Page 1
1.
The WTO is a _____, involving many countries, with an agreement to lower tariffs
between all members.
A)
bilateral trade organization
B)
trilateral trade organization
C)
multilateral trade organization
D)
quasipolitical organization
2.
What is COP21?
A)
an agreement negotiated in Copenhagen that resulted in developed countries
immediately eliminating agricultural export subsidies
B)
an agreement negotiated in Paris in which countries committed to develop plans to
reduce their emissions of greenhouse gases
C)
an agreement negotiated in Kyoto, Japan, in which countries agreed to further
reduce their trade barriers
D)
an agreement negotiated in Doha, Qatar, in which countries agreed to reduce their
agricultural export subsidies
3.
A regional trade agreement involves:
A)
most, if not all, of the nations in the world.
B)
several nations, usually trading partners, with a common agenda or geographically
linked.
C)
nations that agree to trade only with nations in their region.
D)
a region of the world with not only trade issues but also political cohesiveness.
4.
The WTO is considered a _____, whereas NAFTA and the European Union are _____.
A)
free-trade area; cartels
B)
cartel; multilateral agreements
C)
free-trade area; multilateral agreements
D)
multilateral agreement; regional trade agreements
5.
Which of the following is a regional trade agreement currently (2016) under
consideration?
A)
Mercosur—a trade agreement among Argentina, Brazil, and Uruguay
B)
the Transatlantic Trade and Investment Partnership
C)
the North American Free Trade Area
D)
the United States–Japan Free Trade Area
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6.
Most proposed free-trade areas currently under consideration are a response to:
A)
the failure of the Doha Round.
B)
the success of the Kyoto agreement.
C)
the failure of COP21.
D)
the success of NAFTA.
7.
Many regional trade agreements include other provisions that are not part of the treaty,
but they are add-ons that might be important to trade issues. These are called:
A)
addenda.
B)
side agreements.
C)
environmental pacts.
D)
worker rights documents.
8.
What is the “most favored nation” principle of the WTO?
A)
Trading partners may choose a favorite nation to trade with.
B)
Any nation can refuse to trade with another that is not its most favored nation.
C)
The WTO has the right to choose the nation that has performed best within the
WTO guidelines as its most favored nation.
D)
Every nation must grant the same rights and treatment to other nations in the WTO
as its “most favored nation.”
9.
The “most favored nation principle” means that member countries:
A)
can enter into exclusive favorable agreements with some countries.
B)
are barred from forming agreements outside their geographic vicinity.
C)
must apply the same low tariffs to all WTO member countries.
D)
must apply differential tariffs on imports from non-WTO countries.
10.
In a large-country case, an optimal tariff would be one:
A)
that increases the producer surplus.
B)
that raises the price of the product imported.
C)
in which the terms-of-trade gain exceeds the deadweight loss.
D)
that easily passes the legislative process.
11.
In a large-country case, an optimal tariff is one for which the terms-of-trade gain
exceeds the:
A)
producer surplus.
B)
increased price of the product imported.
C)
deadweight loss.
D)
consumer surplus.
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12.
In the large-country case, when a tariff is imposed, the country:
A)
sees a terms-of-trade gain.
B)
is able to increase the world price of the imported good.
C)
is going to experience an increase in consumer surplus.
D)
is going to experience a decrease in producer surplus.
13.
When a large nation imposes a tariff, which of the following is NOT a cost incurred?
A)
deadweight efficiency loss
B)
reduced consumer surplus
C)
deterioration of terms of trade for the trading partners
D)
falling government revenues for the nation imposing the tariff
14.
(Figure: The Home and World Markets) The graphs show the case for a tariff imposed
by a large country. According to these graphs, if the world price of the product is given
as $30, then home market firms will produce _____ and the total demand for the good
will be _____.
A)
40; 100
B)
20; 80
C)
20; 100
D)
40; 80
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15.
(Figure: The Home and World Markets) Using the graphs, the amount imported by the
home market under free trade is:
A)
20.
B)
40.
C)
60.
D)
80.
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16.
(Figure: The Home and World Markets) If a tariff of $10 is imposed by the home
country, it causes a loss in the world market (exclusive of any effects on the home
market) of:
A)
$240.
B)
$160.
C)
$200.
D)
$80.
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17.
(Figure: The Home and World Markets) The loss of consumer surplus in the home
country is:
A)
$480.
B)
$540.
C)
$160.
D)
$600.
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18.
(Figure: The Home and World Markets) The terms-of-trade gain is _____, and the
deadweight loss is _____.
A)
$120; $160
B)
$160; $160
C)
$160; $120
D)
$120; $120
19.
Which of the following is an effect of an international trade agreement that provides an
incentive for nations NOT to impose tariffs?
A)
an increase in world welfare and standard of living
B)
an opportunity for small countries to improve their terms of trade
C)
an opportunity for large countries to improve their terms of trade
D)
an opportunity for low-income nations to receive foreign aid
20.
Suppose that a large country imposes optimal tariffs on imports from another large
country. The second country then responds with optimal tariffs on imports from the first
country. For these two countries, the Nash equilibrium results in _____ for the first
country and _____ for the second country.
A)
losses; losses
B)
gains; gains
C)
losses; gains
D)
gains; losses
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21.
What happens when two countries apply tariffs against each other in an attempt to
capture their terms-of-trade gain?
A)
Both countries lose because the terms-of-trade gain for one country is canceled by
the tariff in the other country.
B)
Both countries gain because the terms-of-trade gain for one country is canceled by
the tariff in the other country.
C)
Neither country gains nor loses because the terms-of-trade gain for one country is
canceled by the tariff in the other country.
D)
The country initially applying the tariff gains because it captures the terms-of-trade
gain; the other country neither gains nor loses.
22.
Using game theory as an analytical tool, if one large nation imposes tariffs, the total cost
is small; however, when several trading partners do the same:
A)
the costs are even smaller.
B)
the costs balance out and there is no harm.
C)
the costs are the same but the potential gains are much smaller.
D)
then all nations gain.
23.
In a prisoner’s dilemma:
A)
all competing parties gain.
B)
one competitor gains at the expense of another.
C)
all competing parties lose.
D)
one competitor loses.
24.
It can be shown that the Nash equilibrium would indicate that without any agreements,
the best outcome for each large nation would be to:
A)
not impose a tariff.
B)
impose a tariff.
C)
find other ways to reward their domestic firms.
D)
impose a consumption tax.
25.
Which is a better outcome for income and standard of living levels for large nations?
A)
no tariffs
B)
low tariffs
C)
high tariffs
D)
equal tariffs for all nations
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26.
A “prisoner’s dilemma” can arise when:
A)
two large countries simultaneously and independently apply tariffs on imports from
each other.
B)
two large countries simultaneously and independently eliminate tariffs on imports
from each other.
C)
one large country eliminates tariffs on imports from another large country.
D)
one small country eliminates tariffs on imports from a large country.
27.
Following the demise of the Doha Round, the WTO changed its agenda to focus on:
A)
trade in services.
B)
patent protection for pharmaceutical drugs.
C)
achievable smaller packages of reforms.
D)
fostering discussions of trade liberalization between free-trade areas.
28.
An example of the WTO’s changed agenda is:
A)
NAFTA.
