ECO 305 Week 4 Quiz 3 Chapter 5 and 6 – Strayer University NEW

ECO 305 Week 4 Quiz – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

http://budapp.net/ECO-305-Week-4-Quiz-Strayer-361.htm

 

CHAPTER 5

NON TARIFF TRADE BARRIERS

MULTIPLE CHOICE

1. The imposition of a tariff on imported steel for the home country results in:
a. Improving terms of trade and rising volume of trade
b. Higher steel prices and falling steel consumption
c. Lower profits for domestic steel companies
d. Higher unemployment for domestic steel workers

2. Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the intensity of international competition?
a. Orderly marketing agreement
b. Local content requirements
c. Import quota
d. Trigger price mechanism

3. Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes an export quota on its automakers. The largest share of the export quota’s “revenue effect” would tend to be captured by:
a. The U.S. government
b. Japanese automakers
c. American auto consumers
d. American autoworkers

4. Suppose the government grants a subsidy to domestic producers of an import-competing good. The subsidy tends to result in deadweight losses for the domestic economy in the form of the:
a. Consumption effect
b. Redistribution effect
c. Revenue effect
d. Protective effect

5. Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies. This is because, unlike domestic subsidies, import tariffs and quotas:
a. Permit less efficient home production
b. Distort choices for domestic consumers
c. Result in higher tax rates for domestic residents
d. Redistribute revenue from domestic producers to consumers

6. Suppose the government grants a subsidy to its export firms that permits them to charge lower prices on goods sold abroad. The export revenue of these firms would rise if the foreign demand is:
a. Elastic in response to the price reduction
b. Inelastic in response to the price reduction
c. Unit elastic in response to the price reduction
d. None of the above

7. Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold overseas, the home country’s:
a. Export revenues will decrease
b. Export revenues will rise
c. Terms of trade will worsen
d. Terms of trade will improve

8. Which trade restriction stipulates the percentage of a product’s total value that must be produced domestically in order for that product to be sold domestically?
a. Import quota
b. Orderly marketing agreement
c. Local content requirement
d. Government procurement policy

9. The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to:
a. Rise
b. Fall
c. Remain unchanged
d. None of the above

10. Domestic content legislation applied to autos would tend to:
a. Support wage levels of American autoworkers
b. Lower auto prices for American autoworkers
c. Encourage American automakers to locate production overseas
d. Increase profits of American auto companies

11. Compared to an import quota, an equivalent tariff may provide a less certain amount of protection for home producers since:
a. A tariff has no deadweight loss in terms of production and consumption
b. Foreign firms may absorb the tariff by offering exports at lower prices
c. Tariffs are effective only if home demand is perfectly elastic
d. Quotas do not result in increases in the price of the imported good

12. Empirical studies show that because voluntary export quotas are typically administered by exporting countries, foreign exporters tend to:
a. Raise their export prices, thus capturing much of the quota’s revenue effect
b. Lower their export prices, thus losing much of the quota’s revenue effect
c. Raise their export prices, thus selling more goods overseas
d. Lower their export prices, thus selling fewer goods overseas

13. Concerning the restrictive impact of an import quota, assume there occurs an increase in the domestic demand for the import product. As long as the quota falls short of what would be imported under free market conditions, the economy’s adjustment to the increase in demand would take the form of:
a. A decrease in domestic production of the import good
b. An increase in the amount of the good being imported
c. An increase in the domestic price of the import good
d. A decrease in domestic consumption of the import good

14. Assume the U.S. has a competitive advantage in producing calculators, while the rest of the world has a competitive advantage in steel. Suppose the U.S. and the rest of the world enter into an agreement to lower import quotas below existing levels on calculators and steel. Which of the following would least likely occur for the U.S.? Rising levels of:
a. Consumer surplus for American buyers of steel
b. Producer surplus for American steelmakers
c. Production in the American calculator industry
d. Producer surplus for American calculator producers

15. A firm that faces problems of falling sales and excess productive capacity might resort to international dumping if it:
a. Can charge higher prices in markets that are elastic to price changes
b. Earns revenues on foreign sales that at least cover variable costs
c. Can sell at that price where domestic and foreign demand elasticities equate
d. Is able to force foreign prices below marginal production costs

16. A producer successfully practicing international dumping would charge:
a. A relatively higher price in the more inelastic market
b. A relatively higher price in the more elastic market
c. The same price in all markets, regardless of their elasticities
d. Different prices in all markets, regardless of their elasticities

17. The practice of Canadian firms dumping their products in Sweden poses a problem for economic policymakers since dumping tends to:
a. Favor Swedish consumers over Canadian consumers
b. Favor Swedish producers over Canadian producers
c. Become widespread as firms operate at full productive capacity
d. Result in firms charging prices above the total costs of production

18. The United Auto Workers union attempted to win the approval of legislation that would moderate the practice of foreign sourcing on the part of American auto manufacturers. Which of the following best represents this legislation?
a. Voluntary export quotas
b. Trigger price mechanism
c. Tariff quotas
d. Local content laws

19. A main factor behind the president’s decision to extend relief to steel firms in the form of trigger prices was that:
a. Dumping complaints can be time consuming and expensive to implement
b. The Tokyo Round outlawed the granting of subsidies to steel firms
c. Trigger prices involve zero deadweight welfare loss for the economy
d. Orderly marketing agreements were too costly to administer

20. If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:
a. The quota results in efficiency reductions but the tariff does not
b. The tariff results in efficiency reductions but the quota does not
c. They have different impacts on how much is produced and consumed
d. They have different impacts on how income is distributed

21. If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:
a. The quota results in efficiency reductions but the tariff does not
b. The tariff results in efficiency reductions but the quota does not
c. They have identical impacts on how much is produced and consumed
d. They have identical impacts on how income is distributed

22. From the perspective of the American public as a whole, export subsidies levied by overseas governments on goods sold to the United States:
a. Help more than they hurt
b. Hurt more than they help
c. Are equivalent to an import quota
d. Are equivalent to an export quota

23. Export subsidies levied by foreign governments on products in which the United States has a comparative disadvantage:
a. Lower the welfare of all Americans
b. Lead to increases in U.S. consumer surplus
c. Encourage U.S. production of competing goods
d. Encourage U.S. workers to demand higher wages

24. If import licenses are auctioned off to domestic importers in a competitive market, their scarcity value (revenue effect) accrues to:
a. Foreign corporations
b. Foreign workers
c. Domestic corporations
d. The domestic government

