Deck 7: Latin American Trade Policy

Question 1

A country will have a ________ in goods whose production uses its relatively ______ factor of production.

A) comparative advantage, scare
B) comparative advantage, abundant
C) absolute advantage, scare
D) absolute advantage, abundant
E) comparative disadvantage, abundant

Answer 1

B

Question 2

If a nation X can produce both machines and commodities more efficiently than nation Y, then nation X is said to have a(n) ______ over nation Y.

A) comparative advantage
B) comparative disadvantage
C) opportunity cost
D) absolute advantage
E) absolute disadvantage

Answer 2

D

Question 3

By importing something which is cheaper internationally than domestically, consumer welfare ____, and producer welfare ____.

A) increases, decreases
B) increases, increases
C) decreases, increases
D) decreases, decreases
E) both are unaffected

Answer 3

A

Question 4

Trade _____ the price of the abundant factor of production, and _____ the scarce factor of production.

A) increases, increases
B) increases, decreases
C) decreases, decreases
D) decreases, increases
E) has no effect on either

Question 5

In a labor-abundant country, trade would tend to:

A) increase the price of capital.
B) increase the price of labor.
C) decrease the price of labor.
D) increase income inequality.
E) none of the above

Question 6

Latin America's abundant factor of production is:

A) labor
B) capital
C) human capital
D) technology
E) IQ

Question 7

If a worker in Chile earns 100 pesos per day producing four widgets and a worker in Bolivia earns 50 pesos per day producing 2 widgets, then:

A) unit labor costs are the same in both countries.
B) unit labor costs are lower in Chile.
C) unit labor costs are lower in Bolivia.
D) one cannot determine unit labor costs.
E) widgets should be produced in Venezuela.

Question 8

As of 2013, Latin America has a capital-to-labor ratio akin to what income category of nation?

A) low income
B) middle income
C) high income
D) developed
E) impoverished

Question 9

If Brazil is a labor abundant country, then international trade would tend to:

A) make Brazil poorer.
B) increase the welfare of the owners of capital in Brazil.
C) decrease the welfare of labor in Brazil.
D) all of the above
E) none of the above

Question 10

The effects of trade on the distribution of income are known as what?

A) Heckscher-Ohlin model
B) effective rate of protection
C) factor-price equalization
D) Stopler-Samuelson theorem
E) opportunity cost

Question 11

Latin American economies tend to be labor _____, and capital _____.

A) abundant, abundant
B) scarce, scarce
C) abundant, scare
D) scare, abundant
E) intensive, intensive

Question 12

The Golden Age of Latin American economic history covered the period from:

A) 1494 to 1650.
B) 1650 to 1820.
C) 1820 to 1850.
D) 1870 to 1914.
E) 1946 to 1973.

Question 13

During the early part of the 20^th century, Latin America redirected its trade relations away from the _____ and towards the _____.

A) U.S.; Germany
B) Asia; U.S.
C) U.S.; Asia
D) U.K.; U.S.
E) U.K.; Japan

Question 14

What does the Heckscher-Ohlin model attempt to explain?

A) comparative advantage based on endowment of the factors of production
B) the benefits of trade due to comparative advantage
C) the long-term effects of mercantilism
D) the effect of tariffs on international trade
E) the benefits of RTAs

Question 15

Which of the following is the term used to describe the negative effects on countries that are not part of a trade agreement?

A) trade creation
B) trade diversion
C) trade marginalization
D) ex ante trade
E) ex post trade

Question 16

Freer trade in Latin America was hindered by the countries of the region being late to join the:

A) IMF.
B) WTO.
C) the World Bank.
D) the Interamerican Development Bank
E) none of the above

Question 17

Which of the following is a customs union in South America?

A) GATT
B) WTO
C) NAFTA
D) DR-CAFTA
E) MERCOSUR

Question 18

MERCOSUR is a:

A) preferential trade agreement.
B) a FTA.
C) a customs union.
D) a common market.
E) an economic union.

Question 19

Which country is not a member of MERCOSUR?

