ECON 4040 TEST 2

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Suppose a manufacturer of software develops a new computer program that sells for $50. The $50 cost includes $0.25 for the CD it is stored on, $5 for the labor of the company software programmers, and $1.75 for packaging materials and transportation costs. Value added by the software company is

$48 50 - .25 - 1.75

U.S. imports of sugar are limited by an import quota that, according to one study, imposed a cost on American consumers of between $_____and $ _______for every individual living in the US.

$5; $10

ad valorem tariff

% change per value imported ( % tax on whole)

how do strong external economies confirm existing patterns of inter-industry trade

-countries that start as large producers tend to remain as so -if avg cost curve is below the other country, you are producing more cheaply

Basic rights proposed by International Labor Organization and OECD

1. Prohibits forced labor 2. Freedom of association 3. Right to organize and bargain collectively 4. End to the exploitation of child labor 5. Nondiscrimination in employment

why is comparative advantage not enough?

1. Trade models built exclusively on the idea of comparative advantage have a mixed record of success in predicting trade patterns 2. It is very difficult to measure a country's comparative advantage 3. Even if the CA is known, the country may have several products to choose from which utilize the abundant factor. It's difficult to predict which one they will produce

implicit or intangible costs or transaction costs of international trade examples

1. borders 2. different currencies, language, culture, etc. 3. preferences differ substantially for characteristics of the same good across america

characteristics of industrial policy

1. can have huge impact on trade patterns 2. highly controversial 3. can be politicly motivated/waste of $$$ 4. money for subsidies come from taxes 5. essentially when gov tries to influence/offset some costs of doing business

benefits of intra-industry trade?

1. prices for exports and imports decline (firms can lower costs w/ bigger market) 2. the number of firms increase (employment increases 3. consumer choice increases 4. fewer income redistribution effects

dynamic gains case for free trade

1. protected markets limit gains from external economies 2. protected markets fragment production 3. protected markets may reduce comp and raise prices

primary issues of disagreement about labor standards and trade

1. questionable effectiveness 2. concern or protection? 3. little agreement on standards 4. potential trade war

problems w/ industrial policy

1. requires gov to know costs of production for foreign firms 2. difficult to know which industry to target/predict success 3. encourages rent seeking

potential costs of tariffs

1. social/deadweight loss 2. retaliation-- loss of jobs 3. reduce competitive pressure/innovation 4. rent seeking

sources of external economies

1. specialized equipment or servies 2. labor pooling 3. knowledge spillovers

about _____% of world trade is intra-industry trade

35-50%

The average agricultural tariff in the U.S. is about

"A Trade Economist Wins" Dr. Donaldson analyzed which two markets to remind us of the important truths of comparative advantage? A. Indian railroads and American agriculture B. American agriculture and Indian tea C. American railroads and Indian agriculture D. Indian railroads and American trucking

"How Trump's Steel Tariffs Failed" Which of the following is true? A. The estimated cost of saving or creating a new steel job using tariffs is $900,000. B. The U.S. military is a major consumer of steel and aluminum. C. Consumers of U.S. steel benfitted from the tariffs and are lobbying for continuing tariffs. D. U.S. steel manufacturers did not benefit from the tariffs and had one of their poorest quarters ever.

"U.S.-Canada Paper Dispute Shows Unintended Results of Import Tariffs" NAFTA eliminated most tariffs between Cananda, the U.S. and Mexico, but the International Trade Commission (which, despite it's name, is a U.S. agency which investigates U.S. trade issues) imposed tariffs of up to 20% on imports of Canadian supercalendared paper. Why were these tariffs permissible under NAFTA? A. NAFTA allows tariffs to be imposed to combat dumping and to offset subsidies that benefit a particular industry. B. NAFTA allows tariffs to be imposed on multinational firms with operations in two countries. C. The paper industry was one of several industries exempt from NAFTA. D. The ITC violated NAFTA by imposing these tariffs.

A pollution haven is said to exist when A. an economic activity becomes concentrated in countries or regions having less strict environmental controls than elsewhere. B. a country fails to prosecute violators of its environmental regulations. C. the industrial countries choose an area, usually in the less developed world, to dispose of industrial wastes. D. a poorer region or country agrees to store pollutants in exchange for aid.

An industry is characterized by scale economies, and exists in two countries. Should these two countries engage in trade such that the combined market is supplied by one country's industry, then A. consumers in both countries would have more varieties and lower prices. B. consumers in both countries would have higher prices and fewer varieties. C. consumers in both countries would have fewer varieties at lower prices. D. consumers in the importing country only would have higher prices and fewer varieties. E. consumers in the exporting country only would have higher prices and fewer varieties.

Discriminatory trade practices are allowed among sister WTO member countries, especially when it comes to A. national security and special benefits given to other members of a free trade area. B. the use of child labor in agricultural and textile/apparel products. C. the protection of agriculture and textile/apparel from open trade. D. environmental protection.

Domestic firms operating abroad may find it economically beneficial to adopt environment-friendly standards because A. the least-cost strategy usually involves the adoption of one set of environment-friendly technology rather than multiple standards. B. they may be forced to replace the old technology whenever the foreign country experiences positive economic development. C. foreign nations may be upset if firms do not use the environment-friendly technology. D. their environment-unfriendly technology may be replaced by foreign-based technology.

Export labels provide an alternative to the use of trade barriers to promote environmental standards in partner trading countries, since A. labels might allow customers to determine whether products were produced in an environmentally sustainable fashion. B. they are only granted when all transboundary and non-transboundary pollution ends. C. they are only granted when all transboundary pollution ends. D. the WTO has created a register which overseas export labels.

For most developing countries a. agricultural goods and raw materials constitute a high proportion of domestic output. b. productivity is high among domestic workers. c. population growth and illiteracy rates are low. d. saving and investment levels are high. e. pollution emissions are relatively low.

Global Supply Chains One complaint against globalisation is that it concentrates production and eliminates buffer stocks. Some call for a greater government role in making supplies more secure. Opponents to this argue all of the following except which? A. Resilience comes from autarky. B. Government-administered, domestic supply chains are even less resilient than global ones. C. The call for self-reliance also misconstrues the balance between the costs of interdependence, which are brief and visible, and its benefits, which trickle in month after month unheralded. D. Subsidies and domestic preference are justified only when a vital input relies on a monopoly supplier that is subject to potential interference by a hostile government.

If there are a large number of firms in a monopolistically competitive industry, A. long−run profit will be equal to zero. B. the country in which the firms are located can be expected to export the goods they produce. C. there will be a small number of firms that are very large and the rest will be very small. D. the firms will converge production on a standardized product. E. there will be barriers to entry that prevent addition firms from entering the industry.

Labor standards are A. multifaceted, covering both basic rights (freedom form forced labor) as well as civic rights (union representation). B. indefinable, given the diversity in the world. C. narrowly defined to include only minimum wages. D. made up of a core set of work-related rights that everyone views as universal human rights.

Sixty years after the signing of GATT and following eight completed round of trade negotiations, A. trade barriers have been successfully reduced. B. trade barriers are no longer an issue. C. trade barriers have actually increased. D. there has been no real change in trade barriers.

The infant industry argument calls for active government involvement A. only if some market failure can be identified. B. only if the government forecasts are accurate. C. only if the industry is not one already dominated by industrial countries. D. only if the industry has a high value added. E. only if the industry is independently able to earn high returns.

The Prospect's For Developing Countries What does BRIC stand for? A. Brazil Russia India China B. Basic Requirement for Income Consistency C. Broad Revisions to Import Conventions D. Bangladesh Rwanda Indonesia Cambodia

Which of the following are true statements about intra-industry trade? A. The majority of U.S. and European trade is intra-industry trade. B. Intra-industry trade is especially common in agricultural sectors. C. The more broadly an industry is defined, the less trade appears to be intra-industry. D. All of the above. E. A and C only.

Which of the following is NOT a true statement? A. Trade barriers are usually a good way of protecting jobs. B. There have been significant reductions in trade barriers over the last 60 years. C. Economists generally favor further reductions in trade barriers. D. There are diminishing returns to trade negotiations.

Which of the following is NOT an expected benefit of reducing nontariff barriers to trade? A. Fewer firms to compete with B. Lower prices for many goods C. Increase in the volume of exports and imports D.Improved overall economic welfare

Which of the following is NOT an issue in the reduction of trade protection in agriculture? A. consumption subsidies. B. tariffs and quotas. C. export subsidies. D. production subsidies.

Which of the following is an example escape clause relief? A. A temporary tariff is granted to allow for adjustment of the domestic industry. B. A tariff is granted because foreign firms are selling below cost. C. A tariff is granted to an industry because foreign firms are subsidized by their governments. D. A tariff is granted to an industry because another nation persistently uses unfair trade practices.

