A) / fall by less than $50 per ton.
B) / fall by $50 per ton.
C) / remain at $100 per ton.
D) / rise to $50 per ton.
Use the following to answer questions 2-3:
Figure: Production II: With and Without Offshoring
2. / (Figure: Production II: With and Without Offshoring) If the price of R&D decreases, then it is likely that the home country:A) / could see a decline in the amount of output produced.
B) / will see a loss in comparative advantage in R&D.
C) / could see a decline in the amount of output produced and a loss in comparative advantage in R&D.
D) / could see an increase in the amount of output produced.
3. / (Figure: Production II: With and Without Offshoring) If the world price of components falls, it is likely that:
A) / the home country will import more R&D from the foreign country.
B) / the foreign country will get more R&D for its components.
C) / the home country will produce more R&D and trade it for components.
D) / there will be no impact on the home country.
Use the following to answer question 4:
Figure: Production I: With and Without Offshoring
4. / (Figure: Production I: With and Without Offshoring) Assuming skilled workers are needed for R&D and unskilled workers are needed for components, if there is an increase in the price for research and development products, the firm will ______those products, the demand for ______will increase, their wages will rise, and the price line above will ______.A) / import; unskilled workers; become steeper
B) / export; skilled workers; become flatter
C) / neither import nor export; both workers in the same proportion; not change
D) / import; unskilled workers; become flatter
5. / Suppose that the U.S. federal government decides to increase its cigarette excise tax by $1 per pack and also apply the increase to U.S. cigarette exports. What will happen to the price of cigarettes in the U.S. and abroad?
A) / They will both rise by $1 per pack.
B) / The U.S. price will rise by $1 per pack and the foreign price will rise by less than $1 per pack.
C) / The foreign price will rise by $1 per pack and the U.S. price will rise by less than $1 per pack.
D) / Both will rise by less than $1 per pack.
6. / Following the formation of NAFTA, what was expected to happen to wages of unskilled labor relative to wages of skilled labor in Mexico and in the United States as U.S. offshoring occurred?
A) / Both would rise.
B) / Both would fall.
C) / Wages of Mexican unskilled labor would rise, and wages of U.S. unskilled labor would fall.
D) / Wages of Mexican unskilled labor would fall, and wages of U.S. unskilled labor would rise.
7. / Why is it better to protect an infant industry with a tariff than a quota?
A) / A tariff causes production to increase, whereas a quota causes production to decrease.
B) / A tariff causes production to decrease, whereas a quota causes production to increase.
C) / A tariff will raise the domestic price above the world price, whereas a quota will not.
D) / A quota will raise the domestic price above the world price, whereas a tariff will not.
8. / What are the “trade costs” that firms need to consider when making offshoring decisions?
A) / higher prices of utilities (electricity, fuel) in other countries
B) / higher costs associated with poor communication and transportation plus costs of import taxes, capital, and business regulations
C) / higher costs of construction of a plant in other countries
D) / import taxes and other business regulations
9. / When a quota is used to protect a domestic monopolist from international competition, quota rents will ______and domestic prices will ______.
A) / fall, fall
B) / fall, rise
C) / rise, rise
D) / rise, fall
Use the following to answer question 10:
SCENARIO: HOME MONOPOLIST
A monopolist faces a demand curve given by P = 60 –2Q and has total costs given by TC = Q2. Its marginal revenue is MR = 60 – 4Q and its marginal cost is MC = 2Q.
10. / (Scenario: Home Monopolist) Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $10. Calculate the value of the firm's profits.A) / $400
B) / $1,200
C) / –$1,600
D) / $25
11. / Suppose that the discriminating monopolist faces antidumping actions in its foreign market. Why might it volunteer to raise its price by $10 in the foreign market in order to settle the action without imposition of an antidumping duty?
A) / It might avoid an even higher antidumping duty.
B) / It wants to avoid the trouble of defending itself in an antidumping action.
C) / It should charge a higher price to maximize its profits in the foreign market.
D) / It will receive good public relations when it raises its price.
12. / Samuelson's example is an analysis of a fall in export prices, which ______the terms of trade, and ______export volume. Samuelson's point is that a country is ______in the absence of trade.
