International Economics Chapters 7,8,9

Which nation accounts for the largest amount of OPEC's oil reserves and production? a. Iran b. Libya c. Iraq d. Saudi Arabia

d. Saudi Arabia

The European Union has achieved all of the following except: a. Adopted a common fiscal policy for member nations b. Established a common system of agricultural price supports c. Disbanded all tariffs among its member countries d. Levied common tariffs on products imported from nonmembers

a. Adopted a common fiscal policy for member nations

Under the European Union's common agricultural policy, a variable import levy equals the: a. Amount by which the EU's support price exceeds the world price b. Amount by which the world price exceeds the EU's support price c. Support price of the EU d. World price

a. Amount by which the EU's support price exceeds the world price

Suppose a communist country agrees to pay for delivery of machinery with goods produced by the machinery. This arrangement refers to: a. Countertrade b. International commodity agreements c. Coproduction agreements d. Trade diversion

a. Countertrade

If the demand schedule for bauxite is relatively inelastic to price changes, an increase in the supply schedule of bauxite will cause a: a. Decrease in price and a decrease in sales revenue b. Decrease in price and an increase in sales revenue c. Increase in price and a decrease in sales revenue d. Increase in price and an increase in sales revenue

a. Decrease in price and a decrease in sales revenue

Stabilizing commodity prices around long-term trends tends to benefit importers at the expense of exporters in markets characterized by: a. Demand-side disturbances b. Supply-side disturbances c. Demand-side and supply-side disturbances d. None of the above

a. Demand-side disturbances

Which of the following best refers to the outright construction or purchase abroad of pro-ductive facilities, such as manufacturing plants, by domestic residents? a. Direct investment b. Portfolio investment c. Short-term capital investment d. Long-term capital investment

a. Direct investment

Which industrialization policy used by developing countries places emphasis on the comparative advantage principle as a guide to resource allocation? a. Export promotion b. Import substitution c. International commodity agreements d. Multilateral contract

a. Export promotion

The OPEC nations during the 1970s manifested their market power by utilizing: a. Export tariffs levied for revenue purposes b. Export tariffs levied for protective purposes c. Import tariffs levied for protective purposes d. Import tariffs levied for revenue purposes

a. Export tariffs levied for revenue purposes

American labor unions have recently maintained that U.S. multinational enterprises have been: a. Exporting American jobs by investing overseas b. Exporting American jobs by keeping investment in the United States c. Importing cheap foreign workers by shifting U.S. investment overseas d. Importing cheap foreign workers by keeping U.S. investment at home

a. Exporting American jobs by investing overseas

Suppose that an American automobile manufacturer establishes foreign subsidiaries to mar-ket the automobiles. This practice is referred to as: a. Forward vertical integration b. Forward conglomerate integration c. Backward vertical integration d. Backward conglomerate integration

a. Forward vertical integration

Which of the following represents the stage where economic integration is least complete? a. Free trade area b. Monetary union c. Common market d. Customs union

a. Free trade area

To help developing countries expand their industrial base, some industrial countries have reduced tariffs on designated manufactured imports from developing countries below the levels applied to imports from industrial countries. This scheme is referred to as: a. Generalized system of preferences b. Export-led growth c. International commodity agreement d. Reciprocal trade agreement

a. Generalized system of preferences

Members of the European Union find that "trade creation" is fostered when their economies are: a. Highly competitive b. Highly noncompetitive c. Small in economic importance d. Geographically distant

a. Highly competitive

Which terms-of-trade concept emphasizes a nation's capacity to import? a. Income terms of trade b. Commodity terms of trade c. Barter terms of trade d. Price terms of trade

a. Income terms of trade

Multinational enterprises: a. Increase the transfer of technology between nations b. Make it harder for nations to foster activities of comparative advantage c. Always enjoy political harmony in nations where their subsidiaries operate d. Require governmental subsidies in order to conduct worldwide operations

