Deck 7: Import Tariffs and Quotas Under Perfect Competition

Question 1

The term offshoring means:

A)purchasing component parts or services from foreign entities.
B)operating offshore oil rigs that are in international waters.
C)banking activities in Caribbean nations.
D)operating a plant or other production facility in another nation.

Answer 1

D

Question 2

"Slicing up the value chain" refers to the:

A)division of production between offshored foreign operations using unskilled labor and domestic
Operations using skilled labor.
B)division of production between component production and assembly operations.
C)division of labor between domestic unskilled and skilled labor.
D)division of the marketing and sales and R&D functions.

Answer 2

A

Question 3

The offshoring decision revolves around:

A)the level of domestic opposition to the idea of offshoring.
B)the level of technology at home and abroad.
C)a comparison of the values added, the marginal costs, and the trade costs of a firm's activities at home
Versus abroad.
D)labor costs abroad versus in the home market.

Answer 3

C

Question 4

Reductions in trade costs will tend to:

A)discourage offshoring.
B)discourage foreign production.
C)encourage offshoring.
D)have no immediate effect on offshoring decisions.

Question 5

A major factor in the ability of firms to purchase
Services or components from other nations is:

A)the wider use of English as an international language.
B)lowered transportation and communications costs.
C)the agreement by the WTO to allow firms to trade in intermediate goods.
D)better health and safety standards abroad.

Question 6

What is the difference between final goods and
Intermediate goods?

A)Final goods require further processing before consumption.
B)Intermediate goods are sold directly to the consumer.
C)Intermediate goods are inputs for other goods.
D)Final goods require further processing before consumption, while intermediate goods are inputs for
Other goods.

Question 7

Which of the following is an example of offshoring?

A)Intel undertakes direct foreign investment in China to produce computer chips.
B)Ford establishes a factory in Germany to produce automobiles for the European market.
C)General Motors moves assembly operations for Chevrolets to its plant in Mexico.
D)Nike contracts with an Indonesian factory to produce tennis shoes for the U.S.market.

Question 8

The main reason why firms consider offshoring is to:

A)decrease their labor costs.
B)decrease their transportation costs.
C)decrease their construction costs.
D)decrease their "trade costs."

Question 9

Which of the following is a "trade cost" that firms need
To consider when making offshoring decisions?

A)higher prices of utilities (electricity, fuel) in other countries
B)higher costs of construction of a plant in other countries
C)higher costs associated with poor communication and transportation
D)None of these is a "trade cost."

Question 10

Offshoring assumes that a firm will use relatively lower­
Cost foreign labor.However, there are other
Considerations involved, such as:
I)higher taxes and higher costs of construction,
Electricity, and fuel.
II)higher capital costs.
III)higher transportation costs.

A)I
B)II
C)III
D)I, II, and III

Question 11

To predict which activities a U.S.firm will find profitable
To offshored, we must assume that it can use relatively
Lower­cost labor in a foreign nation.This is usually
_____ labor.

A)skilled
B)unskilled
C)economical
D)offshored

Question 12

"Offshoring" is different from "outsourcing" because:

A)the former is FDI that establishes a subsidiary in a foreign country.
B)the latter is FDI that establishes a subsidiary in a foreign country.
C)the former involves hiring firms to produce a product without investing in the foreign country.
D)the latter is sanctioned by the government.

Question 13

Intel produces microchips in China and Costa Rica,
Using subsidiaries that it owns.Mattel, in contrast,
Arranges for the production of the Barbie doll in several
Different countries.Which of the following statements
About the two companies is CORRECT?

A)Intel is involved in offshoring, whereas Mattel is involved in offshoring.
B)Intel and Mattel are both involved in outsourcing.
C)Intel and Mattel are both involved in offshoring.
D)Both companies use FDI.

Question 14

Which of the following is the CORRECT ranking of the
Value chain by level of skill of the labor force (lowest to
Highest skill levels)?

A)component production, assembly, marketing and sales, R&D
B)assembly, component production, marketing and sales, R&D
C)assembly, marketing and sales, component production, R&D
D)component production, marketing and sales, assembly, R&D

Question 15

Among the activities in the value chain, assembly
Requires _________ labor and R&D requires
__________ labor.

