Chapter 32 Comparative Advantage and the Open Economy 609
10) Since the 1930s, overall tariff rates in the United States have
A) increased.
B) decreased.
C) remained unchanged.
D)
b
ecome 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.
20) The maximum amount of a good that may be imported during a specified period of time is
A) an infant industry agreement. B) an import quota.
C) dumping. D) comparative advantage.
21) The effect of an import quota is
A) to shift the supply curve up by the amount of the quota.
B) to lead to a decrease in demand.
C) to make the supply curve vertical at the amount of the quota.
D) to make the supply curve horizontal at the amount of the quota.
22) The effect of a quota is to
A) increase quantity supplied and lower price.
B) increase quantity supplied and increase price.
C) increase demand for the good and increase price.
D) reduce quantity supplied and raise price.
23) Voluntary restraint agreements are
A) a type of tariff in which the tax is a fixed amount per unit of good imported.
B) a type of tariff in which the tax is based on the value of the good.
C) a type of quota that actually benefits the firms facing the restrictions.
D) a type of quota agreed to voluntarily in order to prevent more severe protection of
another type.
24) An official agreement with another country to restrict the quantity of its exports to the U.S. is
A) a regional trade bloc. B) the quota system.
C) a voluntary import expansion. D) a voluntary restraint agreement.
25) A voluntary import expansion involves a
A) country agreeing to import more from another country.
B) country agreeing to reduce its trade barriers.
C) country agreeing to an import quota.
D) firm agreeing to expand output.
26) An official agreement with another country in which it agrees to import more from the United
States is
A) a regional trade bloc. B) the quota system.
C) a voluntary import expansion. D) a voluntary restraint agreement.
27) A tariff is
A) a government imposed restriction on the quantity of a specific good that can be imported
into the country.
B) a tax on imported goods.
C) a subsidy on domestically produced goods.
D) a voluntary agreement to restrict exports.
28) The effects of a tariff are
A) reduced quantity supplied overall, reduced quantity supplied by domestic producers, and
a lower price.
B) reduced quantity supplied overall, increased quantity supplied by domestic producers,
and a higher price.
C) reduced quantity supplied overall, decreased quantity supplied by domestic producers,
and a lower price.
D) identical to the effects of a quota, except that the price of the good is higher.
29) A difference between a quota and a tariff is that
A) a tariff generates a higher price than a quota does.
B) a tariff generates a greater reduction in exports.
C) a quota increases profits of domestic producers more than a tariff does.
D) the government collects revenues from a tariff, which does not happen with a quota.
30) A tariff placed on a foreign good will
A) reduce the price of a competing domestic good.
B) increase the price of a competing domestic good.
C) increase the quantity sold of both the foreign and competing domestic good.
D) reduce the quantity sold of both the foreign and competing domestic good.
31) Refer to the above figures. A tariff is placed on a foreign good. Which figure represents the
situation in the domestic market for the foreign good?
A) Panel A B) Panel B C) Panel C D) Panel D
32) Refer to the above figures. A tariff is placed on a foreign good. Which figures represents the
situation in the domestic market for a competing domestic good?
A) Panel A B) Panel B C) Panel C D) Panel D
33) Refer to the above figures. A quota is placed on a foreign good. Which figure represents the
situation in the domestic market for a competing domestic good?
A) Panel A B) Panel B C) Panel C D) Panel D
34) The General Agreement on Tariffs and Trade is an international agreement
A) that outlaws all tariffs but permits quotas.
B) to encourage world trade by lowering tariffs and other trade barriers.
C) to encourage world trade by lending resources to developing countries.
D)
b
etween the United States and Japan that has never been ratified, resulting in several trade
wars with Japan.
35) An international agreement established in 1947 to further world trade by reducing barriers and
tariffs is the
A) World Trade Organization.
B) European Union.
C) General Agreement on Tariffs and Trade.
D) North American Free Trade Agreement.
36) The trend in current tariff laws is to
A) raise tariffs on foreign goods. B) keep tariffs the same.
C) lower tariffs on foreign goods. D) abolish tariffs all together.
37) A tariff is a
A) legal limit on sales of a foreign product in the domestic market.
B) regulation of the quality of a foreign product sold in the domestic market.
C) tax on sales of a foreign product in the domestic market.
D) voluntary limit on sales of a foreign product in the domestic market.
38) A legal limit on the amount of sugar imported into the United States is
A) a tariff. B) a subsidy.
C) a quota. D) a voluntary import restriction.
39) A government imposed restriction on the quantity of a good that can be imported is
A) an embargo. B) a protective tariff.
C) a quota. D) a health restriction.
40) An import quota will make the supply curve for the imported good
A) perfectly inelastic. B) perfectly elastic.
C) unitary elastic. D) negatively sloped.
41) A legal restriction on the amount of a good that can be imported into a country is known as a
A) voluntary restraint agreement. B) tariff.
