34-1. Goods and services purchased from international
sources are:
Exports.
→ Imports.
Net exports.
Net imports.
34-2. When the overall trade balance is zero:
Merchandise exports equal merchandise imports.
The service trade balance must be zero.
→ Exports equal imports.
The goods trade balance must be zero.
34-3. If a country does not engage in trade with other
countries, it is known as:
An open economy.
A trade deficit economy.
→ A closed economy.
A trade surplus economy.
34-4. When a country participates in international
trade, its consumption possibilities:
Must still equal its production possibilities.
May increase but its trading partner's consumption
possibilities will decrease.
Will increase if it is a rich country and will decrease
if it is a poor country.
→ Always exceed its production possibilities.
34-5. Comparative advantage in production is achieved
by:
Subsidizing, specializing, and lowering the price of
an exported good.
Being able to produce a good with fewer inputs
than in other countries.
Having terms of trade that are better than the
terms of trade faced in other countries.
→ Having a lower opportunity cost of producing a
good relative to that of other countries.
34-6. The expansion of world output as a result of
trade is mainly due to the effects of:
Higher trade barriers.
Improved terms of trade.
→ Specialization according to comparative advantage.
Specialization according to absolute advantage.
34-7. Suppose the production of 12 tons of copper in
the United States requires the same amount of
resources as the production of 3 tons of aluminum. In
Mexico, 12 tons of copper requires the same amount of
resources as 2 tons of aluminum. Implicitly:
→ Mexico has a comparative advantage in producing
copper.
The United States has an absolute advantage in
producing aluminum.
Neither country has a comparative advantage in
producing aluminum.
34-8. Assume the United States and Canada have the
same amount of resources. In a given time period, the
U.S. can produce 3 ton of steel or 300 tons of wheat.
Canada can produce 4 tons of steel or 400 tons of
wheat. This means that:
The United States has the comparative advantage
in steel.
Canada has the comparative advantage in steel.
→ Canada has an absolute advantage in both steel and
wheat.
34-9. The amount of good A given up for good B in
trade is the:
Comparative advantage.
Absolute advantage.
→ Terms of trade.
Exploitation of consumers.
34-10. A country will not trade unless:
It has an absolute advantage.
→ The terms of trade are superior to domestic
opportunities.
Its balance of trade is in a surplus position.
The production possibilities increase.
34-2. A country runs a balanced trade when the dollar
value of imports and exports are equal.
34-1. An import is purchased domestically but
produced abroad.
34-4. Consumption possibilities increase with
specialization and trade since a nation can buy cheaper
abroad some goods and sell at higher prices abroad
certain domestically produced goods.
34-3. A closed economy must rely on its own domestic
industries to provide for its needs since it is not
involved with international trade.
34-6. Countries should specialize and export along
lines of comparative advantage and import from other
countries that also specialize.
34-5. Comparative advantage means one can produce a
particular good at a lower opportunity cost than
others.
34-8. Absolute advantage is based on productivity and
efficiency in the use of resources; when a nation can
produce steel and wheat using less inputs and
resources than other nations, it is said to have absolute
advantage in producing steel and wheat.
34-7. Mexico has comparative advantage in producing
copper since a ton of copper produced in Mexico costs
1/6 of a ton of aluminum while it costs ¼ of a ton of
aluminum in the U.S.
34-10. The terms of trade is based on opportunity cost
being a measure of how much of one good must be
given up to get a fixed amount of another good; the
terms of trade should be bound between domestic and
foreign opportunity costs, the domestic country would
not buy abroad if it costs less to produce domestically,
nor would it sell abroad if it could receive more income
from selling domestically.
34-9. The terms of trade is based on opportunity cost;
it is a measure of how much of one good must be given
up to get a fixed amount of another good.
34-11. If we add together all the gains from
specialization and trade and then subtract all the
losses, the net result would be:
Zero; the gains and losses would cancel out.
→ Positive; a net gain for the world and each country.
Negative; a net loss for the world and each country.
Impossible to tell; the net result could be zero,
positive, or negative.
34-12. Which of the following is not a reason to restrict
trade?
Preservation of national security
Protection of infant industries
Concerns about dumping
→ Concern about high prices for consumers
34-13. Protectionism achieves which of the following
goals?
Greater consumption possibilities through greater
specialization
→ Protection of infant industries
Protection of comparative advantage
Protection of absolute advantage
34-14. The infant-industry argument can be justified
because:
A new industry may never develop in a protected,
noncompetitive environment.
The government may not be able politically to end
protectionism even when protectionism is no longer
justified.
Government may choose to protect industries,
which place heavy import burdens on the economy.
