chapter 5

In the context of international dumping, which of the following distinguish between the price- and cost-based definitions of foreign market value?

According to the price-based definition, dumping occurs whenever a foreign firm sells a product at a price below its home market price. According to the price-based definition, dumping occurs whenever a foreign firm sells a product in the importing country's market at a price below that for which the product is sold in the firm's home market. According to the cost-based definition, dumping occurs when foreign merchandise is sold in the domestic market at "less than fair value" (i.e., price is less than average total cost).

Economists argue that antidumping laws are unfair because they use ________ Incorrect as a basis in determining fair value. Economic theory, on the other hand, suggests that under competitive conditions, firms price their goods at average variable costs that are __________ average total costs.

Average full cost; below While antidumping laws are typically defined in terms of full cost, it may be rational for a firm to sell its product overseas at losses, provided that prices are sufficiently high to cover marginal cost.

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

Deadweight losses in production and consumption Higher employment in the U.S. auto industry Import quotas enable domestic firms and workers in protected industries to enjoy higher sales, profits, and employment. However, consumers face higher prices and expenditure levels, and the economy as a whole suffers deadweight losses in production and consumption.

What are the major forms of subsidies that governments grant to domestic producers? Check all that apply.

Domestic subsidies Export subsidies Subsidies include domestic production subsidies and export subsidies. Methods used to subsidize producers include tax concessions, low interest rate loans, and loan guarantees.

Which of the following most accurately describes the differences among sporadic, persistent, and predatory dumping?

Firms with temporary inventories use sporadic dumping to sell their products overseas at lower prices than at home. Firms with temporary inventories may resort to sporadic dumping to sell their products overseas at lower prices than at home. Firms may resort to predatory dumping to cut prices overseas to eliminate competitors. Persistent dumping refers to an effort to maximize profits, when firms continuously sell abroad at lower prices than at home.

What is meant by voluntary export restraints?

Market sharing agreements negotiated by producing and consuming countries Voluntary export restraints are market sharing agreements negotiated by producing and consuming countries. Because voluntary export quotas are typically administered from the supply side of the market, the foreign exporter tends to capture the largest share of the quota revenue. Voluntary export restraints tend to be more costly than tariffs.

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

Quotas increase input prices, thereby contributing to higher product prices and loss of competitiveness. By contributing to a scarcity of steel in the domestic market, quotas lead to higher steel prices and production costs for domestic steel-using firms. Such cost increases detract from their international competitiveness.

What are the major nontariff trade barriers? Check all that apply.

Tariff-rate quotas Domestic content requirements Voluntary export restraints Nontariff trade barriers include import quotas, voluntary export agreements, subsidies, buy national policies, product and safety standards, and content requirements.

What would be the likely effects of export restraints imposed by Japan on its auto shipments to the United States?

The distribution of the revenue effect would tend to accrue to Japanese auto makers. Under an import quota, the distribution of the revenue effect is indeterminate and depends on the relative bargaining power of foreign producers and domestic buyers. Because voluntary export quotas are typically administered from the supply side of the market, the largest share of the revenue effect tends to be captured by foreign (in this case, Japanese) exporters.

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

The revenue effect of a tariff is captured by the government, while a quota's revenue tends to be captured by domestic or foreign firms. The revenue effect of a tariff is captured by the government, while a quota's revenue tends to be captured by domestic or foreign firms.

Why did the U.S. government, in 1982, implement import quotas as an aid to domestic sugar producers?

To discourage imported sugar from entering the domestic market The purpose of the sugar import quota was to restrict the entry of foreign sugar into the U.S. market, thus increasing the domestic price of sugar.

Because the price faced by domestic consumers under a domestic production subsidy is the same as under free trade, such a subsidy, unlike a tariff or quota, doesn't distort choices of domestic consumers. Hence, domestic production subsidies avoid the deadweight losses due to the consumption effect.

True Subsidies are not free goods since they are financed by taxpayer dollars. In return for granting subsidies, governments often pressure management and labor to adopt measures to lower costs of production so as to become more competitive.

A voluntary export quota imposed by a foreign government tends to result in ________ welfare loss for the home economy than an import quota levied by the home government.

a greater Under an import quota, the distribution of the revenue effect is indeterminate and depends on the relative bargaining power of foreign producers and domestic buyers. Because voluntary export quotas are typically administered from the supply side of the market, the largest share of the revenue effect tends to be captured by foreign exporters. Thus, the deadweight loss for the home economy tends to be greater under an import quota than under an export quota.

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

consumption Because the price faced by domestic consumers under a domestic production subsidy is the same as under free trade, such a subsidy, unlike a tariff or quota, doesn't distort choices of domestic consumers. Hence, domestic production subsidies avoid the deadweight losses due to the consumption effect.

Quotas tend to be more restrictive than import tariffs because:

quotas directly limit the number of goods that can enter the home nation. Since import quotas directly limit the number of goods that can enter the home nation, they tend to be more restrictive than import tariffs, which may be circumvented by foreign producers absorbing the tariff as a lower selling price. During periods of rising domestic demand, quotas hold down imports more effectively than tariffs.