1. Which of the following statements about U.S. foreign trade in the 1990s is correct?

a. Agricultural products constitute the most important export category, making up roughly 40% of the total.
b. Automobiles constitute the most important export category, making up roughly 40% of the total.
c. Capital goods constitute the most important export category, making up roughly 40% of the total.
d. Automobiles constitute the most important import category, making up roughly 40% of the total.
e. Crude oil and petroleum products constitute the most important import category, making up roughly 40% of the total.

2. Which of the following statements correctly characterizes the principle of comparative advantage?

a. Country A has a comparative advantage in the production of good X if it needs fewer resource units to produce a unit of X than country B does.
b. Country B has a comparative disadvantage in the production of good Y if it needs more resource units to produce a unit of Y than country A does.
c. Given (a) and (b) above, if country A specializes in the production of X, while country B specializes in the production of Y, world output will rise.
d. Given (a) and (b) above, if country A specializes in the production of X, while country B specializes in the production of Y, world output will fall.
e. None.

Table 32.1

	France	Germany
Cameras	100 francs	500 marks
Computers	20,000 francs	5,000 marks

3. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. Given that information, which of the following statements is correct?

a. France has an absolute advantage in the production of cameras.
b. Germany has an absolute advantage in the production of computers.
c. France has a comparative advantage in the production of cameras.
d. Germany has a comparative advantage in the production of cameras.
e. Unless given the exchange rate between francs and marks, we cannot assess any of the above statements.

4. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. Given that information, which of the following statements is correct?

a. The opportunity cost of a computer in France is 200 cameras.
b. The opportunity cost of a computer in France is 4 cameras.
c. The opportunity cost of a computer in Germany is 1/4 camera.
d. The opportunity cost of a camera in France is 1/5 computer.
e. The opportunity costs above cannot be computed without a knowledge of the franc/mark exchange rate.

5. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. Given that information, which of the following statements is correct?

a. France has a comparative advantage in computers.
b. France has a comparative advantage in cameras.
c. Germany has a comparative advantage in cameras.
d. Both (a) and (c) are correct.
e. None.

6. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. Given that information, which of the following statements is correct?

a. If France specialized in the production of cameras, while Germany specialized in the production of computers, world output would rise.
b. If France specialized in the production of cameras, while Germany specialized in the production of computers, world output would fall.
c. If France specialized in the production of computers, while Germany specialized in the production of cameras, world output would rise.
d. If France specialized in the production of computers, while Germany specialized in the production of cameras, world output would fall.
e. Both (a) and (d) are correct.

7. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. Given that information, which of the following statements is correct?

a. If the 100 francs figure were changed to 2,000 francs, France would have a comparative advantage in computers rather then cameras.
b. If the 100 francs figure were changed to 2,000 francs, Germany would have a comparative advantage in cameras rather than computers.
c. Both (a) and (b).
d. If the 100 francs figure were changed to 2,000 francs, nobody would have a comparative advantage in anything.
e. If the 100 francs figure were changed to 2,000 francs, Germany would have a comparative advantage in the production of both goods.

8. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. These data imply that France has a comparative advantage in the production of cameras and Germany in the production of computers. However, the very opposites would hold, and the comparative advantages would be reversed,

a. if the 100 francs figure changed to 2,000 francs, ceteris paribus.
b. if the 500 marks figure changed to 25 marks, ceteris paribus.
c. if the 20,000 francs figure changed to 1,000 francs, ceteris paribus.
d. if the 5,000 marks figure changed to >100,000 marks, ceteris paribus.
e. if the 100 francs figure changed to <2,000 francs, ceteris paribus.

9. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. These data imply

a. that France has a comparative advantage in the production of cameras and Germany in the production of computers.
b. that proper specialization in production could simultaneously increase the world production of both goods.
c. that proper terms of trade could simultaneously increase the consumption of both goods in both countries.
d. all of the above.
e. none of the above.

10. Consider Table 32.1. It provides data on the marginal cost of production of two goods in two countries. These data imply that, following proper specialization in production, the French/German terms of trade will be

a. 1 computer for >200 cameras.
b. 1 computer for <10 cameras.
c. either (a) or (b).
d. 1 computer for >10 and <200 cameras.
e. 1 camera for >1/10 and <1/200 computer.

11. Trade among countries in accordance with comparative advantage is brought about

a. with the help of government officials who, in such places as the U.S. Department of Commerce and Japan's Ministry of International Trade and Industry, analyze reams of cost data on a regular basis.
b. with the help of government officials who, in such places as the U.S. Department of Commerce and Japan's Ministry of International Trade and Industry, plot their countries' production possibilities frontiers.
c. with the help of government officials who, in such places as the U.S. Department of Commerce and Japan's Ministry of International Trade and Industry, calculate opportunity costs.
d. spontaneously, through the actions of multitudes of individuals who are trying to make themselves better off by buying where things are the cheapest and selling where they bring the most.
e. in all of the above ways.

12. Consider Figure 32.1. It can be used to analyze the impact of foreign trade on the market for a good in which the country in question has a comparative disadvantage and that is impacted by a world market price, here 0C, that lies below the no-trade domestic price, here 0B. Which of the following statements is correct?

a. In the absence of foreign trade, the quantity produced, traded, and consumed equals 0I, in accordance with demand and supply intersection E.
b. In the absence of foreign trade, the consumers' surplus (or the difference between the minimum sum of money consumers would pay for the quantity traded and the actual sum they do pay for it) equals ABE.
c. In the absence of foreign trade, the producers' surplus (or the difference between the actual sum of money producers receive for the quantity traded and the maximum sum they would accept for it) equals BED.
d. All of the above statements are correct.
e. None of the above statements is correct.

