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Chapter 19: International Trade
c.
h
d.
f, g, and h
e.
a, b, c, d, and e
111. The following graph shows the demand for and the supply of a good in a country. If the world price of the good is
$2.00 per unit and an import quota of 50 units per month is imposed, the welfare loss resulting from higher domestic
production costs is represented by the area _____.
Figure 19.6
a.
a
b.
b
c.
c and d
d.
g and h
e.
e
112. The following graph shows the demand for and domestic supply of a good in a country. If the world price of the good
is $2.00 per unit and an import quota of 50 units per month is imposed, then the gain of the foreign exporters with quota
rights is represented by the area _____.
Figure 19.6
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Chapter 19: International Trade
a.
h
b.
i
c.
g
d.
a and b
e.
c and d
113. Which of the following is not correct about quotas?
a.
The imposition of quotas rewards domestic producers with higher prices.
b.
The imposition of quotas creates opportunities for lobbyists to seek the perpetuation of quotas.
c.
Quotas on steel, textiles and apparel, and sugar have been in effect for several decades.
d.
Lobbying efforts by domestic producers and foreign exporters are vigorously fought by domestic consumers.
e.
The auctioning off of quotas to foreign producers would increase federal revenue.
114. The difference between the effects of an import quota and a tariff is that:
a.
only the tariff results in a higher domestic price.
b.
only the quota decreases the amount of goods imported.
c.
the decrease in producer surplus is smaller with the quota.
d.
under a quota, part of the decrease in consumer surplus is redistributed to foreign producers; under a tariff, it is
redistributed to the domestic government.
e.
under a tariff, part of the decrease in consumer surplus is redistributed to foreign producers; under a quota, it is
redistributed to the domestic government.
115. If quota rights accrue to foreigners, then _____.
a.
the domestic economy is better off with a quota than with a tariff
b.
the domestic economy is worse off with a quota than with a tariff
c.
consumer surplus and economic welfare increase
d.
production costs decrease
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Chapter 19: International Trade
e.
part of the decrease in consumer surplus is redistributed to the domestic government
116. Suppose the government of an importing country is considering imposing either a tariff that would result in imports
falling to 1 million units per year or an import quota of 1 million units per year.Which of the following would be true in
such a case?
a.
The U.S. consumers would lose more consumer surplus in the case of tariffs than quotas.
b.
The U.S. producers would gain more in the case of quotas than tariffs.
c.
The change in quantity demanded would be greater in the case of tariffs than quotas.
d.
The tariff revenue would go to U.S. government; quota benefits may go to foreign producers.
e.
The U.S. export market would shrink more in the case of quotas than tariffs.
117. Which of the following is true of an export subsidy?
a.
It increases the net welfare in an economy and accelerates economic progress.
b.
It slows economic progress and reduces the net welfare in an economy.
c.
It gives rise to unsustainable government deficits.
d.
It promotes free international trade.
e.
It specifies that a certain portion of a final good must be produced domestically.
118. Which of the following is not a type of trade restriction?
a.
Low-interest loans to foreign buyers
b.
Export subsidies to domestic producers
c.
Restrictive health and safety standards
d.
Domestic content requirements
e.
Economies of scale
119. Which of the following is a type of trade restriction?
a.
Diseconomies of scale
b.
Autarky
c.
Diminishing marginal returns
d.
Health, safety, or technical standards
e.
Import concession
120. The international treaty established to negotiate lower trade restrictions is known as the:
a.
World Bank Act.
b.
General Agreement on Tariffs and Trade (GATT).
c.
International Association for Free Trade (IAFT).
d.
Countries United for Free Trade (CUFT).
e.
International Development Fund.
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121. The establishment of GATT resulted in:
a.
lower tariff rates.
b.
an increase in the net welfare loss of economies.
c.
a decrease in the total world trade.
d.
increased protectionism.
e.
a rise in the price of imports.
122. The General Agreement on Tariffs and Trade (GATT) was established in:
a.
1870 to protect U.S. industries and decrease world trade.
b.
1921 to manage legal and accounting requirements for U.S. tariffs and quotas.
c.
1947 by 23 countries to reduce trade restrictions.
d.
1973 to increase trade restrictions, after OPEC significantly raised oil prices.
e.
1990 to develop a free trade zone across 50 states.
123. The World Trade Organization (WTO):
a.
became, in 1995, the institutionalized and more comprehensive successor to the General Agreement on Tariffs
and Trade (GATT).
b.
was established in 1947 by 23 member countries to reduce trade restrictions.
c.
was established in 1980 to oppose and counteract the policies of the General Agreement on Tariffs and Trade
(GATT).
d.
meets in different countries every few years to analyze each country's trade policies and restrictions.
e.
was based on an international treaty that expired in 1990.
