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(Download PDF) Introduction To International Economics 3rd Edition Salvatore Test Bank Full Chapter
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Salvatore’s Introduction to International Economics, Third Edition Test Bank
Multiple Choice:
Answer: D
Section: 7.2
Answer: A
Section: 7.2
Answer: C
Section: 7.2
B) customs union
C) common market
D) free trade area
Answer: D
Section: 7.2
Answer: B
Section: 7.2
Answer: D
Section: 7.2
7. A(n) ________________ is a group of nations with common monetary and fiscal policies in
addition to the characteristics of a common market.
A) Preferential trade arrangement
B) Economic union
C) Common market
D) Free trade area
Answer: B
Section: 7.2
B) Common market
C) Economic union
D) Preferential trade arrangements
Answer: C
Section: 7.2
9. Which of the following organizations started as a customs union but transformed into a
common market?
A) European Union
B) NAFTA
C) EFTA
D) Southern Common Market
Answer: A
Section: 7.2
10. Areas set up to attract foreign investments by allowing the importation of raw and
intermediate materials without paying tariffs are called:
A) Customs unions
B) Duty-free zones
C) free trade area
D) Economic unions
Answer: B
Section: 7.2
11. When a member of custom union, replaces one of its high cost production processes with a
production process that uses lower cost imports from a member nation, this leads to:
A) trade creation
B) trade diversion
C) the generation of economies of scale
D) dynamic trade effect
Answer: A
Section: 7.3
12. The static welfare effects resulting from the formulation of customs unions are measured by
the extent to which it leads to ___________ and ____________.
A) trade creation; trade diversion
B) economies of scale; free trade
C) dynamic effects; trade diversion
D) dynamic effects; trade creation
Answer: A
Section: 7.3
13. With free trade, the supply curve faced by a small importing country will be:
A) perfectly inelastic
B) perfectly elastic
C) upward sloping
D) downward sloping
Answer: B
Section: 7.3
14. ______________ occur(s) when lower-cost imports from outside the union are replaced by
higher-cost imports from another union member.
A) Trade creation
B) Trade diversion
C) Economies of scale
D) Increasing opportunity costs
Answer: B
Section: 7.3
15. _______________ occurs when some domestic production in a member of the customs
union is replaced by lower-cost imports from another member nation.
A) Trade creation
B) Trade diversion
C) Economies of scale
D) Decreasing returns to scale
Answer: A
Section: 7.3
Answer: B
Section: 7.3
Answer: A
Section: 7.3
18. Which of the following is not an example of dynamic benefits of the formation of customs
unions?
A) increased competition
B) stimulus to investment
C) better utilization of economic resources
D) trade creation and trade diversion
Answer: D
Section: 7.4
19. Suppose that apples from Japan face a 15% tariff in Germany and a 20% tariff in Italy, while
Germany and Italy maintain free trade between each other. Germany and Italy are therefore part
of a(n):
A) Free trade area
B) Customs union
C) common market
D) economic union
Answer: A
Section: 7.2
20. Direct investments made in a nation or other economic units to avoid import tariffs are
known as:
A) tariff factories
B) tariff diversion
C) tariff creation
D) duty-free zones
Answer: A
Section: 7.4
21. The ____________________ was founded by the Treaty of Rome, signed in March 1957 by
West Germany, France, Italy, Belgium, the Netherlands, and Luxembourg, and came into being
on January 1, 1958.
A) NAFTA
B) European Union (EU)
C) Variable import levies
D) European Economic Area (EEA)
Answer: B
Section: 7.5
22. A dynamic welfare gain resulting from the formation of a customs union would be:
A) trade diversion
B) trade creation
C) diseconomies of scale
D) economies of scale
Answer: D
Section: 7.4
23. Which of the following barriers are imposed by the EU to equalize the price of imported
agricultural products and agricultural prices set by the EU?
A) orderly market agreements
B) export quotas
C) variable import levies
D) import quotas
Answer: C
Section: 7.5
24. As a result of their high farm support price level, the EU has experienced:
A) high agricultural surpluses, high storage costs, and subsidized exports
B) low agricultural surpluses, and low storage costs
C) non-subsidized exports among the agricultural industry
D) economies of scale in agricultural
Answer: A
Section: 7.5
25. ______________ resulting from the formation of a customs union tend(s) to be five to six
times larger than ______________, thus providing incentive for the United Kingdom to join the
EU in 1973.
A) Static gains; dynamic gains
B) Trade creation; trade diversion
C) Dynamic gains; welfare gains
D) Dynamic gains; static gains
Answer: D
Section: 7.4
26. Which of the following significant change with respect to the development of the European
Union took place in January, 1993, as a result of the Single European Act?
A) Becoming a single unified market by removing the restrictions on the free flow of goods,
services, and resources among its members
B) Adopting a common currency for the members
C) Forming supranational fiscal and monetary agencies
D) Becoming an economic union
Answer: A
Section: 7.5
27. Which free trade area was formed in 1960 by the United Kingdom, Austria, Denmark,
Norway, Portugal, Sweden, and Switzerland?
A) European Economic Area (EEA)
B) European Free Trade Association (EFTA)
C) North American Free Trade Agreement (NAFTA)
Answer: B
Section: 7.6
Answer: C
Section: 7.6
29. In September, 1993, __________________ signed the North American Free Trade
Agreement (NAFTA).