a. Increase the transfer of technology between nations

Concerning the price elasticities of supply and demand for commodities, empirical estimates suggest that most commodities have: a. Inelastic supply schedules and inelastic demand schedules b. Inelastic supply schedules and elastic demand schedules c. Elastic supply schedules and inelastic demand schedules d. Elastic supply schedules and elastic demand schedules

a. Inelastic supply schedules and inelastic demand schedules

Direct foreign investment has taken all of the following forms except: a. Investors buying bonds of an existing firm overseas b. The creation of a wholly owned business enterprise overseas c. The takeover of an existing company overseas d. The construction of a manufacturing plant overseas

a. Investors buying bonds of an existing firm overseas

If the bauxite exporting countries form a cartel to boost the price of bauxite so as to increase sales revenue, they believe that the demand for bauxite: a. Is inelastic with respect to price changes b. Is elastic with respect to price changes c. Will increase in response to a price increase d. Will not change in response to a price change

a. Is inelastic with respect to price changes

The implementation of the European Union has: a. Made it harder for Americans to compete against the Germans in the British market b. Made it easier for Americans to compete against the Germans in the British market c. Made it harder for Americans to compete against the Japanese in the British market d. Made it easier for Americans to compete against the Japanese in the British market

a. Made it harder for Americans to compete against the Germans in the British market

Concerning the hypothesis that there has occurred a long-run deterioration in the developing countries' terms of trade, empirical studies provide: a. Mixed evidence that does not substantiate the deterioration hypothesis b. Overwhelming support for the deterioration hypothesis c. Overwhelming opposition to the deterioration hypothesis d. None of the above

a. Mixed evidence that does not substantiate the deterioration hypothesis

The source (home) location of most of the world's leading multinational enterprises is: a. North America and Europe b. North America and Asia c. Europe and South America d. Europe and Asia

a. North America and Europe

Multinational enterprises may provide benefits to their source (home) countries because they may: a. Secure raw materials for the source country b. Shift source country technology overseas via licensing c. Export products which reflect source-country comparative disadvantage d. Result in lower wages for source-country workers

a. Secure raw materials for the source country

Customs union theory reasons that the formation of a customs union will decrease members' real welfare when the: a. Trade diversion effect exceeds the trade creation effect b. Trade production effect exceeds the trade consumption effect c. Trade consumption effect exceeds the trade production effect d. Trade creation effect exceeds the trade diversion effect

a. Trade diversion effect exceeds the trade creation effect

When the United States, Canada, and Mexico form a free trade area, and Mexico begins importing a product from Canada rather than from the lowest cost world producer. a. Trade diversion occurs b. Trade creation occurs c. World welfare rises d. World welfare falls to zero

a. Trade diversion occurs

Which of the following refers to the price charged for products sold to a subsidiary of a multinational enterprise by another subsidiary in another nation? a. Transfer pricing b. International dumping c. Price discrimination d. Full-cost pricing

a. Transfer pricing

Which of the following would best explain why foreign direct investment might be attracted to the United States? a. U.S. price ceilings that hold down the price of energy b. U.S. wage rates exceeding the productivity of U.S. labor c. Artificially high prices being charged for the stock of U.S. firms d. Anticipations of future reductions in U.S. tariff levels

a. U.S. price ceilings that hold down the price of energy

Which device has the European Union used to equalize farm-product import prices with politically determined European Union prices, regardless of shifts in world prices? a. Variable levies b. Import quotas c. Import subsidies d. Domestic content regulations

a. Variable levies

In recent years, most foreign direct investment in the United States has come from: a. Western Europe b. Central America c. South America d. Asia

a. Western Europe

Consider Figure 7.3. Under competitive conditions, the price of a barrel of oil equals: a. $7 b. $11 c. $12 d. $16

b. $11

Which type of multinational diversification occurs when the parent firm establishes foreign subsidiaries to produce intermediate goods going into the production of finished goods? a. Forward vertical integration b. Backward vertical integration c. Forward horizontal integration d. Backward horizontal integration

