Page 1
1.
Which of the following was a major disagreement during the Doha Round?
A)
tariffs on agricultural imports in developing countries
B)
agricultural subsidies
C)
production subsidies to agriculture in land-poor developing countries
D)
tariffs on agricultural imports in developed countries
2.
The term used to describe a tax on exports is an:
A)
export tariff.
B)
export stipend.
C)
export restriction.
D)
export quota.
3.
A payment to a firm for every unit exported is called an:
A)
export tariff.
B)
export stipend.
C)
export restriction.
D)
export subsidy.
4.
An example of an export tariff is:
A)
China’s limits on rare earth mineral exports.
B)
Argentina’s 35% tax on soybean exports.
C)
the United States’ 10% tax on Boeing aircraft exports.
D)
Japan’s 20% tax on rice exports.
5.
In 2015, WTO leaders agreed to:
A)
eliminate taxes on their agricultural exports.
B)
eliminate subsidies on their agricultural exports.
C)
eliminate countervailing duties on subsidized agricultural imports.
D)
eliminate antidumping duties on subsidized agricultural imports.
Page 2
6.
Under terms of the 2015 WTO, when did developed and developing countries agree to
eliminate agricultural export subsidies?
A)
Both developed and developing countries agreed to immediately eliminate their
agricultural export subsidies.
B)
Developed countries agreed to immediately eliminate their agricultural export
subsidies while developing countries were allowed to maintain their agricultural
export subsidies.
C)
Developed countries agreed to immediately eliminate their agricultural export
subsidies while developing countries would have until the end of 2018 to eliminate
their agricultural export subsidies.
D)
Both developed and developing countries would have until the end of 2018 to
eliminate their agricultural export subsidies.
7.
In general, an export subsidy:
A)
discourages foreign sales in favor of domestic sales.
B)
encourages firms to export rather than sell domestically.
C)
penalizes producers that export.
D)
justifies government involvement in helping firms export.
8.
In Europe, the Common Agricultural Policy is a form of:
A)
tax on domestic production of agricultural products.
B)
regulation and supervision by the WTO in assuring that tariffs are applied fairly.
C)
a purchase program whereby government buys unusable products.
D)
subsidy, regardless of whether the crop is sold domestically or internationally.
9.
The European agricultural export subsidy program is known as the:
A)
European Subsidy System.
B)
European Agricultural System.
C)
Common Agricultural Policy.
D)
Common European Policy.
10.
In Europe, the Common Agricultural Policy:
A)
taxed European agricultural products sold in Europe.
B)
allowed European farmers to sell their output at above world prices in the
European market.
C)
subsidized agricultural products, allowing European farmers to sell output at a
price much higher than the world market price.
D)
subsidized agricultural products, allowing European farmers to sell output at a
price much lower than the world market price.
Page 3
11.
Where were subsidies on agricultural products particularly high prior to the 2015 WTO
agreement on agricultural export subsidies?
A)
the European Union
B)
Korea
C)
Russia
D)
Canada
12.
The European Common Agriculture Policy resulted in a(n):
A)
increase in European imports from the rest of the world.
B)
decrease in European exports of sugar to the rest of the world.
C)
increase in world agriculture exports to Europe.
D)
increase in European agriculture exports.
13.
Under rules of the GATT, exporting countries can expect importing countries to impose
_______ to offset their export subsidies.
A)
antidumping duties
B)
countervailing duties
C)
safeguard duties
D)
quotas
14.
Under the GATT, which trade remedy can importing countries use to offset export
subsidies?
A)
antidumping duties
B)
safeguard duties
C)
quotas
D)
countervailing duties
15.
Which of the following is NOT an example of countries’ support to their domestic
agricultural industry?
A)
The European Common Agricultural Policy pays European farmers up to 50 euros
per ton of harvested sugar beets.
B)
Japan allows 10% of its annual rice consumption to enter duty-free, then imposes a
500% tariff on further rice imports.
C)
The United States provides subsidies to cotton farmers to grow more cotton.
D)
Argentina imposes a 23% tax on wheat exports.
Page 4
16.
Which product has been among the most heavily subsidized in the United States?
A)
cotton
B)
grapes
C)
oranges
D)
tomatoes
17.
WTO negotiations in 2005 covered agricultural subsidies. What progress was made at
these meetings in Hong Kong?
A)
Higher-income nations pushed for an end to agricultural subsidies, but did not get
them.
B)
Goals were set to abolish agricultural subsidies by the end of 2013, but no actual
changes occurred.
C)
The Hong Kong meetings were disrupted by protesters and had to be called off.
D)
The WTO members agreed to immediately eliminate agricultural subsidies in all
countries.
18.
The 2005 WTO negotiations in Hong Kong covered trade in services. What did
developing nations expect from wealthy nations in exchange for gradually opening their
market to service imports?
A)
food aid
B)
eased immigration regulations
C)
higher agricultural export subsidies
D)
lower tariffs on industrial goods
19.
An export subsidy works to _______________ the price of exported products for
producers to encourage _______________ production.
A)
lower; less
B)
lower; more
C)
raise; more
D)
raise; less
20.
Which of the following will happen when a small country enacts an export subsidy?
A)
The country will be able to sell less abroad.
B)
The domestic price of the subsidized export will decrease
C)
The country’s demand for the subsidized product will increase.
D)
Foreign demand for the subsidized product will increase.
Page 5
21.
Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar
exporters a subsidy of $50 per ton, then the world price of sugar will:
A)
rise to $150 per ton.
B)
fall to $50 per ton.
C)
remain at $100 per ton.
D)
first rise to $150 per ton, then fall to $100 per ton.
22.
Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar
exporters a subsidy of $50 per ton, then its exporters will receive:
A)
$150 per ton.
B)
$50 per ton.
C)
$100 per ton.
D)
first $150 per ton, then $100 per ton.
23.
Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar
exporters a subsidy of $50 per ton, then its domestic price of sugar will:
A)
fall by $50 per ton.
B)
rise by $50 per ton.
C)
remain unchanged at $100 per ton.
D)
first fall to $50 per ton, then rise to $100 per ton.
24.
