seballs. C) Oil. D) All of the above. 2. Goods and services purchased from foreign sources by the U.S.: A) Are referred to as imports. B) Cause the trade deficit to increase, ceteris paribus. C) Are a threat to domestic import-competing industries. D) All of the above. 3. When the United States has a trade deficit: A) Exports exceed imports. B) The U.S. economy produces more than it consumes. C) The trade balance is negative. 4. The trade balance is found by calculating: A) The sum of exports and imports. B) The difference between exports and imports. C) How much exports and imports are used. D) The ratio of exports to imports. 5. International trade: A) Lowers prices to consumers. B) Alters the mix of domestic production. C) Redistributes income toward export industries. D) All of the above. 6. World output of goods and services increases with specialization because: A) The world's resources are being used more efficiently. B) Each country's production-possibilities curve shifts outward. C) Each country's workers are able to produce more than they could before specialization. D) All of the above. 7. Protectionism allows: A) Greater consumption possibilities through greater specialization. B) Protection from the microeconomic losses of trade. C) Protection of comparative advantage. D) Protection of absolute advantage. 8. As trade restrictions are eliminated, increased imports: A) Lower competition in product markets. B) Leave the composition of the GDP unchanged. C) Redistribute income out of import-using industries. D) Alter resource allocation away from import-competing industries. 9. Terms of trade refers to: A) Credit arrangements for financing exports and imports. B) The degree to which one country has a comparative advantage. C) The balance of payments. D) The rate at which goods are exchanged in international trade. 10. A limit on the quantity of a good that may be imported in a given time period is a: A) Trade restriction limit. B) Tariff. C) Quota. D) Price effect. 11. The exchange rate is: A) The price of one country's currency expressed in terms of another country's currency. B) The terms of trade. C) The difference between the price of a good in one country versus another country. D) The price of a good in the country that has a comparative advantage in the good. 12. When the U.S. dollar gains value compared to the Mexican peso: A) Mexican goods imported to the U.S. are more expensive for U.S. consumers. B) U.S. goods exported to Mexico are cheaper for Mexican consumers. C) Mexican tourists to the U.S. are worse off. D) All of the above. 13. The World Trade Organization (WTO) was created: A) Because nations thought that a stronger mechanism was needed to enforce free trade agreements. B) To replace GATT. C) So that a nation could get help if it thought its goods were being unfairly prohibited from entering another nation. D) All of the above. T F 14. Since one country's imports are another country's exports, overall world trade must balance. T F 15. The main reason countries specialize and trade with each other is so they can get goods and services they cannot produce themselves. T F 16. If every country specializes in what it produces best, more will be produced than if each country tries to produce everything for its own needs. T F 17. If the opportunity costs of producing goods in two countries are the same, there is no incentive to trade. T F 18. A country must have a comparative advantage in order to gain from the trade with another country. T F 19. Compared to a free trade situation, tariffs reduce world output and lower living standards, but quotas do not have a negative impact. T F 20. From the consumer's point of view, quotas have the potential to inflict more damage than tariffs.