25. A specification of a maximum amount of a foreign produced good that will be allowed to enter the country over a given time period is referred to as:
a. A domestic subsidy
b. An export subsidy
c. An import quota
d. An export quota

26. Import quotas tend to lead to all of the following except:
a. Domestic producers of the imported good being harmed
b. Domestic consumers of the imported good being harmed
c. Prices increasing in the importing country
d. Prices falling in the exporting country

27. To maintain that South Koreans are dumping their VCRs in the United States is to maintain that:
a. Koreans are selling VCRs in the United States below their production cost
b. Koreans are selling VCRs in the United States above their production cost
c. The cost of manufacturing VCRs in Korea is lower in Korea than in the United States since wages are lower in Korea
d. The cost of manufacturing VCRs in Korea is higher in Korea than in the United States since wages are higher in Korea

28. If the home country’s government grants a subsidy on a domestically produced good, domestic producers tend to:
a. Capture the entire subsidy in the form of higher profits
b. Increase their level of production
c. Reduce wages paid to domestic workers
d. Consider the subsidy as an increase in production cost

29. For years the U.S. government levied quotas on inexpensive oil imported from the Middle East. The quotas led to cost increases for U.S. consumers totaling $3 billion for oil products. An apparent justification for this policy was that:
a. U.S. oil companies and workers deserved higher incomes
b. U.S. oil was of superior quality and merited higher prices
c. One should not be too dependent on foreign suppliers of crucial resources
d. The U.S. government needed the quota revenue to balance its budget

30. In certain industries, Japanese employers do not lay off workers. Therefore, they sometimes have excess supplies of goods that they cannot sell on the home market without lowering prices. To hold down losses, they sell goods in overseas markets at prices well beneath those in Japan. This practice is best referred to as:
a. Orderly marketing
b. Trigger pricing
c. Domestic content pricing
d. Dumping

Figure 5.1 illustrates the steel market for Mexico, assumed to be a “small” country that is unable to affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now suppose the Mexican steel industry is able to obtain trade protection.

Figure 5.1. Alternative Nontariff Trade Barriers Levied by a “Small” Country

31. Consider Figure 5.1. With free trade, the quantity of steel imported by Mexico equals:
a. 2 tons
b. 4 tons
c. 6 tons
d. 8 tons

32. Consider Figure 5.1. With free trade, Mexico’s consumer surplus and producer surplus respectively equal:
a. $2000 and $1200
b. $3200 and $200
c. $3600 and $800
d. $4000 and $600

33. Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of steel.

If Mexican steel importers behave as monopoly buyers and foreign exporters behave as competitive sellers, the overall welfare loss of the quota to Mexico equals:
a. $200
b. $400
c. $600
d. $800

34. Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of steel.

If foreign exporters behave as monopoly sellers, and Mexican importers behave as competitive buyers, the overall welfare loss of the quota to Mexico equals:
a. $200
b. $400
c. $600
d. $800

35. Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of steel.

If the Mexican government auctions import licenses to the highest foreign bidder, the overall welfare loss of the quota to Mexico equals:
a. $200
b. $400
c. $600
d. $800

36. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule SM (with subsidy).

The quantity of imports equals:
a. 1 ton
b. 2 tons
c. 3 tons
d. 4 tons

37. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule SM (with subsidy).

The total cost of the subsidy to the Mexican government equals:
a. $200
b. $400
c. $600
d. $800

38. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule SM (with subsidy).

As a result of the subsidy Mexican steel producers gain ____ of producer surplus.
a. $200
b. $400
c. $600
d. $800

39. Consider Figure 5.1. Suppose instead that the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule SM (with subsidy).

As a result of the subsidy, the welfare loss to Mexico due to inefficient domestic production equals:
a. $200
b. $400
c. $600
d. $800

40. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel producers, as indicated by the supply schedule SM (with subsidy).

The overall deadweight welfare loss to Mexico equals:
a. $200
b. $400
c. $600
d. $800

41. Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to Mexico vis-a-vis an export quota equal to 2 tons.

Assuming Mexican importers behave as competitive buyers while foreign exporters behave as monopoly sellers, the overall welfare loss of the quota to Mexico is:
a. $200
b. $400
c. $600
d. $800

42. Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to Mexico vis-a-vis an export quota equal to 2 tons.

Assuming Mexican importers behave as monopoly buyers while foreign exporters behave as competitive sellers, the overall welfare loss of the quota to Mexico is:
a. $200
b. $400
c. $600
d. $800

Figure 5.2 illustrates the revenue and cost conditions of ABC Inc. which sells calculators in Canada and France.

Figure 5.2. International Dumping

43. Consider Figure 5.2. In the absence of international dumping, ABC Inc. maximizes profits by selling ____ calculators at a price of $____; the firm realizes profits totaling $____.
a. 27, $5, $54
b. 27, $5, $36
c. 24, $4, $46
d. 24, $4, $28

44. Referring to Figure 5.2, consider if ABC Inc. sells 27 calculators at a price of $5 each, realizing profits totaling $54. Of this quantity, ABC Inc. sells ____ calculators in Canada and realizes revenues totaling $____; the firm sells ____ calculators in France and realizes revenues totaling $____.
a. 15, $35, 9, $45
b. 15, $45, 9, $35
c. 21, $105, 6, $30
d. 21, $30, 6, $105

45. Consider Figure 5.2. With international dumping, ABC Inc. sells ____ calculators to Canadian buyers at a price of $____ and ____ calculators to French buyers at a price of $____.
a. 15, $4, 12, $7
b. 15, $7, 12, $4
c. 9, $5, 15, $6
d. 9, $6, 15, $5

46. Consider Figure 5.2. Compared with the total revenue and total profit that ABC Inc. realizes in the absence of dumping, with dumping the firm attains a:
a. Fall in revenue of $18; fall in profits of $15
b. Fall in revenue of $18, fall in profits of $18
c. Rise in revenue of $18, rise in profits of $15
d. Rise in revenue of $18, rise in profits of $18

Figure 5.3 illustrates the apple market for Sweden, assumed to be a “small” country that is unable to affect the world price. SSweden is the domestic supply and DSweden is the domestic demand. SSweden+Quota is Sweden’s supply schedule with an import quota.