b. Backward vertical integration

During the 1970s, American oil companies acquired nonenergy companies (e.g., copper, auto components) in response to anticipated decreases in investment opportunities in oil. This type of diversification is referred to as: a. Horizontal integration b. Conglomerate integration c. Forward vertical integration d. Backward vertical integration

b. Conglomerate integration

If the supply schedule for tin is relatively inelastic to price changes, a decrease in the demand schedule for tin will cause a: a. Decrease in price and an increase in sales revenue b. Decrease in price and a decrease in sales revenue c. Increase in price and an increase in sales revenue d. Increase in price and a decrease in sales revenue

b. Decrease in price and a decrease in sales revenue

Consider Figure 7.2. Assume there exists a cartel of several producers that is maximizing total profit. If one producer cheats on the cartel agreement by decreasing its price and increasing its output, rational action of the other producers is to: a. Increase their price in order to regain sacrificed profits b. Decrease their price as well c. Keep on selling at the agreed-upon price d. Give the product away for free

b. Decrease their price as well

The common agricultural policy of the European Union has: a. Increased American farm exports to the EU b. Decreased American farm exports to the EU c. Lowered the price of American farm exports to the EU d. Not affected the price of American farm exports to the EU

b. Decreased American farm exports to the EU

Hong Kong and South Korea are examples of developing nations that have recently pursued industrialization policies. a. Import substitution b. Export promotion c. Commercial dumping d. Multilateral contract

b. Export promotion

Under the common agricultural policy, exports of any surplus quantities of EU produce are encouraged through the usage of: a. Variable levies b. Export subsidies c. Import quotas d. Countertrade

b. Export subsidies

NAFTA is a: a. Monetary union b. Free trade area c. Common market d. Customs union

b. Free trade area

Which nation is not a member of the North American Free Trade Association? a. Canada b. Greenland c. Mexico d. United States

b. Greenland

Which business device involves the creation of a new business by two or more companies, often for a limited period of time? a. Multinational enterprise b. International joint venture c. Horizontal merger d. Vertical merger

b. International joint venture

Which term best describes the New United Motor Manufacturing Co.? a. Multinational enterprise b. International joint venture c. Multilateral contract d. International commodity agreement

b. International joint venture

International commodity agreements do not: a. Consist of consuming and producing nations who desire market stability b. Levy export cutbacks so as to offset rising commodity prices c. Utilize buffer stocks to generate commodity price stability d. Increase the supply of commodities to prevent rising prices

b. Levy export cutbacks so as to offset rising commodity prices

Multinational enterprises face problems since they: a. Cannot benefit from the advantages of comparative advantage b. May raise political problems in countries where their subsidiaries operate c. Can invest only at home, but not overseas d. Can invest only overseas, but not at home

b. May raise political problems in countries where their subsidiaries operate

A reason why it is difficult for producers to maintain a cartel is that: a. The elasticity of demand for the cartel's output decreases over time b. Producers in the cartel have the economic incentive to cheat c. Economic profits discourage other producers from entering the industry d. Producers in the cartel have the motivation to lower price but not to raise price

b. Producers in the cartel have the economic incentive to cheat

Consider Figure 7.2. Suppose the supply of tin increases from S0 to S1. Under a buffer stock system, the buffer-stock manager could maintain the target price by: a. Purchasing 15 pounds of tin b. Purchasing 30 pounds of tin c. Selling 15 pounds of tin d. Selling 30 pounds of tin

b. Purchasing 30 pounds of tin

A widely used indicator to differentiate developed countries from developing countries is: a. International trade per capita b. Real income per capita c. Unemployment per capita d. Calories per capita

b. Real income per capita

One factor that has prevented the formation of cartels for producers of commodities is that: a. The demand for commodities tends to be price inelastic b. Substitute products exist for many commodities c. Commodity produces have been able to dominate world markets d. Production of most commodities is capital intensive

b. Substitute products exist for many commodities

Stabilizing commodity prices around long-term trends tends to benefit exporters at the expense of importers in markets characterized by: a. Demand-side disturbances b. Supply-side disturbances c. Demand-side and supply-side disturbances d. None of the above

