QUESTION 1

The long-run solution to eliminating child labor is to:

Boycott companies whose products are produced using child labor.

Impose trade sanctions against countries that violate child labor standards.

Stimulate economic growth and rising incomes in poor countries.

There is no long-run solution as demand for cheap labor will always exist.

5 points

QUESTION 2

Assume that Country X produces two goodssugar and shoesand that the country's production possibility curve is "bowed-out". As the country produces more sugar:

The opportunity cost of sugar in terms of shoes foregone will increase.

The opportunity cost of sugar in terms of shoes foregone will decrease.

The opportunity cost of shoes in terms of sugar foregone will increase.

The opportunity cost of sugar in terms of shoes foregone will be the same.

5 points

QUESTION 3

In the long-run, following the opening of trade, a labor-abundant country will:

Employ less labor than it did pre-trade.

Produce goods using a higher land to labor ratio than it did pre-trade.

Produce goods using a lower land to labor ratio than it did pre-trade.

Experience higher rents and wages.

5 points

QUESTION 4

A large capital-abundant country trades two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. An increase in the country's endowment of capital will cause the price of medical equipment relative to the price of corn to:

Rise.

Fall.

Stay the same.

Rise at first and then fall.

5 points

QUESTION 5

In a "second-best" world:

Tariffs are economically optimal.

Private actions are dictated by government agencies.

Private marginal cost exceeds private marginal benefit.

Private actions will not lead to the best possible outcomes for society.

5 points

QUESTION 6

Intra-Industry Trade:

Is mostly based on the differences stressed in the Heckscher-Ohlin trade

theory.

Is rarely observed in the world today.

Occurs when the United States exports Ford automobiles and simultaneously

imports Honda automobiles.

Occurs when the United States exports Ford automobiles and simultaneously

imports petroleum.

5 points

QUESTION 7

When Adam Smith presented his theory of absolute advantage, he thought that all value was measured in terms of the amount of __________ used in the production of the good.

Land

Labor

Capital

Money

5 points

QUESTION 8

In early 2002, the national moneys of 12 European countries disappeared. They were replaced by one new money, the euro. The benefits to those countries included all of the following EXCEPT:

It is convenient - there is no need to change money when crossing national

borders.

It is less risky - there is no need to worry about the changing value of one

country's money relative to another country's money.

It is economical - travel and trade are made easier due to a decrease in

transaction costs.

It strengthens domestic policy - using an international money gives a

country's Central Bank a greater ability to influence national prices,

production, and jobs.

5 points

QUESTION 9

Producer surplus is:

Found on a graph as the area under the equilibrium price and above the supply

curve.

The net gain in economic well-being associated with producing and selling the

equilibrium quantity of a good.

Used to measure the impact of a change in price on the economic well-being

of producers.

All of the above.

5 points

QUESTION 10

Which of the following refers to the loss consumers in the importing country suffer based on their reduction in the consumption of a good after a tariff is imposed on that good?

Production effect.

Consumption effect.

Deadweight loss.

Consumer surplus.

5 points

QUESTION 11

Which of the following statements is true about production possibility curves?

I. Constant cost production possibility curves are straight lines and lead to

complete specialization.

II. Bowed-out production possibility curves are associated with partial

specialization, but the opportunity cost of producing each good is constant

along the curve.

I

II

I and II

None of the above.

5 points

QUESTION 12

Which of the following is the formula for a product's intra-industry trade (IIT) share?

1 - |X M|

1 (X + M)

1 - [ |X M| / (X + M)]

1 - [ |X + M| / (X M)]

5 points

QUESTION 13

In the two-country, two-good model with an increasing-cost production-possibility curve, the amount of both goods that are produced in the economy in autarky is determined by:

Relative prices.

Factor endowments.

Community indifference curves.

Labor productivity.

5 points

QUESTION 14

In the case of a small country, a quota and a tariff are (almost) identical if:

The government allocates licenses for free to importers using a rule or process

that involves (almost) no resource cost.

The government auctions off licenses to the highest bidder.

The government allocates licenses to importers through application and

selection procedures that require the use of substantial resources.

The government allocates import licenses directly to the public using a free

lottery system.

5 points

QUESTION 15

Which of the following is NOT true about mercantilism?

Under mercantilism, exports were encouraged and imports were discouraged.

Mercantilists believed that one country's gains from trade came at the expense

of another country or countries' well being.

Domestic producers were often hurt by mercantilism.

Mercantilism focused on the accumulation of gold and silver bullion.

5 points

QUESTION 16

If a small country imposes a tariff on imported motorcycles, the world price of motorcycles will __________ and the domestic price of motorcycles will __________.

