Question 1

A protectionist policy generally enhances free trade.

Accepted Answer

A protectionist policy involves imposing tariffs and other barriers on imports to protect domestic industries from foreign competition. This goes against the principles of free trade, which advocates for the removal of barriers and the promotion of open markets. Therefore, a protectionist policy does not enhance free trade but rather restricts it.

Question 2

According to the infant industry argument for import protection, such protection is needed because:

Accepted Answer

The infant industry argument for import protection suggests that new industries need protection from foreign competition to achieve technological efficiency and become competitive with mature foreign industries. This protection is typically temporary until the industry can stand on its own and compete without protection.

Question 3

The "increase domestic employment" argument for protection against free trade:

Accepted Answer

The "increase domestic employment" argument states that by keeping out foreign imports, goods and services can be produced by domestic workers. So, option A is the correct answer. Option B is incorrect since it says that protection leads to more costly production of goods and services, but this is not the argument being made. Option C is incorrect because it is a subjective statement and depends on one's belief in the benefits of free trade. Option D is also not a good choice since the argument for protection is mainly aimed at helping create jobs in an economy that has unemployment, not one with full employment.

Question 4

Trade between two nations can benefit both if each specializes in the good that it can produce at a lower opportunity cost.

Accepted Answer

Trade allows the two nations to benefit by producing the goods that they are most efficient in producing based on their resources and skills, leading to a more efficient allocation of resources and higher economic growth.

Question 5

A nation that has a comparative advantage in a product will not import any of it.

Accepted Answer

A nation that has a comparative advantage in a product will still import it if the cost of producing it domestically is higher than the cost of importing it from another country. Importing it allows the nation to allocate its resources more efficiently towards the products in which it has a comparative advantage.

Question 6

The process in which an exporter sells a good to a country at a price below its own production costs is:

Accepted Answer

The process described is known as dumping, in which an exporter sells goods below its own production costs, often leading to unfair competition with domestic producers in the importing country. Tariffing refers to the imposition of taxes on imported goods, rationing involves controlling the distribution of scarce resources, and trading refers to the exchange of goods and services between countries.

Question 7

If the executives of the U.S. silicon-chip industry lobby Congress for protection from imports on the grounds that the military should have an unrestricted domestic supply of silicon chips, they are using the:

Accepted Answer

The executives of the U.S. silicon-chip industry are using the national security argument by lobbying Congress for protection from imports on the grounds that the military should have an unrestricted domestic supply of silicon chips. This argument appeals to the need for national security and protection of vital defense infrastructure, which is a key responsibility of the government.

Question 8

If the United States exports 6 million bushels of corn to Japan and thereby earns income with which it imports 3 million digital video recorders from Japan, the United States' terms of trade with Japan for corn and digital video recorders is 2:1.

Accepted Answer

The terms of trade refer to the ratio at which a country can trade its goods for the goods of another country. In this scenario, the United States exports 6 million bushels of corn to Japan and earns income, which it then uses to import 3 million digital video recorders from Japan. The terms of trade can be calculated by dividing the amount of corn exported by the amount of digital video recorders imported, which gives a ratio of 2:1 (6 million bushels of corn / 3 million digital video recorders = 2:1). Therefore, the statement is true.

Question 9

If the executives of the U.S. silicon-chip industry lobby Congress for protection from imports on the grounds that foreign producers are selling silicon chips in the United States below production costs, they are using the:

Accepted Answer

The executives of the U.S. silicon-chip industry are using the argument of retaliation against dumping, which refers to the practice of foreign producers selling their products in a foreign market at prices lower than their actual production costs to gain market share and undermine competition. By lobbying Congress for protection against such dumping, the industry is seeking to prevent unfair competition and level the playing field for domestic producers.

Question 10

According to Matthew Slaughter, as reported in the Case in Point on outsourcing, which of the following is a reason that suggests outsourcing might actually increase domestic employment?

Accepted Answer

All three reasons given suggest that outsourcing can actually lead to an increase in domestic employment. Lower costs may lead to increased production, which would require hiring more workers domestically. Similarly, lower costs may lead firms to expand their operations, and again this could lead to more jobs domestically. Finally, outsourcing can allow a firm to specialize in its core competencies, which may increase the overall demand for the firm's products and services, and this too could lead to more jobs domestically.

Question 11

The infant industry argument for tariffs against free trade is sometimes supported because:

Accepted Answer

The infant industry argument suggests that new domestic industries may have potential economies of scale that could make them competitive in the long run, but they need temporary protection in the form of tariffs to achieve those economies of scale. Therefore, choice D is the most relevant and accurate reason why this argument is sometimes supported.

Question 12

If the executives of the U.S. silicon-chip industry lobby Congress for protection from imports on the grounds that theirs is a new industry that needs time to develop technological efficiency, they are using the:

Accepted Answer

The executives are using the infant industry argument, which argues that new industries need protection from foreign competition until they are able to achieve technological efficiency and become competitive in the global market.

Question 13

An argument against the use of tariffs to keep out the production of "cheap" foreign labor is that:

Accepted Answer

The argument against the use of tariffs is that wage rates and labor productivity are directly related. This means that countries with lower wages may actually have lower labor productivity and therefore produce goods less efficiently than countries with higher wages. Tariffs may not necessarily keep out cheaper goods if those goods are still produced more efficiently and at a lower cost overall.

Question 14

The single most important source of protectionist policies against trade, according to the text, is the:

Accepted Answer

The text states that the desire to maintain existing jobs is the single most important source of protectionist policies against trade. This is often driven by domestic industries and labor unions who fear competition from foreign firms and workers may result in job losses.

Question 15

Which of the following statements about economists' assessment of protectionism is true?

Accepted Answer

Economists generally agree that the costs of trade barriers exceed their benefits and result in inefficiency. This is because trade barriers limit competition, increase prices for consumers, and restrict the flow of goods and services, ultimately leading to a loss of overall welfare. While some industries may benefit from protectionism, the negative effects on the wider economy are more significant.

Question 16

Dumping:

Accepted Answer

Dumping is the practice of selling goods in a foreign market at a price that is below the producer's average total cost of production. This can harm domestic producers in the foreign market and is generally seen as an unfair trade practice. Tariffs can be a way to counteract the harm caused by dumping. The other options (A, C, and D) are not accurate definitions of dumping.

Question 17

An exporter is said to be engaged in _______ if it _______ goods and services at a price _______ .

Accepted Answer

The answer of An exporter is said to be engaged...

Question 18

If the executives of the U.S. silicon-chip industry lobby Congress for protection from imports on the grounds that foreign nations gain an unfair advantage in the silicon-chip market because they exploit their workers by paying low wages, they are using the:

Accepted Answer

The executives of the U.S. silicon-chip industry are using the argument that foreign nations gain an unfair advantage in the silicon-chip market because they exploit their workers by paying low wages. This is commonly referred to as the cheap foreign labor argument.

Question 19

If the executives of the U.S. silicon-chip industry lobby Congress for protection from imports on the grounds that several thousand workers would lose their jobs if there were a reduction in domestic silicon-chip production, they are using the:

Accepted Answer

The executives are using the job protection argument because they are specifically concerned about the potential loss of jobs due to reduced domestic production, which they believe could be mitigated by protection from imports.

Question 20

If the executives of the U.S. silicon-chip industry lobby Congress for protection from imports on the grounds that foreign nations create more pollution in silicon-chip production than domestic producers, they are using the:

Accepted Answer

The executives are using the environmental standards argument to justify protection from imports. They claim that foreign nations create more pollution in silicon-chip production than domestic producers.

Quiz 17: Financial Markets