1.A primary reason why nations conduct international trade is because:*

a. Some nations prefer to produce one thing while others produce another

b. Resources are not equally distributed to all trading nations

c. Trade enhances opportunities to accumulate profits

d. Interest rates are not identical in all trading nations

2. A main advantage of specialization results from:*

a. Economics of large scale production

b. The specializing country behaving as a monopoly

c. Smaller production runs resulting in lower unit costs.

d. High wages paid to foreign workers

3. International trade forces domestic firms to become more competitive in terms of:*

a. The introduction of new products

b. Product design and quality

c. Product price

d. All of the above

4. International trade is based on the idea that:*

a. Exports should exceed imports

b. Imports should exceed exports

c. Resources are more mobile internationally than are goods

d. Resources are less mobile internationally than are goods

5.The real income of domestic producers and consumers can be increased by:*

a. Technological progress, but not international trade

b. International trade, but not technological progress

c. Technological progress and international trade

d. Neither technological progress nor international trade

6. The most recent wave of globalization, which began in the 1980s, has emphasized the outsourcing of:*

a. services and white-collar jobs

b. manufacturing and blue-collar jobs

c. natural resource extraction and mining jobs

d. agriculture and farming jobs

7. A country's openness to international trade can be measured by the formula*

a Exports + Imports + GDP

b. Exports - Imports - GDP

c. (Exports + Imports) / GDP

d. (Exports + Imports) X GDP

8 - 13.

8.The opportunity cost of one DVD in Japan is:*

a. One ton of steel

b. Two tons of steel

c. Three tons of steel d. Four tons of steel

9.The opportunity cost of one DVD in South Korea is:*

a. One-half ton of steel

b. One ton of steel

c. One and one-half tons of steel

d. Two tons of steel

10.According to the principle of absolute advantage; Japan should:*

a. Export steel

b. Export DVDs

c. Export steel and DVDs

d. There is no basis for gainful specialization and trade

11.According to the principle of comparative advantage:*

a. South Korea should export steel

b. South Korea should export steel and DVDs

c. Japan should export steel

d. Japan should export steel and DVDs

12.With international trade, what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each DVD

a. One-half ton of steel

b. One ton of steel

c. Two tons of steel

d. Two and one-half tons of steel

13.With international trade, what would be the maximum number of DVDs that Japan would be willing to export to South Korea in exchange for each ton of steel:*

a. One DVD

b. Two DVDs

c. Three DVDs

d. Four DVDs

14.The earliest statement of the principle of comparative advantage is associated with:*

a. Adam Smith

b. David Ricardo

c. Eli Heckscher

d. Bertil Ohlin

15.Mercantilism*

a. Is the philosophy of free international trade.

b. Was a system of export promotion and barriers to imports practiced by governments.

c. Was praised by Adam Smith in The Wealth of Nations.

d. Both (a) and (c).

16. The gains from international trade are closely related to:*

a. The labor theory of value

b. How much the autarky price differs from international terms of trade change

c. The fact that a country must lose from trade.

d. All of the above

17.In the classical model of Ricardo, the direction of trade is determined by:*

a. absolute advantage

b. comparative advantage

c. physical advantage

d. which way the wind blows

18.Absolute advantage is determined by:*

a. actual differences in labor productivity between countries.

b. relative differences in labor productivity between countries.

c. both (a) and (b)

d. neither (a) nor (b)

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19.The relative price (MRT) of S in terms of T i:*

a. 2

b.

c. 00

d. 1000

20.The relative price (MRT) of T in terms of S is:*

a. 2

b.

c. 500

d. 1000

21.If the relative price (MRT) of S were to increase, then the price line would:*

a. shift out in a parallel fashion.

b. shift in a parallel fashion.

c. Become steeper.

d. Become flatter.

22.If the relative price (MRT) of T were to increase, then the price line would:*

a. shift out in a parallel fashion.

b. shift in a parallel fashion.

c. become steeper.

d. become flatter.

23. If a country has a bowed out (concave to the origin) production possibility frontier, then production is said to be subject to:*

a. constant opportunity costs.

b. decreasing opportunity costs.

c. first increasing and then decreasing opportunity costs.

d. increasing opportunity costs.

24.If a country has a linear (downward sloping) production possibilities frontier, then production is said to be subject to:*

a. constant opportunity costs.

b. decreasing opportunity costs.

c. first increasing and then decreasing opportunity costs.

d. increasing opportunity costs.

