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c7 Key
1. Subsidies are a trade policy instrument.
2. Import tariffs protect domestic producers against foreign competitors.
3. By lowering production costs, subsidies help foreign competitors gain export markets.
4. In recent decades, a fall in subsidies, quotas, and voluntary export restraints has been accompanied by a rise
in tariff barriers.
5. Specific tariffs are levied as a proportion of the value of the imported good.
6. Government intervention in international trade can take the form of reducing restrictions on imports and
encouraging foreign direct investment.
7. Political arguments for government intervention are usually concerned with protecting consumer interests
within the country.
8. Governments can protect consumers from unsafe products by issuing a limit or a ban on such products.
9. Some countries argue that government intervention to protect certain domestic industries can compromise
national security.
10. The Common Agricultural Policy (CAP) established by the European Union was designed to reduce prices
of domestic produce and protect consumers from unfair premiums.
11. The main gains from subsidies accrue to importers, whose international competitiveness is increased as a
result of these subsidies.
12. According to Alexander Hamilton, governments must temporarily support new industries until they have
grown strong enough to meet international competition.
13. According to Paul Krugman, a country that adopts a strategic trade policy aimed at establishing domestic
firms in a dominant position in a global industry will probably provoke retaliation.
14. Both import quotas and voluntary export restraints (VERs) benefit domestic producers by limiting import
competition.
15. The Buy America Act specifies that government agencies must give preference to American products when
putting contracts for equipment out for bid unless the foreign products have a significant advantage.
16. Dumping is variously defined as selling goods in a foreign market at below their costs of production, or as
selling goods in a foreign market at below their "fair" market value.
17. Paul Krugman asserts that a strategic trade policy is almost certain to be captured by special-interest groups
within the economy, who will distort it to their own needs.
18. The strategic trade policy arguments of the new trade theorists suggest an economic justification for
government intervention in international trade and this justification challenges the rationale for unrestricted free
19. Paul Krugman argues that although strategic trade policy looks unappealing in theory, in practice it is most
likely to be workable.
20. Free trade as a government policy was first officially embraced by Germany in 1846, when the Bundestag
repealed the Corn Laws.
21. The Smoot-Hawley Act aimed to liberalize trade by eliminating tariffs, subsidies, and import quotas.
22. Pressures for greater protectionism increased around the world during the 1980s and early 1990s due to the
strain caused by the persistent trade deficit in the world's largest economy, Japan.
23. One of the reasons for the trend toward greater protectionism was that many countries found ways to get
around GATT regulations.
24. In the Uruguay Round of the WTO, member countries sought to exempt trade in services from GATT rules.
25. Governments of developed nations are setting an example by unilaterally lowering their trade barriers.
26. Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal
industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment.
27. Trade barriers encourage firms to disperse their productive activities—design, production, and
assembly—to foreign nations.
28. A firm may set up production activities in a foreign country, where trade barriers do not currently exist, to
reduce the threat of trade barriers being imposed later.
29. The threat of antidumping action enhances the ability of a firm to use aggressive pricing to gain market
share in a country.
30. Government intervention can be self-defeating because it tends to protect the inefficient rather than help
firms become efficient global competitors.
31. Which of the following is a trade policy instrument that the GATT and WTO have been most successful in
limiting?
32. Which of the following groups benefits the most from the imposition of tariffs?
33. A charge of 15-20% was levied by the government of Cadmia on the value of automobile accessories
imported from a neighboring country. This increased the price of those imported car accessories for the
consumers in Cadmia. Which of the following instruments of trade policy is being used by the government of
Cadmia?
34. Which of the following identifies an attribute of tariffs?
35. Which of the following is most likely to be an objective of export tariffs?
36. By lowering production costs, subsidies help domestic producers to:
37. Which of the following groups would benefit the most from receiving subsidies?
38. Which of the following statements is true about import quotas?
39. Which of the following is the term for when a lower tariff rate is applied to imports within the quota than
those over the quota?
40. The country of Argonia imposes an ad valorem tariff of 10 percent on 1 million tons of rice imports, after
which an out-of-quota tariff of 80 percent is applied. Which of the following trade policy instruments is Argonia
using?
41. Which of the following refers to a quota on trade imposed by the exporting country, typically at the request
of the importing country's government?
42. Which of the following statements is true about voluntary export restraints (VERs)?
43. The extra profit that producers make when supply is artificially limited by an import quota is referred to as
a:
44. Which of the following requires that some specific fraction of a good must be produced domestically?
45. Animax Limited got an order to sell 50,000 central processing units (CPUs) to Palladia, but the Palladian
government stipulated that 15 percent of the component parts of those CPUs must be produced in Palladia. This
stipulation by the Palladian government would be example of a(n):
46. Which of the following specifies that U.S. government agencies must give preference to U.S. products when
putting contracts for equipment out to bid unless the foreign products have a significant price advantage?
47. Which of the following are bureaucratic rules designed to make it difficult for imports to enter a country?
48. The Palladian government required that all imported products that came from Lovaskiya be checked by
Palladian customs inspectors. The inspection was done at a container freight station that was both remote and
poorly staffed. This delayed the Lovaskiyan consignment from reaching the consumers in Palladia. The
inspection strategy adopted by the customs officers in Palladia is an example of a(n):
49. If Argonia exports vast quantities of cheap toys to Cadmia, selling them at below their costs of production, it
would constitute:
50. Dumping involves foreign producers:
