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Indicate whether the statement is true or false.
1. The purpose of a cartel is to support prices higher than would occur under more competitive conditions, thus increasing
the profits of cartel members.
a. True
b. False
2. When cartel members agree to restrict output to increase the price of their product, a single member of the cartel has an
economic incentive to violate the agreement by increasing its output in order to increase profits.
a. True
b. False
3. Along the “ladder of economic development,” Canada and Germany would be located along the higher steps, while
Ecuador and Venezuela would be located along the lower steps.
a. True
b. False
4. According to the Generalized System of Preferences of the United States, exports from developing countries face
higher import tariff rates than exports from industrialized countries.
a. True
b. False
5. The “newly industrializing countries” of East Asia have emphasized the implementation of import-substitution policies
to insulate their industries from international competition.
a. True
b. False
6. In its transition toward capitalism, by the 1990s China permitted free enterprise as well as democracy for its people.
a. True
b. False
7. The majority of developing-nation exports are primary products, such as agricultural goods and raw materials; of the
manufactured goods exported by developing nations, most are labor-intensive goods.
a. True
b. False
8. During periods of weak demand, OPEC has implemented production (export) quotas to ensure that excess oil supplies
be kept off the market.
a. True
b. False
9. Among the economic problems facing developing countries have been low dependence on primary-product exports,
unstable export markets, and worsening terms of trade.
a. True
b. False
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10. Developing nations overwhelmingly acknowledge that they have benefited from international trade according to the
principle of comparative advantage.
a. True
b. False
11. Developing countries have complained that because their commodity terms of trade have deteriorated in recent
decades, they should receive preferential tariff treatment from industrialized countries.
a. True
b. False
12. It is widely agreed that import-substitution policies have been a main contributor to above-average growth rates in
developing countries.
a. True
b. False
13. The recent technological advances in oil production, such as hydraulic fracturing and horizontal drilling, have
threatened the market share and profitability of the OPEC nations.
a. True
b. False
14. The so-called Four Tigers include Australia, South Korea, Taiwan, and Hong Kong.
a. True
b. False
15. Import substitution policies seek to promote industrialization by establishing barriers to foreign goods to encourage
domestic production.
a. True
b. False
16. A multilateral contract specifies the maximum price at which exporting countries agree to sell a product and the
minimum price at which importing countries agree to buy a product.
a. True
b. False
17. Developing countries have often felt that it is easier to protect their manufacturers, via import-substitution policies,
against foreign competitors than to force industrial nations to reduce trade restrictions on products exported by developing
countries.
a. True
b. False
18. To prevent the market price of tin from falling below the target price, the manager of a buffer stock would purchase
any excess supply of tin that exists at the target price.
a. True
b. False
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19. Not only do changes in demand induce relatively wide fluctuations in price when supply is inelastic, but changes in
supply also induce relatively wide fluctuations in price when demand is inelastic.
a. True
b. False
20. Export-led growth industrialization suffers a major problem: it depends on the willingness and ability of foreign
nations to absorb the goods exported by the country pursuing such a policy.
a. True
b. False
21. By the 1990s, China had departed from a capitalistic economy and shifted to a Soviet-type economy encompassing
small-scale, labor-intensive industry.
a. True
b. False
22. Under the Generalized System of Preferences program, the major industrial countries agree to temporarily reduce
tariffs on designated imports from other industrial countries.
a. True
b. False
23. To prevent the market price of tin from rising above the target price, the manager of a buffer stock will purchase
excess supplies of tin from the market.
a. True
b. False
24. The replacement of imports of one nation with imports of another nation is known as “import substitution.”
a. True
b. False
25. During periods of falling demand for coffee, an International Commodity Agreement could offset downward pressure
on price by implementing policies to increase the supply of coffee.
a. True
b. False
26. A sweatshop is a factory that has poor and unsafe working conditions, unreasonable hours for workers, low wages and
benefits, and child labor.
a. True
b. False
27. Under the Generalized System of Preferences program, the industrialized countries agree to maintain lower tariffs on
imports of natural resources and higher tariffs on imports of manufactured goods.
a. True
b. False
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28. Rather than conduct massive stabilization operations, buffer stock officials will periodically revise target prices should
they move out of line with long-term price trends.
