Question 1

By reducing available supplies of a product,an export embargo leads to falling prices in the target nation and increasing target-nation consumer surplus.

Accepted Answer

By reducing available supplies, an export embargo creates scarcity of the product, which leads to an increase in prices in the target nation, not a decrease. This reduces target-nation consumer surplus.

Question 2

Established in 1995,the World Trade Organization took charge of administering the new global trade rules agreed in the Uruguay Round of multilateral trade negotiations.

Accepted Answer

The statement is correct. The World Trade Organization was established in 1995 to administer the new global trade rules that were agreed upon in the Uruguay Round of multilateral trade negotiations.

Question 3

As a way of helping U.S.business firms trade in the world market on a more equal terms with their organized foreign competitors,the U.S.government permits them to form export trade associations and export trading companies.

Accepted Answer

This statement is true. The formation of export trade associations and export trading companies is a strategy used by the US government to facilitate the participation of US businesses in the global market and compete more effectively with foreign firms.

Question 4

The strategic-trade-policy hypothesis assumes that domestic firms operate under increasing cost conditions as well as in perfectly competitive markets.

Accepted Answer

The strategic trade policy hypothesis typically assumes that domestic firms operate under conditions of imperfect competition, such as oligopolies, rather than in perfectly competitive markets.

Question 5

The classical theory of comparative advantage assumes that firms operate in imperfectly competitive markets,while the theory of strategic trade policy assumes that firms operate in perfectly competitive markets.

Accepted Answer

The classical theory of comparative advantage assumes that firms operate in perfectly competitive markets, while the theory of strategic trade policy assumes that firms operate in imperfectly competitive markets.

Question 6

According to the strategic-trade-policy hypothesis,government can alter the terms of competition to favor domestic companies,thus increasing their profits at the expense of their rivals.

Accepted Answer

According to the strategic-trade-policy hypothesis, government intervention can potentially alter the terms of competition to benefit domestic firms. This may involve measures such as subsidies, tariffs, or other forms of protectionism that support domestic industries and limit the ability of foreign competitors to enter the market. The goal of this policy is to give domestic companies an advantage and increase their profits, while reducing the profits of their rivals.

Question 7

According to the strategic-trade-policy hypothesis,a subsidy granted to domestic exporters may lead to increased export profits which more than offset the cost of the subsidy to domestic taxpayers.

Accepted Answer

According to the strategic-trade-policy hypothesis, a subsidy granted to domestic exporters can help them gain a competitive advantage in international markets, leading to increased export profits. This can more than offset the cost of the subsidy to domestic taxpayers, as the increased profits generate additional tax revenue and economic growth. However, this hypothesis is debated and controversial, and some argue that subsidies can lead to negative consequences such as trade wars and market distortions.

Question 8

The Uruguay Round of multilateral trade negotiations succeeded in establishing the World Trade Organization.

Accepted Answer

The statement is true. The Uruguay Round, which took place from 1986-1994, led to the establishment of the World Trade Organization (WTO) in 1995.

Question 9

Unlike Japan and the United States,France has refrained from forming explicit industrial policies to enhance the competitiveness of its national champions.

Accepted Answer

France has a history of forming explicit industrial policies, including the establishment of national champions in industries such as aviation, nuclear power, and high-speed trains. These policies have aimed at enhancing the competitiveness and success of these companies domestically and internationally.

Question 10

Concerning industrial policy,the United States has nationalized its major industries in an attempt to promote global champions.

Accepted Answer

The United States has not nationalized major industries as part of its industrial policy. Rather, the government promotes competition and innovation through antitrust laws and other measures, while also investing in research and development and providing support for certain industries through tax incentives and other programs. The goal is not to create global champions through nationalization, but rather to foster a vibrant and competitive economy.

Question 11

In the post World War II era,the Japanese government formed industrial policies to encourage the development of its steel,auto,shipbuilding,and machine tool industries.

