Foundations of Economics 6th Edition Bade Test Bank

Foundations of Microeconomics, 6e (Bade/Parkin)
Chapter 9 Global Markets in Action
9.1 How Global Markets Work
1) Goods and services that the United States buys from other nations are called
A) exports.
B) imports.
C) bartered goods.
D) exchanges.
E) world goods.
Answer: B
Topic: International trade
Skill: Level 1: Definition
Section: Checkpoint 9.1
Status: JC
AACSB: Reflective thinking
2) Imports are defined as the goods and services that we

A) produce and consume in the United States.
B) sell to other countries.
C) buy from other countries.
D) partially produce in both the United States and another country.
E) produce abroad using U.S. owned factories and then consume in the United States.
Answer: C
Status: NAU
3) Goods and services that the United States sells to other nations are called
A) exports.
B) imports.
C) bartered goods.
D) exchanges.
E) world goods.
Answer: A
Status: JC
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4) If you buy a DVD player produced in Japan, a
A) good was exported by Japan and imported by the United States.
B) good was imported by Japan and by the United States.
C) service was imported by Japan and exported by the United States.
D) service was exported by Japan and imported by the United States.
E) good was exported by Japan and by the United States.
Answer: A
Skill: Level 2: Using definitions
Status: TS
5) The United States exports

A) goods only.
B) services only.
C) manufactured goods only.
D) goods and services.
E) only agricultural products and high-tech goods.
Answer: D
Topic: Patterns of trade
Status: NAU
6) All of the following statements about the United States are true EXCEPT:
A) The largest imports are services like royalties, license fees, and financial services, and the
largest exports are goods like crude oil, automobiles, and clothing.
B) The United States is the world's largest international trader.
C) The United States imports more than it exports.
D) Services account for a larger portion of U.S. exports than U.S. imports.
E) Imports are a larger percentage of total expenditure than exports are a percentage of total
production.
Answer: A
Topic: Patterns of trade
Status: New
2
7) Of the following, ________ account(s) for the largest share of imports into the United States.
A) food and drinks
B) clothing and footwear
C) crude oil
D) computers
E) chemicals
Answer: C
Topic: Eye on the global economy, the major items of U.S. trade
Status: Revised
8) The fundamental force that generates international trade is

A) the need for more goods and services.
B) absolute advantage.
C) the sea rule.
D) comparative advantage.
E) the existence of tariffs.
Answer: D
Topic: Comparative advantage
Status: WM
9) The fundamental force that drives trade between nations is

A) the government.
B) NAFTA.
C) absolute advantage.
D) comparative advantage.
E) legal treaties.
Answer: D
Status: MR
3
10) One of the major reasons why the United States exports jet airplanes is because Boeing faces
________ opportunity cost compared with firms in other nations in the production of such
aircraft.
A) a higher
B) an unrelated
C) a lower
D) a nonexistent
E) an identical
Answer: C
Topic: Opportunity cost
Status: JC
11) A nation has a comparative advantage in a good when it has a

A) lower absolute cost of producing the good.
B) higher opportunity cost of producing the good.
C) lower opportunity cost of producing the good.
D) higher absolute cost of producing the good.
E) tariff in place protecting the producers of the good.
Answer: C
Status: WM
12) How can a domestic producer determine whether or not it has a comparative advantage in the
production of a good or service?
A) It cannot.
B) by comparing the price it receives to the prices of other domestic producers
C) by comparing the price it receives to the world price
D) by comparing the quantity it produces to the quantity produced in the world
E) by comparing the total domestic quantity to the total world quantity
Answer: C
Status: TS
4
13) A country exports the goods
A) for which its domestic prices are very high compared to the world prices.
B) that the economy can produce the most of.
C) that the economy can produce at relatively lowest opportunity cost.
D) that it cannot sell domestically.
E) in which it has a comparative disadvantage.
Answer: C
Status: TPS
14) If a nation can produce a good or service at the lowest opportunity cost, then it
A) can sell the product at a lower price than other nations.
B) does not want to export the good because the low cost means it makes only a low profit.
C) is best for the nation to not trade the good internationally.
D) will definitely import the good because it can beat other countries' prices.
E) might export or import the good, depending on whether or not it has a comparative advantage
in the production of the good.
Answer: A
Status: TPS
15) The country with a comparative advantage in the production of a good has a
A) lower opportunity cost of production.
B) higher opportunity cost of production.
C) horizontal production possibilities frontier.
D) vertical production possibilities frontier.
E) linear production possibilities frontier.
Answer: A
Status: SB
5
16) The United States imports t-shirts because
A) it is a dangerous job to produce them.
B) foreign nations have a lower opportunity cost of production.
C) the United States has a lower opportunity cost of production.
D) foreign economies have an absolute advantage in their production.
E) the United States must import goods and services from other countries so that they can
develop economically.
Answer: B
Status: WM
17) If the United States starts to import a good that had previously been produced in the United
States, the market price of the good in the United States
A) rises.
B) falls.
C) remains constant.
D) either remains constant or rises, depending on how whether the supply of the good stays the
same or increases.
E) There is not enough information to answer the question because we need to know if the
market price in the United States had been above or below the world market price before trade
began.
Answer: B
Topic: Imports
Status: TS
AACSB: Analytical reasoning
18) If the United States imports purses, then the quantity of purses produced in the United States
will ________ and the quantity of purses purchased by consumers in the United States will
________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) not change; increase
Answer: C
Topic: Imports
Status: MR
6
19) Most t-shirts bought by Americans are made in Asia. As a result of free trade, the production
of t-shirts in America has
A) increased.
B) stayed the same.
C) decreased.
D) been taken over by the government.
E) might change, but more information about what else the United States imports is needed to
determine if U.S. production increased, decreased, or did not change.
Answer: C
Topic: Imports
Status: JC
20) The United States imports t-shirts from Asia. As a result, U.S. consumers pay ________
otherwise and Asian producers receive ________ otherwise.
A) a higher price than; a higher price than
B) a higher price than; a lower price than
C) a lower price than; a higher price than
D) a lower price than; a lower price than
E) the same price as; the same price as
Answer: C
Topic: Imports
Skill: Level 3: Using models
Status: SB
21) If the world price of a good is below the no-trade domestic price, a country
A) will benefit from exporting the good.
B) will benefit from importing the good.
C) cannot benefit from trade.
D) has a comparative advantage in the production of that good.
E) will not engage in trade for that good.
Answer: B
Topic: Imports
Status: SB
7
22) Suevania opens its doors to trade with Barvania. Barvania has a comparative advantage in
the production of machinery. Hence, once trade occurs Suevania's consumers will buy ________
machinery and pay ________ before.
A) more; a higher price than
B) more; a lower price than
C) less; a higher price than
D) less; a lower price than
E) the same amount of; the same price as
Answer: B
Topic: Imports
Status: SB
23) If a nation imports a good that can be domestically produced, what happens to the quantity
consumed of the good and why?
A) The quantity consumed increases because the market price decreases.
B) The quantity consumed decreases because the market price increases.
C) The quantity consumed remains constant because the price is unchanged.
D) The quantity consumed increases because the nation produces more of the good.
E) The quantity consumed decreases because the market price decreases.
Answer: A
Topic: Imports
Status: Revised
24) A country will export a good if it

A) can sell the good to a foreigner at a higher price than the no-trade domestic price.
B) can sell the good to a foreigner at a lower price than the no-trade domestic price.
C) can dump the good on the world market.
D) has a high opportunity cost of production.
E) is impossible to import the good.
Answer: A
Topic: Exports
Status: NAU
8
25) A country exports a good if
A) it has a high opportunity cost of production.
B) the world price of the good is below the country's no-trade equilibrium price.
C) the world price of the good is above the country's no-trade equilibrium price.
D) the quantity demanded of the good in the country is greater than the quantity supplied at the
world price.
E) it cannot import the good.
Answer: C
Topic: Exports
Status: NAU
26) A nation will export a good if its

