Mock test

Question 1

Efficiency losses are _______

Answer 1

C) deadweight losses caused by consumers being prevented by tariffs from buying products at the world price, products that they value more highly than that price.

Efficiency losses occur when tariffs distort consumer choices and reduce overall economic welfare.

Question 2

Which of the following is NOT an expected benefit of reducing nontariff barriers to trade? _______

Answer 2

C) Fewer firms to compete with

Reducing nontariff barriers generally leads to increased competition, not fewer firms.

Question 3

Which of the following would be a deadweight loss from a tariff? _______

Answer 3

A) The decrease in consumer surplus due to a drop in consumption

Deadweight loss represents the loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Question 4

Relative to the domestic market without trade, when the country is able to import from abroad at a price less than the domestic price, which of the following will NOT occur? _______

Answer 4

C) The country will be worse off.

Importing at lower prices typically benefits consumers and improves overall economic welfare.

Question 5

Consumer surplus is equal to the area _______

Answer 5

C) under the demand curve and above the price line.

Consumer surplus measures the benefit to consumers from purchasing a good at a lower price than they are willing to pay.

Question 6

When comparing the U.S. and Mexican car assembly industries, the disadvantage of higher U.S. wages is offset by _______

Answer 6

B) higher productivity in the United States.

Higher productivity can compensate for higher wages, making U.S. production competitive.

Question 7

Which of the following is an example of an antidumping duty? _______

Answer 7

A) A tariff is granted because foreign firms are selling below cost.

Antidumping duties are intended to protect domestic industries from unfair pricing practices.

Question 8

Which of the following is NOT a true statement about economic sanctions? _______

Answer 8

A) Economic sanctions are usually effective in achieving policy goals.

The effectiveness of economic sanctions can vary significantly depending on the context and implementation.

Question 9

Which of the following is NOT a true statement? _______

Answer 9

C) Trade barriers are usually a good way of protecting jobs.

While trade barriers may protect certain jobs, they often lead to inefficiencies and higher prices overall.

Question 10

One of the strongest motivations for holding the Bretton Woods Conference was to design new international institutions that would _______

Answer 10

D) help countries avoid the mistakes of the 1920s and 1930s.

The conference aimed to create a stable economic environment to prevent future global economic crises.

Question 11

China’s alternative to the IMF is called _______

Answer 11

D) AIIB.

The Asian Infrastructure Investment Bank (AIIB) was established to promote infrastructure investment in Asia.

Question 12

Which of the following is NOT a criticism of international institutions such as the IMF, the World Bank, or the WTO? _______

Answer 12

C) Their decision-making is biased in favor of underdeveloped nations.

Critics argue that these institutions often favor industrialized nations instead.

Question 13

Which of the following is a FALSE statement about the International Monetary Fund (IMF)? _______

Answer 13

A) Multinational corporations can get IMF loans if they agree to invest in economies that are internationally perceived as risky and otherwise unlikely to receive direct foreign investment.

The IMF primarily lends to governments, not directly to multinational corporations.

Question 14

The international organization that serves as a forum for trade discussions and the development of trade rules is called _______

Answer 14

A) the WTO.

The World Trade Organization facilitates international trade negotiations and agreements.

Question 15

The original mission of the World Bank was to _______

Answer 15

D) provide financial assistance for the reconstruction of war-damaged nations.

The World Bank was established to help rebuild countries after World War II.

Question 16

A free trade agreement plus a common set of tariffs toward non-members is called _______

Answer 16

B) a customs union.

Customs unions facilitate trade among member countries while maintaining common tariffs against non-members.

Question 17

A country’s foreign exchange reserves refers to _______

Answer 17

B) the country’s holdings of gold and internationally accepted currencies.

Foreign exchange reserves are crucial for managing currency stability and international trade.

Question 18

If the world price for a good is above a nation’s pre-trade equilibrium price, then the nation _______

Answer 18

A) will export the good.

Higher world prices incentivize nations to export goods they can produce efficiently.

Question 19

Which of the following statements is FALSE? _______

Answer 19

B) A country that possesses an absolute advantage will always have a comparative advantage.

Absolute advantage does not guarantee comparative advantage, which depends on opportunity costs.

