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File: Chapter 10 International Trade Policy
True/False
[QUESTION]
1. The United States has a trade deficit when the value of the goods and services we import
exceeds the value of the goods and services we export.
2. Domestic producers prefer quotas to tariffs because quotas raise the price of imports and
tariffs do not.
3. Tariffs are taxes that governments place on internationally traded goods.
4. Quotas on imported automobiles cost jobs in the U.S. automobile industry but lower auto
prices for domestic consumers.
5. The benefits of free trade tend to be highly concentrated whereas the costs are widely
scattered.
6. A country imposing trade restrictions can benefit only if other countries also impose trade
restrictions.
7. Most economists believe that the infant industry argument for protection, though theoretically
justified, often keeps firms from becoming more competitive.
8. A free trade association is a group of countries that allows free trade among its members and,
as a group, puts up common barriers against all other countries' goods.
9. The type of goods being imported has changed from primarily low-tech goods to agricultural
goods.
10. In strategic trade bargaining it is sometimes reasonable to be unreasonable.
11. Free trade associations can potentially be harmful to international trade.
12. The text suggests that if economists had a mantra, it would be:
A. do unto others before they do unto you.
B. justice is the measure of all things.
C. when one person benefits, another is hurt.
D. trade is good.
13. World trade declined in the 1930s. Which of the following is the best explanation of that
decline?
A. World income shrank, and trade restrictions increased.
B. World income shrank, but there were few changes in trade restrictions.
C. Trade restrictions increased, but there was little change in world income.
D. The incomes of most nations increased, allowing them to become more self-sufficient.
14. The percentage of goods and services the U.S. has imported from China and India over the
last 15 years:
A. has remained roughly the same.
B. has risen.
C. has fallen.
D. initially rose and then dropped back to the original level.
15. As a country develops economically, what changes usually take place in the goods it
exports?
A. There is little change because comparative advantage does not change.
B. Raw materials and agricultural products decline in importance and are replaced by services
and manufactured goods.
C. Services and manufactured goods decline in importance and are replaced by raw materials
and agricultural products.
D. Exports go from being diversified to being specialized in whatever the country finds to be its
comparative advantage.
16. Technological changes in telecommunications have:
A. reduced the importance of services in the world economy.
B. allowed increased foreign trade in many services.
C. reduced the need for foreign trade in many services.
D. profoundly affected trade in manufactured goods with little effect on trade in services.
17. Many call centers that provide telephone customer services for U.S. companies have been
established in India, but few or none have been established in China. Why?
A. China is at a more advanced stage of economic development than India.
B. China lacks the political infrastructure to support call centers.
C. Chinese labor lacks the specific language skills needed to make call centers profitable in
China.
D. Indian labor costs are lower than Chinese labor costs.
18. The outsourcing of service jobs such as those in call centers has become a political issue. Do
economists see any benefit to outsourcing?
A. No; it simply shifts jobs overseas.
B. No; it only benefits foreign economies.
C. Yes; it tends to reduce prices to American companies and consumers.
D. Yes; it tends to raise the value of the dollar.
19. According to most economists, outsourcing service jobs:
A. helps both countries in the long run.
B. hurts both countries because the United States loses jobs and the employees of the call center
are exploited with low wages.
C. helps the United States but hurts the country with the low-cost labor.
D. helps the country getting the jobs but hurts the United States
20. The WTO authorized several countries to impose about $150 million in trade sanctions
against the United States in retaliation for a U.S. import law that the WTO ruled to be illegal.
The organization that issued this ruling against the United States is known as the:
A. Wage Tariff Objective.
B. World Trade Organization.
C. Wealth Technology Order.
D. Welfare Tax Order.
21. The limits that United States places on textile imports is an example of:
A. a tariff.
B. a quota.
C. a regulatory trade restriction.
D. an embargo.
22. Analysts have suggested that the cost of bras is related to trade restrictions on textile
imports. What does the price of bras have to do with tariffs and quotas?
A. Trade restrictions protect consumers by keeping the price of bras low.
B. Trade restrictions in the form of tariffs keep prices of bras high, but replacing them with
quotas will result in lower prices.
C. Trade restrictions keep the prices of bras high, and ending them will result in lower prices.
D. Trade restrictions do not influence the price of bras; the price is determined by domestic
technology and the overall inflation rate.
