Deck 7: Commercial Policy

Question 1

Developed countries have lost comparative advantage in

A) high-tech industries.
B) labor-intensive industries.
C) capital-intensive industries.
D) agricultural industries.

Answer 1

B

Question 2

Tariffs are higher in agriculture than any other sector in most countries.

Answer 2

True

Question 3

Which of the following is NOT a True statement?

A) Trade barriers are usually a good way of protecting jobs.
B) There have been significant reductions in trade barriers over the last 60 years.
C) Economists generally favor further reductions in trade barriers.
D) There are diminishing returns to trade negotiations.

Answer 3

A

Question 4

Developed countries have lost comparative advantage in textiles and apparel.

Question 5

Large and efficient agricultural producers like Argentina and Australia protect that sector heavily.

Question 6

High-income industrial nations such as the United States and Japan tend to have their highest tariffs in

A) newer, high-technology manufacturing industries.
B) capital-intensive, diversified manufacturing.
C) agriculture, clothing, and textiles
D) automobiles.

Question 7

Why do both developed and less-developed countries protect clothing and textiles heavily?

Question 8

The pattern of protection in industrial countries is particularly harmful to the interests of

A) low-income developing countries.
B) high-income industrial countries.
C) Asian nations.
D) European nations.

Question 9

Since there are diminishing returns to the removal of further trade barriers, economists do not favor further negotiations.

Question 10

The average nonagricultural tariff in the U.S. is about

A) 3 percent.
B) 5 percent.
C) 9 percent.
D) 15 percent.

Question 11

Explain how potential gains from further reductions in tariff levels are different from the gains of the past.

Question 12

Countries like Argentina and Australia protect agriculture less heavily than other agricultural producers because

A) they have a large comparative advantage in production.
B) it is illegal under WTO rules.
C) they do not have significant agricultural sectors.
D) they are trying to help other countries.

Question 13

At this point, potential gains from further tariff reductions worldwide are

A) still very large.
B) equal to zero.
C) relatively small.
D) not worth the cost of negotiations.

Question 14

The WTO's Doha Development Agenda is only considering market access issues in agriculture, such as tariffs and quotas, because export subsidies and production subsidies are considered less harmful and have not been part of the GATT or WTO agenda.

Question 15

Sixty years after the signing of GATT and following eight completed round of trade negotiations,

A) trade barriers are no longer an issue.
B) trade barriers have been successfully reduced.
C) trade barrier have actually increased.
D) there has been no real change in trade barrier.

Question 16

One reason why consumers are unlikely to be too upset about tariffs is because

A) most consumers benefit from protection.
B) tariffs are an inexpensive way to create jobs.
C) consumer losses are not real losses.
D) the costs are so spread out that no one pays a big share of the total.

Question 17

At the end of World War II,

A) tariffs around the world fell substantially.
B) agricultural subsidies were significantly reduced.
C) most nations began to apply tariffs uniformly across all industries.
D) tariffs increased in low-income countries and fell a small percentage in high-income countries.

Question 18

The average agricultural tariff in the U.S. is about

A) 3 percent.
B) 5 percent.
C) 9 percent.
D) 15 percent.

Question 19

The system of trade rounds under GATT and the WTO has been successful at creating trade rules and reducing trade barriers.

Question 20

Tariffs are highest in which sector internationally?

A) Agriculture
B) Energy
C) Technology
D) Automobiles

Question 21

Trade barriers are an expensive and inefficient way to reach most of the goals for which they are used.

Question 22

One reason why producers have an incentive to organize in favor of protection is because

A) producer gains are spread across so many firms that no one gets a large share of the benefits.
B) producer gains are relatively concentrated.
C) there is no real cost to the economy.
D) producer gains outweigh consumer losses.

Question 23

Direct subsidies to agriculture, whether they are export subsidies or production subsides, are viewed as harmful because of all the following reasons EXCEPT

A) they lead to overproduction.
B) they crowd out imports.
C) they can lead to dumping of surplus production.
D) they encourage overconsumption through low market prices.

Question 24

Describe some of the gains from lowering trade barriers that may be difficult to measure.

Question 25

Some economists argue that free trade is beneficial regardless of the actions of a country's trading partners, including trading partners that heavily protect their home markets.

Question 26

Which of the following is NOT a reason people tolerate tariffs and quotas?

A) Their jobs depend on tariffs and quotas.
B) Costs may be hidden and hard to quantify.
C) Costs of the policy are spread over a large number of people.
D) The marginal expenses to fight the protection outweigh the personal marginal costs of the protection.

Question 27

Which of the following is NOT an issues in the reduction of trade protection in agriculture?

A) consumption subsidies.
B) tariffs and quotas.
C) export subsidies.
D) production subsidies.

Question 28

There are asymmetric incentives to support and to oppose protectionist trade policies, with the stronger incentives going to those that would seek protection.

