Deck 10: Export Subsidies in Agriculture and High-Technology Industries

Question 1

In general, an export subsidy:

A) discourages foreign sales in favor of domestic sales.
B) encourages firms to export rather than sell domestically.
C) penalizes producers that export.
D) justifies government involvement in helping firms export.

Answer 1

B

Question 2

The term used to describe a tax on exports is an:

A) export tariff.
B) export stipend.
C) export restriction.
D) export quota.

Answer 2

A

Question 3

The 2005 WTO negotiations in Hong Kong covered trade in services. What did developing nations expect from wealthy nations in exchange for gradually opening their market to service imports?

A) food aid
B) eased immigration regulations
C) higher agricultural export subsidies
D) lower tariffs on industrial goods

Answer 3

B

Question 4

The European agricultural export subsidy program is known as the:

A) European Subsidy System.
B) European Agricultural System.
C) Common Agricultural Policy.
D) Common European Policy.

Question 5

Under rules of the GATT, exporting countries can expect importing countries to impose _______ to offset their export subsidies.

A) antidumping duties
B) countervailing duties
C) safeguard duties
D) quotas

Question 6

An example of an export tariff is:

A) China's limits on rare earth mineral exports.
B) Argentina's 35% tax on soybean exports.
C) the United States' 10% tax on Boeing aircraft exports.
D) Japan's 20% tax on rice exports.

Question 7

A payment to a firm for every unit exported is called an:

A) export tariff.
B) export stipend.
C) export restriction.
D) export subsidy.

Question 8

Which of the following was a major disagreement during the Doha Round?

A) tariffs on agricultural imports in developing countries
B) agricultural subsidies
C) production subsidies to agriculture in land-poor developing countries
D) tariffs on agricultural imports in developed countries

Question 9

In 2015, WTO leaders agreed to:

A) eliminate taxes on their agricultural exports.
B) eliminate subsidies on their agricultural exports.
C) eliminate countervailing duties on subsidized agricultural imports.
D) eliminate antidumping duties on subsidized agricultural imports.

Question 10

In Europe, the Common Agricultural Policy:

A) taxed European agricultural products sold in Europe.
B) allowed European farmers to sell their output at above world prices in the European market.
C) subsidized agricultural products, allowing European farmers to sell output at a price much higher than the world market price.
D) subsidized agricultural products, allowing European farmers to sell output at a price much lower than the world market price.

Question 11

Where were subsidies on agricultural products particularly high prior to the 2015 WTO agreement on agricultural export subsidies?

A) the European Union
B) Korea
C) Russia
D) Canada

Question 12

WTO negotiations in 2005 covered agricultural subsidies. What progress was made at these meetings in Hong Kong?

A) Higher-income nations pushed for an end to agricultural subsidies, but did not get them.
B) Goals were set to abolish agricultural subsidies by the end of 2013, but no actual changes occurred.
C) The Hong Kong meetings were disrupted by protesters and had to be called off.
D) The WTO members agreed to immediately eliminate agricultural subsidies in all countries.

Question 13

Which product has been among the most heavily subsidized in the United States?

A) cotton
B) grapes
C) oranges
D) tomatoes

Question 14

The European Common Agriculture Policy resulted in a(n):

A) increase in European imports from the rest of the world.
B) decrease in European exports of sugar to the rest of the world.
C) increase in world agriculture exports to Europe.
D) increase in European agriculture exports.

Question 15

In Europe, the Common Agricultural Policy is a form of:

A) tax on domestic production of agricultural products.
B) regulation and supervision by the WTO in assuring that tariffs are applied fairly.
C) a purchase program whereby government buys unusable products.
D) subsidy, regardless of whether the crop is sold domestically or internationally.

Question 16

Under the GATT, which trade remedy can importing countries use to offset export subsidies?

A) antidumping duties
B) safeguard duties
C) quotas
D) countervailing duties

Question 17

Which of the following is NOT an example of countries' support to their domestic agricultural industry?

A) The European Common Agricultural Policy pays European farmers up to 50 euros per ton of harvested sugar beets.
B) Japan allows 10% of its annual rice consumption to enter duty-free, then imposes a 500% tariff on further rice imports.
C) The United States provides subsidies to cotton farmers to grow more cotton.
D) Argentina imposes a 23% tax on wheat exports.

