MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1)

1

In 1999, demonstrators representing a mix of traditional and new ideologies disrupted a major international trade meeting in Seattle of

2

1)

3

_______ A)

4

WTO. B)

5

the OECD. C)

6

NAFTA. D)

7

GATT. E)

8

None of the above.

2)

9

For the 50 years preceding 1994, international trade policies have been governed

10

2)

11

_______ A)

12

by the World Trade Organization. B)

13

by an international treaty known as the General Agreement on Tariffs and Trade (GATT). C)

14

by the International Monetary Fund. D)

15

by the World. E)

16

None of the above.

3)

17

Since 1995, trade rules have been enforced by

18

3)

19

_______ A)

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the GATT. B)

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The U.S. Congress. C)

22

the WTO. D)

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the G10. E)

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None of the above.

4)

25

Cost-benefit analysis of international trade

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4)

27

_______ A)

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is empirically intractable. B)

29

focuses attention primarily on conflicts of interest within countries. C)

30

focuses attention on conflicts of interests between countries. D)

31

is basically useless. E)

32

None of the above.

5)

33

External economies of scale

34

5)

35

_______ A)

36

may be associated with a perfectly competitive industry. B)

37

cannot be associated with a perfectly competitive industry. C)

38

tends to result in one huge monopoly. D)

39

tends to result in large profits for each firm. E)

40

None of the above.

6)

41

A monopolistic firm

42

6)

43

_______ A)

44

can sell as much as it wants for any price it determines in the market. B)

45

cannot sell additional quantity unless it raises the price on each unit. C)

46

will never sell a product whose demand is inelastic at the quantity sold. D)

47

cannot determine the price, which is determined by consumer demand. E)

48

None of the above.

7)

49

International trade based solely on internal scale economies in both countries is likely to be carried out by a

50

7)

51

_______ A)

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relatively small number of competing oligopolists. B)

53

relatively small number of price competing firms. C)

54

relatively large number of price competing firms. D)

55

monopoly firms in each country/industry. E)

56

None of the above.

8)

57

If a good is imported into (large) country H from country F, then the imposition of a tariff in country H

58

8)

59

_______ A)

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raises the price in country H and cannot affect its price in country F. B)

61

lowers the price of the good in H and could raise it in F. C)

62

raises the price of the good in both countries (the "Law of One Price"). D)

63

raises the price of the good in H and lowers it in F. E)

64

lowers the price of the good in both countries.

9)

65

Internal economies of scale

66

9)

67

_______ A)

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may be associated with a perfectly competitive industry. B)

69

cannot be associated with a perfectly competitive industry. C)

70

are associated only with sophisticated products such as aircraft. D)

71

cannot form the basis for international trade. E)

72

None of the above.

10)

73

Complaints are often made to the International Trade Commission concerning foreign "dumping" practices. These complaints typically claim that

74

10)

75

______ A)

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U.S. firms are harmed by the unfair pricing of foreign exporters. B)

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foreign companies are charging exorbitant prices that are higher than the true value of the products. C)

78

foreign companies are charging prices that are lower than prices they charge countries other than the U.S.

D)

79

U.S. consumers are harmed by the lack of quality control or health concerns in foreign countries. E)

80

None of the above.

11)

81

A firm in monopolistic competition

82

11)

83

______ A)

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earns positive oligopoly profits because each firm sells a differentiated product. B)

85

earns zero economic profits because of free entry. C)

86

earns positive monopoly profits because each sells a differentiated product. D)

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earns zero economic profits because it is in perfectly or pure competition. E)

88

None of the above.

12)

89

A redistribution of workers from low to high real wage countries will eventually result in

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12)

91

______ A)

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lead to equal real wages in all countries. B)

93

lead to equal income distribution between land owners and workers. C)

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a higher level of international investment and trade. D)

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lower the world's output as a whole. E)

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None of the above.