A) no-trade, domestic price is equal to the world price.
B) no-trade, domestic price is less than the world price
C) no-trade, domestic price is greater than the world price.
D) no-trade, domestic quantity is less than the world quantity.
E) no-trade, domestic quantity is greater than the world quantity.
Answer: B
Topic: Exports
Status: TS
27) As a result of importing a good, domestic consumers ________ the quantity consumed and
the price of the good ________.
A) increase; rises
B) increase; falls
C) decrease; rises
D) decrease; falls
E) increase; does not change
Answer: B
Topic: Imports
Status: TS
9
28) As a result of importing a good, domestic producers ________ the quantity produced and the
price of the good ________.
A) increase; rises
B) increase; falls
C) decrease; rises
D) decrease; falls
E) decrease; does not change
Answer: D
Topic: Imports
Status: MR
29) The above figure shows the U.S. market for flip-flops. When there is no international trade,
the U.S. price is ________ per flip-flop and the U.S. quantity is ________ flip-flops.
A) $12; 300,000
B) $14; 500,000
C) $12; 700,000
D) $14; 300,000
E) $14; 700,000
Answer: B
Topic: Imports
Status: KG
10
30) The above figure shows the U.S. market for flip-flops. With international trade, the
equilibrium price in the United States is ________ and the United States ________ flip-flops.
A) $12; imports
B) $12; does not trade
C) $12; exports
D) $14; imports
E) $14; does not trade
Answer: A
Topic: Imports
Status: KG
31) The above figure shows the U.S. market for flip-flops. With international trade, the United
States imports ________ flip-flops.
A) 300,000
B) 500,000
C) 700,000
D) 0 because the United States exports flip-flops
E) 400,000
Answer: E
Topic: Imports
Status: KG
32) The above figure shows the U.S. market for flip-flops. With international trade, U.S.
consumers buy ________ flip-flops and U.S. producers produce ________ flip-flops.
A) 500,000; 500,000
B) 300,000; 700,000
C) 500,000; 300,000
D) 700,000; 300,000
E) 700,000; 500,000
Answer: D
Topic: Imports
Status: KG
11
33) The above figure shows the U.S. market for flip-flops. With no international trade, the price
in the United States for flip-flops is ________. With international trade, the price in the United
States for flip-flops is ________.
A) $12; $14
B) $500; $300
C) $14; $12
D) $700; $300
E) $500; $700
Answer: C
Topic: Imports
Status: KG
34) With no international trade, the U.S. price of wheat is lower than the world price of wheat.
This indicates that the United States ________ a comparative advantage in the production of
wheat and with international trade, the United States will ________ wheat.
A) has; export
B) has; not trade
C) has; import
D) does not have; export
E) might have; export
Answer: A
Topic: Exports
Status: MR
35) Once international trade occurs, a country with a comparative advantage in the production of
a good will ________ production of the good and ________.
A) decrease; import the good
B) increase; export the good
C) not change; import the good
D) increase; import the good
E) decrease; export the good
Answer: B
Topic: Exports
Status: Revised
12
36) Airlines in other countries buy airplanes from Boeing because
A) it is illegal to produce airplanes in many other countries.
B) Boeing's prices are less than what the airlines would pay for planes built in their own country.
C) trade treaties require such purchases.
D) these nations must buy something from the United States.
E) None of the above answers is correct.
Answer: B
Topic: Exports
Status: SB
37) When a country exports a good because the world price is higher than the no-trade domestic
price, domestic purchases of the good ________ and domestic production of the good ________.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
E) do not change; increases
Answer: C
Topic: Exports
Status: SB
13
38) The table above has the domestic demand and domestic supply schedules for a good.
According to the table, the no-trade price of the good is
A) $4.
B) $6.
C) $8.
D) $10.
E) $2.
Answer: B
Topic: Trade
Status: NAU
39) The table above has the domestic demand and domestic supply schedules for a good. If the
world price of the good is $10 and international trade occurs, then according to the table
A) domestic production is higher before trade than after trade.
B) the country imports 16 units a day.
C) the country imports 6 units a day.
D) the country exports 6 units a day.
E) the country exports 22 units a day.
Answer: D
Topic: Trade
Status: NAU
14
40) According to the above table, the country will import the good if the world price is less than
________ and will export the good if the world price is more than ________.
A) $4; $4
B) $6; $6
C) $8; $4
D) $10; $10
E) $4; $8
Answer: B
Topic: Trade
Status: NAU
41) The figure above shows the U.S. demand and U.S. supply curves for cherries. In the absence
of international trade, cherry farmers would receive ________ per pound of cherries.
A) $0.50
B) $1.50
C) $2.50
D) $2.00
E) $1.00
Answer: B
Topic: Exports
Status: JC
15
42) The figure above shows the U.S. demand and U.S. supply curves for cherries. In the absence
of international trade, how many pounds of cherries would U.S. farmers produce?
A) 200,000 pounds
B) 400,000 pounds
C) 600,000 pounds
D) 800,000 pounds
E) 0 pounds
Answer: B
Topic: Exports
Status: JC
43) The figure above shows the U.S. demand and U.S. supply curves for cherries. Suppose the
world price of cherries is $2 per pound. At this price, U.S. consumption of cherries will equal
A) 200,000 pounds.
B) 400,000 pounds.
C) 600,000 pounds.
D) 800,000 pounds.
E) 0 pounds.
Answer: A
Topic: Exports
Status: JC
44) The figure above shows the U.S. demand and U.S. supply curves for cherries. At a world
price of $2 per pound once international trade occurs, the production of cherries in the United
States will equal
A) 200,000 pounds.
B) 400,000 pounds.
C) 600,000 pounds.
D) 800,000 pounds.
E) 0 pounds.
Answer: C
Topic: Exports
Status: JC
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price of $2 per pound once international trade occurs, the total exports of cherries from the
United States to other nations equals
A) 200,000 pounds.
B) 400,000 pounds.
C) 600,000 pounds.
D) 800,000 pounds.
E) 0 pounds.
Answer: B
Topic: Exports
Status: JC
price of $2 per pound once international trade occurs, the total imports of cherries to the United
States from other nations equals
A) 200,000 pounds.
B) 400,000 pounds.
C) 600,000 pounds.
D) 800,000 pounds.
E) 0 pounds.
Answer: E
Topic: Exports
Status: MR
17
47) The above figure shows the U.S. market for wheat. When there no international trade, the
U.S. price of wheat is ________ per ton and the U.S. equilibrium quantity is ________ tons.
A) $14; 300,000
B) $14; 500,000
C) $16; 500,000
D) $16; 300,000
E) $16; 700,000
Answer: B
Topic: Exports
Status: KG
48) The above figure shows the U.S. market for wheat. With international trade, the price of
wheat in the United States is ________ per ton and the United States ________ wheat.
A) $16; exports
B) $14; exports
C) $14; imports
D) $16; imports
E) $14; does not trade
Answer: A
Topic: Exports
Status: KG
18
49) The above figure shows the U.S. market for wheat. With international trade, the United
States exports ________ of wheat.
A) 300,000 tons
B) 500,000 tons
C) 700,000 tons
D) 400,000 tons
E) None of the above answers is. correct because the United States imports wheat.
Answer: D
Topic: Exports
Status: KG
50) The above figure shows the U.S. market for wheat. With international trade, U.S. consumers
buy ________ tons of wheat and U.S. producers produce ________ tons of wheat.
A) 700,000; 300,000
B) 500,000; 500,000
C) 300,000; 500,000
D) 300,000; 700,000
E) 500,000; 700,000
Answer: D
Topic: Exports
Status: KG
51) The above figure shows the U.S. market for wheat. With no international trade, the price of
wheat in the United States is ________ per ton. With international trade, the price of wheat in the
United States is ________ per ton.
A) $16; $14
B) $500; $300
C) $14; $16
D) $700; $300
E) $500; $700
Answer: C
Topic: Exports
Status: KG
19
52) Goods and services that we buy from firms in other countries are called our
A) imports.
B) exports.
C) inputs.
D) raw materials.
E) obligations.
Answer: A
Status: STUDY GUIDE
53) If the United States exports planes to Brazil and imports ethanol from Brazil, the price
received by U.S. producers of planes ________ and the price received by Brazilian producers of
ethanol ________.
A) does not change; does not change
B) rises; rises
C) rises; falls
D) falls; rises
E) falls; falls
Answer: B
Status: STUDY GUIDE
54) When Italy buys Boeing jets, the price Italy pays is ________ if it produced its own jets and
the price Boeing receives is ________ than it could receive from an additional U.S. buyer.
A) lower than; lower
B) higher than; higher
C) lower than; higher
D) higher than; lower
E) the same as; higher
Answer: C
Status: STUDY GUIDE
20
55) A nation will import a good if its no-trade, domestic
A) price is equal to the world price.
B) price is less than the world price.
C) price is greater than the world price.
D) quantity is less than the world quantity.
E) quantity is greater than the world quantity.
Answer: C
Topic: Trade
Status: STUDY GUIDE
56) When a good is imported, the domestic production of it ________ and the domestic
consumption of it ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) increases; does not change
Answer: C
Topic: Trade
Status: STUDY GUIDE
57) The United States exports a good if its no-trade U.S. price is ________ its world price. With
international trade, U.S. production of the good ________ compared to the level of no-trade
production.
A) higher than; does not change
B) higher than; increases
C) lower than; increases
D) the same as; increases
E) the same as; does not change
Answer: C
Topic: Trade
Status: STUDY GUIDE
21
9.2 Winners, Losers, and Net Gains from Trades
1) International trade benefits

A) only the exporter.
B) only the importer.
C) both the exporter and the importer.
D) neither the exporter nor the importer.
E) the exporter at all times and sometimes also the importer.
Answer: C
Topic: Gains from trade
Status: SB
2) Who gains from international trade?

A) only the exporting nation
B) only the importing nation
C) both the importing and the exporting nations
D) neither the importing nor the exporting nations
E) The gains depends on which nation gets to keep the total revenue from the sale
Answer: C
Status: TS
3) Most t-shirts bought by Americans are made in Asia. U.S. consumers of t-shirts buy these t-
shirts because
A) they pay a higher price for t-shirts made in Asia than they would for similar shirts made in the
United States.
B) they pay a lower price for t-shirts made in Asia than they would for similar shirts made in the
United States.
C) they must buy some goods or services produced in Asia.
D) by so doing they are helping preserve U.S. jobs producing t-shirts.
E) they know that the United States has a comparative advantage in wearing t-shirts.
Answer: B
Topic: Gains from imports
Status: JC
22
4) After a nation starts importing a good from overseas, the domestic price of the good
A) falls.
B) stays the same.
C) rises.
D) might change, but more information about what the country exports is needed to determine if
the price rises, falls, or does not change.
E) might change, but more information about what else the country imports is needed to
determine if the price rises, falls, or does not change.
Answer: A
Status: TPS
5) When a nation starts importing a good or service, domestic employment in that industry
A) decreases.
B) stays the same.
C) increases.
D) might change, but more information about what else the country imports is needed to
determine if employment increases, decreases, or does not change.
E) might change, but more information about what the country exports is needed to determine if
employment increases, decreases, or does not change.
Answer: A
Status: TPS
6) When a nation imports a good or service, the nation's consumer surplus ________, its
producer surplus ________, and its total surplus ________.
A) increases; decreases; increases
B) increases; decreases; decreases
C) increases; increases; increases
D) decreases; decreases; decreases
E) decreases; decreases; increases
Answer: A
Status: MR
23
7) When a nation imports a good, its ________ surplus decreases and its ________ surplus
increases.
A) consumer; producer
B) consumer; consumer
C) producer; producer
D) producer; consumer
E) total; consumer
Answer: D
Status: MR
8) When a nation imports a good, its ________ surplus decreases and its ________ surplus
increases.
D) producer; total
E) total; consumer
Answer: D
Status: MR
9) When a nation imports a good, its ________ surplus increases and its ________ surplus
increases.
D) producer; total
E) total; consumer
Answer: E
Status: MR
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10) When a nation imports a good, its consumer surplus ________, and its producer surplus
________.
B) decreases; decreases
C) increases; decreases
D) decreases; increases
E) does not change; increases
Answer: C
Status: MR
11) When a nation starts importing a good or service, the domestic production of the good or
service
A) decreases.
B) stays the same.
C) increases.
D) might change, but more information about what the country exports is needed to determine if
production increases, decreases, or does not change.
E) might change, but more information about what else the country imports is needed to
determine if production increases, decreases, or does not change.
Answer: A
Status: TPS
12) If Country A opens up their corn market to trade with the rest of the world and the global
price of corn is lower than the equilibrium price of corn in Country A, then Country A will
________ corn, which will ________ consumer surplus, ________ producer surplus, and
________ total surplus.
A) import; increase; decrease; increase
B) import; decrease; increase; increase
C) export; increase; decrease; increase
D) export; decrease; increase; increase
E) export; decrease; increase; decrease
Answer: A
Skill: Level 4: Applying models
Status: New
25
13) The above figure shows the U.S. market for chocolate. With no international trade, consumer
surplus is equal to
A) area A + area B + area C + area D.
B) area A.
C) area B + area C + area D.
D) area C + area D.
E) area E.
Answer: B
Status: KG
14) The above figure shows the U.S. market for chocolate. With international trade, consumer
surplus is equal to
B) area A.
D) area C + area D.
E) area E.
Answer: A
Status: KG
26
15) The above figure shows the U.S. market for chocolate. With no international trade, producer
surplus is equal to
B) area B + area C + area D + area E.
D) area C + area D.
E) area E.
Answer: E
Status: KG
16) The above figure shows the U.S. market for chocolate. With international trade, the gain in
total surplus is equal to
A) area B.
B) area A + area B + area C + area D.
C) area B + area C + area D + area E.
D) area C + area D.
E) area B + area C + area D.
Answer: D
Status: KG
17) The above figure shows the U.S. market for chocolate. With no international trade, consumer
surplus is equal to ________ and producer surplus is equal to ________.
A) area A + area B + area C + area D; area E
B) area B + area C + area D; area A + area E
C) area A; area E
D) area C + area D; area B + area E
E) area E; area A + area B + area C + area D
Answer: C
Status: KG
27
18) The above figure shows the U.S. market for chocolate. With international trade, ________ is
the transfer of surplus from producers to consumers.
A) area B +area C + area D
B) area B
C) area C + area D
D) area A
E) area E
Answer: B
Status: KG
19) When a nation exports a good or service in which it has a comparative advantage,
employment in that industry
A) decreases.
B) stays the same.
C) increases.
D) might change, but more information about what else the country exports is needed to
E) might change, but more information about what the country imports is needed to determine if
Answer: C
Topic: Gains from exports
Status: TPS
20) When a nation exports a good or service in which it has a comparative advantage, production
of the good or service
A) decreases.
B) stays the same.
C) increases.
D) might change, but more information about what the country imports is needed to determine if
production increases, decreases, or does not change.
E) might change, but more information about what else the country exports is needed to
determine if production increases, decreases, or does not change.
Answer: C
Status: TPS
28
21) When a nation exports a good or service, employment in that industry
A) decreases.
B) stays the same.
C) increases.
D) might change, but more information about what else the country exports is needed to
E) might change, but more information about what the country imports is needed to determine if
Answer: C
Status: TPS
22) When a nation exports a good, its consumer surplus ________, and its producer surplus
________.
E) does not change; increases
Answer: D
Status: MR
23) When a nation exports a good, its ________ surplus decreases and its ________ surplus
increases.
E) total; consumer
Answer: A
Status: MR
29
24) When a nation exports a good, its ________ surplus decreases and its ________ surplus
increases.
A) consumer; total
E) total; consumer
Answer: A
Status: MR
25) When a nation exports a good, its ________ surplus increases and its ________ surplus
increases.
A) consumer; total
D) producer; total
E) total; consumer
Answer: D
Status: MR
26) When a nation exports a good or service, the nation's consumer surplus ________, its
producer surplus ________, and its total surplus ________.
A) increases; decreases; increases
B) increases; decreases; decreases
C) increases; increases; increases
E) decreases; increases; increases
Answer: E
Status: MR
30
27) If Country A opens up their corn market to trade with the rest of the world and the global
price of corn is higher than the equilibrium price of corn in Country A, then Country A will
________ corn, which will ________ consumer surplus, ________ producer surplus, and
________ total surplus.
A) import; increase; decrease; increase
B) import; decrease; increase; increase
C) export; increase; decrease; increase
D) export; decrease; increase; increase
E) export; decrease; increase; decrease
Answer: D
Status: New
28) The above figure shows the U.S. market for wheat. When there is no international trade,
consumer surplus is equal to ________.
A) area A + area B + area C
B) area A
C) area E + area F
D) area B + area C + area D
E) area A + area B + area C + area D
Answer: A
Status: KG
31
29) The above figure shows the U.S. market for wheat. With international trade, consumer
surplus is equal to ________.
A) area A + area B + area C
B) area E + area F
C) area B + area C + area D
D) area A + area B + area C + area D
E) area A
Answer: E
Status: KG
30) The above figure shows the U.S. market for wheat. Without international trade, producer
A) area B + area C + area E + area F
B) area A
C) area B + area C +area D + area E + area F
D) area E + area F
E) area A + area B + area C + area D
Answer: D
Status: KG
31) The above figure shows the U.S. market for wheat. With international trade, the gain in total
A) area A
B) area B + area C
C) area D
D) area C + area F
E) area C + area D + area F
Answer: C
Status: KG
32
32) The above figure shows the U.S. market for wheat. With no international trade, consumer
surplus is equal to ________ and producer surplus is equal to ________.
A) area A; area B + area C + area E + area F
B) area A + area B + area C; area E + area F
C) area E + area F; area A
D) area B + area C + area D; area E + area F
E) area A + area B + area C + area D; area E + area F
Answer: B
Status: KG
33) The above figure shows the U.S. market for wheat. With international trade, ________ is the
transfer of surplus from consumers to producers.
A) area B + area C
B) area D
C) area C + area F
D) area C + area D
E) area B + area C + area D
Answer: A
Status: KG
34) When a nation exports a good, its total surplus ________, and when it imports a good, its
total surplus ________.
E) does not change; does not change
Answer: A
Status: MR
33
35) When a nation exports a good, its ________ surplus increases, and when it imports a good,
its ________ surplus increases.
A) total; total
E) total; consumer
Answer: A
Status: MR
A) consumer; total
E) total; consumer
Answer: A
Status: MR
E) total; consumer
Answer: D
Status: MR
34
38) When a nation exports a good, its ________ surplus decreases, and when it imports a good,
its ________ surplus decreases.
E) total; consumer
Answer: A
Status: MR
39) International trade is definitely in the social interest if

