Chapter 7 Quiz Chen

The country of Nunrovia imposes a fixed charge of $3 per barrel of oil imported into the country. Which of the following instruments of trade policy is used by Nunrovia? A. specific tariff B. GATT tariff C. subsidies D. import quotas E. antidumping duties

B. GATT tariff

The economically damaging effects of the Great Depression were worsened in 1929 by the A. first World War. B. U.S. stock market collapse. C. spread of communism through Europe. D. Cold War between the world's superpowers. E. harvest failure in Great Britain and famine in Ireland.

B. U.S. stock market collapse.

A charge of 15-20% was levied by the government of Cadmia on the value of automobile accessories imported from a neighboring country. This increased the price of those imported car accessories for the consumers in Cadmia. Which of the following instruments of trade policy is being used by the government of Cadmia? A. local content tariff B. ad valorem tariff C. subsidies D. import quotas E. antidumping duties

B. ad valorem tariff

The Republic of Zander is a member of the European Union (EU). As an EU member, the Republic of Zander gives cash grants to domestic agricultural producers. Which of the following instruments of trade policy is being used by the government of The Republic of Zander? A. local content tariff B. ad valorem tariff C. subsidies D. import quotas E. antidumping duties

B. ad valorem tariff

If Argonia exports vast quantities of cheap toys to Cadmia, selling them at below their costs of production, it would constitute A. monopolism. B. dumping. C. offshoring. D. nearshoring. E. subsidizing.

B. dumping.

The United States accused Libya and Iran of supporting terrorist action and building weapons of mass destruction. The U.S. government, therefore, imposed trade sanctions against the two countries. Which of the following political arguments does this exemplify? A. retaliation and trade war B. furthering foreign policy objectives C. strategic trade policy D. corporate security E. protecting infant industries

B. furthering foreign policy objectives

Because Maroji limits the annual export of dairy products to Mipon, Mipon's dairy producers reap extra annual profits of $500 million. The extra profit is referred to as A. net profit. B. quota rent. C. trade surplus. D. profit margin. E. quota share.

B. quota rent.

Which of the following groups would benefit the most from receiving subsidies? A. governments B. international organizations such as the WTO C. domestic producers D. importers E. foreign competitors

C. domestic producers

According to Paul Krugman, a country that attempts to use strategic trade policy to establish a domestic firm in a dominant position in a global industry, is most likely to A. dominate the industry. B. move away from protectionism. C. provoke retaliation. D. incur huge financial debts. E. upset the special-interest groups within the economy.

C. provoke retaliation.

The principal function of the trade sanctions the U.S. has in place against Cuba is to A. prevent other countries from trading with Cuba. B. aid Cuba in creating a direct trade route to the U.S. C. create a nearby dumping site for large businesses. D. impoverish Cuba to lead to the downfall of the communist government. E. force Cuba to enter into the NATO agreement.

D. impoverish Cuba to lead to the downfall of the communist government.

Many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries cannot initially compete with well-established industries in developed countries, according to A. economic development argument. B. comparative advantage theory. C. national security argument. D. infant industry argument. E. mixed economy theory.

D. infant industry argument.

Which of the following statements is true regarding GATT? A. GATT attempted to liberalize trade restrictions in one go. B. In its early years, GATT was unsuccessful and hence was superseded by the World Bank. C. GATT regulations were mostly enforced by the EU nations rather than by a mutual monitoring mechanism. D. Tariff reductions through negotiations were completed in three rounds. E. The last round for tariff reduction, the Uruguay Round, was launched in 1986 and completed in December 1993.

E. The last round for tariff reduction, the Uruguay Round, was launched in 1986 and completed in December 1993.

By lowering production costs, subsidies help foreign competitors gain export markets.

False

Free trade as a government policy was first officially embraced by Germany in 1846, when the Bundestag repealed the Corn Laws.

False

In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.

False

Paul Krugman argues that although strategic trade policy looks unappealing in theory, in practice it is most likely to be workable.

False

A firm may set up production activities in a foreign country, where trade barriers do not currently exist, to reduce the threat of trade barriers being imposed later.

True

Government intervention can be self-defeating because it tends to protect the inefficient rather than help firms become efficient global competitors.

