ECO

Consistent with the Heckscher-Ohlin theory and the Stolper-Samuelson theorem, which of the following groups in Germany will support its free trade agreement with Russia? Check all that apply.

Consumers Capital owners in the timber industry

Koopmansville has many natural lakes and streams. As a result, its residents grow up on the water and have a natural sense of how boats should work and be made. Because of that knowledge, even though there is demand for canoes in both countries, all of the canoe factories have located themselves in Koopmansville to take advantage of local knowledge.

Despite their similarities, Cassvania and Koopmansville are able to trade because ofexternal economies of scale.

Which of the following statements about the factor-price equalization theory and the effects of transportation costs are correct? Check all that apply.

Differences in transportation costs across countries are a source of comparative advantage. When nations trade, the cheap resource becomes relatively more expensive, and the expensive resource becomes relatively less expensive, until price equalization occurs.

Domestic production subsidies in a small country cause greater deadweight losses than do export subsidies.

False

Trade cycles exist for manufactured goods at some times.

False

True or False: In 1982, the U.S. government provided import quotas as an aid to domestic sugar producers to encourage the entry of foreign sugar into the U.S. market.

False

True or False: Subsidies impose a burden financed out of tax revenues paid by the public because subsidies require firms to sell their products below the market price.

False

Which of the following are effects of transportation costs on international trade patterns? Check all that apply.

High transportation costs reduce a nation's volume of trade. High transportation costs increase a nation's volume of trade.

Which of the following are correct descriptions of the effects of economies of scale on world trade patterns? Check all that apply.

Internal economies of scale provide additional cost incentives for specialization in production. Economies of scale are a source of comparative advantage.

What significance does growing economic interdependence have for a country like the United States? Check all that apply.

International political and economic events have an increasingly important effect on energy prices in the United States. Exports and imports decrease as a share of national output. The U.S. agricultural sector increasingly benefits from free trade. Exports and imports increase as a share of national output.

Apple decides to internally manufacture displays for iPhone products rather than working with Japanese and South Korean companies.

Not Outsourcing

Reduction of nuclear proliferation

Not an Objective

Since the turn of the century, nearly all X-ray machines purchased by hospitals have been made in Alloway. However, engineers in Osteoville recently designed an X-Ray machine that produces much more accurate results, leading to fewer malpractice cases and more reliable diagnoses. These new X-ray machines quickly become the industry standard. As a result of this, the production of X-ray machines is thriving in Osteoville, while firms in Alloway lose market share and begin trying to develop a new source of advantage.

Product Life Cycle Theory

Why might U.S. steel-using firms lobby against the imposition of quotas on foreign steel sold in the United States?

Quotas increase input prices, thereby contributing to higher product prices and loss of competitiveness.

A small country, like Ecuador, applies a higher tariff to imports from a large country that has been conducting unfair trade practices.

Retaliatory Tariff

Le Jouet is a profit-maximizing firm that produces toy trains. In France, its home country, it enjoys unchallenged market power due to trade barriers that restrict competition. However, Le Jouet also exports toy trains to Russia, where the market is highly competitive. Given this scenario, which of the following statements is correct?

The demand that Le Jouet faces for toy trains in France is less elastic than in Russia.

Which of the following statements about transportation costs are correct? Check all that apply.

When transportation costs rise, markets tend to substitute goods that are from closer locations. Transportation costs have declined due to technological improvements for transporting goods.

12. Study Questions #12. Ch 5. Evaluate the following statement to indicate which type of quota tends to result in a greater welfare loss for the home economy. True or False: A voluntary export quota imposed by a foreign government tends to result in a greater welfare loss for the home economy than an import quota levied by the home government.

True

A country's domestic production subsidies have more impact on other countries than do its export subsidies.

True

Environmental regulation adds to the costs of domestic steel companies but increases the competitiveness of forestry products, which benefit from cleaner air and water.

True

True or False: A trade triangle is an area in a country's production possibilities diagram that displays the country's expanded consumption possibilities that result from trade.

