Instructions:
This is a take home exam, therefore, please take your time to provide clear, thoughtful
answers. Remember, the goal of this assignment is for you to
illustrate to me that you’ve covered the required material, that you
understand it, and that
you’ve thought about it enough to provide concise, thoughtful answers.
PLAGIARISM:
All answers must be your own words reflecting your own understanding
and knowledge of the material. All reprinted statements must be fully
cited to the original
author. Students may not copy statements, data, or any other
information from any source, including internet websites.
Multiple Choice: Each question worth 1
point.
1) The
Mercantilist theory of free trade argued that a nation’s wealth was
produced by
a. the labor process.
b. man’s control of
nature.
c. regional and
foreign trade.
d. becoming more
productive than your trading partners in all necessary industries.
e. specializing in
industries where the nation’s opportunity costs are the lowest.
2) The
Mercantilist theory of free trade promoted.
a. always importing
more than you export.
b. always
exporting more than you import.
c. running a
negative trade balance.
d. unrestricted free
trade.
e. free trade in
all products that you could not produce for yourself efficiently.
3) The
Mercantilist theory of free trade is a
a. negative sum
(lose-lose) theory.
b. zero sum
(win-lose) theory.
c. positive sum
(win-win) theory.
d. positive sum
(win-win) theory, unless a country can attain self-sufficiency, then
the
country should produce all its own goods and not trade.
4) The
Absolute Advantage theory of free trade argued that a nation’s wealth
was produced by
a. the labor process.
b. man’s control
of nature.
c. regional
and foreign trade.
d. becoming more
productive than your trading partners in all necessary industries.
e. specializing
in industries where the nation’s opportunity costs are the lowest.
5) The
Absolute Advantage theory of free trade is
a. negative sum
(lose-lose)theory.
b. zero sum (win-lose)
theory.
c. positive sum (win-win)
theory.
d. positive sum (win-win)
theory, unless a country can attain self-sufficiency, then
the
country should produce all its own goods and not trade.
6) The Comparative Advantage theory of free trade
argued that a nation’s wealth was produced by
a. the labor process.
b. man’s control of nature.
c. regional and foreign trade.
d. becoming more productive than your trading
partners in all necessary industries.
e. specializing in industries where the nation’s
opportunity costs are the lowest.
7) The Comparative Advantage theory of free trade is
a. negative sum
(lose-lose)theory.
b. zero sum (win-lose) theory.
c. positive sum (win-win) theory.
d. positive sum (win-win) theory, unless a country can
attain self-sufficiency, then
the country should produce all its own
goods and not trade.
Questions
8 - 10: Use the following table.
Production
Possibilities:
In 1 hour, 1 worker produces either:
|
USA
|
Canada
|
Cars
|
10
|
12
|
Computers
|
20
|
10
|
8) The USA has an absolute advantage in
a. cars
b. computers
c. both
d. neither
9) Canada has an absolute advantage in
a. cars
b. computers
c. both
d. neither
10) The USA and Canada would both benefit if
a. they each produced their
own cars and computers and did not trade
b. the USA produced only
cars and Canada produced only computers and they trade
with
each other
c. the USA produced only
computers and Canada produced only cars and they trade
with each
other
d. the USA produced both
cars and computers, Canada produced only cars and trade
the cars for
US computers
Questions
11 - 15: Use the following table.
Production
Possibilities:
In 1 hour, 1 worker produces either:
|
USA
|
Canada
|
Cars
|
10
|
8
|
Computers
|
20
|
10
|
11) The USA has an absolute advantage in
a. cars
b. computers
c. both
d. neither
12) Canada has an absolute advantage in
a. cars
b. computers
c. both
d. neither
13) The USA has a comparative advantage in
a. cars
b. computers
c. both
d. neither
14) Canada has a comparative advantage in
a. cars
b. computers
c. both
d. neither
15 The USA and Canada would both benefit if
a. they each produced their own cars and computers and did
not trade
b. the USA produced only cars and Canada produced only
computers and they trade
with each other
c. the USA produced only computers and
Canada produced only cars and they trade
with each other
d. the USA produced both cars and
computers, Canada produced only cars and trade
the cars for US
computers
16) Efficiency is gained via free trade because
a.
less efficient domestic producers are forced out of the market by more
efficient
foreign producers.
b. every sector of the market is
effected equally.
c. resources are reallocated to
their most efficient use.
d. a and c
e. b and c
17) Which of the following always benefit from free
trade?
a. consumers
b. producers in less competitive
industries
c. workers in manufacturing
industries
d. all of the above.
e. a and b only
18) International free trade tends to concentrate
losses on
a. countries that are at an
absolute disadvantage in all goods
b. those sectors of the population
that have lower education and skills, because they
are less
likely to work in industries that are internationally competitive
c. countries that implement free
trade when their trading partners do not
d. the agricultural sector
e. None of the above. Free trade
benefits all sectors equally.