Suppose that the world price of sugar is $100 per ton. If a small country gives its sugar
exporters a subsidy of $50 per ton, then domestic consumption of sugar will:
A)
fall.
B)
rise.
C)
remain unchanged.
D)
first fall, then rise.
25.
(Scenario: Sugar Trade in Birdonia) In autarky, suppose that equilibrium sugar price is
$100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia engages in
free trade with the rest of the world. The world price of sugar is $125 per ton.
What will happen to the domestic price of sugar in Birdonia?
A)
It will rise to $125 per ton.
B)
It will fall by $25 per ton.
C)
It will remain $100 per ton.
D)
It will first rise to $125 per ton, then fall to $100 per ton.
Page 6
26.
(Scenario: Sugar Trade in Birdonia) In autarky, suppose that equilibrium sugar price is
$100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia engages in
free trade with the rest of the world. The world price of sugar is $125 per ton.
Now suppose that the government of Birdonia gives an export subsidy of $50 per ton to
its sugar producers. What will happen to the domestic price of sugar in Birdonia?
A)
It will not change.
B)
It will rise to $175 per ton.
C)
It will rise to $150 per ton.
D)
It will rise to between $125 and $175 per ton.
27.
(Scenario: Sugar Trade in Birdonia) In autarky, suppose that equilibrium sugar price is
$100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia engages in
free trade with the rest of the world. The world price of sugar is $125 per ton.
What action must the government of Birdonia take to ensure that Birdonians do not
import sugar at the world price of $125?
A)
It must place a $25 per ton tax on Birdonian sugar exports.
B)
It must levy a countervailing duty of $50 a ton on Birdonian sugar exports.
C)
It must agree to voluntarily restrain its exports to $125 per ton.
D)
It must levy a tariff of $50 per ton on imported sugar.
28.
(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply
schedule for a small-country producer of iron ore. It sells output in its home market and
on the world market at the world price of $70 per ton.
Table: Demand and Supply for Iron Ore
At the world price of $70 per ton, how many tons will be sold domestically?
A)
80 tons
B)
70 tons
C)
40 tons
D)
30 tons
Page 7
29.
(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply
schedule for a small-country producer of iron ore. It sells output in its home market and
on the world market at the world price of $70 per ton.
Table: Demand and Supply for Iron Ore
At the world price of $70 per ton, how many tons will it export?
A)
80 tons
B)
70 tons
C)
40 tons
D)
30 tons
30.
(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply
schedule for a small-country producer of iron ore. It sells output in its home market and
on the world market at the world price of $70 per ton.
Table: Demand and Supply for Iron Ore
Suppose that the country’s government offers its iron ore producers an export subsidy of
$10 per ton. How many tons will the country now export?
A)
80 tons
B)
70 tons
C)
60 tons
D)
50 tons
Page 8
31.
(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply
schedule for a small-country producer of iron ore. It sells output in its home market and
on the world market at the world price of $70 per ton.
Table: Demand and Supply for Iron Ore
How many tons will be sold domestically when exporters receive a $10-per-ton export
subsidy?
A)
10 tons
B)
20 tons
C)
30 tons
D)
40 tons
32.
(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply
schedule for a small-country producer of iron ore. It sells output in its home market and
on the world market at the world price of $70 per ton.
Table: Demand and Supply for Iron Ore
What price will domestic iron ore consumers pay for their iron ore purchases when there
is a $10-per-ton export subsidy?
A)
$10 per ton
B)
$60 per ton
C)
$70 per ton
D)
$80 per ton
Page 9
33.
(Scenario: Demand and Supply for Iron Ore) This table represents a demand and supply
schedule for a small-country producer of iron ore. It sells output in its home market and
on the world market at the world price of $70 per ton.
Table: Demand and Supply for Iron Ore
What is the total value of the export subsidy that exporters receive?
A)
$500
B)
$800
C)
$400
D)
$100
Page 10
34.
(Figure: Home’s Exporting Industry I) The graph shows information about a small home
exporter. D is home demand and S is home supply.
According to the graph, how many units of the product will domestic consumers
demand when the world price is $125?
A)
120
B)
100
C)
40
D)
20
Page 11
35.
(Figure: Home’s Exporting Industry I) The graph shows information about a small home
exporter. D is home demand and S is home supply.
According to the graph, at the world price of $125 there is a ________ of ____ in the
home market, which is ____.
A)
surplus; 60; imported
B)
shortage; 60; imported
C)
surplus; 60; exported
D)
shortage; 100; exported
Page 12
36.
(Figure: Home’s Exporting Industry I) The graph shows information about a small home
exporter. D is home demand and S is home supply.
According to the graph, when the home country provides a subsidy of _______, exports
will increase by _____ units.
A)
$50; 40
B)
$175; 120
C)
$125; 100
D)
$175; 100
Page 13
37.
(Figure: Home’s Exporting Industry I) The graph shows information about a small home
exporter. D is home demand and S is home supply.
According to the graph, an export subsidy of $50 per unit results in a(n) ________ of
government revenue by the amount of ______.
A)
increase; $5,000
B)
increase; $2,500
C)
decrease; $5,000
D)
decrease; $21,000
Page 14
38.
(Figure: Home’s Exporting Industry I) The graph shows information about a small home
exporter. D is home demand and S is home supply.
According to the graph, an export subsidy of $50 results in a(n) ________ in producer
surplus by the amount of ______.
A)
reduction; $6,500
B)
reduction; $5,000
C)
increase; $5,500
D)
increase; $4,000
Page 15
39.
(Figure: Home’s Exporting Industry I) The graph shows information about a small home
exporter. D is home demand and S is home supply.
According to the graph, the deadweight loss from the $50 export subsidy is:
A)
$500.
B)
$1,000.
C)
$1,500.
D)
$2,500.
40.
When assessing the welfare effect of an export subsidy on a small nation, it can be
shown that the subsidy:
A)
increases national welfare.
B)
can be paid for out of increased revenues.
C)
hurts producers and helps consumers.
D)
is just the same as a tariff on imports: it raises domestic price, increases domestic
production, and involves the same efficiency and consumption losses.