A)skilled; unskilled
B)unskilled; skilled
C)skilled; skilled
D)unskilled; unskilled

Question 16

"Slicing the value chain" refers to:

A)the practice of offshoring all activities with labor union representation at home.
B)the transfer of activities that are more profitable when carried out in foreign nations.
C)substituting capital for labor wherever possible.
D)the transfer of activities that are less profitable when carried out in foreign nations.

Question 17

To analyze offshoring by firms, economists line up
Activities that a firm must undertake to produce a
Product in the rank order of the ratio of:

A)low­cost to high­cost activities.
B)high­skill labor to low­skill labor required for the activity.
C)variable cost to fixed cost.
D)manufacturing versus service activities.

Question 18

Which of the following activities in the value chain is
LEAST likely to be offshored?

A)assembly
B)component production
C)R&D
D)sales

Question 19

Which of the following activities in the value chain is
MOST likely to be offshored?

A)R&D
B)sales
C)component production
D)assembly

Question 20

What is the MOST important labor market situation at
Home and abroad that affects a firm's decision to
Offshore?

A)the relative equilibrium wages of skilled versus unskilled workers at home and abroad
B)the relative educational attainment of workers at home and abroad
C)the absolute wages of workers at home and abroad
D)the ability of workers abroad to speak English

Question 21

When does it become more desirable to shift more
Activities in the value chain abroad?

A)when the wage of unskilled workers increases abroad
B)when trade costs decline
C)when the wage of skilled workers decreases at home
D)when the price of the final output rises

Question 22

Which of the following groups of Ford Motor Company
Employees will be MOST adversely affected by Ford's
Offshoring of part of its operations to Mexico?

A)Ford engineers and scientists
B)Ford accountants
C)Ford managers
D)Ford assembly line workers

Question 23

When two countries open up for offshoring, in which
Country does skilled labor tend to gain relative to
Unskilled labor?

A)the skilled­labor­abundant country
B)the unskilled­labor­abundant country
C)neither country
D)both countries

Question 24

After NAFTA went into effect, what was expected to
Happen to wages of unskilled labor relative to wages of
Skilled labor in Mexico and in the United States as U.S.
Offshoring occurred?

A)Both would rise.
B)Both would fall.
C)Wages of Mexican unskilled labor would rise, and wages of U.S.unskilled labor would fall.
D)Wages of Mexican unskilled labor would fall, and wages of U.S.unskilled labor would rise.

Question 25

Which of the following BEST describes the pattern of
Real U.S.production wages over the past 50 years?

A)continuous decline
B)constant over time
C)continuous rise
D)None of these describe the pattern.

Question 26

How will an increase in offshoring affect the demand for
Skilled labor and wages of skilled labor in the home
Country?

A)The demand for skilled labor will increase, but the wages of skilled labor will decrease.
B)The demand for skilled labor and the wages of skilled labor will both decrease.
C)The demand for skilled labor will decrease, but the wages of skilled labor will increase.
D)The demand for skilled labor and the wages of skilled labor will both increase.

Question 27

From 1982 to 2000, the relative wage of non­
Production to production workers in U.S.manufacturing
And their share of total employment in U.S.
Manufacturing increased.One logical explanation would
Be:

A)that their wages fell in real terms.
B)that there was a decrease in demand for skilled workers.
C)that due to productivity or demand for products, there was a relative increase in demand for skilled
Workers.
D)that minimum wage increases caused the demand for workers to shift toward the skilled.

Question 28

What happened to wages of U.S.nonproduction
Workers relative to U.S.production workers from 1986
To 2000?

A)They rose.
B)They fell.
C)They did not change.
D)They fell in the export sector.

Question 29

Offshoring moves:

A)activities with the greatest skill intensity.
B)activities with moderate skill intensity.
C)activities with low skill intensity.
D)all activities.

Question 30

When work done by skilled workers is offshored, what
Will happen to wages of skilled workers abroad when
Offshoring occurs?

A)They will rise.
B)They will fall.
C)They will not change.
D)They will fall in the export sector.

Question 31

The offshoring of unskilled work from home country to
A foreign country will cause:

A)an increase in the wages for unskilled workers in the home country.
B)a decrease in the wages for skilled workers in the home country.
C)an increase in the wages for skilled workers in the home country.
D)a decrease in the wages for skilled workers in the foreign country.

