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This quiz consists of 5 multiple choice and 5 short answer questions through Chapter 2, The Tyranny of Controls.

Multiple Choice Questions

1. Adam Smith says that voluntary exchange will not take place unless:
(a) one party can profits
(b) both parties benefit from it
(c) the government can tax the transaction
(d) it is commanded

2. The economy functions on the basis of:
(a) command
(b) orders
(c) voluntary cooperation
(d) government direction

3. Trade restrictions create:
(a) a good political situation
(b) friction between nations
(c) a more competitive environment
(d) increase levels of trade

4. Government subsidies to industry are viewed as:
(a) a necessity
(b) a way to increase efficiency
(c) good economic policy
(d) unfair competition

5. A change in prices affects all but the following:
(a) wages
(b) nothing
(c) incentrive to act on information
(d) procedures income

Short Answer Questions

1. According to Friedman, the former Soviet economy was based on:

2. Free international trade results in better relations between individuals who differ in all but:

3. An exchange rate is the:

4. What kind of international trade is best?

5. International trade theory is based on:

(see the answer key)

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