Macroeconomic Quiz 2

1) If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade? A) Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter.

B) Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.

C) The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden.

D) Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.

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Table 7-6

Output per hour Production and Production of work Consumption without Trade with Trade

Swords Belts Swords Belts Swords Belts Estonia 5 3 100 60 200 0 Morocco 2 2 40 40 0 80

Estonia and Morocco can produce both swords and belts. Each country has a total of 40 available labor hours for the production of swords and belts. Table 7-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade.

2) Refer to Table 7-6. Which country has an absolute advantage in producing belts? A) Estonia B) Morocco C) both countries D) neither country

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3) Refer to Table 7-6. Which country has a comparative advantage in producing belts? A) Estonia B) Morocco C) both countries D) neither country

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4) Refer to Table 7-6. With trade, what is the total gain in sword production? A) 40 B) 60 C) 100 D) 200

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5) Refer to Table 7-6. If the actual terms of trade are 1 belt for 1.5 swords and 50 belts are traded, how many swords will Morocco consume? A) 60 B) 75 C) 135 D) 200

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6) Which of the following statements is false? A) Although some individuals may not be made better off as a result of international trade, both countries may be made better off overall.

B) Not all individuals in both countries are made better off as a result of international trade.

C) Within each country, some individuals are made better off as a result of international trade, but one of the countries will be worse off overall.

D) Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.

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Figure 7-2

Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.

7) Refer to Figure 7-2. With trade, but no tariff in place (assuming that trade begins), the United States consumes A) 15 million pounds of coffee. B) 30 million pounds of coffee. C) 36 million pounds of coffee. D) 45 million pounds of coffee.

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8) Refer to Figure 7-2. The tariff causes domestic consumption of coffee A) to fall by 21 million pounds. B) to rise by 6 million pounds. C) to rise by 12 million pounds. D) to fall by 9 million pounds.

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9) Which of the following is common to both tariffs and quotas? A) Tariffs and quotas both increase economic efficiency. B) Tariffs and quotas are both used as a means to increase government revenue. C) Tariffs and quotas are both examples of voluntary export restraints. D) Tariffs and quotas are both designed to reduce foreign competition faced by domestic firms.

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10) All but one of the following statements is used to justify protectionism. Which statement is not used to justify protectionism? A) Free trade reduces employment by driving domestic firms out of business. B) Trade restrictions are necessary to protect new firms until they can gain experience and become more productive.

C) Free trade leads to higher prices for imported goods. D) A country should not rely on other countries for goods that are critical to its national defense.

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Answer Key Testname: ECON1A-CH7B

1) D 2) A 3) B 4) B 5) B 6) C 7) D 8) D 9) D 10) C

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