True

True or False: According to Linder, although the factor-endowment theory explains trade in primary products (natural resources) and agricultural goods, it does not explain trade in manufactured goods because the main force influencing the manufactured-good trade is domestic demand conditions.

True

True or False: Among the challenges confronting the international trading system are maintaining fair standards for labor and promoting environmental quality.

True

True or False: Ignoring the role of relative intensities of demand in determining precise terms of trade, Smith and Ricardo maintained that a country's competitive position is determined by cost conditions.

True

True or False: In general, the most favored nation (MFN) clause means that every time a country reduces a trade barrier or opens up a market, it must do so for the same goods or services from all of its trading partners, whether rich or poor.

True

True or False: One of the major misconceptions about international trade is that it is a zero-sum activity.

True

True or False: The Heckscher-Ohlin theory maintains that factor endowments determine a nation's comparative advantage.

True

True or False: The degree of openness of the Hungarian economy will influence the mix of jobs.

True

True or False: The magnification effect suggests the change in the price of a resource is greater than the change in the price of the good that uses the resource intensively in its production process.

True

True or False: The principle of comparative advantage applies to international trade in services.

True

True or False: The volume of international trade is governed by factors including the level of domestic economic activity (for example, prosperity versus recession) and restrictions imposed by countries on their imports.

True

True or False: Unlike the mercantilists, who argued that a nation could only gain at the expense of other nations because not all nations could simultaneously run trade surpluses, Smith maintained that with free trade, international specialization of resources in production leads to an increase in world output that can be shared by trading partners.

True

When the government makes up the difference between a guaranteed minimum price and the lower price at which farmers actually sell their crop, this is an export subsidy.

True

When the government provides a subsidy to farmers for every ton of wheat exported, this is a domestic production subsidy.

True

Which of the following statements about transportation costs are correct? Check all that apply.

When transportation costs rise, markets tend to substitute goods that are from closer locations. Transportation costs have declined due to technological improvements for transporting goods.

A government subsidy granted to import-competing producers leads to a smaller deadweight loss than a tariff or quota because a subsidy does not result in a consumption effect.

-

A production possibilities frontier (PPF) illustrates the costs of producing one good relative to another. The slope of the production possibilities frontier illustrates the marginal rate of transformation (MRT) .

-

Assume that by devoting all of its resources to the production of steel, Japan can produce 50,000 tons of steel, and that by devoting all of its resources to TV sets, Japan can produce 800,000 TV sets. Similarly, by devoting all of its resources to the production of either steel or TV sets, France can produce either 30,000 tons of steel or 200,000 TV sets. In this example, Japan has an absolute advantage in the production of both steel and TV sets and a comparative advantage in the production of TV sets.

-

By recognizing only the role of supply , the Ricardian model is unable to determine the equilibrium terms of trade.

-

Complete the following statement to indicate the likely effects of export restraints imposed by Japan on its auto shipments to the United States. The distribution of the revenue effect would tend to accrue toJapanese automakers.

-

Divide a nation's export price index by its import price index, and multiply by 100.

-

Economists argue that antidumping laws are unfair because domestic firmsare not subject to the same rules as foreign exporters. Under competitive conditions, domestic firms price their goods at average variable costs that are below average total costs. However, It is possible for a foreign firm that is selling at a loss both at home and abroad to be found guilty of dumping, whereas domestic firms aretaking losses from selling in the domestic market at exactly the same price.

-

In the 1990s, multilateral negotiations called the Uruguay Round resulted in quotas on agricultural products and caused an increase in U.S. exports.

-

Increasing costs occur when resources are not completely adaptable to alternative uses.

-

Intra-industry trade is defined as the exchange of products of similar industries, whereas inter-industry trade is defined as the exchange of products ofdifferent industries.

-

Pirating will continue as long as the cost of pirating technology, including the probability and costs of being caught,is less than the profits captured by the firm doing the pirating. Piratingreduces profits by firms in the innovating nations, which in turn reduces investment in research and development and leads tofewer products as well as welfarelosses for the people of both nations.

