ECON 213 TOP EXAM PRACTICE TEST 2026
FULL SOLUTIONS REVIEW PACK
◉ Why Stephen Curry hires someone to mow his lawn
Answer: His opportunity cost of mowing is extremely high;
specialization makes both parties better off.
◉ Positive-sum game
Answer: Trade benefits both countries; total gains exceed total
losses.
◉ Terms of trade
Answer: The relative price of exports in terms of imports; export
price index ÷ import price index.
◉ Effect of trade on prices
Answer: Low-price country exports (price rises); high-price country
imports (price falls); prices converge under free trade.
◉ Tariff
Answer: A tax on imports that raises domestic price to world price +
tariff.
,◉ Quota
Answer: A limit on the quantity of imports; raises price like a tariff
but gives revenue to foreign producers.
◉ Winners from a tariff
Answer: Domestic producers gain surplus; government gains tariff
revenue.
◉ Losers from a tariff
Answer: Domestic consumers lose surplus; society suffers
deadweight loss.
◉ Why quotas cause larger losses than tariffs
Answer: Quota rents go to foreign producers instead of the domestic
government.
◉ Infant industry argument
Answer: New industries need temporary protection to develop;
problem: protection rarely ends and firms stay inefficient.
◉ Antidumping argument
,Answer: Protection is needed when foreign firms sell below cost or
below home-market price; difficult to distinguish from comparative
advantage.
◉ National defense argument
Answer: — Critical industries must be protected for wartime
security.
◉ Low foreign wages argument
Answer: Foreign labor is cheaper, but consumer gains exceed job
losses; trade creates high-skill jobs.
◉ Environmental degradation argument
Answer: Poor countries pollute more early on, but as incomes rise,
demand for environmental protection increases.
◉ Exploitation of foreign workers argument
Answer: Trade raises wages and improves working conditions over
time; restricting trade harms developing economies.
◉ Autarky
Answer: A country that does not trade at all.
, ◉ Why trade creates winners and losers
Answer: Import consumers and export producers gain; import-
competing industries lose; total gains exceed losses.
◉ Why trade between states is free but not between countries
Answer: States share currency, laws, and mobility; countries have
sovereignty and protect domestic industries.
◉ How free trade with China can create U.S. jobs
Answer: U.S. exports expand in industries with comparative
advantage, increasing high-skill employment.
◉ Why tariffs on Chinese imports sound better than they are
Answer: Tariffs raise consumer prices, provoke retaliation, and harm
export industries.
◉ How government can compensate trade losers
Answer: Job training, relocation assistance, wage insurance, and
Trade Adjustment Assistance (TAA).
◉ Why Hawaii's sugar industry declined
Answer: Lower tariffs, cheaper global competition, and higher
opportunity costs compared to mainland states.
FULL SOLUTIONS REVIEW PACK
◉ Why Stephen Curry hires someone to mow his lawn
Answer: His opportunity cost of mowing is extremely high;
specialization makes both parties better off.
◉ Positive-sum game
Answer: Trade benefits both countries; total gains exceed total
losses.
◉ Terms of trade
Answer: The relative price of exports in terms of imports; export
price index ÷ import price index.
◉ Effect of trade on prices
Answer: Low-price country exports (price rises); high-price country
imports (price falls); prices converge under free trade.
◉ Tariff
Answer: A tax on imports that raises domestic price to world price +
tariff.
,◉ Quota
Answer: A limit on the quantity of imports; raises price like a tariff
but gives revenue to foreign producers.
◉ Winners from a tariff
Answer: Domestic producers gain surplus; government gains tariff
revenue.
◉ Losers from a tariff
Answer: Domestic consumers lose surplus; society suffers
deadweight loss.
◉ Why quotas cause larger losses than tariffs
Answer: Quota rents go to foreign producers instead of the domestic
government.
◉ Infant industry argument
Answer: New industries need temporary protection to develop;
problem: protection rarely ends and firms stay inefficient.
◉ Antidumping argument
,Answer: Protection is needed when foreign firms sell below cost or
below home-market price; difficult to distinguish from comparative
advantage.
◉ National defense argument
Answer: — Critical industries must be protected for wartime
security.
◉ Low foreign wages argument
Answer: Foreign labor is cheaper, but consumer gains exceed job
losses; trade creates high-skill jobs.
◉ Environmental degradation argument
Answer: Poor countries pollute more early on, but as incomes rise,
demand for environmental protection increases.
◉ Exploitation of foreign workers argument
Answer: Trade raises wages and improves working conditions over
time; restricting trade harms developing economies.
◉ Autarky
Answer: A country that does not trade at all.
, ◉ Why trade creates winners and losers
Answer: Import consumers and export producers gain; import-
competing industries lose; total gains exceed losses.
◉ Why trade between states is free but not between countries
Answer: States share currency, laws, and mobility; countries have
sovereignty and protect domestic industries.
◉ How free trade with China can create U.S. jobs
Answer: U.S. exports expand in industries with comparative
advantage, increasing high-skill employment.
◉ Why tariffs on Chinese imports sound better than they are
Answer: Tariffs raise consumer prices, provoke retaliation, and harm
export industries.
◉ How government can compensate trade losers
Answer: Job training, relocation assistance, wage insurance, and
Trade Adjustment Assistance (TAA).
◉ Why Hawaii's sugar industry declined
Answer: Lower tariffs, cheaper global competition, and higher
opportunity costs compared to mainland states.