A) / improves; reduces; better off
B) / worsens; reduces; better off
C) / worsens; reduces; worse off
D) / improves; reduces; worse off
13. / Which of the following is an example of offshoring?
A) / Intel undertakes direct foreign investment in China to produce computer chips.
B) / Ford Motor Company establishes a factory in Germany to produce automobiles for the European market.
C) / General Motors moves assembly operations for Chevrolets to its plant in Mexico.
D) / Nike contracts with an Indonesian factory to produce tennis shoes for the U.S. market.
14. / To analyze offshoring by firms, economists line up activities that a firm must undertake to produce a product in the rank order of the ratio of:
A) / low-cost to high-cost activities.
B) / high-skill labor to low-skill labor required for the activity.
C) / variable cost to fixed cost.
D) / manufacturing versus service activities.
15. / Monopolistic firms that practice international dumping:
A) / suffer losses on their sales in foreign markets.
B) / suffer losses on their sales in domestic markets.
C) / maximize their monopoly profits.
D) / are subject to antidumping taxes in their home countries.
16. / Are deadweight losses of an export subsidy of X dollars per unit different between a large nation and a small nation?
A) / Yes, deadweight losses of the subsidy are smaller for the large nation than for the small nation.
B) / Yes, deadweight losses of the subsidy are larger for the large nation than for the small nation.
C) / No, deadweight losses of the subsidy are the same in both nations.
D) / No, there are no deadweight losses for either nation.
17. / The economist Paul Samuelson analyzed a scenario in which R&D production suffers from foreign competition, thus lowering its price. Samuelson notes that foreign competition in R&D will generally ____ the terms of trade and national welfare if the nation exports R&D.
A) / raise
B) / lower
C) / help
D) / not affect
18. / Why is food aid to poor nations seen to be an “indirect subsidy” by the WTO?
A) / It always has to be brokered by a third party.
B) / The poor nations have to pay for it in other ways.
C) / It enables firms to increase exports, partially paid for by the government.
D) / It only works with small farmers rather than large agribusiness.
Use the following to answer questions 19-20:
Table: Labor Requirements
Assembly Operations / Component Production / Office Services / R&DUnskilled Labor / U.S.: 4 / U.S.: 3 / U.S.: 2 / U.S.: 1
India: 10 / India: 8 / India: 6 / India: 4
Skilled Labor / U.S.: 2 / U.S.: 2 / U.S.: 2 / U.S.: 2
India: 10 / India: 10 / India: 10 / India: 10
19. / (Table: Labor Requirements)The table gives U.S. and Indian labor requirements (hours per unit of output) needed in each of four activities to produce the final product. Suppose that wages of unskilled and skilled workers are $10 and $20 in the United States and $1 and $5 in India. What is the cost of conducting assembly operations in the United States and India?
A) / $6 in the United States and $20 in India
B) / $60 in the United States and $20 in India
C) / $80 in the United States and $100 in India
D) / $80 in the United States and $60 in India
20. / (Table: Labor Requirements)The table gives U.S. and Indian labor requirements (hours per unit of output) needed in each of four activities to produce the final product. Suppose that trade costs represent 25% of wage costs in India. Now where is the value chain sliced? Which operations will the United States offshore to India?
A) / assembly operations only
B) / assembly operations and component production
C) / assembly operations, component production, and office services
D) / assembly operations, component production, office services, and R&D
21. / During 1979 to 1990, wages of skilled workers and their share of total employment in the U.S. workforce increased. The only logical explanation would be:
A) / that their wages fell in real terms.
B) / that there was a decrease in demand for skilled workers.
C) / that due to productivity or demand for products, there was a relative increase in demand for skilled workers.
D) / that minimum wage increases caused the demand for workers to shift toward the skilled.
22. / Measuring the impact of the protection on the U.S. economy and on Harley-Davidson:
A) / is very clear—it was a success.
B) / is very clear—it was a failure.
C) / is not as black and white as the numbers might show, but saving a profitable company at a low cost has some merit for the U.S. economy.
