161. Outsourcing refers to the case in which
A. a firm exports out of a country rather than selling products within a country.
B. a firm imports into a country rather than buying products from within a domestic country.
C. consumers find out the source of where production occurs.
D. a firm moves part of its business operations out of the domestic country.
Answer
D. a firm moves part of its business operations out of the domestic country.
162. Gross domestic product measures
A. the gross weight of products that are imported into a domestic country.
B. the gross weight of products that are exported from a domestic country.
C. the gross profits from all final goods and services produced in an economy.
D. the total value of all final goods and services produced within an economy.
Answer
D. the total value of all final goods and services produced within an economy.
163. In the Ricardian model:
A. Trade will happen even if countries are identical.
B. Differences in factor endowments give rise to trade.
C. There is only one factor of production.
D. There is only one industry in each country.
Answer
C. There is only one factor of production.
164. The Ricardian model exhibits gains from trade:
A. Only if each country has an absolute advantage in one of the industries.
B. For both trading countries.
C. Only for one of the trading countries.
D. Only if countries specialize completely.
Answer
B. For both trading countries.
165. Country A has 5000 units of labor. It takes 50 units of labor to produce one computer and 1 unit to create a Web page. What is the opportunity cost of a Web page in terms of computers?
A. 50
B. 0.0002
C. 100
D. 0.02
Answer
D. 0.02
166. The opportunity cost of producing computers in terms of Web pages is 50 in Country A and is 10 in Country B. Based on the Ricardian model, what can we conclude about the pattern of trade?
A. Country A will export computers and import Web pages.
B. We need to know what the relative price of computers in terms of web pages is to answer this question.
C. We need to know what wages are to answer this question.
D. Country A will export Web pages and import computers.
Answer
D. Country A will export Web pages and import computers.
167. Which of the following is NOT an assumption in the Ricardian model?
A. Labor productivity in each country is fixed.
B. Labor can freely move across countries.
C. Each country has only one factor of production and its amount is fix
Answer
B. Labor can freely move across countries.
168. Country A has 100 units of labor and Country B has 200 units of labor. Both countries produce computers and Web pages. The unit labor requirements are given in the table below:Computers Web pages Country A 50 1 Country B 100 1 Assume free trade exists and that the relative price is such that both countries specialize completely in the industry in which they have a comparative advantage (neither country produces both goods). The supply of computers relative to Web pages will be:
A. (or 1/100)
B. 0.013 (or 1/75)
C. Impossible to determine without knowing the relative price of computers in terms of Web pages.
D. (or 1/50)
Answer
A. (or 1/100)
169. Country A and Country B produce computers and Web sites. The unit labor requirements are given in the table below: Computers Web pages Country A 50 1 Country B 100 1 At which of the following relative prices (computers in terms of Web sites) will Country B produce both goods under free trade?
A. 50
B. 75
C. 100
D. 25
Answer
C. 100
170. In the Ricardian model, when two countries trade freely, the relative price of the goods they are trading is determined by:
A. Relative demand and relative supply for each trading country.
B. Relative demand and relative supply on the world market.
C. Relative opportunity costs in the two countries.
D. Relative wages.
Answer
B. Relative demand and relative supply on the world market.
171. Which of the following is true?
A. Trade only hurts countries with lower wages.
B. Countries that open up for trade see their wages rise over time relative to U.S. wages.
C. Trade necessarily hurts poorer countries.
D. none
Answer
B. Countries that open up for trade see their wages rise over time relative to U.S. wages.
172. The welfare effects of a quota depend to a considerable extent upon
A. Who has the quota license
B. The size of the quota
C. Elasticities of domestic demand and supply
D. All of the above
Answer
D. All of the above
173. ___ are profits that accrue to whomever has the right to import the good thatis restricted by the quota.