B)
the Nairobi agreement on agricultural export subsidies.
C)
COP21.
D)
allowing greater use of safeguard provisions of the GATT.
29.
The WTO (under the GATT agreement) provides that nations may enter into regional
trade agreements as long as they:
A)
limit such agreements to one.
B)
extend the provisions to all other nations in the WTO.
C)
do not jointly increase tariffs against outside countries.
D)
make sure they include smaller nations in their regions.
30.
Which principle of the GATT/WTO do regional trade agreements violate?
A)
the principle of first mover
B)
the targeting principle
C)
the most favored nation principle
D)
the principle of comparative advantage
31.
Which of the following is often used to describe regional trade agreements that
discriminate, giving better tariff treatment to other nations in the agreement over outside
nations?
A)
super-regionals
B)
preferential trade agreements
C)
exclusive trade arrangements
D)
equity trade agreements
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32.
In which type of trade agreement does the WTO allow exclusions to the most favored
nation principle?
A)
multilateral trade agreements
B)
free-trade areas and customs unions
C)
multilateral trade agreements and free-trade areas
D)
customs unions and multilateral trade agreements
33.
Of the following, which is NOT a regional trade agreement?
A)
the World Trade Organization
B)
the European Union
C)
the North American Free Trade Agreement
D)
the Central American Free Trade Agreement
34.
Which of the following is part of the NAFTA?
A)
tariff elimination on trade among Canada, Mexico, and the United States
B)
establishment of common tariffs applied to nonmember countries
C)
partnering with the European Union to reduce tariffs
D)
elimination of restrictions on labor mobility among the three countries
35.
A free-trade area is:
A)
a group of countries that agrees there will be “no rules” about trade—anything
goes.
B)
a group of countries that agrees to eliminate customs fees and containerized
shipping charges on goods traded among them.
C)
a group of countries that agrees to eliminate barriers to trade between themselves
while keeping their separate tariffs in place against the rest of the world.
D)
a group of countries that eliminates trade barriers among themselves and
establishes common tariffs against all other nations.
36.
Which of the following statements characterizes NAFTA’s economic arrangements
among its member countries (Canada, Mexico, and the United States)?
A)
There are no restrictions on the movement of labor from one country to another.
B)
There are no restrictions on the movement of capital from one country to another.
C)
All three countries have adopted the same identical tariff system.
D)
There is free trade among the three member countries.
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37.
Which of the following agreements signed in 1989 is the precursor to NAFTA?
A)
the United States–Mexico Free Trade Agreement
B)
the Canada–Mexico Free Trade Agreement
C)
the Canada–United States Free Trade Agreement
D)
the Canada–Mexico–United States Free Trade Agreement
38.
A customs union is:
A)
a group of countries that agrees there will be “no rules” about trade—anything
goes.
B)
a group of countries that agrees to eliminate customs fees and containerized
shipping charges on goods traded among them.
C)
a group of countries agreeing to eliminate barriers to trade among themselves but
keeping tariffs in place against the rest of the world.
D)
a group of countries that eliminates trade barriers among themselves and erects a
common tariff against all other nations.
39.
Which of the following statements about the European Union (EU) is correct?
A)
EU member countries maintain separate tariff schedules.
B)
There is free trade among EU member countries.
C)
All EU member countries use a common currency (the euro).
D)
All EU member countries have eliminated tariffs on imports from non-EU member
countries.
40.
What is the main difference between a customs union and a free-trade area?
A)
There are no restrictions on the movement of labor and capital among customs
union member countries, whereas labor and capital cannot move freely among
free-trade member countries.
B)
Customs union member countries adopt common tariffs against nonmembers,
whereas free-trade area member countries maintain their separate tariff structures
against nonmembers.
C)
There is free trade among customs union member countries but not among
free-trade area member countries.
D)
Customs union member countries have adopted a common currency, whereas
free-trade member countries use their separate national currencies.
41.
A customs union is a trade agreement in which:
A)
member countries are free to set their separate tariffs on other countries.
B)
members agree to set the same tariffs on nonmembers.
C)
resources are free to move between member countries.
D)
member countries have common currency.
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42.
Which of the following regional trade agreements is a free-trade area?
A)
NAFTA
B)
the European Union
C)
Mercosur
D)
NATO
43.
To be able to enforce the rules of a free-trade area, goods from outside the region
imported into the lowest-tariff nation cannot be shipped _____ into another nation in the
area.
A)
with no transportation costs
B)
without a labor certificate
C)
with no customs inspection
D)
duty free
44.
What complex set of free-trade area regulations prohibits nonmember country imports
to a high-tariff member country via a low-tariff member country?
A)
environmental certification
B)
rules of origin
C)
health and safety standards
D)
a codified trade agreement
45.
Automobiles imported from Canada or Mexico must have 60% North American content
to be eligible for tariff elimination under NAFTA rules. This is an example of a(n):
A)
rules of origin requirement.
B)
environmental standard.
C)
health and safety requirement.
D)
preferential trade agreement.
46.
Why is NAFTA a free-trade area requiring rules of origin rather than a customs union?
A)
A free-trade agreement allows politically sensitive tariffs of each nation to remain
unchanged.
B)
A customs union also requires rules of origin.
C)
The overall level of U.S. tariffs was much higher than the overall level of tariffs in
Mexico and Canada.
D)
The overall levels of tariffs in Canada, Mexico, and the United States are similar,
making rules of origin irrelevant.
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47.
In which form of regional trading agreements are rules of origin required?
A)
a free-trade area
B)
a customs union
C)
a common market
D)
an economic union
48.
As of May 2016, Republican and Democratic Presidential candidates:
A)
oppose the Trans-Pacific Partnership (TPP).
B)
are in favor of the Trans-Pacific Partnership (TPP).
C)
have not commented on the Trans-Pacific Partnership (TPP).
D)
are indifferent about the Trans-Pacific Partnership (TPP).
49.
It has been estimated that the Trans-Pacific Partnership (TPP) could increase U.S.
national income by as much as:
A)
$130,000.
B)
$130,000,000.
C)
$130,000,000,000.
D)
$130,000,000,000,000.
50.
It has been estimated that NAFTA increased U.S. GDP by _____ percentage point(s)
relative to what it would have been had NAFTA not existed.
A)
1
B)
10
C)
25
D)
50
51.
Which of the following was NOT a controversial issue in the Trans-Pacific Partnership?
A)
intellectual property protection
B)
labor rights
C)
dispute settlement
D)
a common tariff structure against nonmember countries
52.
Patent protection, especially on pharmaceuticals, was a controversial issue in the
Trans-Pacific Partnership negotiations. The TPP agreement:
A)
establishes patent protection for fewer than the 12 years that pharmaceutical
companies wanted.
B)
establishes patent protection for more than the 12 years that pharmaceutical
companies wanted.
C)
eliminates patent protection for pharmaceuticals.
D)
establishes patent protection for the market lifetime of the pharmaceutical.
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53.
The TPP:
A)
has no provisions regarding labor rights.
B)
has stronger labor rights provisions than those of NAFTA.
C)
has weaker labor rights provisions than those of NAFTA.
D)
will consider labor rights in its next round of negotiations.
54.
Which of the following is NOT part of the TPP agreement on environmental protection?
