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International Economics Practice Quiz



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 1. 

For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?
A)
The opportunity cost of producing watches is higher in Denmark.
B)
The opportunity cost of producing cheese is higher in Denmark.
C)
The opportunity cost of producing cheese is identical in both countries.
D)
It is impossible to compare opportunity costs because the two countries use different currencies.
E)
In both countries combined, the opportunity cost of one watch is 150 pounds of cheese.
 

 2. 

In New Zealand one worker can produce 40 walking sticks or 10 boomerangs each hour. What is the opportunity cost of producing one walking stick?
A)
40 boomerangs
B)
10 boomerangs
C)
4 boomerangs
D)
1/4 of a boomerang
E)
1/2 worker
 

 3. 

It is possible for one country to have a comparative advantage in the production of all products.
A)
True
B)
False
 

 4. 

The basis for international trade is
A)
established trade patterns
B)
the size of gold holdings of two countries
C)
shipping and transportation costs
D)
absolute advantage
E)
comparative advantage
 

 5. 

Which of the following is not a reason for international specialization?
A)
some countries have educated, trained workers, while other countries have unskilled workers
B)
tastes and preferences tend to be different in different countries
C)
economies of scale can allow larger, specialized producers to operate at lower average cost
D)
mineral resources are often concentrated in particular countries
E)
the world price of a good is determined by the world supply and demand for it
 
 
international_econ__files/i0070000.jpg
 

 6. 

In Exhibit 0231, if the world price of tulips is $1 and there are no trade restrictions, Holland will
A)
produce 7,000, consume 8,000, and import 1,000 tulips
B)
produce 8,000, consume 5,000, and export 3,000 tulips
C)
produce 7,000, consume 10,000, and import 3,000 tulips
D)
produce no tulips
E)
import all of the tulips that it consumes
 

 7. 

In Exhibit 0231, if there is no international trade, how many tulips will be purchased in Holland?
A)
2,000
B)
4,000
C)
6,000
D)
8,000
E)
10,000
 

 8. 

Domestic producers of goods that compete with imports benefit from protectionism in the short run.
A)
True
B)
False
 
 
international_econ__files/i0110000.jpg
 

 9. 

If the country illustrated in Exhibit 0235 is initially trading without restrictions at a world price of $1.00, net welfare loss as a result of a tariff of $0.50 per unit is represented by area
A)
c + i + e + f
B)
i + f
C)
i
D)
f
E)
b + d
 

 10. 

The difference between a specific tariff and an ad valorem tariff is that a specific tariff
A)
is a set amount of money per unit of a product, while an ad valorem tariff is a set percentage of product price
B)
is a set percentage of product price, while an ad valorem tariff is a set amount of money per unit of a product
C)
names a particular good to which the tariff applies, while an ad valorem tariff applies to large classes of products
D)
applies only to imports, while an ad valorem tariff applies only to exports
E)
sets a strict quota limit on the amount one individual can purchase, while an ad valorem tariff sets no such limit
 

 11. 

An import quota is a
A)
tax on imports
B)
legal limit on the amount of a specific good that can be imported into a particular country
C)
tax on import quantities above the legal limit
D)
way to increase tariff revenues
E)
legal incentive for members of GATT to increase their exports of a particular good
 

 12. 

Which of the following is not correct concerning quotas?
A)
The enactment of quotas rewards domestic producers with higher prices.
B)
The enactment of quotas creates opportunities for lobbyists to seek the perpetuation of quotas.
C)
Quotas on steel, textiles and apparel, and sugar have been in effect for several decades.
D)
Lobbying efforts by domestic producers and foreign exporters are vigorously fought by domestic consumers.
E)
The auctioning of quotas would reduce their attractiveness to foreign exporters.
 

 13. 

Dumping refers to selling a commodity abroad at a price that is below its cost of production or below the price charged in the domestic market.
A)
True
B)
False
 

 14. 

International trade between countries typically produces a winner and a loser, and generally, it is the economically more advanced country that gains at the expense of the less developed nation.
A)
True
B)
False
 

 15. 

The establishment of GATT resulted in
A)
lower tariff rates
B)
increased tariff rates
C)
decreases in total world trade
D)
increased protectionism
E)
a rise in the price of imports
 

 16. 

A major U.S. motive for negotiating a free-trade agreement with Mexico was to
A)
increase immigration into the United States
B)
encourage Mexico's recent drive to achieve a more market-oriented economy
C)
keep Mexico from going Communist
D)
achieve, ultimately, political union with Mexico
E)
help foster the study of the Spanish language in the United States as a means to trading with all Spanish-speaking countries
 

 17. 