True

In recent decades, a fall in subsidies, quotas, and voluntary export restraints has been accompanied by a rise in tariff barriers.

False

Pressures for greater protectionism increased around the world during the 1980s and early 1990s due to the strain caused by the persistent trade deficit in the world's largest economy, Japan.

False

Since strong economic arguments support unrestricted free trade, governments of developed nations are setting an example by unilaterally lowering their trade barriers.

False

Some countries argue that government intervention to protect certain domestic industries can compromise national security.

False

The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import quotas.

False

The main gains from subsidies accrue to importers, whose international competitiveness is increased as a result of these subsidies.

False

The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market share in a country.

False

Trade barriers encourage firms to disperse their productive activities—design, production, and assembly—to foreign nations.

False

Which of the following is the term for when a lower tariff rate is applied to imports within the quota than those over the quota? A. tariff rate quota B. voluntary import restraint C. import duty D. quota rent E. import quota

A. tariff rate quota

Which of the following best indicates the motive for foreign firms to engage in dumping? A. unloading excess production in foreign markets B. cutting labor costs to reduce the costs of production C. providing a wider range of products for consumers in foreign markets D. meeting the voluntary export requirements imposed on it E. obtaining subsidies from the importing country

A. unloading excess production in foreign markets

Which of the following multilateral agreements was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like? A. General Agreement on Tariffs and Trade (GATT) B. North American Free Trade Agreement (NAFTA) C. Central American Free Trade Agreement (CAFTA) D. Free Trade Areas of the Americas (FTAA) E. North Atlantic Treaty Organization (NATO)

A. General Agreement on Tariffs and Trade (GATT)

Which of the following statements is true about import quotas? A. Import quotas benefit domestic producers by limiting import competition. B. Import quotas always lower the prices for domestically produced goods. C. Higher tariff rates are usually applied to imports within the quota than those over the quota. D. Import quotas benefit consumers by decreasing the domestic price of an imported good. E. Import quotas help foreign producers gain a competitive advantage.

A. Import quotas benefit domestic producers by limiting import competition.

Which of the following is a major reason why many economists remain critical of the infant industry argument? A. It makes the domestic industry inefficient. B. It does not provide guaranteed employment for the citizens. C. It affects the standards of living and per capita income of the people. D. It promotes foreign direct investment. E. It leads to reduced prices in domestic markets.

A. It makes the domestic industry inefficient.

Which of the following is true regarding the difference between GATT and WTO? A. The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment unlike GATT. B. WTO operates on the basis of consensus unlike GATT. C. GATT gives trading partners the right to compensation or, in the last resort, to impose (commensurate) trade sanctions unlike WTO. D. GATT's verdict is binding unlike that of WTO's. E. WTO allows member-countries to block adoption of arbitration reports unlike GATT.

A. The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment unlike GATT.

Which of the following indicates the difference between GATT and WTO? A. WTO has strict time limits unlike GATT. B. WTO operates on the basis of consensus unlike GATT. C. GATT gives trading partners the right to compensation or, in the last resort, to impose (commensurate) trade sanctions unlike WTO. D. GATT's verdict is binding unlike that of WTO's. E. WTO allows member-countries to block adoption of arbitration reports unlike GATT.

A. WTO has strict time limits unlike GATT.

Which of the following groups benefits the most from the imposition of tariffs? A. domestic producers B. consumers C. exporters and importers D. foreign producers E. international bodies such as WTO

A. domestic producers

By lowering production costs, subsidies help domestic producers to A. gain export markets. B. meet import quotas. C. meet voluntary export restraints. D. meet the local content requirement. E. compete in the domestic market against local producers.

A. gain export markets.

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something the GATT had never done. Two of the first industries targeted for this reform were A. global telecommunication and financial services industries. B. scientific research and defense sector. C. pharmaceuticals and heavy metal industry. D. pharmaceuticals and biotechnology. E. scientific research and global telecommunication.

