Question 1

Empirical research indicates that the demand and supply schedules for most primary products are relatively inelastic to changes in price.

Accepted Answer

Empirical research has shown that the demand and supply schedules for primary products such as food and energy tend to be relatively inelastic, meaning that changes in price have relatively little effect on the quantity demanded or supplied. This is due to factors such as the necessity of these products for daily living and limited alternatives for substitutes.

Question 2

Under the Generalized System of Preferences program,the major industrial countries agree to temporarily reduce tariffs on designated imports from other industrial countries.

Accepted Answer

The Generalized System of Preferences program is a system by which developed countries offer tariff-free access to products from developing countries. It is not an agreement between industrial countries to reduce tariffs on each other's imports.

Question 3

The purpose of a cartel is to support prices higher than would occur under more competitive conditions,thus increasing the profits of cartel members.

Accepted Answer

This statement accurately describes the purpose of a cartel. By restricting competition and controlling production, members of a cartel are able to keep prices artificially high, leading to increased profits.

Question 4

If the demand for coffee is price inelastic,an increase in the supply of coffee leads to falling prices and rising sales revenues.

Accepted Answer

When demand is price inelastic, an increase in supply will lead to lower prices, but the total revenue from sales will decrease because the percentage drop in price will be greater than the percentage increase in quantity demanded.

Question 5

In recent decades,the East Asian "newly industrializing countries" have pursued export-led growth (outward orientation) as an industrialization strategy.

Accepted Answer

The East Asian newly industrializing countries (such as South Korea, Taiwan, Hong Kong, and Singapore) have indeed pursued export-led growth as a strategy for industrialization and economic development in recent decades. This has involved promoting manufacturing exports through various policies such as export subsidies, investment in infrastructure, and development of export-oriented industries.

Question 6

A cartel tends to be most successful in maximizing the profits of its members when there are a large number of producers in the cartel and these producers' cost and demand conditions greatly differ from each other.

Accepted Answer

A cartel tends to be most successful in maximizing profits when there are few producers in the market and their cost and demand conditions are similar. This allows the cartel to coordinate production levels and prices more easily. When there are a large number of producers with differing cost and demand conditions, it becomes more difficult for the cartel to control the market, and some members may be tempted to cheat by increasing production or lowering prices. This can lead to the collapse of the cartel and lower profits for all members.

Question 7

To prevent the market price of tin from falling below the target price,the manager of a buffer stock would purchase any excess supply of tin that exists at the target price.

Accepted Answer

This is because the purpose of a buffer stock is to maintain price stability by buying up excess supply when the price falls below a certain level, and selling off the stock when the price rises above that level, thus preventing extreme fluctuations in the market price.

Question 8

The "newly industrializing countries" of East Asia have emphasized the implementation of import-substitution policies to insulate their industries from international competition.

Accepted Answer

The newly industrializing countries of East Asia, such as South Korea and Taiwan, actually implemented export-oriented industrialization policies to target international markets and encourage competition. These policies focused on expanding manufacturing and exporting goods through government support, infrastructure improvements, and incentives for businesses. Import-substitution policies, which involve limiting imports in favor of domestic production, were more commonly used in Latin America during the same time period.

Question 9

Developing countries have complained that because their commodity terms of trade has deteriorated in recent decades,they should receive preferential tariff treatment from industrialized countries.

Accepted Answer

Developing countries have indeed raised concerns about their deteriorating commodity terms of trade and have called for preferential treatment from industrialized countries, including preferential tariff treatment. This is because many developing countries heavily rely on the export of commodities for their economic growth and development.

Question 10

It is widely agreed that import-substitution policies have been a main contributor to above-average growth rates in developing countries.

Accepted Answer

Import-substitution policies, which aim to replace foreign imports with domestic production, have not consistently led to above-average growth rates in developing countries. In many cases, these policies have led to inefficiency, a lack of competitiveness, and economic stagnation.

Question 11

Not only do changes in demand induce relatively wide fluctuations in price when supply is inelastic,but changes in supply induce relatively wide fluctuations in price when demand is inelastic.

Accepted Answer

When supply is inelastic, the quantity supplied cannot quickly respond to changes in demand, resulting in wide fluctuations in price when demand changes. Similarly, when demand is inelastic, changes in supply can result in wide fluctuations in price because the quantity demanded remains relatively constant despite changes in supply.

Question 12

To promote stability in commodity markets,International Commodity Agreements have utilized production and export controls,buffer stocks,and multilateral contracts.

Accepted Answer

International Commodity Agreements have indeed utilized production and export controls, buffer stocks, and multilateral contracts in order to promote stability in commodity markets.

Question 13

To prevent the market price of tin from rising above the target price,the manager of a buffer stock will purchase excess supplies of tin from the market.

Accepted Answer

To prevent the market price of tin from rising above the target price, the manager of a buffer stock would release tin into the market, not purchase excess supplies. Purchasing excess supplies would be done to support or raise the price, not to prevent it from rising.

Question 14

For developing countries,a key factor underlying the instability of primary-product prices and export receipts is the high price elasticity of demand for products such as tin and copper.

Accepted Answer

The instability of primary-product prices and export receipts in developing countries is often attributed to the low price elasticity of demand for products such as tin and copper, meaning that small changes in supply can lead to large fluctuations in prices.

Question 15

When cartel members agree to restrict output to increase the price of their product,a single member of the cartel has an economic incentive to violate the agreement by increasing its output so as to increase profits.

Accepted Answer

This is known as the "prisoner's dilemma" in game theory. While it is in the best interest of the cartel as a whole to restrict output and increase prices, each individual member has an incentive to cheat the agreement and increase their own profits. This can lead to the breakdown of the cartel and ultimately lower prices for consumers.

Question 16

Among the economic problems facing developing countries have been low dependence on primary-product exports,unstable export markets,and worsening terms of trade.

Accepted Answer

Developing countries have historically relied heavily on primary-product exports, which are often subject to fluctuations in global demand and prices, leading to unstable export markets and worsening terms of trade.

Question 17

During periods of falling demand for coffee,an International Commodity Agreement could offset downward pressure on price by implementing policies to increase the supply of coffee.

Accepted Answer

An International Commodity Agreement does not increase supply, but rather regulates production and exports to stabilize prices. Therefore, it cannot increase supply of coffee to offset falling demand.

Question 18

Rather than conduct massive stabilization operations,buffer stock officials will periodically revise target prices should they move out of line with long-term price trends.

Accepted Answer

This statement is true. Instead of conducting massive stabilization operations, buffer stock officials will periodically revise their target prices if they move out of line with long-term price trends. This allows for more flexible and efficient market management.

Question 19

Prolonged defense of a price ceiling tends to increase the supply of a commodity held by a buffer stock manager,thus putting downward pressure on price.

Accepted Answer

A price ceiling, when set below the equilibrium price, typically results in a shortage rather than a surplus because the price is too low to encourage suppliers to increase their supply. This would not lead to an increase in the supply held by a buffer stock manager, nor would it put downward pressure on price; instead, it could exacerbate the shortage.

Question 20

A multilateral contract stipulates the maximum price at which importing nations will purchase guaranteed quantities from producing nations and the minimum price at which producing nations will sell guaranteed amounts to importing nations.

Accepted Answer

A multilateral contract as described refers to a commodity agreement or price band mechanism, not the general definition of a multilateral contract. A multilateral contract typically involves three or more parties with obligations or rights, not specifically about price guarantees for import/export quantities.

Quiz 7: Trade Policies for the Developing Nations