eko 40 test 2
Modeling trade in imperfectly competitive industries is problematic because A. there are no models of imperfectly competitive behavior. B. there is only a single model of imperfect competition (monopoly) but imperfect competition can take many forms in the real world. C. there is no single generally accepted model of behavior by imperfectly competitive firms. Your answer is correct. D. it is difficult to find an imperfectly competitive firm in the real world. E. collusion among imperfectly competitive firms makes usable data rare.
C
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 many reasons why a tariff is justified. B. some countries have no other alternatives but to impose a tariff. C. there are always deadweight losses to market interventions. Your answer is correct. D. None of the above responses are correct.
C
Which of the following is not a tariff pattern of the major world traders? A. overall tariff rates are relatively low B. commonality in the sectors they protect most C. tariffs are higher to economically hostile countries Your answer is correct. D. tariffs are higher in agriculture than in other industrial sectors
C
Two countries engaged in trade in products with no scale economies, produced under conditions of perfect competition, are likely to be engaged in A. oligopolistic competition B. Heckscher minus −Ohlin trade. C. inter minus −industry trade. Your answer is correct. D. intra minus −industry trade. E. monopolistic competition.
C -monopolistic competition is intra industry trade
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.
C. Both A and B.
What externalities may arise in a low income country after trade barriers are removed? A. More incentives exist to exploit certain low-wage sectors of the population, such as children, to gain a cost advantage. B. More incentives exist to exploit differences in environmental regulations 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. Your answer is correct.
E
Which of the following is NOT a problem in the implementation of industrial policies? A. Choosing the industry to target B. The encouragement of rent seeking by firms in other industries C. Knowing the optimum amount of resources to provide the targeted industry D. The benefits are partly captured by foreign firms. E. All of the above are problems. Your answer is correct.
E
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. Trade barriers are very costly, creating deadweight losses in consumption and production at home. B. Without a coalition of countries, which are difficult to assemble, the trade barriers may be ineffectual. C. 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. D. The trade barriers may come to be exploited by special interest groups for ulterior motives. E. All of the above are reasons why trade barriers tend to be weak enforcement mechanisms. Your answer is correct. F. A, B, and C only.
E
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.
E. A and C only.
When the social returns from production are larger than the private returns from production A. Market output is below the social optimum. B. Market output is above the social optimum. C. Prices are too high. D. Prices are too low. E. A and C only. F. B and D only.
E. A and C only.
A pollution haven is said to exist when A. a poorer region or country agrees to store pollutants in exchange for aid. B. the industrial countries choose an area, usually in the less developed world, to dispose of industrial wastes. C. an economic activity becomes concentrated in countries or regions having less strict environmental controls than elsewhere. D. a country fails to prosecute violators of its environmental regulations.
C. an economic activity becomes concentrated in countries or regions having less strict environmental controls than elsewhere.
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. pitted the U.S. against its traditional allies. B. received unanimous approval. C. broken down with no agreement. D. forced the rich nations to compensate the poor nations.
C. broken down with no agreement.
A "Race to the Bottom" refers to a situation where countries try to compete against each other for investment by A. increasing their standards on labor, environmental, or other policy issues. B. harmonizing their labor, environmental, and other policy standards. C. reducing their standards on labor, environmental, or other policy issues. D. implementing new product standards that discriminate against imports.
C. reducing their standards on labor, environmental, or other policy issues.
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; the same as C. slopes downward; is horizontal; above D. is horizontal; slopes downward; below E. slopes downward; slopes downward; below
E
What externalities may arise in a low income country after trade barriers are removed? A. More incentives exist to exploit certain low-wage sectors of the population, such as children, to gain a cost advantage. B. More incentives exist to exploit differences in environmental regulations 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.
E. All of the above are externalities.
What are ways to realize the benefits of trade and resolve standards conflicts? A. Require labels for exports. B. Used home country standards for home country firms operating in a foreign country. C. Use international organizations as a forum for negotiations. D. A and B only are ways. E. All of the above are ways.
E. All of the above are ways.
What factor(s) can cause private returns from production to be smaller than social returns of production? A. Knowledge spillovers, where firms learn from each other. B. Capital market imperfections, where firms with new and sound ideas are unable to attract financing. C. The inability to coordinate activities between firms, when the success of an industry requires multiple players to enter simultaneously. D. A and B only. E. All of the above.
E. All of the above.
The figure above indicates that when the country moves from free trade to the tariff equilibrium A. The net effect on the country's welfare is a gain whose magnitude is given by area "c." B. The net effect on the country's welfare is a positive or negative with magnitude represented by the area "(e plus f) minusg." C. The net effect on the country's welfare is a positive or negative with magnitude represented by the area "c minusa." D. The net effect on the country's welfare is a loss whose magnitude is given by the area "d." E. The net effect on the country's welfare is a loss whose magnitude is given by the area "b plus d."
