International Trade (Chapter 1-6)
Chapter 1: International Economics is Different
Multiple Choice Questions
1.Sovereign nations:
a.Are subject to laws passed by the United Nations.
b.Must be concerned with the interests of foreigners when developing
economic policy.
c.Often ignore the interests of foreigners.
d.Must coordinate their monetary policy with the World Bank.
ANSWER: C
2.Since the early 2000s, a variety of services has been subject to outsourcing in the
United States EXCEPT for:
a.Data entry.
b.Telephone call centers.
c.Software development.
d.Haircuts.
ANSWER: D
3.On July 21st, 2005, the Chinese government changed the value of the yuan from
8.28 yuan per U.S. dollar to 8.11 yuan per U.S. dollar. This implies a __________
dollar and a __________ yuan.
a.Weaker; weaker
b.Weaker; stronger
c.Stronger; stronger
d.Stronger; weaker
ANSWER: B
True/False Questions
4.Politicians do not erect barriers to trade with other countries because they are also
concerned with the well-being of foreigners.
ANSWER: FALSE
bor may be internationally mobile, but capital and land do not migrate from one
country to another.
ANSWER: FALSE
6.India and China are among the main providers of outsourcing services.
ANSWER: TRUE
Chapter 2: The Basic Theory Using Demand and Supply
Multiple Choice Questions
1. All of the following can lead to an increase in the demand for ice cream, a normal good, EXCEPT:
A. A decrease in income.
B. An increase in the price of popsicles.
C. A new scientific study that finds eating ice cream does not cause weight gain.
D. A 10% increase in population.
ANSWER: A
2. An increase in demand will lead to:
A. An increase in supply.
B. A fall in quantity.
C. An increase in price.
D. A decrease in producer surplus.
ANSWER: C
3. Referring to the following figure, at a price of $70, the amount of consumer surplus is:
A. $6,000,000.
B. $8,000,000.
C. $15,000,000.
D. $30,000,000.
ANSWER: B
4. Referring to the following figure, at a price of $70, the amount of producer surplus is:
A. $6,000,000.
B. $8,000,000.
C. $15,000,000.
D. $30,000,000.
ANSWER: A
5. China produces shoes at a lower cost than the United States. As a result, most of the shoes purchased in the United States are made in China. Should this be a concern to anyone in the United States? If so, who should be concerned and why? If not, why not?
POSSIBLE RESPONSE: As a result of the free trade between China and the U.S., the price of shoes in the U.S. will be equal to the international price. What are the effects of free trade on producers and consumers of shoes in the United States? As a result of the imports of shoes from China, the price of shoes will be lower (compared to the situation of no trade). Consumers will gain additional consumer surplus due to the lower price and the increased purchases of shoes (consumers’ total surplus is
measured by the area below the demand curve for shoes and above the international price). Facing a lower price (the international price), the domestic producers of shoes in the United States will react by decreasing their production of shoes. Hence, there is loss of surplus to producers associated with the opening of trade. Some of the shoe producers might go out of business, which might create temporary unemployment in this industry which will last until the workers producing shoes find employment in another sector of the economy. In general, consumers gain more than producers lose, so there is a net gain for the U.S. of opening to trade.
Price ($/unit) Quantity (thousands) Supply Demand 150 120
70
40 100 200 300 10