b. Supply-side disturbances

Trade analysis involving multinational enterprises differs from our conventional trade analysis in that multinational enterprise analysis emphasizes: a. Absolute cost differentials rather than comparative cost differentials b. The international movement of factor inputs rather than finished goods c. Purely competitive markets rather than imperfectly competitive markets d. Portfolio investments rather than direct foreign investments

b. The international movement of factor inputs rather than finished goods

A static welfare effect resulting from the formation of the European Union would be: a. Economies of scale b. Trade diversion c. Investment incentives d. Increased competition

b. Trade diversion

Which trade instrument has the European Union used to insulate its producers and consumers of agricultural goods from the impact of changing demand and supply conditions in the rest of the world? a. Domestic content regulations b. Variable import levies c. Voluntary export quotas d. Orderly marketing agreements

b. Variable import levies

Which of the following organizations is considered a regional trading arrangement? a. Organization of Petroleum Exporting Countries b. North Atlantic Treaty Organization c. Benelux d. International Tin Agreement

c. Benelux

Which device has the International Tin Agreement utilized as a way of stabilizing tin prices? a. Multilateral contracts b. Export subsidies c. Buffer stocks d. Export tariffs

c. Buffer stocks

Which of the following could partially explain why the terms of trade of developing countries might deteriorate over time? a. Developing-country exports mainly consist of manufactured goods b. Developing-country imports mainly consist of primary products c. Commodity export prices are determined in highly competitive markets d. Commodity export prices are solely determined by developing countries

c. Commodity export prices are determined in highly competitive markets

By 1992 the European Union had become a full-fledged: a. Economic union b. Monetary union c. Common market d. Fiscal union

c. Common market

Which form of economic integration occurs when participating countries abolish tariffs on trade among themselves, establish a common tariff on imports from nonmembers, and permit free movement of capital and labor within the organization? a. Free trade area b. Economic union c. Common market d. Monetary union

c. Common market

"Risk spreading" is a motive most likely to be served when firms undergo: a. Horizontal integration b. Vertical integration c. Conglomerate integration d. None of the above

c. Conglomerate integration

Once a cartel establishes its profit-maximizing price: a. Entry into the industry of new competitors will not affect the cartel's profits b. Output changes by cartel members have no effect on the market price c. Each cartel member is tempted to cheat on the cartel price in order to add to its profit d. All cartel members have a strong incentive to adhere to the agreed-upon price

c. Each cartel member is tempted to cheat on the cartel price in order to add to its profit

In recent years, the largest amount of U.S. direct investment abroad has occurred in: a. Central America b. South America c. Europe d. Japan

c. Europe

Which organization was founded in 1957 whose objective was to create an economic union among its members? a. General Agreements on Tariffs and Trade b. Organization of Economic Cooperation and Development c. European Union d. Latin American Free Trade Association

c. European Union

Which trade strategy have developing countries used to replace commodity exports with exports such as processed primary products, semi-manufacturers, and manufacturers? a. Multilateral contract b. Buffer stock c. Export promotion d. Export quota

c. Export promotion

To help developing nations strengthen their international competitiveness, many industrial nations have granted nonreciprocal tariff reductions to developing nations under the: a. International commodity agreements program b. Multilateral contract program c. Generalized system of preferences program d. Export-led growth program

c. Generalized system of preferences program

To be considered a good candidate for an export cartel, a commodity should: a. Be a manufactured good b. Be a primary product c. Have a low price elasticity of supply d. Have a high price elasticity of demand

c. Have a low price elasticity of supply

Both Coca-Cola Co. and Pepsi-Cola Co. are multinational firms in that their soft drinks are bottled throughout the world. This practice illustrates: a. Backward vertical integration b. Forward vertical integration c. Horizontal integration d. Conglomerate integration

c. Horizontal integration

Most foreign direct investment in the United States occurs in: a. Public utilities b. Communications c. Manufacturing d. Mining and smelting

