EX: 1

Domestic Consumption: Demand Line

Domestic Production: Supply line
Domestic Price: Pw or World Price Line
Consumption: Demand line
Closed Economy Equilibrium Quantity: Equilibrium
Quantity Imported: Difference in quantity
Quantity Exported: Difference in quantity
If Pw is above Equilibrium: Export

When Tariff is added Domestic consumption decreases

and production increases

1. The textbook claims that the use of a naval blockade as a weapon of war is a
paradox because blockades and other trade restrictions
NO are ineffective at stopping the movement of goods.
do not harm the country on which they are imposed.
create an opportunity for profit in the black market.
YES are favored by some people in the country they are intended to hurt.
benefit most consumers in the country on which they are imposed.
Feedback

For more information, see p. 487 of your textbook.

2.

The effect of the world steel price in this market is to

NO increase producer surplus by assuring that no country will sell for
less than $D
YES establish the minimum price at which importers will be willing to sell
to the country depicted in the graph.
Inflate the domestic price of steel
Serve as a price ceiling in the steel market
Increase economic rent earned by holders of import licenses.
Feedback

For more information, see p. 504 of your textbook.

3. The slope of the line tangent to each point on an economy's PPC equals
_______.
The ratio of the world prices of the goods produced.
YES the opportunity cost of producing one more unit of the good measured on
the horizontal axis.
NO The opportunity cost of producing one more unit of the good measured on
the vertical axis.
The opportunity cost of producing one more unit of each good shown on
the graph.
The opportunity cost of technological improvements that increase total
output.
Feedback

For more information, see p. 489 of your textbook.

4.

The consumption combination of 2 tons of rice and 8 tons of wheat is

YES infeasible without trade
feasible without trade, but not efficient.
Feasible without trade, and efficient.
Feasible with trade, but not efficient.
NO Infeasible whether or not there is trade.
Feedback

For more information, see p. 492 of your textbook.

5. A tariff is a tax imposed on ______ good.
OK an imported
a luxury
an illegal
the most popular
a domestic
6.

If this is a closed economy, how much will a bushel of corn cost?

$1
OK $3
$5
$7
$9
7. The slope of the PPC for an economy that employs many workers
is negative when close to the vertical axis and positive when further
away from the vertical axis.
Is upward sloping and linear
Is downward sloping and linear
OK Is smoothly bowed, with a negative slope over its range.
Is smoothly bowed, with a positive slope over its range.
8.

If the country whose PPC is illustrated has a closed economy, the maximum quantity
of wheat its citizens can consume is ______ tons per year. If it has an open
economy, the maximum quantity of wheat its citizens can consume is _____ tons per
year.
NO 6; 6
6; 8
YES 8; 10
8; 8
8; 6
Feedback

For more information, see p. 492 of your textbook.

9. The combination of goods and services Mexico's citizens might feasibly
consume are called Mexico's
total consumption
total production
OK consumption possibilities
production possibilities
national output
10. One means of enforcing a quota is to require importers to
obtain a sales permit
NO pay an import tax
YES obtain a license
pay a sales tax
obtain a political stand
Feedback

For more information, see p. 503 of your textbook.

1. An economy that trades with the rest of the world is a(n)

OK open economy
command economy
 trade economy
closed economy
autarky
2. Autarky is a situation in which a country is economically
dependent on trade
OK self-sufficient
underdeveloped
developed
dependent on a single firm
3.

Suppose production in North Eastwood is currently given by Point C. If North

Eastwood is an open economy, it could
NO trade 50 tons of bread for 150 tons of grapes on the world market, to
consume the combination given by Point B.
YES trade 50 tons of grapes for 25 tons of bread on the world market to
consume a combination that would not have been feasible without trade.
increase production of grapes without sacrificing any production of
bread.
trade 50 tons of bread for 50 tons of grapes on the world market to
consume a combination that would not have been feasible without trade.
not reach a higher consumption combination without a technological
change that shifted its PPC outward.
Feedback

For more information, see p. 492 of your textbook.

4.

What is the world price of sugar without the tariff?

$500/ ton
OK $1000/ton
$1500/ton
$2000/ton
$3000/ton
5. Which of the following jobs is least likely to be outsourced?
YES Flipping hamburgers
NO Technical assistance over the phone for your computer
Transcription of physicians' records
Software design
Airline reservation agent
Feedback

For more information, see p. 508 of your textbook.

6.

If this country is producing between point P and G, it will gain by ______ its
production of good A and importing more of _______.
YES increasing; good B
increasing; good A
NO decreasing; good B
decreasing; good A
not changing; good B
Feedback

For more information, see p. 492 of your textbook.

7.

If this is an open economy, quantity supplied of cars (in thousands) by the

domestic producers will be
OK 20
40
60
80
100
8.

What is the domestic price of sugar in a closed economy?

$500/ ton
$1000/ton
$1500/ton
$2000/ton
OK $3000/ton
9.