Question 18

An export subsidy works to _______________ the price of exported products for producers to encourage _______________ production.

A) lower; less
B) lower; more
C) raise; more
D) raise; less

Question 19

Which of the following will happen when a small country enacts an export subsidy?

A) The country will be able to sell less abroad.
B) The domestic price of the subsidized export will decrease
C) The country's demand for the subsidized product will increase.
D) Foreign demand for the subsidized product will increase.

Question 20

Under terms of the 2015 WTO, when did developed and developing countries agree to eliminate agricultural export subsidies?

A) Both developed and developing countries agreed to immediately eliminate their agricultural export subsidies.
B) Developed countries agreed to immediately eliminate their agricultural export subsidies while developing countries were allowed to maintain their agricultural export subsidies.
C) Developed countries agreed to immediately eliminate their agricultural export subsidies while developing countries would have until the end of 2018 to eliminate their agricultural export subsidies.
D) Both developed and developing countries would have until the end of 2018 to eliminate their agricultural export subsidies.

Question 21

(Scenario: Sugar Trade in Birdonia) In autarky, suppose that equilibrium sugar price is $100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia engages in free trade with the rest of the world. The world price of sugar is $125 per ton. What action must the government of Birdonia take to ensure that Birdonians do not import sugar at the world price of $125?

A) It must place a $25 per ton tax on Birdonian sugar exports.
B) It must levy a countervailing duty of $50 a ton on Birdonian sugar exports.
C) It must agree to voluntarily restrain its exports to $125 per ton.
D) It must levy a tariff of $50 per ton on imported sugar.

Question 22

(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, when the home country provides a subsidy of _______, exports will increase by _____ units.

A) $50; 40
B) $175; 120
C) $125; 100
D) $175; 100

Question 23

(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, an export subsidy of $50 per unit results in a(n) ________ of government revenue by the amount of ______.

A) increase; $5,000
B) increase; $2,500
C) decrease; $5,000
D) decrease; $21,000

Question 24

(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on the world market at the world price of $70 per ton. Table: Demand and Supply for Iron Ore How many tons will be sold domestically when exporters receive a $10-per-ton export subsidy?

A) 10 tons
B) 20 tons
C) 30 tons
D) 40 tons

Question 25

Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then its domestic price of sugar will:

A) fall by $50 per ton.
B) rise by $50 per ton.
C) remain unchanged at $100 per ton.
D) first fall to $50 per ton, then rise to $100 per ton.

Question 26

Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then domestic consumption of sugar will:

A) fall.
B) rise.
C) remain unchanged.
D) first fall, then rise.

Question 27

(Scenario: Sugar Trade in Birdonia) In autarky, suppose that equilibrium sugar price is $100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia engages in free trade with the rest of the world. The world price of sugar is $125 per ton. What will happen to the domestic price of sugar in Birdonia?

A) It will rise to $125 per ton.
B) It will fall by $25 per ton.
C) It will remain $100 per ton.
D) It will first rise to $125 per ton, then fall to $100 per ton.

Question 28

When assessing the welfare effect of an export subsidy on a small nation, it can be shown that the subsidy:

A) increases national welfare.
B) can be paid for out of increased revenues.
C) hurts producers and helps consumers.
D) is just the same as a tariff on imports: it raises domestic price, increases domestic production, and involves the same efficiency and consumption losses.

Question 29

(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, at the world price of $125 there is a ________ of ____ in the home market, which is ____.

A) surplus; 60; imported
B) shortage; 60; imported
C) surplus; 60; exported
D) shortage; 100; exported

Question 30

(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, how many units of the product will domestic consumers demand when the world price is $125?

A) 120
B) 100
C) 40
D) 20

Question 31

(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on the world market at the world price of $70 per ton. Table: Demand and Supply for Iron Ore What is the total value of the export subsidy that exporters receive?

A) $500
B) $800
C) $400
D) $100

Question 32

(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, an export subsidy of $50 results in a(n) ________ in producer surplus by the amount of ______.

A) reduction; $6,500
B) reduction; $5,000
C) increase; $5,500
D) increase; $4,000

Question 33

(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on the world market at the world price of $70 per ton. Table: Demand and Supply for Iron Ore At the world price of $70 per ton, how many tons will be sold domestically?