Rise; rise

Fall; rise

Stay constant; rise

Stay constant; fall

5 points

QUESTION 17

Given a country that produces wine and guns, which of the following is least likely to lead to biased growth?

A new type of grape is discovered that yields twice as much wine as the old

grapes.

Significant immigration results in great influx of unskilled workers who can

be as easily trained to work in the wine industry as in the gun industry.

The technology used to produce guns improves while the technology used to

produce wine does not change.

Due to significant immigration, the number of workers skilled at producing

wine increases while the number of workers skilled at producing guns does

not change.

5 points

QUESTION 18

Sovereign nations:

Are subject to laws passed by the United Nations.

Must be concerned with the interests of foreigners when developing economic

policy.

Often ignore the interests of foreigners.

Must coordinate their monetary policy with the World Bank.

5 points

QUESTION 19

Constant cost production possibility curves lead to __________ specialization. Increasing cost production possibility curves lead to __________ specialization.

no; partial

complete; no

complete; partial

partial; complete

5 points

QUESTION 20

The author of the Wealth of Nations was:

David Ricardo.

Paul Samuelson.

Adam Smith.

Karl Marx.

5 points

QUESTION 21

Globalization:

Is the process of intensifying the connections between national economies

through international trade, foreign direct investments by multinational firms,

and international financial investments.

Has been proven to worsen working conditions and increase poverty in poor

countries.

Requires governments to weaken labor and environmental regulations in order

to remain competitive.

Is coordinated by the International Labor Organization to ensure respect for

the four core labor standards.

5 points

QUESTION 22

One of the reasons that protectionists and government officials may favor using a quota instead of a tariff is:

Quotas generate more revenue for the government than do tariffs.

A quota ensures that the quantity of imports is strictly limited.

Quotas create less market distortions than do tariffs.

Quotas give less power to politicians than do tariffs.

5 points

QUESTION 23

If the domestic country is labor abundant, which of the following groups will gain in the short-run, but lose in the long-run?

Domestic landowners in the farming sector.

Domestic landowners in the cloth-making sector.

Foreign landowners in the farming sector.

Foreign workers in the cloth-making sector.

5 points

QUESTION 24

If a small country imposes a tariff on imported motorcycles, the surplus of domestic producers of motorcycles will __________ and the surplus of domestic consumers of motorcycles will __________.

Rise; rise

Fall; fall

Fall; rise

Rise; fall

5 points

QUESTION 25

The opening of trade between a land-abundant country and a labor-abundant country should lead to:

Higher rents and wages in both countries.

Lower rents and wages in both countries.

Higher rents in the labor-abundant country and higher wages in the land-

abundant country.

Lower rents in the labor-abundant country and lower wages in the land-

abundant country.

5 points

QUESTION 26

Which of the following are reasons why increasing marginal costs of production arise?

I. Different products use inputs to production in different proportions.

II. Different inputs are better utilized in the production of different products.

III. Different countries have different endowments of the different factors of

production.

III

II and III

I and II and III

I and II

5 points

QUESTION 27

A capital-abundant country trades two goods with the rest of the world, medical equipment and corn. Medical equipment is relatively capital-intensive. An increase in the country's endowment of capital, with no change in the price of either medical equipment or corn, will cause the output of medical equipment to __________ and the output of corn to __________.

Rise; fall

Fall; rise

Rise; rise

Fall; fall

5 points

QUESTION 28

Outsourcing of services to foreign countries:

Cost the U.S. economy an estimated 5 million jobs by 2005.

Mainly impacts workers in business services such as data entry and software

development.

Is a serious concern for workers in high-wage manufacturing industries.

Will have a serious negative impact on all service sector jobs in the United

States.

5 points

QUESTION 29

If Social marginal benefit (SMB) > Price (P) = Buyer's private marginal benefit (MB) = Seller's private marginal cost (MC) = Social marginal cost (SMC):

Too much is supplied.

Too little is supplied.

The socially optimal amount is supplied.

Firms are not maximizing profits.

5 points

QUESTION 30

A nontariff barrier operates by:

Limiting the quantity of imports.

Increasing the cost of getting imports to market.

Creating uncertainty about the conditions under which imports will be

permitted.

All of the above.

5 points

QUESTION 31

Labor productivity is:

The number of units of output that a worker can produce in one hour.

The total number of units that all workers in a firm produce in one day.

The number of hours it takes a worker to produce one unit of output.

The total number of hours it takes all the workers in a firm to produce a day's

output.

5 points

QUESTION 32

Which of the following is two-way trade in which the country both exports and imports products that are the same or similar?

Net trade

Product differentiation trade.

Intra-industry trade.

Internal trade.

5 points

QUESTION 33

Comparative-advantage theory predicts that trade between similar industrialized countries should:

Be much greater than trade between dissimilar countries.

