Deck 10: International Trade Policy

Question 1

As a country develops economically, what changes usually take place in the goods it exports?

A)There is little change because comparative advantage does not change.
B)Raw materials and agricultural products decline in importance and are replaced by services and manufactured goods.
C)Services and manufactured goods decline in importance and are replaced by raw materials and agricultural products.
D)Exports go from being diversified to being specialized in whatever the country finds to be its comparative advantage.

Answer 1

Raw materials and agricultural products decline in importance and are replaced by services and manufactured goods.

Question 2

The text suggests that if economists had a mantra, it would be:

A)do unto others before they do unto you.
B)justice is the measure of all things.
C)when one person benefits, another is hurt.
D)trade is good.

Answer 2

trade is good.

Question 3

Most economists believe that the infant industry argument for protection, though theoretically justified, often keeps firms from becoming more competitive.

Answer 3

True

Question 4

Free trade associations can potentially be harmful to international trade.

Question 5

The United States has a trade deficit when the value of the goods and services we import exceeds the value of the goods and services we export.

Question 6

Many call centers that provide telephone customer services for U.S. companies have been established in India, but few or none have been established in China. Why?

A)China is at a more advanced stage of economic development than India.
B)China lacks the political infrastructure to support call centers.
C)Chinese labor lacks the specific language skills needed to make call centers profitable in China.
D)Indian labor costs are lower than Chinese labor costs.

Question 7

The percentage of goods and services the United States has imported from China and India over the last 15 years:

A)has remained roughly the same.
B)has risen.
C)has fallen.
D)initially rose and then dropped back to the original level.

Question 8

Domestic producers prefer quotas to tariffs because quotas raise the price of imports and tariffs do not.

Question 9

The type of goods being imported has changed from primarily low-tech goods to agricultural goods.

Question 10

A free trade association is a group of countries that allows free trade among its members and, as a group, puts up common barriers against all other countries' goods.

Question 11

A country imposing trade restrictions can benefit only if other countries also impose trade restrictions.

Question 12

In strategic trade bargaining it is sometimes reasonable to be unreasonable.

Question 13

Quotas on imported automobiles cost jobs in the U.S. automobile industry but lower auto prices for domestic consumers.

Question 14

Technological changes in telecommunications have:

A)reduced the importance of services in the world economy.
B)allowed increased foreign trade in many services.
C)reduced the need for foreign trade in many services.
D)profoundly affected trade in manufactured goods with little effect on trade in services.

Question 15

According to most economists, outsourcing service jobs:

A)helps both countries in the long run.
B)hurts both countries because the United States loses jobs and the employees of the call center are exploited with low wages.
C)helps the United States but hurts the country with the low-cost labor.
D)helps the country getting the jobs but hurts the United States with the loss of jobs.

Question 16

The WTO authorized several countries to impose about $150 million in trade sanctions against the United States in retaliation for a U.S. import law that the WTO ruled to be illegal. The organization that issued this ruling against the United States is known as the:

A)Wage Tariff Objective.
B)World Trade Organization.
C)Wealth Technology Order.
D)Welfare Tax Order.

Question 17

World trade declined in the 1930s. Which of the following is the best explanation of that decline?

A)World income shrank, and trade restrictions increased.
B)World income shrank, but there were few changes in trade restrictions.
C)Trade restrictions increased, but there was little change in world income.
D)The incomes of most nations increased, allowing them to become more self-sufficient.

Question 18

The benefits of free trade tend to be highly concentrated whereas the costs are widely scattered.

Question 19

The outsourcing of service jobs such as those in call centers has become a political issue. Do economists see any benefit to outsourcing?

A)No; it simply shifts jobs overseas.
B)No; it only benefits foreign economies.
C)Yes; it tends to reduce prices to American companies and consumers.
D)Yes; it tends to raise the value of the dollar.

Question 20

Tariffs are taxes that governments place on internationally traded goods.

Question 21

Refer to the graph shown. As a result of a tariff T imposed on speedboats, the price that foreign suppliers will receive probably will be:

A)P₁.
B)P₂.
C)P₃.
D)P₄.

Question 22

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. If government imposes a tariff in the amount of $2 per unit, it will collect revenue in the amount of:

A)$0.
B)$2,400.
C)$5,000.
D)$10,000.

Question 23

The limit that United States places on textile imports is an example of:

A)a tariff.
B)a quota.
C)a regulatory trade restriction.
D)a sanction.

Question 24

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting from a free trade equilibrium, a tariff in the amount of $2 per unit would be expected to cause domestic consumption to:

A)increase from 2,400 to 7,400.
B)increase from 2,400 to 3,600.
C)decrease from 4,800 to 3,600.
D)decrease from 7,400 to 6,100.