Which of the following is not considered a nontariff barrier? A. Import tax B. Government procurement rules C. Quotas D. Health and safety standards

"Biden's Worker-First Trade Policy" What is coming into conflict with President Biden's priority of putting U.S. workers first through his 'Made in America' policies ? A. His goal of improving trade relations with the EU, Asia, Mexico, and Canada. B. U.S. labor union trade policies. C. The AFL-CIO. D. Free-trade critics.

"Making Trade Greener" Which of the following statements is false? A. The EU does not yet have any system to protect domestic firms who must meet CO2 emission requirements protection from foreign firms who do not. B. Studies suggest tariffs have been smaller on products made by polluting industires than on products made by cleaner industries. C. Limited measures to help the environment were allowed under WTO rules, but only so long as they restricted trade no more than was deemed absolutely necessary. D. Economic modeling suggests that requiring domestic carbon emission cuts can lead to higher foreign emissions.

"Steep Drop in Trade Flows" As a result of the COVID pandemic, what is likely to happen to global supply chains? A. Producers may look to have more than one source for parts and equipment. B. Production may be brought closer to home, with less reliance on foreign producers. C. Export controls may be enacted on medical equipment and medicine. D. All of the above.

learning curve

A graphical representation of dynamic increasing returns to scale is called a learning curve Provided that the first country has sufficiently large head start the potentially lower costs of the second country may not allow it to enter the market Once country 1 produces enough and has moved its learning curve, country 2 cannot break into the market

efficiency case for free trade

A move towards free trade eliminates the deadweight loss distortions and increases national welfare

Labeling that states that a product was produced under environmentally sustainable conditions may not be an effective way to reduce pollution if A. consumers do not believe the information on the label. B. producers do not apply labels. C. labeling increases costs. D. governments require labels.

Labor standards in trade agreements tend to A. follow ILO conventions. B. force minimum wage laws. C. ignore child labor. D. revert to the lower nation's standards.

Most developing countries oppose including labor standards in trade agreements because A. they believe this would limit their ability to export to rich markets. B. they believe this would involve a loss of their national sovereignty. C. they believe this would create an more even playing field. D. multinational corporations control them. E. they do not want to improve wages for their workers.

Most regional trade and WTO agreements practice A. a combination of harmonization, mutual recognition, and separate standards. B. the harmonization standards only. C. separate standards only. D. mutual recognition standards only.

Since the end of World War II, A. agricultural subsidies have been significantly reduced. B. tariffs around the world have fallen substantially. C. most nations have begun to apply tariffs uniformly across all industries. D. tariffs have increased in low-income countries and fallen by a small percentage in high-income countries.

Which of the following is NOT a characteristic of nontariff measures? A. Nontariff measures are relatively rare and do not have a significant impact on world trade volume. B. Nontariff measures are generally much more difficult to eliminate than tariffs and quotas because they are embedded more deeply in national economic policies. C. Nontariff measures are not always easy to identify because they may look like they were imposed for non-trade reasons. D. The removal of nontariff measures would likely result in lower prices.

Which of the following is a true statement about obstacles to increased economic integration? A. Adopting common standards gives an advantage to firms that already meet those standards. B. Production changes due to trade redistribute income fairly. C. Domestic policies do not affect international trade. D. Countries generally agree about appropriate environmental standards.

Which of these statements is FALSE? A. Developing countries usually advocate strongly for the protection of intellectual property rights. B. At the end of the twentieth century, more and more traded goods and services incorporated specialized knowledge and unique ideas. C. Pharmaceuticals, computer hardware, telecommunications equipment, and other high technology products are valuable because of the innovation and research they incorporate. D. The protection given to creators and innovators varied greatly internationally until standardization began with the signing of the TRIPS agreement.

how do trade economists and labor activists differ over the use of trade barriers to enforce or alter standards?

Activists: want to use trade barriers to force other countries to enact standards Economists: consider trade barriers expensive, inefficient, and cause countries to incur deadweight

Tariffs are highest internationally in which sector?

Agriculture

Oligopoly

An oligopoly is an industry with only a few firms Pricing decisions are interdependent Some barriers to entry

non tariff measures

Any regulatory or policy rule other than tariffs and quotas that limits imports May be directly intended as trade-related, or exist from some other purpose but impact trade

"Hidden Persuaders" The WTO concentrates on trade measures designed to keep out imports (e.g. tariffs). How does the Global Trade Alert monitoring system define protectionism? A. The GTA uses the GATT treaty definition B. The GTA defines protectionism as anything that hurts another country's commercial interests C. The GTA broadens the WTO definition to include quotas and currency manipulation D. The GTA uses the WTO definition

A firm in long−run equilibrium under monopolistic competition will earn A. positive oligopoly profits because each firm sells a differentiated product. B. zero economic profits because of free entry. C. positive monopoly profits because each sells a differentiated product. D. positive economic profit if it engages in international trade. E. negative economic profits because it has economies of scale.

According to the U.S. Secretary of Commerce, some countries engage in unfair trading practices with the U.S., possibly accounting for some of the U.S.'s trade imbalance. In particular, he highlighted the differences between A. U.S., European and Chinese quotas. B. U.S., European and Chinese tariff rates. C. U.S., Mexico and Canadian tariff rates. D. U.S., Mexico and Canadian export subsidies.

An import quota: A. Is always less costly to a country than an import tariff. B. Generates rents that might go to foreigners. C. Has the same effects on welfare as an import tariff. D. Is always more costly to a country than an import tariff.

Compared with free trade, large countries may increase national welfare when they place a tariff on imports. What unique aspect of large countries, explains this conclusion? Large countries A. have large numbers of domestic producers who can expand substantially when they are protected by tariffs. B. reduce the world price of the import when they levy a tariff. C. are less likely to face tariff retaliation by trade partners. D. All of the above.

External economies of scale occur when average costs of a firm: A. fall as the representative firm and industry grows larger. B. fall as the industry grows larger, but may or may not rise as the representative firm grows larger. C. remain constant. D. rise as the industry grows larger.

Firms that produce ________ products must be ________ competitive. A. differentiated; perfectly B. differentiated; imperfectly C. standardized; imperfectly D. exported; imperfectly E. standardized; perfectly

Imperfectly competitive firms have a demand curve that ________ and a marginal revenue curve that ________ and is ________ the demand curve. A. is horizontal; is horizontal; the same as B. slopes downward; slopes downward; below C. slopes downward; is horizontal; above D. slopes downward; slopes downward; the same as E. is horizontal; slopes downward; below

Internal economies of scale: A. can never form the basis for international trade. B. are more likely to be associated with an imperfectly competitive industry. C. are more likely to be associated only with high-tech or complex products such as robotics. D. are more likely to be associated with a perfectly competitive industry.

One common critique of the WTO is that it overturns national environmental protections and forces countries to lower their standards. For example, when the United States tried to protect endangered sea turtles, the WTO prevented it. This action illustrates that A. the United States is a "paper tiger" on the international stage. B. individual countries can raise their standards, but must do so in accordance with WTO rules. C. the WTO maintains a bias against rich nations seeking to advance world standards. D. the WTO does in fact force lower standards upon well-intentioned countries.

The agreement signed after the Uruguay Round of the General Agreement on Tariffs and Trade included coverage in several new areas of trade and investment. Which of the following is not one of those new areas? A. Intellectual property rights B. Agriculture and agriculture support policies C. Treatment of foreign investment D. Trade in services

Transboundary environmental impacts can take place when one country's pollution spills over into a second country in all of the following situations EXCEPT A. when an upstream user pollutes a shared watershed. B. the production of exported products degrades the local environment. C. when industrial production in one country creates acid rain in another country. D. when heavy traffic between two or more countries creates semi-global warming.

Under the Sullivan Principles, a multinational producing in different countries A. should pay the same wages in all countries. B. should comply with the same environmental standards that exist in the home country. C. should lobby for better standards in all countries. D. should produce in pollution havens.

Unlike the eight previous rounds of world trade negotiations since the creation of GATT in 1948, the Doha round appears to be the first to have A. forced the rich nations to compensate the poor nations. B. broken down with no agreement. C. pitted the U.S. against its traditional allies. D. received unanimous approval.

Which of the following DOES NOT help to reduce the frequency of child labor? A. Increased schooling opportunities. B. A country's movement away from manufacturing and towards more agricultural production. C. Increases in a country's GDP. D. None of the above. Each of the previous factors is generally associated with a decrease in child labor.

"A Changed World" The article lists three questions that need answering: 1) "Where are the limits to what trade tools can achieve? 2) What happens when the increasingly complex stew of non-trade objectives has internal contradictions? 3) How should the consequences of new trade barriers be managed and contained?" The author posits that the trading system suggested by answering these questions may be like A. Star Trek's United Federation of Planets B. the trade system, including the WTO, that is now currently being dismantled by some members. C. the USMCA. D. Woodrow Wilson's proposed League of Nations.