13)

97

Most U.S. direct foreign investment occurs in

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13)

99

______ A)

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communications. B)

101

petroleum. C)

102

agriculture. D)

103

manufacturing. E)

104

None of the above.

14)

105

International borrowing and lending may be interpreted as one form of

106

14)

107

______ A)

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unrequited international transfers. B)

109

inter-temporal trade. C)

110

trade in services. D)

111

intermediate trade. E)

112

None of the above.

15)

113

A country that has a comparative advantage in future production of consumption goods

114

15)

115

______ A)

116

will tend to be an international investor or lender. B)

117

will tend to have good work ethics. C)

118

will tend to have low real interest rates. D)

119

will tend to be an international borrower. E)

120

None of the above.

16)

121

Ad valorem tariffs are

122

16)

123

______ A)

124

the same as import quotas. B)

125

import taxes stated in ads in industry publications. C)

126

import taxes calculated as a fixed charge for each unit of imported goods. D)

127

import taxes calculated as a fraction of the value of the imported goods. E)

128

None of the above.

17)

129

In the country levying the tariff, the tariff will

130

17)

131

______ A)

132

increase consumer surplus and decrease producer surplus. B)

133

decrease consumer surplus and increase producer surplus. C)

134

decrease both the consumer and producer surplus. D)

135

increase both consumer and producer surplus. E)

136

None of the above.

18)

137

Tariff rates on products imported into the U.S.

138

18)

139

______ A)

140

have risen steadily since 1920. B)

141

have dropped substantially over the past 50 years. C)

142

were prohibited by the constitution D)

143

reached an all time high in 2002. E)

144

None of the above.

19)

145

The international capital market is

146

19)

147

______ A)

148

a set of arrangements by which individuals and firms exchange money now for promises to pay in the future.

B)

149

the arrangement where banks build up their capital by borrowing from the Central Bank. C)

150

the place where emerging economies accept capital invested by banks. D)

151

the place where you can rent earth moving equipment anywhere in the world. E)

152

None of the above.

20)

153

Internal economies of scale arise when the cost per unit

154

20)

155

______ A)

156

rises as the industry grows larger. B)

157

falls as the industry grows larger. C)

158

rises as the average firm grows larger. D)

159

falls as the average firm grows larger. E)

160

None of the above.

21)

161

External economies of scale arise when the cost per unit

162

21)

163

______ A)

164

rises as the industry grows larger. B)

165

falls as the industry grows larger rises as the average firm grows larger. C)

166

falls as the average firm grows larger. D)

167

remains constant. E)

168

None of the above.

22)

169

International labor mobility

170

22)

171

______ A)

172

is in accordance with the Heckscher-Ohlin factor proportions model. B)

173

leads to wage convergence by raising wages in destination country and lowering in source country. C)

174

is in accordance with scale economy model. D)

175

leads to wage convergence by raising wages in source and lowering them in destination country. E)

176

is in accordance with the specific factors model.

23)

177

In the exporting country, an export subsidy will

178

23)

179

______ A)

180

help consumers and raise the overall economic welfare of the exporting country. B)

181

hurt consumers and lower the overall economic welfare of the exporting country. C)

182

help consumers but lower economic welfare of the exporting country. D)

183

hurt consumers but raise the overall economic welfare of the exporting country. E)

184

None of the above

24)

185

The United States is less dependent on trade than most other countries because

186

24)

187

______ A)

188

the United States is a relatively large country. B)

189

many countries invest in the United States. C)

190

the United States is a "Superpower." D)

191

the military power of the United States makes it less dependent on anything. E)

192

the United States invests in many other countries.

25)

193

Where there are economies of scale, an increase in the size of the market will

194

25)

195

______ A)

196

increase the number of firms and lower the price per unit. B)

197

decrease the number of firms and lower the price per unit. C)

198

decrease the number of firms and raise the price per unit. D)

199

increase the number of firms and raise the price per unit. E)

200

None of the above.