Figure 5.3. Sweden’s Apple Market

47. Consider Figure 5.3. In the absence of trade, Sweden’s equilibrium price and quantity of apples would be:
a. $0.60 and 22 pounds
b. $0.60 and 14 pounds
c. $1.00 and 18 pounds
d. $1.40 and 14 pounds

48. Consider Figure 5.3. Suppose the rest of the world can supply apples to Sweden at a price of $0.60 per pound. With free trade, Sweden produces ____ pounds of apples and imports ____ pounds of apples.
a. 10, 8
b. 10, 18
c. 6, 22
d. 6, 16

49. Consider Figure 5.3. At the free-trade price of $0.60 per pound, Sweden’s consumer surplus totals $____ and producer surplus totals $____.
a. $10.80, $2.40
b. $14.60, $3.90
c. $24.20, $1.80
d. $32.40, $2.30

50. Consider Figure 5.3. If SSweden+Quota represents the supply schedule after a quota is levied, Sweden’s imports will equal:
a. 6 apples
b. 8 apples
c. 10 apples
d. 12 apples

51. Consider Figure 5.3. After the quota is levied, the price of apples in Sweden will equal:
a. $0.60 per pound
b. $1.00 per pound
c. $1.40 per pound
d. $1.80 per pound

52. Consider Figure 5.3. As a result of the quota, Sweden’s consumer surplus:
a. Increases by $6
b. Increases by $8
c. Decreases by $6
d. Decreases by $8

53. Consider Figure 5.3. The quota leads to a deadweight welfare loss for Sweden of an amount equaling:
a. $0.80
b. $1.60
c. $2.40
d. $3.20

54. Consider Figure 5.3. The quota’s revenue effect equals:
a. $1.60
b. $2.40
c. $3.20
d. $4.00

55. Consider Figure 5.3. Assume that Swedish import companies behave as competitive buyers while foreign export companies behave as a monopoly seller. Compared to free trade, Sweden’s import quota results in domestic welfare:
a. Gains totaling $3.20
b. Gains totaling $4.80
c. Losses totaling $3.20
d. Losses totaling $4.80

56. Consider Figure 5.3. Assume that Swedish import companies behave as a monopoly buyer while foreign export companies behave as competitive sellers. Compared to free trade, Sweden’s import quota results in domestic welfare:
a. Gains totaling $1.60
b. Gains totaling $3.20
c. Losses totaling $1.60
d. Losses totaling $3.20

57. Consider Figure 5.3. If the Swedish government auctions import licenses to the highest bidder in a competitive market, it could realize revenues of up to:
a. $3.20
b. $4.00
c. $4.80
d. $5.60

Figure 5.4 illustrates the calculator market for Venezuela, assumed to be a “small” country that is unable to affect the world price. SVenezuela is the domestic supply schedule and DVenezuela is the domestic demand schedule.

Figure 5.4. Venezuelan Calculator Market

58. Consider Figure 5.4. Suppose the rest of the world supplies calculators to Venezuela at a price of $4 each. With free trade, Venezuelan imports total:
a. 8 calculators
b. 16 calculators
c. 20 calculators
d. 24 calculators

59. Consider Figure 5.4. Assume the Venezuelan government grants its manufacturers a production subsidy of $4 per calculator. After the subsidy is granted, Venezuelan imports total:
a. 8 calculators
b. 12 calculators
c. 16 calculators
d. 20 calculators

60. Consider Figure 5.4. The cost of the production subsidy to the Venezuelan government totals:
a. $32
b. $40
c. $48
d. $54

61. Consider Figure 5.4. The increase in Venezuelan producer surplus under the production subsidy totals:
a. $16
b. $20
c. $24
d. $32

62. Consider Figure 5.4. The production subsidy results in an overall welfare loss for Venezuela totaling:
a. $8
b. $12
c. $16
d. $20

63. A voluntary export agreement
a. Typically applies only to the world’s most important exporting nation(s)
b. Typically applies only to the world’s least important exporting nation (s)
c. Is always more restrictive on trade than a tariff or import quota
d. All of the above

64. When voluntary export limits are imposed on the world’s chief exporter
a. The exports of the non-restrained suppliers may be stimulated
b. A trade diversion effect may occur
c. Both a and b
d. None of the above

65. Subsidies to domestic firms may lead to
a. An increase in prices
b. Higher volume of exports
c. Higher volume of imports
d. Increase in welfare of the trading partner

66. Concerning international dumping, many economists argue that “fair value” should be based on
a. Average variable cost
b. Average fixed cost
c. Marginal cost
d. Total cost

TRUE/FALSE

1. In the post-World War II era, Nontariff trade barriers have decreased in importance relative to tariff barriers.

2. An import quota is a physical restriction on the quantity of goods that may be imported during a specified time period.

3. Today most industrial countries protect their industries via global import quotas rather than selective import quotas.

4. A global import quota permits a specified number of goods to be imported each year, but does not specify where the product is shipped from and who is permitted to import.

5. Import tariffs and import quotas yield identical protection effects, consumption effects, redistribution effects, and revenue effects.

6. Import quotas can yield revenue for the domestic government if it auctions import licenses to the highest bidder in a competitive market.

7. To the extent that domestic importing companies organize as a monopoly buyer, and foreign exporting companies behave as competitive sellers, the importing companies capture the revenue effect of a quota.

8. An import quota tends to reduce the overall welfare of the importing nation by an amount equal to the protective effect, consumption effect, and the portion of the revenue effect that is captured by the domestic government.

9. The sugar import quotas of the U.S. government have tended to increase the market price of sugar, thus reducing the costs to the government of maintaining sugar price supports for domestic growers.

10. During periods of growing demand, a tariff more effectively restricts the volume of imports than an equivalent import quota.

11. With a quota placed on imported sugar, increased domestic demand leads to increased sugar imports but not to higher sugar prices.

12. With a tariff on auto imports, increased domestic demand leads to a fall in the number of autos imported and a rise in the number of autos produced domestically.

13. An orderly marketing agreement is a market-sharing pact negotiated by trading nations, and its effect is to moderate the intensity of international competition.

14. An elimination of nontariff barriers on apples tends to increase apple imports, reduce profits of import-competing apple producers, and generate job losses for domestic apple workers.

15. The distribution of an import quota’s revenue effect depends on the relative concentration of bargaining power between foreign exporters and domestic importers.

16. Voluntary export restraint agreements typically apply to all of the world’s exporting nations rather than only the most important exporting nations.

