Free trade associations

Question

Question 1: Technological changes in telecommunications have:

a. reduced the importance of services in the world economy.
b. allowed increased foreign trade in many services.
c. reduced the need for foreign trade in many services.
d. profoundly affected trade in manufactured goods with little effect on trade in services.

Question 2: Infant industry protection can be justified in theory by:

a. both the "learning by doing" argument and the existence of economies of scale.
b. the "learning by doing" argument but not by the existence of economies of scale.
c. the existence of economies of scale but not by the "learning by doing" argument.
d. neither the "learning by doing" argument nor the existence of economies of scale.

Question 3: A widget has an opportunity cost of 4 wadgets in Saudi Arabia and 2 wadgets in the United States. Given these opportunity costs, you would suggest that:

a. Saudi Arabia specialize in widgets and the United States in wadgets.
b. no trade should take place.
c. Saudi Arabia specialize in wadgets and the United States in widgets. d. both countries produce an equal amount of each.

Question 4. Refer to the table.

       Kiribati             Tuvalu
Mangoes    Coconuts   Mangoes    Coconuts

300                0           1200            0
200              400           800          1200
100              800           400          2400
 0                1200           0            3600

Which of the following statements is true?

a. Gains from trade are possible for both countries.
b. Only Kiribati will benefit from trade with Tuvalu.
c. Only Tuvalu will benefit from trade with Kiribati.
d. No gains from trade are possible for either Kiribati or Tuvalu.

Question 5: If a country has a trade deficit, it is definitely:

a. buying more than it is producing.
b. borrowing from foreigners.
c. selling financial assets.
d. selling real assets.

Question 6: There are ten sources of U.S. comparative advantage. Which of the following is NOT one of them?

a. Relatively open immigration laws
b. Religious diversity
c. Skills of the U.S. labor force
d. A large stock of intellectual property rights

Question 7: Free trade associations tends to:

a. reduce restrictions on trade and thereby always expand free trade.
b. lower trade barriers for all countries.
c. replace multinational negotiations, and thereby always hurt free trade.
d. expand, but can also reduce free trade.

Question 8: An import quota does which of the following?

a. Decreases the price of the imported good to the consumer.
b. Increases the price of the domestic good to the consumer.
c. Redistributes income from domestic producers to domestic consumers.
d. Decreases the price received by the foreign producer.

Question 9: All of the following are arguments in support of protectionist legislation except:

a. supporting infant industries.
b.preserving domestic employment.
c. increasing global trade.
d. promoting national security.

Question 10: In the early 2000s the WTO authorized several countries to impose about $150 million in trade sanctions against the United States in retaliation for a U.S. import law that the WTO ruled to be illegal. The WTO that issued this ruling against the United States is known as

a. Wage Tariff Objective
b. World Trade Organization
c. Wealth Technology Order
d. Welfare Tax Order

Question 11: One of the basic economic laws is 'the law of one price.' It says that given certain assumptions one would expect that if the free trade is allowed, the price of goods in countries should converge. a. Can you list what three of those assumptions likely are? b. Should the law of one price hold for labor also? Why or why not? c. Should it hold for capital more or less so than for labor? Why?

Question 12: Suppose that there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the opportunity cost of producing 1 bushel of wheat is 3 bushels of corn. For Nebraska the opportunity cost of producing 1 bushel of corn is 3 bushels of wheat. Present production is:

	Iowa	Nebraska
Wheat	20 million bushels	120 million bushels
Corn	120 million bushels	20 million bushels

a. Explain how, with trade, Nebraska can wind up with 40 million bushels of wheat and 120 bushels of corn while Iowa can wind up with 40 million bushels of corn and 120 million bushels of wheat. b. If the states ended up with the numbers given in a, how much would the trader get?

Question 13: What are three reasons why economists' and laypeople's view of trade differ?