Question 1

The Brander-Spencer model identified market failure in certain industries due to

Accepted Answer

D

Question 2

When the WTO met in Seattle to initiate a further move towards free international trade, thousands of activists met

Accepted Answer

Thousands of activists met to protest WTO free trade policies that they believed hurt workers.

Question 3

In effect, the U.S. does subsidize high-tech firms by subsidizing R&D. This is done through

Accepted Answer

The best choice is D because the relatively accelerated "depreciation" of R&D investment in the Federal tax codes means that companies can deduct a larger percentage of their R&D expenses from their taxable income, effectively lowering their taxes and providing a form of subsidy for R&D. The other options either do not address R&D specifically or involve protectionist measures that may not directly support high-tech firms.

Question 4

It is argued that high-tech industries typically generate new technologies but cannot fully appropriate the commercial benefits associated with their inventions or discoveries. If this is true then in order to maximize a country's real income, the government should

Accepted Answer

By subsidizing high-tech firms, the government can assist them in fully appropriating the commercial benefits associated with their inventions or discoveries, thus maximizing the country's real income. This helps to maintain the incentive for innovation and supports the growth of the high-tech industry. Taxing or discouraging high-tech investments would likely deter innovation and production, while protecting high-tech firms may create barriers to entry for new firms and stifle competition. Outsourcing high-tech production could potentially create jobs in other countries rather than in the home country.

Question 5

The evidence usually cited to prove that globalization hurts workers in developing countries

Accepted Answer

The answer of The evidence usually cited to prove that...

Question 6

The existence of positive externalities due to the impossibility of full appropriability

Accepted Answer

Positive externalities, which occur when the benefits of an activity spill over to non-participants, cannot be fully appropriated by the individual or firm performing the activity. This can lead to market failure, as the private market will not account for the full social benefit of the activity. Thus, government protectionism can provide necessary support for industries that generate positive externalities that would not otherwise be adequately reflected in the market.

Question 7

If firms in an industry are generating knowledge that other firms can use without paying for it, this industry is characterized by

Accepted Answer

The industry is generating knowledge that other firms can use without paying for it, which implies that there are social benefits that exceed private benefits. This is because other firms can use the knowledge to improve their own production processes, products or services, without incurring the costs of generating that knowledge. This situation is known as a positive externality, where the benefits of an economic activity are enjoyed by society as a whole, not just by the person or firm undertaking the activity. In this case, the industry is generating knowledge that creates spillover benefits for others, and this is reflected in the fact that firms can benefit from the knowledge without paying for it.

Question 8

Japan's protection of its semiconductor (RAM) producers is today seen as an object lesson in

Accepted Answer

Japan's protection of its semiconductor producers during the 1980s and 1990s led to oversupply and a buildup of excess capacity, ultimately resulting in a large waste of resources when demand for these products decreased. This demonstrates how strategic planning and government intervention can have unintended consequences and backfire.

Question 9

Criticisms of the Brander-Spencer model include all except which of the following?

Accepted Answer

The Brander and Spencer model is criticized for several reasons, including the problems of insufficient information, likely foreign retaliation, adverse effects of trade policy politics, and simultaneously causing harm to other industries. However, the model is not typically criticized for causing harm to the interests of consumers, as it assumes that consumers are rational and will still benefit from the lower prices that result from increased competition.

Question 10

The reason Airbus succeeded in the Brander Spencer example is that

Accepted Answer

The Brander Spencer model illustrates how government subsidies can give a domestic firm a competitive advantage in international markets. In this example, Airbus succeeded because the European government provided explicit subsidies, allowing Airbus to compete more effectively against Boeing, which did not receive similar support from the U.S. government.

Question 11

When one applies the Heckscher-Ohlin model of trade to the issue of trade-related income redistributions, one must conclude that North South trade, such as U.S.-Mexico trade,

Accepted Answer

According to the Heckscher-Ohlin model, countries will specialize in producing goods that require abundant factors of production and will import goods that require scarce factors of production. In the case of U.S.-Mexico trade, the U.S. is abundant in skilled labor while Mexico is abundant in unskilled labor. Therefore, trade is likely to hurt low-skilled workers in the U.S. as their jobs will be outsourced to Mexico where labor is cheaper. Meanwhile, low-skilled workers in Mexico will benefit from increased job opportunities and potentially higher wages.

