chapter 35 practice questions

Chapter 35 Intern. Trade Practice Questions

1. Which country has the largest share of total world exports? A. Japan B. Germany C. United States D. China

2. In terms of absolute dollar volume, the top 3 leaders in world exports are: A. Japan, China, and the European Union. B. the United States, England, and Canada. C. Germany, England, and the United States. D. Germany, the United States, and China.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:

3. Refer to the above tables. Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization and trade will be: A. 4 tons of beans. B. 1 ton of pork and 2 tons of beans. C. 4 tons of pork. D. 2 tons of pork and 4 tons of beans.

4. If two nations have straight-line production possibilities curves: A. then their trading possibilities curves must lie inside the production possibilities curves. B. there will be no basis for mutually advantageous trade. C. there will be a basis for mutually advantageous trade whether the slopes are equal or not. D. there will be a basis for mutually advantageous trade provided the slopes differ.

5. Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The data contained in the production possibilities curves are based on the assumption of: A. imperfect shiftability of resources between beer and pizza production. B. constant costs. C. decreasing costs. D. increasing costs.

6. Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves imply that: A. both countries have a trade surplus that will result in economic growth. B. the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources. C. world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage. D. both nations will be worse off as a result of international specialization and trade.

7. The production possibilities curves above suggest that: A. West Mudville should specialize in, and export, baseball bats. B. West Mudville should specialize in, and export, both baseballs and baseball bats. C. East Mudville should specialize in, and export, baseball bats. D. workers will try to immigrate from West Mudville to East Mudville.

8. The impact of increasing, as opposed to constant, costs is to: A. intensify and prolong the comparative advantages that any nation may have initially. B. expand the limits of the terms of trade. C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage. D. cause nations to realize economies of scale in those products in which they specialize.

9. 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.

10. Refer to the above diagram pertaining to two nations and a specific product. The equilibrium level of exports and imports occurs at: A. H, where GB and FC intersect. B. J, where the vertical distance between A and B just equals the vertical distance between C and D. C. world price level F. D. world price level G.

Answer the next question(s) 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.

11. Refer to the above data. At a world price of $5: A. Alpha will want to import 50 units of steel. B. Beta will want to import 60 units of steel. C. Alpha will want to export 50 units of steel. D. neither country will want to export steel.

12. Refer to the above data. 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.

13. Other things equal, a tariff is: A. superior to an import quota for Americans because a tariff increases the profits of foreign producers. B. inferior to an import quota for Americans because a tariff increases the profits of domestic producers. C. superior to an import quota for Americans because a tariff generates revenue for the United States Treasury. D. inferior to an import quota for Americans because a tariff generates revenue for the United States Treasury.

14. 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.

15. The infant industry argument for tariffs is criticized: A. because it is difficult to determine which industries merit protection. B. because direct subsidies are probably a better means of stimulating such industries. C. because the tariffs may remain after the industry reaches maturity. D. for all of these reasons. 16. (Consider This) The textbook authors apply the metaphor "shooting yourself in the foot" to: A. trade wars and trade boycotts. B. fixed exchange rates. C. import quotas. D. voluntary export restraints. 17. "Offshoring:" A. is the movement of money to foreign bank accounts. B. is the shifting work previously done by domestic workers to workers located in other countries. C. applies only to manufactured goods. D. hurts all domestic industries in a country.

18. It is impossible for a nation to have a comparative advantage in producing everything.

19. A side benefit of international trade is that it links national interests and increases the opportunity costs of war.

20. The nation that has a comparative advantage in a particular product will be the only world exporter of that product.

21. International trade based on the principle of comparative advantage creates a more efficient allocation of world economic resources.

22. The law of increasing opportunity costs limits international specialization.

23. The percentage of the United States' domestic output that is derived from international trade is higher than that for any other industrially advanced nation.

24. A nation's export supply curve is downsloping and its import demand curve is upsloping.

25. The equilibrium world price of a product equates the quantities of exports supplied and imports demanded.

26. Economists prefer free trade to tariffs and prefer tariffs to import quotas.

27. Tariffs create larger gains to domestic producers than losses to domestic consumers.

28. During the Great Depression most nations lowered tariffs and abolished import quotas to encourage the flow of trade.

29. Barriers to free trade impair efficiency in the international allocation of resources.

30. The World Trade Organization is comprised of 25 European nations and dedicated to abolishing trade barriers and integrating their economies.

31. . The World Trade Organization (WTO) is an international organization designed to provide short-term advances of foreign monies to those nations faced with trade deficits.