a. True
b. False
29. Most of China’s manufactured exports have constituted labor-intensive goods.
a. True
b. False
30. Many developing countries contend that they face worsening terms of trade because the prices they receive for exports
have increased, while the prices they pay for imports have decreased.
a. True
b. False
31. A cartel tends to be most successful in maximizing the profits of its members when there is a large number of
producers in the cartel and these producers’ cost and demand conditions greatly differ from each other.
a. True
b. False
32. If the demand for coffee is price inelastic, an increase in the supply of coffee leads to falling prices and rising sales
revenues.
a. True
b. False
33. Prolonged defense of a price ceiling tends to increase the supply of a commodity held by a buffer stock manager, thus
putting downward pressure on price.
a. True
b. False
34. For developing countries, a key factor underlying the instability of primary-product prices and export receipts is the
high price elasticity of demand for products such as tin and copper.
a. True
b. False
35. In recent decades, the East Asian “newly industrializing countries” have pursued export-led growth (outward
orientation) as an industrialization strategy.
a. True
b. False
36. To promote stability in commodity markets, International Commodity Agreements have utilized production and
export controls, buffer stocks, and multilateral contracts.
a. True
b. False
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37. During the late 1980s and early 1990s, China dismantled much of its centrally-planned economy and permitted free
enterprise to replace it.
a. True
b. False
38. Import substitution policy tends to be anti-trade, while outward looking development is pro-trade.
a. True
b. False
39. The Fair Trade Movement attempts to help poor coffee growers in developing countries by providing them higher
prices for their coffee beans.
a. True
b. False
40. Import-substitution policies are supported by the fact that many developing countries have small domestic markets and
thus their producers enjoy the benefits of diseconomies of small-scale production.
a. True
b. False
41. The success of buffer stocks is limited by the fact that stockpiles of a product may be exhausted after prolonged sales,
while funds may be exhausted after prolonged purchases.
a. True
b. False
42. In 1999 the United States revoked the normal-trade-relations (most-favored–nation) status it provided China in
retaliation for China’s suppression of human rights.
a. True
b. False
43. Import substitution policies have been highly successful in fostering employment in new, emerging industries because
these policies prevent the import of foreign capital goods.
a. True
b. False
44. The United Nation Conference on Trade and Development in 1964 was successful in convincing developing countries
to switch from export-led industrialization to import-substitution industrialization.
a. True
b. False
45. A multilateral contract stipulates the maximum price at which importing nations will purchase guaranteed quantities
from producing nations and the minimum price at which producing nations will sell guaranteed amounts to importing
nations.
a. True
b. False
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46. Import substitution decreases reliance on international trade by fostering export-competing industries.
a. True
b. False
47. Empirical research indicates that the demand and supply schedules for most primary products are relatively inelastic to
changes in price.
a. True
b. False
48. Export promotion policies attempt to encourage production of goods for sale overseas, which fosters additional export
revenues; import substitution policies attempt to replace imported goods with domestic production.
a. True
b. False
49. The developing nations are most of those in Africa, Asia, North America, and Western Europe.
a. True
b. False
50. Most developing-nation exports go to industrial nations, while most developing-nation imports originate in industrial
nations.
a. True
b. False
51. Evidence shows that the largest amount of trade occurs between developing countries.
a. True
b. False
52. As a profit-maximizing cartel, OPEC would produce a greater output and charge a lower price than what would occur
in a competitive market.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
53. Which of the following has resulted in the economic instability of developing countries?
a. a fall in the prices of natural resources of developing countries
b. a rise in the prices of natural resources of developing countries
c. a rise in the labor productivity of developing countries
d. a rise in the rate of saving of developing countries
The diagram below illustrates the international tin market. Assume that the producing and consuming countries establish
an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2. Defending the Target Price in Face of Changing Supply Conditions
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54. Consider Figure 7.2. Suppose the supply of tin decreases from S0 to S2. Under a buffer stock system, the buffer-stock
manager could maintain the target price by
a. purchasing 15 pounds of tin.
b. purchasing 30 pounds of tin.
c. selling 15 pounds of tin.
d. selling 30 pounds of tin.
55. A factor that discourages economic growth in developing countries is
a. an increase in the level of literacy among adults.
b. a limited supply of capital goods and sophisticated technology.
c. a shortage of land.
d. excessive amounts of public infrastructure.