17. For an export quota applied to manufactured goods, foreign exporters tend to capture only a negligible share of the quota’s revenue effect.

18. When increases in nonrestraint supply offset part of the cutback in shipments that occur under an export quota, the overall inefficiency loss for the importing country is less than that which would have occurred in the absence of nonrestrained exports.

19. Export quotas, placed on Japanese auto shipments to the United States in the 1980s, led to rising prices of both Japanese autos and U.S.-produced autos purchased by the U.S. consumer.

20. Under the Multifiber Arrangement, the United States can export only limited quantities of textiles and apparel to Taiwan, Hong Kong, South Korea, and China.

21. During the 1980s, U.S. steel-using companies (Caterpillar) actively supported the U.S. government’s negotiation of voluntary export agreements with foreign steel-exporting countries.

22. By limiting the amount of foreign sourcing, local content laws are viewed as a means of jobs preservation for domestic workers.

23. Local content laws stipulate the maximum percentage of a product’s total value that must be produced domestically for that product to be sold domestically.

24. Local content laws are consistent with the principle of import substitution, in which domestic production replaces the importation of goods from abroad.

25. To the extent that a local content requirement forces firms to locate production in a high-cost nation, product price rises and consumer surplus falls.

26. A subsidy granted to import-competing producers results in a welfare loss to the economy by an amount equal to the protective effect plus the consumption effect.

27. A subsidy granted to import-competing producers is intended to lead to increased domestic production and decreased imports for the home country.

28. A subsidy granted to an import-competing producer shifts its supply schedule outward to the right.

29. A subsidy granted to an import-competing producer imposes a deadweight loss on the domestic economy equal to the redistribution effect plus consumption effect.

30. A subsidy granted to import-competing producers reduces overall domestic welfare by the same amount as would a tariff or quota that restricts imports by the same amount.

31. To the extent that subsidies granted to exporting firms reduce the foreign price of their goods, the subsidizing country’s terms of trade worsen.

32. If the U.S. demand for Korean steel is price elastic, an export subsidy granted to Korean steel firms will increase Korea’s export revenue.

33. International dumping occurs when foreign buyers are charged higher prices than domestic buyers for an identical product, after allowing for transportation costs and tariff duties.

34. Sporadic (distress) dumping would occur if domestic orange producers dispose of an excess quantity of oranges, resulting from an abnormally large harvest, by selling them at lower prices abroad than at home.

35. Predatory dumping would occur if Toyota Inc. of Japan sells autos to U.S. consumers at lower prices than to Japanese consumers in order to put Chrysler Inc. out of business.

36. A firm would increase profits from dumping if it charges a lower price at home, where demand is inelastic, and a higher price abroad where demand is elastic.

37. The purpose of international dumping is to decrease a firm’s costs and increase its profits, compared to what would be realized in the absence of dumping.

38. A firm granting lifetime employment to its workers has the incentive to engage in international dumping during periods of business recession and excess production capacity.

39. A firm suffering idle plant capacity would minimize losses by selling its product abroad at a lower price than at home, provided that the foreign price more than covers average variable cost.

40. Under U.S. antidumping law, an antidumping duty can be levied when the U.S. Commerce Department determines that a foreign product is being sold in the United States at less than fair value and the U.S. International Trade Commission determines that the dumped product is causing economic harm to domestic producers.

41. The margin of dumping equals the amount by which the foreign price is greater than the domestic price, or the amount by which the foreign price exceeds the cost of production.

42. For most nations, the ratio of imports to total purchases in the public sector is much higher than in the private sector.

43. According to the U.S. Buy American Act, federal government agencies cannot purchase materials and products from U.S. suppliers if their prices are higher than those of foreign competitors.

44. For the United States, the Buy American Act has tended to increase consumer surplus for U.S. buyers of protected merchandise.

45. An effective Buy American law would tend to increase U.S. producer surplus at the expense of U.S. consumer surplus.

46. An effective Buy American law results in deadweight welfare losses for the United States in the form of the protective effect and consumption effect.

47. Although the Tokyo Round of international trade negotiations reduced the Buy-American restrictions of the U.S. government, many state governments have maintained restrictive Buy-American policies.

48. According to the cost-based definition of dumping, dumping begins to occur when a firm sells a product at a price that is less than average variable cost.

49. If the Japanese demand for computers is elastic and the Canadian demand for computers is inelastic, a profit-maximizing firm would charge a higher price to Canadian buyers than to Japanese buyers.

50. If the Australian government imposes a domestic content requirement of 75 percent on autos, at least 25 percent of an auto’s value must be produced in a foreign country if that auto is to be sold in Australia.

51. During the 1980s, the U.S. government imposed sugar import quotas in an attempt to reduce its costs of maintaining price supports for U.S. sugar growers.

Figure 5.5 illustrates the television market for Mexico, assumed to be a small country that is unable to affect the world price. SMexico is the domestic supply schedule and DMexico is the domestic demand schedule. Suppose that Japan can supply televisions to Mexico at a price of $100 per set.

Figure 5.5. Mexico’s Television Market

52. Consider Figure 5.5. With free trade, Mexicans produce 4 TVs, consume 24 TVs, and import 20 TVs.

53. Consider Figure 5.5. With free trade, Mexican producer surplus equals $2450 and Mexican consumer surplus equals $200.

54. Consider Figure 5.5. Suppose that the governments of Mexico and Japan negotiate a voluntary export agreement in which Japanese TV exports to Mexico are limited to 8 units. Under the quota, the price of TVs in Mexico equals $250 while Mexicans produce 10 TVs and purchase 18 TVs.

55. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in Mexican consumer surplus of $3150.

56. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in Mexican producer surplus of $1050.

57. Consider Figure 5.5. The deadweight welfare loss to Mexico, as a result of the Japanese export quota, totals $1200.

58. Consider Figure 5.5. The Japanese export quota’s revenue effect totals $1200.

59. Consider Figure 5.5. The government of Mexico collects 50 percent of the export quota’s revenue effect, or $600, in the form of tax revenue.

60. Consider Figure 5.5. Assuming that the revenue effect of the export quota accrues to Japanese firms, the overall welfare loss to Mexico equals $2100 as a result of the quota.