25.The factor endowment model of international trade was developed by*

a. Adam Smith

b. David Ricardo

c. John Stuart Mill

d. Eli Heckscher and Bertil Ohlin

26.Which trade theory contends that a country that initially develops and exports a new product may eventually become an importer of it, and may no longer manufacture the product:*

a. Theory of factor endowments

b. Theory of overlapping demands

c. Economies of scale theory

d. Product life cycle theory

27.According to the factor endowment model of Heckscher and Ohlin, countries heavily endowed with land will:*

a. Devote excessive amounts of resources to agricultural production.

b. Devote insufficient amounts of resources to agricultural production.

c. Export products that are land-intensive.

d. Import products that are land-intensive.

28.That the division of labor is limited by the size of the market best applies to which explanation of trade:*

a. Factor endowment theory

b. Product life cycle theory

c. Economies of scale theory

d. Overlapping demand theory

29.A tax of 20 cents per unit of imported cheese would be an example of a (an):*

a. Compound tariff

b. Effective tariff

c. Ad valorem tariff

d. Specific tariff

30.A tax of 15 percent per imported item would be an example of a (an):*

a. Ad valorem tariff

b. Specific tariff

c. Effective tariff

d. Compound tariff

31. Which trade policy results in the government levying both a specific tariff and an ad-valorem tariff on imported goods:*

a. Compound tariff

b. Nominal tariff

c. Effective tariff

d. Revenue tariff

32.The effective rate of protection*

a. distinguishes between tariffs that are effective and those that are ineffective

b. is the minimum level at which a tariff becomes effective in limiting imports

c. shows how effective a tariff is in raising revenue for the government

d. shows the increase in value added for domestic production that a particular tariff structure

makes possible, in percentage terms

33.A tariff that prohibits imports has only*

a. a revenue effect and redistribution effect

b. revenue effect and protection effect

c. consumption effect and protection effect

d. redistribution effect and consumption effect

34.The difference between what consumers have to pay for a particular and what they are willing to pay is known as*

a. consumer surplus

b. producer surplus

c. deadweight costs

d. deadweight surplus

35 - 41

35.With free trade, the total quantity of imports would equal*

a. 10,000 units

b. 40,000 units

c. 42,000 units

d. 50,000 units

36.With free trade, the total value of imports would equal*

a. $100,000

b. $400,000.

c. $600,000

d. $800,000.

37.With the tariff, the quantity of imports falls to*

a. 12,000 units

b. 20,000 units

c. 30,000 units

d. 42,000 units

38.With the tariff, the government collects*

a. $75,000.

b. $100,000.

c. $125,000.

d. $150,000.

39.The deadweight cost of the tariff equals*

a. $10,000.

b. $25,000.

c. $50,000.

d. $75,000.

40. Domestic producers gain _________ because of the tariff.*

a. $50,000.

b. $75.000

c. $120,000

d. $150,000.

41.A tariff of ________ would be prohibitive, causing imports to fall to zero.*

a. $10

b. $15

c. $20

d. $25

42 - 43

42.Suppose that the tariff rate on the final product is 5 percent. If no imported inputs are used in the domestic production of the final product, the effective tariff rate is*

a. 3 percent

b. 5 percent

c. 8 percent

d. 12 percent

43.Suppose there is no tariff on imported inputs and the ratio of the value of imported inputs to the value of the final product is 0.5. If the nominal tariff rate on the final product is 10 percent, the effective tariff rate equals*

a. 5 percent

b. 10 percent

c. 15 percent

d. 20 percent

44.Quotas are government imposed limits on the ________ of goods trade between countries.*

a. prices

b. quantity

c. revenue

d. costs

45. ______ occurs when a firm disposes on foreign markets a temporary increase in inventories caused by unforeseen changes in supply and demand conditions in the home economy*

a. sporadic dumping

b. predatory dumping

c. persistent dumping

d. foreign dumping

46.The institutional framework developed in 1947 to promote trade liberalization is known as*

a. the WTO

b. the GATT

c. the IMF

d. the World Bank

47. The NAFTA is a:*

a. monetary union

b. free trade area

c. common market

d. customs union

48.The European Union is an example of a/an*

a. customs union

b. economic union

c. common market

d. free trade area

49. Multinational corporations:*

a. increase the transfer of technology between nations

b. make it harder to nations to foster activities of comparative advantage

c. always enjoy political harmony in nations where their subsidiaries operate

d. require governmental subsidies in order to conduct worldwide operations

50.A country's transactions with the rest of the world are recorded in the*

a. balance of international indebtedness

b. balance of financial transactions

c. balance of payments

d. income statement