56. Economists note that instability of the prices of primary products (tin, coffee, copper) is mainly caused by
a. low price elasticity of demand and low price elasticity of supply.
b. low price elasticity of demand and high price elasticity of supply.
c. high price elasticity of demand and low price elasticity of supply.
d. high price elasticity of demand and high price elasticity of supply.
57. Hong Kong and South Korea are examples of developing nations that have recently pursued the industrialization
policy of
a. import substitution.
b. export promotion.
c. commercial dumping.
d. multilateral contract.
58. Concerning the price elasticities of supply and demand for commodities, empirical estimates suggest that most
commodities have
a. inelastic supply schedules and inelastic demand schedules.
b. inelastic supply schedules and elastic demand schedules.
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c. elastic supply schedules and inelastic demand schedules.
d. elastic supply schedules and elastic demand schedules.
The diagram below illustrates the international tin market. Assume that producing and consuming countries establish an
international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.1. Defending the Target Price in Face of Changing Demand Conditions
59. Consider Figure 7.1. Suppose the demand for tin decreases from D0 to D2. Under a buffer stock system, the buffer-
stock manager could maintain the target price by
a. selling 15 pounds of tin.
b. selling 30 pounds of tin.
c. buying 15 pounds of tin.
d. buying 30 pounds of tin.
60. Import substitution policies make use of
a. tariffs that discourage goods from entering a country.
b. quotas applied to goods that are shipped abroad.
c. production subsidies granted to industries with comparative advantages.
d. tax breaks granted to industries with comparative advantages.
61. Which of the following situations reduces the likelihood of successful operation of a cartel?
a. Cartel sales experience a rapid expansion.
b. The demand for cartel output is price inelastic.
c. The number of firms in the cartel is large.
d. It is very difficult for new firms to enter the market.
The diagram below illustrates the international tin market. Assume that producing and consuming countries establish an
international commodity agreement under which the target price of tin is $5 per pound.
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Figure 7.1. Defending the Target Price in Face of Changing Demand Conditions
62. Consider Figure 7.1. Suppose the demand for tin increases from D0 to D1. Under a buffer stock system, the buffer-
stock manager could maintain the target price by
a. selling 15 pounds of tin.
b. selling 30 pounds of tin.
c. buying 15 pounds of tin.
d. buying 30 pounds of tin.
63. The development of countries like South Korea and Singapore has been underlaid by all of the following EXCEPT
a. high domestic interest rates.
b. r&d and product innovation.
c. education and on-the-job training.
d. high levels of saving and investment.
64. If the demand schedule for bauxite is relatively inelastic to price changes, an increase in the supply schedule of
bauxite will cause a
a. decrease in price and a decrease in sales revenue.
b. decrease in price and an increase in sales revenue.
c. increase in price and a decrease in sales revenue.
d. increase in price and an increase in sales revenue.
65. Developing countries include all of the following EXCEPT
a. El Salvador.
b. Vietnam.
c. Canada.
d. India.
66. The trade problems of the developing countries have included all of the following EXCEPT
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a. unstable export markets.
b. worsening terms of trade.
c. rising prices of primary-product exports.
d. limited export access to the markets of industrial countries.
67. Which nation accounts for the largest amount of OPEC’s oil reserves and production?
a. Iran
b. Libya
c. Iraq
d. Saudi Arabia
68. Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic
market is preserved for home producers, who thus can take over markets already established in the country?
a. international commodity agreement
b. export promotion
c. multilateral contract
d. import substitution
69. Developing countries have often argued that their terms of trade have worsened because
a. their import prices have declined relative to their export prices.
b. their import prices have risen relative to their export prices.
c. their import prices and export prices have increased.
d. their import prices and export prices have decreased.
70. If the countries that export bauxite form a cartel to boost the price of bauxite in order to increase sales revenue, then
they believe that the demand for bauxite
a. is inelastic with respect to price changes.
b. is elastic with respect to price changes.
c. will increase in response to a price increase.
d. will not change in response to a price change.
71. Concerning the hypothesis that the developing countries’ terms of trade have been deteriorating, empirical studies
provide
a. mixed evidence that does not substantiate the deterioration hypothesis.
b. overwhelming support for the deterioration hypothesis.
c. overwhelming opposition to the deterioration hypothesis.
d. mixed evidence that substantiates the deterioration hypothesis.