-

Prior to the General Agreement on Tariffs and Trade (GATT) signed in 1947, trade agreements involvedbilateral negotiations between countries, whereas GATT establishedmultilateral trade negotiations between countries. To promote freer trade, GATT sponsored a series of negotiations aimed atreducing tariffs and nontariff trade barriers.

-

Suppose Germany signs a free trade agreement with Russia. As a result, Germany's exports of cars (which are intensive in capital) and its imports of timber (which are intensive in land) both increase. According to the Heckscher-Ohlin theory, Germany is abundant in capital .

-

Suppose Le Jouet realizes that it has excess inventories of toy trains because French children do not want to play with them anymore and decides to resort tosporadic dumping by occasionally selling toy trains in Russia at lower prices than in France. This may encourage the Russian government to protect the interests ofRussian toy makers byimposing temporary tariff duties .

-

The concept ofreciprocal demand refers to the actual terms of trade being determined by the relative strength of each country's demand for the other country's product.

-

The graph suggests that the nation produces under conditions of constant costs.

-

The introduction of transportation costs increases the export price and increases the import price. The difference between the prices equals the per-unit transportation cost .

-

Under constant-cost conditions, the marginal rate of transformation does not change in response to movements along the production possibilities frontier (PPF), whereas under increasing-cost conditions, the marginal rate of transformation varies in response to movements along the PPF.

-

Under constant-cost conditions, the marginal rate of transformationdoes not change in response to movements along the production possibilities frontier (PPF), whereas under increasing-cost conditions, the marginal rate of transformationvaries in response to movements along the PPF.

-

Based on your answers to the previous question, which of the following terms of trade (that is, price of stained glass in terms of oil) would allow both Germany and Greece to gain from trade? Check all that apply.

18 barrels of oil per pane of stained glass 2 barrels of oil per pane of stained glass 8 barrels of oil per pane of stained glass 6 barrels of oil per pane of stained glass

Which of the following are rules for the commercial conduct of trading nations established by the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization? Check all that apply.

A "favor one, favor all" principle Provision of a conciliation panel to which a victimized country can express its grievance

Answer the following question on the problems economic sanctions pose for the nation initiating the sanctions. How did Russia respond to the sanctions imposed by the United States, the European Union, and other major nations after Russian troops took control of Crimea in 2014? Check all that apply.

A ban on Western airlines flying in Russian airspace on routes to and from Asia, significantly increasing flight times and costs

Which of the following arguments can be used to correctly defend the WTO's position on retaliatory tariffs? Check all that apply.

A countervailing duty protects import-competing producers.

Under conditions of constant opportunity cost, specialization is complete because:

A country can devote all of its resources to the production of a good without losing its comparative advantage

Under conditions of constant opportunity cost, specialization iscomplete because:

A country can devote all of its resources to the production of a good without losing its comparative advantage

How does the revenue effect of an import quota differ from that of a tariff?

A quota's revenue effect generally accrues to domestic importers or foreign exporters, whereas the tariff's revenue tends to be captured by the government.

Why is a tariff-rate quota viewed as a compromise between the interests of the domestic consumer and those of the domestic producer? Check all that apply.

A tariff-rate quota shields home producers from severe import competition with a stiffer over-quota tariff rate.

In the context of international dumping, which of the following statements about the price- or cost-based definitions of foreign market value are correct? Check all that apply.

According to the cost-based definition, dumping occurs when foreign merchandise is sold in the domestic market at less than fair value.

Suppose that as the U.S. starts trading, the price of aircraft (capital intensive good) increases by 6% and the price of textiles (labor intensive good) decreases by 3%.

According to the magnification effect, the price of capital must rise bymore than 6%, and the price of labor must fall bymore than 3%. If the price of capital increases by more than 6%,owners of capital are better off whereasworkers are worse off.

Under the Uruguay Round of trade negotiations, what were the major policies adopted concerning trade barriers? Check all that apply.