c. Manufacturing

Which of the following represents the stage where economic integration is most complete? a. Economic union b. Customs union c. Monetary union d. Common market

c. Monetary union

Which device has been used by the International Wheat Agreement to stipulate the minimum prices at which importers will buy stipulated quantities from producers and the maximum prices at which producers will sell stipulated quantities to importers? a. Buffer stocks b. Export controls c. Multilateral contracts d. Production controls

c. Multilateral contracts

Assuming identical cost and demand curves, OPEC as a cartel will, in comparison to a competitive industry: a. Produce greater output and charge a lower price b. Produce greater output and charge a higher price c. Produce less output and charge a higher price d. Produce less output and charge a lower price

c. Produce less output and charge a higher price

Multinational enterprises: a. Always produce primary goods b. Always produce manufactured goods c. Produce primary goods or manufactured goods d. None of the above

c. Produce primary goods or manufactured goods

Which of the following situations reduces the likelihood of successful operation of a cartel? a. Cartel sales experience a rapid expansion b. The demand for cartel output is price inelastic c. The number of firms in the cartel is large d. It is very difficult for new firms to enter the market

c. The number of firms in the cartel is large

Assume that the formation of a customs union turns out to include the lowest-cost world producer of the product in question. Which effect could not occur for the participating countries? a. Trade creation-production effect b. Trade creation-consumption effect c. Trade diversion d. Scale economies and competition

c. Trade diversion

Suppose General Motors charges its Mexican subsidiary $1 million for auto assembly equip-ment that could be purchased on the open market for $800,000. This practice is best referred to as: a. International dumping b. Cost-plus pricing c. Transfer pricing d. Technological transfer

c. Transfer pricing

Consider Figure 7.3. Under competitive conditions, the quantity of oil produced equals: a. 40 barrels b. 70 barrels c. 90 barrels d. 110 barrels

d. 110 barrels

The implementation of a common market involves all of the following except: a. Elimination of trade restrictions among member countries b. A common tax system and monetary union c. Prohibition of restrictions on factor movements d. A common tariff levied in imports from nonmembers

d. A common tariff levied in imports from nonmembers

American critics of U.S. multinational enterprises contend that they promote: a. Runaway jobs b. Technology transfers abroad c. Tax evasion d. All of the above

d. All of the above

Firms undertake multinational operations in order to: a. Hire low-wage workers b. Manufacture in nations they have difficulty exporting to c. Obtain necessary factor inputs d. All of the above

d. All of the above

Joint ventures may lead to: a. Welfare increases b. Welfare decreases c. No changes in welfare d. All of the above

d. All of the above

Which economic integration scheme is solely intended to abolish trade restrictions among member countries, while setting up common tariffs against nonmembers? a. Economic union b. Common market c. Free trade area d. Customs union

d. Customs union

A dynamic welfare gain resulting from the formation of the European Union would be: a. Trade diversion b. Trade creation c. Diseconomies of scale d. Economies of scale

d. Economies of scale

The common agriculture policy of the European Union has supported European farmers via: a. Export tariffs and domestic content regulations b. Variable levies and voluntary export agreements c. Content regulations and export subsidies d. Export subsidies and variable levies

d. Export subsidies and variable levies

The European Union is primarily intended to permit: a. Countries to adopt scientific tariffs on imports b. An agricultural commodity cartel within the group c. The adoption of export tariffs for revenue purposes d. Free movement of resources and products among member nations

d. Free movement of resources and products among member nations

International joint ventures can lead to welfare losses when the newly established firm: a. Adds to the preexistent productive capacity b. Enters markets neither parent could have entered individually c. Yields cost reductions unavailable to parent firms d. Gives rise to increased amounts of market power

d. Gives rise to increased amounts of market power

To be considered a good candidate for an export cartel, a commodity should: a. Be a manufactured good b. Be a primary product c. Have a high price elasticity of supply d. Have a low price elasticity of demand

