1. International Economics
Quiz 1
International Economics

2. The United States is less dependent on trade than most other countries because A) the United States is a relatively large country with diverse resources. B) the United States is a "Superpower." C) the military power of the United States makes it less dependent on anything. D) the United States invests in many other countries. E) many countries invest in the United States.
1.1

3. Answer: A
Page Ref: 2
Difficulty: Easy

4. A) an international treaty. B) an international U.N. agency.
The GATT is
A) an international treaty.
B) an international U.N. agency.
C) an international IMF agency.
D) a U.S. government agency.
E) a collection of tariffs.
1.2

5. Answer: A
Page Ref: 8-9
Difficulty: Easy

6. The gravity model suggests that over time A) trade between neighboring countries will increase. B) trade between all countries will increase. C) world trade will eventually be swallowed by a black hole. D) trade between Earth and other planets will become important. E) the value of trade between two countries will be proportional to the product of the two countries' GDP.
2.1

7. Answer: E
Page Ref: 16
Difficulty: Moderate

8. Since World War II, the likelihood that any single item in the typical consumption basket of a consumer in the U.S. originated outside of the U.S. A) remained constant. B) increased. C) decreased. D) fluctuated widely with no clear trend. E) increased slightly before dropping off.
2.2

9. Answer: B
Page Ref: 18
Difficulty: Easy

10. A country engaging in trade according to the principles of comparative advantage gains from trade because it A) is producing exports indirectly more efficiently than it could alternatively. B) is producing imports indirectly more efficiently than it could domestically. C) is producing exports using fewer labor units. D) is producing imports indirectly using fewer labor units. E) is producing exports while outsourcing services.
3.1

11. Answer: B
Page Ref: 26
Difficulty: Easy

12. Unit Labor Requirements
Cloth
Widgets
Home 10 20
Foreign 60 30
Given the information in the table above A) neither country has a comparative advantage in cloth. B) Home has a comparative advantage in widgets. C) Foreign has a comparative advantage in widgets. D) Home has a comparative advantage in both cloth and widgets. E) neither country has a comparative advantage in widgets.
3.3

13. Answer: C
Page Ref: 29
Difficulty: Moderate

14. If two countries have identical production possibility frontiers, then trade between them is likely to be beneficial if A) their supply curves are identical. B) their cost functions are identical. C) their demand conditions are identical. D) their incomes are identical. E) their demand functions differ.
3.4

15. Answer: E
Page Ref: 37
Difficulty: Moderate

16. International trade can have important effects on the distribution of income because A) some resources are immobile in the short run. B) of government corruption. C) the more powerful country dictates the terms of trade. D) rich countries take advantage of poor countries. E) different countries use different currencies.
4.1

17. Answer: A
Page Ref: 50
Difficulty: Easy

18. The relative price of a unit of cloth in the small isolated country of Moribundia is 5 units of food. When then central city, Mudhole, puts in an airstrip, the country is able to engage in trade. If the relative price of cloth in the outside world is 8 units of food, then Moribundia will export ________ and ________ factors used in the production of ________ will benefit. A) cloth; immobile; cloth B) food; immobile; food C) food; mobile; food D) cloth; mobile; cloth E) cloth; immobile; food
4.2

19. Answer: A
Page Ref: 63-64
Difficulty: Moderate

20. E) positive; ambiguous
In the specific factors model, the effects of trade on welfare overall are ________ and for fixed factors used to produce the imported good they are ________.
ambiguous; positive
positive; positive
C) negative; positive
D) positive; negative
E) positive; ambiguous
4.3

21. Answer: D
Page Ref: 64-66
Difficulty: Easy

22. A) fewer; lower; immobile B) fewer; lower; mobile
The effect of trade on specialized employees of import-competing industries will be ________ jobs and ________ pay because they are relatively ________.
A) fewer; lower; immobile
B) fewer; lower; mobile
C) more; lower; immobile
D) more; higher; mobile
E) more; higher; immobile
4.4

23. Answer: A
Page Ref: 67-70
Difficulty: Moderate

24. In the two-country model of international labor mobility
A) the effect of migration is to cause real wages in the two countries to converge.
B) the effect of migration is to cause real wages in the two countries to diverge.
C) labor has only limited international mobility.
D) the long-run equilibrium global real wage is equal to the lesser of the pre-migration wages in the two countries.
E) the long-run equilibrium global real wage is equal to the greater of the pre-migration wages in the two countries.
4.5

