Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues.
Topic: Development of the World Trading System
38.
Tariff barriers lower the costs of exporting products to a country.
FALSE
Trade barriers constrain a firm’s ability to disperse its productive activities
in such a manner. Tariff barriers raise the costs of exporting products to a
country (or of exporting partly finished products between countries).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers
39.
The threat of antidumping action limits the ability of a firm to use
aggressive pricing to gain market share in a country.
TRUE
The threat of antidumping action limits the ability of a firm to use
aggressive pricing to gain market share in a country. Firms in a country also
can make strategic use of antidumping measures to limit aggressive
competition from low-cost foreign producers.
AACSB: Analytic
40.
To conform to local content regulations, a firm may have to locate more
production activities in a given market than it would otherwise.
TRUE
To conform to local content regulations, a firm may have to locate more
production activities in a given market than it would otherwise. Again, from
the firm’s perspective, the consequence might be to raise costs above the
level that could be achieved if each production activity was dispersed to the
optimal location for that activity.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system.
Topic: Implication for Managers
Multiple Choice Questions
41.
Which of the following is NOT one of the main instruments of trade policy?
A.
Tariffs
B.
Credit portfolios
C.
Local content requirements
D.
Trade policy uses seven main instruments: tariffs, subsidies, import quotas,
voluntary export restraints, local content requirements, administrative
policies, and antidumping duties. Tariffs are the oldest and simplest
instrument of trade policy.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
42.
Specific tariffs are:
A.
levied as a proportion of the value of the imported good.
B.
government payment to domestic producers.
C.
in the form of manufacturing or production requirements of goods.
D.
levied as a fixed charge for each unit of a good imported.
Specific tariffs are levied as a fixed charge for each unit of a good imported
(for example, $3 per barrel of oil).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
43.
Tariffs do not benefit:
A.
consumers.
B.
domestic producers.
C.
governments.
D.
domestic firms.
The important thing to understand about an import tariff is who suffers and
who gains. The government gains, because the tariff increases government
revenues. Domestic producers gain, because the tariff affords them some
protection against foreign competitors by increasing the cost of imported
foreign goods. Consumers lose because they must pay more for certain
imports.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
44.
Import tariffs:
A.
reduce the price of foreign goods.
B.
create efficient utilization of resources.
C.
reduce the overall efficiency of the world economy.
D.
are unambiguously pro-consumer and anti-producer.
Import tariffs reduce the overall efficiency of the world economy. They
reduce efficiency because a protective tariff encourages domestic firms to
produce products at home that, in theory, could be produced more
efficiently abroad. The consequence is an inefficient utilization of resources.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
45.
By lowering production costs, _____ help domestic producers compete
against foreign imports.
A.
subsidies
B.
duties
C.
quotas
D.
tariffs
By lowering production costs, subsidies help domestic producers in two
ways: (1) competing against foreign imports and (2) gaining export markets.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
46.
Which of the following observations about subsidies is true?
A.
Government subsidies must be paid for, typically by taxing individuals
and corporations.
B.
Subsidies are used to reduce exports from a sector, often for political
reasons.
C.
Whether subsidies generate national benefits that exceed their national
costs is debatable.
D.
Subsidies help foreign producers gain a competitive advantage over
domestic producers.
A subsidy is a government payment to a domestic producer. Government
subsidies must be paid for, typically by taxing individuals and corporations.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
47.
Which of the following is a consequence of subsidies?
A.
Subsidies make domestic producers vulnerable to foreign competition.
B.
Subsidies lead to lowered production.
C.
Subsidies protect inefficient domestic producers.
D.
Subsidies produce revenue for the government.
In practice, many subsidies are not that successful at increasing the
international competitiveness of domestic producers. Rather, they tend to
protect the inefficient and promote excess production.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
48.
According to the _____ policy, subsidies can help a firm achieve a first-
mover advantage in an emerging industry.
A.
strategic trade
B.
antidumping
C.
tariff quota
D.
free trade
Advocates of strategic trade policy favor subsidies to help domestic firms
achieve a dominant position in those industries in which economies of scale
are important and the world market is not large enough to profitably support
more than a few firms. According to this argument, subsidies can help a
firm achieve a first-mover advantage in an emerging industry.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
49.
