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ECO 344 Midterm

In trade, if—due to technology—a nation can produce a good (such as Germany's production of snowboards) with fewest resources, it is known as a(n):

Absolute advantage

Technology advantage

Comparitive advantage

Resource advantage

According to Ricardo:

all countries can gain from trade if they export goods for which they have an absolute advantage.

one country can gain from trade only at the expense of another country.

all countries can gain from trade if they export goods for which they have a comparative advantage.

all countries lose from international trade.

The Ricardian model assumes that the marginal product of labor is:

Increasing

Decreasing

Constant

Zero

Assume the MPLt = 5 tennis rackets and MPLb = 4 baseball bats. If the economy has 100 workers, then the economy can produce:

a maximum of 500 tennis rackets.

a maximum of 350 baseball bats.

500 tennis rackets and 400 baseball bats.

either 100 tennis rackets only or 100 baseball bats only.

Assume that marginal product of labor is constant. If the maximum number of units of cloth produced is 300 and the maximum number of units of corn produced is 600, then with a MPLcloth = 2, what is the MPLcorn?

Suppose after opening up for trade the Home country produces 60 units of chemicals and 20 units of clothing. But Home consumes 40 units of chemicals and 60 units of clothing. Which product does Home export?

Clothing

Chemicals

It exports neither chemicals nor clothing.

It exports both chemicals and clothing.

Suppose after opening up for trade the Home country produces 60 units of chemicals and 20 units of clothing. But Home consumes 40 units of chemicals and 60 units of clothing. What is the international price of chemicals?

1/2 unit of clothing per unit of chemicals

one unit of clothing per unit of chemicals

two units of clothing per unit of chemicals

three units of clothing per unit of chemicals

It can be shown that differences in “before-trade” relative prices will determine:

which nation has the absolute advantage.

which good each nation will export or import.

the quantity traded by each nation.

which nation has higher wages.

In the Ricardian model, wages are equal across industries because:

employers care for their workers.

workers prefer to work in exporting industries.

workers are freely mobile between industries.

workers are freely mobile between countries.

Suppose that the U.S. Price index for its imports rose from 100 to 120 from 2010 to 2011 and the price index for its exports remained unchanged. Which of the following statements is CORRECT?

The U.S. Terms of trade worsened between 2010 and 2011.

The U.S. Terms of trade improved between 2010 and 2011.

The U.S. Terms of trade improved in 2010 and worsened in 2011.

There was no change in the U.S. Terms of trade between 2010 and 2011.

In the two-sector (manufacturing and agriculture) specific-factors model, which resource(s) is (are) transferable between sectors?

Land

Labor

Capital

Labor and capital

The specific-factors model is termed a “short-run” model because:

labor cannot move from one activity to another.

land resources can move from one activity to another.

labor can move from one activity to another.

land and capital cannot move from one activity to another.

What does the specific-factors model allow us to analyze?

the returns to factors of production

the allocation of the mobile factor between sectors

both A and B are correct

In the specific-factors model, as more labor is added to a sector, we will see:

the total product of labor decrease.

the marginal product of labor increase.

the average product of labor stay constant.

the marginal product of labor decrease.

If the price per bushel of wheat is $3 and the marginal product of labor is 4 bushels per hour, then what is the hourly nominal wage?

$0.75

$1.33

$12

4 bushels of wheat

If a nation begins to trade, it will wish to buy (import) the product for which its own pre-trade relative price is:

lower than other nations.

higher than other nations.

the same as other nations.

less than 10% of the value of other nations.

As a nation begins to export, its own relative price of exported goods will ______, and as it imports other goods, the relative price of those will ______ , thus ___________ its standard of living.

fall; rise; lowering

rise; fall; lowering

rise; fall; raising

fall; rise; raising

In the specific-factors model, when fewer workers are employed in the sector that competes with imports, the marginal product of the factor that is specific to the sector _______.

