ECO 361: Chapter 7
99. What are some of the growth strategies that have been employed by the developing nations? How successful are these strategies?
Besides attempting to stabilize commodity prices, developing nations have promoted internal industrialization through policies of import substitution and export promotion. Countries emphasizing export promotion have tended to realize higher rates of economic growth than countries emphasizing import-substitution policies.
97. What are some major trade problems faced by developing nations?
Trade problems include lack of diversification of economies, unstable export markets, declining terms of trade over time, and lack of access to markets of advanced countries.
41. Consider Figure 7.3. Under competitive conditions, producer profits total: a. $0 b. $140 c. $200 d. $280
a. $0
52. East Asian economies started enacting export-push strategies a. By late 1950s and 1960s b. Immediately after World War II c. In the late 1980s d. In the early 2000s
a. By late 1950s and 1960s
4. If the demand schedule for bauxite is relatively inelastic to price changes, an increase in the supply schedule of bauxite will cause a: a. Decrease in price and a decrease in sales revenue b. Decrease in price and an increase in sales revenue c. Increase in price and a decrease in sales revenue d. Increase in price and an increase in sales revenue
a. Decrease in price and a decrease in sales revenue
26. Stabilizing commodity prices around long-term trends tends to benefit importers at the expense of exporters in markets characterized by: a. Demand-side disturbances b. Supply-side disturbances c. Demand-side and supply-side disturbances d. None of the above
a. Demand-side disturbances
46. Export-led growth tends to: a. Exploit domestic comparative advantages b. Discourage competition in the global economy c. Lead to unemployment among domestic workers d. Help firms benefit from diseconomies of large-scale production
a. Exploit domestic comparative advantages
21. Which industrialization policy used by developing countries places emphasis on the comparative advantage principle as a guide to resource allocation? a. Export promotion b. Import substitution c. International commodity agreements d. Multilateral contract
a. Export promotion
8. The OPEC nations during the 1970s manifested their market power by utilizing: a. Export tariffs levied for revenue purposes b. Export tariffs levied for protective purposes c. Import tariffs levied for protective purposes d. Import tariffs levied for revenue purposes
a. Export tariffs levied for revenue purposes
17. To help developing countries expand their industrial base, some industrial countries have reduced tariffs on designated manufactured imports from developing countries below the levels applied to imports from industrial countries. This scheme is referred to as: a. Generalized system of preferences b. Export-led growth c. International commodity agreement d. Reciprocal trade agreement
a. Generalized system of preferences
49. The development of countries like South Korea and Singapore has been underlaid by all of the following except: a. High domestic interest rates b. R&D and product innovation c. Education and on-the-job training d. High levels of saving and investment
a. High domestic interest rates
57. The developing nations are most of those in Africa, Asia, North America, and Western Europe. a. True b. False
b. False
60. Developing nations overwhelmingly acknowledge that they have benefited from international trade according to the principle of comparative advantage. a. True b. False
b. False
62. For developing countries, a key factor underlying the instability of primary-product prices and export receipts is the high price elasticity of demand for products such as tin and copper. a. True b. False
b. False
64. If the demand for coffee is price inelastic, an increase in the supply of coffee leads to falling prices and rising sales revenues. a. True b. False
b. False
68. During periods of falling demand for coffee, an International Commodity Agreement could offset downward pressure on price by implementing policies to increase the supply of coffee. a. True b. False
b. False
69. To prevent the market price of tin from rising above the target price, the manager of a buffer stock will purchase excess supplies of tin from the market. a. True b. False
b. False
71. Prolonged defense of a price ceiling tends to increase the supply of a commodity held by a buffer stock manager, thus putting downward pressure on price. a. True b. False
b. False
73. A multilateral contract stipulates the maximum price at which importing nations will purchase guaranteed quantities from producing nations and the minimum price at which producing nations will sell guaranteed amounts to importing nations. a. True b. False
b. False
74. It is widely agreed that import-substitution policies have been a main contributor to above-average growth rates in developing countries. a. True b. False
b. False
100. Describe the flying-geese pattern of economic growth? What countries have pursued this strategy?
It is widely recognized that East Asian economies have followed the flying-geese pattern of growth. This pattern of growth occurs when countries gradually move up in technological development by following in the pattern of countries ahead of them in the development process. For example, Malaysia and Taiwan take over leadership in apparel and textiles from Japan as Japan moves into higher-technology sectors of automotive and electronic products.