Question 29

How did the Uruguay Round of GATT impact agriculture?

Question 30

During the 1930s, countries closed markets. The effect of these policies was that

A) export industries were better off in most countries.
B) import-competing industries did not gain.
C) the reduction in trade worsened the Great Depression.
D) consumers were better off.

Question 31

Agriculture, clothing, and textiles are singled out for treatment in the chapter because

A) they tend to be the most highly protected sectors of industrial economies.
B) they tend to be the most-protected sectors internationally.
C) the policies of high-income nations in these sectors may have beneficial effects in low-income countries.
D) they are more important to job creation than other sectors.

Question 32

Economists believe that there are many nonmonetary gains from further trade opening. Which of the following is NOT one of those potential gains?

A) Economies of scale from increased production decreases costs.
B) Intensified competition lowers prices.
C) Governments will be less reliant on tariff revenue.
D) Diversification of production lowers risks.

Question 33

Deadweight losses from tariffs and quotas in high-income countries

A) are small enough to be ignored.
B) have been reduced since the mid-1990s.
C) are greater than consumer losses from tariffs and quotas.
D) can be justified by jobs protected.

Question 34

Which of the following is False?

A) The analysis of agriculture, textiles, and clothing in the EU, the United States, and Japan supports the proposition that older sectors of the economy are most protected, particularly in cases where the nation has lost a substantial part of its comparative advantage.
B) Even when tariffs are relatively low, the cost per job saved tends to be high.
C) Commercial policy is grossly inefficient at achieving the objective of job preservation.
D) Trade barriers in high-income countries do not cause unintended consequences in low-income countries because most of their trade is with other industrialized countries.

Question 35

Australia has one of the most heavily subsidized agricultural sectors as a percentage of domestic GDP.

Question 36

Further trade opening is beneficial even if the monetary value of the gains is not high.

Question 37

Which of the following describes the asymmetry Mancur Olson observed in the incentives to support and oppose trade policy?

A) The benefits of those seeking protection outweigh the costs imposed by the protection.
B) The benefits of protection are spread out over a large number of firms and industries, but the costs are concentrated on consumers.
C) The benefits of policy are concentrated, and the costs are spread out over a large number of participants.
D) The costs of protection are concentrated on a few firms, and the benefits of protection are spread out over a large number of consumers.

Question 38

In the global recession of 2007-2009, world trade declined because nations closed their markets to trading partners.

Question 39

During the 1990s, deadweight losses per job saved through tariffs and quotas in the apparel industry

A) were greater than the wages earned in apparel jobs.
B) were small enough to ignore.
C) were less than the value of the jobs saved.
D) increased net national welfare.

Question 40

U.S. sugar quotas cost each person in the U.S. thousands of dollars per year due to higher prices.

Question 41

Television programming might be targeted for protection in a country using which of the following arguments?

A) Infant industry
B) National security
C) Labor argument
D) Cultural protection

Question 42

Economic sanctions

A) usually work to create policy change in the targeted country.
B) are more likely to work if the international community supports them.
C) are more likely to work if military force is not used.
D) never work to create policy change in the targeted country.

Question 43

Agricultural subsidies are known to cause overproduction and create other problems. Are there benefits from such subsidies? Explain.

Question 44

Describe traditional knowledge and how it relates to current trade issues about intellectual property rights protection.

Question 45

Protection in the form of tariffs or quotas is a very inefficient tool for job creation and preservation.

Question 46

If a nation protects an industry because it believes that there are positive externalities in the production process, it is asserting that the free market will

A) produce less than is optimal from society's point of view.
B) produce more than is optimal from society's point of view.
C) produce the correct amount but charge too high a price.
D) produce the correct amount but charge too low a price.

Question 47

Choose one of the arguments countries generally use to justify protection for a particular industry. Describe the argument and any inherent problems with it. Is the argument primarily an economic or a noneconomic one?

Question 48

If a large percentage of economic activity in developing countries is unrecorded, then the countries are likely to rely on which of the following taxes to provide government revenue?

A) Sales taxes
B) Property taxes
C) Income taxes
D) Tariffs

Question 49

"Cheap foreign wages" is a poor argument for protection because it fails to recognize the importance of productivity. Which of the following does NOT contribute to increasing productivity?

A) Education and training
B) Government subsidies
C) Infrastructure
D) Capital

Question 50

When comparing the U.S. and Mexican car assembly industries, the disadvantage of higher U.S. wages is offset by

A) Mexican trade barriers.
B) trade adjustment assistance in the United States.
C) higher productivity in the United States.
D) a lower opportunity cost in Mexico.

Question 51

The biggest flaw in the logic of the labor argument is the failure to consider

A) the needs of developing countries.
B) the impact of tariffs on inflation.
C) the differences in national productivity levels.
D) the impact on employment levels.