D) / should take into consideration that Harley-Davidson was a private firm with private stockholders. Most economists disagree with government efforts to save it from bankruptcy.
23. / What accounts for increases in both the relative wage and the relative employment of U.S. nonproduction workers during the 1980s?
A) / The relative demand for nonproduction workers fell.
B) / The relative supply of nonproduction workers rose.
C) / The relative demand for nonproduction workers rose.
D) / The relative supply of nonproduction workers fell.
24. / For a small nation employing a production subsidy, domestic producers get a payment for every good produced, and domestic consumers:
A) / get to purchase the product at the world price the same as before the subsidy.
B) / have to pay a higher price for the product.
C) / get a reduced price for the product.
D) / purchase more of the product.
25. / The offshoring decision revolves around:
A) / the level of domestic opposition to the idea of offshoring.
B) / the level of technology at home and abroad.
C) / a comparison of the value added, the marginal cost, and the trade costs of a firm's activities at home versus abroad.
D) / labor costs abroad versus in the home market.
26. / Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then its exporters will receive:
A) / $150 per ton.
B) / $50 per ton.
C) / more than $100 but less than $150 per ton.
D) / $100 per ton.
Use the following to answer questions 27-28:
Figure: Supply and Demand at Home
27. / (Figure: Supply and Demand at Home) With a quota of 200 units, in a monopoly situation what would be the total quantity available to consumers?A) / 400
B) / 600
C) / 650
D) / 850
28. / (Figure: Supply and Demand at Home) With a quota of 200 units, what would be the price in a home monopoly situation?
A) / $18
B) / $23
C) / $25
D) / $30
29. / When home is small, an increase in the tariff will do what to the home monopolist's demand curve?
A) / shift it up in a parallel fashion
B) / pivot it up around the vertical intercept
C) / shift it down in a parallel fashion
D) / pivot it down around the vertical intercept
30. / If a large nation subsidizes its exports, it will increase its supply to the world and:
A) / will prosper through increased jobs for workers and profits for its firms.
B) / the world price will fall.
C) / consumers in the home nation will benefit through lower prices.
D) / the nation will increase its imports as well.
31. / When there is a foreign monopoly exporting to the home nation, under free trade it will sell a quantity where the home ______is just equal to the foreign ______.
A) / MC; MR
B) / supply; demand
C) / demand; supply
D) / MR; MC
Use the following to answer questions 32-34:
SCENARIO: DEMAND AND SUPPLY FOR IRON ORE
The table supplied represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on the world market at the world price of $70 per ton.
Table: Demand and Supply for Iron Ore
Price/Ton / Quantity Demanded (Tons) / Quantity Supplied (Tons)$100 / 10 / 100
$90 / 20 / 90
$80 / 30 / 80
$70 / 40 / 70
$60 / 50 / 60
$50 / 60 / 50
$40 / 70 / 40
$30 / 80 / 30
$20 / 90 / 20
$10 / 100 / 10
32. / (Scenario: Demand and Supply for Iron Ore)At the world price of $70 per ton, how many units will it export?
A) / 80 tons
B) / 70 tons
C) / 40 tons
D) / 30 tons
33. / (Scenario: Demand and Supply for Iron Ore)At the world price of $70 per ton, how many units will be sold domestically?
A) / 80 tons
B) / 70 tons
C) / 40 tons
D) / 30 tons
34. / (Scenario: Demand and Supply for Iron Ore)What price will domestic iron ore consumers pay for their iron ore purchases when there is a $10-per-ton export subsidy?
A) / $10 per ton
B) / $60 per ton
C) / $70 per ton
D) / $80 per ton
35. / When countries open up for offshoring, which will tend to specialize in research and development?
A) / the skilled-labor-abundant country
B) / the unskilled-labor-abundant country
C) / both countries
D) / neither country
36. / When a country provides a home producer a subsidy, it:
A) / causes the consumer surplus to decline.
B) / causes the producer surplus to decline.
C) / causes government cost to decline.
D) / has no change in the consumer surplus.
37. / Combining service and materials offshoring and high-technology equipment may explain as much as ____ of the ______in U.S. productivity from 1992 to 2000.