According to some economists, the protection granted to infant industries should be
A)
c, d, and e
B)
for new firms that eventually would develop significant economies of scale in their production processes
C)
more for firms which face little competition
D)
based on current absolute advantage
E)
permanent
 

 18. 

When a country establishes trade restrictions, domestic producers of goods that compete with imported goods
A)
always lose in the short run
B)
always gain in the long run
C)
may lose in the long run if protection stifles innovation and leaves the industry vulnerable
D)
may gain in the short run because wages will fall in that industry
E)
usually lobby against such restrictions
 

 19. 

Firms in a high-wage nation like the U.S. can compete effectively with imports from low-wage nations if
A)
skill levels are identical in the nations
B)
the U.S. reduces tariffs on imports
C)
low-wage nations impose tariffs on U.S. made goods
D)
labor productivity is higher in the low-wage nation
E)
labor productivity is higher in the U.S.
 

 20. 

Two countries that have followed an import-substitution policy are
A)
Argentina and India
B)
South Korea and Hong Kong
C)
Mexico and Canada
D)
China and Argentina
E)
all the Far East countries have followed the policy
 

 21. 

Which of the following is NOT a problem with import-substitution policy?
A)
It bypasses the gains from specialization and comparative advantage
B)
The country often replaces low-cost foreign goods with high-cost domestic goods
C)
Domestic producers insulated from foreign competition may never become efficient
D)
Countries engaging in this policy have grown faster than those who follow an export-promotion policy
E)
The balance-of-payments problems may not actually improve because other countries may retaliate
 

 22. 

Which of the following is NOT an argument in favor of export promotion as an economic development policy?
A)
Most economists favor this policy over one of import substitution
B)
It has been the more successful development policy
C)
Developing countries that follow this policy have experienced the highest growth of real GDP per capita
D)
It lessens the need for bureaucratic intervention in the market
E)
This policy is an excellent theory that holds much promise but has never been tried by any developing country
 

 23. 

Suppose U.S. consumers start buying more English shoes and fewer U.S. shoes. What impact will this trend have on the foreign exchange market?
A)
U.S. demand for foreign exchange, in general, and British pounds, in particular, will increase.
B)
U.S. demand for foreign exchange, in general, and British pounds, in particular, will decrease.
C)
U.S. demand for British pounds will increase, but the demand for foreign exchange will probably decrease.
D)
U.S. demand for British pounds will decrease, but the demand for foreign exchange will probably increase.
E)
There is no effect on foreign exchange.
 

 24. 

Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the
A)
U.S. demand curve for Mexican pesos will shift rightward
B)
U.S. demand curve for Mexican pesos will shift leftward
C)
U.S. supply curve of Mexican pesos will shift leftward
D)
U.S. supply curve of Mexican pesos will shift rightward
E)
U.S. supply curve of Mexican pesos will shift up
 

 25. 

If the demand curve for British pounds shifts to the right,
A)
the dollar price of British pounds will increase
B)
the dollar price of British pounds will decrease
C)
the exchange rate between dollars and pounds will be out of equilibrium
D)
the pound will fall in value against the dollar
E)
there will be no change in either the value of the dollar or the pound
 

 26. 

If the Irish pound declines in value against other major currencies, which of the following happens?
A)
The Irish trade deficit will increase.
B)
The Irish trade deficit will be unaffected.
C)
The Irish trade deficit will decrease.
D)
Irish products will become more expensive to foreigners.
E)
Foreign goods will become cheaper in Ireland.
 

 27. 

Which of the following is true?
A)
If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners.
B)
If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners.
C)
If the Australian dollar depreciates, the Australian trade deficit increases, since Australian products become more expensive to foreigners.
D)
If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners.
E)
If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners.
 

 28. 

Which one of the following is not true?
A)
An exchange rate is the price of one currency in terms of another.
B)
An exchange rate is the means by which the price of a good in one country is translated into the price to the buyer in another country.
C)
The cost of a foreign good in dollars will depend on the current exchange rate.
D)
The exchange rate will affect the willingness of foreign buyers and sellers to trade with each other.
E)
The exchange rate is the price of a currency in terms of another currency for exchanges of goods and services but not for financial transactions.
 

 29. 

If the U.S. dollar appreciates, it means that
A)
the value of the U.S. dollar has decreased
B)
the value of foreign exchange has increased
C)
fewer U.S. dollars are required to purchase foreign exchange
D)
more U.S. dollars are required to purchase foreign exchange
E)
exports will fall immediately
 

 30. 

If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar,
A)
both the U.S. dollar and the yen have appreciated
B)
both the U.S. dollar and the yen have depreciated
C)
the U.S. dollar has appreciated and the yen has depreciated
D)
the U.S. dollar has depreciated and the yen has appreciated
E)
the yen has appreciated and the U.S. dollar has remained constant
 



 
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