Page 16
41.
(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand
for widgets is represented by P = 100 – 3Q; the domestic supply of widgets is
represented by P = 1Q.
In the absence of trade, what is the equilibrium price and quantity in Freedonia’s widget
market?
A)
$25 and 75 units
B)
$75 and 25 units
C)
$25 and 25 units
D)
$75 and 75 units
42.
(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand
for widgets is represented by P = 100 – 3Q; the domestic supply of widgets is
represented by P = 1Q.
Now suppose that Freedonia engages in international trade in widgets. The world price
is $40. How many widgets will be consumed domestically and how many will be
exported?
A)
It will consume 20 domestically and export 20.
B)
It will consume 20 domestically and export 40.
C)
It will consume 40 domestically and export 20.
D)
It will consume zero domestically and export 20.
43.
(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand
for widgets is represented by P = 100 – 3Q; the domestic supply of widgets is
represented by P = 1Q.
Now let Freedonia’s government give a $15 per unit subsidy on each widget exported.
What will be the new price and quantity consumed in the Freedonia domestic market?
A)
$20 and 60 units
B)
$55 and 15 units
C)
$40 and 15 units
D)
$25 and 25 units
Page 17
44.
(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand
for widgets is represented by P = 100 – 3Q; the domestic supply of widgets is
represented by P = 1Q.
Calculate the value of the deadweight losses associated with the $15 per unit export
subsidy.
A)
$37.50
B)
$75.00
C)
$112.50
D)
$150.00
45.
(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand
for widgets is represented by P = 100 – 3Q; the domestic supply of widgets is
represented by P = 1Q.
What is the value of total subsidy payments to Freedonia’s widget exporters?
A)
$825
B)
$600
C)
$225
D)
$125
46.
(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand
for widgets is represented by P = 100 – 3Q; the domestic supply of widgets is
represented by P = 1Q.
Is the subsidy paid to Freedonia’s widget exporters considered part of the deadweight
losses of the subsidy?
A)
Yes: they are a payment to Freedonian exporters.
B)
Yes: they are paid by Freedonian exporters that supply the domestic market.
C)
No; they are a redistribution of income within the Freedonian economy.
D)
No; consumers of Freedonian widget exports pay the subsidies.
47.
Suppose that the world price of sugar is $100 per ton. If a small-country exporter gives
its sugar exporters a subsidy of $50 per ton, then the country will:
A)
suffer deadweight production and consumption losses.
B)
enjoy deadweight production and consumption gains.
C)
suffer deadweight production losses only.
D)
suffer deadweight consumption losses only.
Page 18
48.
If a large nation subsidizes its exports, it will increase its supply to the world and:
A)
will prosper through increased jobs for workers and profits for its firms.
B)
the world price will fall.
C)
consumers in the home nation will benefit through lower prices.
D)
the nation will increase its imports as well.
49.
A large nation’s export subsidy ____ a small trading partner nation’s terms of trade.
A)
improves
B)
does not affect
C)
worsens
D)
strengthens its bargaining power for improving
50.
Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar
exporters a subsidy of $50 per ton, then the world price of sugar will:
A)
fall by less than $50 per ton.
B)
fall by $50 per ton.
C)
remain at $100 per ton.
D)
rise to $50 per ton.
51.
Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar
exporters a subsidy of $50 per ton, then its exporters will receive (in total):
A)
$150 per ton.
B)
$50 per ton.
C)
more than $100 but less than $150 per ton.
D)
$100 per ton.
52.
What happens to the large country’s domestic price of widgets when a large country
gives a subsidy of X dollars for each unit exported?
A)
The domestic price will rise by X dollars.
B)
The domestic price will rise by more than X dollars
C)
The domestic price will rise by less than X dollars.
D)
The domestic price will not change.
53.
Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar
exporters a subsidy of $50 per ton, then its domestic price of sugar will:
A)
fall by $50 per ton.
B)
rise by $50 per ton.
C)
remain unchanged at $100 per ton.
D)
rise by less than $50 per ton.
Page 19
54.
Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar
exporters a subsidy of $50 per ton, then domestic consumption of sugar will:
A)
fall.
B)
rise.
C)
remain unchanged.
D)
first fall, then rise.
55.
(Figure: Home’s Exporting Industry II) The graph shows the effect of a subsidy on a
large country. D describes home demand and S describes home supply.
According to the figure, if the world price of the product is $100, the home demand for
the product is _____ and the exports are ______.
A)
25; 125
B)
25; 25
C)
50; 75
D)
25; 75
Page 20
56.
(Figure: Home’s Exporting Industry II) The graph shows the effect of a subsidy on a
large country. D describes home demand and S describes home supply.
According to the graph, if the home country provides a subsidy of $100, the large
country will cause the world price to:
A)
increase by $50.
B)
increase by $150.
C)
decrease by $50.
D)
decrease by $150.
Page 21
57.
(Figure: Home’s Exporting Industry II) The graph shows the effect of a subsidy on a
large country. D describes home demand and S describes home supply.
According to the graph, what happens to the nation’s consumer surplus as a result of the
$100 export subsidy?
A)
It increases by $2,500.
B)
It decreases by –$1,875.
C)
It decreases by $725.
D)
It decreases by $2,500.
Page 22
58.
(Figure: Home’s Exporting Industry II) The graph shows the effect of a subsidy on a
large country. D describes home demand and S describes home supply.
According to the graph, what is the revenue cost for the government from the $100
export subsidy?
A)
$1,250
B)
$12,500
C)
$150
D)
$1,500
Page 23
59.
(Figure: Home’s Exporting Industry II) The graph shows the effect of a subsidy on a
large country. D describes home demand and S describes home supply.
According to the graph, what is the home deadweight loss due to the $100 export
subsidy?
A)
$12,500
B)
$625
C)
$1,250
D)
$5,000
Page 24
60.
(Figure: Home’s Exporting Industry II) The graph shows the effect of a subsidy on a
large country. D describes home demand and S describes home supply.
According to the graph, which of the following will help the large country avoid the
deadweight loss from the $100 export subsidy?