72. International commodity agreements do NOT
a. consist of consuming and producing nations who desire market stability.
b. levy export cutbacks to offset rising commodity prices.
c. utilize buffer stocks to generate commodity price stability.
d. increase the supply of commodities to prevent rising prices.
73. Outward-oriented growth strategies emphasize
a. the allocation of resources according to the principle of absolute advantage.
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b. the allocation of resources according to the principle of comparative advantage.
c. the principle of strategic trade policy.
d. the principle of industrial policy.
74. Developing countries tend to export ______ because many of them have large endowments of ______.
a. primary products, natural resources
b. primary products, capital
c. capital goods, advanced technology
d. capital goods, investment funds
Figure 7.5 Global Market for Tin
75. Figure 7.5 represents the global market for tin. The initial equilibrium price and quantity is at point A. As a result of
an International Tin Agreement, a price range of $3.27–$4.02 is set. As the supply of tin increases from S0 to S1, the
buffer-stock manager will need to
a. buy 10,000 pounds of tin.
b. buy 20,000 pounds of tin.
c. sell 10,000 pounds of tin.
d. sell 20,000 pounds of tin.
76. Which device uses the International Tin Agreement to stabilize tin prices?
a. multilateral contracts
b. export subsidies
c. buffer stocks
d. export tariffs
77. A widely used indicator to differentiate developed countries from developing countries is
a. international trade per capita.
b. real income per capita.
c. unemployment per capita.
d. calories per capita.
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The diagram below illustrates the international tin market. Assume that the producing and consuming countries establish
an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2. Defending the Target Price in Face of Changing Supply Conditions
78. Consider Figure 7.2. Suppose the supply of tin increases from S0 to S1. Under a buffer stock system, the buffer-stock
manager could maintain the target price by
a. purchasing 15 pounds of tin.
b. purchasing 30 pounds of tin.
c. selling 15 pounds of tin.
d. selling 30 pounds of tin.
Figure 7.3. World Oil Market
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79. Consider Figure 7.3. Under competitive conditions, the price of a barrel of oil equals
a. $7.
b. $11.
c. $12.
d. $16.
80. One factor that has prevented the formation of cartels for producers of commodities is that
a. the demand for commodities tends to be price inelastic.
b. substitute products exist for many commodities.
c. commodity produces have dominated world markets.
d. the production of most commodities is capital intensive.
81. Challenges for China’s economy include
a. increasing the presence of state-owned enterprises.
b. lowering labor costs that detract from the competitiveness of China’s exporting companies.
c. U.S holdings of China’s securities.
d. reliance on investment spending.
Figure 7.3. World Oil Market
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82. Consider Figure 7.3. Under a profit-maximizing cartel, producers realize
a. profits totaling $280.
b. profits totaling $360.
c. losses totaling $140.
d. losses totaling $180.
83. A primary goal of international commodity agreements has been the
a. maximization of members’ revenues via export taxes.
b. nationalization of corporations operating in member nations.
c. adoption of tariff protection against industrialized nation sellers.
d. moderation of commodity price fluctuations when markets are unstable.
84. The mission of the ______ is to give loans to developing countries to build schools, hospitals, roads, and bridges in
order to reduce poverty and stimulate economic development.
a. Bank for International Settlements
b. International Monetary Fund
c. World Trade Organization
d. World Bank
85. Developing countries tend to have all of the following EXCEPT
a. high rates of population growth.
b. low levels of per-capita income.
c. high levels of labor productivity.
d. a high percentage of the labor force in agriculture.
Figure 7.3. World Oil Market
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86. Consider Figure 7.3. Under a profit-maximizing cartel, the quantity of oil produced equals
a. 40 barrels.
b. 70 barrels.
c. 90 barrels.
d. 110 barrels.
87. East Asian economies started enacting export-push strategies
a. by the late 1950s and 1960s.
b. immediately after world war ii.
c. in the late 1980s.
d. in the early 2000s.
88. Developing countries often argue that advanced countries protect their farmers with
a. low import tariffs and high export subsidies.
b. high import tariffs and high export subsidies.
c. high import tariffs and low export subsidies.
d. low import tariffs and low export subsidies.
