1. Which of the following characterizes the U.S. trade balance since the mid-1970s?
a. The U.S. trade balance has been in deficit.
b. The value of imports has exceeded the value of exports.
c. Trading partners have sold more to the United States than the United States has sold to them.
d. All of the above.
2. If we add together all the gains from specialization and trade and then subtract all the losses, the net result would be:
a. Zero; the gains and losses would cancel out.
b. Positive; a net gain for the world and each country.
c. Negative; a net loss for the world and each country.
d. Impossible to tell; the net result could be zero, positive, or negative.
3. Comparative advantage refers to:
a. The ability of a country to produce a specific good with fewer resources than other countries.
b. A country's monopoly power in the world market for a specific good.
c. The ability of a country to sell a certain good for a higher price than other countries in the same market.
d. The ability of a country to produce a specific good at a lower opportunity cost than other countries.
4. Suppose that France and the United States do not trade and that the competitive price of an ordinary bottle of wine is 20 francs in France and $2 in the United States; the price of wheat per bushel is 40 francs in France and $6 in the United States. If prices reflect only the differences in costs of the resources to produce wine and wheat in the two countries, this information is sufficient to enable us to state that:
a. France has a comparative advantage in the production of wine.
b. France has a comparative advantage in the production of wheat.
c. Neither country has a comparative advantage in the production of either good.
d. The United States has an absolute advantage in the production of both goods.
5. Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. Which of the following groups would be worse off if these two countries specialize and trade?
a. Brazilian tomato producers.
b. Brazilian coffee producers.
c. Mexican tomato producers.
d. Each of the groups is better off when specialization and trade take place.
6. When one country can produce a given amount of a good using fewer inputs than any other country:
a. It has an absolute advantage in producing the good.
b. It has a comparative advantage in producing the good.
c. Its specialization in that good will definitely increase worldwide consumption possibilities.
d. All of the above.
7. Tariffs result in:
a. Lower domestic prices than those that would prevail in their absence.
b. A stimulus to efficient American firms that are not protected.
c. Higher employment and output in protected industries than would otherwise be the case.
d. A more efficient allocation of resources than would occur in their absence.
8. Tariffs tend to reduce the volume of imports by:
a. Setting maximum allowable import limits.
b. Placing severe quality restrictions on imported goods.
c. Making them more expensive to domestic consumers.
d. Reducing prices of domestically produced goods.
9. What should happen to the equilibrium price and quantity in a market as a result of a quota on imports?
a. Equilibrium price and quantity should both go up.
b. Equilibrium price should go up, and equilibrium quantity should go down.
c. Equilibrium price should go down, and equilibrium quantity should go up.
d. Equilibrium price and quantity should both go down.
10. A market is said to be in equilibrium when:
a. Demand is fully satisfied at all alternative prices.
b. The buying intentions of all consumers are realized.
c. The supply intentions of all sellers are realized.
d. The quantity demanded equals the quantity supplied.
11. When the U.S. dollar loses value compared, for example, to the Japanese yen:
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