1.) Among the three options for merchants in Adam Smith's time in which to employ their capitals, domestic trade, foreign trade and the carrying trade which did the mercantilist think was most beneficial?

a.) They had no real preference

b.) The foreign trade because it was most likely to capture foreign consumers

c.) The domestic trade because it was sterile

d.) The carry trade because it was most likely to bring gold in England

2.) Imagine a market for fresh figs in the USA that is initially characterized by purely domestic supply and demand. The intercept of the supply curve is at $8 a bushel, and in the original domestic equilibrium the price of figs is $14 a bushel. Now suppose a foreign nation can supply us all the figs we can consume at a price above $14. What will occur?

a.) nothing

b.) the domestic fig industry will contract but not disappear, the USA will be better off because it substituted out of expensive domestic figs into cheap foreign figs

c.) the domestic fig industry will disappear, the USA will be better off because it substituted out of expensive domestic figs into cheap foreign figs

3.) Imagine a market for fresh figs in the USA that is initially characterized by purely domestic supply and demand. The intercept of the supply curve is at $8 a bushel, and in the original domestic equilibrium the price of figs is $14 a bushel. Now suppose a foreign nation can supply us all the figs we can consume at a price above $8 but below $14.

a.) the domestic fig industry will contract but not disappear, the USA will be better off because it substituted out of expensive domestic figs into cheap foreign figs

b.) nothing

c.) the domestic fig industry will disappear, the USA will be better off because it substituted out of expensive domestic figs into cheap foreign figs

4.) Imagine a market for fresh figs in the USA that is initially characterized by purely domestic supply and demand. The intercept of the supply curve is at $8 a bushel, and in the original domestic equilibrium the price of figs is $14 a bushel. Now suppose a foreign nation can supply us all the figs we can consume at a price below $8.

a.) the domestic fig industry will disappear, the USA will be better off because it substituted out of expensive domestic figs into cheap foreign figs

b.) the domestic fig industry will contract but not disappear, the USA will be better off because it substituted out of expensive domestic figs into cheap foreign figs

c.) nothing

5.) Among the three options in the three previous problems, in which case are USA gains the greatest?

a.) foreign price above $14

b.) foreign price between $8 and $14

c.) foreign price below $8

6.) In his explanation of the gains from trade from buying from foreign sources, which actual gain does Adam Smith ignore?

a.) he wrongly argues for substituting out of low cost domestic production

b.) the increase in domestic consumption from access to lower cost foreign production

c.) the substitution out of high costs domestic production for low cost foreign production

7.) Imagine a market for fresh figs in the USA that is initially characterized by purely domestic supply and demand. The intercept of the supply curve is at $8 a bushel, and in the original domestic equilibrium the price of figs is $14 a bushel. Now suppose the domestic demand curves' intercept is at $24. Also suppose US fig producers can sell figs at a $20 price outside the USA, In this case what will occur?

a.) nothing

b.) USA will export figs and US consumption will decline

c.) USA will export figs and US consumption will go to zero

9.) Imagine a market for fresh figs in the USA that is initially characterized by purely domestic supply and demand. The intercept of the supply curve is at $8 a bushel, and in the original domestic equilibrium the price of figs is $14 a bushel. Now suppose the domestic demand curves' intercept is at $24. Also suppose US fig producers can sell figs at a $20 price outside the USA, In this case who will benefit?

a.) US fig producers will be better off US consumers will be worse off

b.) US fig producers and consumers will both be better off

c.) US fig producers and consumers will both be worse off

10.) In his famous statement Adam Smith did say

• If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.

In this statement he is obviously referring to imports

Which best rephrases the statement as it applies to exports?

a.) If a foreign country will pay us for a commodity at a price cheaper than what we ourselves will pay, better to sell it to them and obtain gold

b.) If a foreign country will pay us for our commodity at a price more dear than what we ourselves will pay, better sell it to them and obtain some part of the produce of their industry employed in a way in which they have some advantage.

c.) If a foreign country will give us for our commodity on discounted terms, better take it from them and give them a negotiated discount on our output at below market prices