Figure 7.3. World Oil Market
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89. Consider Figure 7.3. Under competitive conditions, the quantity of oil produced equals
a. 40 barrels.
b. 70 barrels.
c. 90 barrels.
d. 110 barrels.
The diagram below illustrates the international tin market. Assume that producing and consuming countries establish an
international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.1. Defending the Target Price in Face of Changing Demand Conditions
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90. Consider Figure 7.1. Suppose the demand for tin decreases from D0 to D2. Under a system of export quotas, the tin
producers could maintain the target price by
a. increasing the quantity of tin supplied by 15 pounds.
b. increasing the quantity of tin supplied by 30 pounds.
c. decreasing the quantity of tin supplied by 15 pounds.
d. decreasing the quantity of tin supplied by 30 pounds.
91. Which terms-of-trade concept emphasizes a nation’s capacity to import?
a. income terms of trade
b. commodity terms of trade
c. barter terms of trade
d. price terms of trade
The diagram below illustrates the international tin market. Assume that the producing and consuming countries establish
an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2. Defending the Target Price in Face of Changing Supply Conditions
92. Consider Figure 7.2. Assume there exists a cartel of several producers that is maximizing total profit. If one producer
cheats on the cartel agreement by decreasing its price and increasing its output, then the rational action of the other
producers is to
a. increase their price in order to regain sacrificed profits.
b. decrease their price as well.
c. continue selling at the agreed-upon price.
d. give the product away for free.
93. Of the manufactured goods exported by developing countries, most of them are ______ and include ______ of
technology in their production.
a. labor intensive, modest amounts
b. labor intensive, large amounts
c. capital intensive, modest amounts
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d. capital intensive, large amounts
94. Developing countries sometimes encounter the tariff-escalation policies of advanced countries. This means that
advanced countries
a. impose higher tariffs on processed products than on primary products.
b. impose higher tariffs on primary products than on processed products.
c. impose identical tariffs on primary products and processed products.
d. allow free trade on primary products and processed products.
95. Comparing life expectancy and adult literacy of developing countries and industrial countries, we tend to see
a. lower life expectancy and higher adult literacy in developing countries.
b. higher life expectancy and lower adult literacy in developing countries.
c. higher life expectancy and higher adult literacy in developing countries.
d. lower life expectancy and lower adult literacy in industrial countries.
96. Efforts to stabilize export prices and revenues include all of the following EXCEPT
a. production and export controls.
b. buffer stocks.
c. multilateral contracts.
d. limited market access.
97. Import substitution emphasizes decreasing reliance on international trade by
a. developing import-competing industries.
b. adopting free-trade policies.
c. subsidizing efficient exporting industries.
d. reducing import tariffs on labor-intensive goods.
98. All of the following nations EXCEPT ____ have recently utilized export-led (outward oriented) growth policies.
a. Hong Kong
b. South Korea
c. Argentina
d. Singapore
99. To be considered a good candidate for an export cartel, a commodity should
a. be a manufactured good.
b. be a primary product.
c. have a high price elasticity of supply.
d. have a low price elasticity of demand.
100. The ability of OPEC nations to operate as a successful cartel tend to decrease as
a. the number of members of the cartel decline.
b. the cost of production differences among the cartel members rises.
c. the demand for oil rises in the world market.
d. the availability of substitutes for OPEC oil falls.
Figure 7.4 Global Market for Tin
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101. Consider the global market for tin represented by Figure 7.4. Initially equilibrium is at point A with a market price of
$3.50 per pound and 50,000 pounds. In order to keep tin price relatively stable, an International Tin Agreement has set a
price floor of $3.27 and a ceiling of $4.02. As the demand for tin increases to D1, how will the buffer-stock manager need
to respond?
a. buy 10,000 pounds of tin
b. buy 20,000 pounds of tin
c. sell 10,000 pounds of tin
d. sell 20,000 pounds of tin
102. Assuming identical cost and demand curves, OPEC as a cartel will, in comparison to a competitive industry,
a. produce greater output and charge a lower price.
b. produce greater output and charge a higher price.
c. produce less output and charge a higher price.
d. produce less output and charge a lower price.
