When a country allows trade and becomes an exporter of goods both domestic consumers and domestic producers benefit.
a. True
b. False
Indicate whether the statement is true or false
Question 2Between two countries, comparative advantage is found by comparing the:
a. relative costs of production in each country.
b. absolute costs of production in each country after accounting for inflation.
c. labor hours required to produce a bundle of products in each country.
d. level of interest rates in each country.
e. shipping and transportation costs of each country.
Question 3Which of the following is an example of moral hazard?
a. There are likely more cars of low quality than of high quality offered for sale without warranties in the used car market.
b. An individual who eats well and exercises regularly chooses not to purchase health insurance.
c. An individual drives less cautiously after obtaining automobile insurance.
d. A car salesman offers a full warranty on a used car for 90 days.
Question 4If it can be shown that a tariff on steel imports will increase employment in the steel industry, we can be sure that the effect of the tariff on U.S. employment will also be positive.
a. True
b. False
Indicate whether the statement is true or false
Question 5A country has a comparative advantage when the opportunity cost of producing a good in terms of:
a. the monetary value of other forgone goods is lower than that of other nations.
b. the monetary value of other forgone goods is greater than that of other nations.
c. forgone output of other goods is higher than that of other nations.
d. forgone output of other goods is lower than that of other nations.
e. forgone output of other goods is equal to that of other nations.
Question 6After trading in her Volkswagen Beetle for a much safer Mercedes sedan, Rene began driving less carefully. This is an example of:
a. adverse selection.
b. free-riding.
c. moral hazard.
d. Positive externalities.
Question 7One difference between a tariff and a quota is that the tariff brings in revenue to the government while the quota benefits the foreign producer who is lucky enough to receive an import license.
a. True
b. False
Indicate whether the statement is true or false
Question 8A country can benefit by indulging in international trade when:
a. it produces a good in which it has absolute disadvantage.
b. it produces a good in which its trading partner has an absolute advantage.
c. it produces a good in which it has comparative advantage.
d. it produces all the goods which are supported by its resources.
e. it produces nothing and merely depends on foreign imports.
Question 9The tendency of those who are insured to take more risks as a result is a problem of:
a. free riding.
b. moral hazard.
c. adverse selection.
d. positive externalities.
Question 10A tariff on a good increases the domestic price of the good, increases domestic production of the good, reduces the amount of the good sold, and decreases imports of the good.
a. True
b. False
Indicate whether the statement is true or false
Question 11Most textiles worn by American consumers are produced in Asian and South American countries where the opportunity costs of production are lower. This observation refers to the:
a. law of supply.
b. income elasticity of demand.
c. principle of beneficial tariffs.
d. principle of comparative advantage.
e. law of decreasing returns to scale.
Question 12In the health insurance field, asymmetric information creates problems _____ insurance contracts are signed; moral hazard causes problems_____ insurance contracts are signed.
a. Before; before
b. Before; after
c. After; after
d. After; before
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