Question 32

Figure: A Firm's Production With and Without
Offshoring II
(Figure: A Firm's Production With and Without Offshoring
II) If the relative price of components is cheaper in a
Foreign country than the home country, then:

A)it is likely that the home country will offshore the R&D to the foreign country.
B)it is likely that the foreign country will offshore the components to the home country.
C)it is likely that the home country will offshore components to the foreign country.
D)no meaningful exchange is possible between the home and foreign country.

Question 33

As offshoring activities increase, the demand for
Relatively skilled workers in the home nation:

A)will increase because the new demand is for relatively higher­skilled workers than previously
Offshored activities.
B)will decrease because the new demand is for lower­ skilled workers.
C)will neither increase nor decrease.
D)will raise wages to the point that offshoring no longer becomes a possibility.

Question 34

Wage changes among skilled and unskilled workers in
Mexico due to offshoring are different, depending on
Whether it is the ________ or _________.

A)maquiladora sector; nonmaquiladora sector
B)younger workers; older workers
C)male workers; female workers
D)nonunion workforces; unionized workforces

Question 35

What will happen to wages of skilled workers
Domestically when offshoring occurs?

A)They will rise.
B)They will fall.
C)They will not change.
D)They will fall in the export sector.

Question 36

After NAFTA went into effect, movements in the wages
Of Mexican skilled versus nonskilled workers:

A)were widely different from the U.S.pattern during the same period.
B)were exactly the same as the U.S.pattern during the same period.
C)matched the U.S.pattern until the start of NAFTA.
D)matched the Chinese experience.

Question 37

What accounts for increases in both the relative wage
And the relative employment of U.S.nonproduction
Workers during the 1980s?

A)The relative demand for nonproduction workers fell.
B)The relative supply of nonproduction workers rose.
C)The relative demand for nonproduction workers rose.
D)The relative supply of nonproduction workers fell.

Question 38

What may have caused the relative demand for U.S.
Nonproduction workers to increase during the 1980s?

A)declines in the rate of U.S.technological change
B)skilled­biased technological change
C)increased production of import­competing goods
D)declines in the rate of U.S.technological change and skilled­biased technological change

Question 39

When countries open up for offshoring, which country
Will tend to specialize in research and development?

A)the skilled­labor­abundant country
B)the unskilled­labor­abundant country
C)neither country
D)both countries

Question 40

A case study of wages in the United States from 1983
To 2006 shows:

A)a decrease in white­collar wages due to offshoring.
B)a relative increase in skilled worker wages (nonproduction) compared with less­skilled wages
(production).
C)a decrease in employment of skilled workers.
D)a relative decrease in skilled worker wages (nonproduction) compared with less­skilled wages
(production).

Question 41

If the United States offshores high­skilled jobs:

A)it will always result in a net loss for the United States.
B)it will increase the wages for high­skilled workers in the United States.
C)it will result in gains for the United States, even though there will be job losses.
D)it will result in losses in the foreign country.

Question 42

The United States has seen an increase in offshoring of
Service jobs because:

A)it is what consumers wanted.
B)it was possible to cut costs by importing these activities.
C)it was mandated as part of a trade agreement.
D)other countries wanted to import small­scale manufactured goods from the United States.

Question 43

An isoquant describes:

A)combinations of two goods that a country can produce if it fully and efficiently uses its resources.
B)combinations of goods that yield the same satisfaction to consumers.
C)combinations of inputs that produce a constant level of output.
D)combinations of value­chain activities needed to produce output.

Question 44

The U.S.terms of trade for merchandise goods
_________ from 1994 to 2008.

A)worsened
B)improved
C)did not change
D)first improved, then worsened

Question 45

Figure: A Firm's Production With and Without
Offshoring II
(Figure: A Firm's Production With and Without Offshoring
II) If the world price of components falls, it is likely that:

A)the home country will import more R&D from the foreign country.
B)the foreign country will get more R&D for its components.
C)the home country will produce more R&D and trade it for components.
D)there will be no impact on the home country.

Question 46

A country's terms of trade is:

A)its bargaining power in international agreements.
B)the price of its exports relative to its imports.
C)the price of its imports relative to its exports.
D)the price of a good in autarky compared with the same good under free trade.

