Question 1

Among the benefits that a regional trading arrangement can provide are all of these EXCEPT:
A) economies of large scale production
B) specialization fostering
C) attracting foreign investment
D) a shorter production time

Accepted Answer

A regional trading arrangement can provide economies of large scale production, specialization fostering, and attracting foreign investment. However, it may not necessarily result in a shorter production time as this largely depends on the efficiency and productivity of each member country's production process.

Question 2

By joining NAFTA,the United States,Canada,and Mexico would find their short-run welfare decreasing due to the:
A) Economies of scale effect
B) Business investment effect
C) Trade creation effect
D) Trade diversion effect

Accepted Answer

The correct choice is the trade diversion effect, where trade is diverted away from more efficient producers outside the bloc and towards less efficient producers within it. This may lead to higher prices and lower overall welfare in the short run. The other options (economies of scale, business investment, and trade creation effects) would have positive effects on welfare in the short run.

Question 3

In the United States,which group was most likely to be hurt by the North American Free Trade Agreement?
A) Unskilled labor
B) Skilled labor
C) Owners of capital equipment
D) Owners of financial capital

Accepted Answer

Unskilled laborers were most likely to be hurt by NAFTA, as it led to increased competition from cheaper labor in Mexico, resulting in the loss of jobs and lower wages for workers in industries such as manufacturing and agriculture. Meanwhile, owners of capital equipment and financial capital were able to benefit from the increased access to markets in Mexico and Canada, and skilled laborers were less affected due to their specific skill sets and higher wages.

Question 4

Suppose that the United Kingdom and Italy abolish all tariffs on each other's goods and all restrictions on movements of factors of production between them.They also implement a common protectionist policy toward other countries.This is an example of a (an):
A) Free-trade area
B) Customs union
C) Common market
D) Economic union

Accepted Answer

This scenario describes a common market, where member countries remove tariffs and restrictions on factor movements among themselves and adopt a common external trade policy.

Question 5

Smaller nations may seek safe haven trading arrangements with larger nations when future access to that market seems uncertain.This was reason for the formation of:
A) WTO
B) GATT
C) NAFTA
D) none of these

Accepted Answer

NAFTA (North American Free Trade Agreement) was formed to create a trilateral trade bloc in North America, providing smaller nations like Canada and Mexico with secure access to the larger U.S. market.

Question 6

The North American Free-Trade Agreement was most strongly opposed by U.S.:
A) Electronics manufacturers
B) Labor unions
C) Commercial banks
D) Engineering companies

Accepted Answer

Labor unions were the strongest opponents of NAFTA, as they argued that it would lead to job losses in the United States due to outsourcing and competition from cheaper labor in Mexico. They also raised concerns about the impact on labor and environmental standards.

Question 7

Suppose that Mexico and Canada form a free-trade area.Mexicans then decrease auto manufacturing and increase imports of autos from Canada,while the Canadians decrease computer production and import more computers from Mexico.This is an example of:
A) Trade diversion
B) Trade creation
C) Trade destruction
D) Trade exhaustion

Accepted Answer

This is an example of trade creation because the formation of the free-trade area allows for increased specialization and trade between these two countries. As a result, the two countries are each able to focus on producing the goods that they have a comparative advantage in, and trade with each other to obtain the goods that they do not. This leads to greater efficiency and increased economic welfare for both countries.

Question 8

Regarding the benefits of regional trade agreements,which of the following is NOT a benefit?
A) regional trade agreements may help manage immigration flows
B) regional trade agreements promote regional security
C) regional trade agreements may help lock in policy shifts towards market oriented reform
D) regional trade agreements may promote democracy

Accepted Answer

The answer of Regarding the benefits of regional trade agreements,which...