A) consumer surplus increases.
B) producer surplus increases.
C) consumer surplus does not decreases.
D) producer surplus does not decreases.
E) total surplus increases.
Answer: E
Status: STUDY GUIDE
40) Imports ________ consumer surplus, ________ producer surplus, and ________ total
surplus.
A) decrease; decrease; decrease
B) increase; increase; increase
C) increase; decrease; decrease
D) increase; decrease; increase
E) decrease; increase; increase
Answer: D
Status: STUDY GUIDE
35
41) When a country imports a good, the ________ in consumer surplus is ________ the
________ in producer surplus.
A) decrease; larger than; increase
B) decrease; smaller than; increase
C) increase; smaller than; decrease
D) increase; equal to; decrease
E) increase; larger than; decrease
Answer: E
Status: STUDY GUIDE
42) When a country exports a good, the country's producer surplus ________, consumer surplus
________, and the country ________ from the trade.
A) increases; increases; gains
B) decreases; increases; gains
C) increases; decreases; gains
D) decreases; decreases; loses
E) increases; decreases; loses
Answer: C
Status: STUDY GUIDE
43) Which of the following is correct?

i. U.S. total surplus decreases when the United States exports a good.
ii. U.S. total surplus decreases when the United States imports a good.
iii. U.S. total surplus increases when the United States imports a good and when it exports a
good.
A) i only
B) iii only
C) i and ii
D) ii only
E) None of the above because the U.S. total surplus does not change as a result of trade
Answer: B
Status: STUDY GUIDE
36
9.3 International Trade Restrictions
1) A tariff is
A) a tax imposed on imports.
B) any non-tax action used to restrict trade.
C) a tax imposed on exports.
D) any non-subsidy used to increase trade.
E) a subsidy granted to imports.
Answer: A
Topic: Trade restrictions
Status: WM
2) A tariff is a tax
A) on an exported good.
B) on an imported good.
C) imposed on all traded goods.
D) imposed on people's income.
E) imposed on the difference between the value of the goods a firm imports and the value of the
goods it exports.
Answer: B
Status: NAU
3) A tax on a good that is imposed by the importing country is called a

A) tariff.
B) nontariff barrier.
C) quantitative restriction.
D) licensing regulation.
E) trade constraint.
Answer: A
Status: SB
37
4) A tariff is
A) the domestic price charged by an exporting firm.
B) a tax on an imported good imposed by the importing country.
C) a licensing regulation that limits imports.
D) price dumping by a firm engaging in international trade.
E) the world price of a good or service.
Answer: B
Status: TS
5) Since the mid-1970s, the average U.S. tariff rate is

A) less than 5 percent.
B) between 6 percent and 15 percent.
C) between 16 percent and 25 percent.
D) between 26 percent and 35 percent.
E) larger than 36 percent.
Answer: A
Topic: Eye on the past, the history of the U.S. tariff
Status: NAU
6) Looking at the average tariff rate in the United States since 1930, we see that
A) at first tariffs declined, but have recently risen.
B) tariffs have trended downward for most of the period.
C) tariff levels have remained high, at over 50 percent throughout the period.
D) while we talk about free trade, tariff levels have risen over the last 30 years.
E) tariffs were made illegal in the United States in 1955.
Answer: B
Status: WM
38
7) During the past 70 years, the peak average tariff rate in the United States stemmed from the
A) creation of GATT in the middle of the 1940s.
B) Kennedy Administration in the early 1960s.
C) Uruguay round of GATT in the 1980s.
D) Smoot-Hawley Tariff Act in the early 1930s.
E) Clinton-Bush tariff of 2000-2001.
Answer: D
Status: JC
8) The agreement between the United States, Mexico, and Canada that sought to lower trade
barriers is known as
A) the General Agreement on Tariffs and Trade.
B) the North American Free Trade Agreement.
C) the World Trade Organization.
D) the Smoot-Hawley Tariff Act.
E) the New World Free Trade Agreement.
Answer: B
Status: JC
9) In the wake of worsening relations with China, some Americans called for an increase in
tariffs on Chinese products coming into America. If higher tariffs are imposed on clothing
produced in China, the price of clothing in America would
A) decrease.
B) increase.
C) not change.
D) first increase then decrease.
E) first decrease then increase.
Answer: B
Topic: Effects of tariffs
Status: JC
39
10) After a tariff is imposed on a good, the price of the good
A) does not change.
B) falls.
C) rises.
D) rises only if the domestic demand for the good does not change.
E) might rise, fall, or not change depending on whether the government did or did not
simultaneously impose a quota.
Answer: C
Status: TS
11) After a tariff is imposed, consumers must pay a price equal to the
A) world market price.
B) domestic equilibrium price when there is no trade.
C) world market price plus the tariff.
D) world market price less the tariff.
E) domestic equilibrium price when there is no trade plus the tariff.
Answer: C
Status: SB
12) Suppose the world price of widgets is $5 each. If a widget-importing country imposed a $2
per widget tariff, what price would that country's consumers pay for widgets?
A) $10
B) $7
C) $5
D) $3
E) A price that is greater than $5 and less than $7
Answer: B
Status: SB
40
13) Which of the following chain of events occurs when a tariff is imposed on a good?
A) Domestic prices rise, shifting the domestic supply curve rightward.
B) Domestic prices fall, shifting the demand curve rightward, and consumers buy more of the
good.
C) Domestic prices fall, decreasing the domestic quantity supplied and increasing the quantity
demanded.
D) Domestic prices rise, decreasing the quantity demanded and increasing the domestic quantity
supplied.
E) Domestic prices rise, shifting the demand curve leftward and the domestic supply curve
rightward.
Answer: D
Status: SB
14) The imposition of tariffs on Korean steel has led to ________ in imports of Korean steel to
the United States and ________ the price of steel in the United States.
A) no change; raised
B) a decrease; raised
C) an increase; lowered
D) a decrease; no change in
E) an increase; raised
Answer: B
Status: JC
15) As a result of U.S. tariffs imposed on wool from New Zealand, the quantity of this wool that
is imported has
A) decreased.
B) increased a little.
C) not changed.
D) increased a lot.
E) changed but whether it has increased or decreased is ambiguous.
Answer: A
Status: JC
41
16) Imposing a tariff on a good leads to a ________ in the price of the product and ________ in
imports.
A) rise; an increase
B) rise; a decrease
C) fall; an increase
D) fall; a decrease
E) rise; no change
Answer: B
Status: WM
17) As a result of U.S. tariffs on fishnets produced in other nations, the quantity of fishnets
purchased in the United States has
A) not been affected.
B) increased.
C) decreased but not to zero.
D) fallen to zero.
E) probably changed, but whether it has increased or decreased is ambiguous.
Answer: C
Status: JC
18) If the United States imposes a tariff on foreign chocolate, how are U.S. buyers of chocolate
affected?
A) The price they pay for chocolate rises.
B) Their demand for chocolate increases because the U.S. production chocolate increases.
C) The quantity they consume is unchanged.
D) The price they pay for chocolate falls but they consume less chocolate because less is
imported.
E) The price they pay for chocolate falls and they consume more chocolate.
Answer: A
Status: TPS
42
19) If the United States imposes a tariff on a good, then
A) domestic consumption of the good decreases.
B) foreign consumption of the good decreases.
C) foreign production of the good increases.
D) domestic production of the good decreases.
E) the government makes less revenue than it would have gained if it imposed a quota.
Answer: A
Status: NAU
20) When the United States imposes a tariff on an imported good, the
A) price of the good in the United States falls.
B) quantity of the good purchased in the United States decreases.
C) quantity of the good produced in the United States decreases.
D) outcome becomes more efficient.
E) amount imported increases.
Answer: B
Status: SB
21) U.S. tariffs on Canadian lumber have led to ________ production of lumber within the
United States.
A) no change in
B) an increase in
C) the elimination of
D) a decrease in
E) making illegal the
Answer: B
Status: JC
43
22) If the government decides to impose a new tariff on orange juice from Brazil, the tariff
would lead to ________ the tariff revenue collected by the U.S. government.
A) no change in
B) an increase in
C) a decrease in
D) an elimination of
E) making illegal
Answer: B
Status: JC
23) The imposition of a tariff will typically ________ government revenue and ________
domestic production of the good.
E) increase; not change
Answer: A
Status: WM
24) Country A imports 1,000 cars per month. After imposing a $50 per car tariff, imports fall to
800 cars per month. How much does Country A's government collect in tariff revenue?
A) $90,000
B) $50,000
C) $40,000
D) $10,000
E) $60,000
Answer: C
Status: SB
44
25) Of the following, which group is hurt by a tariff?
A) domestic producers of the good
B) foreign consumers of the good
C) domestic consumers of the good
D) domestic government
E) foreign government
Answer: C
Status: NAU
26) Of the following, who is harmed by a tariff?

