If the world price of steel is greater than the U.S. no-trade domestic equilibrium price of steel, the United States:
a. will not produce steel.
b. will demand steel from the rest of the world.
c. will supply steel to the rest of the world.
d. will not trade steel.
e. will have a shortage of steel in the domestic market.
Question 2Which of the following may involve external benefits?
a. drunken driving.
b. smoking.
c. public education.
d. highway congestion.
Question 3Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. If the terms of trade are established as 1 ton of apples for 2 tons of oranges:
a. there are no incentives for Omega to engage in international specialization and trade of apples and oranges.
b. it is in the interest of Omega to grow oranges and trade for apples.
c. it is in the interest of both countries to specialize and trade with one another.
d. there are no incentives for Alpha to specialize and trade with Omega.
Question 4The proportion of domestic demand for a good that is satisfied by domestic production relative to that supplied by imports is determined by:
a. the interplay of domestic demand and supply curves and the domestic equilibrium price of the good.
b. the interplay of demand and supply curves in the international market and the international equilibrium price of a good.
c. domestic supply and demand curves and the international equilibrium price of a good.
d. the different trade restrictions like tariffs and quotas created by the domestic government.
e. the interplay of demand and supply curves in the international market and the domestic price of the good
Question 5Education ____ create external benefits; it ______ provide a valuable signally function.
a. Does; does
b. Does, does not
c. Does not; does
d. Does not; does not
Question 6Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. If the terms of trade are established as 1 ton of apples for 4 tons of oranges:
a. there are no incentives for Omega to engage in international specialization and trade with Alpha.
b. it is in the interest of Omega to grow oranges and trade for apples.
c. it is in the interest of both countries to specialize and trade with one another.
d. there are no incentives for Alpha or Omega to specialize and trade with one another.
Question 7The Dutch Disease had occurred in Netherlands because:
a. the Netherlands government had borrowed heavily from the World Bank to meet its Balance of Payment deficits.
b. the price of the primary commodities declined in the international market.
c. the demand for natural gas exports from Netherlands increased substantially.
d. the currency of Netherlands depreciated in the international market.
e. the price of the commodities manufactured by Netherlands declined in the international market.
Question 8Signaling is important because:
a. it increases social benefits associated with public goods.
b. it decreases external costs associated with externalities.
c. it reduces information costs associated with asymmetric information.
d. all of the above
Question 9Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples. Which of the following statements is true?
a. Alpha should export to Omega, but Omega should not export to Alpha.
b. Since Alpha has an absolute advantage in both goods, no mutual gains from trade are possible.
c. If Alpha specializes in growing apples and Omega specializes in growing oranges, they could both gain by specialization and trade.
d. If Alpha specializes in growing oranges and Omega specializes in growing apples, they could both gain by specialization and trade.
Question 10What is known as the Dutch disease?
a. The problem that arises when a government cannot meet its foreign debts
b. The phenomenon of a boom in one industry causing declines in the rest of the economy
c. A sudden and unexpected devaluation of a currency as a consequence of policy controls
d. The problem that arises when high imports force an economy to borrow from external sources
e. A deficit in the balance of payments of the economy that arises due to a sudden appreciation of the domestic currency.