SHORT ANSWER

1. Is a tariff-rate quota a two-tier tariff? Why?

2. What is an OMA?

ESSAY

1. Describe some of the differences between tariffs and quotas?

2. What are the intent and impact of domestic content requirements?

CHAPTER 6—TRADE REGULATIONS AND INDUSTRIAL POLICIES

MULTIPLE CHOICE

1. The World Trade Organization was established by the ____ of multilateral trade negotiations:
a. Kennedy Round
b. Tokyo Round
c. Uruguay Round
d. Clinton Round

2. Under U.S. commercial policy, the escape clause results in:
a. Temporary quotas granted to firms injured by import competition
b. Tariffs that offset export subsidies granted to foreign producers
c. Tax advantages extended to minority-owned exporting firms
d. Duties which offset commercial dumping on the part of foreign firms

3. Adjustment assistance is sometimes used to assist:
a. In retraining workers displaced by imports
b. In retraining workers displaced by exports
c. Foreign firms injured by our quotas
d. Foreign firms injured by our tariffs

4. The Export-Import Bank of the United States encourages American firms to sell overseas by providing direct loans and loan guarantees to foreign purchasers of American goods. To American firms, this represents a:
a. Specific subsidy
b. Ad valorem subsidy
c. Domestic subsidy
d. Export subsidy

5. The Smoot-Hawley Tariff Act of 1930 has generally been associated with:
a. Falling tariffs
b. Increases in the volume of trade
c. Intensifying the worldwide depression
d. Efforts to liberalize nontariff trade barriers

6. A trade policy designed to alleviate some domestic economic problem by exporting it to foreign countries is known as a (an):
a. International dumping policy
b. Trade adjustment assistance policy
c. Most-favored-nation policy
d. Beggar-thy-neighbor policy

7. Under U.S. commercial policy, which clause permits the modification of a trade liberalization agreement on a temporary basis if serious injury occurs to domestic producers as a result of the agreement?
a. Adjustment assistance clause
b. Escape clause
c. Most-favored-nation clause
d. Reciprocal-trade clause

8. Which policy reflects the notion that if society enjoys gains due to increased efficiency stemming from trade liberalization, some sort of compensation should be provided to those who are temporarily hurt by import competition?
a. Countervailing duties
b. Trade adjustment assistance
c. Domestic subsidies
d. Most-favored-nation standard

9. The Uruguay Round of Multilateral Trade Negotiations accomplished all of the following except:
a. Placed primary emphasis on nontariff trade barriers
b. Is estimated to yield modest gains in world output and employment
c. Achieved cuts in tariffs but not in nontariff trade barriers
d. Abolished all barriers to trade in agricultural products

10. The General Agreement on Tariffs and Trade and its successor, the World Trade Organization, have resulted in:
a. Termination of export subsidies applied to manufactured goods
b. Termination of import tariffs applied to manufactured goods
c. Encouragement of beggar-thy-neighbor policies
d. Reductions in trade barriers via multilateral negotiations

11. For the United States, which organization makes loans to foreign buyers of U.S. manufactured goods?
a. Export-Import Bank
b. Domestic International Sales Corporation
c. Organization for Economic Cooperation and Development
d. Commodity Credit Corporation

12. The high point of U.S. protection culminated with the passage of the:
a. Smoot-Hawley Act of 1930
b. General Agreements on Tariffs and Trade in 1947
c. Trade Reduction Act of 1962
d. Adjustment Assistance Act of 1970

13. Countervailing duties are intended to neutralize any unfair advantage that foreign exporters might gain over domestic producers because of foreign:
a. Tariffs
b. Subsidies
c. Quotas
d. Buy-national policies

14. Trade theory suggests that the United States would gain from a subsidy provided by Japan to its calculator producers if the gains to American consumers of calculators more than offset the losses to American calculator producers. This occurs as long as the United States:
a. Is a net importer of calculators
b. Is a net exporter of calculators
c. Has an absolute advantage in calculator production
d. Has a comparative advantage in calculator production

15. Under the original provisions of the Reciprocal Trade Agreements Act, the president of the United States was authorized to cut tariffs up to:
a. 10 percent
b. 50 percent
c. 75 percent
d. 100 percent

16. The U.S. “trade-remedy laws” could establish all of the following except:
a. Import tariffs to protect U.S. firms seriously injured by foreign competition
b. Countervailing duties which neutralize foreign export subsidies
c. Antidumping duties which protect U.S. firms from imports sold at less-than-fair-value
d. Economic sanctions levied against hostile nations

17. The principle of normal trade relations (most-favored-nation)treatment was established with the passage of the:
a. Fordney-McCumber Act of 1922
b. Smoot-Hawley Act of 1930
c. Reciprocal Trade Agreements Act of 1934
d. Trade Act of 1974

18. Throughout the post-World War II era, the importance of tariffs as a trade barrier has:
a. Increased
b. Decreased
c. Remained the same
d. None of the above

19. As a way of helping American firms trade in the world market, U.S. trade law provides antitrust exemptions for horizontal combinations of American firms engaged solely in export trade. Such firms are permitted to form:
a. Export trade associations
b. Domestic international sales corporations
c. Export-import banks
d. Commodity sales corporations

20. ____ attempt to produce a fair and free-trading environment in which there exists a level playing field.
a. Trade-remedy laws
b. Industrial policies
c. Strategic trade policies
d. Economic sanctions

21. Suppose the United States imposes trade sanctions (export quotas) on grain sold to the Russians. Assuming other nations do not increase grain exports to the Russians, all of the following would occur except:
a. Grain prices would rise in Russia
b. Consumer surplus would decrease for the Russians
c. Grain prices would rise in the United States
d. Export revenues would decrease for U.S. producers

22. In 1980 the United States announced an embargo on grain exports to the Soviet Union in response to the Soviet armed invasion of Afghanistan. The embargo was mainly resisted by:
a. U.S. grain consumers and producers of bread
b. U.S. farmers and grain companies
c. Grain producers in foreign countries
d. Grain consumers in foreign countries

23. Export embargoes induce greater losses in consumer surplus for the target country:
a. The lesser its initial dependence on foreign produced goods
b. The more elastic the target country’s demand schedule
c. The greater the available output from alternative suppliers
d. The more inelastic the target country’s supply schedule

24. Suppose the president lowers tariffs on radios as the result of negotiations under the trade agreements program. Radio producers in the United States can appeal under the:
a. Escape clause if rising imports substantially injure the U.S. radio industry
b. Escape clause if rising unemployment occurs even though imports remain unchanged
c. Infant industry clause if rising imports cause unemployment to rise among U.S. radio workers
d. Infant industry clause if rising imports result in losses for U.S. radio companies

