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Which of the following statements is not true of free trade?


A) Free trade leads to a maximization of world output.
B) Free trade maximizes world living standards.
C) Free trade always makes each individual better off.
D) Free trade encourages countries to specialize in production

E) C) and D)
F) None of the above

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Which of the following cannot be a source of a country's comparative advantage?


A) Climate
B) Resource stock available
C) Education of workforce
D) Domestic prices of goods and services

E) B) and D)
F) None of the above

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The figure below shows the production possibilities curves (PPCs) for Viola and Davis.Which of the lines in the graph correctly represents their joint PPC? The figure below shows the production possibilities curves (PPCs) for Viola and Davis.Which of the lines in the graph correctly represents their joint PPC? A) Line 1 B) Line 2 C) Line 3 D) Line 4


A) Line 1
B) Line 2
C) Line 3
D) Line 4

E) None of the above
F) A) and B)

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Scenario: Hawaii and South Carolina are trading partners. Hawaii has an absolute advantage in the production of both coffee and tea. The opportunity cost of producing 1 pound of tea in Hawaii is 2 pounds of coffee, and the opportunity cost of producing 1 pound of tea in South Carolina is 1/3 pound of coffee. -Refer to the scenario above.Which of the following statements is true?


A) Hawaii should specialize in the production of both tea and coffee.
B) South Carolina should specialize in the production of both tea and coffee.
C) Hawaii should specialize in the production of tea, whereas South Carolina should specialize in the production of coffee.
D) Hawaii should specialize in the production of coffee, whereas South Carolina should specialize in the production of tea.

E) A) and D)
F) A) and C)

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Scenario: Suppose the world price is $2 per bushel, and U.S. wheat growers are dissatisfied with the level of wheat imports into the United States. They lobby Congress for a $1 per bushel tariff on imported wheat. The following figure shows the U.S. wheat market. Scenario: Suppose the world price is $2 per bushel, and U.S. wheat growers are dissatisfied with the level of wheat imports into the United States. They lobby Congress for a $1 per bushel tariff on imported wheat. The following figure shows the U.S. wheat market. -Refer to the scenario above.The tariff revenue collected by the U.S.government is represented by which area in the figure? A) E B) D C) C D) J -Refer to the scenario above.The tariff revenue collected by the U.S.government is represented by which area in the figure?


A) E
B) D
C) C
D) J

E) C) and D)
F) None of the above

Correct Answer

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Scenario: Suppose the world price is $2 per bushel, and U.S. wheat growers are dissatisfied with the level of wheat imports into the United States. They lobby Congress for a $1 per bushel tariff on imported wheat. The following figure shows the U.S. wheat market. Scenario: Suppose the world price is $2 per bushel, and U.S. wheat growers are dissatisfied with the level of wheat imports into the United States. They lobby Congress for a $1 per bushel tariff on imported wheat. The following figure shows the U.S. wheat market. -Refer to the scenario above.How much wheat is imported into the United States after the imposition of the tariff? A) 3 million metric tons B) 4 million metric tons C) 6 million metric tons D) 10 million metric tons -Refer to the scenario above.How much wheat is imported into the United States after the imposition of the tariff?


A) 3 million metric tons
B) 4 million metric tons
C) 6 million metric tons
D) 10 million metric tons

E) None of the above
F) A) and B)

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An import is any good that is ________.


A) produced and consumed domestically
B) priced through an auction mechanism
C) produced abroad but sold domestically
D) rationed and licensed by the government

E) All of the above
F) A) and B)

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The following table shows the value of exports and imports of four countries in 1990. The following table shows the value of exports and imports of four countries in 1990. -Refer to the table above.Which of the following statements is true? A) Country A is a net importer, while Country B is not. B) Country A and Country D are net importers. C) Country D and Country C are net importers. D) Country C is a net importer, while Country A is not. -Refer to the table above.Which of the following statements is true?


A) Country A is a net importer, while Country B is not.
B) Country A and Country D are net importers.
C) Country D and Country C are net importers.
D) Country C is a net importer, while Country A is not.

E) B) and C)
F) A) and B)

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Scenario: With her available resources, Wendy can produce 20 greeting cards or 10 earrings. Sarah, with the resources she has, can produce 5 greeting cards or 15 earrings. -Refer to the scenario above.What is Sarah's opportunity cost of producing 1 earring?


A) 0.33 greeting cards
B) 1 greeting card
C) 1.45 greeting cards
D) 3 greeting cards

E) None of the above
F) A) and B)

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The figure below shows the domestic supply and demand of a product in the United States. The figure below shows the domestic supply and demand of a product in the United States. -Refer to the figure above.If the world price of this product is $14,the consumer surplus in the United States before free trade is equal to ________ ,and the consumer surplus after free trade will equal ________. A) $160; $80 B) $200; $80 C) $160; $40 D) $200; $40 -Refer to the figure above.If the world price of this product is $14,the consumer surplus in the United States before free trade is equal to ________ ,and the consumer surplus after free trade will equal ________.


A) $160; $80
B) $200; $80
C) $160; $40
D) $200; $40

E) A) and B)
F) A) and C)

Correct Answer

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Which of the following statements is true?


