Purdue University North Central

Economics 252 Review Questions, Chapter 20 - International Trade

(1) When the United States has a trade deficit:

(a) exports exceed imports.

(b) the U.S. economy produces more than it consumes.

(c) the trade balance is negative.

(d) foreigners are consuming more U.S. produced goods and services than the residents of the U.S. are consuming of foreign produced goods and services.

(2) World output of goods and services increases with specialization because:

(a) the world’s resources are being used more efficiently.

(b) each country’s production-possibilities curve shifts outward.

(c) each country has an absolute advantage in producing some goods or services.

(d) all of the above are correct.

(3) Which group is most likely to be adversely affected by the importation of foreign steel?

(a) Consumers of domestic automobiles.

(b) Domestic producers of coal (an input into steel production).

(c) Domestic automobile workers.

(d) All the above are adversely affected.

(4) Comparative advantage refers to:

(a) a country’s monopoly power in the world market for a specific good.

(b) the ability of a country to sell a certain good for a higher price than other countries in the same market.

(c) the ability of a country to produce a certain good at a lower opportunity cost than other countries.

(d) the ability of a country to produce a certain good at a higher opportunity cost than other countries.

Consider Figure 1 in answering Question (5).

Figure 1

(5) Which of the following best describes the comparative advantage of the two countries in Figure 1?

(a) Japan has a comparative advantage in both goods.

(b) Japan has a comparative advantage in CD players; the United States in motorcycles.

(c) Japan has a comparative advantage in motorcycles; the United States in CD players.

(d) The United States has a comparative advantage in both goods.

Consider Figure 2 in answering Question (6).

Figure 2

(6) In order for trade to be mutually beneficial, the terms of trade will call for one pair of tennis shoes to exchange for:

(a) between 20 and 100 yo-yos.

(b) less than 2 yo-yos.

(c) more than 4 but less than 20 yo-yos.

(d) more than 2 but less than 4 yo-yos.

Consider the information in Table 1 in answering Questions (7), (8), (9), and (10). Table 1 illustrates the full employment production of the only two goods produced (automobiles and tanks) in two countries, the United States, and Russia.

Table 1

Country Tanks Automobiles

Russia 100 500

United States 200 600

(7) In Table 1, the opportunity cost of producing 1 tank in the United States is:

(a) 1/3 automobile.

(b) 6/5 automobile.

(c) 2 automobiles.

(d) 3 automobiles.

(8) In Table 1, the opportunity cost of producing 1 tank in Russia is:

(a) 1/5 automobile.

(b) 5/6 automobile.

(c) 2 automobiles.

(d) 5 automobiles.

(9) Based on the opportunity costs implied in Table 1:

(a) the United States should specialize in the production of tanks.

(b) Russia should specialize in the production of tanks.

(c) the United States should specialize in the production of automobiles.

(d) neither country would benefit from trade.

(10) In order for mutually beneficial trade to take place, the limits of the terms of trade will be such that 1 tank will exchange for:

(a) more than 3 units of automobiles but less than 5 units.

(b) more than 5 units of automobiles but less than 6 units.

(c) less than 3 units of automobiles.

(d) more than 2 units of automobiles but less than 6 units.

Consider Figure 3 in answering Questions (11) and (12). Figure 3 represents the market for sugar in a the United States. Assume the United States is a small player in the world sugar market. S(1) represents the U.S. domestic supply of sugar, and S(2) represents the supply in the U.S. under conditions of free trade.

Figure 3

(11) If sugar imports are not restricted in any way in Figure 3, the market price charged by exporters to the United States and domestic producers is:

(a) P(1).

(b) P(2).

(c) P(3).

(d) cannot be determined with the given information.

(12) The domestic price paid by the nation’s consumers after the imposition of a tariff in Figure 3 will be:

(a) P(1).

(b) P(2).

(c) P(3).

(d) cannot be determined with the given information.

Consider Figure 4 in answering Questions (13) and (14).

Figure 4

(13) In Figure 4, the production possibilities curves for the U.S. and Mexico indicate that:

(a) there is no benefit to the U.S. as a result of trading tomatoes or machinery with Mexico.

(b) Mexico does not have an absolute advantage in the production of either good.

(c) the U.S. has a comparative advantage in the production of machinery.

(d) Mexico has a comparative advantage in the production of tomatoes.

(14) In Figure 4, the production possibilities curves indicate that:

(a) the U.S. should specialize in the production of both goods because it has an absolute advantage in the production of both goods.

(b) the U.S. should specialize in the production of machinery.

(c) Mexico should specialize in the production of tomatoes.

(d) Mexico should specialize in the production of machinery.

Consider Figure 5 in answering Question (15)

Figure 5

(15) In Figure 5, if S(1) represents the U.S. domestic supply of a good, what does S(2) most likely represent?

(a) U.S. supply under tariff-restricted trade.

(b) U.S. supply under quota-restricted trade.

(c) The result of a foreign country dumping this good on the U.S. market.

(d) Production possibilities under conditions of free trade.