International Economics, 7e (Gerber)
Chapter 8 International Trade and Labor and Environmental Standards
8.1 Introduction: Income and Standards
1) All of the following are responsible for the removal of the formal trade barriers EXCEPT
A) the General Agreement on Tariffs and Trade (GATT).
B) the World Trade Organization (WTO).
C) regional trade agreements such as NAFTA.
D) the World Bank and the IMF.
2) Monopoly powers given to domestic utility companies to create economies of scale might
unintentionally
A) be an obstacle to increased international trade.
B) be useful for the creation of a comparative advantage for the domestic country.
C) not be used for rent-seeking behaviors.
D) be a positive externality for the world as a whole.
3) Which of the following is NOT an obstacle to increased international economic integration?
A) Monopoly powers given to domestic companies of individual nations
B) High tariff rates imposed by industrialized nations
C) Health and safety standard requirements
D) Labor and environmental standard requirements
4) Greater specialization within a country
A) increases risks to the country.
B) is rarely beneficial.
C) creates winners and losers and raises issues about fairness.
D) evenly distributes benefits in the long run.
5) Which of the following is a true statement about obstacles to increased economic integration?
A) Countries generally agree about appropriate environmental standards.
B) Domestic policies do not affect international trade.
C) Production changes due to trade redistribute income fairly.
D) Adopting common standards gives an advantage to firms that already meet those standards.
6) Domestic policies can have unintended effects on international trade.
7) Health and safety standards are generally similar in most countries.
8) Many conflicts over standards result from the differences in income between countries.
9) What are two main obstacles to increased international integration?
10) Why does a country’s increased specialization due to trade raise issues of fairness?
8.2 Setting Standards: Harmonization, Mutual Recognition or Separate?
1) Harmonization of standards refers to
A) the elimination of tariffs and quotas by trading partners.
B) common product safety, environment, labor, and fair competition standards agreed upon by
trading partners.
C) the acceptance or keeping of a trading partner’s standards as valid and sufficient by another
trading partner.
D) separate standards held by different trading partners which other partners refuse to recognize.
2) Mutual recognition of standards refers to
A) the elimination of tariffs and quotas by trading partners.
B) common product safety, environment, labor, and fair competition standards agreed upon by
trading partners.
C) the acceptance of a trading partner’s standards as valid and sufficient by another trading
partner.
D) separate standards held by different trading partners which other partners refuse to recognize.
3) Separate standards refers to
A) the elimination of tariffs and quotas by trading partners.
B) common product safety, environment, labor, and fair competition standards agreed upon by
trading partners.
C) the acceptance of a trading partner’s standards as valid and sufficient by another trading
partner.
D) standards held by different trading partners which other partners refuse to recognize.
4) Most regional trade and WTO agreements practice
A) the harmonization standards only.
B) separate standards only.
C) mutual recognition standards only.
D) a combination of harmonization, mutual recognition, and separate standards.
5) When the evolution of new technologies is unknown, or it is unclear which country has the
“best” rules for standards, the adoption of ________ is the superior option.
A) a harmonization of standards
B) separate standards
C) mutual recognition standards
D) larger country standards
6) All of the following are reasons countries may be unable to use discriminatory trade practices
to enforce labor standards EXCEPT
A) countries can never impose trade barriers on other sovereign nations.
B) the WTO requires nations to treat other nations the same.
C) a single country may be unsuccessful in convincing members of its trading block to
participate in imposing the sanctions.
D) retaliation or a full blown trade war might result.
7) Domestic firms operating abroad may find it economically beneficial to adopt environment-
friendly standards because
A) foreign nations may be upset if firms do not use the environment-friendly technology.
B) the least-cost strategy usually involves the adoption of one set of environment-friendly
technology rather than multiple standards.
C) they may be forced to replace the old technology whenever the foreign country experiences
positive economic development.
D) their environment-unfriendly technology may be replaced by foreign-based technology.
8) Requiring a firm with international operations to follow the standards of its home country
instead of those of the foreign country has all of the following advantages EXCEPT
A) it takes care of the fear of a race-to-the-bottom by making it impossible for a home-based
company to exploit low standards.
B) it shifts the costs of improved standards to firms and consumers in high-income countries.
