Macro Chapter 18 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A tariff or quota that limits the entry of foreign goods to the U.S. market will a. benefit domestic producers in the protected industries and harm domestic consumers. b. increase the nation's real income by protecting domestic jobs from foreign competition. c. reduce the demand for U.S. export goods, lowering employment in export industries. d. do both a and c. 2. According to the law of comparative advantage, a nation will benefit from international trade when it a. imports more than it exports. b. exports more than it imports. c. imports goods for which it is a high opportunity-cost producer, while exporting goods for which it is a low opportunity-cost producer. d. exports goods for which it is a high opportunity-cost producer, while importing those goods for which it is a low opportunity-cost producer. The table outlines the production possibilities of Italia and Slavia for food and clothing. Use it to answer the following question(s). Table 18-1 Italia Slavia Food Clothing Food Clothing 0 16 0 8 2 12 2 6 4 8 4 4 6 4 6 2 8 0 8 0 3. Refer to Table 18-1. Italia is currently producing 4 units of food and 8 units of clothing. If it increases its production of food by 2 units (up to a total of 6 units of food), its clothing production will a. fall by 2 units. b. fall by 4 units. c. increase by 2 units. d. increase by 4 units. 4. Refer to Table 18-1. What is the opportunity cost of producing 1 unit of food in Italia? a. one-half of a unit of clothing b. 1 unit of clothing c. 2 units of clothing d. 5 units of clothing 5. Refer to Table 18-1. Which of the following is true? a. Italia has the comparative advantage in producing food. b. Italia has the comparative advantage in producing clothing. c. Slavia has the comparative advantage in producing clothing. d. Slavia is the low opportunity-cost producer of clothing.
6. The law of comparative advantage suggests that a. neither country would gain from trade. b. only Slavia would gain from trade; Italia would be harmed. c. both countries could gain if Italia traded food for Slavia's clothing. d. both countries could gain if Slavia traded food for Italia's clothing. 7. If the United States were to adopt a policy of free trade with European countries and Japan, this policy would a. help the United States and hurt the other countries because the United States has a larger population. b. help all of the countries involved because every country would have a comparative advantage in the production of some good. c. hurt the United States and help the other countries involved because job opportunities in the United States would fall while they rose in other countries. d. help the United States and hurt the other countries because the United States has more natural resources than the other countries. 8. The theory of comparative advantage suggests that nations should produce a good if they a. have the lowest opportunity cost. b. have the lowest wages. c. have the most resources. d. can produce more of the good than any other nation. 9. A tariff differs from a quota in that a tariff is a. levied on imports, whereas a quota is imposed on exports. b. levied on exports, whereas a quota is imposed on imports. c. a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported. d. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported. 10. An import quota on a product protects domestic industries by a. reducing the foreign supply to the domestic market and thereby raising the domestic price. b. increasing the foreign supply to the domestic market and thereby lowering the domestic price. c. increasing the domestic demand for the product and thereby increasing its price. d. providing the incentive for domestic producers to improve the efficiency of their operation and thereby reduce their per-unit costs of production. 11. Which of the following would be the most likely long-run effect if the United States increased its tariff rates and adopted stricter import quotas? a. a decrease in both U.S. imports and exports b. an increase in both U.S. imports and exports c. a decrease in U.S. imports and an increase in U.S. exports d. an increase in U.S. imports and a decrease in U.S. exports 12. Trade restrictions that limit the sale of low-price foreign goods in the U.S. market a. increase the real income of Americans. b. benefit domestic producers in the protected industries at the expense of consumers and domestic producers in export industries. c. help channel more of our resources into producing goods for which we are a low-cost producer. d. reduce unemployment and increase the productivity of American workers.
