Question 1

Brazil's export record in 1999 illustrated the principle that
A) a large country will tend to have few exports.
B) a small country will tend to have a high export ratio.
C) protectionist policies tend to discourage exports.
D) export-promoting policies do not tend to work.
E) import substitution policies helped the Brazilian economy.

Accepted Answer

Protectionist policies, which aim to restrict imports to protect domestic industries, can also discourage exports by making it harder for domestic industries to compete globally. Brazil's export record in 1999 highlighted the negative impact of such policies on its export performance.

Question 2

It is argued that import substitution is a misguided trade policy if the intent is to promote long-term economic growth.Explain the reasons underlying this argument.

Accepted Answer

Import substitution promotes that economic activity in which the country is relatively inefficient.This lowers the real income at any given time and decreases the resources which can be used for investment purposes,hence lower growth rates.An additional answer is that import substitution by creating a protected domestic market fails to provide incentives to produce high,or world-class quality-which means this country,cannot market in foreign countries.With such a (perceived)limited market,endogenous economic growth will not be forthcoming.Finally,it may be that exposure to world competition has its own dynamic effect promoting economic growth.

Question 3

Import substitution policies make use of
A) tariffs that discourage goods from entering a country.
B) quotas applied to goods that are shipped abroad.
C) production subsidies granted to industries with comparative advantage.
D) tax breaks granted to industries with comparative advantage.
E) production facilities provided by industrialized countries.

Accepted Answer

Import substitution policies aim to reduce the dependence on foreign goods by promoting domestic production. Tariffs are one of the most common tools used to discourage the entry of foreign goods into a country, and they are an effective way to protect the domestic industry from foreign competition. Hence, option A is the correct answer. Moreover, options B, C, D, and E do not directly relate to import substitution policies.

Question 4

-Refer to above figure.Why would workers not shift from agriculture to manufacturing in the initial situation where wages are higher in the latter?

Accepted Answer

The answer of 
-Refer to above figure.Why would workers not...

Question 5

Which of the following could explain why the terms of trade of developing countries might deteriorate over time?
A) Developing country exports consist mainly of manufactured goods.
B) Developing country exports consist mainly of primary products.
C) Commodity export prices are determined in highly competitive markets.
D) Commodity export prices are solely determined by developing countries.
E) Developing country exports are too diverse.

Accepted Answer

The answer of Which of the following could explain why...

Question 6

The infant industry argument is that
A) comparative advantage is irrelevant to economic growth.
B) developing countries have a comparative advantage in agricultural goods.
C) developing countries have a comparative advantage in manufacturing.
D) developing countries have a potential comparative advantage in manufacturing.
E) developing countries have no chance to compete with industrialized countries.

Accepted Answer

The infant industry argument suggests that developing countries have the potential comparative advantage in manufacturing, but may need temporary protection and support from their governments to allow them to grow and become competitive in the global market. Therefore, option D is the correct answer. Options A, B, C and E are inaccurate in this context.

Question 7

The disappointment with import-substitution policies is in part because
A) of the rapid and continuous growth record of South American countries.
B) many countries pursuing this strategy experienced stagnation in their growth.
C) this policy is inconsistent with sophisticated economic growth models.
D) this policy tended to create world-class industrial competitors.
E) of the financial investment lost by the U.S.

Accepted Answer

The disappointment with import-substitution policies is mainly due to the fact that many countries pursuing this strategy experienced stagnation in their growth. This policy did not lead to the expected rapid and continuous growth record, which was the reason for its implementation in many countries.

Question 8

A reason why it is difficult for developing countries to maintain a cartel is that
A) the elasticity of demand for a cartel's output decreases over time.
B) producers in the cartel have an economic incentive to cheat.
C) economic profits discourage other producers from entering the industry.
D) producers in the cartel have the motivation to lower prices but not to raise prices.
E) tariffs allow producers in the cartel to produce items that make no profit.

Accepted Answer

Developing countries often have weaker regulations and lower enforcement capabilities, making it easier for producers to cheat and sell more than their allotted quota, which undermines the cartel's power. Additionally, producers may have short-term profit incentives to cheat, which often outweigh long-term goals of maintaining the cartel.

Question 9

Sophisticated theoretical arguments supporting import-substitution policies include
A) terms of trade effects.
B) scale economy arguments.
C) learning curve considerations.
D) the problem of appropriability.
E) domestic market failure arguments.

Accepted Answer

The answer of Sophisticated theoretical arguments supporting import-substitution policies include
A)...

Question 10

The infant industry argument was an important theoretical basis for
A) neo-colonialist theory of international exploitation.
B) import-substituting industrialization.
C) historiography of the industrial revolution in Western Europe.
D) the East-Asian miracle.
E) the reduction of tariffs on Western Europe.

Accepted Answer

The infant industry argument is a key argument used to justify import-substituting industrialization (ISI). This argument suggests that developing countries need to protect small and emerging industries from competition with established industries in developed countries. ISI policies include high tariffs on imported goods in order to support domestic production and encourage the growth of new industries.

