Sixty Questions: One Point for each correct answer 1. A logical starting point f

Question

Sixty Questions: One Point for each correct answer 1. A logical starting point from which the study of international trade begins is the principle of comparative advantage. Assume, for the U.S., that the domestic price of oil without international trade is higher than the world price of oil. This suggests that, in the production of oil, a. the U.S. has a comparative advantage over other countries and the U.S. will export oil. b. the U.S. has a comparative advantage over other countries and the U.S. will import oil. c. other countries have a comparative advantage over the U.S. and the U.S. will export oil. d. other countries have a comparative advantage over the U.S. and the U.S. will import oil. 2. When a certain nation abandoned a policy of prohibiting international trade in automobiles in favor of a free-tree policy, the result was that the country began to import automobiles. The change in policy improved the well-being of that nation in the sense that a. both producers of automobiles and consumers of automobiles in that nation became better off as a result b. the gains to automobile producers in that nation exceeded the losses of the automobile consumers in that nation. c the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation d. even though total surplus in that nation decreased, it was still true that consumer surplus and producer surplus increased Figure #1: The Impact of Imposing a Tariff

Explanation / Answer

1> d>

Reason

As the US autarky price for oil is higher than the world price, it implies that US has comparative disadvantage and thus US will import oil.

2> c>

Reason

The domestic producer will have lesser surplus as part of the domestic demand will be supplied by the import.

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