A)
impose a tariff
B)
impose a quota
C)
provide cash to developing countries to purchase the product from the home
country
D)
impose trade restrictions
61.
An export subsidy has a similar effect as a tariff for a small nation. What is the effect of
an export subsidy for a large nation?
A)
Losses are greater for the large nation than for the small nation because of the cost
of the subsidy to the home government.
B)
Losses are lower for the large nation than for the small nation.
C)
It is beneficial for the large nation but not for the small nation.
D)
It is beneficial for consumers but harmful for firms in the large nation.
62.
Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar
exporters a subsidy of $50 per ton, then there will be:
A)
no change in its consumer surplus.
B)
a loss in consumer surplus.
C)
a gain in consumer surplus.
D)
an increase in domestic consumption.
Page 25
63.
What is the primary difference between a subsidy in a small country and a large
country?
A)
The large country is the only buyer of the product in the world market.
B)
The small country does not produce any of the product.
C)
The large country is able to influence the world price of the product.
D)
There is no difference between the large country and small country.
64.
A large nation’s export subsidy ________ importing countries’ terms of trade; a small
nation’s export subsidy _________ importing countries’ terms of trade.
A)
improves; worsens
B)
worsens; improves
C)
improves; improves
D)
improves; does not affect
65.
Suppose that the world price of sugar is $100 per ton. If a large country gives its sugar
exporters a subsidy of $50 per ton, then it will:
A)
enjoy a gain in its total welfare.
B)
have neither a loss nor a gain in its total welfare.
C)
suffer a loss in its total welfare.
D)
have an increase in its consumer surplus only.
66.
Is an export subsidy a good way for a large nation to help a poor nation by exporting
products to them at lower prices?
A)
Yes, and it is a method recommended by the WTO.
B)
It can help in some cases.
C)
No; it creates inefficiency in production and it hurts firms (especially small
farmers) in importing countries who cannot compete with subsidized imports.
D)
Yes; but it can get tricky when the importers demand even more quantity at lower
prices.
67.
Suppose that a large country decides to reduce its agricultural export subsidies by 50%.
Will the country gain or lose?
A)
The country will always gain by reducing its subsidies.
B)
The country will always lose by reducing its subsidies.
C)
The country will gain if the reduction in its deadweight losses exceeds its
terms-of-trade gains.
D)
The country will gain if its terms-of-trade gains exceed the reduction in its
deadweight losses.
Page 26
68.
Export subsidies applied by a large country create ___________for importing countries
in the rest of the world by _________ their import prices.
A)
losses; increasing
B)
gains; increasing
C)
gains; decreasing
D)
losses; decreasing
69.
Are total deadweight losses of an export subsidy of X dollars per unit different when a
large nation and a small nation implement the subsidy?
A)
Yes; total deadweight losses of the subsidy are smaller under the large nation than
under the small nation.
B)
Yes; total deadweight losses of the subsidy are larger under the large nation than
under the small nation.
C)
No; total deadweight losses of the subsidy are the same regardless of the size of the
nation implementing the subsidy.
D)
No; there are no deadweight losses for either nation.
70.
Food aid is a(n):
A)
in-kind gift of food.
B)
benefit concert to support the third world.
C)
type of export subsidy.
D)
type of countervailing duty.
71.
Why does the WTO consider food aid to poor nations to be an “indirect subsidy”?
A)
It always has to be brokered by a third party.
B)
Poor nations have to pay for it in other ways.
C)
It enables firms to increase exports, partially paid for by the government.
D)
It only works with small farmers rather than large agribusiness.
72.
Why do economists disparage food aid and export subsidies for low-income nations?
A)
They really have to pay in other ways.
B)
It always involves middlemen who profit from the transactions.
C)
The aid must be paid for by the governments of the poor nations.
D)
It prevents their own firms from producing the same products because they cannot
compete with foreign low prices; therefore, the most efficient producers are not
sellers of the product.
Page 27
73.
Which country has been the principal supplier of food aid?
A)
Canada
B)
France
C)
Japan
D)
the United States
74.
Because of the harm caused to low-income nations from subsidized exports of food,
high-income nations are looking at other ways to help. The preferred way is:
A)
free food, because this does not involve any payments.
B)
cash, because cash does not distort market prices.
C)
low-interest loans.
D)
technical aid that helps poor nations increase their own production.
75.
Which groups will benefit the most as agricultural subsidies are eliminated under the
Nairobi agreement?
A)
agricultural exporters in smaller nations without subsidy programs because world
food prices will rise
B)
agricultural consumers all over the world because more farmers will find it
profitable to produce
C)
agricultural importing nations, which will be able to import more food
D)
governments of rich nations, which will no longer have to pay the subsidies
76.
Which groups will be harmed the most as a result of the WTO’s elimination of
agricultural subsidies?
A)
agricultural exporters in smaller nations without subsidy programs because world
food prices will rise
B)
agricultural consumers all over the world because prices will be higher
C)
agricultural producers in nations that subsidize their production
D)
governments of rich nations that will have to provide support to farmers who are
hurt
77.
Who will gain as a result of the WTO’s elimination of agricultural export subsidies?
A)
consumers in industrialized countries who import agricultural products
B)
farmers in developing countries who currently do not receive export subsidies
C)
farmers in industrialized countries who currently receive export subsidies
D)
consumers in developing countries who import agricultural products
Page 28
78.
Who will lose as a result of the WTO’s elimination of agricultural export subsidies?
A)
consumers in industrialized countries that export agricultural products
B)
farmers in developing countries who currently do not receive export subsidies
C)
governments of rich nations, which will have to prop up farmers who are hurt
D)
farmers in industrialized countries that export agricultural products
79.
Why do countries subsidize exports when they suffer net welfare losses from these
subsidies?
A)
Exporters receiving the subsidy engage in rent-seeking activities.
B)
Exports generate positive externalities.
C)
Exports provide foreign currency.
D)
Exports provide jobs.
80.
Recently, President Obama requested that the United States change its food-aid program
to require that:
A)
up to 25% of U.S. food aid is used for market-based aid such as cash transfers.
B)
100% of U.S. food aid is used for market-based aid such as cash transfers.