C) quota. D) Domestic Protection Restraint (DPR).
42) A government imposed restriction on the quantity of a specific good that may be imported to
and sold in the United States is called a
A) tariff system. B) quota system.
C) reverse trade system. D) union trade system.
43) A VRA is an example of
A) a voluntary quota. B) a tariff.
C) an illegal foreign good. D) an illegal foreign tariff.
44) A tariff is a tax on
A) all exported goods imposed by the WTO.
B) imported goods.
C) shipping containers.
D) foreign exchange transactions.
45) When a tariff is imposed, the supply curve for the imported good
A) shifts downward and to the right. B) shifts upward and to the left.
C) does not change. D)
b
ecomes perfectly inelastic.
46) When a tariff is imposed, the demand curve for the domestic good
A) shifts downward and to the right. B) shifts upward and to the left.
C) shifts upward and to the right. D) shifts downward and to the left.
7
47) A tax placed on imports is known as
A) voluntary restraint agreement. B) tariff.
C) quota. D) infant industry.
48) Trade restrictions tend to make domestic products
A) cheaper because they do not have to compete with foreign goods.
B) cheaper because they do have to compete with foreign goods.
C) more expensive because they have to compete with foreign goods.
D) more expensive because they do not have to compete with foreign goods.
49) An agreement with another country in which it agrees to import more from the United States is
called a
A) VRA. B) VIE. C) VAR. D) VAT.
50) The highest tariff rates of the twentieth century in the United States arose as a result of which
law?
A) the Robinson Patman Act B) the Tariff of Abominations Act
C) the Wheeler Lea Act D) the Smoot Hawley Act
51) The law that created the high level of tariffs in United States in the 1930s is
A) the GATT Act. B) the World Trade Act.
C) the Smoot Hawley Act. D) the Tariffs Agreement Act.
52) In comparing tariffs and quotas, we know that
A) neither raises revenues for the federal government.
B)
b
oth raise revenues for the federal government.
C) tariffs raise revenues for the federal government, while quotas do not.
D) quotas raise revenues for the federal government, while tariffs do not.
53) The two groups that benefit the most from quotas are
A) the importers who have the right to import the restricted good and the domestic producers
of the restricted good.
B) the domestic consumers of the restricted good and the domestic producers of the restricted
good.
C) the domestic consumers of the restricted good and the foreign producers of the restricted
good.
D) the importers who have the right to import the restricted good and the domestic
consumers of the restricted good.
54) What is GATT and what happened to tariff rates as a result of GATT?
55) What are the effects of a tariff on a good?
620 Miller Economics Today, 16th Edition
32.7 International Trade Organizations
1) The World Trade Organization is a successor organization to the
A) United Nations. B) World Bank.
C) International Court of Justice. D) GATT.
2) According to the text, approximately how many countries are members of the WTO?
A) 100 B) 135 C) 150 D) 180
3) Which of the following is NOT an example of a regional trade bloc?
A) The North American Free Trade Agreement
B) The European Union
C) The Asian Pacific Trade Agreement
D) Mercosur
4) The most important international trade organization is
A) the World Bank B) the World Trade Organization
C) the International Monetary Fund D) the European Union
5) The North American Free Trade Agreement and the European Union are examples of
A) defense treaties.
B) regional trade blocs.
C) labor agreements designed only for industrialized countries.
D) agriculturally based economies.
6) A significant advantage to being a member of a trade bloc is
A) higher tariff collections from member countries.
B) reduced or eliminated tariffs among member countries.
C) reduced tariff rates only for the largest member countries.
D) None of the above; there is no economic advantage to a trade bloc.
7) Which of the following is the situation in which a nation shifts its international trade from
nations outside a regional trade bloc to nations within the bloc?
A) trade diversion B) trade deflection
C) trade retention D) protectionism
8) Which of the following is the situation in which firms outside a trade bloc shift the final
assembling process of partially assembled products into a member nation of the bloc and then
export the finished products to other nations within the bloc?
A) trade diversion B) trade deflection
C) trade retention D) rules of origin
9) Which of the following would increase the total amount of trade in the world?
A) trade diversion B) trade deflection
C) trade retention D) rules of origin
10) Trade diversion results in
A) an increase in the total amount of trade in the world.
B) a decrease in the total amount of trade in the world.
C) no change in the total amount of trade in the world.
D) either an increase or decrease in the amount of trade in the world, depending on where
trade takes place.
11) The net effect of regional trade agreements has been
A) an increase in the total amount of trade in the world.
B) a decrease in the total amount of trade in the world.
C) no change in the total amount of trade in the world.
D) either an increase or decrease in the amount of trade in the world, depending on where
trade takes place.
12) Which of the following are regulations that nations in regional trade blocs establish to delineate
product categories eligible for trading preferences?