Question 11

General equilibrium considerations lead to the realization that import-substituting policies have the effect of
A) discouraging exports.
B) encouraging exports.
C) encouraging an efficient use of a country's resources.
D) generating large tariff revenues for the government.
E) creating competitive manufacturing sectors.

Accepted Answer

Import-substituting policies aim to increase domestic production by substituting imported goods with domestically produced ones. This often leads to a decrease in exports, as resources are redirected towards producing goods for the domestic market instead of producing goods for export.

Question 12

The infant industry argument calls for active government involvement
A) only if the government forecasts are accurate.
B) only if some market failure can be identified.
C) only if the industry is not one already dominated by industrial countries.
D) only if the industry has a high value added.
E) only if the industry is independently able to earn high returns.

Accepted Answer

The infant industry argument states that developing countries should protect new industries with high potential for growth in order to allow them to become competitive in the long term. However, this should only be done if some market failure can be identified, such as lack of access to credit or inability to compete with established firms due to economies of scale. Accurate government forecasts, level of domination by industrial countries, value added and ability to earn high returns are not necessarily prerequisites, but rather factors to consider when determining the potential for growth and competitiveness of the industry.

Question 13

Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers?
A) international commodity agreement
B) export promotion
C) multilateral contract
D) import substitution
E) export subsidies

Accepted Answer

Developing countries have used the import substitution strategy to restrict imports of manufactured goods so that the domestic market is preserved for home producers. This involves replacing foreign imports with domestically produced goods in order to promote local industry and reduce dependence on foreign goods.

Question 14

The imperfect capital market justification for infant industry promotion
A) assumes that new industries will tend to have low profits.
B) assumes that infant industries will soon mature.
C) assumes that infant industries will be in products of comparative advantage.
D) assumes that banks can allocate resources efficiently.
E) assumes that developing country will reward the donor country.

Accepted Answer

The imperfect capital market justification for infant industry promotion assumes that new industries will face higher costs of borrowing due to information asymmetry, which may lead to lower profits than mature industries. Therefore, they need temporary protection until they can compete on a level playing field.

Question 15

The high correlation between rapid growth in exports and rapid economic growth observed in several East Asia countries in recent decades
A) proves that export promoting trade policy leads to relatively rapid economic growth.
B) proves that a free-trade orientation of trade policy results in rapid economic growth.
C) proves that exports help growth, whereas imports impede growth.
D) proves that trade policy is the most important policy area for promotion of economic development.
E) does not prove that trade liberalization always leads to rapid economic growth.

Accepted Answer

While the high correlation between rapid growth in exports and rapid economic growth in East Asia countries does suggest that promoting exports can contribute to economic growth, it does not necessarily mean that trade liberalization is always the best approach or that a free-trade orientation is the only way to achieve rapid economic growth. Other factors such as investment in infrastructure, education, and technological innovation also play important roles in promoting long-term economic growth.

Question 16

The United States,as it began its long and successful growth in the early 19th century,consciously promoted domestic production through such activities as tariffs,Clay's American System,and many direct subsidies to railroads,canal companies,farmers (free land)etc.Today we view this blatant example of large scale and extensive import-substitution industrialization as having been very successful.Comment on this.

Accepted Answer

The answer of The United States,as it began its long...

Question 17

-Refer to above figure.If manufacturing labor were to increase to OmL2,how much value would the economy as a whole gain?

Accepted Answer

The answer of 
-Refer to above figure.If manufacturing labor were...

Question 18

-Refer to above figure.If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in agriculture?

Accepted Answer

The answer of 
-Refer to above figure.If OmL1 workers are...

Question 19

-Refer to above figure.If the economy were in the initial position (where OmL1 workers were in manufacturing,what trade policy might gain ABC of economic welfare?

Accepted Answer

The answer of 
-Refer to above figure.If the economy were...

Question 20

-Refer to above figure.If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in manufacturing?

Accepted Answer

The answer of 
-Refer to above figure.If OmL1 workers are...

Quiz 11: Trade Policy in Developing Countries

Brazil's export record in 1999 illustrated the principle that

It is argued that import substitution is a misguided trade policy if the intent is to promote long-term economic growth.Explain the reasons underlying this argument.

Import substitution policies make use of

-Refer to above figure.Why would workers not shift from agriculture to manufacturing in the initial situation where wages are higher in the latter?

Which of the following could explain why the terms of trade of developing countries might deteriorate over time?

The infant industry argument is that

The disappointment with import-substitution policies is in part because

A reason why it is difficult for developing countries to maintain a cartel is that

Sophisticated theoretical arguments supporting import-substitution policies include

The infant industry argument was an important theoretical basis for

General equilibrium considerations lead to the realization that import-substituting policies have the effect of

The infant industry argument calls for active government involvement

Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers?

The imperfect capital market justification for infant industry promotion

The high correlation between rapid growth in exports and rapid economic growth observed in several East Asia countries in recent decades

-Refer to above figure.If manufacturing labor were to increase to OmL2,how much value would the economy as a whole gain?

-Refer to above figure.If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in agriculture?

-Refer to above figure.If the economy were in the initial position (where OmL1 workers were in manufacturing,what trade policy might gain ABC of economic welfare?

-Refer to above figure.If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in manufacturing?