48) The contention that specific sensitive domestic technologies must not be traded freely is
A) a national defense concern.
B) the infant industry argument.
C) dumping.
D) to protect domestic jobs.
49) All of the following are arguments against free trade EXCEPT
A) the infant industry argument.
B) dumping.
C) comparative advantage.
D) the need to protect American jobs.
50) The infant-industry argument for tariff protection is that tariffs should be imposed to protect
from competition
A) industries that are essential if a country is to become an industrial nation.
B) industries needed for national defense.
C) industries that cannot compete with foreign competitors at this point in time, but will be able
to once they gain some size and experience.
D) industries that can compete with foreign competitors at this point in time and are deemed
essential by the government.
51) One argument against free trade is the
A) comparative advantage argument.
B) absolute advantage argument.
C) considerate advantage argument.
D) infant industry argument.
52) If the infant industry argument is used to protect an industry that has already matured, then
A) consumers lose because they will pay a price for a product that is above the world price.
B) consumers lose because they will pay a price for a product, which is less than the world price.
C) stockholders lose because the firm cannot compete with other firms.
D) no one loses.
53) For the infant-industry argument for tariffs to be appropriate, it is necessary that
A) the industry be deemed essential by the government.
B) the government can identify which industries will eventually be able to compete with more
established foreign producers.
C) only industries that currently are operating efficiently will be protected.
D) the country has access to the most modern production techniques.
54) During the 1960s, U.S. steel firms argued they needed tariff protection because Germany and
Japan were using new mills to make steel since their old mills were destroyed in World War II.
Essentially, this argument is a form of the
A) infant-industry argument.
B) anti-dumping argument.
C) countering foreign subsidies argument.
D) national defense argument.
55) A rationale used for tariff protection by some is that
A) the country wants to practice international price discrimination.
B) the country finds its cost of producing their products higher than in other countries.
C) imports are produced by firms that received subsidies from their governments.
D) imports are produced by firms that are more efficient than domestic producers are.
56) Dumping is
A) selling a good abroad in huge quantities at a very low price.
B) exporting goods that are sources of pollution.
C) exporting goods that are of inferior quality relative to the goods sold in the domestic market.
D) selling a good abroad at a price below cost or below the price charged in the domestic market.
57) Selling a good abroad below the price charged in the home market is
A) a basic argument for free trade.
B) the infant industry argument.
C) dumping.
D) a voluntary restraint agreement.
58) When a firm sells its good abroad below the cost of producing the good the firm is
A) using the concept of comparative advantage.
B) dumping.
C) taking advantage of the infant industry argument.
D) taking advantage of absolute advantage.
59) Dumping is
A) international price discrimination.
B) international monopolistic pricing.
C) collusive behavior among producers in different countries.
D) selling goods produced with government approval.
60) Country X subsidizes industry A. A worldwide recession has hit and Country X has decided
to export Good A worldwide, selling the product for less than it costs to produce it. This is
A) the infant industry argument.
B) comparative advantage argument.
C) dumping.
D) a regional trade bloc.
61) Governments sometimes subsidize domestic industries. When this occurs
A) the governments will not impose tariffs.
B) the subsidized sell less in international markets because it is more profitable to sell at home.
C) the subsidized industries have an advantage on international markets relative to non-
subsidized firms. For this reason, other countries often impose tariffs on the subsidized imports.
D) the subsidized industries have an advantage on international markets relative to nonsubsidized
firms. However, this is not an argument for imposing tariffs and tariffs would violate
international agreements.
62) Some argue that U.S. workers cannot compete with cheap labor from many developing
nations. This
A) is true and is a justification for tariffs to protect domestic jobs.
B) is true and it is has been found that tariffs in these cases can save thousands of jobs and
benefit the economy.
C) is true but the benefits of free trade are still such that tariffs should not be placed on these
industries.
D) is not true, as evidenced by the fact that the United States carries on a lot of trade with
countries that have lower wages.
63) Which of the reasons given for tariff protection make consumers better off by generating
lower prices?
A) infant industry argument
B) protecting U.S. jobs argument
C) anti-dumping argument
D) None provides lower prices for domestic consumers.
64) Suppose an industry receives protection from the government in the form of tariffs. A
number of years later, it is observed that the quantity supplied by domestic firms had decreased
and that the domestic price was substantially greater than the world price. We could conclude
that
A) the tariff had been imposed to counteract dumping and had been successful.
B) removal of the tariff would actually cause domestic output to increase and price to fall.
C) the tariff had been imposed to protect an infant industry and that the industry still needed
protection.
D) removal of the tariff would cause domestic output to fall even further and the price to fall to
consumers.
65) The idea that tariffs should be imposed to protect new and developing industries is referred
to as
A) the start-up argument.
