CHAPTER 18
INTERNATIONAL TRADE AND THE DEVELOPING COUNTRIES
B. Multiple-Choice Questions
8. In the situation of transfer pricing by a multinational firm in its trade between plants
located in emerging/developing countries (EDCs) and industrialized countries (ICs), the
firm, other things equal, will, if it wants to shift recorded profits from its EDC plants to
its IC plants, record a price on goods sent from EDCs to ICs that is __________ than a
comparable free-market price. For goods sent from ICs to the EDCs, the firm will
__________ than a comparable free-market price.
a. lower; also want to record a price that is lower
9. In international commodity agreements that specify a target range for the price of a
product, if the world price of the good is above the “ceiling” price, then a buffer stock
agreement would require that the international agency __________ the product and an
export quota agreement would require that countries __________ their exports of the
good.
10. In the following diagram, the curve 0ABC that relates the market value of EDC external
debt to the face value of the external debt is known as
11. In the diagram in Question #10 above, where curve 0ABC relates the market value of
external debt to the face value of the external debt, the range __________ indicates a
situation where debt relief or forgiveness for EDCs would reduce the market value of
commercial banks’ holdings of debt but by less than the amount of debt forgiven.
In this
range, any one bank __________.
d. BC; would be willing to forgive debt even though other banks did not forgive debt
12. In the diagram in Question #10 above, where curve 0ABC relates the market value of
external debt to the face value of the external debt, the range __________ indicates
a situation where debt relief or forgiveness for EDCs would reduce amount of debt owed
and would also increase the market value of the debt. In this range, any one bank
__________.
13. In attempting to determine whether a developing country’s export price instability is
caused by shifts in world demand for the country’s exports or by shifts in the supply
curve of the country’s exports (along with corresponding shifts in the supply curves of
competing exporters), a general rule is that, other things equal, if the demand curve is
doing the shifting, then price and quantity will move __________; in addition, if the
supply curve is shifting along a given demand curve, then, other things equal, price and
quantity __________.
d. inversely with each other (i.e., when price rises, quantity falls, and when price falls,
quantity rises); also will move inversely with each other
14. In the classification terminology of the World Bank, a “strongly-inward-oriented
economy” is one that has __________ trade controls and consequently __________.
a. extensive; discriminates against production for the home market rather than for export
15. Developing countries often claim that their “commodity terms of trade” have fallen over
the long run. This means that (with Px = export price index, Pm = import price index, Qx
= export quantity index, and Qm = import quantity index) the developing countries think
that there has been a decline in their __________.
16. Developing countries tend to have a ratio of manufactured goods exports to total exports
that is __________ than the corresponding ratio for high-income countries, and they also
tend to have a __________ degree of commodity concentration in their exports than do
the high-income countries.
17. The income elasticity of demand for manufactured goods is generally thought to be
__________ than the income elasticity of demand for primary products, and the price
elasticity of demand for manufactured goods (when the negative sign is ignored) is
__________ than the price elasticity of demand for primary products.
18. Two characteristics of low-income countries as classified by the World Bank are that, in
comparison with high-income countries, the low-income countries have a __________
rate of population growth and a __________ percentage of GDP accounted for by
agriculture.
19. Other things equal, an export quota agreement to stabilize the price of a good on the
world market will be more effective, the __________ the percentage of producer
countries that take part in the agreement and the __________ it is for countries to store
(or stockpile) the good.
20. In the context of developing countries’ external debt, the “debt service ratio” of a country
is the ratio of annual interest payments on the debt plus scheduled repayment of the debt
(amortization) to the country’s __________.
21. If the supply curve of a good shifts increases and decreases cyclically along a relatively
inelastic (or steep) demand curve, then, in this market, the size of price fluctuations will
be __________ than the size of the quantity fluctuations.
22. Which one of the following has NOT been offered as a possible reason for instability in
exports of emerging/developing countries?
23. If the demand curve for a good increases and decreases cyclically along a relatively
inelastic (or steep) supply curve, then, in this market, the size of price fluctuations will be
__________ than the size of quantity fluctuations.
24. For the World Bank’s category of low-income countries, gross domestic product has been
growing __________ rapidly in recent years than in developed countries. With regard to
another characteristic of low-income countries, the ratio of their exports of goods and
services to their GDPs has __________ in the last 15-20 years.
25. In the analysis of the “debt–relief Laffer curve” pertaining to the external debt of a
developing country,
a. the market value of the debt always equals the face value of the debt.