98. Are economic downturns helpful to cartels?
No they are generally problematic for cartels. As market sales dwindle in a weakening economy, profits fall. Cartel members may conclude that they can escape serious decreases in profits by reducing prices, in expectation of gaining sales at the expense of other cartel members.
14. Which terms-of-trade concept emphasizes a nation's capacity to import? a. Income terms of trade b. Commodity terms of trade c. Barter terms of trade d. Price terms of trade
a. Income terms of trade
3. Concerning the price elasticities of supply and demand for commodities, empirical estimates suggest that most commodities have: a. Inelastic supply schedules and inelastic demand schedules b. Inelastic supply schedules and elastic demand schedules c. Elastic supply schedules and inelastic demand schedules d. Elastic supply schedules and elastic demand schedules
a. Inelastic supply schedules and inelastic demand schedules
11. If the bauxite exporting countries form a cartel to boost the price of bauxite so as to increase sales revenue, they believe that the demand for bauxite: a. Is inelastic with respect to price changes b. Is elastic with respect to price changes c. Will increase in response to a price increase d. Will not change in response to a price change
a. Is inelastic with respect to price changes
54. A key factor underlying the instability of primary product prices and export receipts of developing nations is the a. Low price elasticity of the demand of primary products b. High price elasticity of supply of primary products c. High price elasticity of demand of primary products d. None of the above
a. Low price elasticity of the demand of primary products
23. Concerning the hypothesis that there has occurred a long-run deterioration in the developing countries' terms of trade, empirical studies provide: a. Mixed evidence that does not substantiate the deterioration hypothesis b. Overwhelming support for the deterioration hypothesis c. Overwhelming opposition to the deterioration hypothesis d. None of the above
a. Mixed evidence that does not substantiate the deterioration hypothesis
53. Prior to the formation of the Organization of Petroleum Exporting Countries, individual oil producing nations, a. Operated like sellers in a competitive market b. Behaved like individual sellers in a monopoly market c. Had considerable control over the price of oil d. Both b and c.
a. Operated like sellers in a competitive market
44. Consider Figure 7.3. Under a profit-maximizing cartel, producers realize: a. Profits totaling $280 b. Profits totaling $360 c. Losses totaling $140 d. Losses totaling $180
a. Profits totaling $280
45. Import substitution policies make use of: a. Tariffs that discourage goods from entering a country b. Quotas applied to goods that are shipped abroad c. Production subsidies granted to industries with comparative advantages d. Tax breaks granted to industries with comparative advantages
a. Tariffs that discourage goods from entering a country
58. Most developing-nation exports go to industrial nations while most developing-nation imports originate in industrial nations. a. True b. False
a. True
59. The majority of developing-nation exports are primary products such as agricultural goods and raw materials; of the manufactured goods exported by developing nations, most are labor-intensive goods. a. True b. False
a. True
61. Among the economic problems facing developing countries have been low dependence on primary-product exports, unstable export markets, and worsening terms of trade. a. True b. False
a. True
63. Empirical research indicates that the demand and supply schedules for most primary products are relatively inelastic to changes in price. a. True b. False
a. True
65. Not only do changes in demand induce relatively wide fluctuations in price when supply is inelastic, but changes in supply induce relatively wide fluctuations in price when demand is inelastic. a. True b. False
a. True
66. Developing countries have complained that because their commodity terms of trade has deteriorated in recent decades, they should receive preferential tariff treatment from industrialized countries. a. True b. False
a. True
67. To promote stability in commodity markets, International Commodity Agreements have utilized production and export controls, buffer stocks, and multilateral contracts. a. True b. False
a. True
70. To prevent the market price of tin from falling below the target price, the manager of a buffer stock would purchase any excess supply of tin that exists at the target price. a. True b. False
a. True
72. Rather than conduct massive stabilization operations, buffer stock officials will periodically revise target prices should they move out of line with long-term price trends. a. True b. False
a. True
77. In recent decades, the East Asian "newly industrializing countries" have pursued export-led growth (outward orientation) as an industrialization strategy. a. True b. False
a. True
78. The purpose of a cartel is to support prices higher than would occur under more competitive conditions, thus increasing the profits of cartel members. a. True b. False
a. True
80. When cartel members agree to restrict output to increase the price of their product, a single member of the cartel has an economic incentive to violate the agreement by increasing its output so as to increase profits. a. True b. False