Chapter 35 Intern. Trade Practice Questions Key

1. Which country has the largest share of total world exports? a. Japan B. Germany c. United States d. China

Economics Page: 676 Macroeconomics Page: 340 McConnell - Chapter 035 #6 Microeconomics Page: 442 Status: New Topic: 1 Type: Fact

2. In terms of absolute dollar volume, the top 3 leaders in world exports are: a. Japan, China, and the European Union. b. the United States, England, and Canada. c. Germany, England, and the United States. D. Germany, the United States, and China.

Economics Page: 676 Macroeconomics Page: 340 McConnell - Chapter 035 #7 Microeconomics Page: 442 Status: New Topic: 1 Type: Fact

Answer the next question(s) on the basis of the following production possibilities tables for two countries, Latalia and Trombonia:

McConnell - Chapter 035

3. Refer to the above tables. Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization and trade will be: A. 4 tons of beans. b. 1 ton of pork and 2 tons of beans. c. 4 tons of pork. d. 2 tons of pork and 4 tons of beans.

Economics Page: 678-679 Learning Objective: 35-1 Macroeconomics Page: 342-343 McConnell - Chapter 035 #25 Microeconomics Page: 444-445 Topic: 2 Type: Table

4. If two nations have straight-line production possibilities curves: a. then their trading possibilities curves must lie inside the production possibilities curves. b. there will be no basis for mutually advantageous trade. c. there will be a basis for mutually advantageous trade whether the slopes are equal or not. D. there will be a basis for mutually advantageous trade provided the slopes differ.

Economics Page: 679 Learning Objective: 35-1 Macroeconomics Page: 343 McConnell - Chapter 035 #28 Microeconomics Page: 445 Topic: 2 Type: Application of Concept


5. Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The data contained in the production possibilities curves are based on the assumption of: a. imperfect shiftability of resources between beer and pizza production. B. constant costs. c. decreasing costs. d. increasing costs.

Economics Page: 678 Learning Objective: 35-1 Macroeconomics Page: 342 McConnell - Chapter 035 #29 Microeconomics Page: 444 Topic: 2 Type: Graphical

6. Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves imply that: a. both countries have a trade surplus that will result in economic growth. b. the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources. C. world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage. d. both nations will be worse off as a result of international specialization and trade.

Economics Page: 680-681 Learning Objective: 35-1 Macroeconomics Page: 344-345 McConnell - Chapter 035 #32 Microeconomics Page: 446-447 Topic: 2 Type: Graphical


7. The production possibilities curves above suggest that: A. West Mudville should specialize in, and export, baseball bats. b. West Mudville should specialize in, and export, both baseballs and baseball bats. c. East Mudville should specialize in, and export, baseball bats. d. workers will try to immigrate from West Mudville to East Mudville.


8. The impact of increasing, as opposed to constant, costs is to: a. intensify and prolong the comparative advantages that any nation may have initially. b. expand the limits of the terms of trade. C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage. d. cause nations to realize economies of scale in those products in which they specialize.



9. 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.


10. Refer to the above diagram pertaining to two nations and a specific product. The equilibrium level of exports and imports occurs at: A. H, where GB and FC intersect. b. J, where the vertical distance between A and B just equals the vertical distance between C and D. c. world price level F. d. world price level G.


Answer the next question(s) 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.


11. Refer to the above data. At a world price of $5: a. Alpha will want to import 50 units of steel. b. Beta will want to import 60 units of steel. C. Alpha will want to export 50 units of steel. d. neither country will want to export steel.

Economics Page: 685 Learning Objective: 35-2 Macroeconomics Page: 349 McConnell - Chapter 035 #73 Microeconomics Page: 451 Topic: 3 Type: Table

12. Refer to the above data. 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.

Economics Page: 685 Learning Objective: 35-2 Macroeconomics Page: 349 McConnell - Chapter 035 #76 Microeconomics Page: 451 Topic: 3 Type: Table

13. Other things equal, a tariff is: a. superior to an import quota for Americans because a tariff increases the profits of foreign producers. b. inferior to an import quota for Americans because a tariff increases the profits of domestic producers. C. superior to an import quota for Americans because a tariff generates revenue for the United States Treasury. d. inferior to an import quota for Americans because a tariff generates revenue for the United States Treasury.


14. 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.


15. The infant industry argument for tariffs is criticized: a. because it is difficult to determine which industries merit protection. b. because direct subsidies are probably a better means of stimulating such industries. c. because the tariffs may remain after the industry reaches maturity. D. for all of these reasons.