A) / 10%; increase
B) / 26%; increase
C) / 10%; decrease
D) / 50%; decrease
38. / “Slicing the value chain” refers to:
A) / the practice of offshoring all activities with labor union representation at home.
B) / the transfer of activities that are more profitable when carried out in foreign nations.
C) / substituting capital for labor wherever possible.
D) / the transfer of activities that are less profitable when carried out in foreign nations.
39. / Following the tariff on Japanese autos, other auto exporters to the United States ______due to ______.
A) / lost market share; the Japanese agreement
B) / enjoyed higher prices and quota rents; the reduced competition from Japanese producers
C) / were shut out of the market; the domination by the Japanese
D) / were outraged; the favoritism shown to the Japanese firms
Use the following to answer question 40:
SCENARIO: A MONOPOLIST
A monopolist faces a demand curve given by P = 20 – Q and has total costs given by TC = Q2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 – 2Q and its marginal cost is MC = 2Q.
40. / (Scenario: A Monopolist)What is its profit-maximizing output level?A) / 5
B) / 6
C) / 7
D) / 8
41. / The main reason why firms consider offshoring is to:
A) / decrease their labor costs.
B) / decrease their transportation costs.
C) / decrease their construction costs.
D) / decrease their “trade costs.”
Use the following to answer question 42:
Figure: Home's Exporting Industry I
The supplied graph shows information about a home exporter.
42. / (Figure: Home's Exporting Industry I) According to the figure, if the world price of the product is $125, then the domestic demand is:A) / 120.
B) / 100.
C) / 20.
D) / 40.
43. / If a country imposes a $10 tariff on a foreign monopolist, the price received by the monopolist, net of the tariff, will:
A) / fall by $10.
B) / fall by less than $10.
C) / fall by more than $10.
D) / fall by $0.
44. / Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then its domestic price of sugar will:
A) / fall by $50 per ton.
B) / rise by $50 per ton.
C) / remain unchanged at $100 per ton.
D) / rise by less than $50 per ton.
Use the following to answer question 45:
SCENARIO: FREEDONIAN EXPORTS
In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 – 3Q; the home supply of widgets is represented by P = 1Q.
45. / (Scenario: Freedonian Exports) Calculate the value of the deadweight losses with the $15 per unit export subsidy.A) / $37.50
B) / $75.00
C) / $112.50
D) / $150.00
46. / Why might infant industry protection of the Chinese automobile industry be considered successful?
A) / Many foreign auto producers established operations in China behind the high infant industry tariff protection.
B) / The tariff rate on Chinese imports of automobiles fell from 260% in the early 1980s to about 25% today.
C) / Chinese demand for automobiles increased dramatically in the past 20 years.
D) / China has become the world's second largest consumer of autos.
47. / Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then it will:
A) / enjoy a gain in its total welfare.
B) / have neither a loss nor a gain in its total welfare.
C) / suffer a loss in its total welfare.
D) / have an increase in its consumer surplus only.
48. / When a tariff is applied to a good exported by a foreign monopoly (with no home producer), the increase in the equilibrium price is ______the tariff applied.
A) / more than
B) / less than
C) / the same as
D) / more than twice as much as
Use the following to answer question 49:
SCENARIO: DISCRIMINATING MONOPOLIST
The demand curve in its home market is P = 200 – Q; the demand curve in its foreign market is P = 160 – 2Q; and its marginal cost is a constant $20 per unit.
49. / (Scenario: Discriminating Monopolist) What is the discriminating monopolist's profit in the foreign market?A) / $90
B) / $110
C) / $70
D) / $35
50. / Recent WTO negotiations covered agricultural subsidies. What progress was made at the most recent meetings in Hong Kong?
A) / Higher-income nations pushed for an end to agricultural subsidies but did not get them.
B) / Lower-income nations pushed for an end to agricultural subsidies; no progress was made on that, but some concessions were made in light manufactured goods imports from poor nations.
C) / The Hong Kong meetings were disrupted by protesters and had to be called off.
D) / The WTO members agreed to eliminate all subsidies for every nation.
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