1.

If an individual consumes more of good X when his/her income

doubles, we can infer that
good X is a normal good.

2. Which of the following factors can lead to an increase in demand for

coffee at Starbucks?
An increase in household income

3. If the price of a normal good is measured along the vertical axis and its
quantity along the horizontal axis, an increase in the price of the good
will lead to:
an upward movement along the demand curve.

4. Everything else remaining unchanged, when the price of a normal good

increases, consumers:
purchase less of thegood.

5. Suppose good X is a substitute of good Y. Everything else remaining

unchanged, an increase in price of good Y will lead to:
. an increase in demand for goodX.

6. Which of the following events would lead to a decrease in demand for

air travel?
A decrease in rail fares

7. Harry used work in a launderette and earned $30 a day. After work, he
normally had achicken burger worth $5 at McDonalds. However, his pay
was lowered to $20 some days later. Then after work he used to have a
vegetable burger worth $3. Here the vegetable burger is an example
ofa(n):
inferior good.

8. The value of price elasticity of demand for a normal commodity is

negative because it indicates:
. the inverse relationship between the price and the quantity demanded for
the commodity.

9. Which of the following will cause a rightward shift of the market

supply curve?
. A decrease in input prices

10. Which of the following is a “unit-free”measure?

. Price elasticity of demand
11. If a 1% increase in the price of DVD players leads to a 3% reduction
in its sales, we can conclude that:
c. the demand for DVD players is relatively elastic.

12. Which of the following is true of consumer surplus?

d. It is the difference between the value that one places on a good and the
price paid for the good.

13. Refer to Figure 2.1 below. At a price of $70, the consumer surplus
equals:
b. $8,000,000.

14. Refer to Figure 2.1 below. At a price of $70, the producer

surplusequals:
a. $6,000,000.

.
15. To maximize profit a perfectly competitive firm supplies a good up to
the point atwhich:
c. the price of the good equals marginal cost.

16. Which of the following groups is most likely to be benefitted when a

country engages in free trade?
b. The manufacturers of exportable goods

17. Which of the following is an example of arbitrage?

b. Thomas buys a new stock issued by a firm on the stock exchange.

18. An increase in the imports of clothing into the United States from
India will benefit the and hurt the _.
d. the U.S. consumers; the U.S. clothing producers

19. Suppose country A and country B are the only two countries in the
world. Country A imports good X from country B and exports good Y. In
the absence of any transportation cost, at the world price of good X:
d. country A’s import demand curve will intersect country B’s export
supplycurve.
20. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United States are
given by the following set of equations:
QS = –60 + 3P
QD = 390 – 2P
In the absence of international trade in skateboards, what will be the
equilibrium price of skateboards in the United States?
b. $90

21. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United Statesare
given by the following set ofequations:
QS = –60 + 3P
QD = 390 – 2P
In the absence of international trade in skateboards how many
skateboards will be sold in the
United States?
c. 210

22. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United States are given by the following set of equations:
QS = –60 + 3P
QD = 390 – 2P
If the United States can imports skateboards from the rest of the world at
a per unit price of $75, how many skateboards will be produced in the
United States?
a.165

23. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United States are given by the following set of equations:
QS = –60 + 3P
QD = 390 – 2P
If the United States can import skateboards from the rest of the world at a
per unit price of $75, what will be the total demand for skateboards in the
United States?
b. 240

24. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United States are given by the following set of equations:
QS = –60 + 3P
QD = 390 – 2P
If the U.S. engages in free trade and the international price of skateboards
is $75, it would import skateboards from the rest of the world.
c. 75
25. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United States
are given by the following set of equations:
QS = –60 + 3P
QD = 390 – 2P
In the absence of trade with the rest of the world, the consumer surplus in
the United States skateboard market equals and the producersurplusequals
.
d. $11,025;$7,350

26. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United States are
given by the following set of equations:
QS = –60 + 3P
QD = 390 – 2P
Calculate the change in consumer surplus when the United States engages
in free trade and imports skateboards from the rest of the world at a per
unit price of $75.
d. +$3,375

27. Suppose the domestic supply (QS) and demand (QD) for skateboards
in the United States are given by the following set of equations:
QS = –60 + 3P
QD = 390 – 2P
Calculate the change in producer surplus when the United States engages
in free trade and imports skateboards from the rest of the world at a per
unit price of $75.
b.-$2,812.50.

28. Suppose the domestic supply (QS) and demand (QD)for MP3 players
in the United Statesare given by the following set ofequations:
QS = –25 + 10P
QD = 875 – 5P
In the absence of international trade in MP3 players, what will be the
price of MP3 players in the United States?
a. $60

29. Suppose the domestic supply (QS) and demand (QD)for MP3 players
in the United States are given by the following set ofequations:
QS = –25 + 10P
QD = 875 – 5P
In the absence of international trade in MP3 players, how many MP3
players will be sold in the United States?
b. 575

30. Suppose the domestic supply (QS) and demand (QD)for MP3 players
in the United States are given by the following set of equations:
QS = –25 + 10P
QD = 875 – 5P
If the United States can import MP3 players from the rest of the world at
a per unit price of $50, how many MP3 players will be produced in the
UnitedStates?
b. 475

31. Suppose the domestic supply (QS) and demand (QD)for MP3 players
in the United States are given by the following set of equations:
QS = –25 + 10P
QD = 875 – 5P
If the United States can import MP3 players from the rest of the world at
a per unit price of $50, what will be the total demand for MP3 players in
the United States?
a.625

32. Suppose the domestic supply (QS) and demand (QD)for MP3 players
in the United States are given by the following set of equations:
QS = –25 +10P
QD = 875 –5P
If the U.S. engages in free trade and the international price of MP3
players is $50, it would import MP3 players from the rest of the world.
a. 150

