-
Chapter 06 - The Political Economy of
International Trade
Chapter 06
The Political Economy of International
Trade
True /
False Questions
1.
(p. 206)
A
situation where a government does not attempt to
restrict what its citizens can buy
from
another country or what they can sell to another
country is known as free trade.
TRUE
Difficulty:
Easy
2.
(p. 207)
Tariffs are unambiguously pro-consumer and anti-
producer.
FALSE
Difficulty: Medium
3.
(p. 207)
Export tariffs are far less
common than import tariffs.
TRUE
Difficulty:
Medium
4.
(p. 207)
Specific tariffs are levied as a proportion of the
value of the imported good.
FALSE
Difficulty:
Medium
5.
(p. 208)
By
lowering production costs, subsidies help domestic
producers compete against
foreign
imports and gain export markets.
TRUE
Difficulty:
Medium
6-1
Chapter 06 - The Political Economy of
International Trade
6.
(p. 209)
Under
a tariff rate quota, a higher tariff rate is
applied to imports within the quota than
those over the quota.
FALSE
Difficulty:
Medium
7.
(p. 210)
A
common hybrid of a quota and a rent is known as a
quota rent.
FALSE
Difficulty: Easy
8.
(p. 211)
Unlike other trade policies,
local content regulations tend to benefit
consumers and not
producers.
FALSE
Difficulty: Medium
9.
(p.
211)
Requirements that some specific
fraction of a good be produced domestically are
known as local content requirements.
TRUE
Difficulty: Easy
10.
(p.
211)
Bureaucratic rules designed to
make it difficult for imports to enter a country
are local
content requirements.
FALSE
Difficulty: Easy
6-2
Chapter 06 - The
Political Economy of International Trade
11.
(p.
211)
A company that sells its product
in a foreign market below the cost of production
may
be accused of dumping.
TRUE
Difficulty: Easy
12.
(p.
212)
Antidumping polices are designed
to punish firms that are engaged in dumping.
TRUE
Difficulty: Easy
13.
(p.
213)
Antidumping policies vary
drastically from country to country.
FALSE
Difficulty: Easy
14.
(p.
214)
The U.S. government has used the
threat of punitive trade sanctions to try to get
the
Chinese government to enforce its
intellectual property laws.
TRUE
Difficulty:
Medium
15.
(p. 214)
Many
governments have long had regulations to protect
consumers from unsafe
products.
TRUE
Difficulty: Easy
6-3
Chapter 06 - The
Political Economy of International Trade
16.
(p.
216)
The Helms-Burton Act of 1996 was
aimed at foreign companies that were
undermining U.S. trade sanctions
against Libya and Iran.
FALSE
Difficulty:
Medium
17.
(p. 217)
The
infant industry argument is the latest argument
for government intervention in
trade.
FALSE
Difficulty: Medium
18.
(p.
218)
Strategic trade policy suggests
that a government should use subsidies to support
promising firms that are active in
newly emerging industries.
TRUE
Difficulty:
Medium
19.
(p. 218)
GATT
has not recognized the infant industry argument as
a legitimate reason for
protectionism.
FALSE
Difficulty: Medium
20.
(p.
219)
Krugman has suggested that trade
policy designed to retaliate against another
country's trade policy would hurt the
citizens of both countries.
TRUE
Difficulty:
Hard
6-4
Chapter 06 - The Political Economy of
International Trade
21.
(p. 220)
Governments do not always act in the national
interest when they intervene in the
economy; politically important interest
groups often influence them.
TRUE
Difficulty:
Medium
22.
(p. 221)
The
Smoot-Hawley Act raised tariff barriers in the
hope of protecting jobs and
diverting
consumer demand away from foreign products.
TRUE
Difficulty: Medium
23.
(p.
222)
A key goal of the 1986 Uruguay
Round was to extend GATT to cover trade in
services.
TRUE
Difficulty: Medium
24.
(p. 222)
During the 1980s and early
1990s, the world trading system erected by the
GATT
gained momentum as protectionist
demands generally decreased across the world.
FALSE
Difficulty: Easy
25.
(p.