103. East Asian economies have performed well by
a. obtaining foreign technology.
b. remaining closed to international trade.
c. investing in machinery.
d. reducing rates of investment.
104. Comparing per-capita incomes of many developing countries and industrial countries, we tend to see
a. lower per-capita incomes in industrial countries.
b. lower per-capita incomes in developing countries.
c. identical per-capita incomes in developing countries.
d. identical per-capita incomes in industrial countries.
105. Which device has been used by the International Wheat Agreement to stipulate the minimum prices at which
importers will buy stipulated quantities from producers and the maximum prices at which producers will sell stipulated
quantities to importers?
a. buffer stocks
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b. export controls
c. multilateral contracts
d. production controls
106. To help developing countries expand their industrial base, some industrial countries have reduced tariffs on
designated manufactured imports from developing countries below the levels applied to imports from industrial countries.
This scheme is referred to as
a. generalized system of preferences.
b. export-led growth.
c. international commodity agreement.
d. reciprocal trade agreement.
107. For Saudi Arabia, oil exports constitute about ______ of its export revenue.
a. 40 percent
b. 55 percent
c. 70 percent
d. 90 percent
Figure 7.3. World Oil Market
108. Consider Figure 7.3. Under a profit-maximizing cartel, the price of a barrel of oil equals
a. $7.
b. $11.
c. $16.
d. $19.
109. Recent trade patterns indicate that most of world trade occurs
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a. among advanced (industrial) countries.
b. among developing countries.
c. between regional trade blocks, such as NAFTA and the EU.
d. between developing countries and advanced countries.
110. The advanced (industrial) countries of the world tend to be characterized by all of the following EXCEPT
a. relatively high per-capita incomes.
b. relatively long-life expectancies.
c. relatively high levels of adult literacy.
d. relatively high reliance on exports of primary products.
Figure 7.3. World Oil Market
111. Consider Figure 7.3. Under competitive conditions, producer profits total
a. $0.
b. $140.
c. $200.
d. $280.
112. The characteristics that have underlaid the economic success of the “high-performing Asian Economies” have
included all of the following EXCEPT
a. high rates of domestic investment.
b. diseconomies of scale occurring at low output levels.
c. large endowments of human capital.
d. high levels of labor productivity.
113. Import substitution is an example of
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a. an inward-oriented growth strategy.
b. an outward-oriented growth strategy.
c. the principle of absolute advantage.
d. export led growth.
114. The mission of the ______ is to provide financial assistance to developing countries facing a balance of payments
deficits and a financial crisis.
a. Bank for International Settlements
b. International Monetary Fund
c. World Trade Organization
d. World Bank
115. A key factor underlying the instability of primary product prices and export receipts of developing nations is the
a. low price elasticity of the demand of primary products.
b. high price elasticity of the supply of primary products.
c. high price elasticity of the demand of primary products.
d. high price elasticity of the demand and supply of primary products.
116. Stabilizing commodity prices around long-term trends tends to benefit exporters at the expense of importers in
markets characterized by
a. demand-side disturbances.
b. supply-side disturbances.
c. demand-side and supply-side disturbances.
d. no disturbance.
The diagram below illustrates the international tin market. Assume that the producing and consuming countries establish
an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2. Defending the Target Price in Face of Changing Supply Conditions
117. A reason why it is difficult for producers to maintain a cartel is that
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a. the elasticity of demand for the cartel’s output decreases over time.
b. producers in the cartel have the economic incentive to cheat.
c. economic profits discourage other producers from entering the industry.
d. producers in the cartel have the motivation to lower price but not to raise price.
118. Which trade strategy have developing countries used to replace commodity exports with exports such as processed
primary products, semi-manufacturers, and manufacturers?
a. multilateral contract
b. buffer stock
c. export promotion
d. export quota
119. During the 1970s, the nations in the Organization of Petroleum Exporting Countries (OPEC) manifested their market
power by utilizing
a. export tariffs levied for revenue purposes.
b. export tariffs levied for protective purposes.
c. import tariffs levied for protective purposes.
d. import tariffs levied for revenue purposes.
120. For most developing countries, the majority of their exports consists of
a. capital-intensive agricultural products.
b. capital intensive manufactured products.
c. financial and legal services.
d. primary products.