A)
reduction of subsidies to prevent overfishing
B)
prohibition of trade in endangered species
C)
allowing any member country to arrest smugglers of endangered species
D)
establishment of limitations on greenhouse gas emissions
55.
Which country is expected to be the major loser if the Trans-Pacific Partnership is NOT
approved by member countries?
A)
China
B)
India
C)
the United States
D)
Vietnam
56.
Implementing a regional free-trade agreement may have an effect in which, due to
reduced tariffs, a nation in the agreement begins to import a product it had previously
produced itself. This effect is called:
A)
trade creation.
B)
trade diversion.
C)
reciprocal trade agreements.
D)
the employment effect of FTAs.
57.
Implementing a regional free-trade agreement may have an effect in which, due to
reduced tariffs, a nation begins to import a product from another member country that it
had previously imported from outside the new trade region. This effect is called:
A)
trade creation.
B)
trade diversion.
C)
reciprocal trade agreements.
D)
the employment effect of FTAs.
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58.
When products from a high-cost country within a customs union replace imports from a
low-cost country that is not a member of the union, this is called:
A)
trade creation.
B)
trade diversion.
C)
trade deflection.
D)
trade development.
59.
A customs union will increase the welfare of its members and the rest of the world if:
A)
trade creation is greater than trade diversion.
B)
trade creation is less than trade diversion.
C)
trade creation is positive.
D)
trade diversion is positive.
60.
Suppose country X currently produces widgets. Then it establishes a regional trade
agreement with country Y. Following the formation of the regional trade agreement,
country X no longer produces widgets and now imports widgets from country Y. What
has occurred?
A)
There is trade diversion and a welfare gain for both country X and country Y.
B)
There is trade diversion, a welfare gain for country Y, and a welfare loss for
country X.
C)
There is trade creation and a welfare gain for both country X and country Y.
D)
There is trade creation, a welfare gain for country Y, and a welfare loss for country
X.
61.
Suppose country X currently does not produce widgets. Instead, it imports widgets from
country Z. Then country X establishes a regional trade agreement with country Y.
Following the formation of the regional trade agreement, it imports widgets from
country Y. What has occurred?
A)
There is trade diversion and a welfare loss for country X.
B)
There is trade creation and a welfare loss for country Y.
C)
There is trade diversion and a welfare gain for country X.
D)
There is trade creation and a welfare gain for country Y.
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62.
An example of how trade diversion results in a suboptimal situation is auto parts trade
between Mexico and the United States. After NAFTA:
A)
Mexico decreased its sales of auto parts to the United States.
B)
the United States purchased more auto parts from Mexico because of the
elimination of tariffs and reduced purchases from East Asia, which was the
lowest-cost producer.
C)
the United States brought a complaint against Mexico for low-quality auto parts.
D)
the United States purchased fewer auto parts from Mexico because of the
elimination of tariffs and increased purchases from East Asia, which was the
lowest-cost producer.
63.
(Scenario: Electric Fan Trade) U.S. firms can produce and sell electric fans for $25. The
United States can also import electric fans from China at $19 each and from Canada at
$20 each. Electric fans made in the United States, China, and Canada are identical.
Currently, the United States imposes a 30% tariff on imported electric fans.
Without a regional trade agreement, from which country(ies) will the United States
import fans?
A)
China
B)
Canada
C)
It will import fans from neither China nor Canada.
D)
It will import fans from both China and Canada.
64.
(Scenario: Electric Fan Trade) U.S. firms can produce and sell electric fans for $25. The
United States can also import electric fans from China at $19 each and from Canada at
$20 each. Electric fans made in the United States, China, and Canada are identical.
Currently, the United States imposes a 30% tariff on imported electric fans.
Suppose that the United States forms a free-trade area (NAFTA) with Canada and
Mexico. From which country will the United States import fans?
A)
China
B)
Canada
C)
It will import fans from neither China nor Canada.
D)
It will import fans from both China and Canada.
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65.
(Scenario: Electric Fan Trade) U.S. firms can produce and sell electric fans for $25. The
United States can also import electric fans from China at $19 each and from Canada at
$20 each. Electric fans made in the United States, China, and Canada are identical.
Currently, the United States imposes a 30% tariff on imported electric fans.
For the United States, are there trade diversion losses, trade creation gains, or both as a
result of the formation of NAFTA?
A)
There are only trade diversions losses
B)
There are only trade creation gains.
C)
There are neither trade creation gains nor trade diversion losses.
D)
There are both trade creation gains and trade diversion losses.
66.
(Scenario: Electric Fan Trade) U.S. firms can produce and sell electric fans for $25. The
United States can also import electric fans from China at $19 each and from Canada at
$20 each. Electric fans made in the United States, China, and Canada are identical.
Currently, the United States imposes a 30% tariff on imported electric fans.
Suppose that the United States levied a 10% tariff on imported electric fans (rather than
the 30% tariff described in the scenario). For the United States, would there be trade
diversion losses, trade creation gains, or both as a result of the formation of NAFTA?
A)
There would be only trade diversions losses.
B)
There would be only trade creation gains.
C)
There would be neither trade creation gains nor trade diversion losses.
D)
There would be both trade creation gains and trade diversion losses.
67.
In terms of efficiency, trade diversion is a _____ desirable outcome of a regional
free-trade agreement, because trade is diverted from the _____ producer to the _____
producer.
A)
more; high-cost; low-cost
B)
more; less deserving; more deserving
C)
less; low-cost; high-cost
D)
less; foreign; domestic
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68.
(Table: U.S. Demand for and Supply of Widgets) The United States can import widgets
from China at $4 each and from Mexico at $5 each. The United States imposes a tariff
of $2 on each of its widget imports. How many pairs of widgets will the United States
produce?
A)
8
B)
9
C)
10
D)
11
69.
(Table: U.S. Demand for and Supply of Widgets) The United States can import widgets
from China at $4 each and from Mexico at $5 each. The United States imposes a tariff
of $2 on each of its widget imports.
Suppose that the United States and Mexico form a free-trade area. How much trade in
widgets is created?
A)
0 widgets
B)
2 widgets
C)
4 widgets
D)
6 widgets
70.
(Table: U.S. Demand for and Supply of Widgets) The United States can import widgets
from China at $4 each and from Mexico at $5 each. The United States imposes a tariff
of $2 on each of its widget imports. Suppose that the United States and Mexico form a
free-trade area. How much trade in widgets is diverted in the U.S.–Mexican free-trade
area?
A)
0 widgets
B)
2 widgets
C)
4 widgets
D)
6 widgets
Page 19
71.
(Table: U.S. Demand for and Supply of Widgets) The United States can import widgets
from China at $4 each and from Mexico at $5 each. The United States imposes a tariff
of $2 on each of its widget imports. Is the United States better off or worse off in its
trade in widgets following the free-trade agreement with Mexico?
A)
It is better off because trade creation gains exceed trade diversion losses.
B)
It is worse off because trade diversion losses exceed trade creation gains.
C)
It is worse off because trade creation losses exceed trade diversion gains.
D)
It is better off because trade diversion gains exceed trade creation losses.
72.
(Table: U.S. Demand for and Supply of Widgets) The United States can import widgets
from China at $4 each and from Mexico at $5 each. The United States imposes a tariff
of $2 on each of its widget imports. Suppose instead that the United States negotiated a
free-trade agreement with China. Will the United States be better off or worse off as a
result of its trade in widgets in the free-trade area with China?