Across-the-board tariff cuts for industrial countries averaging 40%

Who was the author of the "Report on Manufacturers," which introduced the infant industry argument?

Alexander Hamilton

Which of the following is intellectual property?

An invention, idea, product, or process registered with the government that awards the author exclusive rights

Suppose that Greece and Germany both produce oil and stained glass. Greece's opportunity cost of producing a pane of stained glass is 4 barrels of oil, while Germany's opportunity cost of producing a pane of stained glass is 10 barrels of oil.

By comparing the opportunity cost of producing stained glass in the two countries, you can tell thatGreece has a comparative advantage in the production of stained glass, andGermany has a comparative advantage in the production of oil.

Which of the following correctly describe how the concept of international competitiveness applies to a firm or industry? Check all that apply.

Competitiveness refers to the extent to which the goods of a firm or industry can compete in the marketplace. Because a firm's resources are limited, it has to outsource production to a lower wage country whenever possible. Some firms reach an absolute advantage in producing a good, which earns an absolute advantage for the nation. The competitiveness of a firm or industry depends on the relative prices and qualities of its products.

Consider two neighboring island countries called Contente and Dolorium. They each have 4 million labor hours available per week that they can use to produce jeans, rye, or a combination of both. The following table shows the amount of jeans or rye that can be produced using 1 hour of labor. Initially, suppose Contente uses 1 million hours of labor per week to produce jeans and 3 million hours per week to produce rye, while Dolorium uses 3 million hours of labor per week to produce jeans and 1 million hours per week to produce rye. Consequently, Contente produces 8 million pairs of jeans and 48 million bushels of rye, and Dolorium produces 15 million pairs of jeans and 20 million bushels of rye. Assume there are no other countries willing to trade goods, so in the absence of trade between these two countries, each country consumes the amount of jeans and rye it produces.

Contente's opportunity cost of producing 1 pair of jeans is2 bushels of rye, and Dolorium's opportunity cost of producing 1 pair of jeans is4 bushels of rye. Therefore,Contente has a comparative advantage in the production of jeans, andDolorium has a comparative advantage in the production of rye.

Which of the following are trade remedy laws? Check all that apply.

Countervailing duties

Which of the following would impact the effectiveness of economic sanctions? Check all that apply.

Cultural factors in the target nation

In 1980, the U.S. auto industry proposed that import quotas be imposed on foreign-produced cars sold in the United States. Which of the following are the consequences of this policy? Check all that apply.

Deadweight losses in production and consumption

New Zealand and Chile agree that New Zealand produces 30% of its iDevices in Chile and is allowed to export iDevices to Chile tariff-free.

Domestic Content Requirement

The U.S. producers of steel, an import-competing good, receive $100 million from the U.S. government for their production of 400 million tons of steel.

Domestic Production Subsidy

Which of the following are the major nontariff trade barriers? Check all that apply.

Domestic content requirements Orderly marketing agreements

For many years, the nation of Catchester has found it challenging to compete internationally in the market for crab because dangerous work conditions have steered many successful fisherfolk toward safer and more stable careers. In order to attract workers, the Catchester government passed a law providing life insurance policies to all Catchester crab industry workers. This successfully incentivized many former fisherfolk to return to the seas for a career in crab fishing. Catchester is now able to compete more effectively on a global scale and has become a major international exporter of crab.

Dynamic Comparative Advantage

The United States imposes higher tariffs on the import of footwear for four years to give domestic producers time to adjust to import competition.

Environmental Issue

Chile voluntarily reduces textile exports to Hungary.

Export Quota

The U.S. government makes a payment to domestic farmers of $1 on each bushel of apples that is exported.

Export Subsidy

What do researchers say about the relation between a firm's productivity and exposure to global competition?

Exposure to global competition increases a company's productivity.

How does the trade adjustment assistance program attempt to help domestic firms and workers who are displaced as a result of import competition? Check all that apply.