Question 12

In the Brander-Spencer model the subsidy raises profits by more than the subsidy because of

Accepted Answer

The Brander-Spencer model suggests that a subsidy can deter foreign competition, thereby allowing the domestic firm to increase its market share and profits. This deterrent effect can lead to a situation where the increase in profits exceeds the amount of the subsidy itself.

Question 13

Spencer and Brander's model highlights the existence of

Accepted Answer

Spencer and Brander's model emphasizes the presence of excess returns, or rents, that can be obtained in non-competitive markets.

Question 14

The United States

Accepted Answer

The United States provides support for R&D through tax legislation such as the Research and Development Tax Credit. This tax credit provides an incentive for companies to invest in R&D activities by reducing their tax liability. While the United States also provides some direct subsidies and grant incentives for R&D, tax legislation is the primary method of support. The other options (A, B, and C) are incorrect as they do not accurately reflect the ways in which the United States supports R&D.

Question 15

The reason Airbus succeeded in the Brander Spencer example is that

Accepted Answer

The subsidy given to Airbus removed the advantage that Boeing gained with their head start in production, allowing Airbus to catch up and compete effectively. The other options are not relevant or accurate in explaining why Airbus succeeded in the Brander Spencer example.

Question 16

The argument that strategic planning is not likely to be practical due to insufficient information means that

Accepted Answer

The argument that strategic planning is not likely to be practical due to insufficient information suggests that even if the government had all relevant information in a given industry, it still could not decide whether a subsidy would enhance the public's welfare. Therefore, option C is the correct choice. The other options are not mentioned in the argument or are not relevant to the argument.

Question 17

The best economic case one can make for an active industrial policy involves

Accepted Answer

The answer of The best economic case one can make...

Question 18

The Heckscher-Ohlin, factor-proportions model lends support to the argument that

Accepted Answer

The Heckscher-Ohlin model suggests that countries will export goods that utilize their abundant factors of production and import goods that utilize their scarce factors. In rich countries, capital is typically abundant and unskilled labor is scarce compared to poorer countries. Therefore, trade according to this model tends to benefit the owners of the abundant factors (e.g., capital in rich countries) and worsen the conditions for the scarce factors (e.g., unskilled labor in rich countries) due to increased competition from imports that use unskilled labor intensively.

Question 19

The invocation of beggar-thy-neighbor arguments with respect to industrial policies

Accepted Answer

Beggar-thy-neighbor arguments imply that a country's industrial policies might harm its trade partners, leading to retaliation and overall loss of welfare. Therefore, relying on subsidies and protectionism to boost domestic industry might trigger such arguments, weakening the case for subsidies.

Question 20

Spencer and Brander's model highlights the conventional assumption that

Accepted Answer

The answer of Spencer and Brander's model highlights the conventional...

Quiz 12: Controversies in Trade Policy

The Brander-Spencer model identified market failure in certain industries due to

When the WTO met in Seattle to initiate a further move towards free international trade, thousands of activists met

In effect, the U.S. does subsidize high-tech firms by subsidizing R&D. This is done through

It is argued that high-tech industries typically generate new technologies but cannot fully appropriate the commercial benefits associated with their inventions or discoveries. If this is true then in order to maximize a country's real income, the government should

The evidence usually cited to prove that globalization hurts workers in developing countries

The existence of positive externalities due to the impossibility of full appropriability

If firms in an industry are generating knowledge that other firms can use without paying for it, this industry is characterized by

Japan's protection of its semiconductor (RAM) producers is today seen as an object lesson in

Criticisms of the Brander-Spencer model include all except which of the following?

The reason Airbus succeeded in the Brander Spencer example is that

When one applies the Heckscher-Ohlin model of trade to the issue of trade-related income redistributions, one must conclude that North South trade, such as U.S.-Mexico trade,

In the Brander-Spencer model the subsidy raises profits by more than the subsidy because of

Spencer and Brander's model highlights the existence of

The United States

The reason Airbus succeeded in the Brander Spencer example is that

The argument that strategic planning is not likely to be practical due to insufficient information means that

The best economic case one can make for an active industrial policy involves

The Heckscher-Ohlin, factor-proportions model lends support to the argument that

The invocation of beggar-thy-neighbor arguments with respect to industrial policies

Spencer and Brander's model highlights the conventional assumption that