A) domestic buyers of the good or service
B) the overall domestic economy
C) the foreign exporter of the good or service
D) domestic producers of the good or service
E) Both answers A and B are correct.
Answer: E
Status: TS
27) Relative to free trade, domestic consumers of a good are _______ off with a tariff because of
the ________.
A) better; higher price and greater quantity sold.
B) better; higher price and smaller quantity sold.
C) better; lower price and greater quantity sold.
D) worse; lower price and smaller quantity sold.
E) worse; higher price and greater quantity sold.
Answer: D
Status: New
45
28) If a tariff is imposed on imports of shrimp into the United States, U.S. consumer surplus
from shrimp will ________ and U.S. producer surplus from shrimp will ________.
Answer: C
Status: MR
29) If a tariff is imposed on imports of shrimp into the United States, U.S. consumer surplus
from shrimp will ________ and U.S. total surplus from shrimp will ________.
Answer: D
Status: MR
30) If a tariff is imposed on imports of shrimp into the United States, U.S. producer surplus from
shrimp will ________ and U.S. total surplus from shrimp will ________.
Answer: B
Topic: Effects of tariffs, inefficiency
Status: MR
46
31) A tariff makes the total economy
A) better off because it increases the domestic production of the good.
B) better off because it decreases the deadweight loss from international trade.
C) worse off because it creates a deadweight loss.
D) worse off because it creates revenue for the government.
E) worse off because it decreases both domestic consumer surplus and domestic producer
surplus.
Answer: C
Status: MR
32) Relative to free trade, when a tariff is imposed in a market for an imported good
A) the consumer surplus in that market increases.
B) the producer surplus in that market decreases.
C) the total surplus in that market decreases.
D) tariff revenue decreases.
E) deadweight loss decreases.
Answer: C
Status: New
33) Of the following, who gains because of tariffs and why?

A) domestic producers of protected goods because they can sell at a higher price
B) domestic buyers because they can be sure of buying high-quality products
C) foreign producers because they earn more total revenue
D) foreign government because they gain more revenue
E) domestic buyers because they pay a lower price
Answer: A
Status: TS
47
34) Relative to free trade, domestic producers of a good are _______ off with a tariff because of
the ________ .
A) better; higher price and greater quantity sold
B) better; higher price and smaller quantity sold
C) better; lower price and greater quantity sold
D) worse; lower price and smaller quantity sold
E) worse; higher price and greater quantity sold
Answer: A
Status: New
35) If the United States imposes a tariff on foreign chocolate, how are U.S. producers of
chocolate affected?
A) The quantity of chocolate they sell decreases because U.S. consumption of chocolate
decreases.
B) The quantity of chocolate they produce increases.
C) The price at which they sell their chocolate falls.
D) They are harmed because foreign exporters of chocolate increase their supply in response to
the higher price.
E) They are unaffected because the quota applies to foreign producers, not to U.S. producers.
Answer: B
Status: TPS
36) If the United States imposes a tariff on foreign chocolate, how are foreign producers of
chocolate affected?
A) Their supply increases because they have to pay the tariff.
B) They export less to the United States.
C) They earn more profit because their chocolate sells for a higher price.
D) Their supply is unaffected because the quota must be met by U.S. producers.
E) The tariff has no effect on foreign producers because U.S. consumers must pay the higher
price.
Answer: B
Status: TPS
48
37) The above figure shows the U.S. market for replacement cell phone batteries. When there is
no international trade, the equilibrium price is ________ per battery and when there is
international trade the equilibrium price is ________ per battery.
A) $16; $14
B) $14; $12
C) $12; $14
D) $12; $16
E) $16; $12
Answer: E
Topic: Tariffs
Status: KG
38) The above figure shows the U.S. market for replacement cell phone batteries. With free
international trade, the United States
A) exports 300,000 batteries.
B) imports 400,000 batteries.
C) imports 500,000 batteries.
D) imports 800,000 batteries.
E) exports 700,000 batteries.
Answer: D
Topic: Imports
Status: KG
49
39) The above figure shows the U.S. market for replacement cell phone batteries. Suppose the
U.S. government imposes the tariff illustrated in the figure. The tariff is equal to ________ and
the price U.S. consumers pay ________ compared to the price paid when there was free trade.
A) $2; decreases
B) $14; decreases
C) $2; increases
D) $12; increases
E) $14; increases
Answer: C
Status: KG
trade, the United States imports ________ batteries and once the tariff illustrated in the figure is
imposed, the United States imports ________ batteries.
A) 900,000; 700,000
B) 800,000; 400,000
C) 300,000; 100,000
D) 700,000; 300,000
E) 900,000; 100,000
Answer: B
Status: KG
trade, U.S. production is equal to ________ batteries per year. When a $2 tariff is in place, U.S.
production is equal to ________ batteries per year.
A) 100,000; 300,000
B) 100,000; 500,000
C) 300,000; 100,000
D) 300,000; 500,000
E) 900,000; 700,000
Answer: A
Status: KG
50
42) The above figure shows the U.S. market for replacement cell phone batteries. The U.S.
government collects tariff revenue of ________ on each battery imported.
A) $4
B) $14
C) $12
D) $6
E) $2
Answer: E
Topic: Effects of tariffs, government revenue
Status: KG
43) The above figure shows the U.S. market for replacement cell phone batteries. Area C is the
A) deadweight loss from tariff.
B) decrease in consumer surplus due to the tariff.
C) increase in producer surplus due to the tariff.
D) tariff revenue.
E) loss in total surplus because of the tariff.
Answer: D
Status: KG
44) The above figure shows the U.S. market for replacement cell phone batteries. Area B + area
D is the
A) tariff revenue.
B) decrease in consumer surplus due to the tariff.
C) deadweight loss from tariff.
D) increase in producer surplus due to the tariff.
E) gain in total surplus due to the tariff.
Answer: C
Status: KG
51
45) The above figure shows the U.S. market for replacement cell phone batteries. Area A + area
E is the
A) consumer surplus when there is a tariff.
B) producer surplus when there is a tariff.
C) tariff revenue.
Answer: B
Topic: Tariffs
Status: KG
46) The above figure shows the U.S. market for replacement cell phone batteries. Area E is the
A) producer surplus when there is free trade.
B) deadweight loss from tariff.
C) tariff revenue.
Answer: A
Topic: Tariffs
Status: KG
47) Of the following, who gains with a tariff?

B) the importer of the good or service
D) the government of the importing nation
E) the government of the exporting nation
Answer: D
Status: TS
52
48) If the U.S. government imposes a tariff on imported steel, who else besides U.S. steel
producers gains from the tariff?
A) U.S. steel consumers
B) the U.S. government
C) U.S. importers of steel
D) foreign exporters of steel
E) the foreign government
Answer: B
Status: TPS
49) Of the following, who gains from a tariff?

A) the government of the importing country
B) the government of the exporting country
C) consumers in the importing country
D) producers in the exporting country
E) both the government of the exporting country and the government of the importing country
Answer: A
Status: NAU
50) Which type of policy raises the most revenue for the government?
A) tariff
B) quota
C) voluntary export restraints
D) If they are set at the same level, all of the above raise the same amount of revenue.
E) None of the above answers is correct because none of the policies raise revenue for the
government.
Answer: A
Status: NAU
53
51) The difference between a tariff and a quota is that the revenue from the tariff goes to the
A) domestic consumer.
B) domestic producer.
C) domestic government.
D) foreign producers.
E) foreign government.
Answer: C
Status: Revised
52) The table above gives the domestic demand and supply schedules for a good. Suppose the
world price of the good is $40 and the government imposes a $20 per unit tariff. How much will
the government collect as tariff revenue?
A) $160
B) $320
C) $80
D) $240
E) $360
Answer: C
Status: NAU
54
53) A quota is
A) a tax on imports.
B) a specified minimum amount that must be imported.
C) a specified maximum amount that can be imported.
D) a tariff on exports.
E) the minimum amount that domestic firms can dump.
Answer: C
Topic: Quotas
Status: WM
54) A quota is a
A) quantitative restriction on an import imposed by the importing country.
B) quantitative restriction on an import imposed by the exporting country.
C) restriction on how much a customer can buy of a scarce good imposed by the seller.
D) tax that is imposed on a good when it crosses an international boundary.
E) trade barrier that does not harm domestic consumers of the good or service.
Answer: A
Topic: Quotas
Status: TS
55) When governments specify the maximum amount of a good that may be imported in a given
period of time, they are establishing a
A) tariff.
B) quota.
C) dynamic tariff.
D) tax.
E) dumping limit.
Answer: B
Topic: Quotas
Status: SB
55
56) A specified maximum amount of the good that may be imported in a given period of time is
a
A) forcible limit.
B) quota.
C) tariff.
D) sanction.
E) dumping limit.
Answer: B
Topic: Quotas
Status: JC
57) The imposition of a quota ________ domestic production, ________ imports, and ________
domestic purchases.
A) increases; decreases; decreases
B) increases; decreases; increases
C) decreases; increases; decreases
E) increases; increases; increases
Answer: A
Topic: Effects of quotas
Status: WM
58) Of the following, who gains with a quota?