A. global telecommunication and financial services industries.

According to Krugman, the ideal way for a country to respond, when the foreign competitors of its companies are already being supported by government subsidies, is probably not to engage in retaliatory action, but to A. help establish rules that minimize the use of trade-distorting subsidies. B. adopt the strategic trade policy as a way to establish domestic firms in a dominant position in the global industry. C. provide a subsidy to a new industry where the foreign competitors have not had the benefit of such strategic trade policies. D. use a combination of home-market protection and export-promoting subsidies. E. provide high levels of subsidies to the oldest industry in the country.

A. help establish rules that minimize the use of trade-distorting subsidies.

The tiny South Pacific island country of Maroji produces a lot of milk and milk-based products. To protect this industry, Maroji mandates that only designated trading companies can import cheese, each of which is allocated the right to import a maximum number of pounds of cheese each year. By doing this, Maroji controls the amount of imported cheese. This is an example of a(n) A. import quota. B. subsidy. C. import tariff. D. local content requirement. E. import duty.

A. import quota.

A government should use subsidies to support promising firms that are active in newly emerging industries, according to A. strategic trade policy. B. public policy. C. absolute advantage. D. product life-cycle. E. industrialization.

A. strategic trade policy.

Why is retaliation by government intervention a risky strategy? A. It encourages dumping by foreign companies. B. It could result in increased tariff barriers by the country that is being pressured. C. It may expose certain industries that are important for national security to foreign competition. D. It allows firms to sell goods in the foreign market at below their fair market value. E. It makes it difficult for domestic firms to make any investments by borrowing money from the domestic capital market.

B. It could result in increased tariff barriers by the country that is being pressured.

Which of the following is an argument against embracing strategic trade policy? A. It hampers the chances of a country's firms to effectively exploit the first-mover advantages. B. It is certain to be captured by special-interest groups within the economy, which will distort it to their own ends. C. It increases the prices of the products for the domestic consumers. D. It hampers the abilities of the domestic firms to achieve a dominant position in the global industry. E. It leads to a compromise in national sovereignty.

B. It is certain to be captured by special-interest groups within the economy, which will distort it to their own ends.

For years, the world had used the country of Votnam as a place to assemble goods because of the country's availability of cheap labor. To shift its manufacturing base from simple assembly to full-fledged manufacture of components and finished goods, Votnam introduced a policy that 35 percent of the value of a product must be produced locally. This is an example of a(n) A. international allocation requirement B. local content requirement C. specific quota requirement D. ad valorem portion requirement E. domestic sales requirement

B. local content requirement

Myra is a firm producing premium handbags for women. These bags are manufactured and patented in the country of Ceria. Manufacturers in the country of Argonia create counterfeit Myra bags and sell them in the local markets of Argonia. These bags are sold at almost similar prices to the original in other countries. Which of the following is likely to happen? A. expansion of world market for Cerian products B. reduction in the export opportunities for Myra's hand bags in Argonia C. reduction in import of all Argonian goods D. increase in the prices of handbags produced by Myra in Argonia E. reduction in opportunities of export from Argonia to other countries

B. reduction in the export opportunities for Myra's hand bags in Argonia

The country of Argonia imposes an ad valorem tariff of 10 percent on 1 million tons of rice imports, after which an out-of-quota tariff of 80 percent is applied. Which of the following trade policy instruments is Argonia using? A. subsidy B. tariff rate quota C. voluntary export restraint D. tariff ceiling E. local content requirement

B. tariff rate quota

Which of the following is a trade policy instrument that the GATT and WTO have been most successful in limiting? A. local content requirements B. tariffs C. subsidies D. voluntary export restraints E. import quotas

B. tariffs

Why did telecommunications companies welcome the telecommunication deal brokered by WTO in 1997? A. It enhanced protection of patents, copyrights, and trademarks (intellectual property). B. It helped resolve deadlock situations arising out of the unwillingness to lower trade barriers between neighboring countries. C. It offered a greater ability for companies to offer a global, seamless service for all their corporate needs. D. It liberalized trade policies by eliminating tariffs, subsidies, import quotas, antidumping duties, and local content requirements. E. It reduced the export of pirated imitations of patented innovations pioneered in a different country.