26)

201

American labor unions have recently maintained that U.S. multinational corporations have been

202

26)

203

______ A)

204

importing cheap foreign workers by keeping U.S. investment at home. B)

205

exporting American jobs by keeping investment in the United States. C)

206

exporting American jobs by investing overseas. D)

207

importing cheap foreign labor by shifting U.S. investment overseas. E)

208

None of the above.

27)

209

Which type of tariff is forbidden in the United States on Constitutional grounds?

210

27)

211

______ A)

212

export tariff B)

213

prohibitive tariff C)

214

specific tariff D)

215

import tariff E)

216

None of the above.

28)

217

Intra-industry trade will tend to dominate trade flows when which of the following exists?

218

28)

219

______ A)

220

large differences between relative country factor availabilities B)

221

constant cost industries C)

222

small differences between relative country factor availabilities D)

223

homogeneous products that cannot be differentiated E)

224

None of the above.

29)

225

In industries in which there are scale economies, the variety of goods that a country can produce is constrained by

226

29)

227

______ A)

228

the fixed cost. B)

229

the size of the labor force. C)

230

anti-trust legislation. D)

231

the size of the market. E)

232

None of the above.

30)

233

Monopolistic competition is associated with

234

30)

235

______ A)

236

explicit consideration at firm level of the feedback effects of other firms' pricing decisions. B)

237

cut-throat price competition. C)

238

product differentiation. D)

239

high profit margins. E)

240

None of the above.

31)

241

If an industry is imperfectly competitive, and markets are segmented then

242

31)

243

______ A)

244

a firm may find that it has lost its comparative advantage. B)

245

a firm may find that it is profitable to engage in dumping. C)

246

a firm may find that international trade is unprofitable. D)

247

a firm may find that it should promote scale economies. E)

248

None of the above.

32)

249

The relative price of future consumption is

250

32)

251

______ A)

252

the relative interest rate. B)

253

unknown at any given time. C)

254

the interest rate. D)

255

the real interest rate. E)

256

None of the above.

33)

257

Why a good is produced in two different countries is known as the question of

258

33)

259

______ A)

260

exploitation. B)

261

vertical integration. C)

262

internalization. D)

263

location. E)

264

None of the above.

34)

265

Multinational corporations

266

34)

267

______ A)

268

make it harder for nations to foster activities of comparative advantage. B)

269

require governmental subsidies in order to conduct worldwide operations. C)

270

increase the transfer of technology between nations. D)

271

always enjoy political harmony in host countries in which their subsidiaries operate. E)

272

None of the above.

35)

273

Suppose the United States eliminates its tariff on ball bearings used in producing exports. Ball bearing prices in the United States would be expected to

274

35)

275

______ A)

276

increase, and the foreign demand for U.S. exports would increase. B)

277

decrease, and the foreign demand for U.S. exports would increase. C)

278

decrease, and the foreign demand for U.S. exports would decrease. D)

279

increase, and the foreign demand for U.S. exports would decrease. E)

280

None of the above.

36)

281

A tax of 20 cents per unit of imported garlic is an example of a(n)

282

36)

283

______ A)

284

nominal tariff. B)

285

ad valorem tariff. C)

286

effective protection tariff. D)

287

specific tariff. E)

288

None of the above.

37)

289

Which of the following is not a major concern of international economic theory?

290

37)

291

______ A)

292

protectionism B)

293

exchange rate determination C)

294

the balance of payments D)

295

Bilateral trade relations with China E)

296

None of the above

38)

297

The slope of the production function measures

298

38)

299

______ A)

300

the marginal product of labor. B)

301

the marginal product of capital. C)

302

the dollar-value increase in output as a country grows. D)

303

the physical increase in output as country grows. E)

304

the increase in number of workers as immigration proceeds.