B) the importer of the good or service
D) the government of the importing nation
E) the government of the exporting nation
Answer: B
Status: TS
56
59) If the United States imposed a quota on the amount of salmon imported from Chile, the result
would be ________ salmon prices in the United States and ________ in the quantity of salmon
demanded in the United States.
A) higher; an increase
B) higher; a decrease
C) lower; an increase
D) lower; a decrease
E) higher; no change
Answer: B
Status: JC
60) If a quota is imposed on imports of shrimp into the United States, U.S. consumer surplus
from shrimp will ________ and U.S. producer surplus from shrimp will ________.
Answer: C
Status: MR
61) If an import quota is imposed on imports of shrimp into the United States, U.S. consumer
surplus from shrimp will ________ and U.S. total surplus from shrimp will ________.
Answer: D
Status: MR
57
62) If an import quota is imposed on imports of shrimp into the United States, U.S. producer
surplus from shrimp will ________ and U.S. total surplus from shrimp will ________.
Answer: B
Status: MR
63) A quota ________ a deadweight loss and a tariff ________ a deadweight loss.
A) creates; creates
B) creates; does not create
C) does not create; creates
D) does not create; does not create
E) might create; might create
Answer: A
Status: MR
58
64) The above figure shows the U.S. market for 1 carat diamonds. With free trade, Americans
buy ________ diamonds and pay a price of ________ per diamond.
A) 500,000; $4,000
B) 300,000; $3,000
C) 700,000; $3,000
D) 300,000; $4,000
E) 900,000; $2,000
Answer: E
Status: KG
65) The above figure shows the U.S. market for 1 carat diamonds. With free trade, the United
States produces ________ diamonds and imports ________ diamonds.
A) 300,000; 600,000
B) 0; 900,000
C) 100,000; 900,000
D) 100,000; 800,000
E) 500,000; 400,000
Answer: D
Status: KG
59
66) The above figure shows the U.S. market for 1 carat diamonds. Suppose the United States
imposes the import quota shown in the figure. With the import quota, how many diamonds can
be imported?
A) 500,000
B) 700,000
C) 400,000
D) 900,000
E) 300,000
Answer: C
Status: KG
67) The above figure shows the U.S. market for 1 carat diamonds. The free trade, the price in the
United States for diamonds is equal to ________ and with the quota illustrated in the figure, the
price in the United States is equal to ________.
A) $4,000; $2,000
B) $2,000; $3,000
C) $4,000; $3,000
D) $2,000; $2,000
E) $2,000; $4,000
Answer: B
Status: KG
68) The above figure shows the U.S. market for 1 carat diamonds. With free trade, U.S.
production of diamonds is equal to ________ diamonds. When the quota illustrated in the figure
is in place, U.S. production is equal to ________ diamonds.
A) 100,000; 300,000
B) 100,000; 500,000
C) 300,000; 100,000
D) 300,000; 500,000
E) 900,000; 700,000
Answer: A
Status: KG
60
69) The above figure shows the U.S. market for 1 carat diamonds. Area B + area D is the
A) decrease in consumer surplus due to the import quota.
B) importers' profit from the quota.
C) gain in total surplus due to the import quota.
D) deadweight loss from the import quota.
E) increase in producer surplus due to the import quota.
Answer: D
Status: KG
70) The above figure shows the U.S. market for 1 carat diamonds. Area A + area B + area C +
area D is the
A) deadweight loss from the import quota.
C) decrease in consumer surplus due to the import quota.
D) gain in total surplus due to the import quota.
E) increase in producer surplus due to the import quota.
Answer: C
Status: KG
71) The above figure shows the U.S. market for 1 carat diamonds. Area C is the
A) decrease in consumer surplus due to the import quota.
C) deadweight loss from the import quota.
D) increase in producer surplus due to the import quota.
E) gain in total surplus due to the import quota.
Answer: B
Status: KG
61
72) The above figure shows the U.S. market for 1 carat diamonds. Area A is the
A) increase in producer surplus due to the import quota.
B) importers' profit from the import quota.
C) decrease in consumer surplus due to the import quota.
D) deadweight loss from the import quota.
E) gain in total surplus due to the import quota.
Answer: A
Status: KG
73) If the United States negotiates a voluntary export restraint with international sugar producing
nations, then
A) U.S. sugar buyers pay a lower price for sugar.
B) U.S. sugar producers produce a smaller quantity.
C) imports of sugar increase.
D) the U.S. government collects less revenue than if it imposed a tariff on sugar.
E) the foreign governments collect more revenue than if a tariff is imposed on sugar.
Answer: D
Topic: Voluntary export restraint
Status: TPS
74) Which of the following methods of restricting trade does NOT create a deadweight loss?
A) a tariff
B) a quota
C) a voluntary export restraint
D) Both answers A and B are correct.
E) None of the above answers is correct because all the methods create a deadweight loss
Answer: E
Status: TPS
62
75) Economists argue for free trade in import markets because
A) all consumers and producers benefit from importing goods.
B) the gains to the U.S. producers outweigh the losses to the U.S. consumers.
C) the gains to the U.S. consumers outweigh the losses to the U.S. producers.
D) no one is made worse off by importing goods.
E) importing goods decreases total surplus.
Answer: C
Skill: Level 5: Critical thinking
Status: New
76) Economists argue for free trade in export markets because

A) all consumers and producers benefit from exporting goods.
B) the gains to the U.S. producers outweigh the losses to the U.S. consumers.
C) the gains to the U.S. consumers outweigh the losses to the U.S. producers.
D) no one is made worse off by exporting goods.
E) exporting goods decreases total surplus.
Answer: B
Status: New
77) A tax on a good that is imposed when it is imported is called

A) an import quota.
B) a VER.
C) a tariff.
D) a sanction.
E) a border tax.
Answer: C
Status: STUDY GUIDE
63
78) The average U.S. tariff was highest in the
A) 1930s.
B) 1940s.
C) 1970s.
D) 1980s.
E) 1990s.
Answer: A
Status: STUDY GUIDE
79) Suppose the world price of a shirt is $10. If the United States imposes a tariff of $5 a shirt,
then the price of a shirt in the
A) United States falls to $5.
B) United States rises to $15.
C) world falls to $5.
D) world rises to $5.
E) world rises to $15
Answer: B
Status: STUDY GUIDE
80) When a tariff is imposed on a good, the ________ increases.

A) domestic quantity purchased
B) domestic quantity produced
C) quantity imported
D) quantity exported
E) world price
Answer: B
Status: STUDY GUIDE
64
81) When a tariff is imposed on a good, domestic consumers of the good ________ and domestic
producers of the good ________.
A) win; lose
B) lose; win
C) win; win
D) lose; lose
E) lose; neither win nor lose
Answer: B
Status: STUDY GUIDE
82) Which of the following parties benefits from an import quota but not from a tariff?
A) the domestic government
B) domestic producers
C) domestic consumers
D) the person with the right to import the good
E) the foreign government
Answer: D
Status: STUDY GUIDE
9.4 The Case Against Protection
1) If supporters of restrictions on imports argue that protection is needed to preserve a strategic

industry, which of the following is being used?
A) Save domestic jobs argument
B) National security argument
C) Dumping argument
D) Infant-industry argument
E) Protecting national culture argument
Answer: B
Topic: National security argument
Status: TPS
65
2) Which of the following is the national security argument against free trade?
A) A country must protect industries that produce defense equipment and armaments.
B) A country must protect new industries to give them a chance to mature before facing foreign
competition.
C) A country must protect firms from dumping by foreign companies.
D) A country must protect its consumers from foreign influences.
E) A country must preserve its jobs.
Answer: A
Status: SB
3) What is the national security argument to support protection from international trade?
A) Domestic firms must be protected until they gain a comparative advantage.
B) Any firm necessary in wartime must be protected.
C) Foreign producers selling below cost to drive domestic firms bankrupt must be stopped.
D) Domestic jobs must be protected from competition from low-paid foreign workers.
E) Foreigners selling products in the economy limit the nation's diversity and stability.
Answer: B
Status: TS
4) What is the infant-industry argument for protection from international trade?

Answer: A
Topic: Infant industry
Status: TS
66
5) When protection is encouraged to protect a growing domestic industry; which of the following
is being used?
C) Anti-dumping argument
E) Diversity and stability argument
Answer: D
Status: TPS
6) The infant-industry argument is used by those who assert they want to

A) limit imports to protect new industries.
B) increase exports to encourage growth of new industries.
C) limit exports.
D) increase imports to earn money to support new industries.
E) encourage foreign firms to dump in the United States.
Answer: A
Status: WM
7) The infant-industry argument for protection is based on the idea of

A) learning-by-doing.
B) dumping.
C) absolute advantage.
D) quotas are the least harmful method of protecting domestic firms.
E) saving jobs in the U.S. economy.
Answer: A
Status: SB
67
8) What is the dumping argument for protection from international trade?
Answer: C
Topic: Dumping
Status: TS
9) When a tariff supporter argues that foreign producers are selling their products for prices
below the costs of production, which of the following is being used?
C) Dumping argument
Answer: C
Topic: Dumping
Status: TPS
10) Dumping is defined as the situation in which

A) domestic producers sell a product at prices below the cost of production.
B) foreign producers sell a product at a price below the cost of production.
C) foreign producers sell a product at a price above a fair level.
D) domestic producers cut production to drive up domestic prices.
E) domestic producers are protected by tariffs.
Answer: B
Topic: Dumping
Status: WM
68
11) Which of the following is NOT a major argument for restricting international trade?
A) the promotion of dumping in America
B) the national security argument
C) the infant industry argument
D) the prevention of dumping argument
E) saves U.S. jobs argument
Answer: A
Topic: Dumping
Status: JC
12) Suppose the United States subsidizes domestic chicken production and then sells surpluses
on the world market at a price below the cost of production. In foreign countries, the argument
that would made to restrict chicken trade with the United States would be the
A) penalizes lax environmental standards argument.
B) saves jobs argument.
C) infant-industry argument.
D) dumping argument.
E) national security argument.
Answer: D
Topic: Dumping
Status: New
13) A flawed argument for protection from foreign trade is that

i. tariffs save domestic jobs.
ii. tariffs protect the national culture.
iii. quotas bring about diversity and stability.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Answer: E
Topic: Protection
Status: JC
69
14) Which of the following is an argument that is used for protection from free trade?
i. the national security argument
ii. the infant-industry argument
iii. the dumping argument
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Answer: E
Topic: Protection
Status: SB
15) When politicians debated the North American Free Trade Agreement (NAFTA), some told
stories of U.S. workers whose jobs would be moved to Mexico. Which of the following
arguments in favor of protection was being used?
C) Anti-dumping argument
Answer: A
Topic: Saving jobs
Status: TPS
16) The argument that jobs are lost to free trade is

A) totally false because no jobs are lost to free trade.
B) correct because jobs are lost but foreign countries are helped and we can afford losses.
C) incorrect because no jobs are lost and new jobs are created by trade.
D) correct because some jobs are lost but incorrect because new jobs also are created.
E) true only when tariffs are imposed on the goods being imported.
Answer: D
Topic: Saving jobs
Status: WM
70
17) International trade decreases the demand for workers in domestic industries that
A) produce goods that are exported from the country.
B) produce goods that are imported into the country.
C) help businesses import and export.
D) service imported goods.
E) produce the goods in which the nation has a comparative advantage.
Answer: B
Topic: Saving jobs
Status: SB
18) What is an effective counter against the argument that international trade should be restricted
to protect domestic jobs?
A) A more effective policy would be to support the industry with subsidies.
B) The more diversified the economy, the more stable it is.
C) Free trade increases the number of jobs in which workers earn higher incomes.
D) Rent seeking behavior should be encouraged.
E) Free trade in "green" goods will increase jobs.
Answer: C
Topic: Saving jobs
Status: TS
19) The typical relationship between a worker's productivity and the worker's wage rate is
A) high productivity workers receive low wage rates.
B) low productivity workers receive low wage rates.
C) no link between productivity and wages earned.
D) high productivity workers find that their jobs are often outsourced.
E) that workers with high productivity need to have their high wages protected by tariffs.
Answer: B
Topic: Cheap foreign labor
Status: WM
71
20) While high-paid American workers fear competition with low-paid foreign workers, low-
paid foreign workers fear competition with high-paid American workers. Why?
A) It is completely irrational and unfounded.
B) Because America has such a large market it can protect its workers.
C) Because high wages reflect high worker productivity and the low-paid foreign workers are not
as productive.
D) Because high wages are the result of extensive tariff and other trade restrictions.
E) Because high wages mean that U.S. workers can buy more goods and services.
Answer: C
Status: TS
21) The ________ are hurt by importing a good.