124. The World Trade Organization (WTO):
a.
members are required to eliminate only quotas.
b.
supervises trade in merchandise and in services.
c.
exists primarily in Russia, Africa, and South America.
d.
members are required to eliminate ad valorem tariffs but not specific tariffs.
e.
includes all nations with populations greater than 10 million, with the exception of North Korea and Cuba.
125. A World Trade Organization (WTO) member country must offer to all other member countries:
a.
common market guarantees.
b.
the same trade concessions.
c.
the same basket of commodities.
d.
import substitutions.
e.
the same resources with equal efficiency.
126. Which of the following is a difference between the General Agreement on Tariffs and Trade (GATT) and the World
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Trade Organization (WTO)?
a.
GATT was involved only in merchandise trade, while the WTO covers services and trade-related aspects of
intellectual property.
b.
GATT was involved in settling disputes in a fast way, while the WTO relies on voluntary cooperation.
c.
GATT was developed to support Mexico’s efforts to become more market oriented, while the WTO aims to
launch new provisions against dumping.
d.
GATT resolved more trade disputes in its first decade, while the WTO is susceptible to blockage.
e.
GATT was the institutional foundation for world trade, while WTO is a multilateral agreement with no
institutional foundation.
127. Regional trading bloc agreements:
a.
are not considered trade restrictions.
b.
are required by World Trade Organization rules.
c.
exist primarily in Russia, Africa, and South America.
d.
require all nations in a specified region to trade only with other countries in the same geographic area.
e.
make special trade deals between countries in that region and discriminate against countries outside the region.
128. Which of the following statements is true of free trade zones?
a.
Central American countries and the Dominican Republic (CAFTA-DR) is a free trade agreement between the
U.S. and Europe that has resulted in greater exports of U.S. beef to Europe.
b.
North American Free Trade Agreement (NAFTA) is a free trade agreement between the U.S., Canada, and
Mexico that has reduced illegal migration of Mexicans to the U.S.
c.
Association of Southeast Asian nations (ASEAN) is a free trade agreement between the U.S. and a group of
South Asian countries that has led to an increase in U.S. outsourcing to countries like India.
d.
Mercosur is a free trade association of Latin American countries that aims to increase export subsidies and
domestic content requirements in each member country.
e.
The Trans-Pacific Partnership is a free trade association of South Africa and its four neighbouring countries.
129. The largest regional trading bloc is the _____.
a.
North American Free Trade Agreement
b.
European Community
c.
Latin American Free Trade Agreement
d.
Asian Free Trade Agreement
e.
East Asian Cooperation Council
130. One of the main motives for the United States to negotiate a free trade agreement with Mexico was to:
a.
increase immigration into the United States.
b.
encourage Mexico's recent drive to achieve a more market-oriented economy.
c.
attract more Mexican investment.
d.
achieve political union with Mexico.
e.
help foster the study of the Spanish language in the United States as a means to trading with all Spanish-
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Chapter 19: International Trade
speaking countries.
131. Which of the following was a motive of the United States to negotiate a free trade agreement with Mexico?
a.
To help foster the study of the Spanish language as a means to trade with all Spanish-speaking countries
b.
To increase immigration into the United States
c.
To gain increased access to Mexican consumers
d.
To attract more Mexican investment
e.
To achieve political union with Mexico
132. Which of the following was one of the objectives of the North American Free Trade Agreement (NAFTA)?
a.
To gain increased access to Mexico's huge oil reserves
b.
To achieve political union with Mexico
c.
To use it as a stepping stone to the formation of a free-trade bloc in the whole Western Hemisphere
d.
To appease Canada
e.
To increase immigration into the United States
133. Which of the following is not an argument in favor of restricting trade?
a.
Preserving national security
b.
Preventing dumping
c.
Increasing consumer surplus
d.
Protecting infant industries
e.
Protecting declining industries
134. Some industries have argued that since their output is vital for national defense, _____.
a.
they should be entitled to additional trade protection
b.
they should make special deals among themselves and discriminate against outsiders
c.
they are more vulnerable to fiscal deficits
d.
they should be given more time to grow to become competitive
e.
they protect domestic jobs and wage levels
135. According to some economists, the protection granted to infant industries should be:
a.
terminated after one year.
b.
to protect emerging domestic industries.
c.
restricted to firms that face little competition.
d.
based on absolute advantage.
e.
based on opportunity costs.
136. The industry for computers has just started growing in the nation of Verdana, and there is potential for the industry to
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Chapter 19: International Trade
flourish in the near future. However, there is stiff competition from other foreign nations that provide computers to the
domestic market. The government is considering imposing a tariff. Which of the following arguments justifies the
government’s decision to impose a tariff on the import of computers?
a.
The antidumping argument
b.
The infant industry argument
c.