E. The net effect on the country's welfare is a loss whose magnitude is given by the area "b plus d."
Following the completion of the Uruguay round in 1993, A. indirect payments to support farmer income were banned. B. agricultural subsidies were banned in all cases. C. direct agricultural subsidies were curtailed, but indirect payments to support farmer income were allowed. Your answer is correct. D. countries were encouraged to replace tariffs on agricultural goods with agricultural quotas.
c
trade restrictions have
concentrated benefits and widespread costs
external EOS
cost per unit falls aas industry grows and rises as avg firm grows larger -arise to due similar geographic regions and clustering
a firm with price setting power faces a ___ demand curve
downward sloping
necessary conditions for dumping to occur
imperfect competition exists, markets are segmented
monopoly
-produce where MR= MC & where marginal revenue is the same in domestic and foreign markets.
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. Your answer is correct. B. the size of that country. C. the size of the domestic market. D. the aggregate size of all trading partner countries.
A. the combined size of the domestic and foreign market. Your answer is correct.
Which of the following DOES NOT help to reduce the frequency of child labor? A. A country's movement away from manufacturing and towards more agricultural production. B. Increases in a country's GDP. C. Increased schooling opportunities. D. None of the above. Each of the previous factors is generally associated with a decrease in child labor.
A. A country's movement away from manufacturing and towards more agricultural production.
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.
A. The majority of U.S. and European trade is intra-industry trade.
Harmonization of standards implies that countries decide to A. adopt a common set of standards in an area of concern, such as product safety or labor. B. keep an international record of all separate standards that countries have adopted. C. mutually recognize and accept any standards that have been adopted by their trade partners. D. adopt a common set of standards, which is based on the larger country's standards before harmonization.
A. adopt a common set of standards in an area of concern, such as product safety or labor.
Because of its politically sensitive nature, the last economic sector to be liberalized via multilateral trade negotiations has been A. agriculture. B. manufacturing. C. energy. D. transportation. E. financial services.
A. agriculture.
A country may choose to levy a countervailing duty on imported products if the imported products A. benefit from subsidies. B. include the intellectual property of domestic firms without the permission of the domestic firms. C. have been dumped. D. All of the above.
A. benefit from subsidies.
Following the completion of the Uruguay round in 1993, A. direct agricultural subsidies were curtailed, but indirect payments to support farmer income were allowed. B. countries were encouraged to replace tariffs on agricultural goods with agricultural quotas. C. agricultural subsidies were banned in all cases. D. indirect payments to support farmer income were banned.
A. direct agricultural subsidies were curtailed, but indirect payments to support farmer income were allowed.
If an industry is characterized by external economies of scale A. firm costs decline as the industry grows in size. B. firm costs decline as firms increase in size. C. the market is likely to be served by an oligopoly of firms. D. monopolistic competition will follow.
A. firm costs decline as the industry grows in size.
Which of the following is not the reason for external economies of scale? A. Labor market pooling. B. Large fixed costs. Your answer is correct. C. Specialized suppliers of intermediate goods. D. Knowledge spillovers.
B
External economies of scale occur when average costs of a firm: A. rise as the industry grows larger. B. fall as the industry grows larger, but may or may not rise as the representative firm grows larger. Your answer is correct. C. fall as the representative firm and industry grows larger. D. remain constant.
B note: external economies are more associated with perfectly competitive industries
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. Trade in services B. Agriculture and agriculture support policies C. Intellectual property rights D. Treatment of foreign investment
B. Agriculture and agriculture support policies
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 exporters market, and U.S. firms are harmed by import of the product. C. falls over time, and U.S. firms are harmed by import of the product. D. charges for the products it sells in the U.S. is less than the price charged in the exporter's market.
B. 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.
High income countries have tariff policies that generally have A. higher tariff and quota protection on high technology products that compete with domestic firms. B. higher tariff and quota protection on products in agriculture, and clothing and textiles. C. lower tariff and quota protection on products in agriculture, and clothing and textiles. D. equal tariff rates and quotas for all imported items.
B. higher tariff and quota protection on products in agriculture, and clothing and textiles.
Export labels provide an alternative to the use of trade barriers to promote environmental standards in partner trading countries, since A. they are only granted when all transboundary pollution ends. B. labels might allow customers to determine whether products were produced in an environmentally sustainable fashion. C. the WTO has created a register which overseas export labels. D. they are only granted when all transboundary and non-transboundary pollution ends.
B. labels might allow customers to determine whether products were produced in an environmentally sustainable fashion.
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.
B. reduce the world price of the import when they levy a tariff.
International negotiations are especially appropriate when environmental problems are A. either transboundary or non-transboundary. The best solution for all pollution problems is international negotiation. B. transboundary in nature. C. neither transboundary nor non-transboundary. It is always best for individual nations to design their own solutions to pollution problems. D. non-transboundary in nature.
B. transboundary in nature.
Suppose Canada exports cars and imports furniture. This is an example of A. unbalanced trade, since cars are more valuable than furniture. B. inter-industry trade. C. intra-industry trade. D. monopolistically competitive trade.
B. inter-industry trade.
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 encouragement of rent seeking. B. The stifling of the incentive to innovate. C. The likelihood of excessive growth in the protected industry. Your answer is correct. D. The threat of retaliation and the potential loss of export markets.
