Question 1

One of the main reasons why many economists remain critical of the infant industry argument is its assumption that:

Accepted Answer

In spite of GATT recognizing the infant industry argument as a legitimate reason for protectionism,many economists remain critical of this argument as it relies on the assumption that firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market.

Question 2

Environmental organizations pushing for greater regulation of international trade argue that there is a strong relationship between _____ and environmental pollution and degradation.

Accepted Answer

One argument frequently made by environmental organizations is that there is a strong relationship between income levels and environmental pollution and degradation (i.e. ,industrial development leads to more pollution).Thus,to the extent that international trade leads to higher income levels,it can also be expected to lead to a decline in environmental quality.

Question 3

Which of the following would be a likely action motivated by the desire of governments to protect their consumers from unsafe products?

Accepted Answer

Many governments have long had regulations to protect consumers from unsafe products.The indirect effect of such regulations often is to limit or ban the importation of such products.Concerns that the widespread use of genetically altered seeds could have unanticipated and harmful effects on human health and may result in "genetic pollution" have led Austria and Luxembourg to outlaw the importation,sale,or use of genetically altered organisms.

Question 4

Why is retaliation by government intervention a risky strategy?

Accepted Answer

If it works,a politically motivated rationale for government intervention may liberalize trade and bring with it resulting economic gains.It is a risky strategy,however a country that is being pressured may not back down and instead may respond to the imposition of punitive tariffs by raising trade barriers of its own.

Question 5

Which of the following is one of the reasons offered to explain the high levels of carbon dioxide emissions in developed countries like the U.S.?

Accepted Answer

The country with the highest income per capita,the United States,also produces the greatest carbon dioxide emissions per capita as carbon dioxide emissions are a by-product of energy use (i.e. ,oil,gas,or coal burning).Richer societies are more energy intensive,and to the extent that they use hydrocarbons to produce that energy,this leads to higher carbon dioxide emissions.

Question 6

China did not join the WTO until 2001,so historically the decision of whether to grant MFN status to China was a real one.The decision was made more difficult by the perception that China had a(n)_____.

Accepted Answer

MFN status allows countries to export goods to the United States under favorable terms.Trading partners who are signatories of the World Trade Organization,as most are,automatically receive MFN status.However,China did not join the WTO until 2001,so historically the decision of whether to grant MFN status to China was a real one.The decision was made more difficult by the perception that China had a poor human rights record.

Question 7

According to _____,many developing countries have a potential comparative advantage in manufacturing,but new manufacturing industries cannot initially compete with well-established industries in developed countries.

Accepted Answer

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.To allow manufacturing to get a toehold,the argument is that governments should temporarily support new industries (with tariffs,import quotas,and subsidies)until they have grown strong enough to meet international competition.

Question 8

If countries do not meet their targets for reducing carbon emissions specified in international treaties,they may find themselves the targets of _____.

Accepted Answer

Adherence to targets regarding carbon emissions might start to factor into trade agreements.Specifically,if countries do not meet their targets for reducing carbon emissions specified in international treaties,they may find themselves the targets of retaliatory action.The EU,for example,might respond to the failure of the United States to meet its treaty commitments by placing a carbon tariff on the import of certain goods from the United States.

Question 9

Which of the following actions reflect the use of trade policies by governments to further their foreign policy objectives?

Accepted Answer

Governments sometimes use trade policy to support their foreign policy objectives.A government may grant preferential trade terms to a country with which it wants to build strong relations.Trade policy has also been used several times to pressure or punish "rogue states" that do not abide by international law or norms.

Question 10

With the development of the _____ and _____,the economic arguments for government intervention have undergone a renaissance in recent years.

Accepted Answer

With the development of the new trade theory and strategic trade policy,the economic arguments for government intervention have undergone a renaissance in recent years.Until the early 1980s,most economists saw little benefit in government intervention and strongly advocated a free trade policy.This position has changed at the margins with the development of strategic trade policy.

Question 11

_____ status allows countries to export goods to the U.S.under favorable terms.

Accepted Answer

MFN status allows countries to export goods to the United States under favorable terms.An annual debate in the United States exists over whether to grant most favored nation (MFN)status to China,which would lower the average tariff on Chinese goods imported into the United States to 8 percent from about 40 percent without the MFN status.

Question 12

Legislation that allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution is known as the:

Accepted Answer

To further tighten the screws on Cuba,the U.S.Congress passed the Helms-Burton Act in 1996.This act allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution.Later in 1996,Congress passed a similar law,the D'Amato Act,aimed at Libya and Iran.

Question 13

Some argue that governments should use the threat of _____ to intervene in trade policy as a bargaining tool to help open foreign markets and force trading partners to "play by the rules of the game."

Accepted Answer

Some argue that governments should use the threat of retaliation to intervene in trade policy as a bargaining tool to help open foreign markets and force trading partners to "play by the rules of the game."

Question 14

Which one of the following Acts represents U.S.legislation that is similar to the Helms-Burton Act,but is aimed at 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.Later in 1996,Congress passed a similar law,the D'Amato Act,aimed at Libya and Iran.

Question 15

Which of the following is by far,the oldest economic argument for government intervention into the free flow of trade?

Accepted Answer

Proposed by Alexander Hamilton in 1792,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 16

According to the text,which of the following factors is likely to be the least important in determining location decisions for businesses?

Accepted Answer

Economists have studied the issue but have found little evidence that firms do move production in response to changes in pollution regulations.Their findings suggest that pollution abatement costs are a relatively small component of the cost structure of most enterprises,and other factors,such as labor productivity,access to technological know-how,and transportation costs are far more important in determining location decisions.

Question 17

U.S.trade sanctions against Cuba,Libya,and Iran are examples of:

Accepted Answer

Trade policy has been used several times to pressure or punish "rogue states" that do not abide by international law or norms.The theory is that such pressure might persuade the rogue state to mend its ways,or it might hasten a change of government.The United States has maintained long-running trade sanctions against Cuba.Their principal function is to impoverish Cuba in the hope that the resulting economic hardship will lead to the downfall of Cuba's Communist government and its replacement with a more democratically inclined (and pro-U.S. )regime.

Question 18

In 2006,several countries of the European Union and U.S.banned imports of Mattel toys with high levels of lead,manufactured in China.The underlying motive for such a move could be:

Accepted Answer

Many governments have long had regulations to protect consumers from unsafe products.The indirect effect of such regulations often is to limit or ban the importation of such products.The EU and the U.S.banned toxic lead based toys from entering their markets to protect domestic consumers from potential danger to their health.

Question 19

Empirical evidence suggests the relationship between income levels and pollution is not a linear one-rather it is an inverted U-shaped relationship-implying that international trade,and the growth that results from it,may not be damaging to the environment.Important exceptions to this trend are:

Accepted Answer

In developed nations such as the United States and United Kingdom,the air is much cleaner than it was half a century ago.This data suggests that international trade,and the growth that results from it,may not be damaging to the environment.However,carbon dioxide emissions do rise with income levels.Thus,the country with the highest income per capita,the United States,also produces the greatest carbon dioxide emissions per capita.

Question 20

_____ has 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.

Quiz 6: The Political Economy of International Trade