25. During the past four decades:
a. Nontariff barriers (NTBs) and tariffs have increased in importance
b. NTBs and tariffs have decreased in importance
c. NTBs have increased and tariffs have decreased in importance
d. NTBs have decreased and tariffs have increased in importance

26. The strongest political pressure for a trade policy that results in higher protectionism comes from:
a. Domestic workers lobbying for import restrictions
b. Domestic workers lobbying for export restrictions
c. Domestic consumers lobbying for export restrictions
d. Domestic consumers lobbying for import restrictions

27. The Uruguay Round of trade negotiations was primarily concerned with:
a. Import tariffs
b. Export tariffs
c. Economic sanctions
d. Nontariff trade barriers

28. The Uruguay Round of trade negotiations lowered:
a. Trade sanctions levied against South Africa
b. Trade sanctions levied against the Soviet Union
c. Tariffs, but not nontariff trade barriers
d. Tariffs as well as nontariff trade barriers

29. The average tariff rate today on dutiable imports in the United States is approximately:
a. 5 percent of the value of imports
b. 15 percent of the value of imports
c. 20 percent of the value of imports
d. 25 percent of the value of imports

30. Those who argue in favor of import protection generally give the impression that such restricted trade will:
a. Decrease the level of national security
b. Provide benefits to some particular industry
c. Provide benefits to the entire nation
d. Not yield welfare losses for the nation

31. In 1990 the United States and its allies imposed trade embargoes on exports/imports to/from Iraq in response to its invasion of Kuwait. The embargoes would induce smaller losses in Iraq’s consumer surplus the:
a. Lesser its initial dependence on foreign products
b. Less elastic Iraq’s demand schedule
c. Lesser the available output from alternative suppliers
d. More inelastic Iraq’s supply schedule

32. In U.S. trade law, Section 301 cases involve accusations of:
a. International dumping by U.S. companies
b. Full-cost pricing by U.S. companies
c. Unfair trade practices by foreign nations
d. Trade embargoes by foreign nations

33. Industrial policy attempts to fulfill all of the following objectives except:
a. Improving the infrastructure for an industry
b. Easing transitions for workers in declining industries
c. Supporting troubled industries if the difficulty is temporary
d. Fostering industries which offer long-run comparative disadvantage

34. Countervailing duties may be imposed:
a. In response to a foreign export subsidy
b. In response to a foreign antidumping tariff
c. To promote exports of domestic companies
d. To promote imports of domestic consumers

35. The World Trade Organization provides for all of the following except:
a. The usage of the normal-trade-relation (most-favored-nation) clause
b. Assistance in the settlement of trade disagreements
c. Multilateral tariff reductions
d. Bilateral tariff reductions

36. In U.S. trade law, which measure permits the levying of restrictions on fairly traded imports that harm or threaten to harm American manufacturers?
a. Antidumping duty
b. Countervailing duty
c. National security clause
d. Escape clause

37. Which international organization stipulates procedures for the settlement of international trade disputes?
a. World Trade Organization
b. World Bank
c. International Monetary Fund
d. Organization of Economic Development

38. The most recent round of multilateral trade negotiations is the:
a. Kennedy Round
b. Tokyo Round
c. Doha Round
d. Geneva Round

39. In 1986 the United States enacted the Comprehensive Anti-Apartheid Act which provided for all of the following except the termination of:
a. New U.S. loans to the South African government
b. New U.S. investment in South Africa
c. U.S. imports of South African gold coins
d. U.S. imports of all South African goods

Assume Boeing Inc. (of the United States) and Airbus Industrie (of Europe) rival for monopoly profits in the Canadian aircraft market. Suppose the two firms face identical cost and demand conditions, as seen in Figure 6.1.

Figure 6.1. Strategic Trade Policy: Boeing versus Airbus

40. Referring to Figure 6.1, assume that Boeing is the first to enter the Canadian market. Without a governmental subsidy, the firm maximizes profits by selling ____ aircraft at a price of $____, and realizes profits totaling $____.
a. 4, $12 million, $16 million
b. 4, $16 million, $12 million
c. 8, $12 million, $16 million
d. 8, $16 million, $12 million

41. Consider Figure 6.1. At the monopoly price as established by Boeing, Canadian consumers realize $____ of consumer surplus from the availability of aircraft.
a. $4 million
b. $8 million
c. $12 million
d. $16 million

42. Consider Figure 6.1. Suppose the European government provides Airbus a subsidy of $4 million on each aircraft manufactured, and that the subsidy convinces Boeing to exit the Canadian market. As the monopoly seller, Airbus maximizes profit by selling ____ aircraft at a price of $____, and realizes profits totaling $____.
a. 6, $10 million, $36 million
b. 6, $12 million, $24 million
c. 12, $10 million, $36 million
d. 12, $12 million, $24 million

43. Referring to Figure 6.1, the total cost of the Airbus subsidy to the European taxpayer equals:
a. $16 million
b. $20 million
c. $24 million
d. $28 million

44. Referring to Figure 6.1, the Airbus subsidy leads to a (an) increase/decrease in Canadian consumer surplus of $____, as compared to the consumer surplus that existed in the absence of a subsidy.
a. Increase of $8 million
b. Increase of $10 million
c. Decrease of $8 million
d. Decrease of $10 million

45. Consider Figure 6.1. For Europe as a whole (Airbus and European taxpayers), the subsidy leads to a (an) increase/decrease in net revenues of $____.
a. Increase of $12 million
b. Increase of $16 million
c. Decrease of $12 million
d. Decrease of $16 million

Figure 6.2 illustrates the calculator market for Mexico, assumed to be a small nation that is unable influence the South Korean (world) price. Assume the South Korean price to be $60 per calculator.

