ECO 365 Week 5 Knowledge Check

1. What problem do economists see with free trade areas such as
NAFTA and the European Union?
• They tend to lead to free trade rather than fair trade.
• They can lead to regional trading blocs then restrict trade.
• They lead to globalization.
• They encourage countries to rely on others rather than being self-sufficient

2. A group of countries that allows free trade among its members and puts up common barriers against all other countries' goods is
Called
• a tariff-free zone
• a most-favored nation agreement
• an autarky
• a free trade association

3. Mexico has a comparative advantage in producing corn
• if its opportunity cost of producing corn is higher than the opportunity cost in other countries
• if its opportunity cost of producing corn is the same as the opportunity cost in other countries
• if its opportunity cost of producing corn is lower than opportunity cost in other countries
• regardless of the opportunity cost in other countries

4. Workers in education, health care, and government sectors have
• seen their incomes fall just like in manufacturing
• been mostly hurt from globalization
• benefited from globalization in terms of lower consumer prices
• been hurt because the sector has been shrinking

5. In the United States globalization has
• played a significant role in growing income disparity because some sectors have benefited and others have not
• played little role in growing income disparity because all Americans are consumers who have enjoyed lower prices
• played a significant role in growing income disparity because foreign workers' incomes have risen
• played little role in growing income disparity because while some jobs were lost, the gain in jobs balanced out those that were lost

6. Most economists
• oppose free trade
• favor free trade
• have no opinion on free trade
• Would prefer to have no trade with other nations

7. World trade declined in the 1930s. Which of the following is the best explanation of that decline?
• World income shrank and trade restrictions increased.
• World income shrank, but there were few changes in trade
Restrictions
• Trade restrictions increased, but there was little change in world income
• The incomes of most nations increased, allowing them to become more self-sufficient.

8. As a country develops economically, what changes usually take place in the goods it exports?
• There is little change because comparative advantage does not change.
• Raw materials and agricultural products decline in importance and are replaced by services and manufactured goods.
• Services and manufactured goods decline in importance and are replaced by raw materials and agricultural products.
• Exports go from being diversified to being specialized in whatever the country finds to be its comparative advantage.

9. When a U.S. company establishes a call center in India that answers its customer service calls, the United States is
• outsourcing, a form of importing services
• outsourcing, a form of exporting services
• in sourcing, a form of importing services
• in sources, a form of exporting services