C
In an industry where firms experience internal scale economies, the long minus −run cost of production will depend on A. individual firms' fixed costs. B. the size of the labor force. C. the size of the market. Your answer is correct. D. whether the country engages in intra minus −industry trade. E. whether the country engages in inter minus −industry trade.
C
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. the country with lower production costs will export the product. B. the country with a relative abundance of factor inputs consistent with the factor intensity of the product will export this product. C. that this trade will lead to greater product differentiation. Your answer is correct. D. neither country will export this product since there is no comparative advantage.
C. that this trade will lead to greater product differentiation. Your answer is correct.
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 U.S. welfare would be lower than it would be if the exporting countries used voluntary export restraints instead. 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 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.
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 concentrated in the hands of the few consumers, versus the costs distributed across many firms. B. the benefits distributed across many consumers versus the concentration of the costs in the hands of a few firms. C. the benefits concentrated in the hands of the few firms, versus the costs distributed across many consumers. D. the benefits distributed across many firms versus the concentration of the costs in the hands of a few consumers.
C. the benefits concentrated in the hands of the few firms, versus the costs distributed across many consumers.
__________ advantage is the foundation of our understanding of the gains from trade and the potential income distribution effects of trade.
Comparative
As a retaliatory measure against other nations, 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. Your answer is correct. E. B and C only.
D
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; fewer; more; higher B. larger; fewer; more; lower C. larger; more; less; higher D. larger; more; more; lower Your answer is correct. E. larger; more; more; higher
D
The "Uruguay Round" of trade talks resulted in A. new measures for trade dispute settlement. B. measures regulating the treatment of intellectual property. C. the formation of the World Trade Organization. D. All of the above.
D
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.
D
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.
D
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. Your answer is correct. E. All of the above are reasons.
D
Mexican manufacturing trade has a number of interesting characteristics. They include A. maquiladora zones which allow firms to produce goods for export without paying tariffs on imported parts and materials that are used in production. B. the fact that 2/3 of US-Mexico trade is intra-firm. C. huge Mexican trade deficits arising from maquiladora production. D. A and B only. E. All of the above.
D. A and B only.
What problems may be created by home country tariff policies? A. Limited innovation by home firms. B. Trade policy retaliation by trade partners. C. Rent seeking. D. All of the above.
D. All of the above.
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.
D. B and C only.
What obstacles to increased international economic integration begin to appear after trade barriers are removed? A. A country's domestic regulations may unintentionally limit international commerce for that country. B. Each country may set up different standards, generating conflicts over enforcement and application. C. Increased comparative advantage will cause competing countries to reinstate trade barriers. D. Both A and B. E. All of the above are obstacles.
D. Both A and B.
An import quota: A. Is always less costly to a country than an import tariff. B. Is always more costly to a country than an import tariff. C. Has the same effects on welfare as an import tariff. D. Generates rents that might go to foreigners.
D. Generates rents that might go to foreigners.
The two industries most commonly receiving protection are: A. pharmaceuticals and steel. B. agriculture and steel. C. automobiles and pharmaceuticals. D. agriculture and clothing.
D. agriculture and clothing.
Consult Figure 6.3 "The Effects of a Tariff" on page 123 of the text. The figure indicates that when the country moves from free trade to the tariff equilibrium A. it falls by the amount Upper Q 1* to Upper Q 2*. B. its imports fall by the amount Upper Q 2 to Upper Q 2*. C. its imports fall by the amount Upper Q 1 to Upper Q 1*. D. its imports fall by the amount Upper Q 1 to Upper Q 1* plus Upper Q 2 to Upper Q 2*. E. it changes by the net amount Upper Q 2 to Upper Q 2* minus Upper Q 1 to Upper Q 1*.
D. its imports fall by the amount Upper Q 1 to Upper Q 1* plus Upper Q 2 to Upper Q 2*.
A country may actually make itself better off by levying a tariff if A. it is large enough to affect the world price when it imposes a tariff. B. no rent seeking behavior occurs. C. other nations do not retaliate. D. there are no harmful effects on innovation. E. all of the above.
E
Firms that produce ________ products must be ________ competitive. A. standardized; imperfectly B. exported; imperfectly C. differentiated; perfectly D. standardized; perfectly E. differentiated; imperfectly Your answer is correct.
E
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. the costs of tariffs and quotas are diffused throughout an entire nation, while the benefits are concentrated. B. they know that petitioning the government to do the right thing is futile. C. incentives to organize around the issue of trade policy are asymmetric. D. all of the above. E. A and C only. Your answer is correct.
E
If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing ________ of scale. A. long minus −run; decrease; diseconomies B. long minus −run; increase; economies C. short minus −run; decrease; diseconomies D. short minus −run; decrease; economies E. long minus −run; decrease; economies Your answer is correct.
E
learning curve
inverse relationship between unit cost and cumulative output
internal economies of scale lead to imperfectly competitive industries because
large firms have cost advantages over small firms
Trade models built exclusively on the idea of comparative advantage have a ________________ record when it comes to predicting a country's trade patterns.
mixed
integrated market with INTL trade leads to...
more firms @ a larger scale, lower prices, wider range of choices
small country tariff
passes on entirely to domestic market -cuts imports