33. Suppose the domestic supply (QS) and demand (QD)for MP3 players
in the United States are given by the following set of equations:
QS = –25 + 10P
QD = 875 – 5P
In the absence of trade with the rest of the world, the consumer surplus in
the United States’
MP3 player market is .
c. $33,062.50
34. Suppose the domestic supply (QS) and demand (QD)for MP3 players
in the United States are given by the following set of equations:
QS = –25 + 10P
QD = 875 – 5P
The consumer surplus will by when the United States engages in
international trade and the international price for MP3 players settles
at$50.
b. increase;$6,000

35. Suppose the domestic supply (QS U.S.) and demand(QD )for bicycles
in the United States are given by the following set ofequations:
S U.S. .= 2P
D U.S= 200 – 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the
equations:
QS = P
QD =160 – P.
Quantities are measured in thousands and price in U.S. dollars.
In the absence ofinternationaltrade, thousand bicycles will be sold in
theUnited States at a per unitprice of .
d. 100;$50

36. Suppose the domestic supply (QS U.S.) anddemand(QD )for bicycles
in the United States are given by the following set ofequations:
S U.S. = 2P
D U.S. = 2P = 200 – 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the
equations:
QS = P
QD =160 – P.
Quantities are measured in thousands and price in U.S. dollars.
In the absence of international trade, thousand bicycles will be sold in the
Rest of the World at a per unitprice of .
a. 80; $80

37. Suppose the domestic supply (QS U.S.) anddemand(QD )for bicycles
in the United States are given by the following set ofequations:
S U.S.
D U.S. = 2P = 200 – 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the
equations:
QS = P
QD =160 – P.
Quantities are measured in thousands and price in U.S. dollars.
After the opening of free trade with the Rest of the World, if the world
price of the bicycles settles at $60, the U.S. will:
a. export 40,000bicycles.

38. Suppose the domestic supply (QSm U.S.) and demand(QD )for
bicycles in the United States are given by the following set of equations:
S U.S.
D U.S. = 2P = 200 – 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the
equations: QS = P
QD =160 – P.
Quantities are measured in thousands and price in U.S. dollars.
After the opening of free trade with the United States, if the world price
of the bicycles settles at $60, the Rest of the World will:
d. import 40,000 bicycles.

39. Suppose the domestic supply (QS U.S.) and demand(QD )for bicycles
in the United States are given by the following set of equations:
S U.S.
D U.S. = 2P = 200 – 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the
equations:
QS = P QD =160 – P.
Quantities are measured in thousands and price in U.S. dollars.
After the opening of free trade between the U.S. and the Rest of the
World:
c. both countries gain from trade, but the Rest of the World gains more
than the U.S.

40. According to the theory of comparative advantage, which of the

following is not a reason why countries trade?
e. Exports give a country a political advantage over other countries that
export less.

41. According to the theory of comparative advantage, a country will

export a good only if
a. It can produce it using less labor than other countries.
b. Its productivity is higher in producing the good than the productivity of
other countries in producing it.
c. Its wage rate in producing the good is lower than in other countries.
d. Its cost of producing the good, relative to other goods, is at least as low
as in other countries.
e. All of the above.

42. Suppose that Austria and Belgium have the unit labor requirements
for producing steel and broomsshown in the following table:
Unit labor
a. Belgium has a comparative advantage
in brooms.
b. Austria has a comparative advantage in steel.
c. Austria has an absolute advantage in steel.
d. Belgium has an absolute advantage in brooms.
e. All of the above.

43. Suppose that Australia and Brazil have the outputs per worker in
producing sleds and clarinets
shown in the following table:
a. Comparative advantage in sleds.
b. Comparative advantage in clarinets.
c. Absolute advantage in sleds.
d. Absolute advantage in clarinets.
e. None of the above.

44. According to the theory of comparative advantage, countries gain

from trade because
d. World output can rise when each country specializes in what its does
relatively best.

45. If international trade takes place as a result of comparative advantage,

it will cause which of the following effects in the participating countries?
a. Inequality among households will be reduced.
b. All individuals in each country will be better off.
c. The average well-being of people in both countries will increase.
d. Both countries will grow faster over time.
e. All of the above.
46. A situation where countries export a product at a price below the cost
of its production
a) Price skimming
b) Dumping
c) Price discrimination
d) Full cost pricing

True/False Questions
1. An increase in demand for a good will lead to a larger increase in price
if the supply is relatively elastic. false

2. A decrease in income will lead to an increase in the demand for an

Inferior good. True

3. An increase in individual income will lead to an inward shift of the

demand curve fora commodity. false

4. If a 1% increase in an individual’s income leads to a 0.5% increase in

the demand for a good, the good is considered to be a normal good. True

5. Consumer surplus is the net economic benefit to consumers who are

able to buy a good at a price lower than the highest price that they are
willing to pay. True
6. The net economic gains from free trade are usually negative. false

7. The price elasticity of demand measures the responsiveness of

consumers to changes in the price of a product. True

8. The net national gain from trade can be measured by the change in
consumer and producer surplus that results from trade. True

9. If markets are perfectly competitive, the free-trade price of a good in

an importing country is expected to be lower than the pre-trade price of
the good in that country. True

10. When free trade begins, producers in the importing nation gain while
producers in the exporting nation are worseoff. false

11. Free trade is a zero-sum activity because a county always gains at the
expense of itstrading partner. false

12. The gains from trade are divided in proportion to the price changes
that trade brings to the trading countries. True

13. If the world price is higher than the no-trade domestic price, then
domestic producers gain and domestic consumers lose as a result of free
trade. True

14. While international trade will benefit both the importing and
exporting country in a two- country world, the gains from trade in the
exporting country must be greater than the gains from trade in the
importing country. false