Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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For
each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can
produce one watch for every 100 pounds of cheese it produces. Which of the following is true with
regard to opportunity costs in the two countries? A) | The opportunity cost of producing watches is higher in
Denmark. | B) | The opportunity cost of producing cheese is higher in
Denmark. | C) | The opportunity cost of producing cheese is identical in both
countries. | D) | It is impossible to compare opportunity costs because the two
countries use different currencies. | E) | In both countries combined, the opportunity cost of one watch
is 150 pounds of cheese. | | |
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2.
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In
New Zealand one worker can produce 40 walking sticks or 10 boomerangs each hour. What is the
opportunity cost of producing one walking stick? A) | 40 boomerangs | B) | 10
boomerangs | C) | 4 boomerangs | D) | 1/4 of a
boomerang | E) | 1/2 worker | | |
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3.
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It is
possible for one country to have a comparative advantage in the production of all
products.
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4.
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The
basis for international trade is A) | established trade patterns | B) | the size of gold
holdings of two countries | C) | shipping and transportation costs | D) | absolute
advantage | E) | comparative advantage | | |
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5.
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Which
of the following is not a reason for international specialization? A) | some countries
have educated, trained workers, while other countries have unskilled
workers | B) | tastes and preferences tend to be different in different
countries | C) | economies of scale can allow larger, specialized producers to
operate at lower average cost | D) | mineral resources are often concentrated in particular
countries | E) | the world price of a good is determined by the world supply and
demand for it | | |
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6.
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In
Exhibit 0231, if the world price of tulips is $1 and there are no trade restrictions, Holland
will A) | produce 7,000,
consume 8,000, and import 1,000 tulips | B) | produce 8,000, consume 5,000, and export 3,000
tulips | C) | produce 7,000, consume 10,000, and import 3,000
tulips | D) | produce no tulips | E) | import all of
the tulips that it consumes | | |
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7.
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In
Exhibit 0231, if there is no international trade, how many tulips will be purchased in
Holland? A) | 2,000 | B) | 4,000 | C) | 6,000 | D) | 8,000 | E) | 10,000 | | |
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8.
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Domestic producers of goods that compete with imports benefit from protectionism in
the short run.
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9.
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If
the country illustrated in Exhibit 0235 is initially trading without restrictions at a world price of
$1.00, net welfare loss as a result of a tariff of $0.50 per unit is represented by
area A) | c + i + e +
f | B) | i +
f | C) | i | D) | f | E) | b + d | | |
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10.
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The
difference between a specific tariff and an ad valorem tariff is that a specific
tariff A) | is a set amount
of money per unit of a product, while an ad valorem tariff is a set percentage of product
price | B) | is a set percentage of product price, while an ad valorem
tariff is a set amount of money per unit of a product | C) | names a
particular good to which the tariff applies, while an ad valorem tariff applies to large classes of
products | D) | applies only to imports, while an ad valorem tariff applies
only to exports | E) | sets a strict quota limit on the amount one individual can
purchase, while an ad valorem tariff sets no such limit | | |
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11.
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An
import quota is a A) | tax on
imports | B) | legal limit on the amount of a specific good that can be
imported into a particular country | C) | tax on import quantities above the legal
limit | D) | way to increase tariff revenues | E) | legal incentive
for members of GATT to increase their exports of a particular good | | |
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12.
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Which
of the following is not correct concerning quotas? A) | The enactment of
quotas rewards domestic producers with higher prices. | B) | The enactment of
quotas creates opportunities for lobbyists to seek the perpetuation of
quotas. | C) | Quotas on steel, textiles and apparel, and sugar have been in
effect for several decades. | D) | Lobbying efforts by domestic producers and foreign exporters
are vigorously fought by domestic consumers. | E) | The auctioning
of quotas would reduce their attractiveness to foreign exporters. | | |
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13.
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Dumping refers to selling a commodity abroad at a price that is below its cost of
production or below the price charged in the domestic market.
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14.
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International trade between countries typically produces a winner and a loser, and
generally, it is the economically more advanced country that gains at the expense of the less
developed nation.
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15.
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The
establishment of GATT resulted in A) | lower tariff rates | B) | increased tariff
rates | C) | decreases in total world trade | D) | increased
protectionism | E) | a rise in the price of imports | | |
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16.
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A
major U.S. motive for negotiating a free-trade agreement with Mexico was to A) | increase
immigration into the United States | B) | encourage Mexico's recent drive to achieve a more
market-oriented economy | C) | keep Mexico from going Communist | D) | achieve,
ultimately, political union with Mexico | E) | help foster the study of the Spanish language in the United
States as a means to trading with all Spanish-speaking countries | | |
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17.
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According to some economists, the protection granted to infant industries should
be A) | c, d, and
e | B) | for new firms
that eventually would develop significant economies of scale in their production
processes | C) | more for firms which face little
competition | D) | based on current absolute advantage | E) | permanent | | |
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18.
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When
a country establishes trade restrictions, domestic producers of goods that compete with imported
goods A) | always lose in
the short run | B) | always gain in the long run | C) | may lose in the
long run if protection stifles innovation and leaves the industry
vulnerable | D) | may gain in the short run because wages will fall in that
industry | E) | usually lobby against such
restrictions | | |
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19.