Question 20

Certain kinds of tropical fruits are impossible to grow outdoors in the United States. Suppose, however, that in order to create jobs in Wyoming, the U.S. government offered extensive subsidies to firms to produce bananas. With the subsidies, firms could build greenhouses and offer the fruit at world prices. _______

Answer 20

D) The United States is competitive, but does not have a comparative advantage.

Subsidies can create competitiveness without establishing a comparative advantage.

Question 21

Given that Sandy can produce 10 economics reports or 2 sales calls and Tim can produce 2 economics reports or 1 sales call, which of the following is FALSE? _______

Answer 21

C) Tim has a comparative advantage in sales calls.

Sandy has a comparative advantage in sales calls due to lower opportunity costs.

Question 22

With trade, the slope of the Consumption Possibilities Curve (CPC) is equal to _______

Answer 22

B) the world price of the good on the horizontal axis.

The slope of the CPC represents the trade-off between goods based on world prices.

Question 23

If a country has lower overall productivity levels than its trading partners, then it will _______

Answer 23

B) have a lower standard of living than its trading partners.

Lower productivity generally leads to lower income levels and standard of living.

Question 24

Which of the following is NOT a feature of a common market? _______

Answer 24

D) Substantial coordination of macroeconomic policies among the members

Common markets primarily focus on free trade and movement of factors, not necessarily on macroeconomic policy coordination.

Question 25

Suppose a manufacturer of software develops a new computer program that sells for $50. The $50 cost includes $0.25 for the CD it is stored on, $5 for the labor of the company software programmers, and $1.75 for packaging materials and transportation costs. Value added by the software company is _______

Answer 25

A) $48. ## Footnote Value added is calculated by subtracting the costs of inputs from the selling price.

Question 26

Which type of restriction on quantity of imports is the most transparent? _______

Answer 26

C) Quota. ## Footnote Quotas explicitly limit the quantity of imports, making them clear to all stakeholders.

Question 27

Which of the following is FALSE? _______

Answer 27

D) Tariffs are not an attractive tax option for most low-income countries, so they mostly rely on quota licenses for revenue. ## Footnote Tariffs can provide significant revenue for low-income countries despite their complexities.

Question 28

Which of the following describes the asymmetry Mancur Olson observed in the incentives to support and oppose trade policy? _______

Answer 28

B) The costs of protection are concentrated on a few firms, and the benefits of protection are spread out over a large number of consumers. ## Footnote This asymmetry often leads to stronger lobbying for protection from affected firms.

Question 29

Agriculture, clothing, and textiles are singled out for treatment in the chapter because _______

Answer 29

A) they tend to be the most highly protected sectors of industrial economies. ## Footnote These sectors often face significant barriers due to political and economic factors.

Question 30

Which of the following was NOT a creation of the Bretton Woods conference? _______

Answer 30

B) WTO. ## Footnote The WTO was established later as a successor to GATT.

Question 31

Which of the following is FALSE? _______

Answer 31

A) Because of international recognition of national sovereignty, individual nations are unaffected by global trade and capital flows. ## Footnote Nations are often significantly impacted by global economic dynamics despite sovereignty.

Question 32

From the late 1940s until the creation of the WTO, the organization that was primarily responsible for conducting rounds of trade negotiations was the _______

Answer 32

B) GATT. ## Footnote The General Agreement on Tariffs and Trade facilitated international trade negotiations before the WTO was formed.

Question 33

The United States' comparative advantage over Japan in the production of rock-n-roll music implies that (for a similar quality of music) the _______

Answer 33

C) opportunity cost of production is less in the United States. ## Footnote Comparative advantage is determined by lower opportunity costs.

Question 34

Based on the theory of comparative advantage, nations maximize their well-being when they _______

Answer 34

D) allocate resources more efficiently. ## Footnote Efficient resource allocation through trade allows nations to benefit from their comparative advantages.

Question 35

If a nation has no absolute advantage, then it _______

Answer 35

B) still gains from trade. ## Footnote Nations can benefit from trade through comparative advantages even without absolute advantages.

Question 36

Suppose Paraguay can produce 12 wheat or 3 corn. Suppose Bolivia can produce 4 wheat or 2 corn. Suppose opportunity costs are constant. Given these production possibilities, _______

Answer 36

D) Paraguay has a comparative advantage in wheat. ## Footnote Comparative advantage can be determined by analyzing opportunity costs between countries.