C)
100% of U.S. food aid is used solely for humanitarian purposes.
D)
100% of U.S. food aid consists of subsidized agricultural products.
81.
How does a production subsidy differ from an export subsidy?
A)
It is applied only to production sold within the nation.
B)
It is applied to all production and imports—everything consumed in the nation.
C)
It is a payment from government to all domestic production—not only to units
exported.
D)
It kicks in when the export subsidy runs out.
82.
What is the difference between an agricultural export subsidy and an agricultural
production subsidy?
A)
There is no difference between an agricultural export subsidy and an agricultural
production subsidy.
B)
An agricultural export subsidy applies only to exports, whereas an agricultural
production subsidy applies to domestic production sold at home and in the export
market.
C)
An agricultural export subsidy applies only to production sold in the home market,
whereas an agricultural production subsidy applies to production sold in the export
market.
D)
Both agricultural export subsidies and production subsidies apply to production
sold in the home market and in the export market.
Page 29
83.
The WTO/GATT provides that production subsidies be:
A)
eliminated at all costs.
B)
increased in low-income nations and decreased in high-income nations.
C)
disregarded in making trade decisions.
D)
disclosed to trading partners and reduced to a minimum.
84.
For a small nation employing a production subsidy, domestic producers get a payment
for every good produced, and domestic consumers:
A)
purchase the product at the world price the same as before the subsidy.
B)
pay a higher price for the product.
C)
pay a reduced price for the product.
D)
purchase more of the product.
85.
For a small nation employing a production subsidy, if the consumers face the same price
as before, the additional production generated by the subsidy will be purchased by:
A)
new domestic consumers.
B)
the export sector.
C)
the financial sector.
D)
the government.
86.
When a country provides a subsidy to a home producer, it:
A)
causes the consumer surplus to decline.
B)
causes the producer surplus to decline.
C)
causes government cost to decline.
D)
causes no change in the consumer surplus.
87.
For a small nation, a production subsidy increases exports by:
A)
the same amount as an export subsidy.
B)
less than with an export subsidy.
C)
more than with an export subsidy.
D)
undercutting world price.
88.
Because consumer decisions have not been affected, the production subsidy causes a
_______ net loss than the export subsidy.
A)
somewhat larger
B)
significantly larger
C)
smaller
D)
similar
Page 30
89.
To improve the outcome of helping producers in a small nation, the targeting principle
says to use the technique that:
A)
is least costly.
B)
achieves the objective most directly.
C)
hurts the fewest consumers.
D)
does not involve government intervention.
90.
To improve the outcome of helping producers in a small nation by the targeting
principle, the nation should:
A)
use a production subsidy.
B)
do nothing.
C)
allow the market to work on its own.
D)
use export subsidies.
91.
If a large nation imposes a production subsidy, the production subsidy:
A)
has more impact on world prices than an export subsidy.
B)
increases exports by more than the export subsidy.
C)
has no measurable effect on prices or exports for a large country.
D)
changes world prices by less and increases exports by less than an export subsidy.
92.
An export tariff is:
A)
a tax applied by the country importing the product.
B)
a tax applied by the country exporting the product.
C)
a limitation on the quantity of exports applied by the country exporting the product.
D)
a limitation on the quantity of exports applied by the country importing the
product.
93.
The main purpose of an export tariff is to:
A)
raise revenue for the government.
B)
protect domestic producers competing with the exporter.
C)
increase profits of exporters.
D)
decrease profits of exporters.
94.
In a small country, an export tariff will cause exports to ___________ and domestic
consumption to ________.
A)
rise; fall
B)
rise; rise
C)
fall; rise
D)
fall; fall
Page 31
95.
In a small country, an export tariff will cause a(n) _______ in the domestic price of the
export and _______ in the world price of the export.
A)
increase; a decrease
B)
decrease; a decrease
C)
decrease; no change
D)
increase; no change
96.
Who gains from an export tariff in a small country?
A)
consumers because consumer surplus increases and exporters because they can
increase their prices
B)
exporters because they can increase their prices
C)
the government because it collects tariff revenues and consumers because
consumer surplus increases
D)
exporters because they can increase their prices and the government because it
collects tariff revenues
97.
In a small country, an export tariff will result in:
A)
a consumption deadweight loss but no production deadweight loss.
B)
a production deadweight loss but no consumption deadweight loss.
C)
no production and consumption deadweight losses.
D)
both production and consumption deadweight losses.
98.
How might an export tariff in a large country improve the country’s economic welfare?
A)
The export tariff will always improve the country’s welfare, since there are no
deadweight consumption and production losses.
B)
The export tariff will improve the country’s welfare if terms of trade gains are
larger than deadweight consumption and production losses.
C)
The export tariff will never improve the country’s welfare, since deadweight
consumption and production losses always outweigh terms of trade gains.
D)
The export tariff will improve the country’s welfare if deadweight consumption and
production losses are greater than terms of trade gains.
99.
What will happen to domestic and world prices when a large country imposes an export
tariff?
A)
The world price will increase and the domestic price will decrease.
B)
Both the world price and the domestic price will increase
C)
The world price will decrease and the domestic price will increase.
D)
Both the domestic price and world price will decrease.
Page 32
100.
Compare the effects on world prices for an export tariff in a small country with an
export tariff in a large country.
A)
An export tariff in a small country and an export tariff in a large country both
increase the world price by the amount of the tariff.
B)
An export tariff in a small country does not change the world price, while an export
tariff in a large country increases the world price.
C)
An export tariff in a small country increases the world price, while an export tariff
in a large country has no effect on the world price.
D)
Neither an export tariff in a small country nor an export tariff in a large country has
any effect on the world price.
101.
What is the effect of an export tariff in a large country on the importing country?
A)
The importing country loses, since it pays a higher price for the product.
B)
The importing country gains, since it pays a lower price for the product.
C)
The importing country neither gains nor loses, since the world price does not
change.
D)
The importing country will gain from the terms of trade effect.
102.
Compare the effects on the importing country of an export subsidy with an export tariff
imposed by a large country.
A)
The importing country will gain from both an export subsidy and an export tariff
imposed by a large country.