223)
The World Trade Organization was
created as part of the Uruguay Round.
TRUE
Difficulty: Medium
6-5
Chapter 06 - The
Political Economy of International Trade
26.
(p.
223)
The WTO does not have the power to
impose trade sanctions.
FALSE
Difficulty:
Medium
27.
(p. 224)
To
date, the WTO's policing efforts have been a major
failure.
FALSE
Difficulty: Medium
28.
(p. 225)
A key issue in the Millennium
Round of the WTO was to reduce barriers to
cross-border trade in agricultural
products.
TRUE
Difficulty: Medium
29.
(p. 226)
Human rights activists see WTO
rules as outlawing the ability of nations to stop
imports from countries where child
labor is used or working conditions are hazardous.
TRUE
Difficulty: Medium
30.
(p.
226)
The WTO has the ability to force
any member nation to take an action to which it is
opposed.
FALSE
Difficulty: Medium
6-6
Chapter 06
- The Political Economy of International Trade
31.
(p.
227)
The majority of antidumping
actions are concentrated in just a few industries.
TRUE
Difficulty: Medium
32.
(p.
227)
WTO rules do not allow countries
to impose antidumping duties on foreign goods that
are being sold cheaper than at home or
below their cost of production, even when domestic
producers can show that they are being
harmed.
FALSE
Difficulty: Medium
33.
(p.
228)
Tariff rates on agricultural
products are generally much lower than tariff
rates on
manufactured products or
services.
FALSE
Difficulty: Medium
34.
(p. 228)
Free trade in agriculture
could jump-start economic growth among the world's
poorer
nations and alleviate global
poverty.
TRUE
Difficulty: Medium
35.
(p.
229)
The TRIPS regulations oblige WTO
members to grant and enforce patents lasting at
least 20 years and copyrights lasting
50 years.
TRUE
Difficulty: Easy
6-7
Chapter 06
- The Political Economy of International Trade
36.
(p.
229)
Inadequate protections for
intellectual property reduce the incentive for
innovation.
TRUE
Difficulty: Easy
37.
(p. 230)
Tariffs on industrial goods
remain higher than tariffs on services.
FALSE
Difficulty: Medium
38.
(p.
233)
Tariff barriers lower the costs of
exporting products to a country.
FALSE
Difficulty:
Easy
39.
(p. 233)
The
threat of antidumping action limits the ability of
a firm to use aggressive pricing
to
gain market share in a country.
TRUE
Difficulty:
Medium
40.
(p. 233)
To
conform to local content regulations, a firm may
have to locate more production
activities in a given market than it
would otherwise.
TRUE
Difficulty: Medium
6-8
Chapter 06 - The
Political Economy of International Trade
Multiple Choice
Questions
41.
(p. 206)
Free
trade
A.
Refers to a
situation in which a government does not attempt
to restrict what its citizens can
buy
from or sell to another country
B.
Reduces the overall
efficiency of the world economy.
C.
Describes the range of
policy instruments that governments use to
intervene in international
trade
D.
Is a government payment
to a domestic producer
Difficulty: Easy
42.
(p.
206)
Which of the following is not one
of the main instruments of trade policy?
A.
Tariffs
B.
Credit portfolios
C.
Local content
requirements
D.
Administrative policies
Difficulty: Medium
43.
(p.
207)
In recent decades, tariff barriers
have been _____ while non tariff barriers have
been
_____.
A.
Falling, rising
B.
Rising,
falling
C.
Leveling, rising
D.
Falling, leveling
Difficulty:
Medium
6-9
Chapter 06 - The Political Economy of
International Trade
44.
(p. 207)
Specific tariffs are
A.
Levied as a proportion of the value of the
imported good
B.
Levied as a
fixed charge for each unit of a good imported
C.
In the form of
manufacturing or production requirements of goods.
D.
Government payment to
domestic producers
Difficulty: Medium
45.
(p.
207)
This is levied as a proportion of
the value of the imported good.
A.
Special tariff
B.
Ad valorem tariff
C.
Tariff quota
D.
Specific tariff
Difficulty:
Medium
46.
(p. 207)
Tariffs do not benefit
A.
