Deck 10: The Political Economy of Trade Policy

Question 1

A game- theory explanation of the paradox that even though all countries would benefit if each chose free trade,in fact each tends to follow protectionist policies is

A)collective action.
B)prisoner's dilemma.
C)benefit- cost analysis.
D)rent seeking.
E)trade war.

Answer 1

B

Question 2

Judging by the ongoing changes in tariff rates in major trading countries,the world has been experiencing a great

A)lack of progress in the trade- policy area.
B)surge of protectionism.
C)move towards regional integration.
D)trade liberalization.
E)shift from export subsidies to specific tariffs.

Answer 2

D

Question 3

The average tariff rate dutiable imports in the United States is approximately

A)less than 10 % of the value of imports.
B)15% of the value of imports.
C)more than 30% of the value of imports.
D)25% of the value of imports.
E)20 % of the value of imports.

Answer 3

A

Question 4

When the U.S.placed tariffs on French wine,France placed high tariffs on U.S.chickens.This is an example of

A)deadweight losses.
B)a trade war.
C)multilateral negotiations.
D)bilateral trade negotiations.
E)international market failures.

Question 5

Today U.S.protectionism is concentrated in

A)labor- intensive industries.
B)high- tech industries.
C)industries in which Japan has a comparative advantage.
D)capital- intensive industries.
E)computer intensive industries.

Question 6

The General Agreement on Tariffs and Trade and the World Trade Organization have resulted in

A)the reciprocal trade clause.
B)the total protection of all intellectual property rights.
C)the establishment of universal trade adjustment assistance policies.
D)the establishment of the European Union.
E)reductions in trade barriers via multilateral negotiations.

Question 7

The opportunity to exploit economies of scale is one of the gains to be derived by removing tariffs and other trade distortions.These gains will be the result of a decrease in

A)international labor mobility.
B)world prices of imports.
C)the production distortion loss triangle.
D)excessive entry and inefficient business practices.
E)the consumption distortion loss triangle.

Question 8

The strongest political pressure for a trade policy that results in higher protectionism comes from

A)domestic workers lobbying for import restrictions.
B)domestic consumers lobbying for export restrictions.
C)domestic workers lobbying for export restrictions.
D)domestic consumers lobbying for import restrictions.
E)domestic workers lobbying for free trade.

Question 9

The difficulty of ascertaining the right second- best trade policy to follow

A)reinforces support for abandoning trade policy as an option.
B)reinforces support for increasing research capabilities of government agencies.
C)reinforces support for free- trade options.
D)reinforces support for the third- best policy approach.
E)reinforces support for the domestic market failure argument.

Question 10

The efficiency case made for free trade is that as trade distortions such as tariffs are dismantled and removed

A)deadweight losses for producers and consumers will decrease,hence increasing national economic welfare.
B)government tariff revenue will decrease,and therefore national economic welfare will decrease.
C)government tariff revenue will increase,hence increasing national economic welfare.
D)deadweight losses for producers and consumers will decrease,hence decreasing national economic welfare.
E)government tariff revenue will decrease,and therefore national economic welfare will increase.

Question 11

The political wisdom of choosing a tariff acceptable to the median U.S.voter is

A)usually evident in actual tariff determination.
B)a good example of the way in which actual tariff policies are determined.
C)a good example of the principle of the second best.
D)not evident in actual tariff determination.
E)a good example of the principle of political negotiation.

Question 12

The prohibitive tariff is a tariff that

A)is so high that it causes undue harm to import competing sectors.
B)is so low that the government prohibits its use since it would lose an important revenue source.
C)is so low that it causes domestic producers to leave the industry.
D)is so high that it causes undue harm to trade- partner economies.
E)is so high that it eliminates imports.

Question 13

The optimum tariff is

A)the tariff,which maximizes the difference between terms of trade gains and terms of trade loses.
B)the best tariff a country can obtain via a WTO negotiated round of compromises.
C)not practical for a large country due to the likelihood of retaliation.
D)not practical for a small country due to the likelihood of retaliation.
E)the tariff,which maximizes the terms of trade gains.