"A Fraying System" What part of the international trade system is fraying? A. The UN trade dispute settlement process. B. The use of a rules-based system so that trade is governed by rules and not power. C. The ascension requirements to become a member of the WTO. D. The USMCA.

"In Search of Resilience" According to the article, "a goal of greater resilience now frames [...] trade policy." Who or what is searching for resilence? A. Economists are concerned about a lack of coordination between domestic essential industries. B. Policy makers around the world are worried about the ability of supply chains to withstand international or domestic crises. C. The U.S. trade representative is concerned about China's crackdown on their technology sector. D. China is concerned about the ability of their domestic industries to withstand new climate change rules.

Harmful carbon emissions A. are only a problem in high-income countries. B. are increasingly produced by industrializing countries such as China and India. C. must be reduced by countries individually. D. have little effect on the environment.

why do firms practice price discrimination/dumping?

Based on your elasticity Groups that are not very responsive to price, they will charge a higher price to Groups that are sensitive to price, they will charge lower price-- they will dump if foreign market is more elastic in the sales of the export than domestic

us history of tariffs

Borrowed a lot of money for wars, so raised money by tariffs bc it was the easiest thing to do Really easy to tax trade in the early days of the economy

"Case for Responsible Nationalism" In this author's opinion, the U.S. will never regain the level of manufacturing employment it sustained on 20 years ago, despite recent protectionism. What should the U.S. be focused on, at least in part, to prevent a widening of the wedge between those who benefit from trade and those who do not? A. Worldwide labor and environmental standards B. Spread of socialism C. Forced technology transfer of intellectual property D. Forging a global citizenry

A country, such as the U.S., is allowed to use anti-dumping duties if the price a foreign exporter A. charges for the products it sells in the U.S. is more than the price charged in the exporters market. B. charges for the products it sells in the U.S. is less than the price charged in the exporter's market. C. charges for the products it sells in the U.S. is less than the price charged in the exporters market, and U.S. firms are harmed by import of the product. D. falls over time, and U.S. firms are harmed by import of the product.

External economies of scale: A. tend to result in large profits for each firm and an industry with relatively few firms. B. cannot be associated with a perfectly competitive industry. C. are more likely to be associated with a perfectly competitive industry. D. lead to the creation of a single large monopoly.

Harmonization of standards implies that countries decide to A. adopt a common set of standards, which is based on the larger country's standards before harmonization. B. mutually recognize and accept any standards that have been adopted by their trade partners. C. adopt a common set of standards in an area of concern, such as product safety or labor. D. keep an international record of all separate standards that countries have adopted.

Intra−industry trade is most common in the trade patterns of A. the developing countries of Asia and Africa. B. raw material producers. C. the industrial countries of Western Europe. D. labor−intensive products. E. China with the rest of the world.

One of the potential ethical problems arising from trading with low-income nations that make lower priced goods is that A. the good could be lower quality. B. the firms producing the goods might violate international labor laws. C. the manufacturing process could exploit children. D. taxes or tariffs may be too high.

Suppose the U.S. decided to use a quota to limit cell phone imports. Assume the U.S. is a small country. If the U.S. used an auction to allocate quota rights A. the U.S. welfare would be higher than it would be if U.S. continued to have a free trade policy. B. the auction would generate much more revenue than would be generated by a tariff which limited imports to the level allowed under the quota. C. the auction could generate revenue that was roughly equal to the revenue generated by a tariff which limited imports to the level allowed under the quota. D. the U.S. welfare would be lower than it would be if the exporting countries used voluntary export restraints instead.

The labor argument for tariffs, argues that it is unfair for a country to face imports from countries that have lower wages. The problem(s) with this argument A. is that it ignores the fact that cross country wage differences reflect productivity differences. B. it ignores the fact that tariffs or quotas are an expensive method of saving jobs. C. Both A and B. D. None of the above. The labor argument is solid.

The learning curve describes the ________ relationship between ________ and ________. A. direct; education; annual income B. direct; unit cost; cumulative output C. inverse; unit cost; cumulative output D. direct; education; labor productivity E. inverse; education; annual income

Which of the following is not the reason for external economies of scale? Part 2 A. Labor market pooling. B. Knowledge spillovers. C. Large fixed costs. D. Specialized suppliers of intermediate goods.

"An Early Salvo in Trade War..." Part of the dispute between China and other countries on its status as a market economy is A. whether China should be admitted to the WTO. B. whether WTO membership is open to countries with centralized economies. C. whether dumping is defined as selling abroad at a price below domestic price or selling abroad at a price below other world-wide producers. D. whether WTO policies regulate dumping and export subsidies.

"Buying Local is Expensive" Which of the following are likely effects of local content requirements? A. Less hassle and paperwork B. Better relations between countries C. Stifled innovation D. Lower prices

"The Hidden Costs of Tariffs" Which of these does the author consider a "hidden" cost of tariffs? A. Higher consumer prices B. Loss of jobs in non-protected sectors of the economy C. Slower economic growth due to misallocation of capital D. Lower tax revenues

"The Urge to Protect" Which of the following trade policies is not being used to deter human-rights abuses? A. Special trade access granted by richer countries to poorer countries. B. Reciprocal trade agreements. C. Most favored nation status. D. Unilateral trade bans.

"Who Pays the Trump Tariffs?" Which of the following do not pay all or part of higher tariffs? A. Foreign producers in the form of lower prices on their exports. B. American consumers in the form of higher prices. C. Foreign consumers in the form of higher prices. D. American producers in the form of lower profit margins or sales that never happen.

All of the following are responsible for the removal of the formal trade barriers EXCEPT A. the General Agreement on Tariffs and Trade (GATT). B. the World Trade Organization (WTO). C. the World Bank and the IMF. D. regional trade agreements such as NAFTA.

Working conditions for clothing workers in Bangladesh are very poor. If countries refuse to buy clothing from Bangladesh in order to encourage change, the effect is likely to be that A. firms will be forced to comply and workers will be better off. B. firms will refuse to comply, but workers will be better off. C. firms will try to comply and workers will be worse off. D. firms will try to comply and workers will be better off. E. regardless of how firms respond, workers will be better off.

What is the main problem with imposing environmental standards? A. Country differences in income and preferences complicates the definition of appropriate standards. B. They can cause potential export industries to shut down in poor countries. C. Their monitoring costs are too high. D. Consumers in developed countries are not willing to pay more for "clean" goods.

Country differences in income and preferences complicates the definition of appropriate standards.

"China Started the Trade War" According to the author, which of the following are suggested as reasons that engaging with China on trade differs from engaging with other countries on trade? I. China violates intellectual property norms and forces technology transfer II. China engages in unfair trade practices not easily remedied by the WTO III. China is authoritarian and opaque. A. I and II B. II and III C. I and III D. I, II, and III

A monopolistic firm: A. cannot determine the price, which is determined by consumer demand. B. cannot sell additional quantity unless it raises the price on each unit. C. will always earn a profit in the long run. D. chooses an output at which marginal revenue equals marginal cost. E. can sell as much as it wants for any price it determines in the market.

A product is produced in a monopolistically competitive industry with economies of scale. If this industry exists in two countries, and these two countries engage in trade one with the other, then we would expect: A. neither country will export this product since there is no comparative advantage. B. the country with a relative abundance of factor inputs consistent with the factor intensity of the product will export this product. C. the country with lower production costs will export the product. D. that this trade will lead to greater product differentiation.

As a retaliatory measure against other nation's unfair trade policies, tariffs are A. never justified because they make the retaliating nation less efficient. B. justified if they prevent firms in nations with tariffs from achieving an unfair advantage, particularly in industries with significant scale economies. C. warranted if they have the result of forcing nations with tariffs to drop them. D. all of the above have been advanced regarding the usefulness of retaliatory tariffs. E. B and C only.

A "Race to the Bottom" refers to a situation where countries try to compete against each other for investment by A. implementing new product standards that discriminate against imports. B. increasing their standards on labor, environmental, or other policy issues. C. harmonizing their labor, environmental, and other policy standards. D. reducing their standards on labor, environmental, or other policy issues.

Empirical studies have found that countries with low labor standards generally attract less foreign investment due to A. low labor standards are highly correlated with labor forces that are unskilled and illiterate. B. countries with low labor standards are often high cost locations, since these countries often have poor infrastructure in terms of roads, communications, power supply and schools. C. low labor standards are usually implemented by capital-abundant countries. D. A and B only.

Following the completion of the Uruguay round in 1993, A. countries were encouraged to replace tariffs on agricultural goods with agricultural quotas. B. agricultural subsidies were banned in all cases. C. indirect payments to support farmer income were banned. D. direct agricultural subsidies were curtailed, but indirect payments to support farmer income were allowed.