A)
It is better off because there are no trade diversion losses.
B)
It is worse off because there are no trade creation gains.
C)
It is worse off because trade creation gains exceed trade diversion losses.
D)
It is better off because trade diversion gains exceed trade creation losses.
73.
If a regional trading agreement causes products from member countries to replace
imports from nonmember countries, then the regional trading agreement will
experience:
A)
economic gains.
B)
trade creation gains.
C)
trade diversion losses.
D)
trade perversion.
74.
If a customs union includes the lowest-cost world producer of a product, then member
countries:
A)
will always be better off in trade with that product.
B)
will always be worse off in trade with that product.
C)
can be better off or worse off depending on the strengths of the trade diversion and
trade creation effects for that product.
D)
will no longer export or import that product.
Page 20
75.
The customs union could lead to losses for the home country if:
A)
another country in the customs union is the most efficient producer.
B)
another country in the customs unions is not the most efficient producer.
C)
there are other countries outside the customs union that are inefficient.
D)
all countries are efficient producers.
76.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. With a free trade price of
$150 per unit, how many units will the United States import?
A)
250
B)
400
C)
500
D)
600
Page 21
77.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. With a free trade price of
$150, how many units EACH will the United States import from Mexico and from
Asia?
A)
250 from Mexico and 600 from Asia
B)
250 from Mexico and 350 from Asia
C)
350 from Mexico and 250 from Asia
D)
300 from each country
Page 22
78.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. Suppose the United States
imposes a tariff of $100; then total imports will be:
A)
600.
B)
250.
C)
400.
D)
500.
Page 23
79.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. With a $100 tariff, the United
States will import _____ units from Mexico and _____ units from China.
A)
400; 100
B)
250; 250
C)
250; 500
D)
400; 200
Page 24
80.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. A $100 tariff by the United
States results in a tariff revenue of:
A)
$25,000.
B)
$5,000.
C)
$50,000.
D)
$2,500.
Page 25
81.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. If the United States forms a
customs union with Mexico, it will result in a(n) _____ in producer surplus of _____
for Mexico.
A)
increase; $25,000
B)
increase; $50,000
C)
increase; $32,500
D)
decrease; $50,000
Page 26
82.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. The combined welfare of the
United States and Mexico is _____ by _____.
A)
lower; $7,500
B)
higher; $10,000
C)
lower; $25,000
D)
higher; $25,000
Page 27
83.
(Figure: U.S. Imports from Mexico and Asia) The graph illustrates a customs union
between the United States and Mexico. The United States does not produce the product
shown in the graph. Imports satisfy its domestic demand (designated by MUS). The
curves Smex and Sasia describe Mexican and Asian supplies. Suppose, after the formation
of the customs union, Mexico invests in productive technology and it shifts the Mexican
supply curve to S*Mex. This will result in a price of _____ and imports of _____.
A)
$250; 500
B)
$250; 400
C)
$150; 600
D)
$150; 500
84.
Trade diversion may be such that the combined welfare of two nations in the agreement
actually _____ because _____ are not completely offset by the _____.
A)
falls; losses of tariff revenue for the importing nation; gain in the exporting nation’s
producer surplus
B)
rises; gains from trade; loss of jobs in the importing industry
C)
rises; gains in tariff revenue; loss of producer surplus
D)
remains the same; losses of tariff revenue; gains from product variety
85.
Trade diversion is one reason that some economists:
A)
believe we should not even bother to promote free trade.
B)
recommend we change our focus from regional trade agreements to the WTO, a
multilateral trade agreement.
C)
recommend we reinstate some tariffs that were actually beneficial to all nations.
D)
think we should exclude low-wage nations from trade agreements.
Page 28
86.
Which of the following statements is FALSE?
A)
Trade creation is always good for countries.
B)
Trade diversion is always good for countries.
C)
Regional trade agreements may cause welfare losses
D)
Regional trade agreements may cause welfare gains.
87.
The negative effects of trade diversion are reduced when:
A)
trade creation more than offsets trade diversion.
B)
consumers in the importing nation have a change in their buying habits.
C)
there is a cost increase in nations outside the region.
D)
the free-trade agreement includes more members.
88.
Because it is difficult to negotiate multilateral trade agreements, some economists argue
that regional trade agreements are always beneficial since they represent a movement
toward freer trade, which is better than no movement at all. Is this argument always
correct?
A)
Yes; any movement toward freer trade is better than no movement at all.
B)
No; some preferential trade agreements may have higher trade diversion costs than
trade creation gains.
C)
Yes; all preferential trade agreements have higher trade creation gains than trade
diversion losses.
D)
No; all preferential trade agreements have higher trade diversion losses than trade
creation gains.
89.
A case study of NAFTA, with regard to the benefits for Canada from U.S. trade, found
that:
A)
Canada was not able to increase its exports due to barriers still remaining.
B)
Canada had modest gains but was harmed by immigration into the United States
from Mexico.
C)
Canada had more trade diversion than trade creation and so was harmed overall.
D)
Canada had more trade creation than trade diversion and so benefited overall.
90.
Professor Daniel Trefler at the University of Toronto concluded that Canada _____ from
free trade with the United States because _____.
A)
gained; trade creation exceeded trade diversion with the United States
B)
lost; trade diversion exceeded trade creation with the United States
C)
first gained, then lost; trade diversion exceeded trade creation after NAFTA was
fully implemented
D)
neither gained nor lost; trade creation equaled its trade diversion with the United
States
Page 29
91.
Which of the following is NOT included in the term “labor standards”?
A)
minimum wages
B)
occupational and safety standards
C)
child labor regulations
D)
all of the above are included in the term “labor standards”
92.
Some economists are skeptical about including labor standards in negotiations to
establish regional trade agreements involving developed and developing countries
because:
A)
they are unenforceable.
B)
they may be a form of “disguised protection” promoted by developed countries.
C)
developing countries, but not developed countries, want stricter enforcement of
labor standards.
D)
they may eliminate comparative advantages that developed countries enjoy.
93.
Why are economists sometimes skeptical about international labor standards?
A)
They are difficult to enforce.
B)
They create more competition for U.S. workers.
C)
GATT does not allow labor standards.
D)
They may be used as a rationale to protect domestic activities that can no longer
compete with imports.
94.
Why do some economists say labor standards are “disguised protection”?
A)
These standards favor nations that already have high labor standards and eliminate
competition from nations who do not.
B)
Nations with low labor standards often disguise the fact.
C)
Focusing on labor standards disguises the fact that shoddy materials are often used
in production.
D)
Often children who should be in school go to work instead, and their participation
is “disguised” as if an adult held the job.
95.
There is a side agreement to _____ that calls for the enforcement of existing worker
rights in _____.
A)
the European Union; the European nations
B)
the World Trade Organization; the less developed nations
C)
NAFTA; the South American nations
D)
NAFTA; Mexico, Canada, and the United States
Page 30
96.
Which of the following statements explains why trading partners are often concerned
about each other’s labor standards?
A)
From a humanitarian perspective, people do not want to buy products if workers
are in oppressive conditions.
B)
Unions realize that low labor standards will result in more costly products that
cannot compete with those produced in countries with high labor standards.