A) 80 tons
B) 70 tons
C) 40 tons
D) 30 tons

Question 34

(Scenario: Sugar Trade in Birdonia) In autarky, suppose that equilibrium sugar price is $100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia engages in free trade with the rest of the world. The world price of sugar is $125 per ton. Now suppose that the government of Birdonia gives an export subsidy of $50 per ton to its sugar producers. What will happen to the domestic price of sugar in Birdonia?

A) It will not change.
B) It will rise to $175 per ton.
C) It will rise to $150 per ton.
D) It will rise to between $125 and $175 per ton.

Question 35

(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on the world market at the world price of $70 per ton. Table: Demand and Supply for Iron Ore What price will domestic iron ore consumers pay for their iron ore purchases when there is a $10-per-ton export subsidy?

A) $10 per ton
B) $60 per ton
C) $70 per ton
D) $80 per ton

Question 36

Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then its exporters will receive:

A) $150 per ton.
B) $50 per ton.
C) $100 per ton.
D) first $150 per ton, then $100 per ton.

Question 37

Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar exporters a subsidy of $50 per ton, then the world price of sugar will:

A) rise to $150 per ton.
B) fall to $50 per ton.
C) remain at $100 per ton.
D) first rise to $150 per ton, then fall to $100 per ton.

Question 38

(Figure: Home's Exporting Industry I) The graph shows information about a small home exporter. D is home demand and S is home supply. According to the graph, the deadweight loss from the $50 export subsidy is:

A) $500.
B) $1,000.
C) $1,500.
D) $2,500.

Question 39

(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on the world market at the world price of $70 per ton. Table: Demand and Supply for Iron Ore At the world price of $70 per ton, how many tons will it export?

A) 80 tons
B) 70 tons
C) 40 tons
D) 30 tons

Question 40

(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on the world market at the world price of $70 per ton. Table: Demand and Supply for Iron Ore Suppose that the country's government offers its iron ore producers an export subsidy of $10 per ton. How many tons will the country now export?

A) 80 tons
B) 70 tons
C) 60 tons
D) 50 tons

Question 41

Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then domestic consumption of sugar will:

A) fall.
B) rise.
C) remain unchanged.
D) first fall, then rise.

Question 42

Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then its domestic price of sugar will:

A) fall by $50 per ton.
B) rise by $50 per ton.
C) remain unchanged at $100 per ton.
D) rise by less than $50 per ton.

Question 43

(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. What is the value of total subsidy payments to Freedonia's widget exporters?

A) $825
B) $600
C) $225
D) $125

Question 44

A large nation's export subsidy ____ a small trading partner nation's terms of trade.

A) improves
B) does not affect
C) worsens
D) strengthens its bargaining power for improving

Question 45

(Figure: Home's Exporting Industry II) The graph shows the effect of a subsidy on a large country. D describes home demand and S describes home supply. According to the graph, which of the following will help the large country avoid the deadweight loss from the $100 export subsidy?

A) impose a tariff
B) impose a quota
C) provide cash to developing countries to purchase the product from the home country
D) impose trade restrictions

Question 46

Suppose that the world price of sugar is $100 per ton. If a small-country exporter gives its sugar exporters a subsidy of $50 per ton, then the country will:

A) suffer deadweight production and consumption losses.
B) enjoy deadweight production and consumption gains.
C) suffer deadweight production losses only.
D) suffer deadweight consumption losses only.

Question 47

If a large nation subsidizes its exports, it will increase its supply to the world and:

A) will prosper through increased jobs for workers and profits for its firms.
B) the world price will fall.
C) consumers in the home nation will benefit through lower prices.
D) the nation will increase its imports as well.

Question 48

Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then its exporters will receive (in total):

A) $150 per ton.
B) $50 per ton.
C) more than $100 but less than $150 per ton.
D) $100 per ton.

Question 49

(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. Calculate the value of the deadweight losses associated with the $15 per unit export subsidy.

A) $37.50
B) $75.00
C) $112.50
D) $150.00

Question 50

What happens to the large country's domestic price of widgets when a large country gives a subsidy of X dollars for each unit exported?

A) The domestic price will rise by X dollars.
B) The domestic price will rise by more than X dollars
C) The domestic price will rise by less than X dollars.
D) The domestic price will not change.

Question 51

(Figure: Home's Exporting Industry II) The graph shows the effect of a subsidy on a large country. D describes home demand and S describes home supply. According to the figure, if the world price of the product is $100, the home demand for the product is _____ and the exports are ______.