Figure 6.2. Effects of an Export Subsidy

46. Consider Figure 6.2. With free trade, Mexican consumers purchase ____ calculators, Mexican firms produce ____ calculators, and ____ calculators are imported.
a. 10, 4, 6
b. 10, 6, 4
c. 10, 8, 2
d. 10, 2, 8

47. Consider Figure 6.2. With free trade, Mexicans attain $____ of consumer surplus from the availability of calculators, while Mexican producer surplus equals $____.
a. $400, $200
b. $200, $400
c. $500, $180
d. $500, $240

48. Consider Figure 6.2. To help its firms further penetrate export markets, suppose the South Korean government provides them a production subsidy of $20 per calculator. With the subsidy, South Korean firms charge a price of $____ and export ____ calculators to Mexico.
a. $40, 8
b. $40, 10
c. $20, 8
d. $20, 10

49. Consider Figure 6.2. The South Korean subsidy helps/hurts Mexican manufacturers, since their producer surplus rises/falls by $____.
a. Helps, rises, $60
b. Helps, rises, $100
c. Hurts, falls, $60
d. Hurts, falls, $100

50. Consider Figure 6.2. As a result of the South Korean subsidy, Mexicans find their consumer surplus:
a. Rising by $160
b. Rising by $220
c. Falling by $160
d. Falling by $220

51. Consider Figure 6.2. For Mexico’s producers and consumers as a whole, the South Korean subsidy leads to a:
a. $120 welfare gain
b. $320 welfare gain
c. $120 welfare loss
d. $320 welfare loss

Figure 6.3 represents the Iraqi computer market. Assume Iraq purchases all of its computers from the United States.

Figure 6.3 Iraqi Computer Market and Economic Sanctions

52. Consider Figure 6.3. With free trade, Iraq purchases ____ computers at a price of $____, and realizes $____ of consumer surplus from the availability of computers.
a. 30, $3,000, $25,000
b. 30, $3,000, $35,000
c. 30, $3,000, $45,000
d. 30, $3,000, $55,000

53. Consider Figure 6.3. In response to Iraq’s armed invasion of neighboring countries, suppose the United States imposes a partial embargo that limits exports to Iraq to 10 computers. The export quota leads to an increase/decrease in the price of computers equal to $____, and an increase/decrease in consumer surplus equal to $____.
a. Increase, $2000, decrease, $40,000
b. Increase, $4000, decrease, $60,000
c. Decrease, $2000, increase, $40,000
d. Decrease, $4000, increase, $60,000

54. Consider Figure 6.3. Of the quota-induced change in Iraqi consumer surplus, $____ is not transferred to other sectors of Iraq’s economy and represents deadweight loss.
a. $5000
b. $10,000
c. $15,000
d. $20,000

55. Consider Figure 6.3. Of the quota-induced change in Iraqi consumer surplus, the amount of the change in Iraq’s consumer surplus that is transferred to other sectors of Iraq’s economy is captured by the United States as:
a. Tax revenue
b. Export revenue
c. Producer surplus
d. Consumer surplus

56. Consider Figure 6.3. For the United States, the export quota results in a (an):
a. Improvement in its terms of trade with Iraq
b. Increase in its export revenue
c. Increase in domestic computer prices
d. Decrease in domestic consumer surplus

57. The implicit industrial policies of the U.S. government have included:
a. Formulating industry-specific economic policies designed to promote national champions
b. Nationalizing basic industries such as steel and autos
c. Encouraging cartelization of aircraft and aluminum manufacturers
d. Improving the setting for industry such as communications and infrastructure

58. Economic sanctions are most effective in causing the target nation to modify its behavior when the:
a. Target nation had negligible economic relationships with the imposing nation prior to the sanctions
b. People of the target nation have weak cultural ties to the people of the imposing nation
c. Sanctions are levied by a large number of nations
d. Target government is supported by the majority of its people

59. In 1995 the ____ was established to administer the new global trade rules agreed in the Uruguay Round of multilateral trade negotiations.
a. World Trade Organization
b. Organization for Economic Cooperation and Development
c. General Agreement on Tariffs and Trade
d. United Nations

60. In 1995 the General Agreement on Tariffs and Trade was replaced by the ____.
a. Agency for International Development
b. Organization for Economic Cooperation and Development
c. United Nations Center for Trade and Development
d. World Trade Organization

61. The most important determinants of sanctions include
a. Cultural factors including nationalistic attitudes
b. Strength of political opposition in the targeting nation
c. The number of nations imposing sanctions
d. All of the above

62. Industrial policies
a. Require formal explicit efforts by governments
b. May be implicit
c. Have never been used by the U.S. government
d. Both a and b

63. Trade adjustment assistance policies
a. Can resolve all workers’ challenges to free trade
b. Attempt to share gains from free trade with disadvantaged workers
c. Have never been used to sustain a losing business concern
d. Are financed by state and local tax revenues

64. The United States
a. Has been a heavy user of antidumping laws to protect domestic producers
b. Has rarely used antidumping laws to protect domestic producers
c. Has targeted antidumping action against China, Japan, Canada, Italy, and Germany
d. Both a and c

TRUE/FALSE

1. The high point of U.S. protectionism occurred with the passage of the Kennedy Act in the 1960s.

2. With the passage of the Smoot-Hawley Act in 1930, U.S. average tariffs were raised to over 50 percent on protected imports.

3. Proponents of the Smoot-Hawley Act of 1930 viewed it as a means of combating domestic unemployment.

4. It is generally agreed that the Smoot-Hawley Act of 1930 led to improvements in U.S. exports and an overall increase in U.S. output and employment.

5. According to the Reciprocal Trade Agreements Act of 1934, the President could lower tariffs by up to 10 percent of the existing level without congressional approval.

6. Under the normal-trade-relations (most-favored-nation) principle, two nations agree to apply tariffs to each other at rates as low as those applied to any other nation.

7. According to the normal-trade-relations (most-favored-nation) principle, if the United States extends MFN treatment to China and then grants a low tariff on imports of shirts from South Korea, the United States is obligated to provide the identical low-tariff on imports of shirts from China.

8. U.S. tariffs on imports from countries issued normal-trade-relations (most-favored-nation) status are often three or four times as high as those on comparable imports from nations not receiving that status.

9. According to the General Agreement on Tariffs and Trade and its successor, the World Trade Organization, only bilateral trade negotiations can take place between a country and its trading partners.

10. Members of the General Agreement on Tariffs and Trade and its successor, the World trade through Trade Organization, agree to the principle of nondiscrimination in trade and the reduction of trade barriers by multilateral negotiations.

11. The Uruguay Round of trade negotiations resulted in the General Agreement on Tariffs and Trade being succeeded by the World Trade Organization.

12. The only members of the General Agreement on Tariffs and Trade and its successor, the World Trade Organization, are developing countries rather than developed countries.