C)
Some nations do not want to establish their own labor standards, and prefer that
standards be set by a foreign country.
D)
Consumers are concerned that higher labor standards will lead to higher prices.
97.
A National Bureau of Economic Research survey found that _____ of a sample of
consumers either cared a lot or cared somewhat about “the condition of workers who
make the clothing they buy.”
A)
only 25%
B)
about 50%
C)
84%
D)
100%
98.
A National Bureau of Economic Research survey found that a sample of consumers
would be willing to pay an additional _____ for an item worth $10 and an additional
_____ for an item worth $100 if they were assured that the item was produced under
good working conditions.
A)
10 cents; $2.80
B)
50 cents; $2.80
C)
$1.00; $15.00
D)
$2.80; $15.00
99.
Surveys of consumers regarding labor standards indicate that they are willing to pay:
A)
a large amount for a large improvement in working conditions.
B)
a small amount for a large improvement in working conditions.
C)
nothing for a large improvement in working conditions.
D)
a small amount for a small decline in working conditions.
100.
A study of consumers’ attitudes toward labor standards for the products they buy
revealed that consumers:
A)
just do not care.
B)
would completely change their buying patterns and want to be 100% sure that
products they buy are made in foreign factories with good working conditions.
C)
would pay a slight premium to ensure good working conditions.
D)
are more concerned about the prices they pay than working conditions overseas.
Page 31
101.
Surveys of consumers indicate that:
A)
they do not care at all about labor standards in other countries.
B)
many are willing to pay at least a small amount more for imports to ensure good
labor standards in other countries.
C)
most are willing to pay a large amount more for imports to ensure good labor
standards in other countries.
D)
they will not buy imports from any country with poor labor standards.
102.
Surveys of consumers regarding labor standards reveal that they:
A)
treat potential losses and potential gains equally.
B)
weigh potential losses more than potential gains.
C)
weigh potential losses less than potential gains.
D)
do not experience losses in gains.
103.
One observation from the National Bureau of Economic Research survey on consumer
attitudes toward labor standards was that consumers have:
A)
a downward-sloping demand curve for labor standards.
B)
an upward-sloping demand curve for labor standards.
C)
a highly inelastic demand for labor standards.
D)
a perfectly elastic demand for labor standards.
104.
What is the role of corporations in promoting labor standards?
A)
Because of pressure from consumers and unions, corporations have begun to
monitor labor conditions in their overseas plants.
B)
Despite pressure from consumers and unions, corporations have no role in
enforcing labor standards in their overseas plants.
C)
Because of pressure from consumers and unions, corporations have enacted laws
for labor standards in many countries.
D)
Corporations now must report labor standards in their overseas plants to their
respective governments.
105.
What action did President Obama and the U.S. government take following the fires in
Bangladeshi garment factories that killed more than 1,000 Bangladeshi workers?
A)
U.S. foreign aid to Bangladesh increased.
B)
The United States suspended its preferential trade treatment on imports from
Bangladesh.
C)
The United States increased its preferential trade treatment on imports from
Bangladesh.
D)
The United States government petitioned the Bangladeshi government to improve
its health and safety standards.
Page 32
106.
Most economists are opposed to the “living wage” concept in foreign labor agreements
because:
A)
it is barely enough for survival.
B)
most workers in low-income nations already earn more.
C)
workers should never earn more than the managers.
D)
it is well above the market wage, and many workers in poor nations would lose the
opportunity to be employed.
107.
Suppose that the U.S. government required firms to pay a living wage to workers in
their subsidiaries or contracting firms in developing countries. As a consequence of this
requirement, wages would likely _____ to the living wage and employment would
likely _____.
A)
rise; increase
B)
fall; increase
C)
rise; decrease
D)
fall; decrease
108.
Walmart has been pursuing improvements in its reputation in response to growing
criticism on environmental, labor, and social issues in its foreign supplier factories.
Among others, which requirement has Walmart imposed on its Chinese suppliers?
A)
They must demonstrate compliance with Chinese environmental laws.
B)
There must be a 100% improvement in energy efficiency at China’s 200 largest
suppliers.
C)
They must increase their wages to the equivalent of the U.S. minimum wage.
D)
It has imposed all of these on its Chinese suppliers.
109.
In what way does the high U.S. tariff (15.3%) on garments imported from Bangladesh
affect Bangladeshi workers?
A)
It lowers profits of the Bangladeshi garment industry, thus making it difficult for
the industry to pay higher wages.
B)
It raises profits of the Bangladeshi garment industry, thus making it easier for the
industry to pay higher wages.
C)
It reduces exports to the United States, thus allowing more Bangladeshi workers to
immigrate to the United States.
D)
It has no effect on Bangladeshi workers.
Page 33
110.
What is the effect of the high (15.3%) U.S. tariff on garments imported from
Bangladesh on the Bangladesh economy?
A)
It has no effect on the Bangladesh economy, since U.S. consumers ultimately pay
the tariff.
B)
It distorts production and prices, equivalent to imposing a tax of $4.61 on every
Bangladeshi citizen.
C)
It improves Bangladesh’s terms of trade with the United States.
D)
It has a very small effect on the Bangladeshi economy, since only 10% of its
exports to the United States are subject to the tariff.
111.
Why did the United States suspend its preferential trade treatment for Bangladesh in
2013?
A)
The United States wanted to collect more tariff revenue on all imports from
Bangladesh.
B)
The United States wanted to punish Bangladesh for its poor labor practices.
C)
The United States wanted to collect more tariff revenue on imports other than
garments from Bangladesh.
D)
The United States wanted to force Bangladesh to join NAFTA.
112.
Which of the following groups favored the suspension of preferential trade treatment for
Bangladesh in 2013?
A)
the U.S. Congress
B)
the Bangladeshi garment industry
C)
U.S labor leaders
D)
U.S. consumers
113.
With respect to environmental issues, the GATT:
A)
does not allow countries to adopt environmental laws that affect imports.
B)
allows countries to adopt environmental laws that affect domestic production but
not imports.
C)
allows countries to adopt environmental laws that are applied uniformly against
domestic producers and imports.
D)
allows countries to adopt more stringent laws affecting imports than domestic
producers.
Page 34
114.
There is some misunderstanding of the WTO’s provisions for environmental protection
in trade. The WTO actually:
A)
allows nations to bar all imports from nations that do not conform to their own
standards.
B)
provides that nations may enforce any standards for particular products as long as
the standards apply equally to domestic producers and importers.
C)
does not make any pretense of caring at all about the environment.
D)
is very inconsistent in its rulings.
115.
Do the provisions of the GATT and WTO permit countries to apply their own
environmental regulations against imports?
A)
No; environmental regulations applying to domestic production and imports need
to be negotiated internationally under treaties such as the Kyoto Protocol.
B)
No; environmental regulations applying only to imports need to be negotiated
internationally under treaties such as the Kyoto Agreement.
C)
Yes; and countries may require stricter environmental regulations for imports than
for domestic production.
D)
Yes; as long as environmental regulations apply uniformly to domestic production
and imports.
116.
The tuna–dolphin dispute was ruled by the WTO in favor of nations that _____. The
ruling said that trading partners _____ bar imports based on _____.