A) the US and Canada
B) the US, Mexico and Central America
C) the US, Canada and Mexico
D) the US, Canada and Greenland
Answer: C
Section: 7.7
Answer: D
Section: 7.7
31. Free trade access to Mexico allows the US industries to import __________________ from
Mexico and maintain other operations in the US rather than risking the loss of all jobs in the
industry to low-wage countries.
A) labor-intensive components
B) technology
C) capital-intensive components
D) textiles
Answer: A
Section: 7.7
32. At the time of the NAFTA agreement, who was the United States’ largest trading partner?
A) Canada
B) Japan
C) Mexico
D) England
Answer: A
Section: 7.7
33. When was the EFTA (European Free Trade Association) formed?
A) 1960
B) 1940
C) 1970
D) 1965
Answer: A
Section: 7.6
34. The ___________________ was formed by Argentina, Brazil, Paraguay, and Uruguay in
1991.
A) European Economic Area (EEA)
B) European Free Trade Association (EFTA)
C) North American Free Trade Agreement (NAFTA)
D) Southern Common Market (Mercosur)
Answer: D
Section: 7.8
35. The organization of Communist bloc nations formed by the Soviet Union in 1949 to divert
trade from Western nations and achieve a greater degree of self-sufficiency among Communist
nations was the:
A) European Economic Area (EEA)
Answer: B
Section: 7.9
36. In the CMEA member countries, international transactions were controlled through
___________________.
A) duty-free zones
B) state trading companies
C) centrally planned economies
D) bilateral agreements
Answer: B
Section: 7.9
37. Economies in which the government owns factors of production and determines prices are
known as:
A) Mixed market economies
B) state trading companies
C) centrally planned economies
D) market economies
Answer: C
Section: 7.9
38. An agreement between two nations regarding quantities and terms of specific trade
transactions is known as:
A) A preferential trade agreement
B) A voluntary export restraint
C) A free trade area
D) a bilateral agreement
Answer: D
Section: 7.9
39. Which of the following involves purchasing a specified quantity of a commodity for a year
or more from a state trading company of another nation?
A) Bulk purchasing agreement
B) Bilateral agreement
C) Voluntary export restraint
D) Preferential trade agreement
Answer: A
Section: 7.9
40. The agreement among the Baltic States of Estonia, Latvia, and Lithuania is known as:
A) the Commonwealth of Independent States ( CIS)
B) the Central European Free Trade Association (CEFTA)
C) the Baltic States Free Trade Area (BFTA)
D) the European Union (EU)
Answer: C
Section: 7.9
41. A Country will have positive static benefit from a customs union if
A) the resulting trade diversion is significantly stronger than the resulting trade creation
B) if the resulting trade creation is significantly stronger than the resulting trade diversion
C) if the price of import significantly increases over the free trade price without tariff
D) if there is significant stimulus for investment
Answer: B
Section: 7.3
Answer: C
Section: 7.8
True/False
Answer: True
Section: 7.2
44. The formation of a customs union generates static effects for members, but not dynamic
effects.
Answer: False
Section: 7.3
45. Customs unions tend to reduce the level of competition among member nations.
Answer: False
Section: 7.4
46. Armenia, Estonia, and Georgia are not Newly Independent States (NIS).
Answer: False
Section: 7.9
47. The European Union became a common market in 1993 by allowing free movement of labor
and capital among member nations.
Answer: True
Section: 7.2
48. The value-added-tax system is one in which a tax is levied at each stage of production and
then ultimately passed on to the consumer.
Answer: True
Section: 7.5
49. After the customs union is formed and trade barriers among the member nations are enacted,
the member nations may become less efficient due to the joined union.
Answer: False
Section: 7.3
50. Early in the EU’s history, the union had no tariffs on items traded with developing countries.
Answer: False
Section: 7.5
Answer: False
Section: 7.6
Essay
52. List and briefly describe, from loosest to tightest, the five types of economic integration:
Answer: Preferential trade arrangements which provides lower barriers on trade among
participating nations than on trade with nonmember nations. This is the loosest form of
economic integration.
Free trade area is the form of economic integration wherein all barriers are removed on trade
among members, but each nation retains its own barriers to trade with nonmembers.
Customs union allows no tariffs or other barriers on trade among members, and in addition it
harmonizes trade policies toward the rest of the world.
Common market goes beyond a customs union by also allowing the free movement of labor and
capital among member nations.
Economic union goes still further by harmonizing or even unifying the monetary and fiscal
policies of member states, this is the highest form of economic integration.
Section: 7.2
53. Why do countries engage in economics integration? Doesn’t it have a reduced welfare effect
as opposed to free trade?
Answer: There are two distinct types of benefits from economic integration. The static benefits
from trade, which involves creation and diversion of trade, could be negative for a country if the
process involves the import of a commodity from a country which has huge comparative
disadvantage in producing it. However, the dynamic benefits, which involve additional
competition, economies of scale and stimulus to investment, in most cases are very positive.
Empirical studies show that the dynamic benefits could be five to six times larger than the static
benefits. The motivation for engaging in economics integration, therefore, mostly stem from the
dynamic benefit.
Section: 7.4
54. From the flowing diagram find out the static benefit of participating in a custom union
which requires it to switch from a non-member supplier with $2 price and $1 tariff to a member
supplier with $2.50 price.
P
Sx
3
2.5
2
2
Dx
0 10 18 24 36
Title: Saksanmaa
Talvinen tarina
Language: Finnish
Talvinen tarina
Kirj.
HEINRICH HEINE
Suomentanut
O. Manninen
SAKSANMAA
Talvinen tarina
Alkusana.
Heinrich Heine.
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