Global Business Today, 11e (Hill)
Chapter 7 Government Policy and International Trade
1) An ad valorem tariff is levied as a fixed charge for each unit of an imported good.
2) Import tariffs protect domestic producers against foreign competitors.
3) Export tariffs are not as common as import tariffs.
4) When the government provides a low-interest loan to a failing industry to bolster business, it is
an example of a subsidy.
5) In most countries, the retail industry tends to be one of the largest recipients of subsidies.
6) Quota rent refers to the extra profit that producers make when supply is artificially limited by an
import quota.
7) The purpose of an export tariff is to encourage exporting and guarantee the sufficient supply of
a good within a country.
8) Dumping occurs when companies sell goods in a foreign market at below their costs of
production.
9) Governments can protect consumers from unsafe products by issuing a limit or a ban on such
products.
10) One of the more frequent political arguments for government intervention states that it is
necessary to protect industries from foreign competition.
11) The Trump Administration justified tariffs on foreign steel imports in 2018 by saying it was a
national security issue.
12) The infant industry argument is the oldest economic argument that promotes government
intervention.
13) Alexander Hamilton promoted the idea that government should support a new industry with
government intervention tactics until the industry is strong enough to face international
competition.
14) Paul Krugman argues that although strategic trade policy looks unappealing in theory, in
practice it is most likely to be workable.
15) Krugman’s main concern with a strategic trade policy is the growth of monopolies within the
marketplace.
16) The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import
quotas.
17) After the Great Depression, there was a favorable shift in the U.S. government toward free
trade.
18) One of the reasons for the trend toward greater protectionism during the 1980s and 1990s was
that many countries found ways to get around GATT regulations.
19) In the Uruguay Round of the WTO, member countries sought to exempt trade in services from
GATT rules.
20) The World Trade Organization’s TRIPS agreement focuses on extending free trade agreements
to services.
21) Antidumping actions seem to be concentrated in certain sectors of the economy such as basic
metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical
equipment.
22) Tariff rates on manufactured products tend to be much higher than tariff rates on agricultural
products.
23) The British decision to withdraw from the European Union suggests that there isn’t a global
consensus on the issue of free trade.
24) The threat of antidumping action enhances the ability of a firm to use aggressive pricing to
gain market share in a country.
25) Government intervention can be self-defeating because it tends to protect the inefficient rather
than help firms become efficient global competitors.
26) There are seven main instruments used in trade policy with ________ being the oldest and the
simplest.
A) local content requirements
B) tariffs
C) subsidies
D) voluntary export restraints
E) import quotas
27) Mexico has raised the taxes on cheeses imported from the United States. These taxes are an
example of a(n)
A) subsidy.
B) referendum.
C) antidumping policy.
D) local content requirement.
E) tariff.
28) A charge of 12–18 percent is levied by the government of a foreign nation on the value of
automobile accessories imported from a neighboring country. This increased the price of those
imported car accessories for the consumers. This foreign nation is using a(n)
A) local content tariff.
B) ad valorem tariff.
C) subsidy.
D) import quota.
E) antidumping duty.
29) In some years, the U.S. government has paid wheat farmers an additional 50 cents on every
bushel of wheat they sell. This money is an example of a(n)
A) local content tariff.
B) ad valorem tariff.
C) subsidy.
D) import quota.
E) antidumping duty.
30) A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying
on which instrument of trade?
A) specific tariff
B) GATT tariff
C) subsidies
D) import quotas
E) antidumping duties
31) One objective of export tariffs is to
A) abide by the rules enforced by the WTO.
B) curb the competition offered by foreign firms to domestic firms.
C) reduce exports from a sector to ensure a sufficient supply.
D) maintain a positive trade deficit.
E) increase the flow of capital in the international market.
32) Following the global financial downturn in 2008–2009, some developed nations subsidized
automobile makers to help them survive the economic climate. One negative consequence of this
action was that
A) the companies had an unfair competitive advantage in the global industry.
B) most of these companies implemented export quotas that drove up prices.