A)
exported tuna to the United States and Europe; could not; a production process,
such as the size of the nets used
B)
imported tuna; could; the production process, such as the size of the nets used
C)
cared about wildlife in the seas; could; concerns over the safety of dolphins
D)
produced seafood products; could not; the way the products were used, such as in
pet food
117.
The ruling in the shrimp–turtle case resulted in:
A)
the United States being able to ban shrimp caught with nets unsafe for sea turtles.
B)
the WTO upholding the environmental standard but ruling against the United
States on technical grounds that it did not provide sufficient notice to the exporting
countries.
C)
the WTO refusing to hear the case.
D)
a ruling that upheld the environmental standard.
Page 35
118.
The WTO also ruled on the U.S. restriction of gasoline imports from Venezuela and
Brazil in 1994 on environmental grounds. What was the outcome?
A)
The United States could ban those imports because they violated the U.S. Clean
Air Act.
B)
They could not ban the imports because they had not given Venezuela and Brazil a
grace period as they had given their own U.S. companies.
C)
The United States could not use “environmental protection” as an excuse for every
trade dispute that came along.
D)
The United States could bring counter-charges against Venezuela and Brazil on the
banana issue.
119.
Europe had refused to import genetically modified food products. The WTO ruled that:
A)
if Europe was afraid of these products, it could put an import ban on them.
B)
Europe needed to base its ban on scientific risk assessments rather than fear about
something unproven.
C)
Europe could declare a moratorium until an investigation could be undertaken.
D)
the products could be treated and then they would be safe.
120.
WTO rulings with respect to environmental issues have:
A)
generally had very adverse effects on the environment.
B)
generally increased regard for environmental protection.
C)
caused substantial decreases in international trade.
D)
caused countries to adopt more stringent laws more affecting imports than
domestic producers.
121.
When does an externality occur?
A)
when one person’s production or consumption of a good affects another person
B)
when a producer’s long-run average costs fall
C)
when a consumer’s marginal utility from consuming a good increases
D)
when international trade leads to improvement in a country’s economic welfare
122.
Which of the following is an example of a negative externality?
A)
The discovery of one firm is freely copied by other firms.
B)
A firm dumps its industrial wastes into a nearby river.
C)
The government subsidizes research and development expenditures.
D)
A consumer buys more units of a product than she can consume.
Page 36
123.
Suppose that production of steel in the United States involves negative externalities.
Now suppose that U.S. tariffs on steel imports are eliminated and U.S. imports of steel
increase. What effect does the elimination of these tariffs have on total social costs
associated with steel production in the United States?
A)
Total social costs will increase.
B)
Total social costs will not change.
C)
Total social costs will decrease.
D)
Total social costs will increase but may be smaller than the private gains from
increased steel imports.
124.
Suppose that there is a negative externality associated with alcohol consumption in the
United States (e.g., the costs of publicly funded alcoholism treatment centers). What
does this negative consumption externality imply about the relationship between the
demand curve for alcohol and the social marginal benefit (SMB) curve for alcohol?
A)
The demand curve and the SMB curve for alcohol are identical.
B)
The demand curve lies below the SMB curve for alcohol.
C)
The demand curve lies above the SMB curve for alcohol.
D)
The demand curve intersects the SMB curve at the market equilibrium price.
125.
Suppose that there is a negative externality associated with alcohol consumption in the
United States (e.g., the costs of publicly funded alcoholism treatment centers). What
will happen to the social costs of this externality if the United States eliminates all
tariffs on alcohol imports?
A)
The social coasts will increase.
B)
Total social costs will not change.
C)
Total social costs will decrease.
D)
The social costs will increase but be offset by the private losses associated with
increased imports as the tariffs are eliminated.
126.
Suppose that there is a negative externality associated with alcohol consumption in the
United States (e.g., the costs of publicly funded alcoholism treatment centers). Will the
United States be better or worse off if it eliminates all tariffs on alcohol imports?
A)
The United States will always be better off when tariffs on imported alcohol are
eliminated.
B)
The United States will always be worse off when tariffs on imported alcohol are
eliminated.
C)
The United States will be no better or worse off when tariffs on imported alcohol
are eliminated.
D)
The United States will be better off only if the private gains from trade exceed the
increased social costs of alcohol consumption when tariffs on imported alcohol are
eliminated.
Page 37
127.
U.S. tire production involves large social costs from air pollution. How will stronger
U.S. environmental regulations requiring firms to reduce their air pollutants affect U.S.
tire imports?
A)
Stronger U.S. environmental regulations will cause increases in U.S. tire imports.
B)
Stronger U.S. environmental regulations will cause decreases in U.S. tire imports.
C)
Stronger U.S. environmental regulations will neither cause increases nor decreases
in U.S. tire imports
D)
Stronger U.S. environmental regulations will cause decreases in U.S. tire imports
but not reduce tire producers’ emissions of air pollutants.
128.
U.S. tire production involves large social costs from air pollution. How will stronger
U.S. environmental regulations requiring firms to reduce their air pollutants affect U.S.
tire production?
A)
Stronger U.S. environmental regulations will cause increases in U.S. tire
production.
B)
Stronger U.S. environmental regulations will cause decreases in U.S. tire
production.
C)
Stronger U.S. environmental regulations will neither cause increases nor decreases
in U.S. tire production.
D)
Stronger U.S. environmental regulations will cause decreases in U.S. tire
production but not reduce tire producers’ emissions of air pollutants.
129.
Because of the relationship among ethanol production, sugar, and corn, the authors of
your text have concluded that:
A)
the corn subsidy is a big problem for ethanol exports.
B)
the sugar quota makes sugar so cheap in the United States that ethanol producers
are using it instead of corn.
C)
because of the sugar quota and its high price, there is a huge demand for
less-environmentally-friendly corn as a substitute in food products and for ethanol.
D)
there should be more intra-industry trade in ethanol.
Page 38
130.
Why does the United States both import and export ethanol?
A)
U.S. regulations require U.S. fuel companies to use both ethanol made from corn
and ethanol made from other sources (such as sugar), which has led to a surplus of
corn ethanol that is exported to Brazil in return for sugar ethanol.
B)
U.S. regulations require U.S. fuel companies to use only ethanol made from sugar,
which has led to a surplus of corn ethanol that is exported to Brazil, and a need for
sugar ethanol, which is imported from Brazil.
C)
Brazilian regulations require its fuel companies to use both ethanol made from corn
and ethanol made from sugar, which has led to a surplus of sugar ethanol that is
exported, and a need for corn ethanol, which is imported from the United States.
D)
Brazilian regulations require its fuel companies to use only ethanol made from
corn, which has led to a surplus of sugar ethanol that is exported, and a need for
corn ethanol, which is imported from the United States.
131.
Suppose that the United States allowed its domestic fuel producers to use ethanol made
from any source (corn or sugar). What is likely to happen to U.S. production of corn
ethanol and U.S. imports of sugar ethanol?
A)
U.S. production of corn ethanol would increase, and U.S. imports of sugar ethanol
would decrease.
B)
U.S. production of corn ethanol would decrease, and U.S. imports of sugar ethanol
would decrease.
C)
U.S. production of corn ethanol would decrease, and U.S. imports of sugar ethanol
would increase.
D)
U.S. production of corn ethanol would increase, and U.S. imports of sugar ethanol
would increase.