Extended income support beyond normal unemployment insurance benefits Job training

Which of the following accurately describe sporadic, persistent, or predatory dumping? Check all that apply.

Firms with temporary inventories use sporadic dumping to sell their products overseas at lower prices than at home.

New Zealand permits 700,000 kilograms of milk to be imported each year.

Global Quota

Which of the following are problems encountered when attempting to implement industrial policy? Check all that apply.

Government policy makers may be unduly influenced by their voting constituents. If all countries utilized industrial policy, a "beggar-thy-neighbor" process of trade-inhibiting protectionism would ensue.

According to the most favored nation clause (Article I of GATT), which of the following is true?

If a country gives a trade advantage to one partner, then this advantage must be extended to all its trading partners belonging to the WTO.

Why is international trade sometimes a threat for workers?

Import-competing industries suffer job loss as a result of trade.

Which of the following are advantages of outsourcing? Check all that apply.

Increases degree of control

Concave production possibilities frontiers are explained by:

Increasing opportunity costs

Complete the following statement explaining how the industrial policies adopted by the U.S. government differ from those adopted by Europe and Japan.

Industrial policies of the United States have beenless formal than those of Europe and Japan. The U.S. government encourages exports via its Export-Import Bank and Commodity Credit Corporation.

Nekopia and Julerton both produce silver jewelry, but because of their native ancestry, they create different designs on their jewelry. Residents of both countries like to accessorize with a variety of jewelry designs, so both countries are able to export silver jewelry.

Intra-Industry Specialization

Which of the following accurately state how a country's terms of trade improved, worsened, or showed no change? Check all that apply.

Japan's commodity terms of trade worsened to 88. Ireland's commodity terms of trade worsened to 88. Canada's commodity terms of trade improved to 107. Canada's commodity terms of trade remained constant at 100.

Trade increased as barriers fell with the signing of the North American Free Trade Agreement (NAFTA).

Liberalization of Trade

The establishment of the euro led to lower transaction costs, spurring additional investment between European countries.

Liberalization of Investment

Which of the following are major methods used to subsidize producers? Check all that apply.

Low interest rate loans Tax concessions

Which of the following are major arguments against an open trading system? Check all that apply.

Nations must protect their strategic industries. It leads to lower prices.

Limits participation to a few nations

No

The Skype office in the United States contracts an independently operated call center in India to handle telephone customer service.

Outsourcing

Infant industry protection

Objective

Preservation of national security

Objective

Prevention of tariff wars

Objective

A French pharmaceutical company closes its own accounts payable department and hires a Swiss accounting firm to take care of this aspect of its business.

Outsourcing

Quotas tend to be more restrictive than import tariffs because:

Quotas directly limit the number of goods that can enter the home nation

The United States bans imports of shrimp from countries using nets that trap turtles.

Safeguard

New Zealand permits 700,000 kilograms of milk to be imported each year—400,000 kilograms must come from Hungary, and 300,000 kilograms must come from Chile.

Selective Quota

Which of the following is one of the arguments for why with a given level of world resources, international trade may bring about an increase in total world output?

Specialization leads to a more efficient use of resources.

Carlos and Deborah run a catering business in which they have two major tasks: getting new clients and preparing food for events and parties. It takes Carlos 10 hours to prepare the food for an event and 5 hours of effort to get each new client. For Deborah, it takes 12 hours to prepare food for an event and 3 hours to get a new client. In this scenario, Carlos has an absolute advantage in food preparation, and Carlos has a comparative advantage in food preparation.

Suppose that initially, Carlos and Deborah are splitting both tasks for a large number of events. Then they decide to start shifting some work according to the principle of comparative advantage. In particular, the person with the comparative advantage in food preparation will take over preparing food for one more event by taking the necessary time away from getting more clients, and the other person will use the freed-up time from not preparing food for one event to get more clients. As a result, the total number of events for which food is prepared will remain unchanged, but the number of new clients will increase by

Which of the following are true regarding the escape clause? Check all that apply.