13. Consider Figure 32.1. It can be used to analyze the impact of foreign trade on the market for a good in which the country in question has a comparative disadvantage and that is impacted by a world market price, here 0C, that lies below the no-trade domestic price, here 0B. Which of the following statements is correct?

a. Starting with no-trade equilibrium E, if foreign trade opens up, the quantity consumed rises from 0I to 0J.
b. Starting with no-trade equilibrium E, if foreign trade opens up, the good's price falls from 0B to 0C, and the consumers' surplus rises from ABE to AGC.
c. Both (a) and (b) occur and consumers love it: They get a larger quantity at a lower price.
d. Starting with no-trade equilibrium E, if foreign trade opens up, the (domestic) producers' surplus changes from BED to 0CGJ.
e. All of the above statements are correct.

14. Consider Figure 32.1. It can be used to analyze the impact of foreign trade on the market for a good in which the country in question has a comparative disadvantage and that is impacted by a world market price, here 0C, that lies below the no-trade domestic price, here 0B. Which of the following statements is correct?

a. Starting with no-trade equilibrium E, if foreign trade opens up, the (domestic) producers' surplus changes from BED to CFD. Domestic producers sell a lower quantity at a lower price. They hate it and may well resist the opening of foreign trade.
b. Starting with no-trade equilibrium E, if foreign trade opens up, imports of HJ will be made.
c. Starting with no-trade equilibrium E, if foreign trade opens up, domestic output will fall from 0I to 0H.
d. Starting with no-trade equilibrium E, if foreign trade opens up, the sum of consumers' and producers' surpluses will rise by EFG.
e. All of the above statements are correct.

15. Consider Figure 32.1. It can be used to analyze the impact of foreign trade on the market for a good in which the country in question has a comparative disadvantage and that is impacted by a world market price, here 0C, that lies below the no-trade domestic price, here 0B. Which of the following statements is correct?

a. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of a tariff equal to BC raises the domestic price to 0B.
b. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of a tariff equal to BC raises the domestic producers' surplus from CFD to BED.
c. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of a tariff equal to BC generates tariff revenues equal to BEFC.
d. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of a tariff equal to BC creates a net welfare loss equal to EFG.
e. All of the above statements are correct, except (c).

16. Consider Figure 32.1. It can be used to analyze the impact of foreign trade on the market for a good in which the country in question has a comparative disadvantage and that is impacted by a world market price, here 0C, that lies below the no-trade domestic price, here 0B. Which of the following statements is correct?

a. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of an import quota equal to FG raises the domestic price to 0B.
b. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of an import quota equal to FG raises the domestic producers' surplus from CFD to BED.
c. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of an import quota equal to FG generates government revenues equal to BEFC.
d. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of an import quota equal to FG creates a net welfare loss equal to EFG.
e. All of the above statements are false.

17. Consider Figure 32.1. It can be used to analyze the impact of foreign trade on the market for a good in which the country in question has a comparative disadvantage and that is impacted by a world market price, here 0C, that lies below the no-trade domestic price, here 0B. Which of the following statements is correct?

a. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), a tariff that is to generate any government revenue whatsoever must be smaller than BC.
b. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), an import quota that is to be effective in cutting down imports even a little bit must be larger than FG.
c. Both (a) and (b) are correct.
d. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of an import quota of BC would eliminate all foreign trade and create a welfare loss of EFG.
e. Starting with free international trade (and, thus, a price of 0C and imports of FG = HJ), the imposition of an import quota of 0J would raise imports above FG and lower domestic output below 0H.

18. There are those who argue that, at certain times, free international trade should be restricted or suspended. Their arguments include

a. the notion that it is too dangerous to let other countries specialize in weapons production, even if they do have a comparative advantage therein (the national-defense argument).
b. the notion that "new" industries need to be protected from established foreign competitors until they are mature enough to compete on an equal basis (the infant-industry argument).
c. both (a) and (b).
d. the notion that foreigners sometimes engage in unfair trade practices, as by ripping off customers abroad, while charging their own citizens less (the antidumping argument).
e. the notion that foreign governments sometimes give rebates to foreign consumers in order to promote the sales of their companies' products abroad (the foreign-export subsidies argument).

19. There are those who argue that, at certain times, free international trade should be restricted or suspended. Their arguments include

a. the notion that American producers can't compete with foreign producers because the former pay higher wages to their workers (the low-foreign-wages argument).
b. the notion that a country's high wage disadvantage may be offset by its productivity advantage (the unfair-productivity argument).
c. the notion that a country's low wage advantage may be offset by its productivity disadvantage (the unfair-productivity argument).
d. all of the above.
e. the notion that free international trade redistributes the domestic labor force from efficient to inefficient industries (the saving-domestic-jobs argument).

20. In 1947, the United States and 22 other nations entered into an international trade treaty called the General Agreement on Tariffs and Trade (GATT). Which of the following statements about it is correct?

a. The GATT arrangement has now been replaced by a series of regional agreements, such as the new 1994 North American Free Trade Agreement (NAFTA).
b. In 1993, the then 117 members of GATT held discussions in Uruguay and agreed to further reductions in tariffs, to a further raising of import quotas, to a lowering of agricultural subsidies, and more.
c. The GATT arrangement has now been replaced by a series of regional agreements, such as the new 1989 Asia-Pacific Economic Cooperation (APEC).
d. All of the above statements are correct.
e. None of the above statements is correct.