132.
The VER between the United States and Japan was shown to _____ gas consumption,
_____ the use of energy, and _____ gas mileage from automobiles.
A)
increase; increase; decrease
B)
decrease; decrease; increase
C)
increase; decrease; decrease
D)
decrease; increase; increase
133.
The tragedy of the commons refers to the idea that:
A)
trade inherently results in losses.
B)
common property often results in an abuse of the property, such as overfishing.
C)
trade restrictions can be useful.
D)
common property is always beneficial for people.
Page 39
134.
The tragedy of the commons refers to:
A)
the plight of the common people, who are doomed to low-paying jobs and
discrimination.
B)
the fact that private resources are becoming scarce.
C)
the idea that common tariffs end up harming global welfare.
D)
the idea that when everyone has free access to a resource, it will be overused and
depleted.
135.
The fundamental cause of the tragedy of the commons is:
A)
international trade.
B)
lack of defined property rights.
C)
ignorance.
D)
tariffs.
136.
The phenomenon known as the tragedy of the commons occurs whenever:
A)
the private sector owns resources and manages them tragically.
B)
the government owns resources and manages them tragically.
C)
there is no ownership of resources, so they become depleted due to lack of
management.
D)
two countries own the same resource and cannot agree on its management.
137.
Which of the following is an example of the tragedy of the commons?
A)
overproduction of Saudi Arabian crude oil
B)
overregulation of the U.S. steel industry
C)
overharvesting of many species of fish
D)
U.S. farm subsidies
138.
An example of the tragedy of the commons is:
A)
no worldwide fuel economy standard.
B)
overfishing in international waters.
C)
unsafe fishing practices that trap dolphins and sea turtles.
D)
illegal copyright infringement.
139.
The story about the mass slaughter of buffalo in the United States is an example of:
A)
the first-mover principle.
B)
the principle of comparative advantage.
C)
the tragedy of the commons.
D)
export subsidies.
Page 40
140.
Overharvesting of fish in international waters an example of what economic concept?
A)
a production externality
B)
a consumption externality
C)
marginal social benefits exceeding marginal private benefits
D)
private marginal costs exceeding marginal social costs
141.
Which of the following is associated with increased use of solar panels?
A)
negative production externalities
B)
positive production externalities
C)
negative consumption externalities
D)
positive consumption externalities
142.
What would happen to U.S. economic welfare if the U.S. eliminated tariffs on solar
panel imports?
A)
U.S. economic welfare would increase because of the social gains from increased
U.S. consumption of solar panels.
B)
U.S. economic welfare would decrease because the social gains from increased
U.S. consumption of solar panels would be less than the social costs inflicted on
U.S. solar panel producers.
C)
U.S. economic welfare would decrease because the social gains from increased
U.S. production of solar panels would be less than the social costs associated with
increased U.S. consumption of solar panels.
D)
U.S. economic welfare would increase because the social gains from increased
U.S. production of solar panels would exceed the social costs associated with
increased U.S. consumption of solar panels.
143.
Why do the United States and the European Union governments apply tariffs to solar
panel imports, even though solar panels generate positive consumption externalities?
A)
They believe that imported solar panels’ negative consumption externalities
outweigh their positive consumption externalities.
B)
They believe that domestic production of solar panels generates negative
production externalities that outweigh the positive consumption externalities from
imports.
C)
They believe that domestic production of solar panels generates positive production
externalities that outweigh the positive consumption externalities of imports.
D)
They believe that imported solar panels’ negative production externalities outweigh
their positive consumption externalities.
Page 41
144.
What type of spillovers do the United States and the European Union governments
believe are associated with their domestic solar panel production?
A)
consumption spillovers
B)
heating spillovers
C)
electricity spillovers
D)
knowledge spillovers
145.
What is a major cause of negative production externalities associated with the mining
and processing of rare earth minerals?
A)
Processing of rare earth minerals generates radioactive wastes.
B)
Rare earth mining is often done in less-developed countries.
C)
Processing of rare earth minerals is very costly in countries that possess rare earth
mineral deposits.
D)
Processing of rare earth minerals generates air pollutants.
146.
A prisoner’s dilemma exists for global pollutants because:
A)
countries do not face the full cost of pollution that they generate.
B)
countries that regulate pollution gain more than countries that do not regulate
pollution.
C)
countries that regulate pollution lose more than countries that do not regulate
pollution.
D)
no country follows international agreements to limit pollution.
147.
Regarding pollution, a Nash equilibrium occurs where:
A)
neither country regulates pollution.
B)
Home regulates pollution but Foreign does not.
C)
Foreign regulates pollution but Home does not.
D)
both countries regulate pollution.
148.
In the case of global pollution, a nation that pollutes gets benefit from production but:
A)
has to pay for it in terms of dirty air and water.
B)
never receives any negative consequences.
C)
cannot control the amount of pollution by private firms.
D)
will not suffer the full costs of its own pollution and so has little incentive to
control it.
Page 42
149.
(Scenario: Payoff Matrix) The payoff matrix shows outcomes of various strategies that a
home and foreign country can follow to decide to regulate or not regulate pollution. The
columns give Foreign’s actions, and the rows give Home’s actions. The values in the
upper right-hand corner of each element give Foreign’s net benefits; the values in the
lower left-hand corner of each element give Home’s net benefits. Net benefits are the
environmental benefits from regulation minus the costs associated with installing
pollution control equipment.
How can you tell that the governments of each country favor producer profits over
consumer well-being when net benefits are calculated?
A)
A country’s net benefits are higher when the other country regulates pollution.
B)
A country’s net benefits are lower when the other country regulates pollution.
C)
A country’s net benefits are lower when it regulates pollution than when it does not.
D)
A country’s net benefits are higher when it regulates pollution than when it does
not.
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150.
(Scenario: Payoff Matrix) The payoff matrix shows outcomes of various strategies that a
home and foreign country can follow to decide to regulate or not regulate pollution. The
columns give Foreign’s actions, and the rows give Home’s actions. The values in the
upper right-hand corner of each element give Foreign’s net benefits; the values in the
lower left-hand corner of each element give Home’s net benefits. Net benefits are the
environmental benefits from regulation minus the costs associated with installing
pollution control equipment.
What is likely to happen if there are no international agreements to limit pollution?
A)
Foreign will regulate pollution but Home will not.
B)
Home will regulate pollution but Foreign will not.
C)
Neither country will regulate pollution.
D)
Both countries will regulate pollution.
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151.
(Scenario: Payoff Matrix) The payoff matrix shows outcomes of various strategies that a
home and foreign country can follow to decide to regulate or not regulate pollution. The
columns give Foreign’s actions, and the rows give Home’s actions. The values in the
upper right-hand corner of each element give Foreign’s net benefits; the values in the
lower left-hand corner of each element give Home’s net benefits. Net benefits are the
environmental benefits from regulation minus the costs associated with installing
pollution control equipment.
Which of the following elements represents a Nash equilibrium?
A)
A
B)
B
C)
C
D)
D
152.
In the case of global pollution, the Nash equilibrium shows that if one nation does not
regulate its pollution, other nations:
A)
will have to regulate even more strictly.
B)
will not regulate either because of international price competition.
C)
will regulate but will bring charges in the WTO against the other.