Question 14

The domestic market failure argument is a particular case of the theory of

A)the optimum,or first- best.
B)the third best.
C)the second best.
D)the sufficing principle.
E)the efficiency case for free trade.

Question 15

The fact that trade policy often imposes harm on large numbers of people,and benefits only a few may be explained by

A)the basic impossibility of the democratic system to reach a fair solution.
B)the power of advertisement.
C)the lack of political involvement of the public.
D)the problem of collective action.
E)a cycle of political corruption.

Question 16

The optimum tariff is most likely to apply to

A)an ad valorem tariff on a small country.
B)a large tariff imposed by a large country.
C)a small tariff imposed by a small country.
D)a small tariff imposed by a large country.
E)a large tariff imposed by a small country.

Question 17

Protectionism tends to be concentrated in two sectors

A)capital and skill intensive industries.
B)high- tech and national security sensitive industries.
C)financial services and manufacturing based in the Midwest.
D)industries concentrated in the South and in the Midwest of the country.
E)agriculture and clothing.

Question 18

Export embargoes cause greater losses to consumer surplus in the target country

A)the more inelastic is the target country's supply.
B)the lesser its initial dependence on foreign produced goods.
C)the more elastic is the target country's domestic supply.
D)the more elastic is the target country's demand schedule.
E)the larger the target country's labor force is.

Question 19

The existence of marginal social benefits which are NOT marginal benefits for the industry producing the import substitutes

A)is an argument supporting the use of market failures as a trade- policy strategy.
B)is an argument rejecting the domestic market failure concept.
C)is an argument rejecting free trade and supporting governmental involvement.
D)is an argument supporting the use of an optimum tariff.
E)is an argument supporting free trade and non- governmental involvement.

Question 20

An issue never confronted effectively by GATT,but considered an important issue for WTO is that of

A)the promotion of freer World services trade.
B)the promotion of freer World trade.
C)the liberalization of trade.
D)the lowering of tariff rates.
E)the promotion of freer World commodity trade.

Question 21

One of the major issues that arose during the Doha round of negotiations involved complaints by about .

A)Eastern European countries; European Union tariffs
B)South and Central American countries; domestic content requirements
C)developing countries; agricultural subsidies.
D)manufacturers; intellectual property
E)industrialized countries; enforcement of contracts

Question 22

Which organization determines procedures for the settlement of international trade disputes?

A)International Monetary Organization
B)International Bank for Reconstruction and Development
C)The League of Nations
D)World Trade Organization
E)World Bank

Question 23

The World Trade Organization provides for all of the following EXCEPT

A)the prevention of nontariff interventions in trade.
B)bilateral tariff reductions.
C)the usage of the most favored nation clause.
D)assistance in the settlement of trade disagreements.
E)multilateral tariff reductions.

Question 24

The Smoot- Hawley Tariff Act of 1930 has generally been associated with

A)recovery from the worldwide depression.
B)falling tariffs.
C)free trade.
D)intensifying the worldwide depression.
E)non- tariff barriers.

Question 25

The WTO's intervention against clean air standards

A)has earned it universal approval.
B)has resulted in much criticism among professional economists.
C)was done in order to limit national sovereignty.
D)has resulted in much criticism.
E)was championed in developing countries.

Question 26

For most developing countries

A)saving and investment levels are high.
B)agricultural goods and raw materials constitute a high proportion of domestic output.
C)productivity is high among domestic workers.
D)population growth and illiteracy rates are low.
E)pollution emissions are relatively low.

Question 27

The world trading system combines negotiated agreements that promote trade liberalization called with binding agreements called that block tariff increases.

A)wheels; walls
B)free trade; enforcement contracts
C)truces; aggressions
D)fiscal policies; monetary policies
E)levers; ratchets

Question 28

The World Trade Organization (WTO)was organized as a successor to the

A)UN.
B)the World Bank.
C)IMF.
D)UNCTAD.
E)GATT.

Question 29

The WTO was established by the _ _ of multilateral trade negotiations.

A)Uruguay Round
B)Dillon Round
C)NAFTA Round
D)Tokyo Round
E)Kennedy Round