If an industry has technological externalities, an infant industry policy is justified A. in all cases. B. if the protection offered is temporary. C. if the industry experiences falling costs. D. B and C only.

If the market for products produced by firms in a monopolistically competitive industry becomes ________, then there will be ________ firms and each firm will produce ________ output and charge a ________ price. A. larger; more; less; higher B. larger; fewer; more; lower C. larger; fewer; more; higher D. larger; more; more; lower E. larger; more; more; higher

In addition to the production and consumption side of deadweight losses, a variety of other potential costs of tariffs have been identified. Which of the following is not one of those costs? A. The threat of retaliation and the potential loss of export markets. B. The stifling of the incentive to innovate. C. The encouragement of rent seeking. D. The likelihood of excessive growth in the protected industry.

In the area of labor standards, variation tends to be substantial. For which of the following labor standards is there no variation? A. Limits on the hours an individual can work in one day. B. Health and safety standards. C. The need for and level of minimum wages. D. None of the above have universal acceptance.

Labor and environmental activists have advanced a number of arguments in favor of using trade barriers to enforce labor and environmental standards. Which of the following is not one of these arguments? A. Trade and foreign investment cause a race to the bottom in standards. B. Differences in standards are an unfair competitive advantage for the low-standard countries. C. Low environmental standards make some countries "pollution havens." D. Countries will only improve standards if coerced through the imposition of trade barriers.

Of the following criticisms leveled against trade, which are shared by labor and environmental interests? A. Lower standards create a "race to the bottom" in standards. B. Countries with high standards must either lower their standards or incur business losses. C. Differing standards result in a lack of fairness, giving those with lower standards an advantage. D. All of the above; labor and environmental tend to agree on these points. E. A and B only.

Standards vary across countries because A. national laws and regulations are usually initially adopted for strictly domestic reasons, and these reasons obviously differ from country to country. B. many standards reflect history and culture, and these clearly vary widely across countries. C. economic conditions and living standards vary dramatically across countries, and standards undoubtedly reflect these underlying conditions. D. all of the above.

The Steam Has Gone Out Which of the following is NOT a reason globalisation has slowed from light speed to a snail's pace in the past decade? A. Chinese manufacturing has become more self-reliant, so needs to import fewer parts. B. The cost of moving goods has stopped falling. C. Multinational firms have found that global sprawl burns money and that local rivals often eat them alive. D. Activity is shifting towards high tech goods, which are harder to sell across borders

The creation of an integrated market as a result of international trade results in A. lower prices. B. a wider range of choices for consumers. C. more firms, each operating at a larger scale. D. all of the above

The "Uruguay Round" of trade talks resulted in A. the formation of the World Trade Organization. B. new measures for trade dispute settlement. C. measures regulating the treatment of intellectual property. D. All of the above.

What obstacles to increased international economic integration begin to appear after trade barriers are removed? A. Each country may set up different standards, generating conflicts over enforcement and application. B. A country's domestic regulations may unintentionally limit international commerce for that country. C. Increased comparative advantage will cause competing countries to reinstate trade barriers. D. Both A and B. E. All of the above are obstacles.

When the United States signed a free-trade agreement with Canada (1989), no one thought twice about it. When the agreement with Mexico was signed (1994), there was significant opposition. The concepts of interindustry and intraindustry trade can explain the differences in opposition to the two trade agreements in the following manner: A. Substantial productivity, technology, and factor endowment differences between the U.S. and Mexico make trade between them interindustry, and this type of trade is seen as more threatening to jobs and firms. B. Given the productivity, technology, and factor endowment similarities between the U.S. and Canada, trade between the two is intraindustry, and such trade generally yields greater benefits than interindustry trade. C. Trade between the U.S. and Mexico is interindustry trade, and such trade is comparative advantage-based. While consumers get the benefit of lower import prices with such trade, they also face the hardship of paying higher prices for export goods. D. All of the above. E. A and B only.

When high-definition television (HDTV) was first considered a possibility in the United States, the U.S. government held a competition to select the technical standards that would be used nationwide. Why would the government see an advantage to setting one standard? A. The adoption of common standards allows states to work together and expand their commercial ties. B. Shared standards permit manufacturers to capture economies of scale. C. With a newly introduced product (such as HDTV) where the "best standards" are unknown, it may be wise to hold a competition to prevent locking into or adopting inferior standards. D. All of the above

Which of the following is not a tariff pattern of the major world traders? A. overall tariff rates are relatively low B. tariffs are higher in agriculture than in other industrial sectors C. commonality in the sectors they protect most D. tariffs are higher to economically hostile countries

Which of the following is not one of the three ways for countries to handle different standards abroad? A. Mutual recognition of standards B. Harmonization of standards C. Separate standards D. Optimization of standards

Why do critics of trade want to use trade barriers to enforce environmental regulations? A. Polluting industries in countries with standards relocate to countries with lower standards. B. Environmental standards reduce competitiveness. C. Tariffs and quotas have been shown to reduce world pollution. D. Both A and B. E. All of the above are reasons.

"Costly Trade Spat" Sometimes, average tariff rates do not tell the entire story about trade, trade barriers and global openess to trade. Which of the following explains in part, why not? A. Because while they may be high, tariffs are uncommon. B. Because tariffs have been around for more than a century. C. Because tariffs are not passed on to consumers. D. Tariffs are only imposed on goods actually purchased. The higher price on products may deflect consumption to other goods or goods from other countries which do not have tariffs.

"The Case for Trump's Tariffs" The author contends that free-trade ideology has a single goal, while economic nationalism has three. What are economic nationalism's three goals? A. Maintaining industries necessary for a large-scale war; preservation of the middle class; income equality B. Preservation of the middle class; income equality; reduction of trade barriers C. Maintaining industries necessary for a large-scale war; reduction of trade barriers; foster prosperity D. Maintaining industries necessary for a large-scale war; preservation of the middle class; foster prosperity

"The Role of Trade Policy in Fighting Climate Change" Who is Sabine Weyand? A. The EU's ambassador to the WTO. B. President of the European Union. C. The EU's climate change czar. D. The EU's director-general for trade.

"Tilted Marine" What did the new Princeton study on shipyard subsidies show? A. The deleterious impact of China's shipbuilding subsidies are likely an isolated example B. Shipbuilding subsidies are a new phenomenon that are not yet well understood C. The gap between China's shipbuilding cost and international market price is small and not worthy of alarm D. Japan's market share of shipbuilding would have been much higher in the absence of Chinese subsidies

"What Cheese Can Tell You" Which of the following is false? A. Some cheese is hard to export because it spoils before it can reach the market. B. Something as seemingly innocent as labeling requirements can become a barrier to trade. C. Certain cheeses must be produced in specific locations. For example, all true Brie is produced in France, all true gorgonzola is produced in Italy. D. Tariffs on dairy products tend to be quite low around the world, encouraging trade in cheese despite other obstacles.

Harmonization of standards A. is not possible for countries of different income levels. B. is easy to agree on. C. is required under WTO rules. D. can make it less costly for exporting firms to produce.

Race to the bottom refers to which of the following? A. Countries have an incentive to raise the standards of the lowest income country. B. Countries will compete with each other to offer incentives to firms. C. Firms will overpay workers in low income countries. D. Firms have an incentive to relocate to countries with lower standards.

how are quotas like tariffs?

Domestic consumption falls Domestic production rises Consumer price rises

why is there an incentive to price exports lower?

Domestic firms usually have a larger share of home markets than foreign Foreign sales are more affected by their pricing then their domestic sales Firms have less monopoly power in foreign market and a greater incentive to keep their prices low on exports if marginal revenue on an extra unit is higher

The principle benefit of tariff protection goes to a. domestic consumers of the good produced. b. foreign consumers of the good produced. c. foreign producers of the good produced. d. the domestic government. e. Domestic producers of the good produced

Domestic producers of the good produced

A country may actually make itself better off by levying a tariff if A. there are no harmful effects on innovation. B. no rent seeking behavior occurs. C. it is large enough to affect the world price when it imposes a tariff. D. other nations do not retaliate. E. all of the above. F. A, B, and D only.

Given that tariffs and quotas cost consumers and that they are a grossly inefficient means for creating or preserving jobs, citizens nevertheless allow these policies to exist because A. incentives to organize around the issue of trade policy are asymmetric. B. they know that petitioning the government to do the right thing is futile. C. the costs of tariffs and quotas are diffused throughout an entire nation, while the benefits are concentrated. D. all of the above. E. A and C only.