A) 25; 125
B) 25; 25
C) 50; 75
D) 25; 75

Question 52

(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. Now suppose that Freedonia engages in international trade in widgets. The world price is $40. How many widgets will be consumed domestically and how many will be exported?

A) It will consume 20 domestically and export 20.
B) It will consume 20 domestically and export 40.
C) It will consume 40 domestically and export 20.
D) It will consume zero domestically and export 20.

Question 53

(Figure: Home's Exporting Industry II) The graph shows the effect of a subsidy on a large country. D describes home demand and S describes home supply. According to the graph, if the home country provides a subsidy of $100, the large country will cause the world price to:

A) increase by $50.
B) increase by $150.
C) decrease by $50.
D) decrease by $150.

Question 54

(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. Now let Freedonia's government give a $15 per unit subsidy on each widget exported. What will be the new price and quantity consumed in the Freedonia domestic market?

A) $20 and 60 units
B) $55 and 15 units
C) $40 and 15 units
D) $25 and 25 units

Question 55

(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. Is the subsidy paid to Freedonia's widget exporters considered part of the deadweight losses of the subsidy?

A) Yes: they are a payment to Freedonian exporters.
B) Yes: they are paid by Freedonian exporters that supply the domestic market.
C) No; they are a redistribution of income within the Freedonian economy.
D) No; consumers of Freedonian widget exports pay the subsidies.

Question 56

(Figure: Home's Exporting Industry II) The graph shows the effect of a subsidy on a large country. D describes home demand and S describes home supply. According to the graph, what is the revenue cost for the government from the $100 export subsidy?

A) $1,250
B) $12,500
C) $150
D) $1,500

Question 57

(Figure: Home's Exporting Industry II) The graph shows the effect of a subsidy on a large country. D describes home demand and S describes home supply. According to the graph, what happens to the nation's consumer surplus as a result of the $100 export subsidy?

A) It increases by $2,500.
B) It decreases by -$1,875.
C) It decreases by $725.
D) It decreases by $2,500.

Question 58

Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then the world price of sugar will:

A) fall by less than $50 per ton.
B) fall by $50 per ton.
C) remain at $100 per ton.
D) rise to $50 per ton.

Question 59

(Figure: Home's Exporting Industry II) The graph shows the effect of a subsidy on a large country. D describes home demand and S describes home supply. According to the graph, what is the home deadweight loss due to the $100 export subsidy?

A) $12,500
B) $625
C) $1,250
D) $5,000

Question 60

(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. In the absence of trade, what is the equilibrium price and quantity in Freedonia's widget market?

A) $25 and 75 units
B) $75 and 25 units
C) $25 and 25 units
D) $75 and 75 units

Question 61

Because of the harm caused to low-income nations from subsidized exports of food, high-income nations are looking at other ways to help. The preferred way is:

A) free food, because this does not involve any payments.
B) cash, because cash does not distort market prices.
C) low-interest loans.
D) technical aid that helps poor nations increase their own production.

Question 62

Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then there will be:

A) no change in its consumer surplus.
B) a loss in consumer surplus.
C) a gain in consumer surplus.
D) an increase in domestic consumption.

Question 63

Why do countries subsidize exports when they suffer net welfare losses from these subsidies?

A) Exporters receiving the subsidy engage in rent-seeking activities.
B) Exports generate positive externalities.
C) Exports provide foreign currency.
D) Exports provide jobs.

Question 64

Who will lose as a result of the WTO's elimination of agricultural export subsidies?

A) consumers in industrialized countries that export agricultural products
B) farmers in developing countries who currently do not receive export subsidies
C) governments of rich nations, which will have to prop up farmers who are hurt
D) farmers in industrialized countries that export agricultural products

Question 65

Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar exporters a subsidy of $50 per ton, then it will:

A) enjoy a gain in its total welfare.
B) have neither a loss nor a gain in its total welfare.
C) suffer a loss in its total welfare.
D) have an increase in its consumer surplus only.

Question 66

An export subsidy has a similar effect as a tariff for a small nation. What is the effect of an export subsidy for a large nation?

A) Losses are greater for the large nation than for the small nation because of the cost of the subsidy to the home government.
B) Losses are lower for the large nation than for the small nation.
C) It is beneficial for the large nation but not for the small nation.
D) It is beneficial for consumers but harmful for firms in the large nation.

