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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. An exchange rate is the:
(a) interest rate in the foreign country
(b) price of one currency in terms of another currency
(c) the way trade barriers are established
(d) bill of lading

2. A tariff implemented to raise employment in the domestic nation:
(a) benefits all consumers
(b) lowers employment in the foreign nation
(c) has no effect on employment
(d) benefits all workers

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

4. Which of the following is not a function of the price system:
(a) efficient use of resources
(b) transmitting information
(c) distribution of income
(d) government established prices

5. Which of the following is not one of Adam Smith's duties of government?
(a) administration of justice
(b) protect members from coercion
(c) protection of members of society who are not responsible, such as children
(d) correct for third party effects

Short Answer Questions

1. Some people support tariffs because they think that tariffs:

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

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

4. International trade theory is based on:

5. The price system functions in such a way that each individual acting in his own best interests, makes everyone better off. This concept is known as the:

(see the answer key)

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