The world price of wheat is

$10 per ton
greater than the domestic price of wheat
OK equal to the world price of rice
$8 per ton
greater than the world price of rice
10. If the domestic quantity supplied of a good is greater than the domestic
quantity demanded, the country is likely to be a(n)
consumer of the good
importer of the good
importer and exporter
OK exporter of the good
self-sufficient economy

1. A job is most likely to be outsourced if it

involves face-to-face contact
cannot be done by a computer
OK does not require complex communication
does not require use of computers or other technology
requires an advanced degree
2.

If North Eastwood has a closed economy, the maximum amount of bread its citizens
can consume is ____ tons per year.
150
OK 175
200
250
impossible to know
3.

Amy can produce either 5000 pounds of cheese or 20 cars per year. Mike can produce
either 5000 pounds of cheese or 10 cars per year. By the principle of comparative
advantage, Mike should specialize in producing
both cheese and cars
OK cheese
cars

neither cheese nor cars

little of both goods
4.
An economy has two workers, Paula and Ricardo. Everyday they work, Paula can
produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12
shirts. What is the opportunity cost for Ricardo to produce one shirt?
1/4 computer
OK 1/2 computer
1 computer
2 computers
4 computers
5.

If Utopia has a closed economy, the number of cases of tile traded is _____, and
if it has an open economy the number of cases traded is _____.
200;450
NO B) 300; 200
YES C) 300; 450
D) 450; 200
E) 300; 300
Feedback

For more information, see p. 498 of your textbook.

6. Suppose that a country with a closed economy opens itself to international
trade and becomes a net exporter. In that case, domestic suppliers will supply
_____ of that good after it opens itself to international trade.
OK more
same amount
none
less
impossible to tell
7.

An increase in the world price of rice would be illustrated on this graph by

an outward parallel shift in the consumption possibilities curve.
An outward shift in the production possibilities curve
OK A more steeply-sloped consumption possibilities curve, tangent to the
PPC at a new point.
A consumption possibilities curve with a flatter slope, tangent to the
PPC at a new point.
A change in the horizontal axis intercept of the production
possibilities curve.
8.

An economy has two workers, Paula and Ricardo. Everyday they work, Paula can
produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12
shirts. What is the opportunity cost for Paula to produce one computer?
1/4 shirt
1/2 shirt
1 shirt
NO 2 shirts
YES 4 shirts
Feedback

For more information, see p. 488 of your textbook.

9.

What is the price of a TV in an open economy without a quota?

$150
$125
 $100
OK $75
$50
10. A society could achieve a higher level of productivity if _______.
each person in the society is a jack-of-all-trades
OK it takes advantage of each individual's comparative advantage.
it does not trade with other nations.
it does not tax imported goods.
it does not limit exports.

1.

Suppose that Canada, an industrialized nation, and Mexico a developing nation,

both produce cheese and cars. The real wage in Mexico is lower than in Canada.
The countries have a free trade agreement. Which country's consumers will benefit
from the free trade agreement?
Neither
Canada
OK Both
Mexico
Not enough information to determine
2. If domestic consumers benefit from free trade of a good, the country must be
a(n) ____ of that good.
OK net importer
net exporter
net supplier
autarky
developing country
3.

The increase in the price of sugar created by the tariff will increase domestic
production by ____ tons per year, compared to the production of an open economy
without the tariff.
10
OK 20
30
40
80
4.

The effect of the world steel price in this market is to

increase producer surplus by assuring that no country will sell for
less than $D
OK establish the minimum price at which importers will be willing to sell
to the country depicted in the graph.
Inflate the domestic price of steel
Serve as a price ceiling in the steel market
Increase economic rent earned by holders of import licenses.
5. The world price of a good is determined by the
country that produces the good.
supply of that good in the world market.
demand for that good in the world market.
OK worldwide demand and supply of that good.
negotiation, between the producing countries of that good.
6.

If North Eastwood is an open economy currently producing the quantities labeled

Point A, the citizens of North Eastwood are able to consume
 more grapes than they could without trade, but no more bread.
More bread than they could without trade, but no more grapes.
NO The combination labeled Point B by trading grapes for bread on the
world market.
YES Either more bread or more grapes than they could without trade.
No more bread or grapes than they could without trade.
Feedback

For more information, see p. 492 of your textbook.

7. Australia is a net exporter of wool, free trade will benefit the
OK domestic producers
rich citizens of the Australia
poor citizens of the Australia
domestic consumers
politicians
8.

Suppose that Canada, an industrialized nation, and Mexico a developing nation,

both produce cheese and cars. The real wage in Mexico is lower than in Canada.
The countries have a free trade agreement. Which country benefits from the free
trade agreement?
Canada
Mexico
None of them
OK Both of them
Not enough information to determine.
9.

Suppose that Canada, an industrialized nation, and Mexico a developing nation,

both produce cheese and cars. The real wage in Mexico is lower than in Canada.
The countries have a free trade agreement. Suppose Mexico has a comparative
advantage in producing cheese and Canada has a comparative advantage in producing
cars. Open trade will hurt
Canadian auto workers
Canadian car producers
Mexican cheese producers
YES Mexican car producers
NO none of the above
Feedback

For more information, see p. 496 of your textbook.

10.

In an open economy, the price of a bike is

$20
$40
$100
OK $140
$160