A) domestic consumers of the good
B) domestic producers of the good
C) domestic governments
D) foreign producers of the good
E) foreign governments
Answer: B
Topic: Why is trade restricted?
Status: TS
22) When the United States imports goods from the rest of the world, which of the following
parties is harmed?
i. domestic producers of the good
ii. domestic consumers of the good
iii. foreign producers of the good
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Answer: A
Status: SB
72
23) The two main reasons why international trade is restricted is because restricting trade means
that governments can ________ and because domestic businesses ________.
A) create jobs; earn profits
B) obtain revenue; rent seek
C) rent seek; want to dump
D) prevent dumping; want to dump
E) rent seek; obtain revenue
Answer: B
Status: JC
24) Comparing developed and developing nations in their use of tariffs, we see that
A) the developing nations' governments get very little revenue from tariffs.
B) both governments get large amounts of revenue from tariffs.
C) many developing nations' governments get a large portion of their revenue from tariffs.
D) developing nations almost never impose tariffs because they want their people to obtain
goods and services at the lowest possible price.
E) developed nations rely much more than developing nations on tariff revenue.
Answer: C
Status: WM
25) A major reason why it is difficult to lower the barriers to free trade is
A) that total benefits are less than total costs from free trade.
B) the uneven distribution of gains and losses from free trade.
C) the loss of jobs without any gain of jobs from free trade.
D) the inability to compensate losers from free trade.
E) that the barriers allow us to compete with cheap foreign labor.
Answer: B
Status: WM
73
26) What is rent seeking with respect to restricting international trade?
A) The rent on factory buildings increases if trade is restricted.
B) The government avoids paying rent on buildings when importers pay the tariff.
C) An attempt to capture the gains from trade by imposing a tariff.
D) The government's efforts to capture tariff rents.
E) The attempt by importers to avoid paying a tariff.
Answer: C
Topic: Rent seeking
Status: TPS
27) Which of the following groups gain from international trade?

i. producers of exported goods
ii. domestic consumers of imported goods
iii. workers in exporting firms
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Answer: E
Status: TS
28) Why are the losers from free international trade not fully compensated for their losses?
A) The amount of compensation needed would bankrupt the government.
B) The people who claim to lose are also the same ones who benefit.
C) Identifying all losers and the size of their losses is extremely difficult.
D) No one actually loses from international trade.
E) The losers are foreigners.
Answer: C
Status: TS
74
29) Trade is often restricted because the
A) total gain to all producers is larger than the total loss to all consumers.
B) total gain to all producers is smaller than the total loss to all consumers.
C) gain per producer is larger than the loss per consumer.
D) gain per producer is less than the loss per consumer.
E) gain per consumer is larger than the loss per producer.
Answer: C
Status: NAU
30) The national security argument is used by those who assert they want to
A) increase imports as a way of strengthening their country.
B) increase exports as a way of earning money to strengthen their country.
C) limit imports that compete with domestic producers important for national defense.
D) limit exports to control the flow of technology to third world nations.
E) limit all imports.
Answer: C
Status: STUDY GUIDE
31) The argument that it is necessary to protect a new industry to enable it to grow into a mature
industry that can compete in world markets is known as the
A) national security argument.
B) diversity argument.
C) infant-industry argument.
D) environmental protection argument.
E) national youth protection argument.
Answer: C
Status: STUDY GUIDE
75
32) ________ occurs when a foreign firm sells its exports at a lower price than its cost of
production.
A) Dumping
B) The trickle-down effect
C) Rent seeking
D) Tariff avoidance
E) Nontariff barrier protection
Answer: A
Topic: Dumping
Status: STUDY GUIDE
33) The United States

A) needs tariffs to allow us to compete with cheap foreign labor.
B) does not need tariffs to allow us to compete with cheap foreign labor.
C) should not trade with countries that have cheap labor.
D) will not benefit from trade with countries that have cheap labor.
E) avoids trading with countries that have cheap labor.
Answer: B
Status: STUDY GUIDE
34) Why do governments in less-developed nations impose tariffs?

A) The government gains revenue from the tariff.
B) The government's low-paid workers are protected from high-paid foreign workers.
C) The nation's total income will be increased.
D) The national security of the country definitely is improved.
E) The government diversify its economy.
Answer: A
Status: STUDY GUIDE
76
35) What is a major reason international trade is restricted?
A) rent seeking
B) to allow competition with cheap foreign labor
C) to save jobs
D) to prevent dumping
E) to eliminate monopolies
Answer: A
Status: STUDY GUIDE
77
9.5 Chapter Figures
The figure above shows the U.S. market for T-shirts, where SUS is the domestic supply curve
and DUS is the domestic demand curve. The United States trades freely with the rest of the
world. The world price of a T-shirt is $5.
1) In the figure above, with international trade U.S. consumers buy ________ million T-shirts
per year at ________ per T-shirt.
A) 60; $5
B) 40; $8
C) 20; $5
D) 40; $5
E) 60; $11
Answer: A
Topic: Imports
Status: CO
78
2) Based on the figure above, as a result of international trade, U.S. domestic production
________ million T-shirts per year.
A) decreases by 20
B) increases by 20
C) decreases by 10
D) increases by 40
E) increases by 10
Answer: A
Topic: Imports
Status: CO
3) In the figure above, with international trade the United States ________ million T-shirts per
year.
A) imports 40
B) exports 40
C) exports 20
D) imports 20
E) imports 60
Answer: A
Topic: Imports
Status: CO
4) Based on the figure above, as a result of international trade, consumer surplus

A) increases by $150 million.
B) decreases by $150 million.
C) increases by $90 million.
D) decreases by $90 million.
E) remains unchanged.
Answer: A
Status: CO
79
5) Based on the figure above, as a result of international trade, producer surplus
A) increases by $150 million.
B) decreases by $150 million.
C) increases by $90 million.
D) decreases by $90 million.
Answer: D
Status: CO
6) Based on the figure above, international trade leads to

A) a net gain of surplus of $60 million.
B) a net loss of surplus of $60 million.
C) a net gain of surplus of $90 million.
D) a net loss of surplus of $90 million.
E) no net gain or loss of surplus.
Answer: A
Status: CO
80
The figure above shows the U.S. market for airplanes, where SUS is the domestic supply curve
and DUS is the domestic demand curve. The United States trades freely with the rest of the
world. The world price of an airplane is $150 million.
7) Based on the figure above, as a result of international trade, U.S. domestic production
________ airplanes per year.
A) decreases by 200
B) increases by 300
C) decreases by 100
D) increases by 500
E) increases by 200
Answer: B
Topic: Exports
Status: CO
81
8) In the figure above, U.S. consumers buy ________ airplanes per year at ________ million per
airplane.
A) 200; $150
B) 400; $100
C) 700; $150
D) 400; $150
E) 200; $100
Answer: A
Status: CO
9) In the figure above, the United States ________ airplanes per year.
A) imports 500
B) exports 500
C) exports 400
D) imports 400
E) exports 200
Answer: B
Topic: Exports
Status: CO
10) Based on the figure above, as a result of international trade, consumer surplus
A) increases by $15 billion.
B) decreases by $15 billion.
C) increases by $27.5 billion.
D) decreases by $12.5 billion.
Answer: B
Status: CO
82
11) Based on the figure above, as a result of international trade, producer surplus
A) increases by $15 billion.
B) decreases by $15 billion.
C) increases by $27.5 billion.
D) decreases by $12.5 billion.
Answer: C
Status: CO
12) Based on the figure above, international trade leads to

A) a net gain in surplus of $12.5 billion.
B) a net loss of surplus of $12.5 billion.
C) a net gain in surplus of $27.5 billion.
D) a net loss of surplus of $15 billion.
E) no net gain or loss of surplus.
Answer: A
Status: CO
83
The figure above shows the U.S. market for T-shirts, where SUS is the domestic supply curve
and DUS is the domestic demand curve. The world price of a T-shirt is $5. The U.S. government
imposes a $2 per unit tariff on imported T-shirts.
13) The figure above shows that as a result of the tariff, the price of a T-shirt in the United States
________, and the quantity of T-shirts bought ________.
A) rises by $2; decreases by 15 million per year
B) rises by $2; increases by 15 million per year
C) falls by $2; increases by 5 million per year
D) does not change; decreases by 5 million per year
E) does not change; does not change
Answer: A
Status: CO
84
14) The figure above shows that as a result of the tariff, the quantity of T-shirts produced in the
United States ________, and the quantity of T-shirts imported ________.
A) increases by 15 million per year; decreases by 30 million per year
B) increases by 15 million per year; increases by 15 million per year
C) decreases by 15 million per year; decreases by 30 million per year
D) decreases by 30 million per year; increases by 30 million per year
E) does not change; decreases by 15 million per year
Answer: A
Status: CO
15) The figure above shows that as a result of the tariff, consumer surplus in the United States
A) decreases by $105 million per year.
B) increases by $55 million per year.
C) decreases by $30 million per year.
D) decreases by $20 million per year.
Answer: A
Status: CO
16) The figure above shows that as a result of the tariff, producer surplus in the United States
A) decreases by $105 million per year.
B) increases by $55 million per year.
C) decreases by $30 million per year.
D) decreases by $20 million per year.
Answer: B
Status: CO
85
17) The figure above shows that the government revenue from the tariff is
A) $20 million per year.
B) $30 million per year.
C) $15 million per year.
D) $55 million per year.
E) zero.
Answer: A
Status: CO
18) The figure above shows that the deadweight loss from the tariff is
A) $20 million per year.
B) $30 million per year.
C) $15 million per year.
D) $55 million per year.
E) zero.
Answer: B
Status: CO
19) The figure above shows that the U.S. net ________ surplus from the tariff is ________.
A) loss of; 30 million per year
B) gain in; $20 million per year
C) loss of; $10 million per year
D) gain in; $55 million per year
E) gain in; zero
Answer: A
Status: CO
86
9.6 Integrative Questions
1) Assume that the state of Missouri decided to place a tariff on every product produced outside
the state in an effort to increase the state's revenue and increase employment in the state. If
Missouri did so,
A) the state's total output would definitely increase.
B) workers with jobs in new firms replacing out-of-state imports would earn high income.
C) the standard of living within Missouri would decrease.
D) other states would begin to dump in Missouri.
E) the prices of goods imported into Missouri would fall.
Answer: C
Topic: Integrative
Section: Integrative
Status: TPS
2) During the 1980s, Harley-Davidson, the American motorcycle maker asked Congress for tariff
protection from large motorcycles imported from Japan. Harley-Davidson argued that their
company needed protection so the company could reorganize and, after some time had passed,
could become more competitive. Harley-Davidson's argument is similar to the ________
argument for protection.
A) save domestic jobs
B) national security
C) anti-dumping
D) infant-industry
E) bring diversity and stability
Answer: D
Topic: Integrative
Status: TPS
3) In the 1950s, crude oil and natural gas imports were restricted to keep the domestic industries
viable in case of a war. The rationale for this protection is the ________ argument for protection.
C) anti-dumping
D) infant-industry
E) penalizing lax environmental standards
Answer: B
Topic: Integrative
Status: TPS
87
4) In the 1980s, the U.S. government forced Japanese automakers to limit their exports to the
United States. The union representing the autoworkers (UAW), argued that otherwise the U.S.
auto industry would have contracted. The UAW's argument is the ________ argument for
protection.
C) anti-dumping
D) infant-industry
E) bringing diversity and stability
Answer: A
Topic: Integrative
Status: TPS
5) In 2002, President Bush imposed a tariff on imported steel. He did so in response to rent
seeking by
A) domestic steel consumers.
B) domestic steel producers.
C) foreign steel consumers.
D) foreign steel producers.
E) foreign politicians.
Answer: B
Topic: Integrative
Status: TPS
6) Which of the following is true?

