Chapter 7 - Government Policy and International Trade

Which of the following is true with respect to multinational firms?

Because of their pivotal role in international trade, firms can and do exert a strong influence on government policy toward trade.

The ________ benefits inefficient farmers and the politicians in the EU who rely on the farm vote, but not consumers in the European Union, who end up paying more for their foodstuffs.

Common Agricultural Policy (CAP)

________ argues that a strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry boosts national income at the expense of other countries.

Paul Krugman

Most economists would probably argue that the best interests of international business are served by

a free trade stance

The farm bill that passed the U.S. Congress in 2007 contained subsidies of $289 billion for the next 10 years. This is an example of

a subsidy

As part of its effort to protect its auto makers from foreign competition, suppose Brazil levied a tariff based on a proportion of the value of the product. Brazil would be imposing a(n) _______ tariff.

ad valorem

An import quota is a specific tax levied on imports.

false

Economic arguments for trade policy intervention are concerned with protecting the interests of certain groups within a nation, often at the expense of other groups, or with achieving some objective that lies outside the sphere protecting the environment or human rights.

false

The lack of progress in the Doha Round negotiations has resulted in countries that are

forging ahead with their own bilateral agreements.

The threat of antidumping action affects a firm by

limiting its ability to use aggressive pricing to gain market share in a country.

Which trade policy argument suggests that a government should use subsidies to support promising firms that are active in newly emerging industries?

strategic trade policy

In the 1986 Uruguay Round, GATT negotiations extended global trading rules to cover

trade in services

Dumping is viewed as a method by which firms unload excess production in foreign markets.

true

The infant industry argument suggests that protecting infant industries from foreign competitors will allow them time to become large enough to enjoy economies of scale. Who typically wins and who loses from a government policy to protect infant industries?

Domestic consumers and foreign producers lose, while the home government and home producers gain.

Alexander Hamilton argued that tariffs are an effective means of protecting infant industries until they are better able to compete. Which is not true of tariffs used to protect infant industries?

They promote more efficient use of resources.

Tariff barriers raise the costs of exporting products to a country (or of exporting partly finished products between countries). Which of the following is a likely consequence of these barriers?

This may put a firm at a competitive disadvantage to indigenous competitors in that country.

A lobbyist from California argues that the U.S. government needs to protect the U.S. semiconductor industry from foreign competition. She argues that semiconductors are now such important components of defense products that it would be dangerous to rely primarily on foreign producers for them. This is an example of ________ argument for government intervention.

a political

The government is considering placing additional taxes on foreign steel imports that are a proportion of the value of the imported steel. This is an example of

an ad valorem tariff

Brazil used tariffs to protect its auto industry in the 1950s. Tariffs

are taxes levied on imports or exports.

The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade.

true

Governments always act in the national interest of their countries when they intervene in the economy.

false

The infant industry argument relies on an assumption that firms can make efficient long-term investments by borrowing money from the domestic or international capital market.

false

The WTO argues that by removing all tariff barriers and subsidies to agriculture,

global economic growth would rise.

GATT's objective was to liberalize trade.

true