_____ is a direct restriction on the quantity of some good that may be
imported into a country.
A.
Import tariff
B.
Import quota
C.
Import subsidy
D.
Ad valorem tariff
An import quota is a direct restriction on the quantity of some good that
may be imported into a country. The restriction is usually enforced by
issuing import licenses to a group of individuals or firms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
50.
A common hybrid of a quota and a tariff is known as a(n):
A.
import tariff quota.
B.
voluntary export restraint.
C.
ad valorem tariff.
D.
tariff rate quota.
A common hybrid of a quota and a tariff is known as a tariff rate quota.
Under a tariff rate quota, a lower tariff rate is applied to imports within the
quota than those over the quota.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
51.
_____ is a quota on trade imposed by the exporting country, typically at the
request of the importing country’s government.
A.
Voluntary export restraint
B.
Specific tariff quota
C.
Trade reconciliation
D.
Ad valorem tariff
A voluntary export restraint (VER) is a quota on trade imposed by the
exporting country, typically at the request of the importing country’s
government.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
52.
The Japanese government was pressurized by the U.S. government to place
limits on the number of vehicles exported to the United States by Japanese
automobile producers in 1981. This is an example of:
A.
tariff rate quota.
B.
specific tariffs.
C.
voluntary export restraint.
D.
ad valorem tariff.
A voluntary export restraint (VER) is a quota on trade imposed by the
exporting country, typically at the request of the importing country’s
government. One of the most famous historical examples is the limitation on
auto exports to the United States enforced by Japanese automobile
producers in 1981.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
53.
Tariff rate quotas are common in agriculture, where their goal is to:
A.
reduce the use of synthetic fertilizers.
B.
limit imports over quota.
C.
increase agricultural imports.
D.
increase foreign competition.
Under a tariff rate quota, a lower tariff rate is applied to imports within the
quota than those over the quota. Tariff rate quotas are common in
agriculture, where their goal is to limit imports over quota.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
54.
A quota rent is:
A.
a quota on trade imposed by the exporting country.
B.
levied as a fixed charge for each unit of a good imported.
C.
levied as a proportion of the value of the imported good.
D.
the extra profit producers make when supply is artificially limited by an
import quota.
The extra profit that producers make when supply is artificially limited by an
import quota is referred to as a quota rent.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
55.
Foreign producers typically agree to voluntary export restrictions because:
A.
their manufacturing capacity is limited.
B.
they can divert their exports to other countries and charge more for their
products.
C.
they fear far more damaging punitive tariffs or import quotas might follow
if they do not.
D.
they are required to by the World Trade Organization.
Foreign producers agree to VERs because they fear more damaging punitive
tariffs or import quotas might follow if they do not. Agreeing to a VER is
seen as a way to make the best of a bad situation by appeasing
protectionist pressures in a country.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
56.
Which of the following statements concerning a voluntary export restraint is
NOT true?
A.
It benefits domestic producers by limiting import competition.
B.
In most cases, it benefits consumers.
C.
It raises the domestic price of an imported good.
D.
It is a variant of the import quota.
As with all restrictions on trade, quotas do not benefit consumers. An import
quota or VER always raises the domestic price of an imported good. When
imports are limited to a low percentage of the market by a quota or VER, the
price is bid up for that limited foreign supply.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
57.
According to _____, some specific fraction of a good must be produced
domestically.
A.
import quotas
B.
voluntary export restraints
C.
local content requirements
D.
antidumping duties
A local content requirement is a requirement that some specific fraction of
a good be produced domestically. The requirement can be expressed either
in physical terms or in value terms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy
58.
According to the Buy America Act, if a company wishes to win a contract
from a U.S. government agency to provide some equipment, it must ensure
that at least 51 percent of the product by value is manufactured in the
United States. This is an example of:
A.
antidumping duties.
B.
voluntary export restraints.
C.
import quotas.
D.
local content requirements.
The Buy America Act specifies that government agencies must give
preference to American products when putting contracts for equipment out
to bid unless the foreign products have a significant price advantage. The
law specifies a product as “American” if 51 percent of the materials by value
are produced domestically. This amounts to a local content requirement.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows.
Topic: Instruments of Trade Policy