to the World Trade Organization (WTO), as of 2010, is about:
A. 153.
B. 125.
C. 80.
D. 202.
47. The World Trade Organization was established as a successor to:
A. GATT.
B. NAFTA.
C. the EU.
D. the Doha Development Agenda.
48. Which of the following was not one of the principles on which the General Agreement on Tariffs and
Trade (GATT) was established?
A. The elimination of import quotas.
B. Equal, nondiscriminatory trade treatment for all member nations.
C. The formation of international trade contracts to alleviate global poverty.
D. The reduction of tariffs by multilateral negotiations.
49. The "Euro Zone":
A. is another name for the European Union.
B. refers to the common currency used by all European Union members.
C. is a geographic region in Europe with no national sovereignty, where free trade between European
nations is allowed to occur.
D. is the subset of the EU that uses a common currency.
50. (Last Word) Frederic Bastiat's satirical argument against protectionism called for protecting domestic
producers from:
A. fire.
B. the sun.
C. other European countries.
D. invention of the electric light.
Ch. 37 Practice MC Key
1. A
2. D
3. D
4. B
5. D
6. B
7. A
8. C
9. B
10. D
11. D
12. C
13. A
14. B
15. A
16. D
17. B
18. A
19. A
20. A
21. B
22. D
23. A
24. C
25. C
26. B
27. B
28. D
29. C
30. C
31. C
32. D
33. A
34. C
35. C
36. D
37. C
38. B
39. B
40. A
41. B
42. C
43. D
44. D
45. B
46. A
47. A
48. C
49. D
50. B
Ch. 37 Practice MC Summary
Category
AACSB: Analytic
AACSB: Reflective Thinking
Blooms: Level 1 Remember
Blooms: Level 2 Understand
Blooms: Level 3 Apply
Blooms: Level 4 Analyze
Difficulty: 1 Easy
Difficulty: 2 Medium
Difficulty: 3 Hard
Learning Objective: 37-01 List and discuss several key facts about international trade.
Learning Objective: 37-02 Define comparative advantage; and demonstrate how specialization and trade add to a nations output.
Learning Objective: 37-03 Describe how differences between world prices and domestic prices prompt exports and imports.
Learning Objective: 37-04 Analyze the economic effects of tariffs and quotas.
Learning Objective: 37-05 Analyze the validity of the most frequently presented arguments for protectionism.
Learning Objective: 3706 Identify and explain the objectives of GATT; WTO; EU; Euro Zone; and NAFTA; and discuss offshoring and trade adjustment
assistance.
McConnell - Chapter 37
Status: New
Topic: Case for protection: a critical review
Topic: Comparative advantage
Topic: Economic basis for trade
Topic: Some key trade facts
Topic: Supply and demand analysis of exports and imports
Topic: Trade barriers and export subsidies
Topic: World Trade Organization
Type: Graph
Type: Table
# of Questions
24
26
9
15
12
14
9
27
14
4
16
8
15
3
4
62
11
3
15
1
4
8
15
4
11
10