Consumers
B.
Domestic
producers
C.
Governments
D.
Domestic firms
Difficulty:
Medium
47.
(p. 207)
All
of the following are true of tariffs, except
A.
They reduce the revenue
for the government
B.
They
can be levied as a proportion of the value of the
imported good
C.
They can be
levied as a fixed charge for each unit of a good
imported
D.
They impose
significant costs on domestic consumers
Difficulty:
Hard
6-10
Chapter 06 - The Political Economy of
International Trade
48.
(p. 208)
By
lowering production costs, _____ help domestic
producers compete against
foreign
imports.
A.
Tariffs
B.
Duties
C.
Quotas
D.
Subsidies
Difficulty: Medium
49.
(p. 208)
Which of the following
observations pertaining to government subsidies is
incorrect?
A.
They must be
paid for, typically by taxing individuals and
corporations
B.
They mainly
benefit domestic producers, whose international
competitiveness is increased
C.
Whether they generate
national benefits that exceed their national costs
is debatable
D.
They help
foreign producers gain a competitive advantage
over domestic producers
Difficulty: Medium
50.
(p.
208)
Subsidies have been criticized for
all of the following reasons except
A.
They allow inefficient
farmers stay in business
B.
They encourage to overproduce heavily subsidized
agricultural products
C.
They encourage countries to produce products that
could be grown more cheaply elsewhere
and imported
D.
They increase international trade in agricultural
products
Difficulty: Hard
51.
(p.
208)
According to the _____ policy,
subsidies can help a firm achieve a first-mover
advantage in an emerging industry.
A.
Strategic trade
B.
Antidumping
C.
Tariff quota
D.
Free trade
Difficulty: Hard
6-11
Chapter 06
- The Political Economy of International Trade
52.
(p.
208)
This is a direct restriction on
the quantity of some good that may be imported
into a
country.
A.
Specific tariff
B.
Import quota
C.
Subsidy
D.
Ad valorem tariff
Difficulty:
Easy
53.
(p. 208-209)
In the United States only firms allowed to import
cheese are certain trading
companies,
each of which is allocated the right to import a
maximum number of pounds of
cheese each
year. Identify the trade restriction being imposed
by the U.S. here.
A.
Import
quota
B.
Subsidy
C.
Ad valorem tariff
D.
Specific tariff
Difficulty:
Hard
54.
(p. 209)
A
common hybrid of a quota and a tariff is known as
a
A.
Quota rent
B.
Voluntary export
restraint
C.
Ad valorem
tariff
D.
Tariff rate quota
Difficulty:
Easy
55.
(p. 210)
A
quota on trade imposed by the exporting country,
typically at the request of the
importing country's government is
referred to as a(n)
A.
Voluntary export restraint
B.
Specific tariff quota
C.
Trade reconciliation
D.
Ad valorem tariff
Difficulty:
Easy
6-12
Chapter 06 - The Political Economy of
International Trade
56.
(p. 210)
A
quota rent is
A.
A quota on
trade imposed by the exporting country
B.
Levied as a fixed charge
for each unit of a good imported
C.
Levied as a proportion of
the value of the imported good
D.
The extra profit
producers make when supply is artificially limited
by an import quota
Difficulty: Easy
57.
(p.
210)
Foreign producers typically agree
to voluntary export restrictions because
A.
Their manufacturing
capacity is limited
B.
They
can divert their exports to other countries and
charge more for their products
C.
They fear far more
damaging punitive tariffs or import quotas might
follow if they do not
D.
They are required to by the World Trade
Organization
Difficulty: Medium
58.
(p.
210)
Which of the following statements
concerning a voluntary export restraint is not
true?
A.
It benefits
domestic producers by limiting import competition
B.
In most cases, it
benefits consumers.
C.
It
raises the domestic price of an imported good
D.
It is a variant of the
import quota
Difficulty: Medium
59.
(p.
211)
These are requirements that some
specific fraction of a good be produced
domestically.
A.
Import quotas
B.
Voluntary
export restraints
C.
Local
content requirements
D.
Antidumping duties
Difficulty: Easy
6-13