A. Quota license
B. Quota rents
C. Quota prices
D. None of the above
Answer
B. Quota rents
174. The home-country government can confiscate the revenue effect of an import quotaif
A. Quota licenses are given to foreign exporting companies
B. Quota licenses are auctioned to the highest-bidding importing company
C. If quota licenses are given to domestic consumers of the good
D. Both (a) and (c)
Answer
B. Quota licenses are auctioned to the highest-bidding importing company
175. Governments around the world tend to auction quota licenses
A. Never
B. Seldom
C. Often
D. Always
Answer
B. Seldom
176. A(n) ___ is an example of a quota where foreigners hold quota licenses.
A. Export quota
B. Embargo
C. Auction quota
D. Tariff quota
Answer
D. Tariff quota
177. International dumping may involve
A. selling goods to foreigners at a price below that charged domestic consumers
B. selling goods to foreigners at a price below the cost of production
C. antidumping duties being levied on the imported, dumped goods
D. all of the above
Answer
D. all of the above
178. Nontariff trade barriers could include all of the following except
A. Domestic content laws
B. Government procurement policies
C. Health, safety, and environmental standards
D. Antidumping/countervailing duties applied to imports
Answer
D. Antidumping/countervailing duties applied to imports
179. A production subsidy that is granted to a producer of an import-competing good
A. Does not require governmental taxes to finance it
B. Yields the same deadweight welfare loss as an import tariff or import quota
C. Has only a consumption effect deadweight loss
D. Has only a protective effect deadweight loss
Answer
D. Has only a protective effect deadweight loss
180. A tariff-rate quota is essentially a
A. Two-tier tariff applied to a country’s imports
B. Three-tier tariff applied to a country’s imports
C. Two-tier quota applied to a country’s exports
D. Three-tier quota applied to a country’s exports
Answer
A. Two-tier tariff applied to a country’s imports
181. 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
Answer
D. Specific tariff
182. A sudden shift from import tariffs to free trade may induce short-term unemploymentin:
A. Import-competing industries
B. Industries that are only exporters
C. Industries that sell domestically as well as export
D. Industries that neither import nor export
Answer
A. Import-competing industries
183. The movement to free international trade is most likely to generate short-termunemployment in which industries?
A. Industries in which there are neither imports nor exports
B. Import-competing industries
C. Industries that sell to domestic and foreign buyers
D. Industries that sell to only foreign buyers
Answer
B. Import-competing industries
184. Suppose the government grants a subsidy to domestic producers of an import-competing good. The subsidy tends to result in deadweight losses for the domestic economy in the form of the:
A. Consumption effect
B. Redistribution effect
C. Revenue effect
D. Protective effect
Answer
D. Protective effect
185. Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies. This is because, unlike domestic subsidies, import tariffs and quotas:
A. Permit less efficient home production
B. Distort choices for domestic consumers
C. Result in higher tax rates for domestic residents
D. Redistribute revenue from domestic producers to consumers
Answer
B. Distort choices for domestic consumers
186. Suppose the government grants a subsidy to its export firms that permits them to charge lower prices on goods sold abroad. The export revenue of these firms would rise if the foreign demand is:
A. Elastic in response to the price reduction
B. Inelastic in response to the price reduction
C. Unit elastic in response to the price reduction
D. None of the above
Answer
A. Elastic in response to the price reduction
187. Because export subsidies tend to result in domestic exporters charging lower prices ontheir goods sold overseas, the home country’s:
A. Export revenues will decrease
B. Export revenues will rise
C. Terms of trade will worsen
D. Terms of trade will improve
Answer
C. Terms of trade will worsen
188. Which trade restriction stipulates the percentage of a product’s total value that must beproduced domestically in order for that product to be sold domestically?
A. Import quota
B. Orderly marketing agreement
C. Local content requirement
D. Government procurement policy
Answer
C. Local content requirement
189. The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to:
A. Rise
B. Fall
C. Remain unchanged
D. None of the above
Answer
B. Fall
190. Domestic content legislation applied to autos would tend to:
A. Support wage levels of American autoworkers
B. Lower auto prices for American autoworkers
C. Encourage American automakers to locate production overseas
D. Increase profits of American auto companies
Answer
C. Encourage American automakers to locate production overseas
191. Compared to an import quota, an equivalent tariff may provide a less certain amount ofprotection for home producers since:
A. A tariff has no deadweight loss in terms of production and consumption
B. Foreign firms may absorb the tariff by offering exports at lower prices
C. Tariffs are effective only if home demand is perfectly elastic
D. Quotas do not result in increases in the price of the imported good
Answer
D. Quotas do not result in increases in the price of the imported good
192. A tariff:
A. Increases the volume of trade
B. Reduces the volume of trade
C. Has no effect on volume of trade
D. (a) and (c) of above
Answer
B. Reduces the volume of trade
193. A tariff is:
A. A restriction on the number of export firms
B. Limit on the amount of imported goods
C. Tax and imports
D. and (c) of above
Answer
D. and (c) of above
194. It is drawback of protection:
A. Consumers have to pay higher prices
B. Producerrs get higher profits
C. Quality of goods may be affected
D. All of the above
Answer
B. Producerrs get higher profits
195. It is drawback of free trade:
A. Prices of local goods rise
B. Government looses income from custom duties
C. National resources are underutilized
D. (a) and (b) of above
Answer
A. Prices of local goods rise
196. Free traders maintain that an open economy is advantageous in that it provides all of thefollowing except:
A. Increased competition for world producers
B. A wider selection of products for consumers
C. The utilization of the most efficient production methods
D. Relatively high wage levels for all domestic workers
Answer
A. Increased competition for world producers
197. Recent pressures for protectionism in the United States have been motivated by all ofthe following except:
A. U.S. firms shipping component production overseas
B. High profit levels for American corporations
C. Sluggish rates of productivity growth in the United States
D. High unemployment rates among American workers
Answer
C. Sluggish rates of productivity growth in the United States
198. A sudden shift from import tariffs to free trade may induce short-term unemploymentin:
A. Import-competing industries
B. Industries that are only exporters
C. Industries that sell domestically as well as export
D. Industries that neither import nor export
Answer
B. Industries that are only exporters
199. Which of the following statements is correct?
A. In a customs union, member nations apply a uniform external tariff
B. in a free-trade area, member nations harmonize their monetary and fiscal policies
C. within a customs union there is unrestricted factor movement
D. a customs union is a higher form of economic integration than a common market
Answer
C. within a customs union there is unrestricted factor movement
200. A customs union that allows for the free movement of labor and capital among its member nations is called a:
A. preferential trade arrangement
B. free-trade area
C. common market
D. all of the above
Answer
C. common market