121. For the oil-importing countries, the increases in oil prices in 1973–1974 and 1979–1980 resulted in all of the
following EXCEPT
a. balance of trade deficits.
b. price inflation.
c. constrained economic growth.
d. improving terms of trade.
122. Developing countries often argue that their
a. efforts to industrialize are encouraged.
b. export prices and revenues are very stable.
c. terms of trade have improved over time.
d. efforts to industrialize are discouraged.
123. Which industrialization policy used by developing countries emphasizes the comparative advantage principle as a
guide to resource allocation?
a. export promotion
b. import substitution
c. international commodity agreements
d. multilateral contract
124. Prior to the formation of OPEC, individual oil producing nations
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a. operated like sellers in a competitive market.
b. behaved like individual sellers in a monopoly market.
c. had considerable control over the price of oil.
d. operated like buyers in a competitive market.
125. Which method has NOT generally been used by the international commodity agreements to stabilize commodity
prices?
a. production quotas applied to the level of commodity output
b. buffer stock arrangements among producing nations
c. export restrictions applied to international sales of commodities
d. measures to nationalize foreign-owned production operations
126. The developing countries tend to reside in all of the following regions EXCEPT
a. North America.
b. Latin America.
c. Africa.
d. the Middle East.
127. Export-led growth tends to
a. exploit domestic comparative advantages.
b. discourage competition in the global economy.
c. lead to unemployment among domestic workers.
d. help firms benefit from diseconomies of large-scale production.
128. To be considered a good candidate for an export cartel, a commodity should
a. be a manufactured good.
b. be a primary product.
c. have a low price elasticity of supply.
d. have a high price elasticity of demand.
129. Which of the following is NOT a major factor that encourages developing nations to form international commodity
agreements?
a. inelastic commodity supply schedules
b. inelastic commodity demand schedules
c. export markets that tend to be unstable
d. secular increases in their terms of trade
130. Developing countries that emphasize production in raw materials and agricultural goods may realize a long-run
decline in their international terms of trade as the result of
a. an inelastic demand for these products in advanced countries.
b. a sizable decrease in the amount of these products supplied to the world market.
c. an increased demand for these products in advanced countries.
d. an elastic demand for these products in advanced countries.
131. To help developing nations strengthen their international competitiveness, many industrial nations have granted
nonreciprocal tariff reductions to developing nations under the
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a. international commodity agreements program.
b. multilateral contract program.
c. generalized system of preferences program.
d. export-led growth program.
132. Once a cartel establishes its profit-maximizing price,
a. entry into the industry of new competitors will not affect the cartel’s profits.
b. output changes by cartel members have no effect on the market price.
c. each cartel member is tempted to cheat on the cartel price in order to add to its profit.
d. all cartel members have a strong incentive to adhere to the agreed-upon price.
133. Which of the following could partially explain why the terms of trade of developing countries might deteriorate over
time?
a. Developing-country exports mainly consist of manufactured goods.
b. Developing-country imports mainly consist of primary products.
c. Commodity export prices are determined in highly competitive markets.
d. Commodity export prices are solely determined by developing countries.
134. Stabilizing commodity prices around long-term trends tends to benefit importers at the expense of exporters in
markets characterized by
a. demand-side disturbances.
b. supply-side disturbances.
c. demand-side and supply-side disturbances.
d. no disturbance.
135. For most developing countries
a. productivity is high among domestic workers.
b. population-growth and illiteracy rates are low.
c. saving and investment levels are high.
d. agricultural goods and raw materials constitute much of domestic output.
136. A sweatshop includes all of the following EXCEPT
a. poor and unsafe working conditions.
b. high wages and benefits for workers.
c. unreasonable hours for workers.
d. child labor.
137. If the supply schedule for tin is relatively inelastic to price changes, a decrease in the demand schedule for tin will
cause a
a. decrease in price and an increase in sales revenue.
b. decrease in price and a decrease in sales revenue.
c. increase in price and an increase in sales revenue.
d. increase in price and a decrease in sales revenue.
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138. Are economic downturns helpful to cartels?
139. What are some major trade problems faced by developing nations?
140. Describe the flying-geese pattern of economic growth. What countries have pursued this strategy?
141. What are some of the growth strategies that have been employed by the developing nations? How successful are
these strategies?
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Answer Key
1. True
2. True
3. True
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