The jobs and income argument
d.
The declining industries argument
e.
The national defense argument
137. In the United States, dumping:
a.
is encouraged because it lowers prices for consumers.
b.
is prohibited by the Trade Agreements Act of 1979.
c.
is encouraged by domestic consumers who benefit from lower prices.
d.
is encouraged by the government because it encourages competition.
e.
was prohibited in 1947 by the provisions of General Agreement on Tariffs and Trade (GATT).
138. Some countries export products at prices below the cost of production or the price charged in the domestic market.
This practice is called:
a.
cream skimming.
b.
import substitution.
c.
monopoly pricing.
d.
dumping.
e.
arbitrage.
139. If a manufacturer sells goods abroad for a lesser price than they sell for at home, it implies that _____.
a.
an embargo has been established
b.
a quota has been imposed
c.
the manufacturer is engaged in dumping
d.
there has been an improvement in the terms of trade
e.
tariffs have been reduced
140. Which of the following is not true of dumping?
a.
In the country where products are dumped, consumer surplus grows as a result of the dumping.
b.
Dumping involves the selling of a product by foreign producers at a price lower than that in their own
countries.
c.
Critics of dumping recommend applying a tariff as a correct antidumping measure.
d.
A major difficulty with dumping by firms in other countries is that it drives up prices for the domestic
consumer.
e.
Predatory dumping is often aimed at driving domestic producers out of business.
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141. The temporary sale of products in a foreign market at prices below cost to eliminate competitors in that foreign
market is referred to as:
a.
rent seeking.
b.
rebating.
c.
sporadic dumping.
d.
predatory dumping.
e.
import substitution.
142. Which of the following is true of predatory dumping?
a.
It may be a way to encourage the development of domestic production of a good.
b.
It may drive out established firms.
c.
There are a great number of documented cases of predatory dumping.
d.
Once the competition is gone, the exporting firm lowers the price in the foreign market.
e.
Even after the dumpers have established their monopoly position in the foreign market, they prevent the entry
of other firms into the market.
143. U.S. auto workers sometimes experience structural unemployment because of the popularity of foreign cars. Which
of the following arguments would most likely be presented by an auto workers’ union lobbying for trade restrictions to
Congress?
a.
The national defense argument
b.
The infant industry argument
c.
The antidumping argument
d.
The jobs and income argument
e.
The declining industry argument
144. Suppose there is a policy debate over imposing trade restrictions on imported semiconductors in the United States. A
congresswoman argues that it is necessary to impose trade restrictions, such as a tariff, on the semiconductor industry to
protect workers in the domestic semiconductor industry. The congresswoman claims that without trade protection, there
will be layoffs, causing many U.S. workers in the semiconductor industry to be unemployed. She is basing her preference
for trade restrictions on the:
a.
infant industry argument.
b.
declining industries argument.
c.
national defense argument.
d.
jobs and income argument.
e.
antidumping argument.
145. A nation's producers can compete effectively with imports from other nations if:
a.
they have an abundance of unskilled workers.
b.
the relative price of exports to imports is high.
c.
the labor cost per unit of output is low.
d.
they have a high opportunity cost of production.
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e.
they have an absolute advantage in the production of all goods.
146. The American Tire Company has been experiencing a steady loss of market over the past 40 years due to imports of
lower-priced tires. Which of the following arguments would American Tire most likely present to Congress when it
lobbies for trade restrictions?
a.
The infant industry argument
b.
The declining industry argument
c.
The national defense argument
d.
The antidumping argument
e.
The jobs and income argument
147. In the case of declining industries, wage subsidies or special tax breaks that decline over time:
a.
can be more efficient than tariffs.
b.
are permanent import restrictions.
c.
can result in increasing shocks in the economy.
d.
equal or exceed the direct welfare loss from tariffs.
e.
result from diseconomies of scale.
148. During a year, the government of a country imposed a tariff on imported steel. The rationale behind this policy was
that lower-priced imports had put the country’s established steel industries in jeopardy of closing. This government policy
was based on:
a.
the declining industries argument.
b.
the antidumping argument.
c.
the infant industry argument.
d.
the national defense argument.
e.
the jobs and income argument.
149. The cost of the resources used by domestic producer groups, including lobbying fees, propaganda, and legal
restrictions, is collectively referred to as the cost of:
a.
enforcement and implementation.
b.
rent seeking.
c.
retaliation.
d.
collective action.
e.
import substitution.
150. Retaliation of trade restrictions can:
a.
set off still greater trade restrictions, leading to an outright trade war.
b.
recover the surplus lost during the period of trade barriers.
c.
decrease rent-seeking activities in the economy.
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Chapter 19: International Trade
d.
increase the potential gains from trade through specialization.
e.
lead to phasing out of tariffs and quotas.