Question 47

Samuelson's example is an analysis of a fall in export
Prices, which _______________ the terms of trade,
And _______________ export volume.Samuelson's
Point is that a country is _______________ in the
Absence of trade.

A)improves; reduces; better off
B)worsens; reduces; better off
C)worsens; reduces; worse off
D)improves; reduces; worse off

Question 48

With the importation (offshoring) of components and
Exportation of R&D, what happens to total production in
The economy?

A)It declines.
B)It becomes more expensive due to higher wages.
C)It increases, and-because it uses the same amounts of labor-production is more efficient.
D)Productivity and efficiency decline.

Question 49

The economist Paul Samuelson analyzed a scenario in
Which R&D production suffers from foreign competition,
Thus lowering its price.Samuelson notes that foreign
Competition in R&D will generally ____ the terms of
Trade and national welfare if the nation exports R&D.

A)raise
B)lower
C)help
D)not affect

Question 50

Offshoring of radiology services to countries such as
India, Australia, and Israel is:

A)a major crisis to skilled technicians in the United States.
B)going to cause the wages of American radiologists to plummet.
C)not going to impact the market for radiologists, because the skill is learned from years of experience.
D)proof that trade will always harm the United States.

Question 51

Combining offshoring of services and material inputs
May explain as much as ____ of the ________ in U.S.
Productivity from 1992 to 2000.

A)10%; increase
B)20%; increase
C)10%; decrease
D)50%; decrease

Question 52

As the home nation increases production of R&D by
Devoting more skilled resources, its productivity rises
And its relative price rises.This situation creates:

A)lower gains from offshoring.
B)greater gains from offshoring.
C)no measurable gains from offshoring.
D)equal gains from offshoring.

Question 53

Service activities that lend themselves well to
Offshoring are ones:

A)for which very specific guidelines, rules, and procedures may be written.
B)where the worker has to make a critical judgment and this avoids lawsuits in the United States.
C)that do not require the worker to know any English.
D)that can be performed during the nighttime hours.

Question 54

Service offshoring in the United States from 1992 to
2000 is estimated to have had a _______________
Effect on U.S.productivity and accounted for
_______________ of the total increase in productivity.

A)positive; 11% to 13%
B)negative; -10% to -20%
C)positive; 1%
D)positive; less than 5% to 6%

Question 55

Figure: A Firm's Production With and Without
Offshoring II
(Figure: A Firm's Production With and Without Offshoring
II) If the home country offshores components to a foreign
Country and then exports R&D to the foreign country and
Imports components from the foreign country, then:

A)the exchange is not a beneficial one for the home country.
B)the exchange results in an increase in output at lower prices.
C)consumers benefit due to this offshoring.
D)the exchange results in an increase in output at lower prices and the consumers benefit due to this offshoring.

Question 56

A country will find offshoring attractive when:

A)the international relative price of components is greater than the home price of components.
B)the international relative price of components is less than the home price of components.
C)the home relative price of components falls.
D)the international relative price of research and development falls.

Question 57

High­skill U.S.medical workers worry over losing their
Jobs to foreign competition.Although some of these
Activities can be offshored, the text makes which point
About medical offshoring?

A)Foreign medical workers do not have the same training.
B)The scope for offshoring is limited because many patient­care activities must be done on­site.
C)The medical profession would never allow foreign medical workers to read X­rays or process lab work.
D)The text makes all these points.

Question 58

Economists note that one explanation of the seeming
Paradox of offshoring high­skill jobs could be that an
Offshoring model assumption has been violated.Which
Of the following assumptions has been violated?

A)Capital is spread evenly and is available to all offshored activities.
B)Workers can speak decent English.
C)Communications and data transmission costs are low.
D)Workers in other nations abide by the same standards in the workplace.

Question 59

Which of the following statements does NOT apply to
"nighthawk" firms?

A)They allow for more stable employment of specialized workers in the home country.
B)They do tasks for other firms while they are closed.
C)In most cases, they compete for daytime jobs in the home country.
D)None of these applies to "nighthawk" firms.