International trade economists are divided on whether labor and environmental standards should be included in trade agreements. Which of the following is a reason why the use of trade barriers to enforce labor or environmental standards may be less efficient than other measures? A. The imposition of trade barriers may make conditions worse rather than better, since some producers may move their facilities into the informal sector of the economy. B. Trade barriers are very costly, creating deadweight losses in consumption and production at home. C. The trade barriers may come to be exploited by special interest groups for ulterior motives. D. Without a coalition of countries, which are difficult to assemble, the trade barriers may be ineffectual. E. All of the above are reasons why trade barriers tend to be weak enforcement mechanisms. F. A, B, and C only.

The International Labor Organization (ILO) proposes that five labor standards are basic rights. These include A. the right to organize and bargain collectively. B. the payment of living wages. C. prohibition of forced labor. D. All of the above. E. A and C only.

What externalities may arise in a low income country after trade barriers are removed? A. More incentives exist to exploit differences in environmental regulations to gain a cost advantage. B. More incentives exist to exploit certain low-wage sectors of the population, such as children, to gain a cost advantage. C. More incentives to increase specialization to exploit comparative advantage, leading to bigger losses to less productive sectors of the economy. D. Both A and B. E. All of the above are externalities.

Which of the following is a theoretical justification for targeting the development of specific industries? A. Counteract a market failure. B. Overcome inefficiencies created by historical accidents. C. Punish a foreign competitor. D. All of the above are justifications. E. A and B are justifications only.

deep integration

Economic integration beyond removing barriers at each country's borders → requires a change in domestic laws that may inadvertently restrict trade

theory of external economies

External economies of scale may result if a larger industry allows for more efficient provision of services or equipment to firms in the industry--> low costs of production

industrial policy

Government policy designed to create new industries or support existing industries (tries to influence the development of an industry by offering a subsidy)

how can you tell if trade is completely intra-industry using grubel lloyd

If exports of a domestic industry are equal to its imports from the same industry, the numerator is zero and GL = 1 and trade is completely intra-industry

necessary conditions for dumping to occur

Imperfect competition exists: firms must be able to set market prices rather than take them as given Markets are segmented:goods cannot be easily bought in one market and resold in another (can't buy domestically goods intended for export)

How do economies of scale give rise to international trade?

International trade occurs because INTERNAL economies of scale make a comparative advantage.

Why do countries that have similar capital, labor, and land ratios trade w/ each other?

Intra-industry trade: -52% of german exports to france are things that france also produces (intra-industry trade) -US exports Fords to Germany and imports BMWs

Why do internal economies of scale lead to imperfectly competitive industries? A. This is an observation based on measurable data. B. Patent laws prevent firms from entering the market. C. There are barriers to entry due to large fixed costs. D. Large firms have cost advantages over small firms.

Large firms have cost advantages over small firms

economic effects of an export subsidy

Lowers the world price of the exported good Raises the domestic price of the exported good and Raises the quantity produced when a country is "large"

economic effects of a tariff and quota

Lowers the world price of the imported good Raises the domestic price of the imported good and Lowers the quantity trade when a country is "large"

how are quotas unlike tariffs

No gain in government revenue If eventually consumer demand of quota good up, price up and producer surplus up (w/ tariff price would stay constant) Domestic firms prefer quotas to tariffs

voluntary export restraint

Not always entirely "voluntary" Use limited by uruguay round

What is meant by the statement, "diminishing returns to trade negotiations imply that the remaining gains from trade due to further tariff reductions are also relatively small in terms of world gross domestic product?" A. Countries have become less willing to lower remaining tariffs and completely remove trade barriers because they will have nothing left to bargain with. B. Now that significant reductions have been achieved with substantial benefits, the benefits of further reductions is modest and does not yield as much growth. C. Now that significant reductions have been achieved, countries do not want to spend as much time in trade negotiations. D. Now that significant reductions have been achieved, the number of countries participating in negotiations has diminished, leading to less growth of world GDP.

Now that significant reductions have been achieved with substantial benefits, the benefits of further reductions is modest and does not yield as much growth.

purpose of a tariff

Raise revenue: source of government income Protective: protect domestic industry

Why are negative effective rates of protection common? a. It is difficult to predict whether foreign exporters will react with retaliatory tariffs. b. Negative effective rates of protection are impossible to avoid when imposing tariffs. c. Domestic producers prefer them and lobby intensively for them. d. Tariff policy has occurred with little cohesive planning and has resulted in conflicting and contradictory tariffs.

Tariff policy has occurred with little cohesive planning and has resulted in conflicting and contradictory tariffs.

In which way are tariffs different from quotas? a. Tariffs raise the price of the imported products to consumers. b. Tariffs raise government revenue. c. Tariffs increase the domestic quantity supplied of the product. d. Tariffs reduce the volume of imported products.

Tariffs raise government revenue.

what does strategic trade policy require?

The industry has economies of scale and The firms in the industry have market power

what do countries need to do to take advantage of economies of scale?

To take advantage of economies of scale, each of the countries must concentrate in producing only a limited number of goods. But they will need a larger market

Complaints are often made to the International Trade Commission concerning foreign "dumping" practices. These complaints typically claim that A. foreign companies are charging prices that are lower than prices they charge countries other than the U.S. B. foreign companies are charging exorbitant prices that are higher than the true value of the products. C. U.S. firms are harmed by the unfair pricing of foreign exporters. D. U.S. consumers cannot differentiate between the foreign and domestic goods. E. U.S. consumers are harmed by the lack of quality control or health concerns in foreign countries.

U.S. firms are harmed by the unfair pricing of foreign exporters.

partial equilibrium analysis

We are only considering the effects of tariffs and quotas on the protected industry We are not considering the effects of a tariff on other industries

rent seeking case for free trade

When quotas are used instead of tariffs, costs can be magnified through rent seeking

external economies of scale

When the cost per unit depends on the size of the industry but not necessarily on the size of any one firm

Is the claim that environmental standards reduce industrial competitiveness valid? a. No, because consumers will want to buy from firms that pollute less. b. No, because environmental standards have little effect in high-income countries. c. Yes, because environmental standards will cause the imposition of WTO sanctions. d. Yes, because environmental standards raise costs to businesses.

Yes, because environmental standards raise costs to businesses.

labels for exports

a certification process to indicate the good was produced under humane and environmentally sound conditions sanction that doesnt hurt trade

how can a country be worse off w/ trade than it would have w/o?

a country may be better off if it produces everything for its domestic market rather than pay for imports thai and swiss example: thailand has to charge a higher price in intl trade, but could block trade and sell domestic for cheaper

large country and tariff effects

a country with a market large enough to influence world price if there is a change in consumption

labor pooling

a large and concentrated industry may attract a pool of workers, reducing employee search and hiring costs for each firm

An export subsidy is A. a fee that is charged to a country that ships goods to the U.S. B. a payment made to a foreign government in return for preferential trade treatment. C. illegal in the U.S. but is fairly common in the rest of the world. D. a limit on the quantity of a good or service that can be sold abroad. E. a payment to a firm or individual that ships a good abroad.

a payment to a firm or individual that ships a good abroad.

Pollution haven

a place which attracts a degrading economic activity by offering less strict environmental regulation

local content requirement

a regulation that requires a specified fraction of a final good to be produced domestically

section 301

a section of the US 1974 Trade Act that requires the US Trade Representative (USTR) to take action against any nation that persistently engages in unfair trade practices

tariff

a tax levied on an imported good

intra-industry trade is most common in the trade patterns of a. advanced industrial nations. b. raw material producers. c. the developing countries of Asia and Africa. d. labor-intensive products. e. China with the rest of the world.

advanced industrial nations

Protectionism tends to be concentrated in two sectors which are?

agriculture and clothing

The two industries most commonly receiving protection are:

agriculture and clothing.

High-income industrial nations such as the United States and Japan tend to have their highest tariffs in

agriculture, clothing, and textiles

most highly protected sectors of industrial countries

agriculture, clothing, and textiles problem of access to those industries is harmful to developing companies

Because of its politically sensitive nature, the last economic sector to be liberalized via multilateral trade negotiations has been

agriculture.

what is the effect of trade based on external economies of scale on national welfare?

ambiguous there may be gains by concentrating production there is no guarantee a country can even be worse off from trade than it would have without

monopolistic competition

an industry with many firms differentiated product some price setting power Free entry and exit

rent seeking

any activity of firms designed to alter distribution of income

infant government argument

argument for tariffs In developed countries, tax revenue is relatively easy to collect In developing countries, tariffs are an attractive method of raising government revenue

national defense

argument for tariffs certain industries need to be protected to ensure adequate output in case of war

infant industries

argument for tariffs new industries in developing countries initially need protection to allow them to grow in the face of foreign competition

create and protect jobs

argument for tariffs to create jobs, since tariffs increase domestic output and protect jobs from low wages abroad

retaliation

arguments for tariffs retaliation for unfair trade practices

how is dumping regarded?

as price discrimination and unfair countries can appeal to the commerce department to investigate dumping the international trade commission determines the injury

Why do countries have "industrial", "agricultural", and "technology" sectors in distinct geographical locations?

bright lights cluster around metro centers (amsterdam, brussels, dortmund) Geographical clustering

the existence of internal economies of scale a. may be associated with a perfectly competitive industry. b. is associated only with sophisticated products such as aircraft. c. cannot be associated with a perfectly competitive industry. d. cannot form the basis for international trade. e. focuses more on the industry than individual firms.

cannot be associated with a perfectly competitive industry.

