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Chapter 9
The Political Economy
of Trade Theory
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Multiple Choice Questions
1.
The efficiency case made for free trade
is that as trade distortions such as tariffs are
dismantled and removed,
(a)
government tariff revenue will
decrease, and therefore national economic
welfare will decrease.
(b)
government tariff revenue will decrease, and
therefore national economic
welfare
will increase.
(c)
deadweight losses for producers and
consumers will decrease, hence increasing
national economic welfare.
(d) deadweight losses for producers and
consumers will decrease, hence decreasing
national economic welfare.
(e)
None of the above.
Answer: C
2.
The
opportunity to exploit economies of scale is one
of the gains to be made from
removing
tariffs and other trade distortions. These gains
will be found by a decrease
in
(a)
world prices of imports.
(b) the consumption distortion loss
triangle.
(c)
the production
distortion loss triangle.
(d) Both (b)
and (c).
(e)
None of the
above.
Answer: E
3.
It is argued that special interest
groups are likely to take over and promote
protectionist policies, which may lead
to an increase in national economic welfare.
This argument leads to
* *
(a)
a presumption that in
practice a free trade policy is likely to be
better than
alternatives.
(b) a presumption that trade policy
should be shifted to Non-Governmental
Organizations, so as to limit taxpayer
burden.
(c)
a presumption
that free trade is generally a second-best policy,
to be avoided if
feasible alternatives
are available.
(d) a presumption that
free trade is the likely equilibrium solution if
the government
allows special interest
groups to dictate its trade policy.
(e)
None of the above.
Answer: A
* *
4.
The
optimum tariff is
(a) the best tariff a country can
obtain via a WTO negotiated round of compromises.
(b) the tariff, which maximizes the
terms of trade gains.
(c)
the tariff, which maximizes the
difference between terms of trade gains and
terms of trade loses.
(d)
not practical for a small country due to the
likelihood of retaliation.
(e)
not practical for a large country due
to the likelihood of retaliation.
Answer: E
5.
The
optimum tariff
is most
likely to apply to
(a)
a
small tariff imposed by a small country.
(b) a small tariff imposed by a large
country.
(c)
a large tariff
imposed by a small country.
(d) a large
tariff imposed by a large country.
(e)
None of the above.
Answer: B
6.
The
prohibitive tariff
is a
tariff that
(a)
is so high
that it eliminates imports.
(b) is so
high that it causes undue harm to trade-partner
economies.
(c)
is so high
that it causes undue harm to import competing
sectors.
(d) is so low that the
government prohibits its use since it would lose
an important
revenue source.
(e)
None of the above.
Answer: A
7.
The
existence of marginal social benefits which are
not marginal benefits for the
industry
producing the import substitutes
(a)
is an argument supporting free trade
and non-governmental involvement.
(b)
is an argument supporting the use of an optimum
tariff.
(c)
is an argument
supporting the use of market failures as a trade-
policy strategy.
(d) is an argument
rejecting free trade and supporting governmental
involvement.
(e)
None of the
above.
Answer: D
* *
8.
The domestic market
failure argument is a particular case of the
theory of
(a)
the optimum,
or first-best.
(b) the second best.
(c)
the third best.
(d) the
sufficing
principle
.
(e)
None of the above.
Answer: B
* *
9.
The
difficulty of ascertaining the right
second-best
trade policy to
follow
(a)
reinforces
support for the
third-best
policy approach.
(b) reinforces support
for increasing research capabilities of government
agencies.
(c)
reinforces
support for abandoning trade policy as an option.
(d) reinforces support for free-trade
options.
(e)
None of the
above.
Answer: D
10.
The authors of the text believe that
(a)
second-best policy is
worse than optimal policy.
(b) special
interest groups generally enhance national
welfare.
(c)
national
welfare is likely to be enhanced by the imposition
of an optimal tariff.
(d) market
Failure arguments tend to support free-trade
policy.
(e)
there is no such
thing as national welfare.
Answer: E
11.
The simple model of
competition among political parties long used by
political
scientists tends to lead to
the practical solution of selecting the
(a)
optimal tariff.
(b) prohibitive tariff.
(c)
zero (free-trade) tariff.
(d) the tariff rate favored by the
median voter.
(e)
None of
the above.
Answer: D
12.
The median voter model
(a)
works well in the area of trade policy.
(b) is not intuitively reasonable.
(c)
tends to result in
biased tariff rates.
(d) does not work
well in the area of trade policy.
(e)
None of the above.
Answer: D
* *
13.
The fact
that trade policy often imposes harm on large
numbers of people, and
benefits only a
few may be explained by
(a)
the lack of political involvement of
the public.