A) The growth rate of manufactured exports from the United States exceeded the growth rate of manufactured exports from China in the early 2000s.
B) The U.S. economy has failed to meet the demand for manufactured goods domestically.
C) U.S. exports are worth more than its imports.
D) The import of crude oil by the U.S. has been declining since 1960.

E) B) and C)
F) A) and C)

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The following figure shows the production possibilities curve for Sheena, who has to split her time between producing Web sites and computer programs. The following figure shows the production possibilities curve for Sheena, who has to split her time between producing Web sites and computer programs. -Refer to the figure above.What is the opportunity cost of producing 1 computer program? A) 0.2 Web sites B) 5 Web sites C) 8 Web sites D) 12 Web sites -Refer to the figure above.What is the opportunity cost of producing 1 computer program?


A) 0.2 Web sites
B) 5 Web sites
C) 8 Web sites
D) 12 Web sites

E) B) and D)
F) None of the above

Correct Answer

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Which of the following correctly identifies an argument against free trade?


A) Free trade leads to a loss of revenue for exporting countries.
B) Buyers in importing countries suffer losses due to free trade.
C) Infant domestic industries fail to compete successfully with the advanced foreign competitors.
D) Free trade limits the bundle of goods and services available in smaller countries.

E) A) and C)
F) A) and B)

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The figure below shows the domestic supply and demand of a product in the United States. The figure below shows the domestic supply and demand of a product in the United States. -Refer to the figure above.Suppose the world price of this product is $8.After the United States engages in free trade in this product,________. A) the consumers will win, the producers will win, and the overall economy will be better off B) the consumers will win, the producers will lose, but the overall economy will be better off C) the consumers will lose, the producers will win, but the overall economy will be better off D) the consumers will lose, the producers will win, but the overall economy will be worse off -Refer to the figure above.Suppose the world price of this product is $8.After the United States engages in free trade in this product,________.


A) the consumers will win, the producers will win, and the overall economy will be better off
B) the consumers will win, the producers will lose, but the overall economy will be better off
C) the consumers will lose, the producers will win, but the overall economy will be better off
D) the consumers will lose, the producers will win, but the overall economy will be worse off

E) A) and B)
F) A) and C)

Correct Answer

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The following table shows the quantity of wine or cloth that can be produced in California and Texas when all the resources are devoted to the production of each good.The states have identical resources. The following table shows the quantity of wine or cloth that can be produced in California and Texas when all the resources are devoted to the production of each good.The states have identical resources. Refer to the table above.Identify the absolute and comparative advantage enjoyed by both states.Which state should specialize in the production of which good? Determine the range of terms of trade between the two states. Refer to the table above.Identify the absolute and comparative advantage enjoyed by both states.Which state should specialize in the production of which good? Determine the range of terms of trade between the two states.

Correct Answer

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Because California can produce more of b...

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Which of the following statements is true?


A) An economic agent can have a comparative advantage in the production of all goods.
B) The agent with the higher opportunity cost of producing a good has the comparative advantage in producing that good.
C) There are mutually beneficial gains from trade if opportunity costs differ.
D) An economic agent who has the absolute advantage in producing a good also has the comparative advantage in producing that good.

E) A) and B)
F) All of the above

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Scenario: The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3, and the government of Barylia decides to impose a $1 tariff on the import of chairs. Scenario: The following figure shows the demand curve, D, and the supply curve, S, of chairs in Barylia. Barylia is open to free trade. The world price of chairs is $3, and the government of Barylia decides to impose a $1 tariff on the import of chairs. -Refer to the scenario above.Calculate the total surplus in Barylia under free trade. A) $150 B) $250 C) $325 D) $375 -Refer to the scenario above.Calculate the total surplus in Barylia under free trade.


A) $150
B) $250
C) $325
D) $375

E) None of the above
F) B) and D)

Correct Answer

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Taxes levied on goods and services transported across political boundaries are referred to as ________.


A) service taxes
B) tariffs
C) value added taxes
D) transport taxes

E) C) and D)
F) None of the above

Correct Answer

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Which of the following statements is true?


A) An economy's production possibilities curve is convex.
B) The opportunity cost of producing a good decreases as more resources are used for its production.
C) The production possibilities curve of a country is fixed in the short run.
D) The slope of the production possibilities curve represents the terms of trade between two states.

E) All of the above
F) A) and D)

Correct Answer

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The following figure depicts the production possibilities curve when Ann and Bob engage in trade. With all her resources, Ann can either produce two computer programs or one Web site. With all his resources, Bob can either produce one computer program or three Web sites. The following figure depicts the production possibilities curve when Ann and Bob engage in trade. With all her resources, Ann can either produce two computer programs or one Web site. With all his resources, Bob can either produce one computer program or three Web sites. -Refer to the figure above.The steeper portion of this curve has a slope equal to ________. A) Ann's PPC B) Bob's PPC C) Ann's minus Bob's PPC D) Ann's plus Bob's PPC -Refer to the figure above.The steeper portion of this curve has a slope equal to ________.


A) Ann's PPC
B) Bob's PPC
C) Ann's minus Bob's PPC
D) Ann's plus Bob's PPC

E) C) and D)
F) A) and D)

Correct Answer

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