Nominal rates of protection a. cannot be negative. b. refer to the tariffs placed on intermediate goods used to make the final good or service. c. are always greater than effective rates of protection. d. are always smaller than effective rates of protection.

cannot be negative

What happens when countries try to ban child labor? a. most children start to attend school. b. child labor often moves to the informal economy. c. family poverty decreases. d. GDP increases.

child labor often moves to the informal economy.

Harmonization of standards refers to

common product safety, environment, labor, and fair competition standards agreed upon by tradingpartners.

gains from inter-industry trade reflect

comparative advantage

If a firm's output doubles when all inputs are doubled, production is said to occur under conditions of a. increasing returns to scale. b. constant returns to scale c. imperfect competition. d. intra-industry equilibrium. e. decreasing returns to scale.

constant returns to scale

total social welfare

consumer surplus + producer surplus

what does strategic policy try to do?

convince foreign firms to leave the industry by starting a well publicized and credible system of subsidies to new domestic firms

What might cause one country to have an initial price advantage?

countries that start as large producers in certain industries tend to remain large producers no matter what bc of external economies of scale potentially give a lot of power to history and established patterns of specialization could initially start bc of comparative advantage due to underlying differences in tech and resources

Some proponents of trade sanctions argue for changes in policy because they fear low standards will be used to capture markets and foreign investment. While theoretically possible, there is little or no support for the view that countries use low labor standards this way, because a. low standards can change a country's comparative advantage. b. it is impossible to lower labor standards. c. countries would not have an incentive to have low standards. d. countries with low labor standards generally have trouble attracting foreign investment.

countries with low labor standards generally have trouble attracting foreign investment.

The efficiency case made for free trade is that as trade distortions such as tariffs are dismantled and removed A. government tariff revenue will decrease, and therefore national economic welfare will decrease. B.deadweight losses for producers and consumers will decrease, hence increasing national economic welfare. C. government tariff revenue will decrease, and therefore national economic welfare will increase. D. deadweight losses for producers and consumers will decrease, hence decreasing national economic welfare. E. government tariff revenue will increase, hence increasing national economic welfare.

deadweight losses for producers and consumers will decrease, hence increasing national economic welfare.

If a small country were to levy a tariff on its imports then this would a. change the terms of trade. b. decrease the country's economic welfare. have no effect on that country's economic welfare. raise prices on its exports in other countries. increase the country's economic welfare.

decrease the country's economic welfare.

High tariffs on intermediate inputs a. increase the effective rate of protection on final goods. b. have no impact on the effective rate of protection on final goods. c. lower the nominal rate of protection on final goods. d. decrease the effective rate of protection on final goods

decrease the effective rate of protection on final goods

If Slovenia were a large country in world trade, then if it imposes a large set of tariffs on its imports, this must a. improve the real income of its trade partners. b. decrease the internal price of imports below the world market rate. c. harm Slovenia's real income. d. improve Slovenia's real income. e. cause retaliation on the part of its trade partners.

decrease the internal price of imports below the world market rate.

If a firm's output less than doubles when all inputs are doubled, production is said to occur under conditions of a. increasing returns to scale. b. constant returns to scale c. imperfect competition. d. intra-industry equilibrium. e. decreasing returns to scale.

decreasing returns to scale.

The infant industry argument is that A. comparative advantage is irrelevant to economic growth. B. developing countries have a comparative advantage in agricultural goods. C. developing countries have a potential comparative advantage in manufacturing. D. developing countries have a comparative advantage in manufacturing. E. developing countries have no chance to compete with industrialized countries.

developing countries have a potential comparative advantage in manufacturing.

producer surplus

difference between the minimum price a producer would accept at the price it actually recieves

The imposition of tariffs on imports results in deadweight (triangle) losses. These are a. production and consumption distortion effects. b. distortion of incentives. c. redistribution effects. d. revenue effects e. efficiency effects.

distortion of incentives.

A negative effective rate of protection implies that a. domestic nominal tariffs are effective in reducing foreign imports. b. domestic producers are more exposed to foreign competition than if there were no tariffs. c. foreign producers are imposing high tariffs on their exports. d. domestic producers are effectively lobbying for protection.

domestic producers are more exposed to foreign competition than if there were no tariffs

Does a firm with price setting power face a downward-sloping demand curve or a horizontal demand curve?

downward sloping

The most common form of price discrimination in international trade is

dumping

gains from intra-industry trade reflect

economies of scale

main components of second generation models of trade

economies of scale: internal and external market structure: deviates from perf competition

welfare effects of a tariff quota and export subsidy can be measured by:

efficiency loss trade gain/loss

Most of the world's population and a majority of countries are

either low income or middle income

A real cost of tariffs and quotas that is difficult to measure is that they a. encourage rent seeking. b. reduce wages. c. shift income from consumers to producers. d. limit the quantity of imports.

encourage rent seeking.

non transboundary

environmental impacts only affect home

Transboundary

environmental impacts that affect neighboring or other countries pollition spillovers common

The opportunity to exploit economies of scale is one of the gains to be derived by removing tariffs and other trade distortions. These gains will be the result of a decrease in A. world prices of imports. B. the consumption distortion loss triangle. C. the production distortion loss triangle. D. International labor mobility. E. excessive entry and inefficient business practices.

excessive entry and inefficient business practices.

dynamic increasing returns to scale

exist if average costs fall as a cumulative output over time rises (swiss being in watch industry longer than thai) Imply dynamic external economies of scale Locks in initial advantage or a head start in an industry sometimes used to justify protectionism

intra-industry trade

exporting and importing from the same industry (cars for cars)

An export subsidy will cause the relative demand for ________ to ________ and the relative supply for ________ to ________. a. exports; decrease; exports; increase b. imports; increase; imports; decrease c. imports; decrease; imports; increase d. exports; increase; exports; decrease e. exports; increase; imports; decrease

exports; decrease; exports; increase

Internal economies of scale occur when the average costs of the firm:

fall as the representative firm grows larger.

External economies of scale arise when the cost per unit

falls as the industry grows larger and rises as the average firm grows larger.

In an industry where transportation costs are high and there are limited scale economies, a. firms will locate close to their input sources. b. firms might locate in either area. c. firms will locate close to the market. d. firms will locate where policy makers decide.

firms will locate close to the market

specific tariff

fixed charge per unit imported ($ amount/unit imported)

import licensing requirements

forces importers to obtain government licenses less transparent than quota

Political argument for free trade

free trade is the best feasible political policy, even though there may be better policies in principle

In economic terms, tariffs are preferred to quotas because a. domestic manufacturers gain more producer surplus. b. there is less loss of consumer surplus. c. given the way quotas are usually administered, tariffs cause a smaller net national welfare loss. d. quotas create a greater production inefficiency.

given the way quotas are usually administered, tariffs cause a smaller net national welfare loss.

how to achieve deeper levels of integration

harmonization of standards mutual recognition of standards separate standards

The claim that lower environmental standards in foreign countries reduce industrial competitiveness for high standard countries is on firm theoretical ground because a. higher environmental standards requirements raise the cost of production to a firm or industry abiding by the rules. b. there will be a race-to-the-bottom competition on environmental standards. c. the interests of firms that are subject to the high standards coincide with the nation's interests, one-for-one. d. environmental standards in most countries have gotten more lax over time.

higher environmental standards requirements raise the cost of production to a firm or industry abiding by the rules.

In order for a firm to be able to "dump" a good on a foreign market, it must have market price setting power in which market, home or abroad?

home

Only modern economy with no tariffs or import quotas

hong kong Legally a part of china, but currently maintains separate economic policy

What are the two necessary conditions for dumping to occur?

imperfect competition exists and markets are segmented

Specific tariffs are a. import taxes calculated as a fixed charge for each unit of imported goods. b. import taxes stated in specific legal statutes. c. import taxes calculated as a fraction of the value of the imported goods. d. the same as import quotas. e. import taxes calculated based solely on the origin country.

import taxes calculated as a fixed charge for each unit of imported goods.

