Deck 10: International Trade Policy: A Holistic Perspective

Question 1

Once the Heckscher-Ohlin (HO) model's assumptions of perfect competition and increasing costs are dropped, different logical conclusions about international trade are possible, such as:

A) increasing returns to scale explain why most trade occurs between similar high-income economies rather than the most different economies.
B) international trade is mostly conducted by monopolistic producers that charge prices that exceed their production costs.
C) the gains and losses from opening an economy to foreign trade also differs from the patterns predicted by the neoclassical HO model and its factor price equalization theorem and Stolper-Samuelson theorem.
D) All of the above.
E) None of the above.

Answer 1

All of the above.

Question 2

The orthodox neoclassical Heckscher-Ohlin model is unrealistic because:

A) of the growing competitiveness of business.
B) of the rapid concentration of business activity into transnational corporations (TNCs).
C) of the predominance of diminishing returns industries in international trade.
D) All of the above.
E) None of the above.

Answer 2

of the rapid concentration of business activity into transnational corporations (TNCs).

Question 3

Adam Smith (1776) famously criticized the "mercantilists" for:

A) initiating colonial conquests and effectively stealing from foreign countries.
B) protectionist trade policies designed to spur exports and deter imports.
C) using gold and silver to cover their foreign trade deficits.
D) pressuring for completely free trade.

Answer 3

protectionist trade policies designed to spur exports and deter imports.

Question 4

Brazil was colonized in 1500 by:

A) Spain
B) Italy
C) Portugal
D) France

Question 5

Brazil's first major export was:

A) coffee
B) sugar
C) oil
D) gold

Question 6

During its colonial era, Brazil's economy:

A) developed rapidly during its colonial years, as evidenced by the high income levels of its population.
B) was not dependent on exports because its native population took advantage of its trade with Europe to develop an advanced industry.
C) was entirely dependent on its export trade.
D) was stimulated by the arrival of large numbers of European immigrants.

Question 7

After its independence, Brazil:

A) continued to depend on exports for its economic growth.
B) immediately shut itself off from international trade and developed its own domestic industries to substitute for industrial imports from Europe.
C) abandoned its coffee production and shifted to producing sugar and mining gold.
D) had a revolution that established a radical socialist economic system.

Question 8

Until the twentieth century, Brazil's economy was characterized by:

A) its economic isolation.
B) various "export cycles," such as the sugar, gold, and coffee cycles.
C) a stagnant economy that was never able to shift from its dependence on coffee exports.
D) a growing middle class based on the growth of local industry.

Question 9

During its colonial era and its early years of independence, Brazil's economy is characterized by:

A) mercantilism.
B) free market capitalism.
C) communal development.
D) feudalism.

Question 10

Why did colonial Brazil begin importing slaves from Africa?

A) Sugar production was labor-intensive.
B) There were few Portuguese settlers, and the introduction of European diseases had killed the greater portion of the native population.
C) Portuguese traders in Africa were eager to engage in the slave trade.
D) All of the above.
E) None of the above.

Question 11

Brazil's economic policies after the 1930 crash in commodity prices has been compared to:

A) what we now call an "austerity program."
B) a Keynesian economic stimulus.
C) a "bailout" of its banking sector.
D) a free market approach.

Question 12

Brazil's import substitution industrialization policies after World War II were motivated by:

A) its experience during the 1930s Great Depression.
B) political pressure for protection from its industrial sector.
C) the intellectual justifications provided by structuralist economists.
D) All of the above.
E) None of the above.

Question 13

Brazil's "Law of Similars" stated that:

A) imports of a product would be banned if a "similar" product was produced by a Brazilian producer.
B) exports of a product would be subsidized if foreign suppliers could provide a similar product to Brazilian consumers.
C) imports of products similar to those produced in Brazil would be encouraged in order to provide competition and keep domestic producers from exploiting Brazilian consumers.
D) Brazilian economic policies should mimic the economic policies of the most developed countries of the world.

Question 14

An infant industry is a new industry that:

A) is not efficient enough now to compete in the global economy.
B) can learn to become competitive if given enough time to "grow up" and become more efficient.
C) will earn enough profit for domestic owners and workers to more than compensate the temporary costs of protection.
D) All of the above.
E) None of the above.

Question 15

The structuralist school of economics:

A) was not related to philosophical structuralists.
B) promoted the idea that humans make choices according to their free will.
C) hypothesized that economic behavior is tightly shaped by broader economic systems.
D) sought to develop models, or what they called "structures" that supported capitalism.

Question 16

Dependency theorists hypothesized that:

A) international trade is an "engine of growth" for developing economies.
B) trade is the channel through which poor countries can generate growth to "catch-up" to rich countries.
C) rich center countries exploit poor peripheral countries and effectively perpetuate the unequal distribution of world income.
D) All of the above.
E) None of the above.

Question 17

Import substitution industrialization policies consisted of:

A) an assortment of trade bans, quotas, and tariffs on imports.
B) incentives to promote domestic industries that produce "substitutes" for foreign products.
C) laws and regulations mandating protection for new industries.
D) All of the above.
E) None of the above.

Question 18

Intellectual support of import substitution industrialization was provided by:

A) dependency theorists.
B) structuralist economists.
C) the United Nations Economic Commission for Latin America (ECLA).
D) All of the above.
E) None of the above.

Question 19

The following people, groups, and schools of thought supported import substitution industrialization in developing economies:

A) Neoclassical economists.
B) Raúl Prebisch.
C) supporters of the Washington Consensus.
D) All of the above.
E) None of the above.

Question 20

The infant industry argument:

A) justifies eliminating tariffs and opening up a country to free trade.
B) allows the buy up of a smaller producers by a larger producer, thereby increasing economies of scale.
C) recognizes that some industries, even if they are small, are necessary for national security and should always be protected and subsidized.
D) protects new industries from foreign competition.

Question 21

A strategic trade policy:

A) refers to trade in military equipment for the defense of the country.
B) protects and promotes industries with the greatest growth potential.
C) requires the government to predict which industries will develop into profitable increasing returns to scale industries after some protection.
D) All of the above.
E) None of the above.

Question 22

Which industry would most likely generate fewer technology spillovers to developing countries' economies?

A) Mining
B) Manufacturing
C) Service industry
D) Agriculture

Question 23

Enclave industries:

A) generate few taxes.
B) are domestically owned.
C) produce economy-wide technology transfers.
D) All of the above.
E) None of the above.

Question 24

Which of the following is not an example of an enclave industry?

A) Mexican maquiladoras.
B) Nitrate mining in northern Chile in the late 1800s.
C) Natural rubber industry in the Amazon.
D) U.S. automobile manufacturing in Brazil.

Question 25

Which of the following statements is true?

A) International trade slows the loss of biodiversity.
B) International trade has reduced carbon emissions.
C) International trade has shifted polluting industries from rich to poor countries.
D) International trade makes a worldwide cap and trade system to reduce carbon emissions easier.