Tariff increases are the most common form of relief provided by the escape clause.

The United States charges a tariff of 3.2¢ per liter for the first 5.7 million liters of milk and a tariff of 88.5¢ per liter of milk in excess of that threshold.

Tariff-Rate Quota

Which of the following statements regarding the effects of tariffs and quotas on domestic consumers and producers are correct? Check all that apply.

Tariffs and quotas benefit domestic producers of the protected good. Tariffs and quotas harm domestic consumers of the protected good.

Transportation costs decreased due to the invention of airplanes.

Technological Change

Which of the following legislative acts provoked retaliation by 25 trading partners of the United States?

The Smoot-Hawley Tariff Act of 1930

Complete the following paragraph to explain how the international movements of products and factor inputs promote an equalization of factor prices among nations.

The Stolper-Samuelson theorem states that an increase in the price of a producti ncreases the income earned by resources that are used intensively in its production. Conversely, a decrease in the price of a product decreases the income of the resources that it uses intensively. The the oremdoes not state that all the resources used in the export industries are better off.

Complete the following paragraph to explain how the international movements of products and factor inputs promote an equalization of factor prices among nations.

The Stolper-Samuelson theorem states that an increase in the price of a productincreases the income earned by resources that are used intensively in its production. Conversely, a decrease in the price of a productdecreases the income of the resources that it uses intensively. The theoremdoes not state that all the resources used in the export industries are better off.

Which of the following factors explain why the world's trading nations have become increasingly interdependent, from an economic and political viewpoint, during the post-World War II era? Check all that apply.

The aging of the Western population The rapid decline of Asian nations

Which of the following are traditional arguments that justify protectionist barriers? Check all that apply.

The infant industry argument

What is meant by constant opportunity costs?

The opportunity cost of an additional unit of a product, in terms of the lost output of another product, is unchanged as more of the product is produced.

The Smoot-Hawley Act, signed into law in 1930, increased U.S. tariffs to an unprecedented level of 53%, causing a sharp decline in U.S. exports. In 1934, however, changes in the U.S. trade policy enabled U.S. manufacturers to resume business with their foreign distributors. Which of the following is the most likely reason for the increase in U.S. exports after these changes?

The president received the authority to negotiate bilateral tariff-reduction agreements with foreign governments.

Suppose the United States is a net importer of a product that is being subsidized or dumped by Japan. Which of the following accurately explains why U.S. consumers not only gain, but also gain more than U.S. producers lose from the Japanese subsidies or dumping?

The resulting increases in consumer surplus more than offset the reduction in producer surplus.

How do voluntary export restraints differ from other protective barriers?

The revenue effect of an export quota is captured by the foreign exporting company or its government.

Which of the following is an accurate statement regarding empirical studies of trade cycles?

Trade cycles exist for manufactured goods at some times.

Evaluate the following statement to indicate whether it accurately explains how the Leontief paradox challenges the overall applicability of the factor-endowment model. True or False: The Leontief tests, as well as a number of empirical tests that followed, suggest that the determinants of trade are more complex than those predicted in the basic factor-endowment theory. This is because a large amount of international trade is not between industrialized and developing countries but is among industrialized countries with similar resource endowments. Thus, such factors as technology, demand conditions, and a time dimension to comparative advantage must also be considered.

True

Evaluate the following statement. True or False: The essential notion underlying strategic trade policy is imperfect competition.

True

Which of the following are the basic questions with which modern trade theory is concerned? Check all that apply.

What are the gains from trade in terms of production and consumption? What is the size of the nation's labor force? What constitutes the basis for trade? Is free trade a zero-sum activity?

The concept of reciprocal demand refers to the actual terms of trade being determined by the relative strength of each country's demand for the other country's product.

Which of the following explains how the commodity terms of trade concept measures the direction of trade gains?

Acts as a government

Yes

Enforces binding commitments

Yes

Enforces dispute settlements

Yes

Oversees tariff cuts and reduction of nontariff measures

Yes