Question 25

A 50 percent tax on imports of Danish cheese is an example of:

A)a tariff.
B)a quota.
C)a regulatory trade restriction.
D)a sanction.

Question 26

One impact of an import quota is to:

A)decrease the price of the imported good for the consumer.
B)increase the price of the domestic good for the consumer.
C)redistribute income from domestic producers to domestic consumers.
D)decrease the price received by foreign producers.

Question 27

Refer to the graph shown. As a result of a tariff T imposed on speedboats, the price domestic consumers pay for speedboats probably will likely be:

A)P₁.
B)P₂.
C)P₃.
D)P₄.

Question 28

After one cow in Alberta, Canada was found with mad cow disease, the United States banned all imports of Canadian cattle and beef. This action is an example of:

A)a tariff.
B)a quota.
C)a regulatory trade restriction.
D)a sanction.

Question 29

The central goal of the General Agreement on Tariffs and Trade (GATT)was to:

A)promote free trade associations and customs unions.
B)ensure a balance of trade between countries.
C)reduce trade barriers.
D)promote international security.

Question 30

Analysts have suggested that the cost of bras is related to trade restrictions on textile imports. What does the price of bras have to do with tariffs and quotas?

A)Trade restrictions protect consumers by keeping the price of bras low.
B)Trade restrictions in the form of tariffs keep prices of bras high, but replacing them with quotas will result in lower prices.
C)Trade restrictions keep the prices of bras high, and ending them will result in lower prices.
D)Trade restrictions do not influence the price of bras; the price is determined by domestic technology and the overall inflation rate.

Question 31

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. If there are no trade restrictions, this country will produce:

A)2,400 units domestically and import 5,000 units.
B)7,400 units domestically and export 5,000 units.
C)4,800 units domestically and consume 4,800 units.
D)4,800 units domestically and import 2,600 units.

Question 32

A tariff designed to eliminate foreign competition completely will be expected to raise:

A)either a large or a small amount of revenue depending on the magnitude of the tariff imposed.
B)a relatively large amount of tax revenue.
C)an amount of revenue equal to the amount of the tariff multiplied by the volume of exports.
D)a relatively small amount of tax revenue.

Question 33

A quota differs from a tariff in that quotas:

A)limit the volume of imports more than tariffs.
B)do not increase the price of imports as much as tariffs.
C)do not generate tax revenues, unlike tariffs.
D)reduce consumer welfare more than do tariffs.

Question 34

One impact of an import quota is to:

A)increase both domestic production and domestic prices.
B)increase domestic production and reduce domestic prices.
C)reduce domestic production and increase domestic prices.
D)reduce both domestic production and domestic prices.

Question 35

Import duties ranging from 28 percent to 113 percent on Chinese frozen and canned shrimp are an example of a policy that:

A)protects domestic fisheries from overfishing.
B)uses regulations and taxes to protect domestic consumers.
C)protects domestic producers from foreign producers.
D)protects domestic consumers from foreign producers.

Question 36

The international organization whose primary function is to promote free and fair trade between countries worldwide is the:

A)WTO.
B)IMF.
C)NAFTA.
D)EU.

Question 37

Duties imposed by the U.S. government on imported Chinese frozen and canned shrimp are an example of:

A)tariffs.
B)quotas.
C)voluntary restrictions.
D)regulatory trade restrictions.

Question 38

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting from a free trade equilibrium, a tariff in the amount of $2 per unit would be expected to cause domestic production to:

A)increase from 2,400 to 7,400.
B)increase from 2,400 to 3,600.
C)decrease from 4,800 to 3,600.
D)decrease from 7,400 to 6,100.

Question 39

Germany's environmental policies restrict the sale of nonrefillable bottles and cans. This policy reduces the imports of these products. A foreign country that argues that this policy is really intended to protect German beverage makers from competition is arguing that the policy is an example of:

A)a tariff.
B)a quota.
C)a regulatory trade restriction.
D)a sanction.

Question 40

Quotas and tariffs can:

A)have the same effect on the price of a domestically produced good if they are set appropriately.
B)never have the same effect on imports and import prices.
C)both increase international trade by the same amount if set appropriately.
D)yield the same amount of tax revenue if they are set appropriately.

Question 41

Which of the following groups might be expected to support high United States Department of Agriculture standards for imported citrus fruit?

A)Orange and grapefruit producers in other nations
B)Citrus fruit consumers in New England, where citrus cannot be grown easily
C)Orange growers in Florida
D)Shipping companies that import agricultural goods from other countries

Question 42

Which of the following is not a regulatory trade restriction?

A)Vegetables prohibited because of excess pesticide usage
B)Inspections designed to impede trade processes
C)A limit on the number of imported cars
D)Leather products banned because of tanning by urine

Question 43

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting from a free trade equilibrium, an import quota of 2,500 would cause domestic production to:

A)increase from 6,100 to 7,400.
B)increase from 2,400 to 3,600.
C)decrease from 4,800 to 3,600.
D)decrease from 7,400 to 6,100.

Question 44

All of the following are arguments in support of protectionist legislation except:

A)supporting infant industries.
B)preserving domestic employment.
C)increasing global trade.
D)promoting national security.

Question 45

A voluntary restraint agreement:

A)is prohibited under the GATT treaty and has become less common recently.
B)does not, unlike a quota, affect the quantity of imports.
C)does not, unlike a tariff, affect the price of imports.
D)raises the price of imports in the same way as a quota.

Question 46

Trade adjustment assistance is:

A)difficult to implement because the adjustment costs of international trade are generally greater than the gains from trade.
B)difficult to implement because claims of injury are easy to make and may be politically difficult to reject.
C)easy to implement because the adjustment costs of international trade are typically less than the gains from trade.
D)easy to implement because it is easy to identify the few industries genuinely injured by international trade.

Question 47

In general, why are trade sanctions implemented?

A)To benefit emerging industries
B)To lower domestic unemployment rates
C)For political reasons
D)To raise revenue from trade

Question 48

Countries restrict international trade for all of the following reasons except:

A)international trade probably will lead to the displacement of workers.
B)the benefits of trade usually are limited to small groups, whereas the costs are widely scattered across the population.
C)it is sometimes difficult to decide where a country's comparative advantage lies when "learning by doing" effects are important.
D)economies of scale can mean that a country is able to develop a comparative advantage by protecting infant industries.

Question 49

Regulatory trade restrictions:

A)are always justified.
B)are never justified.
C)may be justified depending on the nature of the restriction.
D)are irrelevant since they are seldom used.

Question 50

All of the following are arguments in support of protectionist legislation except:

A)increasing competition for domestic producers.
B)increasing political pressure on rogue nations.
C)increasing income equality.
D)increasing tax revenues.

Question 51

Cuba is known for its tobacco products. Which of the following results would we expect to see from a U.S. sanction on Cuba?

A)Transshipment of Cuban cigars to the United States occurring through other nations.
B)Cigar producers in Cuba being better off since their product is scarcer in the United States and therefore commands a higher price.
C)Cuba's economy gaining because its own citizens enjoy less expensive tobacco.
D)The U.S. government benefiting from tariff revenue on Cuban tobacco products.

Question 52

The voluntary export restraints on autos by Japan in the early 1980s were:

A)prohibited by the WTO.
B)unlike an import quota and did not affect the price of cars imported.
C)unlike a tariff and did not affect the price of imports.
D)a bad deal for the U.S. consumers.

Question 53

Which of the following is not an argument in favor of protecting domestic industries from foreign competition?

A)National security
B)Reducing structural unemployment
C)Protection against subsidized foreign producers
D)Making domestic firms more efficient

Question 54

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting from a free trade equilibrium, an import quota of 2,500 would cause domestic consumption to:

A)increase from 6,100 to 7,400.
B)increase from 2,400 to 3,600.
C)decrease from 4,800 to 3,600.
D)decrease from 7,400 to 6,100.

Question 55

The voluntary export restraints on autos by Japan in the early 1980s were:

A)prohibited under the GATT treaty.
B)unlike an import quota and did not affect the quantity of cars imported.
C)unlike a tariff and did not affect the price of imports.
D)probably approved of by the Japanese car companies since it increased their profits.

Question 56

Voluntary restraint agreements:

A)are prohibited by NAFTA.
B)do not affect imports in both the short run and the long run.
C)hurt consumers in both the short run and the long run.
D)hurt workers in both the short run and the long run.

Question 57

One reason trade restrictions exist is that:

A)workers can be shifted easily from one industry to another.
B)workers cannot be shifted easily from one industry to another.
C)the long-run gains from free trade are small relative to the short-run costs.
D)the short-run gains from free trade are small relative to the long-run costs.

Question 58

The United States does not allow U.S. citizens to trade with Iraq. This is an example of:

A)a quota.
B)a tariff.
C)a sanction.
D)a regulatory trade restriction.

Question 59

Which of the following groups would be most likely to benefit from a tariff on Japanese-manufactured light trucks (i.e. , pickup trucks)?

A)U.S. domestic pickup truck manufacturers
B)Japanese auto workers
C)U.S. consumers of pickup trucks
D)U.S. firms that export products to Japan

Question 60

Refer to the graph shown for a small country that is a price taker internationally. Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. To have the same effect on imports as a $2 per-unit tariff, the government would need to set an import quota of:

A)1,200 units.
B)1,300 units.
C)2,500 units.
D)5,000 units.

Question 61

Economists believe free trade areas such as NAFTA and the European Union are problematic because they

A)tend to lead to free trade rather than fair trade.
B)can lead to regional trading blocs that restrict trade with outsiders.
C)lead to globalization.
D)encourage countries to rely on others rather than being self-sufficient.

Question 62

When the United States imposed restrictions on imported steel in the 1950s and 1960s, the U.S. steel industry responded by:

A)raising prices and investing more in steel production.
B)raising prices and channeling profits from their steel production into other activities.
C)lowering prices and investing more in steel production.
D)lowering prices and channeling profits from their steel production into other activities.

Question 63

When per-unit output costs fall as output increases, this is called:

A)economies of scale.
B)economies of scope.
C)learning by doing.
D)diminishing marginal returns.

Question 64

A developing country can be expected to rely more on:

A)tariffs than quotas since tariffs are an easy way to raise tax revenue.
B)tariffs than quotas because tariffs are more effective means of reducing imports.
C)quotas than tariffs since quotas provide better protection for infant industries.
D)quotas than tariffs since quotas are easier to enforce and give rise to less corruption among officials.

Question 65

Threats to put tariffs on a nation in an attempt to get that nation to reduce its restrictions on trade are called:

A)strategic trade policies.
B)trade adjustment assistance programs.
C)learning by doing.
D)inertia and cachet.

Question 66

If the United States were to impose 100 percent tariffs on imports of Chinese shrimp, what would most economists conclude?

A)This decision can be justified by using the infant-industry argument.
B)This decision can be justified by using the national defense argument.
C)This policy is a way to keep foreign producers from being exploited by Americans.
D)This decision is not justified in terms of economic well-being but may make sense for political reasons.

Question 67

A group of countries that allows free trade among its members and puts up common barriers against all other countries' goods is called:

A)a tariff-free zone.
B)a most-favored-nation agreement.
C)an autarky.
D)a free trade association.

Question 68

Which of the following is a free trade association?

A)G7
B)NAFTA
C)WTO
D)NATO

Question 69

Strategic bargaining:

A)always produces freer trade.
B)always increases a country's gains from trade.
C)may reduce trade if it is unsuccessful.
D)always reduces a country's gains from trade.

Question 70

Strategic bargaining:

A)always reduces the number of trade restrictions.
B)always increases the number of trade restrictions.
C)may increase the number of trade restrictions if it is successful.
D)may reduce the number of trade restrictions if it is successful.

Question 71

One reason economists oppose trade restrictions is that:

A)it is difficult to limit trade restrictions to instances when their use is justified.
B)they are an ineffective way to raise tax revenue.
C)they protect national security, particularly in wartime.
D)no nation can benefit from trade restrictions.

Question 72

Becoming better at a task the more often you perform is referred to as:

A)inherent advantage.
B)economies of scope.
C)learning by doing.
D)economies of performance.

Question 73

Economists generally agree that:

A)trade restrictions will increase the welfare of a large country even if other countries retaliate.
B)trade between two nations generally benefits one at the expense of the other.
C)infant industry protection, although justified in theory, often becomes permanent because infant industries fail to grow up.
D)trade sanctions are not an effective way of achieving international political objectives.

Question 74

Most economists:

A)oppose free trade.
B)favor free trade.
C)have no opinion on free trade.
D)would prefer to have no trade with other nations.

Question 75

Most economists support free trade in part because trade restrictions:

A)provide no revenue for the government.
B)result in larger trade deficits for the nations imposing them.
C)increase international competition.
D)reduce international competition.

Question 76

What does NAFTA stand for?

A)North African Fair Trade Association
B)North Atlantic Favored Trade Association
C)North Atlantic Flat Tax Association
D)North American Free Trade Agreement

Question 77

What are trade adjustment assistance programs?

A)Away of subsidizing exports
B)A form of regulatory trade restriction
C)The use of exchange rate policies to equalize exports and imports
D)Attempts to compensate those who suffer losses when trade restrictions are reduced

Question 78

The infant industry argument for protection is rejected by most economists because:

A)they oppose any government intervention.
B)historical experience supports it.
C)many infant industries become reliant on protection and do not mature.
D)protection usually is provided only temporarily.

Question 79

Infant industry protection can be justified in theory by:

A)both the "learning by doing" argument and the existence of economies of scale.
B)the "learning by doing" argument but not by the existence of economies of scale.
C)the existence of economies of scale but not by the "learning by doing" argument.
D)neither the "learning by doing" argument nor the existence of economies of scale.

Question 80

Transshipments, which are used commonly in international trade, tend to:

A)undermine the effectiveness of a sanction.
B)strengthen the national security argument for trade restrictions.
C)increase the effectiveness of trade restrictions.
D)reduce the volume of world trade.