Question 52

A major difficulty with the infant industry argument for protection is that

A) government revenue will fall with a tariff.
B) it requires the nation to fall into the large country case for tariff protection.
C) effective rates of protection are usually greater than nominal rates.
D) the measurement of production externalities is difficult and uncertain.

Question 53

Critique the infant industry or the labor argument for protection.

Question 54

The more difficult the goal, the more likely military force is going to be needed to back up economic sanctions.

Question 55

Historically, one of the most common reasons for countries to impose tariffs was

A) to protect their national security.
B) to raise revenue for the government.
C) to eliminate unemployment.
D) to counter inflation.

Question 56

It seems likely that economic sanctions ultimately would have led to regime change in Iraq.

Question 57

Because low tariffs have a high ratio of benefits to costs, they are an especially efficient way for nations to achieve full employment and growth.

Question 58

Some economists suggest the optimal way for a nation to protect its access to a strategic mineral is with

A) an infant industry tariff.
B) a high rate of effective protection to keep local mines in business.
C) a quota on imports of the mineral.
D) a stockpile.

Question 59

Carefully explain why agricultural subsidies are viewed as harmful.

Question 60

To be effective, infant industry protection requires

A) a national security externality.
B) to be extended indefinitely.
C) to be fair to existing producers.
D) a technology externality.

Question 61

In the United States, which agency determines whether domestic firms have been harmed by subsidies and dumping or by a sudden surge in imports and whether protection is warranted?

Question 62

Which of the following is an example escape clause relief?

A) A tariff is granted because foreign firms are selling below cost.
B) A temporary tariff is granted to allow for adjustment of the domestic industry.
C) A tariff is granted to an industry because foreign firms are subsidized by their governments.
D) A tariff is granted to an industry because another nation persistently uses unfair trade practices.

Question 63

Which of the following is an example of a countervailing duty?

A) A tariff is granted because foreign firms are selling below cost.
B) A temporary tariff is granted to allow for adjustment of the domestic industry.
C) A tariff is granted to an industry because foreign firms are subsidized by their governments.
D) A tariff is granted to an industry because another nation persistently uses unfair trade practices.

Question 64

Why is it difficult to determine whether a country is dumping? Explain fully.

Question 65

Carefully explain why political pressure to protect industry has often been intense in the United States.

Question 66

If a country faces action under Section 301 of the U.S. Trade Act of 1974, it means that the country has

A) exceeded average export growth by more than 50 percent.
B) tariffs that are above the legal limit.
C) been charged by the United States with systematically engaging in unfair trade practices.
D) been charged by the WTO with violating its trade obligations.

Question 67

The most common form of tariff is a countervailing duty.

Question 68

Under Special 301, what is the U.S. government required to do?

Question 69

Which of the following is an example of an antidumping duty?

A) A tariff is granted because foreign firms are selling below cost.
B) A temporary tariff is granted to allow for adjustment of the domestic industry.
C) A tariff is granted to an industry because foreign firms are subsidized by their governments.
D) A tariff is granted to an industry because another nation persistently uses unfair trade practices.

Question 70

Section 301 actions are more frequently used as a tool of trade policy, especially since the formation of the World Trade Organization.

Question 71

A countervailing duty is a tariff that is levied to counteract

A) the dumping of goods in the domestic market by foreign firms.
B) a sudden surge of imports which hurt a domestic industry.
C) subsidies given to foreign firms by their own governments.
D) low prices for imported goods that are made in countries with low wages.

Question 72

In the United States, which part of government investigates claims of subsidies or dumping?

Question 73

Which of the following is NOT a True statement about economic sanctions?

A) Economic sanctions are aimed at broad policy objectives, such as the end of apartheid.
B) Economic sanctions can seriously harm the economy of a country on which they are imposed.
C) Economic sanctions are usually effective in achieving policy goals.
D) Economic sanctions may not be sufficient to achieve policy goals without military force or other measures.

Question 74

Predatory dumping occurs when

A) foreign firms sell below cost with the intent to drive firms out of the domestic market.
B) foreign firms sell below cost because the product is perishable.
C) foreign firms sell at a price that is below the price of domestic firms.
D) foreign firms sell at a price that covers the cost of their variable inputs.

Question 75

Dumping occurs when a firm

A) sells too much of a good in a foreign country.
B) sells in a foreign country at prices that are below fair value.
C) sells in its home market at prices that are below the average price charged by its competitors.
D) sells in a foreign market at prices that are below the prices charged by firms based in the foreign market.

Question 76

Describe the four legal procedures available to U.S. firms to seek protection from foreign competition. What circumstances would warrant a request under each? How frequently is each used? What would be the result if the firm won?

Question 77

The fair value of a good is not a subjective measure.

Question 78

Antidumping duties cannot be levied when the harm to domestic industries is very small.