25. Answer: A
Page Ref: 70-76
Difficulty: Easy

26. One way in which the Heckscher-Ohlin model differs from the Ricardo model of comparative advantage is by assuming that ________ is (are) identical in all countries. A) factor endowments B) scale of production C) factor intensities D) technology E) opportunity costs
5.1

27. Answer: D
Page Ref: 94
Difficulty: Easy

28. In the 2-factor, 2 good Heckscher-Ohlin model, trade will ________ the owners of a country's ________ factor and will ________ the good that uses that factor intensively. A) harm; scarce; import B) harm; abundant; import C) benefit; scarce; export D) benefit; scarce; import E) harm; scarce; export
5.2

29. Answer: A
Page Ref: 96
Difficulty: Easy

30. The 1987 study by Bowen, Leamer and Sveikauskas
A) supported the validity of the Leontief Paradox.
B) supported the validity of the Heckscher-Ohlin model.
C) used a two-country and two-product framework.
D) demonstrated that in fact countries tend to use different technologies.
E) proved that the U.S.'s comparative advantage relied on skilled labor.
5.3

31. Answer: A
Page Ref: 105
Difficulty: Easy

32. Which of the following is an assertion of the Heckscher-Ohlin model?
A) An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good.
B) An increase in a country's labor supply will increase production of the labor-intensive good and decrease production of the capital-intensive good.
C) In the long-run, labor is mobile and capital is not.
D) Factor price equalization will occur only if there is costless mobility of all factors across borders.
E) Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.
5.4

33. Answer: B
Page Ref:
Difficulty: Moderate

34. Tastes of individuals are represented by A) indifference curves.
B) production possibility frontiers.
C) isovalue lines.
D) production functions.
E) the terms of trade.
6.1

35. Answer: A
Page Ref: 121
Difficulty: Easy

36. If Slovenia is a large country in world trade, then if it imposes a large set of tariffs on many of its imports, this would A) improve its terms of trade. B) have no effect on its terms of trade. C) harm its terms of trade. D) decrease its marginal propensity to consume. E) increase its exports.
6.2

37. Answer: A
Page Ref:
Difficulty: Easy

38. Rapidly growing developing countries tend to be borrowers on the international capital markets. From this information we may surmise that they have a comparative advantage in
A) disposable income.
B) capital goods.
C) future income.
D) consumer goods.
E) present income.
6.3

39. Answer: C
Page Ref:
Difficulty: Easy

40. A) increase the number of firms and lower the price per unit.
When there are external economies of scale, an increase in the size of the market will
A) increase the number of firms and lower the price per unit.
B) increase the number of firms and raise the price per unit.
C) decrease the number of firms and raise the price per unit.
D) decrease the number of firms and lower the price per unit.
E) not affect the number of firms, but will lower the price per unit.
7.2

41. Answer: A
Page Ref:
Difficulty: Easy

42. A) external economies of scale. B) internal economies of scale.
The Internet has made transactions between businesses (B2B trading) fast and easy. Any business in any location can access specialized knowledge, labor, and materials. It is likely that these virtual economic communities will result in
A) external economies of scale.
B) internal economies of scale.
C) consolidation of industries into a small number of powerful firms.
D) suppression of innovations and collusive behavior, driving up prices.
E) government intervention and regulation.
7.3

43. Answer: A
Page Ref:
Difficulty: Moderate

44. In the presence of external economies of scale, trade
A) will unambiguously improve welfare in the exporting country and worsen welfare in the importing country.
B) will unambiguously improves welfare in both countries.
C) will unambiguously worsens welfare in both countries.
D) will unambiguously worsen welfare in the exporting country and improve welfare in the importing country.
E) may or may not improve welfare in both countries.
7.4

45. Answer: E
Page Ref:
Difficulty: Moderate

46. A) external economies; natural resources; mobile
Patterns of interregional trade are primarily determined by ________ rather than ________ because factors of production are generally ________.
A) external economies; natural resources; mobile
B) internal economies; external economies; mobile
C) external economies; population; immobile
D) internal economies; population; immobile
E) population; external economies; immobile
7.5

47. Answer: A
Page Ref:
Difficulty: Easy

48. B) there are no models of imperfectly competitive behavior.
Modeling trade in imperfectly competitive industries is problematic because
A) there is no single generally accepted model of behavior by imperfectly competitive firms.
B) there are no models of imperfectly competitive behavior.
C) it is difficult to find an imperfectly competitive firm in the real world.
D) collusion among imperfectly competitive firms makes usable data rare.
E) there is only a single model of imperfect competition (monopoly) but imperfect competition can take many forms in the real world.
8.1

