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| 1 | |
International specialization takes place because of __________. |
| | A) | differences in technology |
| | B) | differences in factor endowments |
| | C) | scale economies |
| | D) | all of the above |
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| 2 | |
The law of comparative advantage states that countries _________ in producing and exporting the goods that they produce at a lower _______ cost than other countries. |
| | A) | diversify, absolute |
| | B) | specialize, relative |
| | C) | diversify, relative |
| | D) | specialize, absolute |
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| 3 | |
In the US, videos cost $180 and shirts $30, in the UK, shirts cost £12 and videos £120. Making videos costs ____ relative to shirts in the US than in the UK. The opportunity cost of videos is _____ in the US. |
| | A) | less, lower |
| | B) | less, higher |
| | C) | more, lower |
| | D) | more, higher |
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| 4 | |
Beginning with a free trade equilibrium and imposing an import tariff, increases the domestic price of imports leading to monetary transfers and to pure waste. |
| | A) | True |
| | B) | False |
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| 5 | |
When imports affect the world price, the optimal tariff reduces imports to the level at which ________________________________________. |
| | A) | imports equal exports |
| | B) | private marginal cost equals private social cost |
| | C) | social marginal cost equals social marginal cost |
| | D) | a Pareto optimum is achieved |
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| 6 | |
Dumping occurs when foreign producers sell at prices _____ their marginal production cost, either by making losses or with the assistance of _________________. |
| | A) | below, government subsidies |
| | B) | below, trade associations |
| | C) | above, government subsidies |
| | D) | above, trade associations |
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| 7 | |
Export subsidies raise domestic prices, reducing consumption but raising output and exports. |
| | A) | reduce, raising |
| | B) | raise, raising |
| | C) | reduce, lowering |
| | D) | raise, lowering |
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| 8 | |
The level of the equilibrium exchange rate offsets international differences in absolute advantage. |
| | A) | True |
| | B) | False |
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| 9 | |
Identify below what is not a trade policy: |
| | A) | tariffs |
| | B) | quotas |
| | C) | diplomatic pressure |
| | D) | export subsidies |
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| 10 | |
International differences in opportunity costs lead to countries acquiring __________. |
| | A) | comparative advantage |
| | B) | high exchange rates |
| | C) | trade barriers |
| | D) | trade quotas |
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| 11 | |
If a country does not have an absolute cost advantage in the production of any good, there is no incentive to trade. |
| | A) | True |
| | B) | False |
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| 12 | |
The main cause of different relative costs between countries are ___________. |
| | A) | relative factor competition |
| | B) | relative factor mobility |
| | C) | relative factor substitution |
| | D) | relative factor endowments |
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| 13 | |
The level of the equilibrium exchange rate offsets international differences in ____________. |
| | A) | comparative advantage |
| | B) | absolute advantage |
| | C) | opportunity cost |
| | D) | relative costs |
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| 14 | |
International trade can never hurt any people. |
| | A) | True |
| | B) | False |
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| 15 | |
The imposition of a tariff causes consumption to _________ and imports to ________. |
| | A) | rise, rise |
| | B) | fall, rise |
| | C) | fall, fall |
| | D) | rise, fall |
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| 16 | |
A tariff causes domestic firms to __________ and consumers to __________. |
| | A) | overproduce, underconsume |
| | B) | overproduce, overconsume |
| | C) | underproduce, underconsume |
| | D) | underproduce, overconsume |
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| 17 | |
Tariffs always distort trade and are never justified. |
| | A) | True |
| | B) | False |
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| 18 | |
An optimal tariff is one which reduces imports to the level at which _________ equals _______. |
| | A) | imports, exports |
| | B) | the balance of trade, zero |
| | C) | the demand for currency, the supply of currency |
| | D) | social marginal cost, social marginal benefit |
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| 19 | |
If goods are exported for less than society’s marginal production cost and the marginal benefit to domestic consumers, it is likely that they benefit from ___________. |
| | A) | an import subsidy |
| | B) | a quota |
| | C) | comparative advantage |
| | D) | an export subsidy |
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| 20 | |
Export subsidies do not involve waste. |
| | A) | True |
| | B) | False |
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