B) the infant industry argument.
C) the incubator business theory.
D) the new markets theory.
66) The argument that with initial protection an industry will eventually become competitive is
called the
A) national security argument.
B) strategic bargaining argument.
C) the trade adjustment assistance argument.
D) infant industry argument.
67) The argument that a tariff has to be imposed in order to protect any industry just getting
started until it gets large enough to be competitive internationally is the
A) start-up industry argument.
B) infant industry argument.
C) baby industry argument.
D) fledgling industry argument.
68) The argument that trade in high-tech equipment can facilitate the implementation of
advanced military technology in countries that may become strategic opponents later on is the
A) national security argument.
B) infant industry argument.
C) protecting domestic jobs argument.
D) environmental and safety argument.
69) The argument that many critics of free trade have suggested that genetic engineering of
plants and animals could lead to accidental production of new diseases is the
A) national security argument.
B) infant industry argument.
C) protecting domestic jobs argument.
D) environmental and safety argument.
70) A problem with the infant industry argument is that
A) it is too restrictive in targeting new industries to protect.
B) it does not protect the most important new industries in a country.
C) it is almost impossible to eliminate the tariff once the industry matures.
D) it allows infant industries to mature so that tariffs can be eliminated.
71) According to the infant-industry argument, protection should be withdrawn from an infant
industry when the companies in the industry
A) are listed on the domestic stock exchange.
B) become profitable.
C) double their sales revenues.
D) reach a sufficient size to compete with foreign firms.
72) Protection of a new industry until it becomes strong enough to compete is called
A) the national defense argument.
B) the government indirect tax argument.
C) the leveling-the-playing-field argument.
D) the infant-industry argument.
73) The infant-industry argument is often criticized because
A) it is difficult to determine which industry merits protection.
B) it reduces government revenues in the short term.
C) it reduces the employment rate.
D) it reduces labor productivity in the short term.
74) Protection of new products from global competition is known as
A) the infant-industry argument.
B) dumping.
C) a quota.
D) protection of domestic jobs.
75) The selling of a good or service abroad at a price below what is charged in the home market
or below the cost of production is referred to as
A) recycling.
B) a quota.
C) dumping.
D) a tariff.
76) The selling of a good or service abroad at a price below production costs is
A) marginal cost selling.
B) price discrimination.
C) price differentiation.
D) dumping.
77) If a good sells for $10 domestically and the same good sells for $7 abroad, then this firm is
engaging in
A) marginal cost selling.
B) price discrimination.
C) price differentiation.
D) dumping.
78) If it costs a firm $10 to produce a good and the same good sells for $7 abroad, then this firm
is engaging in
A) profit maximization.
B) price discrimination.
C) price differentiation.
D) dumping.
79) In international trade the term “dumping” means
A) price discrimination by domestic producers.
B) selling goods in a foreign market for a price less than on the home market.
C) selling goods in a home market for a price less than on the foreign market.
D) selling goods on the black market to avoid paying taxes.
80) Arguments in support of protectionism (and against free trade) include all of the following
EXCEPT
A) new and troubled industries need to be protected until they acquire sufficient strength to
compete equally against their foreign counterparts.
B) jobs at home should be protected from cheap foreign labor.
C) protectionism increase total domestic consumption possibilities.
D) national security interests require that nations retain the ability to produce vital materials at
home and avoid dependence upon potential enemies.
81) Which of the following is NOT an argument against free trade?
A) infant-industry argument
B) protecting domestic job argument
C) countering foreign subsidies argument
D) comparative advantage argument
82) All of the following are arguments in favor of restricting trade EXCEPT
A) comparative advantage.
B) protecting domestic jobs.
C) protecting emerging industries.
D) dumping.
83) When a good is put onto the global market at a price below the cost to produce it, this is
known as
A) the infant-industry argument.
B) dumping.
C) a quota.
D) protection of domestic jobs.
84) Why is it impossible to make everyone better off in the long run by imposing import
restrictions?
85) “It is possible to restrict imports and still maintain a fixed level of exports.” Do you agree or
disagree? Why?
86) Discuss the relationship between U.S. competitiveness relative to other countries and
standards of living in the United States.
87) “The United States has fallen behind Japan and most of Europe in terms of competitiveness.”
Do you agree or disagree? Why?
88) Explain the infant industry argument.
89) What is the relationship between imports and employment?
90) What must a government know for the infant industry argument to be a valid reason for
imposing tariffs?
32.3 Ways to Restrict Foreign Trade
1) Import restrictions due to the imposition of tariffs by the U.S. government
A) will ultimately cause inefficient resource allocation in the United States.
B) will lead to lower incomes in the economy of U.S. trade partners.