B)
The importing country will lose from both an export subsidy and an export tariff
imposed by a large country.
C)
The importing country will gain from an export tariff and lose from an export
subsidy imposed by a large country.
D)
The importing country will gain from an export subsidy and lose from an export
tariff imposed by a large country.
103.
An export quota is:
A)
a tax imposed by the exporting country on products exported.
B)
a limit imposed by the exporting country on the amount that its firms are allowed
to export.
C)
a limit imposed by the importing country on the amount that its consumers are
allowed to import.
D)
a limit on exports agreed on by both the exporting and importing country.
Page 33
104.
Which of the following is the most well-known system of export quotas?
A)
export quotas established by the Organization of Iron Ore Exporters (OIOE)
B)
export quotas established by the International Cocoa Cartel (ICC)
C)
export quotas established by the International Bauxite Organization (IBO)
D)
export quotas established by the Organization of Petroleum Exporting Countries
(OPEC)
105.
How will an export quota imposed by a small exporting country affect the world price?
A)
It will cause an increase in the world price.
B)
It will cause a decrease in the world price.
C)
It will not affect the world price.
D)
It will first cause an increase, then a decrease the world price.
106.
How will an export quota imposed by a large exporting country affect the world price?
A)
It will cause an increase in the world price.
B)
It will cause a decrease in the world price.
C)
It will have no effect upon the world price.
D)
It will first cause an increase, then a decrease the world price.
107.
How will an export quota imposed by a large exporting country affect the country’s
domestic price?
A)
It will cause an increase in the domestic price.
B)
It will cause a decrease in the domestic price.
C)
It will have no effect upon the domestic price.
D)
It will first cause an increase, then a decrease in the domestic price.
108.
How will an export quota imposed by a large exporting country affect the total quantity
sold by the country’s firms?
A)
It will cause an increase in the total quantity sold by the country’s firms.
B)
It will cause a decrease in the total quantity sold by the country’s firms.
C)
It will have no effect upon the total quantity sold by the country’s firms.
D)
It will have an indeterminate effect on the total quantity sold by the country’s firms.
109.
How will an export quota imposed by a large exporting country affect the domestic
price?
A)
It will cause an increase in the domestic price.
B)
It will cause a decrease in the domestic price.
C)
It will have no effect upon the domestic price.
D)
It will first cause an increase, then a decrease in the domestic price.
Page 34
110.
How will an export quota imposed by a large exporting country affect the country’s
welfare?
A)
It will cause an increase in the country’s welfare if the terms-of-trade gains exceed
consumption and production deadweight losses.
B)
It will always cause a decrease in the country’s welfare.
C)
It will always cause an increase in the country’s welfare.
D)
It will not change the country’s welfare.
111.
Are domestic consumers better or worse off after a large exporting country imposes an
export quota?
A)
Domestic consumers are better off, since there is a gain in consumer surplus.
B)
Domestic consumers are worse off, since there is a loss of consumer surplus.
C)
Domestic consumers are neither better nor worse off, since gains in consumer
surplus are offset by losses of producer surplus.
D)
Domestic consumers may be better or worse off, depending on the magnitude of
terms of trade gains.
112.
Are domestic firms better or worse off after a large exporting country imposes an export
quota?
A)
Domestic firms are worse off, since there is a loss of producer surplus.
B)
Domestic firms are better off, since producer surplus rises.
C)
Domestic firms are better off, since there is an increase in the rents they earn.
D)
Domestic firms are neither better nor worse off, since their higher export price is
offset by a lower price in the domestic market.
113.
Does GATT allow export quotas?
A)
No; Article XI bans all export quotas.
B)
Yes; Article XI places no restrictions on export quotas.
C)
Yes; Article XI allows export quotas on trade in military equipment.
D)
Yes; Article XI allows temporary export quotas to prevent critical shortages of
foodstuffs or other products essential to the exporting country.
114.
What happened to the world prices of rare earth minerals following China’s imposition
of export quotas of these materials?
A)
They did not change.
B)
They rose dramatically, then fell, as other countries began mining for rare earth
minerals.
C)
They rose gradually until China stopped applying export quotas on these minerals.
D)
They fell.
Page 35
115.
Why did China recently change its export quota policy on exports of rare earth
minerals?
A)
China’s exports of rare earth minerals exceeded the maximum levels under the
quota system.
B)
It found that export tariffs were more successful than export quotas in maintaining
high world prices.
C)
Processing of rare earth minerals leads to low grade radioactive waste by-products.
D)
The policy proved to be of little value to China as many other countries found other
sources for rare earth minerals.
116.
Which policy does the United States use to subsidize high-technology exports?
A)
production subsidies
B)
grants for research and development
C)
export quotas
D)
low-interest loans from the U.S. Export–Import Bank to consumers of
high-technology exports
117.
Which policy does Europe use to subsidize the production of Airbus airplanes?
A)
tax breaks
B)
grants for research and development.
C)
export quotas
D)
import quotas
118.
In the United States, which of the following is a subsidy provided for Boeing?
A)
free utility service to production facilities
B)
tax breaks for Boeing
C)
loans to Boeing’s customers through the Export-Import Bank
D)
loans to Boeing for production assistance
119.
A “strategic” use of high-tech subsidies would involve:
A)
assistance to help firms compete with other domestic firms.
B)
loans or other assistance to make it possible for high-tech firms to take market
share from international competitors.
C)
making sure the firm makes extra profits, so it will be strong and provide jobs.
D)
enforcing anticompetition laws.
Page 36
120.
Which of the following is the most important reason why some countries subsidize
high-tech industries (such as wide-body airplanes)?
A)
Their political influence generates rent-seeking payoffs from their governments.
B)
Their governments believe that high-tech industries should receive infant industry
protection.
C)
Their governments believe that high-tech industries create positive externalities to
other industries.
D)
High-tech industrial imports are often dumped and subject to antidumping duties.
121.
What is the name given to a market in which a home monopoly firm and a foreign
monopoly firm are producing very similar products (such as wide-body airplanes)?
A)
duopoly
B)
dual monopoly
C)
dual monopolistic competitive industry
D)
duopolistic competitive industry
122.