13. According to the fast-track provision of U.S. trade law, once the President has completed trade negotiations, their outcome is subject to a vote (without amendment) in Congress within 90 legislative days of submission.

14. The fast-track provision of U.S. trade law has the affect of speeding up the timetable during which the President negotiates trade agreements with foreign governments.

15. The main focus of the Uruguay Round of multilateral trade negotiations was on tariff barriers rather than nontariff trade barriers.

16. Although the Uruguay Round of multilateral trade negotiations succeeded in reducing nontariff trade barriers, it could not achieve reductions in tariff trade barriers.

17. Among the codes of conduct addressed at the Tokyo Round of multilateral trade negotiations were customs valuation, product standards, subsidies and countervailing duties, government procurement policies, and import licensing procedures.

18. Under the government procurement policy of the World Trade Organization, federal-state-local governments are prevented from discriminating in favor of the products of domestic suppliers on contracts valued at $1 million and more.

19. Unlike the Tokyo Round of multilateral trade negotiations, the Uruguay Round addressed the issues of intellectual property protection, trade barriers in services, and agricultural subsidies.

20. The U.S. trade-remedy laws attempt to redress hardships for U.S. firms resulting from actions and policies of foreign firms and governments.

21. According to U.S. trade law, the escape clause provides relief to U.S. firms due to unfair foreign competition.

22. According to the escape clause, temporary trade restrictions may be imposed in industries where domestic producers are substantially being harmed by surging imports.

23. The purpose of “countervailing duties,” as levied by the domestic government, is to neutralize import tariffs imposed by foreign governments.

24. Under the provisions of the World Trade Organization, Canada would have the right to impose countervailing duties on imports of South Korean steel when the South Korean government provides export subsidies to its steelmakers.

25. Economic theory suggests that if France is a net importer of automobiles, whose production is subsidized by the Korean government, the overall welfare of France decreases because of the Korean subsidy.

26. An antidumping duty levied on imports of foreign-produced steel leads to an increase in consumer surplus in the home country.

27. U.S. antidumping duties are intended to neutralize exports to the United States at prices below average total cost or exports to the United States at prices lower than those charged in the exporter’s home market.

28. Intellectual property refers to holdings of rare books and pieces of art that are traded on the world market.

29. Copyrights, trademarks, and patents are used to protect the intellectual property of a nation from foreign imitators.

30. Under the trade adjustment assistance program, a domestic firm or worker can file for governmental assistance only if it demonstrates that it suffered economic hardship due to imports of foreign-subsidized goods.

31. Industrial policy attempts to foster the development of industries that offer long-run comparative disadvantages and which are insulated from other sectors of the economy.

32. During the post World War II era, the United States has adopted explicit industrial policies similar to those of France and Japan.

33. Industrial policies of the U.S. government have included subsidizing particular firms to promote national champions, nationalizing basic industries, and encouraging cartelization of industries.

34. The Export-Import Bank provides export-credit subsidies to U.S. producers of agricultural goods.

35. Major beneficiaries of export-credit subsidies, granted by the Export-Import Bank, have included U.S. producers of aircraft, telecommunications, and power-generating equipment.

36. The Commodity Credit Corporation makes available export credit financing for U.S. agricultural exports.

37. As a way of helping U.S. business firms trade in the world market on a more equal terms with their organized foreign competitors, the U.S. government permits them to form export trade associations and export trading companies.

38. If the U.S. government pursued a “knowledge-based growth policy,” it would subsidize particular firms to help them compete in the world economy.

39. In the post World War II era, the Japanese government formed industrial policies to encourage the development of its steel, auto, shipbuilding, and machine tool industries.

40. Unlike Japan and the United States, France has refrained from forming explicit industrial policies to enhance the competitiveness of its national champions.

41. According to the strategic- trade- policy hypothesis, governmental subsidies granted to domestic producers can help them in capturing economic profits from foreign competitors.

42. The strategic-trade-policy hypothesis assumes that domestic firms operate under increasing cost conditions as well as in perfectly competitive markets.

43. According to the strategic-trade-policy hypothesis, government can alter the terms of competition to favor domestic companies, thus increasing their profits at the expense of their rivals.

44. The classical theory of comparative advantage assumes that firms operate in imperfectly competitive markets, while the theory of strategic trade policy assumes that firms operate in perfectly competitive markets.

45. According to the strategic-trade-policy hypothesis, a subsidy granted to domestic exporters may lead to increased export profits which more than offset the cost of the subsidy to domestic taxpayers.

46. By reducing available supplies of a product, an export embargo leads to falling prices in the target nation and increasing target-nation consumer surplus.

47. Assume that the United States is the only supplier of grain to China and that it levies a partial export embargo against China. The embargo leads to increased U.S. welfare if the resulting improvement in the U.S. terms of trade with China more than offset the costs of the lower export volume to China.

48. Economic sanctions are most effective in pressuring the target country to modify its behavior when the sanctions are imposed by a small number of countries and when the target country had weak economic ties to the imposing countries before the sanctions were initiated.

49. It is widely recognized that the economic sanctions levied against Iraq in 1990 were a major factor causing Iraq to withdraw its military forces from Kuwait.

50. Assume that Russia has a comparative advantage in vodka. If the United States extends Russia the benefits of the normal-trade-relations (most favored nation)principle, U.S. consumer surplus decreases in the vodka market.

51. Assume that the United States imports chemicals from Germany. Trade theory predicts that if the German government grants an export subsidy to its chemical firms, the overall welfare of the United States will increase.

52. Concerning industrial policy, the United States has nationalized its major industries in an attempt to promote global champions.

53. The Uruguay Round of multilateral trade negotiations succeeded in establishing the World Trade Organization.

54. Established in 1995, the World Trade Organization took charge of administering the new global trade rules agreed in the Uruguay Round of multilateral trade negotiations.

55. The World Trade Organization brings into the multilateral trading system manufactured goods and agricultural products, but not trade in services, intellectual property protection, and investment.

56. The General Agreement on Tariffs and Trade was founded in 1995 as a successor to the World Trade Organization.

SHORT ANSWER

1. What is the essential idea behind strategic trade policy?

2. What is the basis for trade adjustment assistance?

ESSAY

1. Has industrial policy contributed significantly to Japan’s economic growth?

2. Explain how advocates of strategic trade policy differ from the classical free traders in their treatment of externalities?