C) will lead to a decline in the quantity of the product consumed in the United States.
D) All of the above are likely to occur.
2) One way tariffs differ from quotas is that
A) tariffs produce revenues for the importing country’s government.
B) quotas produce revenues for the exporting country’s government.
C) tariffs produce no revenues but set limits on the imported items.
D) tariffs are applied only on raw materials.
3) In general, who will benefit as the result of a tariff?
I. Domestic producers
II. Domestic consumers
III. The domestic government
A) I only
B) II only
C) both I and III
D) both II and III
E) All of the above are correct.
4) Quotas and tariffs both serve the purpose of
A) increasing foreign trade.
B) restricting foreign trade.
C) causing domestic producers to lose revenues.
D) lowering prices on imported goods.
5) A quota is
A) a tariff imposed on goods that are dumped in the country.
B) a law that prevents ecologically damaging goods from being imported into a country.
C) a market-imposed balancing factor that keeps prices of imports and exports in equilibrium.
D) a government-imposed restriction on the quantity of a specific good that can be imported.
6) An import quota specifies
A) the amount of funds that can be paid for any imported good.
B) the amount of taxes that must be paid on any imported good.
C) the maximum amount of an item that may be imported during a specified period.
D) the minimum amount of an item that may be imported during a specified period.
7) If a country voluntarily agrees to have its companies import more goods from another country,
the country has
A) a voluntary import expansion (VIE) agreement.
B) a voluntary restraint agreement (VRA).
C) a mandated tariff.
D) a mandated agreement.
8) Tariffs to limit imports to “protect U.S. jobs” will also
A) stimulate exports.
B) limit exports.
C) decrease import prices.
D) reduce domestic production of import-threatened products.
9) The Uruguay round of GATT (1993) talks
A) reduced trade barriers and tariffs.
B) increased trade barriers and tariffs.
C) lowered some trade barriers but increased tariffs.
D) left tariffs and trade barriers unchanged.
10) Since the 1930s, overall tariff rates in the United States have
A) increased.
B) decreased.
C) remained unchanged.
D) become very unstable, changing week to week.
11) A tariff is
A) a subsidy on domestically produced goods.
B) the difference between the world market price and the domestic price when a group of firms
in an industry collude successfully.
C) a tax on imported goods.
D) a government imposed restriction on the quantity of a specific good that can be imported into
the country and sold.
12) The General Agreement on Tariffs and Trade is an international agreement
A) to establish the North American continent as a free trade area.
B) to encourage peaceful settlements of trade disputes, but has no particular point of view about
the desirability of higher or lower tariffs.
C) to encourage world trade by lowering tariffs and other trade barriers.
D) to make all tariffs illegal.
13) If protective import-restricting tariffs are imposed by a country, in the majority of cases that
nation’s consumers end up
A) paying a higher price for the good than they otherwise would.
B) paying a lower price for the good than they otherwise would.
C) consuming more of the good than they otherwise would.
D) having a higher standard of living than they otherwise would.
14) If protective import-restricting tariffs are imposed by a country, in the majority of cases that
nation’s producers end up
A) receiving a higher price for the good than they otherwise would.
B) receiving a lower price for the good than they otherwise would.
C) producing less of the good than they otherwise would.
D) receiving a lower profit for the domestic good than they otherwise would.
15) If protective import-restricting quota are imposed by a country, in the majority of cases that
nation’s consumers end up
A) paying a lower price for the good than they otherwise would.
B) consuming more of the good than they otherwise would.
C) having more consumption choices than they otherwise would.
D) consuming less of the good than they otherwise would.
16) If protective import-restricting quota are imposed by a country, all of the following groups
benefit EXCEPT
A) domestic producers in the affected industry.
B) domestic consumers in the affected industry.
C) employees of domestic producers in the affected industry.
D) importers that are able to obtain the rights to sell imported items in the affected industry.
17) If protective import-restricting tariff are imposed by a country, in the majority of cases that
nation’s consumers end up
A) paying a lower price and consuming more of the good than they otherwise would.
B) paying a lower price and consuming less of the good than they otherwise would.
C) paying a higher price and consuming less of the good than they otherwise would.
D) paying a higher price and consuming more of the good than they otherwise would.
18) A quota is
A) a government-imposed restriction on the quantity of a specific good that can be imported into
a country.
B) a tariff imposed on goods that are dumped into the home country.
C) a tariff imposed on goods that are subsidized by their domestic governments and exported to
other countries.
D) a tariff based on the value of the imported good.
19) A government-imposed restriction on the quantity of a specific good that another country is
allowed to sell in the U.S. is
A) a regional trade bloc.
B) an import quota.
C) a voluntary import expansion.
D) a voluntary restraint agreement.