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c.
free trade.
d.
strategic trade.
192. William Safire argues that a unilateral free trade policy is a disaster if
a.
the governments of the nations' trading partners practice "helpfulism."
b.
infant industries are allowed to expire.
c.
the national defense is endangered.
d.
it hurts the poor.
193. In William Safire's 1983 essay, "Smoot-Hawley Lives," he argues that the United States should
a.
threaten retaliation if trading partners practice protectionism.
b.
pursue a unilateral free trade policy regardless of what others do.
c.
limit government's role in the economy.
194. The basic concept behind strategic trade policy is that free trade is the best policy to pursue, but some countries don't
play by those rules. Therefore,
a.
it makes no sense to engage in trade at all, and it makes sense to be self-sufficient.
b.
it makes sense to restrict imports of items that are of military significance in order to maintain a strong defense
posture.
c.
it makes sense to threaten to protect markets unless other nations agree to open theirs.
d.
it makes no sense to export items of strategic importance to other nations, because they should make them on
their own.
195. Is the call for protection on the basis of national defense valid?
a.
No, because protection has no place in national defense.
b.
No, protection is always improper.
c.
Uncertain, economic theory has no answer to this question.
d.
Yes, although it can be overstated and abused.
196. Is the call for protection on the basis of "infant industry" valid?
a.
No, because protection has no place in industrial development.
b.
No, protection is always improper.
c.
Uncertain, economic theory has no answer to this question.
d.
Yes, although it can be overstated and abused.
197. Which of the following statements regarding the cheap foreign labor argument is correct?
a.
If there is an abrupt change in foreign competition that severely penalizes American workers, the U.S.
government should immediately adopt protectionist measures.
b.
In the long run, labor will be cheap (wages are low) in those nations where labor is most productive.
c.
If workers in other countries are willing to supply their products with little compensation, this must ultimately
raise the standard of living of the average American worker.
d.
American workers can never suffer from foreign competition since our monetary and fiscal policies always
produce high employment at home.
198. When other nations Orient "dump" products on the U.S. market, they
a.
sell at prices that do not cover costs of production.
b.
sell at prices lower than prices charged to their own domestic customers.
c.
expect the United States to help pay any industrialists' losses.
d.
All of the above are true.
199. By tradition, Japanese employers cannot "lay off" workers. As a result they have goods that they cannot sell on the
domestic market without driving down prices. To minimize losses, they sell goods such as steel and televisions in foreign
markets at prices well below those in Japan. This is called
a.
beggar my neighbor.
b.
helpfulism.
c.
strategic trade policy.
d.
dumping.
200. An essential point, among many, in the refutation of the "cheap foreign labor" argument is that
a.
foreign workers have a lower standard of living.
b.
foreign workers are less productive.
c.
low foreign wages mean fewer exports for the United States.
d.
the United States does not benefit from cheap foreign labor so the goods should be kept out.
201. In the long run, foreign labor remains cheap when and if
a.
it becomes highly efficient and competes successfully internationally.
b.
countries erect barriers to trade between poor countries.
c.
productivity increases more rapidly in poor countries than in rich countries.
d.
it remains inefficient compared to other countries' labor.
202. An import quota on a product normally does all of the following except
a.
reduces the volume of that product traded.
b.
raises the price in the importing country.
c.
increases the price everywhere.
d.
reduces the price in the exporting country.
203. Carefully define the following terms and explain their importance to the study of economics.
a.
specialization
b.
absolute advantage
c.
comparative advantage
d.
quota
e.
trade adjustment assistance
204. Baumol and Blinder offer some reasons why countries trade with each other. List three of the reasons, and give an
example of each to illustrate the reason.
205. The essential logic behind international trade is not different from that underlying trade among different states. Why,
then, do we study international trade as a special subject?
206. Economists say that voluntary exchange makes both parties better off. What is the explanation that they offer to back
up this conclusion?
207. Why is comparative advantage rather than absolute advantage the basis for trade?
208. "Free trade benefits one country at another country's expense." Evaluate this statement using economic analysis.
209. "The United States has more oil in Alaska than there is oil in Kuwait. Therefore, the United States should stop
importing oil." Evaluate this statement using economic analysis.
210. The United States can produce 1,000 shoes if it specializes in shoe production. Alternatively, it can produce 500
shirts. Taiwan can produce 500 shoes or 200 shirts. Explain which country will specialize in shoe production and which in
shirt production. What are the possible terms of trade?
211. Suppose the South had won the Civil War, and trade no longer took place between Northern and Southern states.
Explain whether the sum of the North and South GDPs would have been higher or lower than with the current United
States.
212. What is an export subsidy? Discuss some of the recent examples where such subsidies were controversial.
213. Quebec is capable of producing 10 pallets of wood shingles or 8 barrels of maple syrup with a unit of labor. Vermont
is capable of producing 12 pallets of wood shingles or 12 barrels of maple syrup with a unit of labor. Assume that this is
typical of the labor force as a whole. Which location has the absolute advantage and which has the comparative
advantage, in the production of each good? Can these locations reap gains from trade?
214. Quebec is capable of producing 10,000 pallets of wood shingles or 8,000 barrels of maple syrup. Vermont is capable
of producing 12,000 pallets of wood shingles or 12,000 barrels of maple syrup.
a.
Graph these production possibilities curves. Indicate from the slope, which has the absolute
advantage, which the comparative advantage, and whether there are gains from trade.
b.
Assume that Vermont and Quebec each specializes in the good in which they have a
comparative advantage. Suppose that Vermont and Quebec decide to trade 5,000 pallets of
shingles for 5,000 barrels of syrup. Indicate this on the graph. How does this affect the well
being of the two societies? Explain.
215. Suppose that the citizens of South Dakota decided to limit imports of citrus fruit from Florida and California on the
grounds that climatic differences give those two states an unfair advantage in the production of those products. How
would the analysis used to explain international trade apply?
216. What is mercantilism? What are the draw backs of this doctrine?
217. Compare and contrast the effects of a quota and a tariff on imports. Be sure to include both short-run and long-run
effects in your answer.
218. Suppose that a tariff is imposed on imports of minivans. Show graphically what the effect is in terms of price and
quantity of imports. Be sure that your graph is completely and correctly labeled. What determines how much of the tariff
is paid by the buyers of the minivans?
219. Suppose that a quota is imposed on imports of minivans. Show graphically what the effect is in terms of price and
quantity of imports. Be sure that your graph is completely and correctly labeled. What determines how much of the quota
is paid by the buyers of the minivans?
220. What is strategic trade policy? What are the pros and cons of such a policy by a nation in its dealings with other
nations?
221. "I oppose a free trade agreement with Mexico because American workers will lose jobs to low-paid Mexican
workers." Explain whether you agree or disagree with this statement.
222. The estimated cost of automobile jobs saved due to limitations on foreign autos is $105,000 per job. Why is there a
cost to saving jobs through protectionism?
223. Discuss national defense, infant industry, and strategic trade as arguments for protection.
224. How can tariffs lead to a situation in which all parties to a trade lose?
225. What are the two approaches followed by the U.S. government to ease the burden on the victims of free trade?
226. American producers often complain about dumping. What is dumping, and should it be prohibited?