Decreases

Increases

Stays constant

May increase or decrease depending on the quality of imports

In the specific-factors model, an increase in the price of the manufactured good will cause:

an increase in the wage in the manufacturing sector.

capital to move from the agricultural to the manufacturing sector.

land to move from the manufacturing to the agricultural sector.

a decrease in the wage in the agricultural sector.

Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. What will happen to the return (rental) on land in the Home country when trade occurs?

It will first fall, then rise.

It will rise.

It will not change.

It will fall.

Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. Will workers be better or worse off following the opening of trade with other countries?

Workers will be better off because the real wage increases.

Workers will be worse off because the nominal wage decreases.

Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.

Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.

In the specific-factors model, what are the possible explanations for why the rentals on specific factors will change after trade?

The movement of the mobile factor between industries.

The change in relative prices.

The change in marginal product of the specific factors.

All of the above are correct.

Producer surplus is:

the difference between the price of a product and marginal cost of producing the product.

the difference between the price of a product and what consumers were willing to pay for the product.

the difference between the discounted price of a product and its retail price.

the difference between the price of a product and its average total cost of production.

A small importing country in international trade faces:

a perfectly inelastic export supply curve.

a perfectly elastic export supply curve.

a perfectly elastic import demand curve.

a perfectly inelastic import demand curve.

The Home import demand curve is downward sloping because:

as the government forces the price down, consumers buy more.

foreign companies want to help domestic competitors.

as the price falls below the no-trade equilibrium level, the shortage is filled by importing more quantity from abroad.

consumers can control the price of the good.

Which of the following is NOT an effect of an import tariff?

It increases producer surplus by raising the market price and allowing more production.

It raises government revenue.

It reduces consumer surplus by raising the market price.

It improves efficiency in the economy overall because it saves high-paying jobs.

Who bears the burden of the terms-of-trade effect when a large country imposes an import tariff?

foreign consumers

foreign producers

domestic producers

domestic consumers

The United States applies a 25% tariff on imported pickup trucks (mainly from Japan). If the United States is considered to be a “large” country, then:

the U.S. Price of imported Japanese pickup trucks will increase by 25%.

the U.S. Price of imported Japanese pickup trucks will increase by more than 25%.

the U.S. Price of imported Japanese pickup trucks will increase by less than 25%.

the U.S. Price of imported Japanese pickup trucks will increase by 35%.

When a large nation imposes a tariff on a smaller nation and causes its terms of trade to deteriorate, the tariff is sometimes referred to as:

a beggar-thy-neighbor tariff.

a hate-thy-neighbor tariff.

a love-thy-neighbor tariff.

an aid-thy-neighbor tariff.

Suppose that the U.S. Government imposes a 20% tariff to protect U.S. Clothing manufacturers adversely affected by the expiration of the Multifibre Agreement. Compared with a free-trade situation, the price of clothing will ______, and U.S. Clothing production will ________ .

fall; fall

fall; rise

rise; rise

rise; fall

According to the table below, the United States can be considered a “small-country” importer of which of the following steel products? Export Supply Elasticity Alloy Steel 0.27 Steel bars and rods 0.80 Steel tubes and pipes 90 Steel flat-rolled products 750

alloy steel

steel bars and rods

steel tubes and pipes

steel flat-rolled products

Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the euro, a common currency used in 16 European countries, including Finland.) Finland, a small country, imposes a €60-per-ton specific tariff on imported steel. With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel. Suppose that Finland decides to use an import quota to achieve the same effects on domestic steel production as the tariff. How large a quota must it use?

€60

600,000 tons

200,000 tons

300,000 tons

Refer to the scenario from the previous question. What will happen to the Finnish price of steel if Finnish demand increases but the quota set in the previous question remains unchanged?

It will not change.

It will increase.

It will decrease.

It will first increase, then decrease.