A) trade quotas B) trade tariffs C) rules of law D) rules of origin
13) The World Trade Organization
A) was set up to increase tariffs among nations.
B) was set up to negotiate exchange rates between countries.
C) was set up to decrease tariffs among nations.
D) handles trade disputes among its member nations.
14) The successor organization to GATT that handles trade disputes among its member nations is
the
A) World Trade Organization.
B) European Union.
C) General Agreement on Tariffs and Trade.
D) North American Free Trade Agreement.
15) A group of nations that grants member special trade privileges is
A) World Trade Organization.
B) European Union.
C) General Agreement on Tariffs and Trade.
D) North American Free Trade Agreement.
16) The European Union started out as a
A) regional trade agreement.
B) union of nations with identical currency.
C) union of nations where the same language was spoken.
D) union of nations with identical tariffs.
17) Because of NAFTA, the U.S. shifts some of its imports from Europe to Mexico (a member of
NAFTA). This is an example of
A) trade deflection. B) trade diversion.
C) protectionism. D) rules of origin.
18) To avoid tariffs, a Japanese firm moves its final assembly line to Mexico and then ships the final
products to Canada. This is an example of
A) trade deflection. B) trade diversion.
C) protectionism. D) rules of origin.
19) To avoid trade restrictions, a U.S. firm moves its final production process to Ireland and then
ships the final products to Germany. This is an example of
A) trade deflection. B) trade diversion.
C) protectionism. D) rules of origin.
20) Some nations avoid the effects of trade deflection in a trade bloc by enforcing
A) trade deflection. B) trade diversion.
C) quotas. D) rules of origin.
21) U.S. automakers have an interest to make it more difficult for European competitors to locate
assembly plants in Canada or Mexico and thereby ship finished automobiles to the United
States duty free. This is an example of
A) trade deflection. B) trade diversion.
C) quotas. D) rules of origin.
22) The international agreement signed in 1947 to promote world trade by reducing tariffs and
other barriers to international trade was called
A) GATT. B) NAFTA.
C) WTO. D) Bretton Woods agreement.
23) The successor organization to GATT, created in 1995, is the
A) WTO. B) EU. C) NAFTA. D) FDIC.
24) The WTO replaced the GATT in
A) 1900. B) 1945. C) 1960. D) 1995.
25) An international agreement from 1947 designed to lower tariffs was
A) the General Agreement on Tariffs and Trade.
B) the World Trade Organization.
C) the World Agreement on Tariffs and Trade.
D) the Trade and Tariff Agreement.
26) The successor to GATT in 1995 is
A) the World Agreement on Tariff and Trade.
B) the World Trade Organization.
C) the World Trade Agreement.
D) the World Trade and Tariff Organization.
27) The organization that settles trade disputes between countries is the
A) World Bank. B) World Trade Organization.
C) International Monetary Fund. D) United Nations.
28) The WTO
A) is an affiliate of the World Bank.
B) is an organization created to oversee NAFTA.
C) was established to resolve trade disputes among member nations.
D) provides low interest loans to member nations to help develop their export industries.
29) The World Trade Organization
A) was established to settle trade disputes within the European Union.
B) is another name for the IMF.
C) was established to resolve disputes arising under world trade rules.
D) increases world trade by providing interest rate subsidies to foreign borrowers who buy
U.S. exports on credit.
30) Groups of nations that grants members trade privileges are called
A) local trade protectionists. B) trade settlements.
C) regional trade blocs. D) allies.
31) Mercosur is a trade agreement between nations
A) in Southeast Asia. B) in South America.
C) in South Africa. D) in Southern Europe.
32) In 1990, there were 50 bilateral agreements and regional trade agreements between countries.
Today there are
A) more than 230 of these agreements. B) 30 of these agreements.
C) none of these agreements remaining. D) more than 10,000 of these agreements.
33) Suppose a new EU member begins substituting its imports from non EU members to other EU
members. This is an example of
A) trade diversion. B) trade deflection.
C) free trade. D) trade detection.
34) Suppose a Middle Eastern firm moves its final assembly line to Germany and then ships the
final products to other members of the EU trading bloc. This is an example of
A) trade diversion. B) trade deflection.
C) trade restriction. D) trade detection.
35) Trade deflection is an act that
A) decreases the amount of international trade in the world.
B) increases the amount of international trade in the world.
C) has no impact on the amount of international trade in the world.
D) is illegal among all countries in the world.
36) Why do free trade proponents applaud successful trade deflection?
A) It circumvents trade restrictions within regional trade blocs.
B) It increases trade restrictions within regional trade blocs.
C) It promotes more rules of origin laws.
D) It decreases incentives for trade diversion.
37) Why do free trade proponents dislike rules of origin in trade agreements?
A) It decreases the amount of international trade in the world.
B) It increases the amount of international trade in the world.
C) It decreases incentives for trade diversion.
D) It increases incentives for trade deflection.