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Which of the following is true of autarky?


A) Each country's consumption possibilities are the same as its production possibilities.
B) Equilibrium is attained with the maximum gains from specialization and trade.
C) There is no legal limit on the amount of a commodity that can be imported.
D) Countries export products they can produce more cheaply in return for products that are unavailable domestically or are cheaper elsewhere.
E) World price is determined by the world supply and demand for a product.

F) B) and D)
G) D) and E)

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A World Trade Organization (WTO) member country must offer to all other member countries:


A) common market guarantees.
B) the same trade concessions.
C) the same basket of commodities.
D) import substitutions.
E) the same resources with equal efficiency.

F) All of the above
G) B) and E)

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Which of the following factors is most significant in determining the pattern of international trade?


A) Absolute advantage
B) Diplomatic expertise
C) Comparative advantage
D) Overpowering military strength
E) The size of a nation

F) None of the above
G) All of the above

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Relative to quotas, tariffs lead to a greater change in the quantity of a good demanded by consumers.

A) True
B) False

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The following graph shows the supply of and demand for baseballs in the United States. If the world price is $3 per baseball and a tariff of $1 per baseball is imposed, the net welfare loss of the tariff is shown by the area _____. The following graph shows the supply of and demand for baseballs in the United States. If the world price is $3 per baseball and a tariff of $1 per baseball is imposed, the net welfare loss of the tariff is shown by the area _____. A) g B) c C) a D) c and g E) b and f


A) g
B) c
C) a
D) c and g
E) b and f

F) None of the above
G) All of the above

Correct Answer

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Suppose the government of an importing country is considering imposing either a tariff that would result in imports falling to 1 million units per year or an import quota of 1 million units per year. Which of the following would be true in such a case?


A) The U.S. consumers would lose more consumer surplus in the case of tariffs than quotas.
B) The U.S. producers would gain more in the case of quotas than tariffs.
C) The change in quantity demanded would be greater in the case of tariffs than quotas.
D) The tariff revenue would go to U.S. government; quota benefits may go to foreign producers.
E) The U.S. export market would shrink more in the case of quotas than tariffs.

F) A) and D)
G) B) and D)

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A tariff is a tax on either imports or exports.

A) True
B) False

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The following table shows the demand, supply, and price of tulips in the Netherlands. If the world price of tulips is $4 and there are no trade restrictions, the Netherlands will: The following table shows the demand, supply, and price of tulips in the Netherlands. If the world price of tulips is $4 and there are no trade restrictions, the Netherlands will: A) produce 10,000, consume 4,000, and import 6,000 tulips. B) produce 10,000, consume 4,000, and export 6,000 tulips. C) produce 4,000, consume 10,000, and import 6,000 tulips. D) produce 9,000, consume 6,000, and export 6,000 tulips. E) import all of the tulips that it consumes.


A) produce 10,000, consume 4,000, and import 6,000 tulips.
B) produce 10,000, consume 4,000, and export 6,000 tulips.
C) produce 4,000, consume 10,000, and import 6,000 tulips.
D) produce 9,000, consume 6,000, and export 6,000 tulips.
E) import all of the tulips that it consumes.

F) C) and D)
G) A) and D)

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The following image shows the market for wheat for the country of Palatino. SD is the domestic supply of wheat, and DD is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel of wheat. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. Government revenue from the tariff equals: The following image shows the market for wheat for the country of Palatino. S<sup>D</sup> is the domestic supply of wheat, and D<sup>D</sup> is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel of wheat. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. Government revenue from the tariff equals: A) $45,000. B) $3,000,000. C) $1,800,000. D) $900,000. E) $50,000.


A) $45,000.
B) $3,000,000.
C) $1,800,000.
D) $900,000.
E) $50,000.

F) B) and E)
G) A) and B)

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Differences in tastes among nations:


A) make gains from trade possible even in the absence of differences in resource endowments.
B) make gains from trade possible only when there are differences in resource endowments.
C) negate any potential gains from trade.
D) are caused by differences in resource endowments.
E) occur only among countries whose people are of different religions.