Question 9

Suppose that government procurement liberalization results in the U.K.government importing automobiles from Germany,the low-cost EU manufacturer.Cost savings could result from all of the following except:
A) Competition effect
B) Scale-economy effect
C) Protective effect
D) Trade effect

Accepted Answer

Protective effect refers to the protection of domestic industries from foreign competition through tariffs, quotas, or other trade barriers. Since government procurement liberalization involves the importation of goods from foreign countries, it would not result in a protective effect. However, cost savings could result from the competition effect (increased competition leading to lower prices), scale-economy effect (lower per-unit costs of production due to increased production), and trade effect (access to lower-cost imports).

Question 10

Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy,while France and Italy maintain free trade between each other.France and Italy are therefore part of a (an):
A) Free trade area
B) Customs union
C) Common market
D) Economic union

Accepted Answer

A free trade area is characterized by member countries eliminating tariffs on goods traded between them, while each country maintains its own tariffs towards non-members. In this scenario, France and Italy have eliminated tariffs between them but maintain different tariffs towards Japan, indicating that they are part of a free trade area, not a customs union, common market, or economic union.

Question 11

If the United States and Canada abolish all tariffs on each other's goods and implement a common tariff on goods imported from other countries,there occurs a (an):
A) Free-trade area
B) Customs union
C) Common market
D) Economic union

Accepted Answer

The scenario described is that of a customs union, which involves the elimination of internal tariffs between member countries and the implementation of a common external tariff on goods imported from outside the union. A free trade area would only eliminate internal tariffs, while a common market and economic union involve even greater levels of integration such as the free movement of goods, services, capital, and people.

Question 12

When Mexico became a part of NAFTA,along with Canada and the United States,it:
A) Eliminated tariffs against Canada and the United States but maintained them against nonmembers
B) Eliminated tariffs against Canada,the United States,and all nonmember countries
C) Increased tariffs against Canada the United States,and all nonmember countries
D) Increased tariffs against Canada and the United States,but did not change them against nonmember countries

Accepted Answer

When Mexico became a part of NAFTA, it eliminated tariffs against Canada and the United States but maintained them against nonmembers. This was one of the primary benefits of the agreement for all three countries, as it allowed for the free flow of goods and services among them without import taxes or other trade barriers. However, it did not extend this same benefit to other countries that were not parties to the agreement, which were still subject to Mexico's existing tariff policies.

Question 13

Regarding the interests of a nonmember nation of a regional trading agreement:
A) the exporting interests of the nonmember nation outweigh its import competing interests
B) the import competing interests of the nonmember nation outweigh its exporting interests
C) the nonmember nation will have a better negotiating position
D) the nonmember nation has no interest in the regional trading arrangement

Accepted Answer

The answer of Regarding the interests of a nonmember nation...

Question 14

In 1989 Canada and the United States agreed to implement a (an) ____ over a ten year period.
A) Customs union
B) Common market
C) Free trade area
D) Economic union

Accepted Answer

Canada and the United States agreed to implement a free trade area over a ten year period, which became the North American Free Trade Agreement (NAFTA) in 1994. This agreement eliminated most tariffs and trade barriers between the two countries, as well as with Mexico which was included in the agreement.

Question 15

Suppose that Mexico and Canada form a free-trade area and Canada begins importing steel from Mexico rather than from Germany.There occurs:
A) Trade diversion
B) Trade creation
C) Trade destruction
D) Trade exhaustion

Accepted Answer

Trade diversion occurs when a country begins importing goods from a member of a free-trade area rather than from a more efficient producer outside the area, due to the removal of tariffs within the area.

Question 16

As new regional trading arrangements are formed,the opportunity cost of remaining outside:
A) increases
B) decreases
C) remains stable
D) none of these

Accepted Answer

As new regional trading arrangements are formed, the countries that are not part of them incur a higher opportunity cost because they miss out on the benefits that the members enjoy such as lower trade barriers, increased market access, and access to new investment and business opportunities. Thus, remaining outside becomes more expensive and less attractive.