C. It offered a greater ability for companies to offer a global, seamless service for all their corporate needs.

The WTO's Agreement on which of the following is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules? A. Intellectual Property Rights Enforcement Directive (IPRED) B. Court of Arbitration of Intellectual Property (CAIP) C. Trade-Related Aspects of Intellectual Property Rights (TRIPS) D. Intellectual Property Rights Enforcement and Resolution (IPER) E. International Body on Intellectual Property (IBIP)

C. Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Which of the following statements is true about voluntary export restraints (VERs)? A. VERs benefit consumers by limiting import competition. B. VERs reduce the domestic price of an imported good. C. When imports are limited to a low percentage of the market by a VER, the price is bid up for that limited foreign supply. D. Foreign producers agree to VERs because they fear economic instability in the world economy. E. VERs negatively affect domestic producers by increasing import competition.

C. When imports are limited to a low percentage of the market by a VER, the price is bid up for that limited foreign supply.

The Palladian government required that all imported products that came from Lovaskiya be checked by Palladian customs inspectors. The inspection was done at a container freight station that was both remote and poorly staffed. This delayed the Lovaskiyan consignment from reaching the consumers in Palladia. The inspection strategy adopted by the customs officers in Palladia is an example of a(n) A. antidumping policy. B. voluntary export restraint policy. C. administrative trade policy. D. monopolistic competition policy. E. tariff rent policy.

C. administrative trade policy.

Dumping takes place when foreign producers A. attempt hostile takeovers of domestic firms and usurp the available resources for production. B. indiscriminately exploit the natural resources of a foreign country to create a later demand that can be met only by imports. C. eliminate competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits. D. capture the niche market rather than the masses. E. export only a small quantity of their products into an importing country.

C. eliminate competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits.

According to Krugman, which of the following best indicates the dangers of a strategic trade policy? A. decrease in subsidies B. decrease in protectionism C. occurrence of a trade war D. huge financial debts for the countries involved E. occurrence of a global recession

C. occurrence of a trade war

Cadmia banned imports of Mattel toys with high levels of toxic lead, manufactured in Argonia. The underlying motive for such a move could be A. protecting domestic businesses from unfair pricing. B. protesting the pricing of toys below their costs of production. C. protecting consumers from unsafe products. D. increasing the trade surplus of the United States. E. reducing dumping of cheap toys.

C. protecting consumers from unsafe products.

Which of the following is considered to be the ultimate objective of antidumping policies? A. protecting consumers from high prices B. preventing domestic firms from unloading their excess production in domestic markets C. protecting domestic producers from unfair foreign competition D. protecting consumers from substandard and hazardous products E. preventing foreign products from entering domestic market

C. protecting domestic producers from unfair foreign competition

Which of the following is the most common political argument for government intervention in international trade? A. decreasing the prices of products in the domestic market B. promoting strategic trade policy C. protecting jobs and industries from unfair foreign competition D. improving efficiency of domestic labor E. protecting human rights

C. protecting jobs and industries from unfair foreign competition

Which of the following is most likely to be an objective of export tariffs? A. abiding by the rules enforced by the WTO B. curbing the competition offered by foreign firms to domestic firms C. reducing exports from a sector, often for political reasons D. maintaining a positive trade deficit E. increasing the flow of capital in the international market

C. reducing exports from a sector, often for political reasons

Which of the following does NOT reinforce that the best interests of international business are served by a free trade stance? A. increasing integration of the world economy B. internationalization of production C. trend toward greater protectionism D. drawbacks of government intervention E. dispersion of production activities

C. trend toward greater protectionism

Maroji is a major exporter of dairy products. Mipon is a major exporter of heavy machinery but also has a sizeable domestic dairy industry. Since it imports a sizeable amount of heavy machinery from Mipon, Maroji, at the request of Mipon, limited the amount of dairy products it exports to Mipon each year. This is an example of A. tariff rate quota B. quota rent C. voluntary export restraint (VER) D. quota share E. export embargo

C. voluntary export restraint (VER)

Which of the following specifies that U.S. government agencies must give preference to U.S. products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage? A. Export Administration Act B. Helms-Burton Act C. Hawley-Burton Act D. Buy America Act E. Volcker Rule

D. Buy America Act

Which of the following are bureaucratic rules designed to make it difficult for imports to enter a country? A. voluntary export restraints B. consumer regulations C. subsidies D. administrative trade policies E. public sector regulations

