ECON 340-Study Guide MIDTERM I Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Technological improvements are similar to international trade since they both: a. Provide benefits for all producers and consumers b. Increase the nation's aggregate income c. Reduce unemployment for all domestic workers d. Ensure that industries can operate at less than full capacity ____ 2. Which of the following is a fallacy of international trade? a. Trade is a zero-sum activity b. Exports increase employment in exporting industries c. Import restrictions increase employment in import-competing industries d. Tariffs and quotas reduce trade volume ____ 3. Concerning international trade restrictions, which of the following is false? Trade restrictions: a. Limit specialization and the division of labor b. Reduce the volume of trade and the gains from trade c. Cause nations to produce inside their production possibilities curves d. May result in a country producing some of the product of its comparative disadvantage ____ 4. If Hong Kong and Taiwan had identical labor costs but were subject to increasing costs of production: a. Trade would depend on differences in demand conditions b. Trade would depend on economies of large-scale production c. Trade would depend on the use of different currencies d. There would be no basis for gainful trade ____ 5. If the international terms of trade settle at a level that is between each country's opportunity cost: a. There is no basis for gainful trade for either country b. Both countries gain from trade c. Only one country gains from trade d. One country gains and the other country loses from trade ____ 6. If Canada experiences constant opportunity costs, its supply schedule of steel will be: a. Downward-sloping b. Upward-sloping c. Horizontal d. Vertical ____ 7. According to Ricardo, a country will have a comparative advantage in the product in which its: a. Labor productivity is relatively low b. Labor productivity is relatively high c. Labor mobility is relatively low d. Labor mobility is relatively high ____ 8. Introducing indifference curves into our trade model permits us to determine: a. Where a nation chooses to locate along its production possibilities curve in autarky b. The precise location of a nation's production possibilities curve c. Whether absolute cost or comparative cost conditions exist d. The currency price of one product in terms of another product____ 9. In the absence of trade, a nation is in equilibrium where a community indifference curve: a. Lies above its production possibilities curve b. Is tangent to its production possibilities curve c. Intersects its production possibilities curve d. Lies below its production possibilities curve The question(s) are based on trade data for Canada as illustrated in Figure 2.2. The figure assumes that Canada attains international trade equilibrium at point C. Figure 2.2. Canadian Trade Possibilities ____ 10. According to Figure 2.2, imports for Canada total: a. 6 televisions b. 8 televisions c. 12 televisions d. 16 televisions ____ 11. Which of the following would least likely apply to the product life cycle theory? a. Calculators and computers b. Coal and crude oil c. Home movie cameras d. Office machinery ____ 12. A firm is said to enjoy economies of scale over the range of output for which the long-run average cost is: a. Increasing b. Constant c. Decreasing d. None of the above____ 13. Which trade theory is tantamount to a short-run version of the factor price equalization theory? a. Specific factors theory b. Product life cycle theory c. Economies of scale theory d. Overlapping demand theory ____ 14. Suppose that the production of a $30,000 automobile in Canada requires $10,000 worth of steel. The Canadian nominal tariff rates for importing these goods are 25 percent for automobiles and 10 percent for steel. Given this information, the effective rate of protection for the Canadian automobile industry is approximately: a. 15 percent b. 32 percent c. 48 percent d. 67 percent ____ 15. Expanding trade or technological improvements: a. Increases the demand for skilled workers in the U.S. b. Decreases the demand for unskilled workers in the U.S. c. Increases the demand for unskilled workers in the U.S. d. Both a and b. ____ 16. If I purchase a stereo from South Korea, I obtain the stereo and South Korea obtains the dollars. But if I purchase a stereo produced in the United States, I obtain the stereo and the dollars remain in America. This line of reasoning is: a. Valid for stereos, but not for most products imported by the United States b. Valid for most products imported by the United States, but not for stereos c. Deceptive since Koreans eventually spend the dollars on U.S. goods d. Deceptive since the dollars spent on a stereo built in the United States eventually wind up overseas Use the data in Table 4.1 to answer the question(s). Table 4.1. Production Costs and Prices of Imported and Domestic VCRs Imported VCRs Domestic VCRs Component parts $150 Imported component parts $150 Assembly cost/profit 50 Assembly cost 50 Nominal tariff 25 Profit 25 Import price after tariff $225 Domestic price after tariff $225 ____ 17. Consider Table 4.1. Prior to the tariff, the total price of domestically-produced VCRs is: a. $150 b. $200 c. $225 d. $250 ____ 18. If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then: a. The quota results in efficiency reductions but the tariff does not b. The tariff results in efficiency reductions but the quota does not c. They have identical impacts on how much is produced and consumed d. They have identical impacts on how income is distributedFigure 5.1 illustrates the steel market for Mexico, assumed to be a "small" country that is unable to affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now suppose the Mexican steel industry is able to obtain trade protection, as discussed in the questions below. Answer the question(s) on the basis of this information. Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country ____ 19. Refer to Figure 5.1. Suppose the Mexican government imposes an import quota equal to 2 tons of steel. If the Mexican