Question 67

Suppose that a large country decides to reduce its agricultural export subsidies by 50%. Will the country gain or lose?

A) The country will always gain by reducing its subsidies.
B) The country will always lose by reducing its subsidies.
C) The country will gain if the reduction in its deadweight losses exceeds its terms-of-trade gains.
D) The country will gain if its terms-of-trade gains exceed the reduction in its deadweight losses.

Question 68

Which groups will benefit the most as agricultural subsidies are eliminated under the Nairobi agreement?

A) agricultural exporters in smaller nations without subsidy programs because world food prices will rise
B) agricultural consumers all over the world because more farmers will find it profitable to produce
C) agricultural importing nations, which will be able to import more food
D) governments of rich nations, which will no longer have to pay the subsidies

Question 69

Which groups will be harmed the most as a result of the WTO's elimination of agricultural subsidies?

A) agricultural exporters in smaller nations without subsidy programs because world food prices will rise
B) agricultural consumers all over the world because prices will be higher
C) agricultural producers in nations that subsidize their production
D) governments of rich nations that will have to provide support to farmers who are hurt

Question 70

Export subsidies applied by a large country create ___________for importing countries in the rest of the world by _________ their import prices.

A) losses; increasing
B) gains; increasing
C) gains; decreasing
D) losses; decreasing

Question 71

Which country has been the principal supplier of food aid?

A) Canada
B) France
C) Japan
D) the United States

Question 72

Who will gain as a result of the WTO's elimination of agricultural export subsidies?

A) consumers in industrialized countries who import agricultural products
B) farmers in developing countries who currently do not receive export subsidies
C) farmers in industrialized countries who currently receive export subsidies
D) consumers in developing countries who import agricultural products

Question 73

Are total deadweight losses of an export subsidy of X dollars per unit different when a large nation and a small nation implement the subsidy?

A) Yes; total deadweight losses of the subsidy are smaller under the large nation than under the small nation.
B) Yes; total deadweight losses of the subsidy are larger under the large nation than under the small nation.
C) No; total deadweight losses of the subsidy are the same regardless of the size of the nation implementing the subsidy.
D) No; there are no deadweight losses for either nation.

Question 74

Recently, President Obama requested that the United States change its food-aid program to require that:

A) up to 25% of U.S. food aid is used for market-based aid such as cash transfers.
B) 100% of U.S. food aid is used for market-based aid such as cash transfers.
C) 100% of U.S. food aid is used solely for humanitarian purposes.
D) 100% of U.S. food aid consists of subsidized agricultural products.

Question 75

What is the primary difference between a subsidy in a small country and a large country?

A) The large country is the only buyer of the product in the world market.
B) The small country does not produce any of the product.
C) The large country is able to influence the world price of the product.
D) There is no difference between the large country and small country.

Question 76

Is an export subsidy a good way for a large nation to help a poor nation by exporting products to them at lower prices?

A) Yes, and it is a method recommended by the WTO.
B) It can help in some cases.
C) No; it creates inefficiency in production and it hurts firms (especially small farmers) in importing countries who cannot compete with subsidized imports.
D) Yes; but it can get tricky when the importers demand even more quantity at lower prices.

Question 77

Food aid is a(n):

A) in-kind gift of food.
B) benefit concert to support the third world.
C) type of export subsidy.
D) type of countervailing duty.

Question 78

A large nation's export subsidy ________ importing countries' terms of trade; a small nation's export subsidy _________ importing countries' terms of trade.

A) improves; worsens
B) worsens; improves
C) improves; improves
D) improves; does not affect

Question 79

Why do economists disparage food aid and export subsidies for low-income nations?

A) They really have to pay in other ways.
B) It always involves middlemen who profit from the transactions.
C) The aid must be paid for by the governments of the poor nations.
D) It prevents their own firms from producing the same products because they cannot compete with foreign low prices; therefore, the most efficient producers are not sellers of the product.

Question 80

Why does the WTO consider food aid to poor nations to be an "indirect subsidy"?

A) It always has to be brokered by a third party.
B) Poor nations have to pay for it in other ways.
C) It enables firms to increase exports, partially paid for by the government.
D) It only works with small farmers rather than large agribusiness.