Be rather limited in size.

Consist mainly of high-technology goods.

Be bidirectional with one country exporting products to the other countries

and simultaneously importing the same products from them.

5 points

QUESTION 34

In a second-best world, there are:

Incentive distortions.

Externalities.

Spillover effects.

All of the above.

5 points

QUESTION 35

Which of the following events would lead to an increase in demand for air travel?

An increase in the number of people who are afraid to fly.

A fall in the price of oil.

An increase in the price of ground transportation.

A decrease in income levels.

5 points

QUESTION 36

If Social marginal cost (SMC) > Price (P) = Buyer's private marginal benefit (MB) = Seller's private marginal cost (MC) = Social marginal benefit (SMB):

Too much is supplied.

Too little is supplied.

The socially optimal amount is supplied.

Firms are not maximizing profits.

5 points

QUESTION 37

Which of the following will cause a rightward shift of the market supply curve?

An increase in the product price.

A decrease in input costs.

Change in consumers' tastes.

An increase in income.

5 points

QUESTION 38

Protecting domestic producers against import competition:

Helps those producers.

Helps domestic consumers of the product.

Probably helps the importing nation as a whole.

All of the above.

5 points

QUESTION 39

The Stolper-Samuelson theorem states that given certain assumptions and conditions:

The real return to the factor used intensively in the import-competing industry

will rise in the long-run.

The real return to the factor used intensively in the export industry will fall in

the long-run.

The real return to the factor used in the rising price industry will rise in the

long-run.

The real return to the factor used intensively in the export industry will rise in

the long-run.

5 points

QUESTION 40

Which of the following refers to the extra cost of shifting to more expensive home production following the imposition of a tariff?

Production effect.

Consumption effect.

Deadweight loss.

Producer surplus.

5 points

QUESTION 41

Based on mercantilist thinking, governments should:

Subsidize and encourage imports.

Subsidize and encourage exports.

Allow for free trade unencumbered by government regulations and

restrictions.

Both (a) and (b).

5 points

QUESTION 42

An increase in demand will lead to a higher increase in price; the:

Greater is the price elasticity of demand.

Greater is the population.

Flatter is the supply curve.

More inelastic is supply.

5 points

QUESTION 43

Given the assumptions of the Heckscher-Ohlin model, the opening of trade in a land-abundant country will cause the domestic price of wheat to:

Fall.

Rise.

Be unaffected.

At first rise but then fall back to its original level.

5 points

QUESTION 44

The Rybczynski theorem asserts that in a two-good world, and assuming that product prices stay constant, growth in the endowment of one factor of production, with the other factor unchanged, will lead to:

An equal percentage increase in the output of both goods.

An increase in the output of the good that uses the growing factor intensively

and a decrease in the output of the other good.

An increase in the output of both goods but a greater percentage increase in

the output of the good that uses the growing factor intensively.

An increase in the output of the good that uses the growing factor intensively

and no change in the output of the other good.

5 points

QUESTION 45

If the amount of exports of machinery from industrialized countries to the rest of the world equals 60 and the amount of imports of machinery into industrialized countries from the rest of the world is 40, the intra-industry trade share for machinery is:

0.2

0.8

1.5

.67

5 points

QUESTION 46

A tax on imports that is stipulated as a money amount per unit is called:

A specific tariff.

An ad valorem tariff.

An effective tariff.

An optimal tariff.

5 points

QUESTION 47

If a 1% increase in the price of DVD's leads to a 3% reduction in the sales of DVD's, we can conclude that:

DVD's are normal goods.

DVD's are inferior goods.

Demand for DVD's is elastic.

Demand for DVD's is inelastic.

5 points

QUESTION 48

A quota:

Causes domestic prices to fall.

Causes world prices to rise.

Restricts the quantity of a good that can be imported.

Is always more efficient than a tariff.

5 points

QUESTION 49

Growth in a country's scarce factor of production will lead to:

An increased willingness to trade.

Balanced growth.

A decreased willingness to trade.

A deterioration in the country's terms of trade.

5 points

QUESTION 50

A "first-best" world is one in which:

Social marginal benefit (SMB) > Price (P) = Buyer's private marginal benefit

(MB) = Seller's private marginal cost (MC) = Social marginal cost (SMC)

Social marginal cost (SMC) > Price (P) = Buyer's private marginal benefit

(MB) = Seller's private marginal cost (MC) = Social marginal benefit (SMB)

Price (P) = Buyer's private marginal benefit (MB) = Seller's private marginal

cost (MC) = Social marginal cost (SMC) = Social marginal benefit (SMB)

Social marginal benefit (SMB) > Social marginal cost (SMC)