Deck 3: The Political Economy of International Trade Cooperation

Question 1

The marginal rate of substitution is a consumption indifference curve that

A) typically slopes upwards.
B) tells us how much of one good the consumer is willing to give up to acquire an additional unit of the second good.
C) reflects the assumption of increasing marginal utility.
D) each additional good provides a greater increase of utility.
E) reflects the increasing aggregate utility of a country's consumption.

Answer 1

B

Question 2

Because an autarkic country cannot consume more than it produces,the PPF also defines

A) the limits of possible exports.
B) the limits of possible imports.
C) the limits of possible trade.
D) the limits of possible investment.
E) the limits of possible consumption.

Answer 2

E

Question 3

Revealing private information about their negotiating positions

A) rewards governments for their impatience.
B) rewards governments with maximal gains and minimal concessions.
C) rewards governments with maximum concessions and minimal gains.
D) condemns government for their patience.
E) condemns governments to minimal gains and maximal concessions.

Answer 3

E

Question 4

Trade liberalization generally occurs

A) because governments often liberalize trade unilaterally.
B) because governments strive to open less competitive industries to imports.
C) because governments strive to protect less competitive industries from imports.
D) through trade bargaining in which governments exchange market access commitments.
E) because trade bargaining with other governments is unnecessary.

Question 5

The ideal trade bargaining outcome for the US/EU countries

A) combines high barriers to their agricultural imports and low barriers to their manufactured goods exports.
B) combines high barriers to their agricultural imports and high barriers to their manufactured goods exports.
C) combines low barriers to their agricultural imports and high barriers to their manufactured goods exports.
D) combines low barriers to their agricultural imports and low barriers to their manufactured goods exports.
E) combines high barriers to their services and high barriers to their manufactured goods imports.

Question 6

The enforcement problem of trade agreements refers to the fact that

A) governments can be certain that other governments will comply with the trade agreements that they conclude.
B) governments cannot be certain that other governments will comply with the trade agreements that they conclude.
C) governments can be certain that other governments will not comply with the trade agreements that they conclude.
D) governments cannot be certain that other governments will not comply with the trade agreements that they conclude.
E) governments are reluctant to enter into trade agreements that are mutually beneficial.

Question 7

Production possibility frontiers (PPF)can be represented graphically by lines that

A) are called the marginal rates of transformation.
B) are called the rates of marginal production.
C) are called the rates of frontier possibilities.
D) are called the rates of production transformation.
E) are called the marginal transformation of frontiers.

Question 8

Together the PPF and indifference curves allow us to define the equilibrium point where

A) where the marginal rate of transformation is less than the marginal rate of substitution.
B) where the marginal rate of transformation is greater than the marginal rate of substitution.
C) maximum consumption occurs in an autarkic economy.
D) maximum production occurs in an autarkic economy.
E) the point where the marginal rate of transformation is equal to the marginal rate of substitution.

Question 9

Consumption indifference curves,help us understand

A) the specific combination of products consumers will purchase.
B) the total amount of products consumers will purchase.
C) the general combination of products consumers will not purchase.
D) the general combination of products consumers will be indifferent to.
E) the specific combination of products countries will not produce.

Question 10

Negotiating the best deal possible requires

A) governments to trust each other to reveal only information they wish to reveal.
B) impatient governments to accept bad deals.
C) patient governments to accept bad deals.
D) governments to force each other to reveal information they do not wish to reveal.
E) governments to reveal everything at the beginning of negotiations.

Question 11

Equilibrium production and consumption is changed by a country's decision to

A) specialize in the production of one good in order obtain more of another good in which it has a comparative advantage.
B) specialize in the production of one good in which it has a comparative advantage in order obtain more of another good in which it has a comparative disadvantage.
C) specialize in the production of one good in which it has a comparative disadvantage in order obtain less of another good in which it has a comparative advantage.
D) not to trade with another country with which has a comparative advantage.
E) not to trade with another country with which has a comparative disadvantage.

Question 12

The concept of production possibility frontiers (PPF)means that

A) the factors of production are limited by a country's geographical frontiers.
B) any decision to use factors of production to produce one good necessarily means that these factors are not available to produce other goods.
C) any decision to use factors of production to produce one good doesn't necessarily mean that these factors are not available to produce other goods.
D) the factors of production are unlimited by a country's geographical frontiers.
E) countries are endowed with factors of production in infinite amounts.

Question 13

The ideal trade bargaining outcome for the Group of 20 countries

A) combines high barriers to their agricultural exports and high barriers to their manufactured goods imports.
B) combines low barriers to their agricultural exports and low barriers to their manufactured goods imports.
C) combines low barriers to their agricultural exports and high barriers to their manufactured goods imports.
D) combines high barriers to their agricultural exports and low barriers to their manufactured goods imports.
E) combines high barriers to their agricultural imports and low barriers to their manufactured goods exports.

Question 14

The sequence of preferred outcomes for the EU would be:

A) protect/liberalize >liberalize/liberalize >protect/protect >liberalize/protect
B) liberalize/protect >protect/protect >liberalize/liberalize > protect/liberalize
C) protect/protect >liberalize/protect >protect/liberalize >liberalize/liberalize
D) liberalize/liberalize >protect/protect >liberalize/protect >protect liberalize
E) liberalize/protect >protect/protect> protect/liberalize >liberalize/liberalize

Question 15

A country's ideal bargaining point is usually its best possible outcome of

A) liberalizing comparatively advantaged sectors and protecting comparatively disadvantaged sectors.
B) liberalizing both comparatively advantaged and disadvantaged sectors.
C) protecting both comparatively advantaged and disadvantaged sectors.
D) protecting comparatively advantaged sectors and liberalizing comparatively disadvantaged sectors.
E) minimizing all imports and maximizing all exports.

