Economics USA: 21st Century Edition

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1. The MAIN purpose of a tariff is to:

   	protect domestic industry from competition.
   	promote greater specialization within industries.
   	provide revenue to support continued trade.
   	provide the government with revenue.

   protect domestic industry from competition.

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2. Generally, a nation should probably specialize in those products:

   	for which worldwide demand is high.
   	for which its needs are greatest.
   	in which it has absolute advantage.
   	in which it has comparative advantage.

   in which it has comparative advantage.

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3. Which of the following BEST describes the effect of free trade upon prices? Under free trade:

   	domestic prices of exported items tend to rise in the exporting country and decline in the importing country.
   	domestic prices of all imported items rise, and those of all exported items decline.
   	domestic prices of all exported items rise, while those of all imported items decline.
   	domestic prices of exported items tend to fall in the exporting country and rise in the importing country.

   domestic prices of exported items tend to rise in the exporting country and decline in the importing country.

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4. Imported French wine is $1.25 per liter. Under the market conditions shown in this graph, we can conclude that:

   

   	the U.S. will tend to import French wine.
   	the U.S. will tend to export wine to France until an equilibrium price is reached.
   	the French will likely impose a tariff on U.S. wine to keep U.S. exports out.
   	the U.S. will likely impose a strict quota to hold down imports of French wine.

   the U.S. will tend to import French wine.

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5. Economist Waldo B. was overheard making the remark that more tariffs could do nothing but enhance terms of trade for the U.S. “After all,” says Waldo, “we’re the most technologically efficient nation in the world. Why shouldn’t everyone want to trade with us? Meanwhile, we must do something to look out for ourselves.” Waldo’s argument is based on the fallacious assumption that:

   	most nations of the world want to engage in trade.
   	tariffs can provide a source of revenue.
   	technology can enhance a nation's terms of trade.
   	trade cannot be mutually beneficial.

   trade cannot be mutually beneficial.

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6. Economists generally dislike the practice of restricting trade. Their MAIN criticism of this practice is that it:

   	encourages inefficiency in the American market.
   	doesn’t really save jobs despite its costs.
   	promotes retaliations among countries whose products are subject to restrictions.
   	is too difficult and costly to enforce.

   encourages inefficiency in the American market.

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