19) Since the economy as a whole benefits from free
trade a nation can ensure that no sector is disproportionately affected
by free trade by
a. subsidizing sectors that are
harmed by foreign competition.
b. protecting vulnerable
industries with high tariffs or other trade barriers.
c. requiring less competitive
producers to merge with more competitive producers.
d. taxing the industries that
benefit and compensating workers to become trained or
educated
in order to enter more competitive industries.
20) Ricardo’s theory of Comparative Advantage says
a. trade cannot benefit everyone,
so each country must try export more than it imports.
b. a country must produce all goods where it
is more productive than its trade partners and
trade for those goods the other
countries are more efficient in producing
c. a country should specialize in
producing those goods that is relatively most productive in producing
and trade
for all other goods.
d. a country should have free
trade in those goods that it is most efficient in, but
have import
taxes on those goods that
it is inefficient in producing.
21) Classical theory of free trade (based upon
Absolute Advantage) included which of the following as conditions under
which trade barriers were both justified and would benefit the domestic
economy.
a. in order to run a
positive trade balance.
b. in cases of
protecting an infant industry against overwhelming foreign competition
by larger and
more
mature economies and commercial competitors.
c. A country is justified
in imposing barriers to foreign
imports in order to protect jobs from foreign
competition.
d.
A country is justified in imposing barriers to foreign
imports in order to protect domestic
industries from foreign competition.
e. All of the above are
included.
22) Neo-classical free trade theory (based upon
Comparative Advantage) included
which of the following as conditions under which trade barriers were
both justified and would benefit the domestic economy.
a. when
beneficial externalities raise the possibility that a protected (or
subsidized) monopoly can
meet world demand for a product
thereby concentrating all of that industry's jobs and positive
economic
impact are captured by the protecting nation.
b.
in cases of protecting an infant
industry against overwhelming foreign competition by larger and
more
mature economies and
commercial competitors.
c. A
country is justified in imposing barriers to foreign
imports in order to protect jobs from foreign
competition.
d.
A country is justified in imposing barriers to foreign
imports in order to protect domestic
industries from foreign competition.
e. All of the above are
included in this criticism.
23) The "traditional Protectionist" position argues
that the government ought to
a.
subsidize and protect declining-cost industries in global markets.
b. limit imports from a nation if that nation will
not implement a similar level of labor,
human rights and environmental standards.
c. limit imports in order to keep
existing jobs in the domestic economy.
d. subsidize and protect to infant
industries until they mature enough to compete globally.
24) The "fair trade" position argues that the
government ought to
a. subsidize and protect for
declining-cost industries in global markets
b. limit imports from a nation if
that nation will not implement a similar level of labor,
human
rights and environmental standards.
c. limit imports in order to keep
existing jobs in the domestic economy.
d. subsidize and protect to infant
industries until they mature enough to compete globally.
25) Tariffs are considered
a. a less distortionary form
of protection than quotas because tariffs interfere with market
pricing,
production and incentives while quotas virtually eliminate them.
b. a more distortionary form
of protection than quotas because tariffs interfere with
market
pricing, production and incentives while quotas virtually eliminate
them.
c. a less distortionary form
of protection than quotas because tariffs virtually eliminate
market
pricing, production and incentives while quotas only interfere with
them.
d. a more distortionary form
of protection than quotas because tariffs virtually eliminate
market
pricing, production and incentives while quotas only interfere with
them.
Short
Answer Essay Section
Answer with full, complete
sentences. No notes or simple lists.
Remember your goal is to convince me
that you understand the material well enough to explain it accurately
and briefly.
1. Based upon Comparative Advantage, if England is bad at
producing everything, will international trade drive its producers out
of business? (Up to 1 page maximum; 10 Points)
2. According to Comparative Advantage, will a country benefit
from a free trade policy (it places no restrictions on imports, nor
subsidizes exports) if its trading partners do not implement free trade
policies (they restrict imports or promote exports)? Explain
your answer. (Approximately 1 - 1.5 pages; 15 Points)
3. Explain the proposal for Fair Trade in relation to
international standards. (Approximately 2 pages; 20 Points)
4. What are the potential benefits of free trade?
What are the potential problems of free trade? How can these
potential benefits and problems be reconciled? (Approximately 2 - 3
pages; 30 Points)