The infant industry argument was an important theoretical basis for A. neo-colonialist theory of international exploitation. B. historiography of the industrial revolution in Western Europe. C. the East-Asian miracle. D. the reduction of tariffs on Western Europe. E. import-substituting industrialization.

import-substituting industrialization.

inter-industry trade

importing and exporting from different industries (cars for syrup)

An import tariff will cause the relative demand for ________ to ________ and the relative supply for ________ to ________. a. exports; decrease; exports; increase b. imports; increase; imports; decrease c. imports; decrease; imports; increase d. exports; increase; exports; decrease e. exports; increase; imports; decrease

imports; decrease; imports; increase

when there are external economies of scale, an increase in the size of the market will

increase the # of firms and lower the price per unit

An export subsidy will ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare. a. increase; decrease; increase; have an ambiguous effect on b. increase; decrease; have no effect on; have an ambiguous effect on c. increase; decrease; decrease; decrease d. increase; decrease; have no effect on; decrease e. increase; increase; decrease; have an ambiguous effect on

increase; decrease; decrease; decrease

A voluntary export restraint will ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare. a. increase; decrease; increase; have an ambiguous effect on b. increase; decrease; have no effect on; have an ambiguous effect on c. increase; decrease; decrease; decrease d. increase; decrease; have no effect on; decrease e. increase; increase; decrease; have an ambiguous effect on

increase; decrease; have no effect on; decrease

An import quota will ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare. a. increase; decrease; increase; have an ambiguous effect on b. increase; decrease; have no effect on; have an ambiguous effect on c. increase; decrease; decrease; decrease d. increase; decrease; have no effect on; decrease e. increase; increase; decrease; have an ambiguous effect on

increase; decrease; have no effect on; have an ambiguous effect on

A tariff will ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare. a. increase; decrease; increase; have an ambiguous effect on b. increase; decrease; have no effect on; have an ambiguous effect on c. increase; decrease; decrease; decrease d. increase; decrease; have no effect on; decrease e. increase; increase; decrease; have an ambiguous effect on

increase; decrease; increase; have an ambiguous effect on

If a firm's output more than doubles when all inputs are doubled, production is said to occur under conditions of

increasing returns to scale

Countries with different relative amounts of factors of production are predicted to have more ______-industry trade

inter

patterns of ____-industry trade lead to strong external economies

inter

According to the H-O or ricardian model, only _____-industry trade exists

inter-industry bc they believe countries need to specialize

Two countries engaged in trade in products with no scale economies, produced under conditions of perfect competition, are likely to be engaged in

inter-industry trade

What beside Comparative advantage might lead to trade?

internal economies of scale external economies of scale industry structure regional clustering

Countries with similar relative amounts of factors of production are predicted to have more _____-industry trade

intra

The simultaneous export and import of textiles by India is an example of:

intra-industry trade

When a country both exports and imports a type of commodity, the country is engaged in

intra-industry trade

Two countries engaged in trade in products with scale economies, produced under conditions of monopolistic competition, are likely to be engaged in

intra−industry trade

Trade measures are usually not the best way of addressing problems such as pollution and child labor because a. trade measures are not effective in reducing pollution. b. the governments of high-income countries are not interested in sanctioning pollution and child labor. c. it is more efficient to address these problems at the production and consumption level. d. the WTO prohibits most trade sanctions.

it is more efficient to address these problems at the production and consumption level.

Mutual recognition of standards

keep domestic standards and recognize foreign standards guarantees free movement of goods and services without the need to harmonize Member States' national legislation ONLY EXCEPTION: overriding general interest such as health, consumer or environment protection

Separate standards

keep domestic standards and refuse to recognize foreign standards

Developed countries have lost comparative advantage in A. high-tech industries. B. labor-intensive industries. C. capital-intensive industries. D. electronics.

labor-intensive industries.

Today U.S. protectionism is concentrated in a. high-tech industries. b. industries in which Japan has a comparative advantage. c. computer intensive industries. d. capital-intensive industries. e. labor-intensive industries.

labor-intensive industries.

effects of trade under monopolistic competition

leads to a larger market lower costs (cost curve shifts) more variety = lower prices

requiring home country standards

leads to home firms following these same standards when operating abroad impedes race to bottom Avoids problem of high income countries dictating standards sanction that doesnt hurt trade

What is the main problem with imposing labor standards to prevent child labor and poor working conditions in the exporting sector of a less-developed country? A. It is too inexpensive to justify monitoring. B. Countries cannot settle on a particular standard. C. Less-developed countries are resistant to them. D. Consumers in developed countries are not willing to pay more for goods produced in better conditions.

less developed countries are resistant to them

External economies of scale often arise because similar firms

locate in the same geographic region.

If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing ________ of scale. a. long run; increase; economies b. short run; decrease; diseconomies c. long run; decrease; diseconomies d. long run; decrease; economies e. short run; decrease; economies

long run; decrease; economies

if there are a large number of firms in a monopolistically competitive industry a. the country in which the firms are located can be expected to export the goods they produce. b. long-run profit will be equal to zero. c. there will be a small number of firms that are very large and the rest will be very small. d. the firms will converge production on a standardized product. e. there will be barriers to entry that prevent additional firms from entering the industry.

long-run profit will be equal to zero.

If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing ________ of scale. A. long−run; decrease; economies B. long−run; decrease; diseconomies C. long−run; increase; economies D. short−run; decrease; economies E. short−run; decrease; diseconomies

long−run; decrease; economies

if external economies exist, country that has a large industry will have ___ costs, why?

low costs Cost savings comes from the closeness not from actual size of one firm

A monopoly firm will maximize profits by producing where A. marginal revenue is higher in the domestic market. B. marginal revenue is the same in domestic and foreign markets. C. total revenue from domestic and foreign sales is maximized. D. marginal revenue is higher in foreign markets. E. prices are the same in domestic and foreign markets.

marginal revenue is the same in domestic and foreign markets.

When a private market fails to deliver an optimal quantity of goods and services it is called A. market failure. B. suboptimal delivery. C. private returns to scale. D. public returns to scale.

market failure

Most foreign investment today is directed towards high-income countries because

markets are larger, so transportation costs are minimized by producing near the market.

The existence of external economies of scale a. tends to result in large profits for each firm. b. cannot be associated with a perfectly competitive industry. c. may be associated with a perfectly competitive industry. d. tends to result in one huge monopoly. e. focuses more on individual firms than the industry as a whole.

may be associated with a perfectly competitive industry. doesn't focus on large firms

Specialized equipment or services

may be needed for the industry, but are only supplied by other firms if the industry is large and concentrated ex. silicon valley in california has a large concentration of silicon chip companies which are serviced by companies that make special machines for manufacturing chips

grubel-lloyd index

measures the degree of intra-industry trade

nonbasic labor standards

minimum wage limits on hours workded health and safety issues

Trade models built exclusively on the idea of comparative advantage have a __________ record when it comes to predicting a country's trade patterns.

mixed

types of imperfect competition markets

monopoly oligopoly monopolistic competition

Monopoly vs. Perfect Competition

monopoly: -1 producer -a product that is priced in a monopoly is different from prices in a perfect competition perfect competition: -many producers

market failures are less likely to occur when a. private returns are greater than social returns. b. new firms can easily attract start-up capital. c. social returns are greater than private returns. d. the free market produces less than what is socially optimal.

new firms can easily attract start-up capital

do all firms engage in trade?

no trade costs can be high enough that they push firms beyond the exit point (c*) at that point firms would decide to sell only to domestic markets

economic effects of quotas

no gov revenue instead foreign producers can earn greater profits: quota rents

which approach to deepening integration is the best?

no one is the best

WTO rules allow subsidies a. of "precompetitive" activities such as research. b. when there are external economies. c. when there are internal economies. d. when there are positive externalities in production.

of "precompetitive" activities such as research

history of tariffs

oldest form of trade policy, initially used as a source of gov revenue, continued to protect domestic industries use has delined

monopoly

one firm The other extreme from perfect competition "price setter": can choose market price or quantity of production Significant barriers to entry; one product

If social returns to the production of a good are less than private returns, then we can conclude that relative to the social optimum, the good will be a. overproduced and underpriced. b. overproduced and overpriced. c. underproduced and overpriced. d. underproduced and underpriced.

overproduced and underpriced

If some industries exhibit internal increasing returns to scale in each country, we should not expect to see a. intra-industry trade between countries. b. high levels of specialization in both countries. c. perfect competition in these industries. d. inter-industry trade between countries. e. increased productivity in both countries.

perfect competition in these industries

direct presidential action

policy of protection a firm or industry initiates an investigation into foreign country/ firm practices

countervailing duty

policy of protection tariff granted to a U.S. industry hurt by a foreign country's subsidizing its firms

anti-dumping duty

policy of protection tariff levied on an import that is selling at a price below the product's fair value

escape clause relief

policy of protection temporary tariff on imports to allow a domestic industry to escape the pressure of imports and obtain a period of adjustment

Countries that compete by offering foreign firms a reduced set of environmental compliance requirements are known as

pollution havens

characteristics of imperfect competition

price setters- want low price to max profits some product differentiation some barriers to entry some economic profits.

characteristics of perfect competition

price takers no influence identical goods no barriers to entry zero economic profits

standard case for free trade

producers and consumers allocate resources most efficiently when governments do not distort market prices through trade policy

The most vocal political pressure for tariffs is generally made by a. producers lobbying for import tariffs. b. consumers lobbying for export tariffs. c. consumers lobbying for import tariffs. d. consumers lobbying for lower import tariffs. e. producers lobbying for export tariffs.

producers lobbying for import tariffs.

