BUSINESS 3001 Chapter 06 The Political Economy of International Trade
True / False Questions
1. Subsidies are a trade policy instrument.
... [Show More] True False
2. Tariffs are the most complex instrument of trade policy. True False
3. Tariffs are the instrument that the GATT and WTO have been most successful in limiting. True False
4. In recent decades, a fall in subsidies, quotas, and voluntary export restraints has been accompanied by a corresponding fall in nontariff barriers.
True False
5. Nontariff barriers include subsidies, quotas, voluntary export restraints, and antidumping duties.
True False
6. Specific tariffs are levied as a proportion of the value of the imported good. True False
7. Ad valorem tariffs reduce the cost of imported products relative to domestic products. True False
8. Tariffs are largely pro-producer and anti-consumer. True False
9. Tariffs increase the overall efficiency of the world economy because a protective tariff encourages domestic firms to produce products more efficiently at home that, in theory, could be produced abroad.
True False
10. Export tariffs are far less common than import tariffs. True False
11. The main gains from subsidies accrue to importers, whose international competitiveness is increased as a result of these subsidies.
True False
12. Japan has a long history of supporting inefficient domestic producers with farm subsidies. True False
13. A direct restriction on the quantity of some good that may be imported into a country is a quota rent.
True False
14. Quotas benefit consumers the most. True False
15. The Buy America Act specifies that government agencies must give preference to American products when putting contracts for equipment out for bid unless the foreign products have a significant advantage.
True False
16. Administrative trade policies are bureaucratic rules that are designed to make it easy for imports to enter a country.
True False
17. Dumping is variously defined as selling goods in a foreign market at below their costs of production, or as selling goods in a foreign market at below their "fair" market value.
True False
18. Antidumping policies are designed to punish foreign firms that engage in dumping industrial waste into the environment.
True False
19. The fair market value of a good is normally judged to be lesser than the costs of producing that good.
True False
20. Countries sometimes argue that it is necessary to protect certain industries because they are important for national security.
True False
21. Protecting consumers from "dangerous" products and furthering the goals of foreign policy are types of economic arguments for intervention.
True False
22. The relationship between pollution and income levels follows a linear pattern. True False
23. The infant industry argument is the oldest economic argument for government intervention.
True False
24. Until the early 1980s, most economists saw little benefit in government intervention and strongly advocated a free trade policy.
True False
25. Brazil's auto industry, once the world's tenth-largest and built behind tariff barriers and quotas, has been proven as one of the world's most inefficient.
True False
26. Protection of manufacturing from foreign competition does no good unless the protection helps make the industry efficient.
True False
27. The roots of strategic trade policy arguments can be traced back to the late 18th century and the works of Adam Smith and David Ricardo.
True False
28. Several economists, including Paul Krugman, point out that although free trade policy looks appealing in theory, in practice it may be unworkable.
True False
29. The Smoot-Hawley Act was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, and import quotas.
True False
30. In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.
True False
31. The United States wanted the WTO to allow governments to impose tariffs on goods imported from countries that did not abide by what the United States saw as fair labor practices during a WTO meeting at the end of November 1999.
True False
32. Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment.
True False
33. The biggest defenders of agricultural subsidies are the developed nations of the world. True False
34. Free trade in agriculture could help to jump-start economic growth among the world's poorer nations and alleviate global poverty.
True False
35. The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country.
True False
36. Government intervention may invite retaliation and trigger a trade war. True False
Multiple Choice Questions
37. Which of the following is one of the seven main instruments utilized in trade policy?
A. Local content requirements
B. Licensing
C. Foreign direct investment
D. Employment guarantees
38. While tariffs are levied as a fixed charge for each unit of a good imported,
tariffs are levied as a proportion of the value of the imported good.
A. ground; ceiling
B. ad hoc; nonconvertible
C. posited; floating
D. specific; ad valorem
39. Tariffs cause damage to because this group must pay more for certain imports.
A. investors
B. governments
C. consumers
D. producers
40. According to experts, which of the following groups most benefits from the imposition of tariffs?
A. Government and producers
B. Consumers and trade associations
C. Exporters and importers
D. Producers and foreign competitors
41. A protective tariff encourages domestic firms to produce products at home that, in theory, could be produced more efficiently abroad. This results in:
A. an establishment of a comparative advantage over firms from other countries.
B. improved productivity of the labor workforce in that country.
C. higher mobility of resources within the country.
D. an inefficient utilization of resources.
42. The U.S. government imposed an eight to thirty percent tariff on steel imports into the United States in March 2002. This belongs to which of the following categories?
A. General
B. Ad valorem
C. Specific
D. Ad hoc
43. Tariffs:
A. reduce the price of foreign goods.
B. reduce the overall efficiency of the world economy.
C. help in efficient utilization of resources.
D. are unambiguously pro-consumer and anti-producer.
44. One of the objectives of export tariffs is to:
A. improve the efficiency of utilization of resources.
B. curb the competition offered by foreign firms to domestic firms.
C. reduce exports from a sector, often for political reasons.
D. maintain a positive trade deficit.
45. Which of the following is a government payment to a domestic producer?
A. Duty
B. Subsidy
C. Quota
D. Tariff
46. take many forms including cash grants, low-interest loans, tax breaks, and government equity participation in domestic firms.
A. Ad valorem tariffs
B. Subsidies
C. Quota rents
D. Specific tariffs
47. By lowering production costs, subsidies help domestic producers in:
A. gaining export markets.
B. curtailing exports to other countries.
C. meeting voluntary export restraints.
D. regulating the quality of services they offer.
48. tend(s) to be one of the largest beneficiaries of subsidies in most countries.
A. Banks
B. Commercial airlines
C. Agriculture
D. Defense
49. By lowering production costs, help domestic producers compete against foreign imports.
A. tariffs
B. custom duties
C. quotas
D. subsidies
50. Governments typically pay for subsidies by:
A. selling junk bonds.
B. taxing individuals and corporations.
C. foreign direct investment in poorer countries.
D. privatization of public holdings.
51. Advocates of believe that subsidies can help a firm achieve a first-mover advantage in an emerging industry.
A. strategic trade policy
B. free trade
C. open market system
D. justice theories
52. Which of the following groups would most benefit from receiving subsidies?
A. Governments
B. Consumers
C. Domestic producers
D. Importers
53. An import quota is a direct restriction on the quantity of some good that may be
by a country.
A. subsidized
B. imported
C. dumped
D. produced
54. Under a(n) , a lower tariff rate is applied to imports within the quota than those over the quota.
A. tariff rate quota
B. voluntary import restraint
C. import tariff rent
D. quota rent
55. A(n) is a quota on trade imposed by the exporting country, typically at the request of the importing country's government.
A. tariff rate quota
B. quota rent
C. import quota
D. voluntary export restraint (VER)
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