Multiple Choice Questions
1. If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then
a. The nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade.
b. The nation has a comparative advantage in producing steel and would become a steel importer if it opened up trade.
c. The nation does not have a comparative advantage in producing steel and would become a steel exporter if it opened up trade.
d. The nation does not have a comparative advantage in producing steel and would become a steel importer if it opened up trade.
2. When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation?
a. Domestic production of coffee rises, and Ectenia becomes a coffee importer.
b. Domestic production of coffee rises, and Ectenia becomes a coffee exporter.
c. Domestic production of coffee falls, and Ectenia becomes a coffee importer.
d. Domestic production of coffee falls, and Ectenia becomes a coffee exporter.
3. When a nation opens itself to trade in a good and becomes an importer,
a. Producer surplus decreases, but consumer surplus and total surplus both increase.
b. Producer surplus decreases, consumer surplus increases, and so the impact on total surplus is ambiguous.
c. Producer surplus and total surplus increase, but consumer surplus decreases.
d. Producer surplus, consumer surplus, and total surplus all increase.
4. If a nation that imports a good imposes a tariff, it will increase
a. The domestic quantity demanded.
b. The domestic quantity supplied.
c. The quantity imported from abroad.
d. All of the above.
5. Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade?
a. The increase of a tariff in an importing country
b. The reduction of a tariff in an importing country
c. Starting to allow trade when the world price is greater than the domestic price
d. Starting to allow trade when the world price is less than the domestic price
6. The main difference between imposing a tariff and handing out licenses under an import quota is that a tariff increases
a. Consumer surplus.
b. Producer surplus.
c. International trade.
d. Government revenue.