23. Duties imposed by the U.S. government on imported Chinese frozen and canned shrimp are
an example of:
A. tariffs.
B. quotas.
C. voluntary restrictions.
D. regulatory trade restrictions.
[QUESTION]
24. After one cow in Alberta, Canada was found with mad cow disease, the United States
banned all imports of Canadian cattle and beef. This action is an example of:
A. a tariff.
B. a quota.
C. a regulatory trade restriction.
D. an embargo.
25. Germany’s environmental policies restrict the sale of non-refillable bottles and cans. This
policy reduces the imports of these products. A foreign country that argues that this policy is
really intended to protect German beverage makers from competition, is arguing that the policy
is an example of:
A. a tariff.
B. a quota.
C. a regulatory trade restriction.
D. an embargo.
26. Import duties ranging from 28 percent to 113 percent on Chinese frozen and canned shrimp
are an example of a policy that:
A. protects American fisheries from overfishing.
B. uses regulations and taxes to protect American consumers.
C. protects domestic producers from foreign producers.
D. protect is American consumers from foreign producers.
27. Refer to the graph shown.
As a result of a tariff T imposed on speedboats, the price that foreign suppliers will receive
probably will be:
A. P1.
B. P2.
C. P3.
D. P4.
28. Refer to the graph shown.
As a result of a tariff T imposed on speedboats, the price domestic consumers pay for
speedboats probably will likely be:
A. P1.
B. P2.
C. P3.
D. P4.
29. A tariff designed to eliminate foreign competition completely will be expected to raise:
A. either a large or a small amount of revenue depending on the magnitude of the tariff imposed.
B. a relatively large amount of tax revenue.
C. an amount of revenue equal to the amount of the tariff multiplied by the volume of exports.
D. a relatively small amount of tax revenue.
30. A 50 percent tax on imports of Danish cheese is an example of:
A. a tariff.
B. a quota.
C. a regulatory trade restriction.
D. an embargo.
31. The international organization whose primary function is to promote free and fair trade
between countries worldwide is the:
A. WTO.
B. IMF.
C. NAFTA.
D. EU.
32. The central goal of the General Agreement on Tariffs and Trade (GATT) was to:
A. promote free trade associations and customs unions.
B. ensure a balance of trade between countries.
C. reduce trade barriers.
D. promote international security.
33. One impact of an import quota is to:
A. decrease the price of the imported good for the consumer
B. increase the price of the domestic good for the consumer
C. redistribute income from domestic producers to domestic consumers
D. decrease the price received by foreign producers
34. One impact of an import quota is to:
A. increase both domestic production and domestic prices.
B. increase domestic production and reduces domestic prices.
C. reduce domestic production and increases domestic prices.
D. reduce both domestic production and domestic prices.
35. Quotas and tariffs can:
A. have the same effect on the price of a domestically produced good if they are set
appropriately.
B. never have the same effect on imports and import prices.
C. both increase international trade by the same amount if set appropriately.
D. yield the same amount of tax revenue if they are set appropriately.
36. A quota differs from a tariff in that quotas:
A. limit the volume of imports more than tariffs.
B. do not increase the price of imports as much as tariffs.
C. do not generate tax revenues, unlike tariffs.
D. reduce consumer welfare more than do tariffs.
37. Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. If there are
no trade restrictions, this country will produce:
A. 2,400 units domestically and import 5,000 units.
B. 7,400 units domestically and export 5,000 units.
C. 4,800 units domestically and consume 4,800 units.
D. 4,800 units domestically and import 2,600 units.
38. Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting
from a free trade equilibrium, a tariff in the amount of $2 per unit would be expected to cause
domestic production to:
A. increase from 2,400 to 7,400.
B. increase from 2,400 to 3,600.
C. decrease from 4,800 to 3,600.
D. decrease from 7,400 to 6,100.
39. Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting
from a free trade equilibrium, a tariff in the amount of $2 per unit would be expected to cause
domestic consumption to:
A. increase from 2,400 to 7,400.
B. increase from 2,400 to 3,600.
C. decrease from 4,800 to 3,600.
D. decrease from 7,400 to 6,100.
40. Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. If
government imposes a tariff in the amount of $2 per unit, it will collect revenue in the amount of:
A. $0.
B. $2,400.
C. $5,000.
D. $10,000.
41. Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. To have
the same effect on imports as a $2 per-unit tariff, the government would need to set an import
quota of:
A. 1,200 units.
B. 1,300 units.
C. 2,500 units.
D. 5,000 units.
42. Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit. Starting
from a free trade equilibrium, an import quota of 2,500 would cause domestic production to:
A. increase from 6,100 to 7,400.
B. increase from 2,400 to 3,600.
