Chapter 9 Exercises PDF

Chapter 9 Exercises Shuo Xu October 27, 2024 Question 1: Comparative Advantage in Trade Country A and Country B both produce cars and computers. Country A can produce cars more efficiently than Country B but also has a lower opport...

Chapter 9 Exercises Shuo Xu October 27, 2024 Question 1: Comparative Advantage in Trade Country A and Country B both produce cars and computers. Country A can produce cars more efficiently than Country B but also has a lower opportunity cost for producing computers. Based on comparative advantage, which product should Country A specialize in? (a) Cars (b) Computers (c) Both cars and computers (d) Neither, it should focus on self-sufficiency Question 2: Benefits of Trade What is the primary benefit of international trade for participating coun- tries? (a) It enables countries to consume beyond their production possibilities. (b) It eliminates competition in domestic markets. (c) It reduces the need for specialization. (d) It increases tariffs to protect domestic industries. Question 3: Effects of Tariffs on Imports A tariff is imposed on imported goods. Which of the following is a likely outcome of the tariff? (a) Lower prices for domestic consumers. (b) Increased consumer surplus. (c) Reduced quantity of imports. (d) Higher total surplus. 1 Question 4: Import Quotas An import quota is different from a tariff because: (a) It generates revenue for the government. (b) It restricts the quantity rather than raising the price of imports. (c) It is preferred by domestic consumers. (d) It only applies to exports. Question 5: Consumer Surplus in Free Trade How does consumer surplus change when a country moves from no trade to free trade in a good it imports? (a) Consumer surplus decreases. (b) Consumer surplus increases. (c) Consumer surplus remains unchanged. (d) It depends on the elasticity of demand. Question 6: Impact of Trade on Domestic Producers When a country allows free trade and imports a good, how are domestic producers of that good affected? (a) They experience a reduction in producer surplus. (b) Their profits increase due to competition. (c) They benefit from increased prices. (d) They are unaffected. Question 7: World Price vs. Domestic Price If the world price of a good is lower than the domestic price before trade, which of the following will likely occur once trade is allowed? (a) The country will export the good. (b) The country will import the good. (c) The domestic price will increase. (d) Domestic producers will increase supply. Question 8: Economic Efficiency in Trade Why is free trade considered economically efficient? 2  (a) It increases total surplus. (b) It reduces the need for specialization. (c) It protects domestic jobs. (d) It increases government revenue through tariffs. Question 9: Deadweight Loss of a Tariff A tariff creates deadweight loss because: (a) It results in an inefficient allocation of resources. (b) It increases consumer surplus. (c) It leads to an increase in imports. (d) It encourages more foreign production. Question 10: Argument for Trade Restrictions One common argument in favor of trade restrictions is: (a) The infant industry argument, which suggests that new industries need protection to grow. (b) Trade restrictions increase overall economic efficiency. (c) Protectionism reduces the variety of goods available. (d) Free trade always harms consumers. 3