If a government subsidizes a high-tech firm, which, in turn, allows it to increase sales
and profits from international operations by more than the cost of the subsidy:
A)
it will be viewed as a strategic policy success.
B)
we have to discount any success because of the environmental degradation that
always occurs.
C)
there will be a negative effect because the government should not and does not
subsidize to gain international position for private firms.
D)
there could be increased costs in the future.
123.
Economists use game theory to analyze:
A)
different exclusive options whose payoffs depend on the choices and actions of
another entity with the same goals.
B)
how people behave with a limited set of options.
C)
economic decisions by consumers when income rises.
D)
the tax consequences of various investment decisions.
124.
In the text, game theory is used to analyze:
A)
strategic interaction between governments.
B)
strategic interaction between firms.
C)
typical interaction between governments.
D)
strategic interaction between consumers and firms.
Page 37
125.
The grid that organizes the results of various decisions based on what each entity does
under different circumstances is known as the:
A)
meridian grid.
B)
payoff matrix.
C)
choice bundles.
D)
Malthusian dilemma.
126.
Economist John Nash analyzed game theory and came up with a most likely outcome
based on the best net benefit to each party. Such an outcome is called the:
A)
production possibilities matrix.
B)
payoff matrix.
C)
foursquare decision algorithm.
D)
Nash equilibrium.
127.
One way to describe the Nash equilibrium is as a:
A)
best response to the other player’s strategy.
B)
first-mover advantage.
C)
quid pro quo.
D)
unilateral deviation.
128.
In a two-firm industry, a Nash equilibrium occurs whenever:
A)
each firm makes decisions without consideration of the other firm’s actions.
B)
the first firm makes decisions without consideration for the second firm’s actions,
whereas the second firm does consider the first firm’s actions.
C)
the second firm makes decisions without consideration for the first firm’s actions,
whereas the first firm does consider the second firm’s actions.
D)
each firm considers all possible actions by other firms and then chooses the best
strategy.
129.
When deciding whether it is a good idea to subsidize, we must compare the present
value of the net gain in profits with the:
A)
taxes paid by the producers on those profits.
B)
cost of the subsidy.
C)
reduced profits in other nations.
D)
timeliness of making the decision.
Page 38
130.
An important factor to consider when a nation considers subsidies for export promotion
is whether:
A)
the firms will follow through on their plans.
B)
costs will rise or fall.
C)
the subsidy and continued support will force foreign firms out of the market.
D)
the government can afford to do it.
131.
(Figure: Payoff Matrix for Airbus and Boeing) Which of the following options is a Nash
equilibrium in the payoff matrix in the figure below?
A)
Boeing produces and Airbus does not produce.
B)
Boeing does not produce and Airbus produces.
C)
Boeing does not produce and Airbus does not produce.
D)
Either Boeing produces and Airbus does not produce or Boeing does not produce
and Airbus produces.
Page 39
132.
(Scenario: Payoff Matrix for Airbus and Boeing) The payoff matrix supplied shows
outcomes of various strategies that Airbus and Boeing might follow in response to
action on the part of the other company. This payoff matrix describes actions in
developing so-called superjumbo jets that can carry 600 or more passengers. In each
element, the lower-left value gives the outcome for Boeing based on the action of
Airbus and the upper-right value gives the outcome for Airbus based on the action of
Boeing. For example, in element A, each company will lose $10 million if they both
decide to produce superjumbo jets.
Which choices (A, B, C, D) are Nash equilibria?
A)
D and B
B)
A and C
C)
B and D
D)
B and C
Page 40
133.
(Scenario: Payoff Matrix for Airbus and Boeing) The payoff matrix supplied shows
outcomes of various strategies that Airbus and Boeing might follow in response to
action on the part of the other company. This payoff matrix describes actions in
developing so-called superjumbo jets that can carry 600 or more passengers. In each
element, the lower-left value gives the outcome for Boeing based on the action of
Airbus and the upper-right value gives the outcome for Airbus based on the action of
Boeing. For example, in element A, each company will lose $10 million if they both
decide to produce superjumbo jets.
Boeing has decided NOT to produce superjumbo jets. Instead, it will continue to market
its 450-passenger 747s. Which elements represent this decision?
A)
A and B
B)
B and C
C)
C and D
D)
A and D
Page 41
134.
(Scenario: Payoff Matrix for Airbus and Boeing) The payoff matrix supplied shows
outcomes of various strategies that Airbus and Boeing might follow in response to
action on the part of the other company. This payoff matrix describes actions in
developing so-called superjumbo jets that can carry 600 or more passengers. In each
element, the lower-left value gives the outcome for Boeing based on the action of
Airbus and the upper-right value gives the outcome for Airbus based on the action of
Boeing. For example, in element A, each company will lose $10 million if they both
decide to produce superjumbo jets.
Boeing has decided NOT to produce superjumbo jets. Instead, it will continue to market
its 450-passenger 747s. However, Airbus will produce superjumbo jets. Which element
represents both of their decisions?
A)
A
B)
B
C)
C
D)
D
Page 42
135.
(Scenario: Payoff Matrix for Airbus and Boeing) The payoff matrix supplied shows
outcomes of various strategies that Airbus and Boeing might follow in response to
action on the part of the other company. This payoff matrix describes actions in
developing so-called superjumbo jets that can carry 600 or more passengers. In each
element, the lower-left value gives the outcome for Boeing based on the action of
Airbus and the upper-right value gives the outcome for Airbus based on the action of
Boeing. For example, in element A, each company will lose $10 million if they both
decide to produce superjumbo jets.
Boeing has decided NOT to produce superjumbo jets. Instead, it will continue to market
its 450-passenger 747s. However, Airbus will produce superjumbo jets. Is Boeing’s
decision correct?
A)
Yes; because it would lose profits if it produced a superjumbo jet.
B)
No; because it could earn more profits by producing a superjumbo jet.
C)
Yes; because it would neither lose nor earn more profits by producing a
superjumbo jet.
D)
No; because it would lose more profits if it produced a superjumbo jet.
136.