49. Answer: A
Page Ref:
Difficulty: Easy

50. A) a relatively small number of imperfect competitors.
International trade based on external scale economies in both countries is likely to be carried out by
A) a relatively small number of imperfect competitors.
B) a relatively small number of price competing firms.
C) a relatively large number of price competing firms.
D) monopolists in each country.
E) a large number of oligopolists in each country.
8.2

51. Answer: C
Page Ref:
Difficulty: Easy

52. In the model of monopolistic competition, compared to a firm with a higher marginal cost, a firm with a lower marginal cost will set a ________ price, produce ________ output, and earn ________ profits.
A) lower; more; more
B) higher; more; more
C) lower; less; less
D) higher; less; less
E) higher; less; more
8.3

53. Answer: A
Page Ref:
Difficulty: Easy

54. In the model of monopolistic competition, trade costs between countries cause
A) some firms that can earn a profit on domestic sales to refrain from exporting their goods.
B) prices of goods sold domestically to exceed the prices of exported goods.
C) marginal costs of goods sold domestically to exceed the marginal costs of exported goods.
D) all firms that can earn a profit on domestic sales to export their goods at higher prices.
E) countries to negotiate the elimination of trade costs by mutual subsidization of trade.
8.4

55. Answer: A
Page Ref:
Difficulty: Easy

56. B) U.S. firms are harmed by the unfair pricing of foreign exporters.
Complaints are often made to the International Trade Commission concerning foreign "dumping" practices. These complaints typically claim that
A) foreign companies are charging exorbitant prices that are higher than the true value of the products.
B) U.S. firms are harmed by the unfair pricing of foreign exporters.
C) foreign companies are charging prices that are lower than prices they charge countries other than the U.S.
D) U.S. consumers are harmed by the lack of quality control or health concerns in foreign countries.
E) U.S. consumers cannot differentiate between the foreign and domestic goods.
8.5

57. Answer: B
Page Ref:
Difficulty: Easy

58. A) foreign direct investment (FDI) outflows; greenfield; brownfield
Consider the following two cases. In the first, a U.S. firm purchases 18% of a foreign firm. In the second, a U.S. firm builds a new production facility in a foreign country. Both are ________, with the first referred to as ________ and the second as ________.
A) foreign direct investment (FDI) outflows; greenfield; brownfield
B) foreign direct investment (FDI) inflows; greenfield; brownfield
C) foreign direct investment (FDI) outflows; brownfield; greenfield
D) foreign direct investment (FDI) inflows; brownfield; greenfield
E) foreign direct investment (FDI); inflows; outflows
8.6

59. Answer: C
Page Ref:
Difficulty: Moderate

60. A) increased; increased; increased B) increased; decreased; decreased
During the past decade, U.S. imports of business services have ________, U.S. exports of business services have ________, and U.S. net exports of business services have ________.
A) increased; increased; increased
B) increased; decreased; decreased
C) decreased; increased; increased
D) increased; increased; not changed
E) decreased; decreased; increased
8.7

61. Answer: A
Page Ref:
Difficulty: Moderate

62. A) excess demand of country H increases.
The excess supply curve of a product we (H) import from foreign countries (F) increases as
A) excess demand of country H increases.
B) excess demand of country F increases.
C) excess supply of country H increases.
D) excess supply of country F increases.
E) excess supply of country F decreases.
9.1

63. Answer: D
Page Ref:
Difficulty: Easy

64. If a small country imposes a tariff, then
A) the producers must suffer a loss.
B) the consumers must suffer a loss.
C) the government revenue must suffer a loss.
D) the demand curve must shift to the left.
E) the world price on that item will shift.
9.2

65. Answer: B
Page Ref:
Difficulty: Easy

66. In the exporting country, an export subsidy will A) help consumers and raise the overall economic welfare of the exporting country. B) hurt consumers but raise the overall economic welfare of the exporting country. C) hurt consumers and lower the overall economic welfare of the exporting country. D) help consumers but lower economic welfare of the exporting country. E) help consumers and have no effect on the economic welfare of the exporting country.
9.3

67. Answer: C
Page Ref:
Difficulty: Easy

68. An import quota will ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare. A) increase; decrease; increase; have an ambiguous effect on B) increase; decrease; decrease; decrease C) increase; decrease; have no effect on; have an ambiguous effect on D) increase; decrease; have no effect on; decrease E) increase; increase; decrease; have an ambiguous effect on
9.4