Monopolistic competition is associated with a. price-taking behavior. b. product differentiation. c. increasing returns to scale. d. high profit margins in the long run. e. explicit consideration at the firm level of the strategic impact of other firms' pricing decisions.

product differentiation

quota rents

profits earned by foreign producers under a quota

quota

quantitative restrictions that specify a limit on the quantity of imports

types of quotas

quantity limitation import licensing requirement voluntary export restraint

If a good is imported into (large) country H from country F, then the imposition of a tariff in country H a. raises the price of the good in both countries (the "Law of One Price"). b. raises the price of the good in H and lowers it in F. c. raises the price in country H and cannot affect its price in country F. d. lowers the price of the good in both countries. e. lowers the price of the good in H and could raise it in F.

raises the price of the good in H and lowers it in F.

Internal economies of scale will ________ average cost when output is ________ by ________. reduce; increased; the industry increase; increased; a firm reduce; reduce; the industry increase; increased; the industry reduce; increased; a firm

reduce, increased, a firm

The U.S. sugar quota results a. generates government revenue. b. results in net welfare benefits to the U.S. economy. c. results in costs to consumers that exceed the benefits to sugar producers. d. results in benefits to sugar producers that exceed the cost to consumers. e. does not result in an efficiency loss.

results in costs to consumers that exceed the benefits to sugar producers.

One advantage of the specialization that results from international trade is that countries can take advantage of a. taste reversals. b. scale economies. c. production diversification d. smaller countries. e. lower transport costs.

scale economies

how can we explain why the US and Canada both import and export cars/car parts?

second generation models of trade--> INTRA INDUSTRY

Geographical concentration is a. self-reinforcing. b. costly to a region. c. easily planned. d. costly to a region.

self-reinforcing as firms attract certain workers, more firms, more workers, etc

Dumping occurs when a firm

sells in a foreign country at prices that are below fair value.

2 types of integration

shallow and deep

harmonization of standards

share common standards

how do trade costs affect number of firms/size of them that internationally trade?

significantly decrease # of firms that engage in trade make firms that do export much larger

what causes decline in average costs

spread of fixed costs over a larger quantity of production

An import quota is similar to a ________ in its effect on imports, EXCEPT that an import quota ________. a. tariff; generates revenue b. subsidy; does not generate revenue c. tariff; does not generate revenue d. subsidy; generates revenue e. tariff; does not result in an efficiency loss.

tariff; does not generate revenue

Infant industry argument

temporary protection of industries enables them to gain experience But temporary is often for a long time, and its is hard to identify when external economies of scale really exist

Free market economies underproduce goods with positive externalities because a. the additional social benefits cannot be measured. b. the additional social benefits are too small to matter. c. there are no benefits to the production of these goods. d. the additional social benefits are not taken into account by the marketplace.

the additional social benefits are not taken into account by the marketplace

The logic of collective action explains the persistence of tariffs and quotas as an outcome that is driven by the asymmetry between A. the benefits distributed across many consumers versus the concentration of the costs in the hands of a few firms. B. the benefits concentrated in the hands of the few firms, versus the costs distributed across many consumers. C. the benefits concentrated in the hands of the few consumers, versus the costs distributed across many firms. D. the benefits distributed across many firms versus the concentration of the costs in the hands of a few consumers.

the benefits concentrated in the hands of the few firms, versus the costs distributed across many consumers.

Where there are economies of scale, the scale of production possible in a country is constrained by: A. the combined size of the domestic and foreign market. B. the size of that country. C. the size of the domestic market. D. the aggregate size of all trading partner countries.

the combined size of the domestic and foreign market.

One reason why consumers are unlikely to be too upset about tariffs is because a. most consumers benefit from protection. b. tariffs are an inexpensive way to create jobs. c. consumer losses are not real losses. d. the costs are so spread out that no one pays a big share of the total.

the costs are so spread out that no one pays a big share of the total.

shallow integration

the elimination or reduction of tariffs, quotas, etc. that restrict the flow of goods across borders

how do firms react when there is increased competition and trade?

the high-cost firms will exit first increased competition tends to hurt the worst-performing firms The best performing firms take the greatest advantage of new sales opportunities and expand the most-- when poor performing leave and this happens overall industry performance improves

how does the size of the market affect monopolistic competition? the more firms there are...

the more intensely they compete --> lower industry price less each firm sells --> higher industry's average costs think graphs w/ x-axis n

the broader the definition of an industry:

the more trade appears to be intra-industry

geographical clustering

the pervasive tendency for economic activities to agglomerate together in specific geographical locations.

dumping

the practice of charging a lower price for exported goods than for goods sold domestically could be considered price discrumination

price discrimination

the practice of charging different customers different prices, many forms of which are legal and rational (Ex. movie ticket prices based on age)

According to the textbook, the fact that trade policy often imposes harm on large numbers of people, and benefits only a few may be explained by a. the lack of political involvement of the public b. the problem of collective action. c. the power of advertisement. d. the basic impossibility of the democratic system to reach a fair solution. e. a cycle of political corruption.

the problem of collective action.

strategic trade policy

the selective use of trade barriers and industry subsidies in order to capture some of the profits of foreign firms

In an industry where firms experience internal scale economies, the long−run cost of production will depend on

the size of the market

consumer surplus

the value received by consumers over and above what they are required to pay under demand but above price

When a country must resort to tariffs for protection, the result is considered a "second best" solution, which means the tariff is not the most efficient action. This result occurs because A. there are always deadweight losses to market interventions. B. some countries have no other alternatives but to impose a tariff. C. there are many reasons why a tariff is justified. D. None of the above responses are correct.

there are always deadweight losses to market interventions.

Modeling trade in imperfectly competitive industries is problematic because A. there is only a single model of imperfect competition (monopoly) but imperfect competition can take many forms in the real world. B. it is difficult to find an imperfectly competitive firm in the real world. C. there are no models of imperfectly competitive behavior. D. collusion among imperfectly competitive firms makes usable data rare. E. there is no single generally accepted model of behavior by imperfectly competitive firms.

there is no single generally accepted model of behavior by imperfectly competitive firms.

One factor that may help explain why some countries benefit more from geographical concentration is that a. their governments provided subsidies. b. their populations are less educated so they focus on labor intensive production. c. they had a head start over other nations. d. the nation is more educated and can produce more per capita.

they had a head start over other nations

what industries have more intra-industry trade than others?

those industries requiring relatively large amounts of skilled labor, tech, and physical capital engage in large amounts of intra-industry trade w/ the US

trade effects on a firm's demand

trade = bigger market 2 things happen to demand: 1. demand will shift right 2. demand will flatten

International negotiations are especially appropriate when environmental problems are A. transboundary in nature. B. neither transboundary nor non-transboundary. It is always best for individual nations to design their own solutions to pollution problems. C. either transboundary or non-transboundary. The best solution for all pollution problems is international negotiation. D. non-transboundary in nature.

transboundary in nature.

If social returns to the production of a good are greater than private returns, then we can conclude that relative to the social optimum, the good will be a. overproduced and underpriced. b. overproduced and overpriced. c. underproduced and overpriced. d. underproduced and underpriced.

underproduced and overpriced

Increasing intl negotiations

use existing international organizations to create new agreements/ organizations

local content requirement that can be specified in 2 ways

value terms: minimum share of the value of a good rep domestic value added physical units: require phys units produced domestic

race to the bottom

when production locates in countries with the lowest environmental (or other) standards, putting pressure on all countries to reduce their environmental standards

when do internal economies exist?

when size of an individual firm influences costs Internal economies of scale result when large firms have cost advantage over small firms--> large firm cost of production declining as production increases Large first may be more efficient than small firms and drive them out of business → industry may consist of monopoly (one larger firm) or oligopoly ( a few large firms) Imperfectly competitive → excess of monopoly profits are captured by large firms

internal economies of scale

when the cost per unit depends on the size of the individual firm size conveys a comparative adv in form of lower costs

what do second generation trade models study?

why better performing firms have greater incentive to engage in the global economy

greater specialization within a country a. always benefits everyone in the country. b. winners and losers and raises issues about fairness. c. is rarely beneficial. d. evenly distributes benefits in the long run.

winners and losers and raises issues about fairness.

knowledge spillovers

workers from different firms may more easily share ideas that benefit each firm when a large and concentrated industry exists

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