d. Have a low price elasticity of demand

Suppose that a steel manufacturer headquartered in Japan sets up a subsidiary in Canada to produce steel. This practice is referred to as: a. Conglomerate integration b. Forward vertical integration c. Backward vertical integration d. Horizontal integration

d. Horizontal integration

Which country is not a member of the European Union? a. Spain b. Germany c. France d. Iceland

d. Iceland

Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers, who thus can take over markets already established in the country? a. International commodity agreement b. Export promotion c. Multilateral contract d. Import substitution

d. Import substitution

For the oil-importing countries, the increases in oil prices in 1973-1974 and 1979-1980 resulted in all of the following except: a. Balance of trade deficits b. Price inflation c. Constrained economic growth d. Improving terms of trade

d. Improving terms of trade

The market power effect of an international joint venture can lead to welfare losses for the domestic economy unless offset by cost reductions. Which type of cost reduction would not lead to offsetting welfare gains for the overall economy? a. R&D generating improved technology b. Development of more productive machinery c. New work rules promoting worker efficiency d. Lower wages extracted from workers

d. Lower wages extracted from workers

Most U.S. direct investment abroad occurs in: a. Communications b. Petroleum c. Finance and insurance d. Manufacturing

d. Manufacturing

Which method has not generally been used by the international commodity agreements to stabilize commodity prices? a. Production quotas applied to the level of commodity output b. Buffer stock arrangements among producing nations c. Export restrictions applied to international sales of commodities d. Measures to nationalize foreign-owned production operations

d. Measures to nationalize foreign-owned production operations

A primary goal of international commodity agreements has been the: a. Maximization of members' revenues via export taxes b. Nationalization of corporations operating in member nations c. Adoption of tariff protection against industrialized nation sellers d. Moderation of commodity price fluctuations when markets are unstable

d. Moderation of commodity price fluctuations when markets are unstable

Which organization of nations permits free trade among its members in industrial goods, while each member maintains freedom in its trade policies toward non-member countries? a. European Union b. Benelux c. Council for Mutual Economic Assistance d. North American Free Trade Association

d. North American Free Trade Association

American labor unions accuse U.S. multinational firms of all of the following except that such firms: a. Enjoy unfair advantages in taxation b. Export jobs by shifting technology overseas c. Export jobs by shifting investment overseas d. Operate at output levels where scale economies occur

d. Operate at output levels where scale economies occur

All of the following are potential advantages of an international joint venture except: a. Sharing research and development costs among corporations b. Forestalling protectionism against imports c. Establishing work rules promoting higher labor productivity d. Operating at diseconomy-of-scale output levels

d. Operating at diseconomy-of-scale output levels

Which of the following is not a major factor that encourages developing nations to form international commodity agreements? a. Inelastic commodity supply schedules b. Inelastic commodity demand schedules c. Export markets that tend to be unstable d. Secular increases in their terms of trade

d. Secular increases in their terms of trade

Consider Figure 7.2. Suppose the supply of tin decreases from S0 to S2. Under a buffer stock system, the buffer-stock manager could maintain the target price by: a. Purchasing 15 pounds of tin b. Purchasing 30 pounds of tin c. Selling 15 pounds of tin d. Selling 30 pounds of tin

d. Selling 30 pounds of tin

Which of the following is not a significant motive for the formation of multinational enter-prises? a. Avoiding tariffs by obtaining foreign manufacturing facilities b. Obtaining the benefits from overseas comparative advantages c. The acquisition of natural resource supply sources d. Subsidies granted by the home government to overseas corporations

d. Subsidies granted by the home government to overseas corporations

When products from high-cost suppliers within a customs union replace imports from a low-cost nation that is not a member of the customs union, there exist(s): a. Dynamic welfare losses b. Dynamic welfare gains c. Trade creation d. Trade diversion

d. Trade diversion

When the formation of a free trade area results in the reduction of trade with nonmember nations in favor of member countries, ____ occurs. a. Trade devaluation b. Trade revaluation c. Trade creation d. Trade diversion

d. Trade diversion