39)

305

If the world attained a perfect Heckscher-Ohlin model equilibrium with trade, then

306

39)

307

______ A)

308

workers in the labor abundant country would migrate to the capital abundant country. B)

309

workers in the labor abundant country would wish to migrate to the capital abundant country. C)

310

workers in the labor abundant country would have no desire to migrate to the capital abundant country. D)

311

workers in the capital abundant country would migrate to the labor abundant country. E)

312

workers in the capital abundant country would wish to migrate to the labor abundant country.

40)

313

During the mass migration period of late 19th-early 20th centuries,

314

40)

315

______ A)

316

wages generally rose faster in the destination countries. B)

317

wages rose in the origin countries and fell in the destination countries. C)

318

wages fell in the origin countries and rose in the destination countries. D)

319

wages generally rose faster in the origin countries. E)

320

wages generally fell faster in the origin countries.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

41)

321

In Home and Foreign there are two factors of production, land and labor, used to produce only one good. The land supply in each country and the technology of production are exactly the same. The marginal product of labor in each country depends on employment as follows:

Initially there are 11 workers employed in Home but only 3 workers in Foreign. Find the effect of free movement of labor from the high wage to the low wage country. When such economic migration ceases, what will be the levels of production, real wages and the income of landowners in each country?

322

41)

323

_____________

42)

324

Refer to above figure. With a specific tariff of $3 per unit, what is the quantity of Widget imports?

325

42)

326

_____________

ESSAY. Write your answer in the space provided or on a separate sheet of paper.

43)

327

International trade tends to prove that international trade is beneficial to all trading countries. However, casual observation notes that official obstruction of international trade flows is widespread. How might you reconcile these two facts?

44)

328

It may be argued that international labor mobility and trade are substitutes one from the other. Explain.

45)

329

Economic theory in general, and trade theory in particular are replete with equivalencies. For example, it is argued that for any specific tariff one can find an equivalent ad valorem tariff; and that for any quota one can calculate a tariff equivalent. Discuss conditions or situations under which a specific and an ad valorem tariff are not equivalent. Discuss conditions or situations when a tariff and a quota are not equivalent.

330

Answer key

1)

331

A

2)

332

B

3)

333

C

4)

334

B

5)

335

A

6)

336

C

7)

337

D

8)

338

D

9)

339

B

10)

340

A

11)

341

B

12)

342

A

13)

343

D

14)

344

B

15)

345

D

16)

346

D

17)

347

B

18)

348

B

19)

349

A

20)

350

D

21)

351

B

22)

352

D

23)

353

B

24)

354

A

25)

355

A

26)

356

C

27)

357

A

28)

358

C

29)

359

D

30)

360

C

31)

361

B

32)

362

D

33)

363

D

34)

364

C

35)

365

D

36)

366

D

37)

367

D

38)

368

A

39)

369

C

40)

370

D

41)

371

The total production in the world will increase, since the addition to production (the marginal product of labor) in the target country is larger for each worker than the loss of production (also the marginal product of workers) in the emigration country. The real wages will rise in the emigration country and fall in the immigration country. Landlord incomes will rise in the immigration country and fall in the emigration country.

42)

372

40

43)

373

This question is meant to allow you to offer preliminary discussions of issues, which will be explored in depth later in the course.

44)

374

workers earning lower real wages will have an incentive to move to a higher-wage country. Using the Neo-Classical model framework, this means that countries with relative more labor per unit capital may be said to have a relative abundance of labor (or a comparative advantage in labor). They will therefore export their labor. Turning to the Neo-Classical trade model, we know that a country that is relatively labor abundant will export products (and enjoy comparative advantage) in products that embody relatively more labor. Hence, trade exports labor indirectly embodied in products. This allows the workers to raise their real wage instead of doing it by physically moving to the capital rich country.

375

45)E.g., during a period of price inflation, an ad valorem tariff would become increasingly more effective. The government does not receive any of the quota revenues, unless the import licenses are sold or auctioned.

376