D)
will regulate, so they will not harm their own citizens.
153.
In a situation where there is no incentive to cut pollution because it will make domestic
firms less competitive, world welfare will improve if:
A)
nations impose tariffs on polluters.
B)
there is an international agreement so that every nation regulates global pollutants
and no firms have competitive advantages because of lax pollution laws.
C)
there is a ban on production until we can scientifically solve our pollution
problems.
D)
we allow the market to work in this case.
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154.
What is the Kyoto Protocol?
A)
It is a treaty on abolishing child labor and forced labor camps.
B)
It is a guideline for using “force” when interrogating prisoners.
C)
It is based on the 1992 UN climate treaty that set specific air pollution reduction
targets for each nation.
D)
It is a set of rules for shipping dangerous chemicals to avoid harm and to lower the
risk of a terrorist attack.
155.
Did the United States ratify the Kyoto Protocol?
A)
Yes; but it has failed to meet targets for a number of years.
B)
No; the United States had promised to sign on January 1, 2008, but never did.
C)
Yes; and it has met its target each year.
D)
No; the United States believed the targets were impossible to meet without great
harm to the industrial base.
156.
Which of the following was NOT an issue that the United States had with the Kyoto
Protocol?
A)
Some major U.S. trading partners (China and India) were exempt from the
provisions—not fair!
B)
Europe’s targets were set ridiculously low.
C)
Although the evidence on global warming is strong, we still do not understand all
the consequences of policy actions.
D)
The United States is the largest emitter of greenhouse gases and meeting Kyoto
targets would adversely affect its economy.
157.
Which of the following is NOT a reason why the United States did NOT sign the Kyoto
Protocol?
A)
Although the evidence toward global warming is strong, we still do not understand
all the consequences of policy actions.
B)
Meeting the Kyoto targets would negatively affect the U.S. economy.
C)
Kyoto failed to include the developing countries, especially China and India.
D)
There was not enough cash incentive being provided to the United States to sign
the protocol.
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158.
Which of the following was an important reason why the United States did NOT sign
the Kyoto Protocol?
A)
It believed that exemptions for some of its major developing-country trading
partners (such as China and India) were unfair.
B)
It believed that Europe’s targets were set ridiculously low.
C)
It believed that pollution does not cause global warming.
D)
It believed that targets for some of its major developing-country trading partners
(such as China and India) were too low.
159.
Which of the following is one of the two important sources of the significant drop in
U.S. emissions of CO2 between 2007 and 2012?
A)
U.S. gasoline prices rose considerably over the period.
B)
The Great Recession of 2009–13 slowed economic growth, which slowed CO2
emissions.
C)
U.S. manufacturing activity grew over the period despite slower economic growth.
D)
The high price of natural gas slowed the substitution of natural gas for coal used in
generating electricity.
160.
What is fracking?
A)
Fracking is a new technology that reduces the costs of coal mining.
B)
Fracking is a new technology that reduces the costs of extracting water from
underground reservoirs.
C)
Fracking is a new technology used to release natural gas and oil from underground
fissures.
D)
Fracking is a new technology that reduces the costs of mining rare earth minerals.
161.
Why didn’t the U.S. Congress vote to endorse the COP21 Paris Agreement?
A)
No vote was necessary since the language of COP21 made it an extension of the
1992 United Nations treaty on climate change.
B)
Following the advice of environmental experts, President Obama declined to ask
for Congressional approval.
C)
The Congressional Republican leaders made it clear that they would not vote to
endorse the agreement.
D)
It actually was a European Union agreement that did not need U.S. approval.
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162.
Which of the following was NOT a key feature of the COP21 Paris Agreement?
A)
Wealthy nations pledged $100 billion a year to help developing countries adopt
new technologies to reduce carbon emissions.
B)
Governments pledged to limit increases in Earth’s average temperature to 2 degrees
centigrade.
C)
Governments agreed to re-visit their emission-reduction plans every five years.
D)
Developing countries (such as China and India) were not required to reduce
emissions.
163.
The authors conclude that the WTO:
A)
has become less willing to consider environmental issues in its dispute settlement
rulings.
B)
has become more stringent in its approval of regional trade arrangements.
C)
has become more willing to consider labor standards in its dispute settlement
rulings.
D)
has become more willing to consider environmental issues in its dispute settlement
rulings.
164.
Two large countries are thinking of imposing a tariff on the same good.
I. What is the best possible outcome for these two large countries?
II. Is the best outcome a Nash equilibrium?
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165.
Suppose that the following graph gives the U.S. supply (S) of and demand (D) for auto
parts (say steering wheels). U.S. automakers can also import steering wheels from
Mexico at $50 each and from Japan at $40 each. Currently, there is a 60% tariff on
imported steering wheels.
I. How many steering wheels will the United States import?
II. How much tariff revenue will the U.S. government collect?
III. Suppose that the United States and Mexico become part of NAFTA and there is
free trade between the two countries. Now how many steering wheels will the United
States import?
IV. Calculate the trade creation gains from free trade in steering wheels with Mexico.
V. Calculate the trade diversion losses from free trade in steering wheels with Mexico.
VI. Does the United States gain or lose as a result of free trade in steering wheels with
Mexico?
166.
Why do some economists prefer multilateral trade agreements over regional trade
agreements?
167.
Suppose that the U.S. government required U.S. firms to pay a “living wage” to workers
in its subsidiaries or contracting firms in developing countries.
I. What are the likely consequences of this requirement?
II. How would one determine a living wage?
Page 49
168.
The United States imposes a high (15.3%) tariff on garments imported from
Bangladesh.
I. What is the effect of the high (15.3%) U.S. tariff on garments imported from
Bangladesh on the Bangladesh economy?
II. In what way does this tariff affect Bangladeshi workers?
169.
Discuss the major features of the COP21 Paris Agreement.
170.
Democratic and Republican candidates in the 2016 U.S. Presidential election have
voiced opposition to the Trans-Pacific Partnership. What concerns have they and others
in the United States raised over TPP?
171.
Have the GATT-WTO rulings on environmental cases adversely affected the U.S.
environment?
172.
The U.S. sugar quota sometimes causes the U.S. domestic price of sugar to be twice as
high as the world price. How does the sugar quota affect the U.S. price of corn and the
U.S. environment?
173.
I. Why does the United States both import and export ethanol?
II. Suppose that the United States allowed domestic fuel producers to use ethanol made
from any source (i.e., corn or sugar). What is likely to happen to U.S. production of corn
ethanol and U.S. imports of sugar ethanol?
174.
Why do the U.S. and European Union governments apply tariffs to solar panel imports,
even though solar panels generate positive consumption externalities?
Page 50
175.
The following payoff matrix shows outcomes of various strategies that the countries of
Home and Foreign can follow to decide to regulate or not regulate pollution. The
columns show Foreign’s actions, and the rows show Home’s actions. The values in the
upper right-hand corner of each element give Foreign’s net benefits; the values in the
lower left-hand corner of each element give Home’s net benefits. Net benefits are the
environmental benefits from regulation minus the costs associated with installing
pollution control equipment.
I. Using the payoff matrix, what is likely to happen if there are no international
agreements to limit pollution?
II. In the payoff matrix, which element represents a Nash equilibrium?
III. Why is the element you selected in II a Nash equilibrium?
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