16. (Consider This) The textbook authors apply the metaphor "shooting yourself in the foot" to: A. trade wars and trade boycotts. b. fixed exchange rates. c. import quotas. d. voluntary export restraints.

Economics Page: 688 Learning Objective: 35-4 Macroeconomics Page: 352 McConnell - Chapter 035 #136 Microeconomics Page: 454 Type: Fact

17. "Offshoring:" a. is the movement of money to foreign bank accounts. B. is the shifting work previously done by domestic workers to workers located in other countries. c. applies only to manufactured goods. d. hurts all domestic industries in a country.

Economics Page: 691 Learning Objective: 35-6 Macroeconomics Page: 355 McConnell - Chapter 035 #130 Microeconomics Page: 457 Status: New Topic: 8 Type: Fact

18. It is impossible for a nation to have a comparative advantage in producing everything. TRUE


19. A side benefit of international trade is that it links national interests and increases the opportunity costs of war. TRUE

Economics Page: 682 Macroeconomics Page: 346 McConnell - Chapter 035 #141 Microeconomics Page: 448 Type: Fact

20. The nation that has a comparative advantage in a particular product will be the only world exporter of that product. FALSE

Economics Page: 681 Learning Objective: 35-1 Macroeconomics Page: 345 McConnell - Chapter 035 #142 Microeconomics Page: 447 Type: Application of Concept

21. International trade based on the principle of comparative advantage creates a more efficient allocation of world economic resources. TRUE


22. The law of increasing opportunity costs limits international specialization. TRUE


23. The percentage of the United States' domestic output that is derived from international trade is higher than that for any other industrially advanced nation. FALSE


24. A nation's export supply curve is downsloping and its import demand curve is upsloping. FALSE


25. The equilibrium world price of a product equates the quantities of exports supplied and imports demanded. TRUE


26. Economists prefer free trade to tariffs and prefer tariffs to import quotas. TRUE


27. Tariffs create larger gains to domestic producers than losses to domestic consumers. FALSE


28. During the Great Depression most nations lowered tariffs and abolished import quotas to encourage the flow of trade. FALSE


29. Barriers to free trade impair efficiency in the international allocation of resources. TRUE


30. The World Trade Organization is comprised of 25 European nations and dedicated to abolishing trade barriers and integrating their economies. FALSE


31. 158. The World Trade Organization (WTO) is an international organization designed to provide short-term advances of foreign monies to those nations faced with trade deficits. FALSE


Chapter 35 Intern. Trade Practice Questions SummaryCategory Economics Page: 676 Economics Page: 678 Economics Page: 678-679 Economics Page: 679 Economics Page: 680-681 Economics Page: 681 Economics Page: 682 Economics Page: 683 Economics Page: 685 Economics Page: 687 Economics Page: 688 Economics Page: 689 Economics Page: 690 Economics Page: 691 Economics Page: 692 Learning Objective: 35-1 Learning Objective: 35-2 Learning Objective: 35-3 Learning Objective: 35-4 Learning Objective: 35-6 Macroeconomics Page: 340 Macroeconomics Page: 342 Macroeconomics Page: 342-343 Macroeconomics Page: 343 Macroeconomics Page: 344-345 Macroeconomics Page: 345 Macroeconomics Page: 346 Macroeconomics Page: 347 Macroeconomics Page: 349 Macroeconomics Page: 351 Macroeconomics Page: 352 Macroeconomics Page: 353 Macroeconomics Page: 354 Macroeconomics Page: 355 Macroeconomics Page: 356 McConnell - Chapter 035 Microeconomics Page: 442 # of Questions 3 2 1 2 1 4 1 1 5 4 2 1 1 1 2 10 6 6 2 1 3 2 1 2 1 4 1 1 5 4 2 1 1 1 2 36 3

Microeconomics Page: 444 Microeconomics Page: 444-445 Microeconomics Page: 445 Microeconomics Page: 446-447 Microeconomics Page: 447 Microeconomics Page: 448 Microeconomics Page: 449 Microeconomics Page: 451 Microeconomics Page: 453 Microeconomics Page: 454 Microeconomics Page: 455 Microeconomics Page: 456 Microeconomics Page: 457 Microeconomics Page: 458 Status: New Topic: 1 Topic: 2 Topic: 3 Topic: 5 Topic: 6 Topic: 8 Type: Application of Concept Type: Fact Type: Graphical Type: Table

2 1 2 1 4 1 1 5 4 2 1 1 1 2 3 2 6 4 2 1 1 11 12 5 3

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chapter 35 practice questions