D. administrative trade policies

Which of the following has been excluded from the agenda for the Doha round of WTO talks that began in 2001? A. reducing barriers to cross-border investment B. phasing out subsidies to agricultural producers C. limiting the use of antidumping laws D. attempts to tie trade to labor standards in a country E. cutting tariffs on industrial goods and services

D. attempts to tie trade to labor standards in a country

The Smoot-Hawley Act had a damaging effect on A. the balance-of-payment of the United States. B. cash flow in the domestic economy of the United States. C. prices of natural resources in the United States. D. employment abroad. E. accrued liabilities of the United States.

D. employment abroad.

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that A. protection of manufacturing from foreign competition is harmful. B. absolute advantage cannot sustain productivity of an industry. C. foreign firms too come under the definition of infant industry when they newly enter a foreign market. D. firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets. E. foreign competition will eventually cause domestic firms to improve the quality of their products.

D. firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets.

Which of the following is NOT a constraint on a firm's ability to disperse its productive activities to foreign countries? A. tariff barriers raising the costs of exporting products to a country B. quotas restricting the quantity of a good that can be imported into a country C. local content requirements demanding a specific fraction of domestic production D. increasing integration of the world economy E. antidumping policies limiting the ability of a firm to use aggressive pricing

D. increasing integration of the world economy

What is the result of the threat of antidumping action? A. helps the firm raise capital in the primary market B. limits the ability of a firm to raise prices in response to high demand C. enhances the firm's ability to disperse its productive activities in an efficient manner D. limits the ability of a firm to use aggressive pricing to gain market share in a country E. enhances a firm's competitive advantage to indigenous competitors in that country

D. limits the ability of a firm to use aggressive pricing to gain market share in a country

Animax Limited got an order to sell 50,000 central processing units (CPUs) to Palladia, but the Palladian government stipulated that 15 percent of the component parts of those CPUs must be produced in Palladia. This stipulation by the Palladian government would be example of a(n) A. voluntary export restraint. B. quota rent. C. import quota. D. local content requirement. E. antidumping policy.

D. local content requirement.

Bilateral voluntary export restraints, or VERs, circumvented GATT agreements, because A. these nations withdrew their membership to the GATT. B. the member nations had ceased to recognize GATT as a regulatory body for international trade. C. VERs were not a recognized trade barrier under the GATT constitution. D. neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action. E. member nations erected a wall of tariff barriers.

D. neither the importing country nor the exporting country complained to the GATT bureaucracy for it to take action.

Which of the following best explains the reason for the rise in protectionist pressures around the world during the 1980s? A. strict GATT bureaucracy in Geneva controlling trade regulations B. opening up of international markets to cheap products from China C. fall of the Soviet Union D. persistent trade deficit in the world's largest economy, the United States E. economic failure of Japan which hampered the global economy

D. persistent trade deficit in the world's largest economy, the United States

Which of the following is a loophole in antidumping laws that is being exploited by many countries to pursue protectionism? A. slackness of enforcement agencies B. WTO's noncommittal approach to antidumping laws C. bilateral VERs which subvert antidumping laws D. vague definition of what constitutes "dumping" E. lack of consensus among member nations

D. vague definition of what constitutes "dumping"

According to Alexander Hamilton, governments must temporarily support new industries until they have grown strong enough to meet international competition.

True

Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment.

True

Both import quotas and voluntary export restraints (VERs) benefit domestic producers by limiting import competition.

True

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.

True

Government intervention in international trade can take the form of reducing restrictions on imports and adopting policies that promote exports.

True

Governments can protect consumers from unsafe products by issuing a limit or a ban on such products.

True

Import tariffs protect domestic producers against foreign competitors.

True

One of the reasons for the trend toward greater protectionism during the 1980s and 1990s was that many countries found ways to get around GATT regulations.

True

Paul Krugman asserts that a strategic trade policy is almost certain to be captured by special-interest groups within the economy, who will distort it to their own needs.

True

Subsidies are a trade policy instrument.

True

The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade and this justification challenges the rationale for unrestricted free trade.

True