C) it avoids the problems of high-income countries dictating what standards are to be used. In
this situation, firms that cross national boundaries must conform to whichever standards are
higher.
D) it is a comprehensive measure, since it addresses the problem of production in foreign firms
as well as firms from high-standards countries that relocate abroad.
9) Which of the following is true?
A) Generally, the lower the country’s average income, the less administrative, scientific, and
technical capacity it has to design and enforce standards.
B) National priorities do not change as income changes—countries of all income levels seem to
share the same priorities and values.
C) Differences in income are always an obstacle to the harmonization of standards.
D) The adoption of a common set of rules usually narrows the market and raises prices.
10) Which of the following is FALSE?
A) Most of the world’s population lives in countries classified as low- or lower-middle income.
B) All labor and environmental conditions improve with income growth.
C) Percentage wise, more children work in low-income countries than in higher income
countries.
D) With such large income differences internationally, it is not surprising that there are very
large differences in most social, economic, and environmental indicators.
11) Race to the bottom refers to which of the following?
A) Firms have an incentive to relocate to countries with lower standards.
B) Countries have an incentive to conform to the standards of the lowest income country.
C) Countries will compete with each other to offer incentives to firms.
D) Firms will underpay workers in low income countries.
12) Harmonization of standards
A) is costly for high income countries.
B) can reduce firm costs.
C) is less difficult for dissimilar countries.
D) is part of the race to the bottom.
13) Imposing the same standards on high- and low-income countries can be a problem because
A) it widens the market and lowers prices.
B) there are no economies of scale for low-income countries.
C) high-income countries have few environmental problems.
D) low-income countries may have less ability to enforce standards.
14) As national income rises,
A) water problems are eliminated.
B) infant mortality falls.
C) emissions from fossil fuels decrease.
D) depletion of forest reserves increases at an increasing rate.
15) Harmonization of standards
A) can make it less costly for exporting firms to produce.
B) is easy to agree on.
C) is not possible for countries of different income levels.
D) is required under WTO rules.
16) Low-income countries are largely responsible for excess carbon dioxide emissions globally.
17) Mutual recognition is more efficient than other approaches to setting standards.
18) Lower income countries may have more difficulties in enforcing standards.
19) Harmonization of standards can institutionalize a set of inferior standards.
20) What environmental problem gets worse as income rises according to your text?
21) Suppose two nations are seeking to expand their commercial relations. What options do they
have in terms of addressing conflicts in standards? Describe each and what conditions might
favor different approaches to setting standards.
22) Describe the connections between rising income and environmental and social indicators.
Which indicators improve and which worsen as national income rises?
23) Explain the three options for setting standards in trade rules.
24) Explain how harmonization of standards might increase productive efficiency.
8.3 Labor Standards
1) The race-to-the-bottom concept described in the text refers to
A) the situation in which countries with high standards are forced to lower their standards or face
the loss of jobs and industry.
B) the situation in which human rights are not respected by trading countries.
C) adopting the standards of a few selected middle-income and high-income countries.
D) the use of low per-capita income as a means of comparing the well-being of individuals.
2) The use of trade barriers to enforce standards abroad raises all of the following concerns
EXCEPT
A) the potential deadweight losses in consumption and production at home.
B) the potential for the use of trade barriers to erupt into a bigger trade war.
C) the difficulty of knowing whether some of the concerns are over standards or are veiled
protectionism.
D) only small countries may be able to use trade barriers effectively.
3) Developing countries are usually unwilling to negotiate over labor standards because
A) the WTO always tends to rule in favor of industrialized nations.
B) they fear that industrialized nations are trying to undermine their comparative advantage—
production of agriculture and textiles/apparel—and close the markets of high-income countries
in these areas.
C) they fear that they may be unable to compete without some protection of their industries.
D) organized labor would not allow them to negotiate with other countries.
4) Discriminatory trade practices are allowed among sister WTO member countries, especially
when it comes to
A) the use of child labor in agricultural and textile/apparel products.
B) national security and special benefits given to other members of a free trade area.
C) the protection of agriculture and textile/apparel from open trade.
D) environmental protection.
5) Low labor standards are usually associated with
A) nondemocratic governments.
B) high-income countries.
C) high-wage countries.
D) low foreign investment.