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Multiple Choice Quiz
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1
The principle of comparative advantage states that:
A)each country will benefit if it specializes in the production and export of those goods that it can produce at relatively low cost.
B)each country will benefit if it produces everything by itself.
C)each country will benefit if it produces only one good and imports everything else.
D)none of the above.
2
Under free trade,
A)each country is better off.
B)each country will specialize in the production of its comparative advantage good.
C)both a and b.
D)neither a nor b.
3
The ratio of export prices to import prices is called:
A)the terms of trade.
B)the price ratio.
C)the tariff level.
D)the size of the quota.
4
The _______ begins at the country's point of complete specialization and then runs outward at the slope that corresponds to the world price ratio.
A)production possibility frontier
B)consumption possibility curve
C)demand curve
D)supply of imports curve
5
A tariff is a _______. A quota is a _______.
A)tax levied on imports; limit on the quantity of imports
B)tax levied on imports; tariff that exists only on exported goods
C)quota placed only on imported goods; limit on the quantity of imports
D)limit on the quantity of imports; tax levied on imports
6
A tariff that is so high that it forces imports to zero is called:
A)choking.
B)damaging.
C)integrating.
D)prohibitive.
7
Tariffs and quotas both cause the market price to _______ and the number of imports to _______ when compared with free trade.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
8
Which of the following is an effect of the imposition of a tariff?
A)It raises prices.
B)It causes consumers to reduce their purchases of the tariffed good below efficient levels.
C)It raises revenues for the domestic government.
D)All of the above.
9
The set of tariffs that maximizes real domestic income is called:
A)an infant industry tariff.
B)an optimal tariff.
C)a terms-of-trade tariff.
D)none of the above.
10
Which of the following is a free-trade agreement between the United States, Canada, and Mexico?
A)GATT
B)WTO
C)NAFTA
D)EU







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