International Trade with Supply and Demand

If the world price of cotton is less than the price that would occur domestically without trade, then a country will:

• decrease its demand for cotton and increase its demand for cotton substitutes.

• increase its demand for cotton and decrease its demand for cotton substitutes.

• import cotton.

• export cotton.

When a country adopts free trade and becomes a net exporter of a good, that good:

• becomes cheaper for domestic consumers.

• becomes more expensive for domestic consumers.

• does not change in price.

• may get cheaper or more expensive for domestic consumers.

A tariff is a:

• tax credit for domestic exports.

• tax on imports.

• temporary grant of monopoly rights.

• renewable subsidy to the energy industry.

What is the difference between a tariff and a trade quota?

• A tariff is a tax on imported goods, and a trade quota is a quantity restriction on imported goods.

• A tariff is a cash payment to domestic exporters, and a trade quota restricts the quantity of domestically produced goods foreigners can buy.

• A tariff is a lump-sum tax on imported goods, and a trade quota is a sales tax on imported goods.

• A tariff is a quantity trade restriction on imported goods, and a trade quota is a quantity tax on imported goods.

One of the costs of protectionism is:

• increases in total national output.

• a reduction in the variety of goods in domestic markets.

• greater competition.

• lower opportunity costs of domestic production.

Which of the following statements describes reasons why free trade is beneficial for the United States?

• Free trade increases consumer surplus for imported goods that are cheaper than goods produced in the U.S.

• Free trade directs U.S. resources to those goods and services for which the United States has a comparative advantage.

• Through specialization, the United States and its trading partners can use the same overall amount of resources to produce and consume a larger amount of goods.

• All of the statements are correct.

A trade quota on imports:

• benefits domestic producers and hurts domestic consumers.

• benefits domestic consumers and hurts domestic producers.

• benefits both domestic producers and domestic consumers.

• hurts both domestic producers and domestic consumers.

What quantity would be imported?

• 600 units

• 1,400 units

• 1,000 units

• 800 units

What quantity would be produced domestically in a free trade environment?

• 600 units

• 1,400 units

• 1,000 units

• 800 units

What quantity would be traded in a free trade environment?

• 600 units

• 1,400 units

• 1,000 units

• 800 units