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Firms
in a high-wage nation like the U.S. can compete effectively with imports from low-wage nations
if A) | skill levels are
identical in the nations | B) | the U.S. reduces tariffs on imports | C) | low-wage nations
impose tariffs on U.S. made goods | D) | labor productivity is higher in the low-wage
nation | E) | labor productivity is higher in the
U.S. | | |
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20.
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Two
countries that have followed an import-substitution policy are A) | Argentina and
India | B) | South Korea and Hong Kong | C) | Mexico and
Canada | D) | China and Argentina | E) | all the Far East
countries have followed the policy | | |
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21.
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Which
of the following is NOT a problem with import-substitution policy? A) | It bypasses the
gains from specialization and comparative advantage | B) | The country
often replaces low-cost foreign goods with high-cost domestic goods | C) | Domestic
producers insulated from foreign competition may never become efficient | D) | Countries
engaging in this policy have grown faster than those who follow an export-promotion
policy | E) | The balance-of-payments problems may not actually improve
because other countries may retaliate | | |
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22.
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Which
of the following is NOT an argument in favor of export promotion as an economic development
policy? A) | Most economists
favor this policy over one of import substitution | B) | It has been the
more successful development policy | C) | Developing countries that follow this policy have experienced
the highest growth of real GDP per capita | D) | It lessens the need for bureaucratic intervention in the
market | E) | This policy is an excellent theory that holds much promise but
has never been tried by any developing country | | |
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23.
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Suppose U.S. consumers start buying more English shoes and fewer U.S. shoes. What
impact will this trend have on the foreign exchange market? A) | U.S. demand for
foreign exchange, in general, and British pounds, in particular, will
increase. | B) | U.S. demand for foreign exchange, in general, and British
pounds, in particular, will decrease. | C) | U.S. demand for British pounds will increase, but the demand
for foreign exchange will probably decrease. | D) | U.S. demand for
British pounds will decrease, but the demand for foreign exchange will probably
increase. | E) | There is no effect on foreign
exchange. | | |
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24.
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Imagine that there are only two nations in the world, the United States and Mexico. If
Americans buy more goods made in Mexico, other things constant, the A) | U.S. demand
curve for Mexican pesos will shift rightward | B) | U.S. demand
curve for Mexican pesos will shift leftward | C) | U.S. supply
curve of Mexican pesos will shift leftward | D) | U.S. supply curve of Mexican pesos will shift
rightward | E) | U.S. supply curve of Mexican pesos will shift
up | | |
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25.
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If
the demand curve for British pounds shifts to the right, A) | the dollar price
of British pounds will increase | B) | the dollar price of British pounds will
decrease | C) | the exchange rate between dollars and pounds will be out of
equilibrium | D) | the pound will fall in value against the
dollar | E) | there will be no change in either the value of the dollar or
the pound | | |
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26.
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If
the Irish pound declines in value against other major currencies, which of the following
happens? A) | The Irish trade
deficit will increase. | B) | The Irish trade deficit will be
unaffected. | C) | The Irish trade deficit will
decrease. | D) | Irish products will become more expensive to
foreigners. | E) | Foreign goods will become cheaper in
Ireland. | | |
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27.
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Which
of the following is true? A) | If the Australian dollar depreciates, the Australian trade
deficit decreases, since Australian products become cheaper to foreigners. | B) | If the
Australian dollar depreciates, the Australian trade deficit decreases, since Australian products
become more expensive to foreigners. | C) | If the Australian dollar depreciates, the Australian trade
deficit increases, since Australian products become more expensive to
foreigners. | D) | If the Australian dollar appreciates, the Australian trade
deficit decreases, since Australian products become cheaper to foreigners. | E) | If the
Australian dollar appreciates, the Australian trade deficit decreases, since Australian products
become more expensive to foreigners. | | |
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28.
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Which
one of the following is not true? A) | An exchange rate is the price of one currency in terms of
another. | B) | An exchange rate is the means by which the price of a good in
one country is translated into the price to the buyer in another country. | C) | The cost of a
foreign good in dollars will depend on the current exchange rate. | D) | The exchange
rate will affect the willingness of foreign buyers and sellers to trade with each
other. | E) | The exchange rate is the price of a currency in terms of
another currency for exchanges of goods and services but not for financial
transactions. | | |
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29.
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If
the U.S. dollar appreciates, it means that A) | the value of the U.S. dollar has
decreased | B) | the value of foreign exchange has
increased | C) | fewer U.S. dollars are required to purchase foreign
exchange | D) | more U.S. dollars are required to purchase foreign
exchange | E) | exports will fall immediately | | |
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30.
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If on
Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S.
dollar, A) | both the U.S.
dollar and the yen have appreciated | B) | both the U.S. dollar and the yen have
depreciated | C) | the U.S. dollar has appreciated and the yen has
depreciated | D) | the U.S. dollar has depreciated and the yen has
appreciated | E) | the yen has appreciated and the U.S. dollar has remained
constant | | |
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