Question 1

Suppose the world price of wheat is higher than the domestic price in a country before trade. If the country opens up to international trade, which of the following will occur?

Accepted Answer

The country will export wheat, and domestic producer surplus will increase.

Question 2

If the domestic price of a good is $$P_{dom}$$ and the world price is $$P_{world}$$, under what condition does a country have a comparative advantage in producing the good?

Accepted Answer

When $$P_{dom} \u003c P_{world}$$

Question 3

A small country opens up to trade and becomes an importer of cars. Which of the following best describes the impact on consumer and producer surplus?

Accepted Answer

Consumer surplus increases, producer surplus decreases.

Question 4

Suppose the government imposes a tariff $$t on $$imported steel. What is the immediate effect on the domestic price of steel?

Accepted Answer

The domestic price rises to $$P_{world} + t.$$

Question 5

Which area on a supply and demand graph represents the deadweight loss from a tariff?

Accepted Answer

The sum of the two triangles labeled D and F.

Question 6

A country imposes a quota instead of a tariff on imported sugar. Compared to a tariff, which of the following is true?

Accepted Answer

A quota and a tariff can have similar effects on price and quantity, but only a tariff generates government revenue.

Question 7

Which of the following is NOT considered a benefit of international trade?

Accepted Answer

Reduced competition among domestic firms

Question 8

The 'infant-industry' argument for trade protection claims that:

Accepted Answer

New industries need temporary protection to become competitive.

Question 9

If a country restricts trade with a partner that subsidizes its exports, what is the likely effect on the restricting country's economic welfare?

Accepted Answer

Economic welfare decreases because consumers lose more than producers gain.

Question 10

Which of the following best describes the 'protection-as-a-bargaining-chip' argument?

Accepted Answer

Trade restrictions are threatened to obtain concessions from trading partners.

Question 11

Suppose the domestic supply and demand for a good are given by $$Q_s = 2P$$ and $$Q_d = 100 - P. $$The world price is $$20. If $$the country opens to trade, what is the quantity of imports?

Accepted Answer

$$Q_{imports} = Q_d - Q_s = (100 - 20) - (2 	imes 20) = 80 - 40 = 40$$

Question 12

Which of the following statements about tariffs is correct?

Accepted Answer

Tariffs reduce imports and create deadweight loss.

Question 13

A presidential candidate argues for tariffs to protect jobs. According to economic theory, what is the likely long-term effect?

Accepted Answer

Tariffs shift jobs from import-competing industries to export industries, with no net gain.

Question 14

Which of the following is a valid criticism of the national-security argument for trade restrictions?

Accepted Answer

Firms may exaggerate their importance to national security for financial gain.

Question 15

If the world price of a good is below the domestic equilibrium price, what happens to the domestic market when trade is allowed?

Accepted Answer

Domestic price falls to the world price, and the country imports the good.

Question 16

Which of the following best explains why economists generally support free trade?

Accepted Answer

Free trade allocates production efficiently and raises living standards.

Question 17

Suppose a country imposes a tariff that raises the domestic price of a good from $$P_{world} to$$ $$P_{world} + t. $$Which group is most likely to benefit from this policy?

Accepted Answer

Domestic producers

Question 18

Which of the following is a likely effect of increased international trade on a country's economy?

Accepted Answer

Lower costs through economies of scale

Question 19

If a country is a price taker in world markets, what does this imply about its ability to influence the world price?

Accepted Answer

It has no effect on the world price.

Question 20

A country is considering restricting trade to force a trading partner to lower its tariffs. According to the 'protection-as-a-bargaining-chip' argument, what is a potential risk of this strategy?

Accepted Answer

The country may have to implement the restriction, reducing its own welfare.

International Trade: Economic Effects, Tariffs, and Trade Policy

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