Accepted Answer

This statement is true. After World War II, Japan's government actively supported the development of key industries such as steel, auto, shipbuilding, and machine tools through industrial policies such as the Ministry of International Trade and Industry (MITI) and the Japan Development Bank. This led to Japan's economic growth and success in the latter half of the 20th century.

Question 12

It is widely recognized that the economic sanctions levied against Iraq in 1990 were a major factor causing Iraq to withdraw its military forces from Kuwait.

Accepted Answer

The answer of It is widely recognized that the economic...

Question 13

Assume that the United States is the only supplier of grain to China and that it levies a partial export embargo against China.The embargo leads to increased U.S.welfare if the resulting improvement in the U.S.terms of trade with China more than offset the costs of the lower export volume to China.

Accepted Answer

If the terms of trade between the US and China improve enough due to the partial export embargo, the benefits to the US could outweigh the costs of exporting less to China.

Question 14

The General Agreement on Tariffs and Trade was founded in 1995 as a successor to the World Trade Organization.

Accepted Answer

The statement is incorrect as the General Agreement on Tariffs and Trade (GATT) was founded in 1947 and became part of the World Trade Organization (WTO) in 1995 as a result of the Uruguay Round of negotiations. So, the WTO is the successor of GATT, not the other way around.

Question 15

If the U.S.government pursued a "knowledge-based growth policy," it would subsidize particular firms to help them compete in the world economy.

Accepted Answer

A "knowledge-based growth policy" typically focuses on investing in education, research and development, and innovation across the economy rather than subsidizing specific firms. This approach aims to enhance the overall knowledge base and productivity of the economy.

Question 16

Economic sanctions are most effective in pressuring the target country to modify its behavior when the sanctions are imposed by a small number of countries and when the target country had weak economic ties to the imposing countries before the sanctions were initiated.

Accepted Answer

Economic sanctions are generally more effective when they are imposed by a large number of countries, especially those with significant economic ties to the target country, as this increases the economic pressure and reduces the target's ability to find alternative trading partners or financial support.

Question 17

Assume that the United States imports chemicals from Germany.Trade theory predicts that if the German government grants an export subsidy to its chemical firms,the overall welfare of the United States will increase.

Accepted Answer

An export subsidy from the German government to its chemical firms would lower the cost of chemicals for importers in the United States, potentially reducing prices for consumers and industries that use these chemicals, thereby increasing the overall welfare of the United States.

Question 18

Assume that Russia has a comparative advantage in vodka.If the United States extends Russia the benefits of the normal-trade-relations (most favored nation)principle,U.S.consumer surplus decreases in the vodka market.

Accepted Answer

When the United States extends Russia the benefits of the normal-trade-relations (most-favored-nation) principle, it typically reduces tariffs or trade barriers on Russian vodka. Since Russia has a comparative advantage in vodka production, this means it can produce vodka more efficiently (at a lower cost) than the United States. As a result, the supply of vodka in the U.S. market would increase, leading to lower prices for consumers. Lower prices increase consumer surplus, as consumers can either buy the same amount of vodka for less money or more vodka for the same amount of money.

Question 19

The World Trade Organization brings into the multilateral trading system manufactured goods and agricultural products,but not trade in services,intellectual property protection,and investment.

Accepted Answer

The World Trade Organization covers not only manufactured goods and agricultural products but also trade in services, intellectual property protection, and investment.

Question 20

According to the strategic- trade- policy hypothesis,governmental subsidies granted to domestic producers can help them in capturing economic profits from foreign competitors.

Accepted Answer

According to the strategic-trade-policy hypothesis, governmental subsidies can help domestic producers in capturing economic profits from foreign competitors. This is because these subsidies allow the domestic producers to lower their costs and become more competitive in the global market. This helps them to capture a larger market share and generate more profits. However, there are also potential drawbacks to this approach, such as the risk of retaliation by other countries and the inefficiency of government intervention in the market.

Quiz 6: Trade Regulations and Industrial Policies