→ A new industry may be difficult to start in the face
of existing foreign competition.
34-15. An embargo is:
→ A prohibition on exports or imports.
A tax imposed on imported goods.
A limit to the quantity of a good that may be
imported in a given time period.
An orderly marketing agreement.
34-16. When a country imposes tariffs, it is likely to
cause:
Increased quantities of imports.
→ Higher prices for the import-competing goods.
Lower prices for domestic production.
Less expensive exports.
34-17. When tariffs are imposed, the losers include:
Domestic consumers and the domestic
government.
Foreign consumers and domestic producers of
import-competing goods.
Domestic consumers and domestic producers of
import-competing goods.
→ Domestic consumers and foreign producers.
34-18. What should happen to the equilibrium price
and quantity in a market as a result of a quota on
imports?
Equilibrium price and quantity should both go up
→ Equilibrium price should go up, and equilibrium
quantity should go down
X Equilibrium price should go down, and equilibrium
quantity should go up
Equilibrium price and quantity should both go
down
34-12. Consumers will benefit through lower prices
with trade, since a country will never buy abroad what
it can produce cheaper domestically; prices can only go
down.
34-11. Through trade, winners and losers are created,
but the gains to the winners will exceed the losses to
the losers.
34-14. Fierce competition from seasoned players in an
industry may prevent the infant industry from
developing, partly justifying some trade barriers.
34-13. An infant industry can be given room to grow in
its early stages when a nation erects trade barriers,
allowing it to potentially mature.
34-16. The tariff can be used to protect the domestic
industry since it raises the price of the foreign
produced good, allowing the domestic producers to
charge more for each unit they produce.
34-15. An embargo prevents trade with a particular
country, such as the U.S. embargo against Cuba.
34-18. The quota acts similarly to the tariff; less comes
into the country so price rises, and consumers respond
to higher prices by purchasing less of the product.
34-17. Tariffs hurt consumers who must pay higher
prices, and hurt foreigners since the tariff reduces the
amount of imports (their exports).
Assume China and the United States have the same amount of resources with which to produce soybeans and computers
and they produce no other goods.
34-19. Based on the information
in Table 34.1, the opportunity
cost of producing 1 ton of
soybeans in the United States is:
1/5 of a computer.
1/3 of a computer.
3 computers.
→ 5 computers.
34-22. If the two countries are at
points A and B in Figure 34.1 and do
not trade, what is the total number
of motorcycles produced per year?
1,000
2,000
→ 3,000
4,000
34-20. From the information in Table
34.1, it is clear that:
X
China has a comparative advantage in
computers.
China has both an absolute and
comparative advantage in soybeans.
The United States has a
comparative advantage in both goods.
→ The United States has an absolute
advantage in both goods.
34-23. In Figure 34.1 what is the
opportunity cost of DVD players in
Japan?
1/2 of a motorcycle per DVD player
1 motorcycle per DVD player
→ 2 motorcycles per DVD player
1/3 of a motorcycle per DVD player
34-21. Based on the information in
Table 34.1, the output of computers
and soybeans would be greatest if:
→ China specialized in producing
soybeans, and the United States
specialized in producing computers.
X
China specialized in producing
computers, while the United States
specialized in producing soybeans.
The United States produced both
goods and exported them to China.
34-24. Which of the following best
describes the comparative advantage of the
two countries illustrated in Figure 34.1?
→ Japan has the comparative advantage in
motorcycles; the United States in DVD
players.
The United States has a comparative
advantage in both goods.
Assume China and the United States have the same amount of resources with which to produce soybeans and computers
and they produce no other goods.
34-21. World output is highest
when nations specialize and
produce according to their
comparative advantages; since the
U.S. has the lowest opportunity cost
in producing computers, that will be
its specialty, while China has the
lowest opportunity cost in
producing soybeans, so that will be
its specialty.
34-20. The United States has an
absolute advantage in both goods
since it is able to produce more of
both goods than China can.
34-19. One ton of soybeans produced
in the U.S. has an opportunity cost of 5
computers since 150S = 750PC, 1S =
5PC.
34-23. Since the production possibilities
curve is a straight line, the opportunity
cost will be a constant 2 motorcycles per
DVD player, where 2 is the slope (m = 2).
34-22. In this case 3,000 motorcycles
are produced; 2,000 in Japan and 1,000
in the U.S.
34-24. Japan has the comparative
advantage in motorcycles since it can
produce them at a lower opportunity cost
than the U.S. can (1/2 of a DVD player per
motorcycle); the United States in DVD
players since it can produce them at a
lower opportunity cost than Japan can (1
motorcycle per DVD player).