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also impose a loss on foreign producers. The nation of the injured foreign producers may retaliate
with trade restrictions of its own.
There is a political reason that trade restrictions are imposed: the benefits of trade restrictions are
concentrated on a few producers, while the costs of trade restrictions are dispersed over many
consumers. Arguments have been developed to justify trade restrictions, including; (1) national
defense argument, (2) infant industry argument, (3) unfair foreign competition argument, (4) low
foreign wages argument, and (5) saving domestic jobs argument.
Nations that practice relatively free international trade generally experience more economic
growth than nations that restrict trade. In recent years, there has been a movement toward freer
international trade. The U.S. has benefited greatly from reducing trade barriers.
Questions for Chapter 16
Fill-in-the-blanks:
1. A trade deficit occurs when a nation’s ______________________ exceed its
_____________________ .
2. A ______________________ is a tax on an imported good.
3. A ______________________ is a legal limit on the quantity of a good that may be imported.
4. ______________________ ______________________ is the difference between the
lowest price a seller is willing to accept and the price actually received.
5. ______________________ ______________________ is the difference between the
highest price a buyer is willing to pay and the price actually paid.
6. The ______________________ rate is the value of one nation’s currency in terms of
another nation’s currency.
Multiple Choice:
___ 1. The largest international trader in the world is:
a. U.S.
b. China
c. Japan
d. Germany
___ 2. In recent years, the U.S. has had:
a. large trade surpluses
b. small trade surpluses
c. large trade deficits
d. small trade deficits
___ 3. When nations engage in international trade according to comparative advantage:
a. the selling nation gains from trade and the buying nation loses
b. a nation gains from trade only if it has a trade surplus
c. both nations gain from trade
d. the buying nation gains from trade and the selling nation loses
Answer questions 4. through 7. based on the following information:
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
One acre of land in Country X can produce 50 bushels of rice or 20 bushels of corn
One acre of land in Country Y can produce 5 bushels of rice or 20 bushels of corn
International Trade 16 - 12