Question 37

Based on Figure 6.1, suppose the government puts a tariff of $0.25 per bushel on soybean imports. How much will the tariff reduce imports? _______

Answer 37

C) Imports will decrease by 20 million bushels. ## Footnote The tariff raises the price of imports, reducing demand.

Question 38

Based on Table 3.1, trade between the United States and Mexico will occur as long as the relative price of shoes is between _______

Answer 38

B) six computers and three computers. ## Footnote The relative prices establish the bounds for beneficial trade.

Question 39

Based on Table 3.1, the opportunity cost of a pair of shoes in the United States is _______

Answer 39

A) two computers. ## Footnote Opportunity cost measures what is forgone when choosing to produce one good over another.

Question 40

If the effective rate of protection is greater than the nominal rate of protection, there must be tariffs on intermediate products. _______

Answer 40

T ## Footnote An effective rate of protection considers the tariffs on inputs as well as final goods.

Question 41

Since the mid-1980s, tariff rates in most nations have risen. _______

Answer 41

F ## Footnote Tariff rates have generally decreased due to trade liberalization efforts.

Question 42

Both tariffs and quotas lead to a decrease in imports, a decrease in domestic consumption, and an increase in domestic production. _______

Answer 42

T ## Footnote Both tools are used to protect domestic industries by limiting foreign competition.

Question 43

Some economists argue that free trade is beneficial regardless of the actions of a country's trading partners, including trading partners that heavily protect their home markets. _______

Answer 43

T ## Footnote Proponents of free trade suggest that open markets can lead to overall economic growth.

Question 44

Because low tariffs have a high ratio of benefits to costs, they are an especially efficient way for nations to achieve full employment and growth. _______

Answer 44

T ## Footnote Lower tariffs can stimulate trade and economic activity without significant economic distortion.

Question 45

Large and efficient agricultural producers like Argentina and Australia protect that sector heavily. _______

Answer 45

F ## Footnote These countries often advocate for free trade in agriculture to enhance their competitive advantages.

Question 46

The system of trade rounds under GATT and the WTO has been successful at creating trade rules and reducing trade barriers. _______

Answer 46

T ## Footnote Trade rounds have contributed to significant reductions in tariffs and the establishment of trade rules.

Question 47

A nation's votes at the IMF are proportional to its population. _______

Answer 47

F ## Footnote Votes are based on financial contributions, not population size.

Question 48

Including trading partners that heavily protect their home markets is ______

Answer 48

D

Question 49

Because low tariffs have a high ratio of benefits to costs, they are an especially efficient way for nations to achieve full employment and growth. True or False?

Answer 49

TRUE

Question 50

Large and efficient agricultural producers like Argentina and Australia protect that sector heavily. True or False?

Answer 50

TRUE

Question 51

The system of trade rounds under GATT and the WTO has been successful at creating trade rules and reducing trade barriers. True or False?

Answer 51

TRUE

Question 52

A nation's votes at the IMF are proportional to its ______

Answer 52

population

Question 53

Because of the recognition internationally of the principles of national sovereignty, nations cannot be affected by the policies of other nations and international governmental organizations. True or False?

Answer 53

FALSE

Question 54

All individuals and firms in a country must gain from trade in order for it to be beneficial to the nation. True or False?

Answer 54

FALSE

Question 55

WTO talks in the late 1990s led to openings in both ______ and ______.

Answer 55

financial services, telecommunications

Question 56

The statement 'Because low tariffs have a high ratio of benefits to costs, they are an especially efficient way for nations to achieve full employment and growth' is ______.

Answer 56

FALSE

Question 57

The principle of national sovereignty implies that ______.

Answer 57

nations cannot be affected by the policies of other nations

Question 58

Which countries are mentioned as large and efficient agricultural producers? ______

Answer 58

Argentina, Australia

Question 59

What has been successful at creating trade rules and reducing trade barriers? ______

Answer 59

The system of trade rounds under GATT and the WTO

Question 60

True or False: All individuals and firms in a country must gain from trade for it to be beneficial to the nation.

Answer 60

FALSE

Question 61

True or False: WTO talks in the late 1990s did not lead to openings in financial services and telecommunications.

Answer 61

FALSE