F) A) and C)
G) B) and E)

Correct Answer

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The following image shows the market for wheat for the country of Palatino. SD is the domestic supply of wheat, and DD is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. The net welfare loss from the tariff is represented by the area _____. The following image shows the market for wheat for the country of Palatino. S<sup>D</sup> is the domestic supply of wheat, and D<sup>D</sup> is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. The net welfare loss from the tariff is represented by the area _____. A) A and C B) I and H C) B and D D) E E) F


A) A and C
B) I and H
C) B and D
D) E
E) F

F) A) and B)
G) None of the above

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Some industries have argued that since their output is vital for national defense, _____.


A) they should be entitled to additional trade protection
B) t hey should make special deals among themselves and discriminate against outsiders
C) they are more vulnerable to fiscal deficits
D) they should be given more time to grow to become competitive
E) they protect domestic jobs and wage levels

F) D) and E)
G) A) and E)

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The following graph shows the demand for and domestic supply of a good in a country. If the country decides to trade, then at a world price of $1.00 _____. The following graph shows the demand for and domestic supply of a good in a country. If the country decides to trade, then at a world price of $1.00 _____. A) 20 units will be exported B) 20 units will be imported C) 50 units will be exported D) 50 units will be imported E) 10 units will be exported


A) 20 units will be exported
B) 20 units will be imported
C) 50 units will be exported
D) 50 units will be imported
E) 10 units will be exported

F) A) and E)
G) A) and B)

Correct Answer

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The following image shows the market for wheat for the country of Palatino. SD is the domestic supply of wheat, and DD is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. The total loss in consumer surplus after the tariff is shown by the area _____. The following image shows the market for wheat for the country of Palatino. S<sup>D</sup> is the domestic supply of wheat, and D<sup>D</sup> is the domestic demand for wheat. Suppose the world price of wheat is $9 per bushel. Suppose a specific tariff of $6 is imposed on each bushel of wheat imported. The total loss in consumer surplus after the tariff is shown by the area _____. A) F and E B) G C) A, B, C, and D D) I E) H


A) F and E
B) G
C) A, B, C, and D
D) I
E) H

F) A) and B)
G) C) and D)

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If the United States has an absolute advantage in producing computer components, it should export them worldwide.

A) True
B) False

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Suppose there is a policy debate over imposing trade restrictions on imported semiconductors in the United States. A congresswoman argues that it is necessary to impose trade restrictions, such as a tariff, on the semiconductor industry to protect workers in the domestic semiconductor industry. The congresswoman claims that without trade protection, there will be layoffs, causing many U.S. workers in the semiconductor industry to be unemployed. She is basing her preference for trade restrictions on the:


A) infant industry argument.
B) declining industries argument.
C) national defense argument.
D) jobs and income argument.
E) antidumping argument.

F) A) and E)
G) None of the above

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U.S. auto workers sometimes experience structural unemployment because of the popularity of foreign cars. Which of the following arguments would most likely be presented by an auto workers' union lobbying for trade restrictions to Congress?


A) The national defense argument
B) The infant industry argument
C) The antidumping argument
D) The jobs and income argument
E) The declining industry argument

F) A) and D)
G) A) and B)

Correct Answer

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The basis of the benefits of specialization is:


A) comparative advantage.
B) absolute advantage.
C) the size of the country.
D) identical production costs between two countries.
E) agreeable terms of trade.

F) B) and D)
G) A) and B)

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If quota rights accrue to foreigners, then _____.


A) the domestic economy is better off with a quota than with a tariff
B) the domestic economy is worse off with a quota than with a tariff
C) consumer surplus and economic welfare increase
D) production costs decrease
E) part of the decrease in consumer surplus is redistributed to the domestic government

F) A) and D)
G) A) and C)

Correct Answer

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A legal limit on the amount of a commodity that can be imported is known as:


A) an ad valorem tariff.
B) an import quota.
C) an import concession.
D) an import substitution.
E) a specific tariff.

F) None of the above
G) B) and D)

Correct Answer

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