Question 1

A company that sells its product in a foreign market below the cost of production may be accused of dumping.

Accepted Answer

Dumping refers to a company selling its product in a foreign market at a price lower than its cost of production, which can harm domestic industries and violate international trade laws.

Question 2

According to the infant industry argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries.

Accepted Answer

The infant industry argument suggests that developing countries may have a potential comparative advantage in manufacturing, but new industries in these countries may face challenges in competing with already-established industries in developed countries. This is because established industries may have economies of scale, access to better technology, and more experience, which can make it difficult for new industries to compete on price or quality initially. The infant industry argument, therefore, suggests that developing countries may need to protect their new industries through policies such as tariffs or subsidies until they become competitive enough to survive in the global market.

Question 3

Antidumping policies vary drastically from country to country.

Accepted Answer

Although antidumping policies vary somewhat from country to country, the majority are similar to those used in the United States.

Question 4

Unlike other trade policies, local content regulations tend to benefit consumers and not producers.

Accepted Answer

Local content regulations require producers to use a certain amount of locally sourced materials or employ local labor, which can increase production costs and potentially lead to higher prices for consumers.

Question 5

A subsidy helps domestic producers to compete against foreign imports.

Accepted Answer

A subsidy provides financial assistance to domestic producers, making their products less expensive and more competitive in comparison to foreign imports. This helps to encourage local production and reduce dependence on imported goods.

Question 6

The Helms-Burton Act of 1996 was aimed at foreign companies that were undermining U.S. trade sanctions against Libya and Iran.

Accepted Answer

The Helms-Burton Act of 1996 was aimed at foreign companies that were doing business in Cuba and expropriating properties owned by U.S. citizens without compensation. It strengthened the U.S. economic embargo against Cuba and allowed U.S. citizens to sue foreign companies that benefited from the expropriation of their properties.

Question 7

Antidumping policies are designed to punish foreign firms that are engaged in dumping.

Accepted Answer

Antidumping policies are trade measures used to protect domestic industries from foreign firms that are selling their products at a price lower than the domestic market price, i.e. dumping. These policies impose additional tariffs or taxes on the imported goods, making them less competitive in the domestic market. This helps to protect domestic industries from unfair competition and maintains a level playing field for all producers.

Question 8

Bureaucratic rules designed to make it difficult for imports to enter a country are called local content requirements.

Accepted Answer

Bureaucratic rules designed to make it difficult for imports to enter a country are called trade barriers or non-tariff barriers. Local content requirements refer to regulations that require a certain percentage of a product to be made domestically in order to be sold in a particular country.

Question 9

Local content regulations provide protection for a domestic producer of parts by limiting foreign competition.

Accepted Answer

Local content regulations aim to promote the growth of domestic industries by requiring a certain percentage of locally produced components to be used in manufacturing. This limits foreign competition by giving preference to domestic producers of parts.

Question 10

Under a tariff rate quota, a higher tariff rate is applied to imports within the quota than those over the quota.

Accepted Answer

Under a tariff rate quota, a lower tariff rate is applied to imports within the quota than those over the quota.

Question 11

The Buy America Act specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price disadvantage.

Accepted Answer

The Buy America Act requires that government agencies give preference to American products unless the American products have a significant price disadvantage compared to foreign products.

Question 12

Strategic trade policy suggests that a government should use subsidies to support promising firms that are active in newly emerging industries.

Accepted Answer

Strategic trade policy posits that a government can use subsidies to support firms in emerging industries that may have the potential to become global market leaders. By protecting these firms from international competition, governments can help them gain a foothold in the global marketplace and eventually become more competitive. However, this policy is controversial and has been criticized for promoting protectionism and distorting international trade.

Question 13

GATT has not recognized the infant industry argument as a legitimate reason for protectionism.

Accepted Answer

The infant industry argument has had substantial appeal for the governments of developing nations during the past 50 years, and the GATT has recognized the infant industry argument as a legitimate reason for protectionism.

Question 14

Export tariffs are far less common than import tariffs.

Accepted Answer

This is true, as most countries tend to have lower or no export tariffs in order to encourage their own businesses to export goods and increase foreign investment in their economy.

Question 15

Protecting industries deemed important for national security, and retaliating against unfair foreign competition are economic arguments for intervention.

Accepted Answer

Political arguments for government intervention cover a range of issues, including preserving jobs, protecting industries deemed important for national security, retaliating against unfair foreign competition, protecting consumers from "dangerous" products, furthering the goals of foreign policy, and advancing the human rights of individuals in exporting countries.

Question 16

Specific tariffs are levied as a proportion of the value of the imported good.

Accepted Answer

Specific tariffs are levied as a fixed amount per unit of the imported good, whereas ad valorem tariffs are levied as a proportion of the value of the imported good.

Question 17

The infant industry argument is the latest argument for government intervention in trade.

Accepted Answer

The infant industry argument is by far the oldest economic argument for government intervention. Alexander Hamilton proposed it in 1792.

Question 18

Tariffs are unambiguously pro-consumer and anti-producer.

Accepted Answer

Tariffs are taxes on imported goods, which raise prices for consumers and can harm producers who rely on imports for their materials. They can also lead to retaliatory tariffs from other countries, further hurting producers who export their goods. Tariffs may benefit some domestic producers who face less competition from cheaper imports, but overall they are not considered pro-consumer or pro-producer.

Question 19

Krugman has suggested that trade policy designed to retaliate against another country's trade policy would hurt the citizens of both countries.

Accepted Answer

Krugman has argued that retaliatory trade policies are likely to lead to a cycle of retaliation and counter-retaliation, resulting in lower trade and economic activity and harming citizens of both countries involved.

Question 20

A common hybrid of a quota and a rent is known as a quota rent.

Accepted Answer

The answer of A common hybrid of a quota and...

Quiz 7: The Political Economy of International Trade