a. True
25. Hong Kong and South Korea are examples of developing nations that have recently pursued industrialization policies. a. Import substitution b. Export promotion c. Commercial dumping d. Multilateral contract
b. Export promotion
81. Developing countries have often felt that it is easier to protect their manufacturers, via import-substitution policies, against foreign competitors than to force industrial nations to reduce trade restrictions on products exported by developing countries. a. True b. False
a. True
83. Export-led growth industrialization suffers a major problem: it depends on the willingness and ability of foreign nations to absorb the goods exported by the country pursuing such a policy. a. True b. False
a. True
86. During the late 1980s and early 1990s, China dismantled much of its centrally-planned economy and permitted free enterprise to replace it. a. True b. False
a. True
88. Most of China's manufactured exports have constituted labor-intensive goods. a. True b. False
a. True
90. A multilateral contract specifies the maximum price at which exporting countries agree to sell a product and the minimum price at which importing countries agree to buy a product. a. True b. False
a. True
91. As a profit-maximizing cartel, the Organization of Petroleum Exporting Countries would produce a greater output and charge a lower price than what would occur in a competitive market. a. True b. False
a. True
92. The success of buffer stocks is limited by the fact that stockpiles of a product may be exhausted after prolonged sales, while funds may be exhausted after prolonged purchases. a. True b. False
a. True
96. During periods of weak demand, the Organization of Petroleum Countries has implemented production (export) quotas to ensure that excess oil supplies be kept off the market. a. True b. False
a. True
40. Consider Figure 7.3. Under competitive conditions, the price of a barrel of oil equals: a. $7 b. $11 c. $12 d. $16
b. $11
42. Consider Figure 7.3. Under a profit-maximizing cartel, the quantity of oil produced equals: a. 40 barrels b. 70 barrels c. 90 barrels d. 110 barrels
b. 70 barrels
12. If the supply schedule for tin is relatively inelastic to price changes, a decrease in the demand schedule for tin will cause a: a. Decrease in price and an increase in sales revenue b. Decrease in price and a decrease in sales revenue c. Increase in price and an increase in sales revenue d. Increase in price and a decrease in sales revenue
b. Decrease in price and a decrease in sales revenue
36. Consider Figure 7.2. Assume there exists a cartel of several producers that is maximizing total profit. If one producer cheats on the cartel agreement by decreasing its price and increasing its output, rational action of the other producers is to: a. Increase their price in order to regain sacrificed profits b. Decrease their price as well c. Keep on selling at the agreed-upon price d. Give the product away for free
b. Decrease their price as well
48. The characteristics that have underlaid the economic success of the "high-performing Asian Economies" have included all of the following except: a. High rates of domestic investment b. Diseconomies of scale occurring at low output levels c. Large endowments of human capital d. High levels of labor productivity
b. Diseconomies of scale occurring at low output levels
75. Under the Generalized System of Preferences program, the major industrial countries agree to temporarily reduce tariffs on designated imports from other industrial countries. a. True b. False
b. False
76. The "newly industrializing countries" of East Asia have emphasized the implementation of import-substitution policies to insulate their industries from international competition. a. True b. False
b. False
79. A cartel tends to be most successful in maximizing the profits of its members when there are a large number of producers in the cartel and these producers' cost and demand conditions greatly differ from each other. a. True b. False
b. False
82. Import-substitution policies are supported by the fact that many developing countries have small domestic markets and thus their producers enjoy the benefits of diseconomies of small-scale production. a. True b. False
b. False
84. The so-called Four Tigers include Australia, South Korea, Taiwan, and Hong Kong. a. True b. False
b. False
85. By the 1990s, China had departed from a capitalistic economy and shifted to a Soviet-type economy encompassing small-scale, labor-intensive industry. a. True b. False
b. False
87. In its transition toward capitalism, by the 1990s China permitted free enterprise as well as democracy for its people. a. True b. False
b. False
89. In 1999 the United States revoked the normal-trade-relations (most-favored-nation) status it provided China in retaliation for China's suppression of human rights. a. True b. False
b. False
93. The United Nation Conference on Trade and Development in 1964 was successful in convincing developing countries to switch from export-led industrialization to import-substitution industrialization. a. True b. False
b. False
94. Under the Generalized System of Preferences program, the industrialized countries agree to maintain lower tariffs on imports of natural resources and higher tariffs on imports of manufactured goods. a. True b. False