Who collects quota rents when the government gives quota licenses to domestic firms?

domestic consumers

foreign suppliers

domestic producers

the government

A profit-maximizing monopolist will produce at the point where:

total revenue = total costs.

marginal revenue = marginal cost.

average revenue = average cost.

the difference between average revenue and average cost is maximized.

If a monopoly suddenly became a perfectly competitive industry, equilibrium output would _________, and the equilibrium price would _________ .

increase; increase

decrease; decrease

increase; decrease

decrease; increase

The small-country monopolist's free-trade equilibrium occurs:

where MC = MR, where MR is declining and below price.

at the intersection of the monopoly's MC curve and the “world” price, which becomes a perfectly elastic demand curve for the monopoly firm and the firm's marginal revenue curve.

where the home demand is completely satisfied by foreign importers.

at minimum marginal cost.

With free trade, the consumer surplus is _________ than in the case of no-trade domestic monopoly.

Lower

Higher

Constant

More information is needed for this question

For a home monopolist, free trade results in:

more control over the domestic market.

more control over the foreign market.

an inability to control prices.

no change in the monopolistic behavior.

When the small home nation imposes a tariff of $10, the domestic price:

rises by more than $10.

rises by $10.

rises by less than $10.

does not change.

If a small importing nation imposes a tariff on a product currently produced by a domestic monopoly firm, what will be the outcome?

The home firm then will regain its monopoly control over the price.

The home firm will be able to charge a higher price that equals (world price + tariff), but it will still be a price taker, just like a competitive firm.

The home nation's firm will be able to limit quantity and charge a price higher than (world price + tariff).

The monopoly firm will lower price, increase sales, and undercut the foreign competition.

Comparing a tariff levied on an import where the home firm is a monopoly to a situation where the home firms are competitive, we find:

both firms charge (world price + tariff) and both firms produce Q where MC = MR = world price + tariff.

that the monopoly firm will be able to charge a higher price and limit its quantity.

that the competitive firm will not be able to survive the impact of the tariff.

that quantity is not the issue; the monopoly firm will pay its workers less and earn higher profits.

The WTO has encouraged nations to replace their import quotas with tariffs. Why?

Quotas are more difficult to administer for the customs staff.

Quotas are more discriminatory.

Quotas hurt domestic firms more than tariffs.

Quotas result in larger losses than tariffs with equivalent protection on domestic monopolists.

How does the demand curve facing a home monopolist compare in a no-trade situation to a situation in which a quota protects the monopolist's output?

They are identical.

The quota-protected demand curve lies to the right of the no-trade demand curve.

The quota-protected demand curve lies to the left of the no-trade demand curve.

The no-trade demand curve is perfectly price elastic at the world price; the quota-protected demand curve has a negative slope.

What will happen to profits and domestic prices when a quota is used to protect a domestic monopolist from international competition?

Profits will fall; domestic prices will fall.

Profits will fall; domestic prices will rise.

Profits will rise; domestic prices will rise.

Profits will rise; domestic prices will fall.

Antidumping duties are a type of:

tariff.

Quota

Export.

trade agreement.

Which of the following groups were losers after the European Union's imposition of an antidumping duty on shoes imported from China?

European consumers and European shoe manufacturers

Chinese consumers and Chinese shoe manufacturers

Chinese consumers and European shoe manufacturers

European consumers and Chinese shoe manufacturers

A foreign firm that is selling below cost and is accused of dumping often:

lowers its price further to increase the tariff imposed.

moves its production to the importing nation to avoid the tariff completely.

raises its export prices to reduce or avoid the antidumping tariff completely.

calls for a ruling by the WTO.

Please read the second application titled Antidumping Duties Versus Safeguard Tariffs in Chapter 8 Section 4 (Policy Response to Dumping) of the textbook. Which U.S. Government agency determines whether antidumping duties are justified?

the Office of the Special Trade Representative

the International Monetary Fund

the U.S. International Trade Commission

the Department of Commerce

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