A) Brazil
B) Mexico
C) Uruguay
D) Paraguay
E) Argentina

Question 20

An efficiency loss that results from a RTA because less efficient member countries displace more efficient nonmember countries is known as:

A) trade creation
B) trade diversion
C) opportunity cost
D) effective rate of protection
E) factor-price equalization

Question 21

Prior to 1930, tariffs in Latin America were mainly:

A) ad valorem.
B) unified.
C) revenue.
D) infrequent.
E) low

Question 22

A tariff that is measured as a percentage of the value of the imported good is known as:

A) ad valorem tariff
B) ad valorem equivalent
C) protective tariff
D) revenue tariff
E) specific tariff

Question 23

The one upside of tariffs is that they:

A) increase consumer surplus
B) raise revenue for the government
C) make goods cheaper domestically
D) make goods cheaper internationally
E) encourage increased trade

Question 24

A _____ tariff is a single tariff for all imports.

A) revenue
B) specific
C) protective
D) ad valorem
E) uniform

Question 25

A quota is worse than a tariff because:

A) imports are lower.
B) producer surplus does not increase.
C) of a loss of government revenue.
D) all of the above
E) none of the above

Question 26

The phrase that expresses the idea that countries have different tariffs on different products is known as:

A) collateral protection.
B) the structure of protection.
C) price discrimination.
D) tariff equivalence.
E) none of the above

Question 27

The effective rate of protection is related to:

A) the tariff on the final product.
B) the tariff on components.
C) the percentage of the final product that is imported components.
D) all of the above
E) none of the above

Question 28

If the tariff on components is lower than the tariff on the final product then:

A) the nominal tariff is zero.
B) the final product receives low protection.
C) consumers will clearly benefit.
D) the effective rate of protection on the final product is higher than it looks.
E) all of the above

Question 29

Which of the following was related to the reluctance of the countries of Latin America to join the GATT/WTO?

A) specific tariffs
B) ad valorem tariffs
C) RTAs
D) quotas
E) none of the above

Question 30

Which country in Latin America has signed the most FTAs?

A) Mexico
B) Chile
C) Panama
D) Colombia
E) Paraguay

Question 31

In which decade did countries in the region begin to join GATT/WTO?

A) 1950s
B) 1960s
C) 1970s
D) 1980s
E) 1990s

Question 32

The countries of Latin America were slow to join:

A) the IMF.
B) the World Bank.
C) the United Nations.
D) the OAS.
E) GATT.

Question 33

How do the terms of trade affect Latin America considering that the majority of exports are commodities?

Question 34

Suppose that Latin America is labor abundant, and the rest world is capital abundant. There are two goods, commodities and machines that are labor intensive and capital intensive, respectively. Explain the pattern of trade between Latin America and the rest of the world. How would this affect the welfare of labor in Latin America?

Question 35

Explain why ISI was doomed to fail. Be sure to include the notions of comparative advantage and factors of production.

Question 36

Describe the factor-proportions model of international trade. Relate this to the development of industry in Latin America under ISI.

Question 37

Using the basic Hecksher-Ohlin model of trade, explain why Latin America would have a comparative disadvantage in capital-intensive products.

Question 38

Draw a graph showing the effects of both a tariff and a quota. Who benefits from these policies? Who suffers?

Question 39

Describe how trade based on comparative advantage could make the distribution of income in Latin America less unequal.

Question 40

The HO model predicts that Latin America would be a major exporter of labor-intensive products. Why hasn't this happened? How has this affected the distribution of income in the region?

Question 41

What is a K/L ratio? Why is it important for Latin America?

Question 42

How would trade based on comparative advantage tend to reduce income inequality in Latin America? How would import substitution policies tend to worsen it?

Question 43

Show how tariffs and quotas would tend to lead to losses in welfare for any society and tend to misallocate resources. What effect did these barriers tend to have on economic growth in Latin America?

Question 44

Suppose that Latin America's trade with the rest of the world was free of trade barriers and the labor markets of the region were flexible. Describe what would happen to the price of labor and the distribution of income.