b. False
95. The replacement of imports of one nation with imports of another nation is known as "import substitution." a. True b. False
b. False
2. International commodity agreements do not: a. Consist of consuming and producing nations who desire market stability b. Levy export cutbacks so as to offset rising commodity prices c. Utilize buffer stocks to generate commodity price stability d. Increase the supply of commodities to prevent rising prices
b. Levy export cutbacks so as to offset rising commodity prices
37. A reason why it is difficult for producers to maintain a cartel is that: a. The elasticity of demand for the cartel's output decreases over time b. Producers in the cartel have the economic incentive to cheat c. Economic profits discourage other producers from entering the industry d. Producers in the cartel have the motivation to lower price but not to raise price
b. Producers in the cartel have the economic incentive to cheat
34. Consider Figure 7.2. Suppose the supply of tin increases from S0 to S1. Under a buffer stock system, the buffer-stock manager could maintain the target price by: a. Purchasing 15 pounds of tin b. Purchasing 30 pounds of tin c. Selling 15 pounds of tin d. Selling 30 pounds of tin
b. Purchasing 30 pounds of tin
22. A widely used indicator to differentiate developed countries from developing countries is: a. International trade per capita b. Real income per capita c. Unemployment per capita d. Calories per capita
b. Real income per capita
31. Consider Figure 7.1. Suppose the demand for tin increases from D0 to D1. Under a buffer stock system, the buffer-stock manager could maintain the target price by: a. Selling 15 pounds of tin b. Selling 30 pounds of tin c. Buying 15 pounds of tin d. Buying 30 pounds of tin
b. Selling 30 pounds of tin
9. One factor that has prevented the formation of cartels for producers of commodities is that: a. The demand for commodities tends to be price inelastic b. Substitute products exist for many commodities c. Commodity produces have been able to dominate world markets d. Production of most commodities is capital intensive
b. Substitute products exist for many commodities
27. Stabilizing commodity prices around long-term trends tends to benefit exporters at the expense of importers in markets characterized by: a. Demand-side disturbances b. Supply-side disturbances c. Demand-side and supply-side disturbances d. None of the above
b. Supply-side disturbances
56. Figure 7.5 represents the global market for tin. The initial equilibrium price and quantity is at point A. As a result of an International Tin Agreement a price range of $3.27 - $4.02 is set. As the supply of tin increases from S0 to S1, the buffer-stock manager will need to a. buy 10,000 pounds of tin b. buy 20,000 pounds of tin c. sell 10,000 pounds of tin d. sell 20,000 pounds of tin
b. buy 20,000 pounds of tin
43. Consider Figure 7.3. Under a profit-maximizing cartel, the price of a barrel of oil equals: a. $7 b. $11 c. $16 d. $19
c. $16
47. All of the following nations except ____ have recently utilized export-led (outward oriented) growth policies. a. Hong Kong b. South Korea c. Argentina d. Singapore
c. Argentina
6. Which device has the International Tin Agreement utilized as a way of stabilizing tin prices? a. Multilateral contracts b. Export subsidies c. Buffer stocks d. Export tariffs
c. Buffer stocks
13. Which of the following could partially explain why the terms of trade of developing countries might deteriorate over time? a. Developing-country exports mainly consist of manufactured goods b. Developing-country imports mainly consist of primary products c. Commodity export prices are determined in highly competitive markets d. Commodity export prices are solely determined by developing countries
c. Commodity export prices are determined in highly competitive markets
38. Once a cartel establishes its profit-maximizing price: a. Entry into the industry of new competitors will not affect the cartel's profits b. Output changes by cartel members have no effect on the market price c. Each cartel member is tempted to cheat on the cartel price in order to add to its profit d. All cartel members have a strong incentive to adhere to the agreed-upon price
c. Each cartel member is tempted to cheat on the cartel price in order to add to its profit
16. Which trade strategy have developing countries used to replace commodity exports with exports such as processed primary products, semi-manufacturers, and manufacturers? a. Multilateral contract b. Buffer stock c. Export promotion d. Export quota
c. Export promotion
30. To help developing nations strengthen their international competitiveness, many industrial nations have granted nonreciprocal tariff reductions to developing nations under the: a. International commodity agreements program b. Multilateral contract program c. Generalized system of preferences program d. Export-led growth program
c. Generalized system of preferences program
29. To be considered a good candidate for an export cartel, a commodity should: a. Be a manufactured good b. Be a primary product c. Have a low price elasticity of supply d. Have a high price elasticity of demand
c. Have a low price elasticity of supply