69. Answer: C
Page Ref:
Difficulty: Easy

70. Suppose an import-competing firm is imperfectly competitive
Suppose an import-competing firm is imperfectly competitive. Replacement of an import tariff with an import quota that yields the same level of imports will ________ market price, ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare. A) increase; increase; decrease; decrease; decrease B) have no effect on; have no effect on; have no effect on; decrease; decrease C) increase; have no effect on; decrease; decrease; increase D) increase; increase; increase; decrease; have an ambiguous effect on E) decrease; decrease; increase; decrease; increase
9.5

71. Answer: B
Page Ref:
Difficulty: Easy

72. A) trade liberalization. B) surge of protectionism.
Judging by the ongoing changes in tariff rates in major trading countries, the world has been experiencing a great
A) trade liberalization.
B) surge of protectionism.
C) lack of progress in the trade-policy area.
D) move towards regional integration.
E) shift from export subsidies to specific tariffs.
10.1

73. Answer: A
Page Ref:
Difficulty: Easy

74. The prohibitive tariff is a tariff that A) is so low that the government prohibits its use since it would lose an important revenue source. B) is so high that it causes undue harm to trade-partner economies. C) is so high that it causes undue harm to import competing sectors. D) is so high that it eliminates imports. E) is so low that it causes domestic producers to leave the industry.
10.2

75. Answer: D
Page Ref: 242
Difficulty: Easy

76. A) works well in the area of trade policy.
The median voter model
A) works well in the area of trade policy.
B) is not intuitively reasonable.
C) tends to result in biased tariff rates.
D) does not work well in the area of trade policy.
E) is not widely practiced in the United States.
10.3

77. Answer: D
Page Ref:
Difficulty: Easy

78. B) the establishment of the European Union.
The General Agreement on Tariffs and Trade and the World Trade Organization have resulted in
A) the establishment of universal trade adjustment assistance policies.
B) the establishment of the European Union.
C) the reciprocal trade clause.
D) reductions in trade barriers via multilateral negotiations.
E) the total protection of all intellectual property rights.
10.4

79. Answer: D
Page Ref:
Difficulty: Easy

80. Which of the following could explain why the terms of trade of developing countries might deteriorate over time? A) Developing country exports consist mainly of manufactured goods. B) Developing country exports consist mainly of primary products. C) Commodity export prices are determined in highly competitive markets. D) Commodity export prices are solely determined by developing countries. E) Developing country exports are too diverse.
11.1

81. Answer: C
Page Ref:
Difficulty: Easy

82. Import substitution policies make use of
A) tariffs that discourage goods from entering a country.
B) quotas applied to goods that are shipped abroad.
C) production subsidies granted to industries with comparative advantage.
D) tax breaks granted to industries with comparative advantage.
E) production facilities provided by industrialized countries.
11.2

83. Answer: A
Page Ref:
Difficulty: Easy

84. B) generalized system of preferences. C) Most Favored Nation.
To help developing countries expand their industrial base, some industrial countries have reduced tariffs on designated manufactured imports from developing countries below the levels applied to imports from industrial countries. This policy is called
A) export-led growth.
B) generalized system of preferences.
C) Most Favored Nation.
D) reciprocal trade agreement.
E) outsourcing.
11.3

85. Answer: B
Page Ref:
Difficulty: Easy

86. The growth successes of the high performance Asian economies A) supports the belief that economic development requires import substitution policies. B) rejects the belief that export-oriented industrialization is likely to promote economic development. C) rejects the belief that economic development requires import substitution policies. D) suggests that free trade policies are required for successful economic development. E) enforces United States' hesitation to trade with developing countries.
11.4

87. Answer: C
Page Ref:
Difficulty: Easy

88. The Brander-Spencer model identified market failure in certain industries due to A) unfair competition. B) wildcat destructive competition. C) environmental negative externalities associated with pollution. D) limited competition. E) lack of excess returns.
12.1

89. Answer: D
Page Ref:
Difficulty: Easy

90. The Ricardian model of comparative advantage lends support to the argument that A) trade tends to worsen the conditions of unskilled labor in rich countries. B) trade tends to worsen the conditions of owners of capital in rich countries. C) trade tends to worsen the conditions of workers in poor countries. D) trade tends to worsen the conditions of workers in rich countries. E) trade is mutually beneficial to the countries that engage in it.
12.2

91. Answer: E
Page Ref:
Difficulty: Easy