Question 17

The North American Free Trade Agreement was expected to benefit ____ the most.
A) Canada
B) Mexico
C) Greenland
D) United States

Accepted Answer

NAFTA was designed to increase trade and investment between the three countries involved- Canada, Mexico, and the United States. However, Mexico was expected to benefit the most due to its lower labor costs and the potential for increased access to the US market.

Question 18

At the Maastricht Summit of 1991,European Union negotiators called for the pursuit of a:
A) Free trade area
B) Customs union
C) Common market
D) Monetary union

Accepted Answer

At the Maastricht Summit of 1991, the negotiators pursued the goal of a monetary union, which eventually led to the creation of the Eurozone. While they also aimed for a customs union and common market, the emphasis was on the establishment of a single currency and a coordinated monetary policy. Thus, option D is the best choice.

Question 19

By removing discriminatory government procurement laws within the European Union,member nations hoped to benefit from all of the following except:
A) EU governments could purchase from the cheapest foreign suppliers
B) Increased competition occurs as domestic firms compete with foreign firms previously shut out of the domestic market
C) Industries are restructured which permits surviving firms to achieve economies of scale
D) Agricultural prices fall as more farmers are allowed to produce their commodities

Accepted Answer

The removal of discriminatory government procurement laws within the European Union is not directly related to agriculture, so allowing more farmers to produce their commodities is not a benefit that was expected. As a result, agricultural prices falling would not be a potential benefit expected from this action.

Question 20

In the United States,the proposed North American Free Trade Agreement was generally supported by:
A) Labor unions
B) Electronics firms
C) Environmentalists
D) Citrus producers

Accepted Answer

Electronics firms generally supported the North American Free Trade Agreement (NAFTA) because it would reduce trade barriers and increase market access for their products. Labor unions, environmental groups, and some agricultural sectors (such as citrus producers) opposed NAFTA, citing concerns about job losses, environmental degradation, and competition from cheaper imports.

Quiz 7: Trade Policies for the Developing Nations

Among the benefits that a regional trading arrangement can provide are all of these EXCEPT:

By joining NAFTA,the United States,Canada,and Mexico would find their short-run welfare decreasing due to the:

In the United States,which group was most likely to be hurt by the North American Free Trade Agreement?

Suppose that the United Kingdom and Italy abolish all tariffs on each other's goods and all restrictions on movements of factors of production between them.They also implement a common protectionist policy toward other countries.This is an example of a (an) :

Smaller nations may seek safe haven trading arrangements with larger nations when future access to that market seems uncertain.This was reason for the formation of:

The North American Free-Trade Agreement was most strongly opposed by U.S.:

Suppose that Mexico and Canada form a free-trade area.Mexicans then decrease auto manufacturing and increase imports of autos from Canada,while the Canadians decrease computer production and import more computers from Mexico.This is an example of:

Regarding the benefits of regional trade agreements,which of the following is NOT a benefit?

Suppose that government procurement liberalization results in the U.K.government importing automobiles from Germany,the low-cost EU manufacturer.Cost savings could result from all of the following except:

Suppose that steel from Japan faces a 20 percent tariff in France and a 25 percent tariff in Italy,while France and Italy maintain free trade between each other.France and Italy are therefore part of a (an) :

If the United States and Canada abolish all tariffs on each other's goods and implement a common tariff on goods imported from other countries,there occurs a (an) :

When Mexico became a part of NAFTA,along with Canada and the United States,it:

Regarding the interests of a nonmember nation of a regional trading agreement:

In 1989 Canada and the United States agreed to implement a (an) ____ over a ten year period.

Suppose that Mexico and Canada form a free-trade area and Canada begins importing steel from Mexico rather than from Germany.There occurs:

As new regional trading arrangements are formed,the opportunity cost of remaining outside:

The North American Free Trade Agreement was expected to benefit ____ the most.

At the Maastricht Summit of 1991,European Union negotiators called for the pursuit of a:

By removing discriminatory government procurement laws within the European Union,member nations hoped to benefit from all of the following except:

In the United States,the proposed North American Free Trade Agreement was generally supported by: