Question 1

Strategic trade policy is argued to be justified in industries characterized by high sunk costs, for example high costs of research and development.

Accepted Answer

Strategic trade policy can be justified in industries with high sunk costs because it can help firms overcome barriers to entry and encourage investment in research and development. By providing support to domestic firms in these industries, governments can help them overcome the competitive advantage of foreign firms and improve their global competitiveness.

Question 2

A country needs absolute rather than comparative advantages to benefit from international trade.

Accepted Answer

A country does not need to have absolute advantage in all goods and services to benefit from international trade. Rather, it can specialize in producing the goods and services in which it has a comparative advantage, that is, the ability to produce a good at a lower opportunity cost than others. By trading with other countries, a country can obtain goods and services that it cannot produce efficiently and benefit from increased efficiency and lower prices.

Question 3

Anti-dumping duties are levied on importers who are engaging in the following practice deemed unfair in international trade:&#10;A)Failing to source locally&#10;B)Transfer pricing with the intention to minimize tax payments&#10;C)Selling below costs with the intention to push competitors from the market&#10;D)Selling at prices above competitive prices by exploiting monopolistic market positions

Accepted Answer

Anti-dumping duties are specifically designed to prevent and discourage the practice of selling below costs to push competitors from the market. This is considered unfair in international trade as it creates an unfair advantage for the importer, which can harm domestic producers and the economy as a whole. Failing to source locally (A) and transfer pricing with the intention to minimize tax payments (B) are not related to anti-dumping duties. Selling at prices above competitive prices by exploiting monopolistic market positions (D) may be subject to anti-trust laws, but not anti-dumping duties.

Question 4

On average, EU countries export 3.5% of their exports to emerging economies.

Accepted Answer

According to Eurostat data from 2019, the share of EU exports to emerging economies was 6.5%.

Question 5

The costs of pursuing one alternative in terms of the forgone revenues of pursuing another alternative are known as&#10;A)Forgone costs&#10;B)Sunk costs&#10;C)Alternative costs&#10;D)Opportunity costs

Accepted Answer

The costs of pursuing one alternative in terms of the forgone revenues of pursuing another alternative are called opportunity costs. It is the cost of giving up the next best alternative. Therefore, to make the best choice, we need to consider the opportunity costs of each alternative and choose the one that provides the highest overall value.

Question 6

A trade embargo is a politically motivated restriction of imports from a particular country.

Accepted Answer

A trade embargo is a form of trade restriction imposed by one country on another. It is done as a political tool to achieve a specific objective or to punish that country for its behavior. The restriction is on imports, not exports, and is designed to isolate and limit economic relations with the targeted country.

Question 7

Mercantilism is a modern trade theory developed in response to observed inequalities of trade during the oil crisis of the 1970s.

Accepted Answer

Mercantilism is not a modern trade theory, it originated in the 16th century and was prevalent until the 18th century. It is characterized by a focus on accumulating wealth through trade surpluses, protectionist policies, and colonialism.

Question 8

The infant industry argument suggests that young industries do not need tariff protection because they emerge in all countries at the same time.

Accepted Answer

The infant industry argument suggests that young industries in developing countries may need temporary tariff protection in order to compete with established industries in developed countries until they become competitive themselves. This argument does not suggest that all countries will have the same emergence of young industries at the same time.

Question 9

The economic advantage one nation enjoys due to higher productivity in an economic activity is known as:&#10;A)Free trade&#10;B)Comparative advantage&#10;C)Absolute advantage&#10;D)Trade deficit

Accepted Answer

Absolute advantage refers to a situation where a country can produce a good or service with a lesser amount of resources than another country. This leads to lower unit costs and hence, greater efficiency and productivity of the country's industries, leading to a competitive advantage in the global market. Comparative advantage, on the other hand, refers to a country's ability to produce a good at a lower opportunity cost than its trading partners. Free trade refers to the policy of eliminating restrictions and barriers to trade, while a trade deficit occurs when a country imports more than it exports.

Question 10

Trade surplus is an economic condition in which a nation imports more than it exports.

Accepted Answer

This statement is incorrect. Trade surplus is actually the opposite economic condition in which a nation exports more than it imports.

Question 11

The factor endowment theory suggests that:&#10;A)Resources are the foundation of firm's competitive advantages&#10;B)National resource endowments are the foundation for comparative advantages in international trade&#10;C)Many factors contribute to explaining the emergence of comparative advantages&#10;D)Scarce resources are the foundation for comparative trade advantages

Accepted Answer

The answer of The factor endowment theory suggests that:&#10;A)Resources are...

Question 12

Which of the following is not considered a 'modern' trade theory?&#10;A)Factor endowment theory&#10;B)Product life cycle theory&#10;C)National competitive advantage ('diamond model')&#10;D)Strategic trade theory

Accepted Answer

The answer of Which of the following is not considered...

Question 13

In international trade theory, the term 'deadweight loss' is referring to:&#10;A)The loss to exporters due to the introduction of tariffs&#10;B)The loss to importers due to the introduction of tariffs&#10;C)The loss to consumers due to the introduction of tariffs&#10;D)The net loss to society due to the introduction of tariffs

Accepted Answer

The answer of In international trade theory, the term 'deadweight...

Deck 4: Firm Resources: Competitiveness and Growth