Question 16

The sequence of preferred outcomes for the Group of 20 would be:

A) protect/liberalize >liberalize/liberalize >protect/protect >liberalize/protect
B) liberalize/liberalize >protect/protect >liberalize/protect >protect liberalize
C) protect/protect >liberalize/protect >protect/liberalize >liberalize/liberalize
D) liberalize/protect >liberalize/liberalize >protect/protect >liberalize/protect
E) protect/liberalize >protect/protect > liberalize/liberalize >liberalize/protect

Question 17

If governments are equally patient

A) then no deal will ever be reached.
B) one government may gain bargaining power if it has an attractive outside option.
C) one government may lose bargaining power if it has an attractive outside option.
D) one government may gain bargaining power if it doesn't have an attractive outside option.
E) they will both lose bargaining power.

Question 18

The Hecksher-Ohlin trade model argues that

A) developed countries have the same basic factor endowments.
B) developed countries have the same comparative advantages.
C) developed countries have a lot of capital but little labor.
D) comparative advantage arises from differences in factor endowments.
E) comparative advantage arises from similarities in factor endowments.

Question 19

A set of mutually beneficial agreements that exhaust joint gains is called

A) a comparative advantage curve.
B) a Hecksher-Ohlin curve.
C) a contract curve.
D) a marginal rate of substitution curve.
E) a consumption indifference curve.

Question 20

Governments are more likely to capture a larger share of the available gains from an agreement if

A) they are the least willing to wait.
B) they are unwilling to risk a breakdown of negotiations.
C) they don't have outside options.
D) they threaten brute force.
E) they are the most willing to wait.

Question 21

Pareto optimality is when

A) no single actor can be made better off without at the same time making another actor worse off.
B) at least one actor can be made better off without at the same time making another actor worse off.
C) neither player has an incentive to change strategies unilaterally.
D) both players have the advantage to change strategies unilaterally.
E) one player has the advantage to change strategies unilaterally but the other player doesn't.

Question 22

Cooperation in trade using the prisoners dilemma model is possible when

A) iteration doesn't change the nature of the reward structure.
B) governments use reciprocity strategies to enforce Pareto suboptimal outcomes.
C) governments care about the payoffs they will receive in future rounds of bargaining.
D) governments use reciprocity strategies to enforce Nash equilibrium outcomes.
E) reciprocity strategies don't change the nature of the reward structure.

Question 23

The prisoners' dilemma model suggests that even when all countries would clearly benefit from trade protectionism,political dynamics trap governments in a liberalized world.

Question 24

Model trade bargaining using basic spatial theory using Doha Round problems as your example.

Question 25

Explain the difference between constant marginal returns versus diminishing marginal returns for trade.

Question 26

How can trade between the United States and China affect the equilibrium of production and consumption in both countries caused by each country specializing in different goods?

Question 27

Pareto optimality determines which distribution of gains governments ultimately select.

Question 28

Explain the Hecksher-Ohlin model of trade and the role of factor endowments.Give specific sector examples.

Question 29

Indifference curves typically slope upwards.

Question 30

Why do governments have strong incentives not to liberalize trade even when it can be demonstrated that they are worse off than they could be when they won't?

Question 31

The prisoners' dilemma exercise suggests that

A) even when all countries would benefit from trade liberalization, political dynamics trap governments in a protectionist world.
B) even when all countries would benefit from protectionism, political dynamics trap governments in a liberalization world.
C) even when no countries would benefit from trade liberalization, political dynamics trap governments in a protectionist world.
D) even when no countries would benefit from protectionism, political dynamics trap governments in a liberalization world.
E) trade liberalization and protectionism benefit all countries equally.

Question 32

Because some governments want to take advantage of others,and all governments want to avoid being exploited in this fashion,no government is willing to liberalize trade unilaterally.

Question 33

Production and consumption will occur where the production possibility frontier and the indifference curve are parallel.

Question 34

Both developed and developing countries can realize higher utility by engaging in unilateral liberalization.

Question 35

The United States has a comparative advantage in aircraft and not in textiles because the United States is abundantly endowed with advanced technology and capital and poorly endowed with low-skill labor.

Question 36

Trade cooperation is not always easily achieved,even when everybody recognizes that they all could gain from cooperation.

Question 37

Gains from trade are not dependent upon having an absolute cost advantage in a particular industry.

Question 38

Nash equilibrium is when

A) no single actor can be made better off without at the same time making another actor worse off.
B) at least one actor can be made better off without at the same time making another actor worse off.
C) neither player has an incentive to change strategies unilaterally.
D) both players have the advantage to change strategies unilaterally.
E) one player has the advantage to change strategies unilaterally but the other player doesn't.

Question 39

WTO rules

A) decrease transparency.
B) cannot help iteration change the nature of the reward structure.
C) cannot help countries when their partners are cheating.
D) tries to encourage governments involved in a dispute to try to resolve the conflict through direct consultations.
E) tries to encourage governments involved in a dispute to try to achieve Nash equilibrium outcomes.

Question 40

In tit for tat reciprocity strategies,each government plays the strategy that its partner played in the previous round of bargaining.

Question 41

Explain the difference between Pareto optimal and suboptimal outcomes in trade bargaining using the prisons' dilemma game.

Question 42

Explain the principle of comparative advantage in international trade.

Question 43

Explain the role of enforcement problems in trade agreements.How does the WTO contribute to the alleviation of these problems?

Question 44

Explain the role patience has played in trade bargaining during the Doha Rounds between US/EU and the G20 governments.

Question 45

What is a Nash equilibrium outcome? Give specific examples using Doha Round trade negotiations.