(b) the power of
advertisement.
(c)
the
problem of collective action.
(d) the
basic impossibility of the democratic system to
reach a fair solution.
(e)
None of the above.
Answer: C
* *
14.
Protectionism tends to be concentrated
in two sectors:
(a)
agriculture and clothing.
(b) high tech and national security
sensitive industries.
(c)
capital and skill intensive industries.
(d) industries concentrated in the
South and in the Midwest of the country.
(e)
None of the above.
Answer: A
15.
Judging by the changes in the height of
tariff rates in major trading countries, the
world has been experiencing a great
(a)
trade liberalization.
(b) surge of protectionism.
(c)
lack of progress in the
trade-policy area.
(d) move towards
regional integration.
(e)
None of the above.
Answer: A
16.
The World Trade
Organization (WTO) was organized as a successor to
the
(a)
IMF.
(b)
UN.
(c)
UNCTAD.
(d) GATT.
(e)
The
World Bank.
Answer: D
17.
The WTO was established by the
____________of multilateral trade negotiations.
(a)
Kennedy Round
(b) Tokyo Round
(c)
Uruguay Round
(d) Dillon
Round
(e)
None of the above.
Answer: C
18.
The
Smoot-Hawley Tariff Act of 1930 has generally been
associated with
* *
(a)
falling tariffs.
(b) free
trade.
(c)
intensifying the
worldwide depression.
(d) recovery from
the worldwide depression.
(e)
Non-tariff barriers.
Answer:
C
* *
19.
A trade
policy designed to alleviate some domestic
economic problem by exporting
it to
foreign countries is know as a(n)
(a)
international dumping policy.
(b) countervailing tariff policy.
(c)
beggar thy neighbor
policy.
(d) trade adjustment assistance
policy.
(e)
None of the
above.
Answer: C
20.
The General Agreement on Tariffs and
Trade and the World Trade Organization
have resulted in
(a)
termination of export subsidies applied
to manufactured goods.
(b) termination
of import tariffs applied to manufactures.
(c)
termination of import
tariffs applied to agricultural commodities.
(d) termination of international theft
of copyrights.
(e)
None of
the above.
Answer: E
21.
The General Agreement on Tariffs and
Trade and the World Trade Organization
have resulted in
(a)
the establishment of universal trade
adjustment assistance policies.
(b) the
establishment of the European Union.
(c)
the reciprocal trade
clause.
(d) reductions in trade
barriers via multilateral negotiations.
(e)
None of the above.
Answer: D
22.
Trade theory suggests that Japan would
gain from a subsidy the United States
provides its grain farmers if the gains
to Japanese consumers of wheat products
more than offsets the losses to
Japanese wheat farmers. This would occur as long
as
Japan
(a)
is a
net importer in bilateral trade flows with the
United States.
(b) is a net importer of
wheat.
(c)
has a comparative
advantage in wheat.
* *
(d)
has an absolute advantage in producing wheat.
(e)
None of the above.
Answer: B
23.
Countervailing duties are intended to
neutralize any unfair advantage that foreign
exporters might gain because of foreign
(a)
tariffs.
(b)
subsidies.
(c)
quotas.
(d) Local-Content legislation.
(e)
None of the above.
Answer: B
* *
24.
Throughout the post-World War II era,
the importance of tariffs as a trade barrier
has
(a)
increased.
(b) decreased.
(c)
remained the same.
(d) fluctuated wildly.
(e)
demonstrated a classic random walk with
a mean-reversion tendency.
Answer: B
25.
In 1980 the United
States announced an embargo on grain exports to
the Soviet
Union in response to the
Soviet invasion of Afghanistan. This embargo was
mainly
resisted by
(a)
U.S. grain consumers of bread.
(b) U.S. grain producers.
(c)
foreign grain producers.
(d) U.S. communists.
(e)
None of the above.
Answer: B
26.
Export embargoes cause
greater losses to consumer surplus in the target
country
(a)
the lesser its
initial dependence on foreign produced goods.
(b) the more elastic is the target
country
’
s demand schedule.
(c)
the more elastic is the
target country
’
s domestic
supply.
(d) the more inelastic the
target country
’
s supply.
(e)
None of the above.
Answer: D
27.
The
strongest political pressure for a trade policy
that results in higher
protectionism
comes from
(a)
domestic
workers lobbying for import restrictions.
(b) domestic workers lobbying for
export restrictions.
(c)
domestic workers lobbying for free
trade.
(d) domestic consumers lobbying
for export restrictions.
(e)
domestic consumers lobbying for import
restrictions.
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