13. A basic flaw in the infant-industry argument is that a. most industries need protection when they are mature, not when they are first established. b. the amount of the tariff is unlikely to have much impact on the success of an infant industry. c. once a tariff is granted, political pressure will likely prevent the withdrawal of the tariff even when the industry matures. d. domestic consumers will continue to buy the foreign products anyway, regardless of the tariff. 14. Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average, a. high rates of economic growth. b. low rates of economic growth. c. a large export sector. d. a large import sector. 15. If the United States imports low-cost goods produced in low-wage countries instead of producing the goods domestically, a. the United States will lose jobs. b. the United States will gain and domestic resources will be employed more productively. c. dollars that leave the United States will not return to buy goods produced by high-wage American workers. d. the availability consumption of goods in the United States will be reduced. 16. Suppose that the United States eliminated its tariff on automobiles, granting foreign-produced automobiles free entry into the U.S. market. Which of the following would be most likely to occur? a. The price of automobiles to U.S. consumers would decline, and the demand for U.S. export products would increase. b. The price of automobiles to U.S. consumers would increase, and the demand for U.S. export products would decline. c. The price of automobiles to U.S. consumers would decline, and the demand for U.S. export products would decline. d. The price of automobiles to U.S. consumers would increase, and the demand for U.S. export products would increase. 17. If Japan offered every U.S. citizen a new automobile for a price of only $1, a. the action would be considered "dumping." b. domestic automobile manufacturers and workers would likely favor imposing tariffs or quotas to restrict this action. c. domestic citizens would benefit from this action by Japan. d. all of the above are true. 18. Relative to a no-trade situation, what effect will importing a good from foreign nations have on the domestic market for the good? a. Equilibrium price will rise and total domestically produced output will fall. b. Equilibrium price will rise and total domestically produced output will rise. c. Equilibrium price will fall and total domestically produced output will fall. d. Equilibrium price will fall and total domestically produced output will rise.
19. Relative to a no-trade situation, what effect will exporting a good to foreign nations have on the domestic market for the good? a. Equilibrium price will rise, domestic production will fall, and domestic consumption will fall. b. Equilibrium price will rise, domestic production will rise, and domestic consumption will fall. c. Equilibrium price will fall, domestic production will fall, and domestic consumption will increase. d. Equilibrium price will fall, domestic production will rise, and domestic consumption will increase. 20. If all tariffs (and quotas) between countries on the North American continent were eliminated, a. small Central American countries would be hurt because they would be unable to compete with larger nations. b. the United States would gain at the expense of the less-developed North American countries. c. the combined wealth of the countries would increase because elimination of trade restrictions would permit greater gains from specialization. d. wage rates in the United States would decline to the average for the North American continent. 21. Which of the following is not an argument for adopting trade restrictions on imported goods? a. antidumping argument b. national-defense argument c. consumer-protection argument d. infant-industry argument The following question(s) refer to the figure below, which shows the effect of a country imposing a tariff on an imported product. Figure 18-14
22. Refer to Figure 18-14. If the world price of this good is P W and there are no restrictions on imports, domestic suppliers will produce units, domestic demanders will consume units, and total imports will be units. a. 30; 100; 70 b. 50; 100; 50 c. 30; 80; 80 d. 100; 70; 30 23. Refer to Figure 18-14. Suppose that a tariff of t is imposed upon this good, raising the price to P W + t. As a result, a. imports will fall to 30. b. domestic production will increase to 50. c. domestic consumption will fall to 80. d. all of the above are true. 24. Refer to Figure 18-14. The same price and quantity outcomes under the tariff above could have also been produced by the imposition of a quota of a. 30 units. b. 50 units. c. 80 units. d. No quota can produce the same price and quantity outcomes. Critical Thinking and Application 25. What benefits are to be gained from countries producing according to the law of comparative advantage? What if a country is absolutely more productive in all goods? 26. What is the law of comparative advantage, and why is it important in international trade? 27. At one time, it was believed that the way for a nation to prosper was to export as much as possible while importing as little as possible. More money would flow into a country than out of a country. Is this really a sound economic strategy? What is the relationship between exports and imports? 28. Suppose that in the absence of trade, the U.S. price for peas was lower than the world price for peas. Would allowing international trade mean that the United States would import or export peas? Who in the United States would benefit and who would lose with a free trade policy, and would the gains be greater than the losses? 29. Suppose that in the absence of trade, the U.S. price for bicycles was higher than the world price for bicycles. Would allowing international trade mean that the United States would import or export bicycles? Who in the United States would benefit and who would lose with a free trade policy, and would the gains be greater than the losses? 30. What is the difference between a tariff and a quota? 31. What are the effects of a tariff, and who benefits and who loses when tariffs are imposed? What are the effects of a quota, and who benefits and who loses when quotas are imposed? 32. "Trade restrictions will stop foreign imports, which will increase American employment and protect American jobs." Most economists realize this argument is wrong. Can you explain why?
Macro Chapter 18 study guide questions Answer Section 1. D 2. C 3. B 4. C 5. B 6. D 7. B 8. A 9. D 10. A 11. A 12. B 13. C 14. B 15. B 16. A 17. D 18. C 19. B 20. C 21. C 22. A 23. D 24. A