i. Comparative advantage drives international trade.
ii. Compared to a no-trade situation, in a market with imports, producer surplus is larger.
iii. Tariffs lower the domestic price of imported goods.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) i and iii
Answer: A
Topic: Integrative
Status: CO
88
i. When the world price of a good is lower than the price that balances domestic supply and
demand, a country gains from exporting the good.
ii. Compared to a no-trade situation, in a market with imports, consumer surplus is larger.
iii. Quotas raise the domestic price of imported goods.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) ii and iii
Answer: E
Topic: Integrative
Status: CO

i. Compared to a no-trade situation, in a market with exports, consumer surplus is larger.
ii. Tariffs decrease consumer surplus.
iii. Trade is restricted because protection brings small losses to a large number of people and
large gains to a small number of people.
A) Only i
B) Only ii
C) Only iii
D) i and iii
E) ii and iii
Answer: E
Topic: Integrative
Status: CO
89
9.7 Essay: How Global Markets Work
1) How can a nation and its producers determine whether or not it has a comparative advantage
in producing a particular good or service?
Answer: Whether a nation has a comparative advantage in the production of a particular good or
service can be determined by comparing the price the good or service sells for domestically to
the world price of the same good or service. If the domestic price is less than the world, the
nation has a comparative advantage in the production of that good or service. If the domestic
price exceeds the world price, the nation does not have a comparative advantage in the
production of that good or service.
Status: TPS
AACSB: Communication
2) After NAFTA was signed, the United States allowed more tomatoes to be imported from
Mexico. What happened to the price of tomatoes in the United States when the United States
allowed more tomatoes to be imported?
Answer: The price of tomatoes fell.
Topic: Imports
Status: JC
3) A few years ago, as oil and gas prices continued to increase, a growing number of Americans
called for the United States to become less reliant on Middle-Eastern oil. Would it make sense
for the United States to try to become totally self-reliant in the production of oil? Why or why
not?
Answer: It would be foolish for the United States to try to become totally self-reliant in oil
production. There is a reason that approximately 40 percent of our oil comes from OPEC
nations: Middle-Eastern countries can produce oil at a far lower opportunity cost than U.S.
producers. In the Middle East the vast reserves of oil, combined with more lax regulations
imposed by the government, have combined to drive down the per barrel opportunity cost of oil
extraction to very low levels. Hence the United States gains from trade with these nations. Even
though the price of oil was higher than in the past, that price was much less than what would be
the opportunity cost of producing enough oil domestically so that the United States was totally
self-reliant.
Topic: Imports
Status: JC
90
4) The United States imports television sets from Japan. The table above contains the U.S.
demand and U.S. supply schedules for television sets. The world price of a television set is $600
per set.
a. With no trade, what is the domestic price and quantity of television sets?
b. At the world price, what is the quantity of sets demanded in the United States?
c. At the world price, how many sets are produced in the United States?
d. At the world price, how many sets are imported into the United States?
e. What is the opportunity cost of producing the 4-millionth television set in the United States?
In Japan?
Answer:
a. In the absence of trade, the price is $1,000 per television set and the quantity is 4 million sets.
b. At the world price, 8 million sets are demanded in the United States.
c. At the world price, 2 million sets are produced in the United States.
d. At the world price, the quantity of sets imported is 6 million.
e. The opportunity cost in the United States to produce the 4-millionth set is $1,000. The
opportunity cost in Japan is $600.
Topic: Imports
Status: SB
91
5) Merck, an American pharmaceutical company, produces a vaccination that is used against
chicken pox. The table shows the domestic demand for, and supply of, this medication, measured
in thousands of doses per day. The world price of this medicine is $24 per dose.
a. With no trade, what is the U.S. price and quantity of the vaccine?
b. At the world price, how many doses are demanded in the United States?
c. At the world price, how many doses are produced in the United States?
d. At the world price, how many doses are exported?
Answer:
a. With no trade, the U.S. price is $20 a dose and the quantity is 10,000 doses per day.
b. At the world price, 8,000 doses per day are demanded in the United States.
c. At the world price, 13,000 doses per day are produced in the United States.
d. At the world price, 5,000 doses per day are exported.
Topic: Exports
Status: SB
6) The table above has the domestic supply and domestic demand schedules for a product. What
is the equilibrium price with no trade? Over what range of prices will the country export the
good? Over what range will it import the good? Suppose the world price is $20. What is the
quantity demanded, the quantity supplied, and the amount of the good exported or imported?
Answer: The price with no trade is $12. The country will import the good at world prices below
$12 and export it at world prices above $12. If the world price is $20, the quantity demanded is
160, the quantity supplied is 220, and the quantity exported is 60.
Topic: Trade
Status: NAU
92
7) The figure above shows the U.S. demand and the U.S. supply curves of canned peaches.
a. In the absence of trade, what is price of canned peaches in the United States?
b. In the absence of trade, what is the level of production in the United States?
c. If the world price of canned peaches is $1 a can and the United States engages in trade, does
the United States import or export canned peaches?
d. If the world price of canned peaches is $1 a can and the United States engages in trade, what
is the quantity produced in the United States and what is the quantity consumed? What is the
quantity imported or exported?
e. If the world price of canned peaches is $2 a can and the United States engages in trade, does
the United States import or export canned peaches?
f. If the world price of canned peaches is $2 a can and the United States engages in trade, what
is the quantity produced in the United States and what is the quantity consumed? What is the
quantity imported or exported?
Answer:
a. In the absence of trade, the price is $1.50 per can of peaches.
b. In the absence of trade, 4 million cans are produced.
c. The United States imports canned peaches.
d. The quantity produced in the United States is 2 million cans and the quantity consumed is 6
million cans. The quantity imported is 4 million cans.
e. The United States exports canned peaches.
f. The quantity produced in the United States is 6 million cans and the quantity consumed is 2
million cans. The quantity exported is 4 million cans.
Topic: Trade
Status: JC
93
9.8 Essay: Winners, Losers, and Net Gains from Trade
1) Who gains from imports? How do they gain? Who loses? How do they lose? Does the overall
economy gain or lose from imports?
Answer: Consumers of the good being imported gain from imports. They gain because the price
they pay falls. As a result, they buy more of the good and their consumer surplus increases.
Producers of the good being imported lose from imports. They lose because the price they
receive falls. As a result, they produce less of the good and their producer surplus decreases. The
overall economy gains because the increase in consumer surplus exceeds the decrease in
producer surplus.
Topic: Imports
Status: MR
2) How do imports affect buyers' consumer surplus?

Answer: Consumer surplus increases. It increases because imports lower the price of the good
being imported, so buyers purchase more of the good and hence their consumer surplus
increases.
Topic: Imports
Status: MR
3) How do imports affect sellers' producer surplus?

Answer: Producer surplus decreases. It decreases because imports lower the price of the good
being imported, so sellers produce less of the good and hence their producer surplus decreases.
Topic: Imports
Status: MR
94
4) Who gains from exports? How do they gain? Who loses? How do they lose? Does the overall
economy gain or lose from exports?
Answer: Producers of the good being exported gain from exports. They gain because the price
they receive rises. As a result, they produce more of the good and their producer surplus
increases. Consumers of the good being exported lose from exports. They lose because the price
they pay rises. As a result, they buy less of the good and their consumer surplus decreases. The
overall economy gains because the increase in producer surplus exceeds the decrease in
consumer surplus.
Topic: Exports
Status: MR
5) How do exports affect buyers' consumer surplus?

Answer: Consumer surplus decreases. It decreases because exports raise the price of the good
being exported, so buyers purchase less of the good and hence their consumer surplus decreases.
Topic: Exports
Status: MR
6) How do exports affect sellers' producer surplus?

