ECN306 Exam 2

Reasons why protectionists and government officials may favor quotas:

A quota ensures the quantity of imports is strictly limited Gives government officials greater power

The current WTO multilateral negotiations about international trade and the reduction of trade barriers is called the:

Doha Round.

____________________ is selling exports at a price that is less than the normal value of the exports.

Dumping

The ____________________ was an international agreement adopted in 1947 that focused on reducing the barriers to international trade.

General Agreement on Tariffs and Trade

An NTB reduces imports through one or more of the following direct effects:

Limiting the quantity of imports. Increasing the cost of getting imports into the market. Creating uncertainty about the conditions under which imports will be permitted.

____________________ occurs when a producer temporarily charges a very low price for a product in an export market for the purpose of driving foreign competitors out of business.

Predatory dumping

What was the effect of the Smoot-Hawley Act?

The Smoot-Hawley Act increased tariffs on certain imports into the U.S. and contributed to the severity of the Great Depression.

If an unfair trade complaint is filed with the WTO and a panel appointed by the WTO determines that the complaint is valid, the WTO will instruct the offending country to alter its trade policy to avoid the unfair effects that were found to exist. If the offending country fails to correct its trade policy as directed by the WTO, what can the WTO do?

The WTO can authorize the countries filing the unfair trade complaint to impose retaliatory trade policies against the offending country.

If a firm has a monopoly in the market in its country, what happens to that monopoly when that country becomes part of a trade bloc?

The competition from firms in other countries that are part of the trade bloc reduces the monopoly's power.

Persistent dumping, where the home-country price is maintained but where the price in foreign markets is lowered, can be a successful tactic for the selling firm if two conditions are present. What are those conditions?

The home-country demand curve for the product is inelastic and home-country buyers cannot buy the product in foreign markets.

How does a trade embargo by one country against another country help other countries?

The trade denied to the target country by the embargo provides countries that are not involved in the dispute or actions that gave rise to the embargo an opportunity to make up for that trade by exporting to the target country.

____________________ is a form of government support that provides workers in import-threatened industries with job retraining and supplemental unemployment compensation.

Trade adjustment assistance

Monopsony power

a nation has a large enough share of the world market for one of its imports that changes in the country's import buying can noticeably affect the world price of the product

A tariff that has the effect of limiting imports into a small country results in:

a net loss to the importing country and the world.

An arrangement by which the government of an importing country compels foreign governments to limit the number of exports to the importing country is:

a voluntary export restraint.

If a tariff is not so high as to prohibit the importation of the product subject to the tariff, the government imposing the tariff benefits: because

by collecting revenue.

There are two ways to promote import-competing production - a subsidy or a tariff. The tariff and subsidy are in many ways the same, except that the tariff will:

cause a consumption effect while the subsidy will not.

For persistent dumping to be successful, firms will maximize profits by:

charging a higher price in the more inelastic market.

In the last three decades, the European Union has been moving from being a(n) ____________________ toward being a(n) ____________________.

customs union; economic union

When a government's purchasing procedures are biased in favor of domestic products and against foreign products, the nontariff barrier being employed is a(n):

government procurement practice.

A(n) ____________________ is a limit on the total quantity of imports allowed into a country each year.

import quota

A tariff is generally a tax on ____________, while a duty is generally a tax on _______________.

imports; exports

Resource-using application procedures

include allocating quota licenses on a first-come, first-served basis; on the basis of demonstrating need or worthiness; or on the basis of negotiations. Those seeking the licenses use resources to try to get them.

In the absence of other distortions, a government subsidy to production of a product creates its own distortion in the economy by:

increasing the incentive for domestic suppliers to produce more of the product.

Compound tariff

is a combination of specific and ad valorem tariffs.

Ad valorem tariff

is a percentage of the estimated market value of the imported good when it reaches the importing country.

In the context of international trade, a small country is one that:

is a price-taker in the sense that the price it must pay for imported goods is not affected by the amount of the goods that it imports.

Specific tariff

is stipulated as a money amount per unit of import, such as dollars per ton of steel bars, or dollars per eight-cylinder two-door sports car.

A nationally optimal tariff

is the tariff that creates the largest net gain [area e −area (b + d)] for the country imposing it, assuming the rest of the world is passive

Through the 1980s, the European Common Market (now known as the European Union) was not truly a common market because:

it did not allow free movement of labor and capital among member nations.

Tariffs make imports ____________________ in domestic markets and domestic products ____________________ in domestic markets.

less competitive; more competitive

An export subsidy usually:

lowers the price paid for a product by foreign buyers relative to the price that domestic consumers pay for the subsidized product.

If a country's share of the world market for an imported product is large enough that the country's buying can affect the world price of that product unilaterally, that country has:

monopsony power.

A tariff rate that creates the largest net gain for the country imposing the tariff is called the:

nationally optimal tariff.

The guiding principle of the concept of most favored nations is:

nondiscrimination among trading partners.

Often, governments in developing countries will impose tariffs because tariffs are:

often the cheapest and most effective means available of generating government revenues.

Section 301 of the Trade Act of 1974 allows the U.S. president to:

unilaterally use threats of retaliation to open foreign markets for U.S. trade.

A(n) ____________________ is a money amount of tax per unit of an imported product.

specific tariff

tariff

tax on importing a good or service into a country. Types of tariffs:

The net national loss from a tariff is computed as:

the amount of the tariff per unit of imported good times the number of units by which the tariff reduces importation of the good.

The ____________________ says that every dollar of gain or loss is just as important as every other dollar of gain or loss, regardless of who gains or loses.

one-dollar, one-vote metric

The World Trade Organization was created in 1995 to:

oversee global rules of government policy toward international trade.

If a country mandates that imports meet certain requirements that necessitate unnecessarily expensive modifications be made to the imports, the country is employing:

product standards as an NTB.

If the objective of government policy is to protect a domestic industry for national defense purposes, the best policy strategy is to:

provide subsidies to the strategic national defense industry.

If national pride in the local capability to make a complex product is the objective of government policy, the best policy strategy is to:

provide subsidies to this industry.

The net volume of new trade that results from forming or joining a trade bloc is:

trade creation.

As a result of joining a trade bloc, Country A finds that it is purchasing relatively more expensive cars from Country B, a fellow bloc member, rather than purchasing the less expensive cars from Country C, a trading bloc outsider. This phenomenon is called:

trade diversion.

When a tariff is imposed on an imported product:

domestic producers of the product can increase their prices.

Financial assistance that governments provide to benefit firms that sell to foreign buyers is:

export subsidies.

The success of Asian apparel exports to the United States and Europe probably is based on:

the fact that apparel uses unskilled labor intensively and Asia is relatively abundant in that factor.

The importing country should welcome dumping because:

the price of the product being imported is very low, allowing consumers to buy more than they would buy at a higher price.

In economic terms, free trade is preferred because:

there are usually net gains from free trade for nations and the world.

An acknowledged result of NAFTA is that:

there was a substantial increase in trade among the United States, Canada, and Mexico.

nontariff barrier (NTB)

to imports is any policy used by the government to reduce imports, other than a simple tariff on imports