In game theory, it is often uncertain what the other party will do, so there could be more
than one “best” outcome. In that case, the advantage is called:
A)
risk-avoidance advantage.
B)
first-mover advantage.
C)
circular advantage.
D)
parameter testing.
Page 43
137.
(Figure: Payoff Matrix for Airbus and Boeing) One could use game theory to analyze
government subsidies. Using the payoff matrix below, what will each nation do if it is a
50–50 guess what the other side will do?
A)
Europe will subsidize Airbus and the United States will subsidize Boeing.
B)
Europe will not subsidize Airbus and the United States will not subsidize Boeing.
C)
Europe will subsidize Airbus and the United States will not subsidize Boeing.
D)
Europe will not subsidize Airbus and the United States will subsidize Boeing.
Page 44
138.
(Scenario: Payoff Matrix for Airbus and Boeing)
This payoff matrix describes actions in developing so-called superjumbo jets that can
carry 600 or more passengers. In each element, the lower-left value gives the outcome
for Boeing based on the action of Airbus and the upper-right value gives the outcome
for Airbus based on the action of Boeing. For example, in element A, each company
will lose $10 million if they both decide to produce superjumbo jets.
Now suppose that the U.S. government decides to provide a $50 million subsidy to
Boeing to encourage it to produce superjumbo jets. Boeing decides to take the subsidy.
Using the payoff matrix, what is Airbus’s best strategy?
A)
continue to produce superjumbo jets because its profits will not be affected
B)
continue to produce superjumbo jets even though its profits will fall
C)
discontinue producing superjumbo jets because its losses are lower than if it
produced superjumbo jets
D)
discontinue producing superjumbo jets because it would neither lose nor earn more
profits by producing superjumbo jets
Page 45
139.
(Scenario: Payoff Matrix for Airbus and Boeing)
This payoff matrix describes actions in developing so-called superjumbo jets that can
carry 600 or more passengers. In each element, the lower-left value gives the outcome
for Boeing based on the action of Airbus and the upper-right value gives the outcome
for Airbus based on the action of Boeing. For example, in element A, each company
will lose $10 million if they both decide to produce superjumbo jets.
Which element in the payoff matrix describes the best choices of Airbus and Boeing
when Boeing receives a $50 million subsidy?
A)
A
B)
B
C)
C
D)
D
Page 46
140.
(Figure: Payoff Matrix for Airbus and Boeing with a Subsidy) Using the payoff matrix
below, if the European Union provides Airbus a subsidy, Airbus will ______airplanes
and Boeing will _________airplanes.
A)
produce; produce
B)
not produce; produce
C)
produce; not produce
D)
not produce; not produce
141.
Subsidization of aircraft industries in the United States and Europe has become a
competitive situation and very costly because of escalation. Therefore, in 1992:
A)
the United States and the European Union agreed to merge Boeing, Airbus, and
McDonnell-Douglas and share the profits.
B)
the United States and the European Union agreed to limit development subsidies on
aircraft to 33% of the total developmental costs.
C)
the United States refused to budge because of its heavy defense needs.
D)
Airbus needed more help because it is run by a consortium of firms in three
European nations.
142.
Which of the following was a result of the 1992 agreement between the United States
and the European Union to reduce subsidies to their aircraft industries?
A)
lower prices for aircraft
B)
increased benefits in other nations that purchase aircraft
C)
cost increases for the U.S. and European governments
D)
cost savings for Airbus and Boeing
Page 47
143.
Europe’s subsidy for the _______ may have been a profitable strategic move because
Boeing had not planned to produce that type of aircraft.
A)
Bell helicopter
B)
Blackhawk jet
C)
Lear jet
D)
double-decker Airbus 380
144.
The largest passenger jet ever developed is the:
A)
double-decker Airbus 380.
B)
Boeing 787 Dreamliner.
C)
MD400 Sky ship.
D)
Chinese 899 Blue Jet.
145.
Do both Boeing and Airbus produce double-decker superjumbo aircraft?
A)
Yes, both produce double-decker superjumbo aircraft.
B)
No, neither company produces double-decker superjumbo aircraft.
C)
Boeing produces double-decker superjumbo aircraft but Airbus does not.
D)
Airbus produces double-decker superjumbo aircraft but Boeing does not.
146.
Because Boeing did not enter the market for superjumbo aircraft, it is:
A)
possible that Airbus’ profits will be large enough to offset subsidy costs.
B)
unlikely that Airbus’ profits will be large enough to offset subsidy costs.
C)
unlikely that Boeings’ profits on other aircraft will not offset subsidy costs.
D)
possible that Airbus’ profits on other aircraft will offset superjumbo subsidy costs.
147.
In 2014, the European Union filed a dispute at the WTO in which it complained that:
A)
Boeing had not complied with earlier WTO dispute settlements.
B)
the U.S. Export-Import Bank was continuing to subsidize loans on exports of
Boeing aircraft.
C)
the State of Washington enacted legislation that provides tax incentives for civil
aircraft development, manufacturing, and sale.
D)
the U.S. Congress passed legislation providing tax incentives for Boeing’s exports.
148.
When the United States subsidizes Boeing for export, who benefits and who pays the
bill?
A)
Foreign consumers, Boeing workers, and Boeing stockholders benefit; U.S.
taxpayers foot the bill.
B)
Foreign producers benefit; foreign consumers pay the bill.
C)
Domestic consumers benefit; foreign firms pay the bill.
D)
There is only a deadweight loss—everyone wins in this situation.
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149.
What is the difference between a direct and an indirect agricultural export subsidy?
150.
Developing countries are divided over “special safeguards” for agricultural products.
What are safeguards and why are they contentious?
151.
What was agreed during the 2015 Nairobi negotiations on agricultural export subsidies?
152.
Suppose that a large country decides to cut its agricultural export subsidies by 50%.
Will the country gain or lose?
153.
Explain why importing countries benefit from export subsidies given by large nations.
154.
What is the difference between an agricultural export subsidy and an agricultural
production subsidy?
155.
In 2014, the European Union complained to the WTO over allegedly unfair subsidies
provided to Boeing from the State of Washington. What is the nature of these subsidies?
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