Question 60

Figure: A Firm's Production With and Without
Offshoring II
(Figure: A Firm's Production With and Without Offshoring
II) If the price of R&D decreases, then it is likely that the
Home country:

A)could see a decline in the amount of output produced.
B)will see a loss in comparative advantage in R&D.
C)could see a decline in the amount of output produced and a loss in comparative advantage in R&D.
D)could see an increase in the amount of output produced.

Question 61

What did a study, cited in the text, of the increase in
relative wages and employment levels of skilled U.S.
worker find?

Question 62

Why is the United States more likely to offshore skilled
Service activities rather than unskilled manufacturing
Activities to India?

A)Indian trade costs for manufacturing and service activities are uniformly high.
B)Relative wages of less­skilled workers are lower in India than in the United States.
C)Indian trade costs associated with service activities are higher than those associated with manufacturing
Activities.
D)Indian trade costs associated with service activities are lower than those associated with manufacturing
Activities.

Question 63

India has a comparative advantage in service export for
All the following reasons EXCEPT:

A)India has a large number people who are educated and conversant in English.
B)India is 12 hours ahead of Eastern Standard Time, which makes it easier to offshore some jobs.
C)Service sector jobs do not require massive infrastructure investment.
D)Indians are closer to Americans for historical reasons, and hence the two countries like to trade with
Each other.

Question 64

What is the difference between "offshoring" and
"outsourcing? Provide an example of each.

Question 65

Describe the value chain of activities involved in
production.

Question 66

What are the two ways in which offshoring can affect
the terms of trade in the offshoring country?

Question 67

What parts of the value chain are likely to be
offshored?

Question 68

What are the costs of capital and trade firms must
consider in making offshoring decisions?

Question 69

Some service activities can be more successfully
Offshored than manufacturing because:

A)the governments of those nations usually "look the other way" in these areas.
B)there are no language barriers.
C)services often do not require physical transportation, and communications costs have fallen
Dramatically.
D)the United States is not prohibited from offshoring service work.

Question 70

What happens to the relative demands for and wages
of high­skilled labor in both the home country and the
outsourced (foreign) country when offshoring occurs?

Question 71

If relative wages for unskilled workers are lower in a
Foreign country, we would expect:

A)the home country to offshore tasks that require skilled workers.
B)the foreign country to offshore tasks that require unskilled workers.
C)the home country to offshore tasks that require unskilled workers.
D)trade to be harmful for the home country.

Question 72

What is the root of the apparent contradiction in Paul
Samuelson's statements regarding the benefits of trade
and the results of the theories discussed in the book?

Question 73

Table: Labor Requirements (Table: Labor Requirements) The table gives U.S.and Indian labor
Requirements (hours per unit of output) needed in each of four
Activities to produce the final product.Suppose that trade costs
Represent 25% of wage costs in India.Now where is the value
Chain sliced? Which operations will the United States offshore to
India?

A)assembly operations only
B)assembly operations and component production
C)assembly operations, component production, and office services
D)assembly operations, component production, office services, and R&D

Question 74

Do changes of relative wages in the United States
follow predictions of the offshoring model?

Question 75

Although offshoring of relatively unskilled
Manufacturing component work to other nations would
Seem to be profitable by the offshoring model:

A)it takes lots of negotiation with the governments of those nations before they will allow it.
B)there are major language barriers.
C)there are major infrastructure problems, such as transportation and bureaucracy.
D)the United States is prohibited from offshoring manufacturing work.

Question 76

Consider an offshoring model of reverse FDI in which
Foreign's offshore skilled labor activities to Home
because Home's skilled labor has a lower relative wage
than Foreign's skilled labor.Also assume that the costs
of capital and trade are uniform across production
activities.

A) Will Foreign's offshored production activities be high
or low on the value chain for a given product?
B) Suppose that Foreign uniformly increases its tariff
level, effectively increasing the cost of importing all
goods and services from abroad.How does this affect
the slicing of the value chain?

Question 77

Do recent trends in U.S.and Indian trade surpluses in
computer, insurance, and financial services suggest
that India will become a competitive challenge in
these service exports?

Question 78

What prevents the skill­abundant country from
offshoring all parts of the value chain?

Question 79

Does the authors' test of Paul Samuelson's terms of
trade effects indicate a significant deterioration in the
U.S.terms of trade on merchandise trade?

Question 80

What is skill­biased technical change? Provide an
example.