C) more companies attempted to enter the industry and sales flattened.
D) it wasn’t possible for these companies to meet local content requirements.
E) agricultural producers lost all subsidies they were promised.
33) The group that benefits the most from receiving subsidies is
A) government.
B) international organizations such as the WTO.
C) domestic producers.
D) importers.
E) foreign competitors.
34) Some countries limit the amount of sugar that can be imported. This restriction is called a(n)
A) voluntary export restraint.
B) ad valorem tariff.
C) import quota.
D) local content requirement.
E) government subsidy.
35) A tiny South Pacific island country produces large quantities of coconut-based products. To
protect this industry, the island government mandates that only designated trading companies can
import the crop, each of which is allocated the right to import a maximum number of pounds of
coconuts each year. This is an example of a(n)
A) import duty.
B) subsidy.
C) import tariff.
D) local content requirement.
E) import quota.
36) A(n) ________ is in place when a lower tariff rate is applied to imports within the government
quota than those over the quota.
A) tariff rate quota
B) voluntary import restraint
C) import duty
D) quota rent
E) import quota
37) The country of Plena imposes an ad valorem tariff of 10 percent on 1 million tons of rice
imports, after which an out-of-quota tariff of 80 percent is applied. What trade policy instrument is
Plena using?
A) subsidy
B) tariff rate quota
C) voluntary export restraint
D) tariff ceiling
E) local content requirement
38) If a country is experiencing a surge of electronic imports from a trading partner, it might ask
that country to set a limit on how much can be exported. This limit is known as a
A) tariff rate quota.
B) quota rent.
C) voluntary export restraint (VER).
D) quota share.
E) export embargo.
39) How do voluntary export restraints affect the prices of goods?
A) VERs do not affect the price of goods for consumers.
B) VERs always reduce the domestic price of an imported good.
C) VERs always raise the domestic price of an imported good.
D) Typically, VERs will lower the price of goods while the quota is in place.
E) VERs will always raise the export price of domestic goods.
40) Domestic producers experience limited import competition when a VER is in place. As a
result, these producers make extra profit because supply is artificially limited by the import quota.
This extra profit is called
A) net profit.
B) quota rent.
C) trade surplus.
D) profit margin.
E) quota share.
41) For many years, there have been limits set on the amount of sugar that foreign producers can
sell in the U.S. market. This is mandated by a
A) net profit.
B) tariff rate quota system.
C) trade surplus.
D) subsidy agreement.
E) quota share.
42) One way to ensure that there is sufficient supply of a good within a country is to enact a(n)
________, which discriminates against producers from exporting goods.
A) local content requirement
B) tariff rate quota system
C) trade surplus
D) subsidy agreement
E) export tariff
43) In 1975, OPEC did not allow the export of U.S. crude oil in order to drive up the price of oil.
This action is an example of a(n)
A) local content requirement.
B) export ban.
C) trade surplus.
D) subsidy agreement.
E) export tariff.
44) For years, the world used a small nation in Central America as a place to assemble goods and
benefit from cheap labor. To shift its manufacturing base from simple assembly to full-fledged
manufacture of components and finished goods, the nation introduced a policy that stated 35
percent of the value of a product must be produced locally. This is an example of a(n)
A) international allocation requirement.
B) local content requirement.
C) specific quota requirement.
D) ad valorem portion requirement.
E) domestic sales requirement.
45) ComTek Limited has an order to sell 50,000 central processing units (CPUs) to Brazil, but the
Brazilian government stipulated that 35 percent of the component parts of those CPUs must be
produced in Brazil. This stipulation is an example of a(n)
A) voluntary export restraint.
B) quota rent.
C) import quota.
D) local content requirement.
E) antidumping policy.
46) According to the ________, U.S. government agencies must give preference to U.S. products
when putting contracts for equipment out to bid unless the foreign products have a significant price
advantage.
A) Export Administration Act
B) Helms-Burton Act
C) Hawley-Burton Act
D) Buy America Act
E) Volcker Rule