Answer: Producer surplus increases. It increases because exports raise the price of the good
being exported, so sellers produce more of the good and hence their producer surplus increases.
Topic: Exports
Status: MR
9.9 Essay: International Trade Restrictions
1) Briefly define a tariff and a quota. Do any of these methods restrict trade without harming
domestic consumers?
Answer: Governments restrict trade through the use of tariffs and quotas. A tariff is a tax
imposed on a good when it is imported into the nation. A quota is a limit on the amount of a
good that may be imported. Both of these methods restrict trade and they both harm domestic
consumers by raising the price and decreasing the quantity consumed.
Status: SB
95
2) "Tariffs today in the United States are much higher than in the past." Is the previous statement
correct or incorrect?
Answer: The statement is most decidedly incorrect. U.S. tariffs today are lower compared to
what they were in the past.
Status: SB
3) How does a tariff affect the domestic price of the import, the domestic consumption, the
domestic production, and the quantity imported?
Answer: A tariff raises the price of the good. As a result, domestic consumption decreases as
domestic consumers decrease the quantity they demand. And, also as a result, domestic
production increases as domestic producers increase the quantity they supply. Because domestic
consumption decreases and domestic production increases, the quantity imported decreases.
Status: JC
4) The United States imposes a tariff on foreign limes. How does the tariff affect the U.S. price
of a lime and the production of limes in the United States?
Answer: The tariff raises the price of limes in the United States. As a result of the higher price,
U.S. lime production increases.
Status: JC
5) How does a tariff affect the consumer surplus and the producer surplus from the imported
good? Is the overall economy helped or harmed by tariffs? Briefly explain your answers.
Answer: A tariff raises the price of the good so that domestic consumption decreases and
domestic production increases. As a result, domestic consumer surplus decreases and domestic
producer surplus increases. The overall economy is harmed. The decrease in consumer surplus is
larger than the increase in producer surplus so a deadweight loss is created.
Status: MR
96
6) Currently, the United States has a quota on the amount of sugar that is allowed to be imported
into the United States. What would happen to the price of sugar in the United States if the quota
was removed? What would happen to U.S. consumption and U.S. production of sugar?
Answer: If the quota is removed, the price of sugar in the United States would fall, U.S.
consumption of sugar would increase, and U.S. production of sugar would decrease.
Status: MR
7) How does a quota affect the domestic price of the import, the domestic consumption, the
domestic production, and the quantity imported?
Answer: A quota raises the price of the good because it decreases the amount that can be
imported. As a result, domestic consumption decreases as domestic consumers decrease the
quantity they demand. And, also as a result, domestic production increases as domestic producers
increase the quantity they supply.
Status: JC
8) How does a quota affect the consumer surplus and the producer surplus from the imported
good? Is the overall economy helped or harmed by quotas? Briefly explain your answers.
Answer: A quota raises the price of the good so that domestic consumption decreases and
domestic production increases. As a result, domestic consumer surplus decreases and domestic
producer surplus increases. The overall economy is harmed. The decrease in consumer surplus is
larger than the increase in producer surplus so a deadweight loss is created.
Status: MR
97
9) The United States imports cheese from a variety of countries. The table above gives the
domestic supply of, and demand for, cheese in the United States. The world price of cheese is
$12 per pound, and trade is unrestricted.
a. How many pounds of cheese are consumed in the United States?
b. How many pounds of cheese are produced in the United States?
c. How many pounds of cheese are imported into the United States?
If a $3 per pound tariff is imposed,

d. How many pounds of cheese are consumed in the United States?
e. How many pounds of cheese are produced in the United States?
f. How many pounds of cheese are imported into the United States?
g. How much will the U.S. government collect in tariff revenue?
h. Who benefits from the tariff? Who loses?
Answer:
a. 180,000 pounds of cheese are consumed.
b. 60,000 pounds of cheese are produced.
c. 120,000 pounds of cheese are imported.
d. 140,000 pounds of cheese are consumed.
e. 80,000 pounds of cheese are produced.
f. 60,000 pounds of cheese are imported.
g. The government collects $3 per pound × 60,000 pounds = $180,000.
h. U.S. producers and the U.S. government gain while U.S. consumers and foreign producers
lose.
Status: SB
98
10) The above figure shows the domestic supply of and domestic demand for an imported good.
The world price is $15 per unit.
a. At the world price of $15 per unit, what is the domestic consumption and domestic
production?
b. At the world price of $15 per unit, what is the quantity imported?
c. If the government imposes a tariff of $5 per unit, what is the domestic consumption and
domestic production?
d. With the $5 per unit tariff, what is the quantity imported?
e. How much revenue does the government collect with a tariff of $5 per unit?
Answer:
a. Domestic consumption is 8 million units per year and domestic production is 0.
b. The quantity imported is 8 million units per year.
c. Domestic consumption is 6 million units per year and domestic production is 2 million units
per year.
d. The quantity imported is 4 million units per year.
e. The government collects $5 per unit imported and 4 million units are imported, so the
government's revenue from the tariff is $5 × 4 million = $20 million per year.
Status: SB
99
9.10 Essay: The Case Against Protection
1) Three arguments used to promote trade barriers are the national security argument, the infant-
industry argument, and the dumping argument. Explain each of these arguments and evaluate
whether each one has any flaws.
Answer: The national security argument is that countries must protect industries that produce
defense equipment and armaments as well as those industries upon which the defense industries
rely. The problem with this argument is that all industries contribute to national defense, though
some do so more indirectly than others. For instance, the pillow industry can claim that it
contributes to national defense because without good pillows, plant workers will be unable to
sleep well and hence their efficiency will be lowered. The pillow industry therefore can make a
claim for protection-which, incidentally, it did in the 1950s using the argument just described!
The infant-industry argument is that it is necessary to protect a new industry to enable it to grow
into a mature industry that can compete in world markets. The problem with this argument is that
if an industry can eventually compete, then its backers should be willing to fund it until that time.
In addition, if the industry has benefits that spill over to other industries, then the more efficient
government policy is to subsidize the industry rather than protect it from competition.
Finally, the dumping argument asserts that protection is needed to protect domestic industries
from foreign dumping practices designed to eliminate competition. (Dumping is selling a good
for a price that is less than its cost of production.) The problems with this argument are two-fold.
First, it is extremely difficult to determine if a firm is dumping because determining the cost of
production is difficult. Second, even if a firm is dumping, its success in establishing a monopoly
is in doubt and its success in maintaining its global (!) monopoly is even more doubtful. Hence
dumping to obtain a monopoly is likely a very uncommon practice.
Topic: Case against protection
Status: SB
2) What is the national security argument for restricting international trade? What is its flaw?
Answer: The national security argument is that the nation must protect and maintain industries
that produce defense equipment and armaments as well as those industries upon which the
defense industries rely. The problem with this argument is that all industries contribute to
national defense, though some do so directly while others do so indirectly. For instance, the
sugar industry contributes to national defense because factory workers and armed service men
and women drink colas made using sugar, but protecting the sugar industry for reasons of
national defense is ludicrous.
Topic: National security
Status: AA
100
3) What is dumping?
Answer: Dumping is the situation in which a firm sells its export goods and services for a lower
price than its cost of production.
Topic: Dumping
Status: AA
4) Because wage rates are so low in Africa, why don't Microsoft, Cisco and other major
corporations close down their American operations and move to Africa?
Answer: Wage rates must be weighed against productivity. It is not just wages that influence
where production occurs. Wages divided by the productivity of the workers gives the average
cost of production. In Africa, workers have low levels of skill, education, and training so their
productivity is much less than in the United States. Therefore the cost of production would be far
higher in Africa than in America. So even though U.S. wage rates are high, industries stay here
because the cost of production is lower because U.S. productivity is so high.
Status: JC
5) Explain how governments restrict international trade and who benefits as well as who loses
from the restrictions.
Answer: Governments use tariffs and nontariff barriers, such as quotas, to restrict trade. Tariffs
and quotas both boost the domestic price of the protected good. Consumers in that country lose
because of the higher price. The domestic suppliers, however, gain from the higher price. Tariffs
are source of revenue for the government that imposes it on imported goods, so the domestic
government gains from a tariff. Quotas, on the other hand, do not create revenue for government
so the government does not gain from a quota.
Status: AA
101
6) What is "rent seeking"? How does it apply to restricting imports?
Answer: Rent seeking is lobbying and other political activity that seeks to capture the gains from
trade. When imports are restricted, some people gain from the restrictions. Rent seekers, such as
domestic producers of import-competing goods or services, lobby the government to impose
import restrictions because restrictions allow the rent seekers to gain revenue and/or profit.
Topic: Rent seeking
Status: TPS
7) Economics demonstrates that opening up unrestricted free international trade is beneficial to

all nations. However, are there any losers from such a policy change?
Answer: Yes, there are losers from opening up to free trade. Domestic suppliers of imported
goods lose from allowing free trade. Owners of the businesses lose as do workers who had jobs
in the import-competing industries. However, it is important to realize that although there are
losers from free trade, there also are substantial gains and the gains exceed the loses so that the
nation as a whole is made better off with free trade.
Status: TPS
8) How does the United States attempt to compensate losers from lower trade restrictions?
Answer: The U.S. government attempts to compensate workers who lose from lowering U.S.
trade restrictions. For instance, the U.S. government set up a fund to support and retrain workers
who lost their jobs because of NAFTA. Job losers can also collect unemployment compensation
benefits.
Topic: Compensating losers
Status: TPS
102
9) Suppose that elimination of tariffs on agricultural products means that 1,000 farm workers
lose jobs that pay an average of $20,000 per year. At the same time, because of the importation
of relatively cheaper foreign vegetables, 150 million consumers save $2 per year on their grocery
bills.
a. What is the total income lost by farm workers because of the free trade?
b. What is the total dollar amount saved by all consumers combined?
c. Which is greater, the lost income or the consumer savings? Do the benefits of free trade
outweigh the costs in this simple example?
d. Which group is most likely to become politically involved over the issue of removing the
tariffs, the farm workers or the consumers? Why?
Answer:
a. The total income lost by farm workers is 1,000 × $20,000 = $20,000,000.
b. The total saving by all consumers is 150,000,000 × $2 = $300,000,000.
c. The consumer savings is much larger than the lost income, so the benefits of free trade
outweigh the costs.
d. The farm workers are more likely to become involved, because their individual loss is much
greater than an individual consumer's gain.
Topic: Rent seeking
Status: SB
103

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Foundations of Microeconomics, 6e (Bade/Parkin)

Chapter 9 Global Markets in Action

9.1 How Global Markets Work

2) Imports are defined as the goods and services that we

5) The United States exports

8) The fundamental force that generates international trade is

9) The fundamental force that drives trade between nations is

11) A nation has a comparative advantage in a good when it has a

24) A country will export a good if it

26) A nation will export a good if its

1) International trade benefits

2) Who gains from international trade?

39) International trade is definitely in the social interest if

43) Which of the following is correct?

3) A tax on a good that is imposed by the importing country is called a

5) Since the mid-1970s, the average U.S. tariff rate is

26) Of the following, who is harmed by a tariff?

33) Of the following, who gains because of tariffs and why?

47) Of the following, who gains with a tariff?

49) Of the following, who gains from a tariff?

58) Of the following, who gains with a quota?

76) Economists argue for free trade in export markets because

77) A tax on a good that is imposed when it is imported is called

80) When a tariff is imposed on a good, the ________ increases.

9.4 The Case Against Protection

1) If supporters of restrictions on imports argue that protection is needed to preserve a strategic

4) What is the infant-industry argument for protection from international trade?

6) The infant-industry argument is used by those who assert they want to

7) The infant-industry argument for protection is based on the idea of

10) Dumping is defined as the situation in which

13) A flawed argument for protection from foreign trade is that

16) The argument that jobs are lost to free trade is

21) The ________ are hurt by importing a good.

27) Which of the following groups gain from international trade?

33) The United States

34) Why do governments in less-developed nations impose tariffs?

4) Based on the figure above, as a result of international trade, consumer surplus

6) Based on the figure above, international trade leads to

12) Based on the figure above, international trade leads to

6) Which of the following is true?

8) Which of the following is true?

2) How do imports affect buyers' consumer surplus?

3) How do imports affect sellers' producer surplus?

5) How do exports affect buyers' consumer surplus?

6) How do exports affect sellers' producer surplus?

9.9 Essay: International Trade Restrictions

If a $3 per pound tariff is imposed,

7) Economics demonstrates that opening up unrestricted free international trade is beneficial to

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