Question 1

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

Accepted Answer

In the context of international trade, dumping is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

Question 2

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 argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that boosts national income at the expense of other countries. In many cases, the resulting trade war between two or more interventionist governments will leave all countries involved worse off than if a hands-off approach had been adopted in the first place.

Question 3

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

Accepted Answer

Local content regulations provide protection for a domestic producer of parts in the same way an import quota does: by limiting foreign competition. As with all trade policies, local content regulations tend to benefit producers and not consumers.

Question 4

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

Accepted Answer

A local content requirement is a requirement that some specific fraction of a good be produced domestically. Administrative trade policies are bureaucratic rules designed to make it difficult for imports to enter a country.

Question 5

Tariffs are unambiguously pro-consumer and anti-producer.

Accepted Answer

Tariffs are generally pro-producer and anti-consumer. While they protect producers from foreign competitors, this restriction of supply also raises domestic prices.

Question 6

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

Accepted Answer

It is argued that by appropriate actions, a government can help raise national income if it can somehow ensure that the firm or firms that gain first-mover advantages in an industry are domestic rather than foreign enterprises. Thus, according to the strategic trade policy argument, a government should use subsidies to support promising firms that are active in newly emerging industries.

Question 7

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 8

A subsidy helps domestic producers to compete against foreign imports.

Accepted Answer

A subsidy is a government payment to a domestic producer. By lowering production costs, subsidies help domestic producers in two ways: (1) competing against foreign imports and (2) gaining export markets.

Question 9

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

Accepted Answer

The extra profit that producers make when supply is artificially limited by an import quota is referred to as a quota rent.

Question 10

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

Accepted Answer

Local content regulations provide protection for a domestic producer of parts in the same way an import quota does: by limiting foreign competition. The aggregate economic effects are also the same; domestic producers benefit, but the restrictions on imports raise the prices of imported components.

Question 11

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 is by far the oldest economic argument for government intervention. According to this argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries.

Question 12

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

Accepted Answer

In 1996 the U.S. Congress passed the Helms-Burton Act. This act allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution.

Question 13

Export tariffs are far less common than import tariffs.

Accepted Answer

Export tariffs are far less common than import tariffs.

Question 14

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 15

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

A little-known law in the United States, 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 advantage.

Question 16

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 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

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 19

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

Accepted Answer

Antidumping policies are designed to punish foreign firms that engage in dumping. The ultimate objective is to protect domestic producers from unfair foreign competition.

Question 20

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

Accepted Answer

Tariffs fall into two categories. Specific tariffs are levied as a fixed charge for each unit of a good imported. Ad valorem tariffs are levied as a proportion of the value of the imported good.

Quiz 7: Government Policy and International Trade

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

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

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

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

Tariffs are unambiguously pro-consumer and anti-producer.

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

Antidumping policies vary drastically from country to country.

A subsidy helps domestic producers to compete against foreign imports.

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

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

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.

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

Export tariffs are far less common than import tariffs.

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

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.

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

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

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

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

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