10. Which device has been used by the International Wheat Agreement to stipulate the minimum prices at which importers will buy stipulated quantities from producers and the maximum prices at which producers will sell stipulated quantities to importers? a. Buffer stocks b. Export controls c. Multilateral contracts d. Production controls
c. Multilateral contracts
19. Assuming identical cost and demand curves, OPEC as a cartel will, in comparison to a competitive industry: a. Produce greater output and charge a lower price b. Produce greater output and charge a higher price c. Produce less output and charge a higher price d. Produce less output and charge a lower price
c. Produce less output and charge a higher price
20. Which of the following situations reduces the likelihood of successful operation of a cartel? a. Cartel sales experience a rapid expansion b. The demand for cartel output is price inelastic c. The number of firms in the cartel is large d. It is very difficult for new firms to enter the market
c. The number of firms in the cartel is large
39. Consider Figure 7.3. Under competitive conditions, the quantity of oil produced equals: a. 40 barrels b. 70 barrels c. 90 barrels d. 110 barrels
d. 110 barrels
50. For most developing countries: a. Productivity is high among domestic workers b. Population-growth and illiteracy rates are low c. Saving and investment levels are high d. Agricultural goods and raw materials constitute much of domestic output
d. Agricultural goods and raw materials constitute much of domestic output
51. East Asian economies have performed well by a. Obtaining foreign technology b. Remaining open to international trade c. Investing in their people d. All of the above
d. All of the above
32. Consider Figure 7.1. Suppose the demand for tin decreases from D0 to D2. Under a buffer stock system, the buffer-stock manager could maintain the target price by: a. Selling 15 pounds of tin b. Selling 30 pounds of tin c. Buying 15 pounds of tin d. Buying 30 pounds of tin
d. Buying 30 pounds of tin
33. Consider Figure 7.1. Suppose the demand for tin decreases from D0 to D2. Under a system of export quotas, the tin producers could maintain the target price by: a. Increasing the quantity of tin supplied by 15 pounds b. Increasing the quantity of tin supplied by 30 pounds c. Decreasing the quantity of tin supplied by 15 pounds d. Decreasing the quantity of tin supplied by 30 pounds
d. Decreasing the quantity of tin supplied by 30 pounds
28. To be considered a good candidate for an export cartel, a commodity should: a. Be a manufactured good b. Be a primary product c. Have a high price elasticity of supply d. Have a low price elasticity of demand
d. Have a low price elasticity of demand
15. Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers, who thus can take over markets already established in the country? a. International commodity agreement b. Export promotion c. Multilateral contract d. Import substitution
d. Import substitution
24. For the oil-importing countries, the increases in oil prices in 1973-1974 and 1979-1980 resulted in all of the following except: a. Balance of trade deficits b. Price inflation c. Constrained economic growth d. Improving terms of trade
d. Improving terms of trade
7. Which method has not generally been used by the international commodity agreements to stabilize commodity prices? a. Production quotas applied to the level of commodity output b. Buffer stock arrangements among producing nations c. Export restrictions applied to international sales of commodities d. Measures to nationalize foreign-owned production operations
d. Measures to nationalize foreign-owned production operations
5. A primary goal of international commodity agreements has been the: a. Maximization of members' revenues via export taxes b. Nationalization of corporations operating in member nations c. Adoption of tariff protection against industrialized nation sellers d. Moderation of commodity price fluctuations when markets are unstable
d. Moderation of commodity price fluctuations when markets are unstable
18. Which nation accounts for the largest amount of OPEC's oil reserves and production? a. Iran b. Libya c. Iraq d. Saudi Arabia
d. Saudi Arabia
1. Which of the following is not a major factor that encourages developing nations to form international commodity agreements? a. Inelastic commodity supply schedules b. Inelastic commodity demand schedules c. Export markets that tend to be unstable d. Secular increases in their terms of trade
d. Secular increases in their terms of trade
35. Consider Figure 7.2. Suppose the supply of tin decreases from S0 to S2. Under a buffer stock system, the buffer-stock manager could maintain the target price by: a. Purchasing 15 pounds of tin b. Purchasing 30 pounds of tin c. Selling 15 pounds of tin d. Selling 30 pounds of tin
d. Selling 30 pounds of tin
55. Consider the global market for tin represented by figure 7.4. Initially equilibrium is at point A with a market price of $3.50 per pound and 50,000 pounds. In ordr to keep tin price relatively stable an International Tin Agreement has set a price floor of $3.27 and a ceiling of $4.02. As the demand for tin increases to D1 how will the buffer-stock manager need to respond? a. buy 10,000 pounds of tin b. buy 20,000 pounds of tin c. sell 10,000 pounds of tin d. sell 20,000 pounds of tin
d. sell 20,000 pounds of tin
