International Business Chapter 7

True or False: Governments always act in the national interest of their countries when they intervene in the economy

False

True or 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 infant industry argument relies on an assumption that firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market. consequently, governments have been required to subsidize long-term investments.

True or False: a country limits the amount of sugar that can be imported into its country. This is an example of an import tariff.

False: an Import quota is a direct restriction on the quantity of some good that may be imported into a country. An import tariff is a tax levied on imports.

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

False: these are all political argumets. economic arguments for intervention are typically concerned with boosting the overall wealth of a nation

______ 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

True or False: dumping is viewed as a method by which firms unload excess production in foreign markets.

True: in the context of international trade, dumping is variously defined as selling goods in a foreign market at below their "fair" market value. Dumping is viewed as a method by which firms unload excess production in foreign markets.

True or False: GATT's objective was to liberalize trade.

True: the GATT was a multilateral agreement whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like.

True or False: The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade

True: this economic justification for government intervention in international trade challenges the rationale for unrestricted free trade found in the work of classic trade theorists such as adam smith and david ricardo.

most economists would probably argue that the best interest of international business are served by

a free trade stance.

a lobbyist from New York argues that the U.S. government needs to protect the U.S. aerospace industry from foreign competition. she argues that it would be dangerous to rely primarily on foreign producers for them. this is an example of ______ argument for government intervention

a political

suppose the U.S. wants to encourage the production of tree nuts by domestic producers. to do so, the government provides low-interests loans for the purchase of harvesting equipment and gives cash grants and tax breaks to the producers. Which instrument of trade policy is in use by the U.S. government.

a subsidy: a government payment to a domestic producer. Subsidies take many forms, including cash grants, low-interests loans, tax breaks, and government equity participation in domestic firms.

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

forging ahead with their own bilateral agreements

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

global economic growth would rise.

the threat of antidumping action affects a firm by

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

tariff barriers raise the costs of exporting products to a country ( or of exporting partly finished products between countries) What is a likely consequence of these barriers?

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

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

trade in services

The _______ benefits Europe's politically powerful farmers by restricting imports and guaranteeing prices but not consumers in the European Union, who end up paying high prices overall.

Common Agricultural Policy (CAP)

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

an ad valorem tariff. They are levied as a proportion of the value of the imported good.

which statement 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.

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: According to the strategic trade policy argument, a government should use subsidies to support promising firms that are active in newly emerging industries.