Question 1

In the Brander-Spencer model the subsidy raises profits by more than the subsidy because of

Accepted Answer

A)  the "multiplier" effect of government expenditures. 
B)  the military-industrial complex. 
C)  the forward and backward linkage effects of certain industries. 
D)  the deterrent effect of the subsidy on foreign competition. 
E)  the economies of scale once the company enters the market. 
A)  the "multiplier" effect of government expenditures. 
B)  the military-industrial complex. 
C)  the forward and backward linkage effects of certain industries. 
D)  the deterrent effect of the subsidy on foreign competition. 
E)  the economies of scale once the company enters the market. D

Question 2

If firms in an industry are generating knowledge that other firms can use without paying for it, this industry is characterized by

Accepted Answer

A)  social costs that exceed private costs. 
B)  social benefits that exceed private benefits. 
C)  social costs that exceed social benefits. 
D)  private benefits that exceed social benefits. 
E)  social benefits that undermine private benefits. 
A)  social costs that exceed private costs. 
B)  social benefits that exceed private benefits. 
C)  social costs that exceed social benefits. 
D)  private benefits that exceed social benefits. 
E)  social benefits that undermine private benefits. B

Question 3

The WTO seems at times to be interfering in domestic policy since

Accepted Answer

A)  the line between domestic policies and de factor protectionism is often fuzzy. 
B)  it is a supra-national organization with the power to overturn governments. 
C)  it determines which nations may trade what with whom. 
D)  it punishes naughty nations. 
E)  it exempts the U.S. and other powerful member nations from many of its edicts. 
A)  the line between domestic policies and de factor protectionism is often fuzzy. 
B)  it is a supra-national organization with the power to overturn governments. 
C)  it determines which nations may trade what with whom. 
D)  it punishes naughty nations. 
E)  it exempts the U.S. and other powerful member nations from many of its edicts. A

Question 4

The United States

Accepted Answer

A)  does not provide more support for R&D as compared to other forms of investment. 
B)  provides support for R&D by imposing high tariffs on R&D intensive products. 
C)  provides support for R&D by providing direct subsidies for such activities. 
D)  provides support for R&D through tax legislation. 
E)  provides support for R&D through grant incentives. 
A)  does not provide more support for R&D as compared to other forms of investment. 
B)  provides support for R&D by imposing high tariffs on R&D intensive products. 
C)  provides support for R&D by providing direct subsidies for such activities. 
D)  provides support for R&D through tax legislation. 
E)  provides support for R&D through grant incentives.

Question 5

The reason Airbus succeeded in the Brander Spencer example is that

Accepted Answer

A)  the European government made an explicit subsidy offer, but the U.S. government did not. 
B)  Airbus' prices were better when adjusted for quality and warranty services. 
C)  Boeing traditionally refused to undertake any exchange rate risk in its transactions. 
D)  the U.S. acted in accordance with its ideological reliance on market solutions, whereas the Europeans ignored market and technological factors. 
E)  the Airbus plane benefited from more advanced technology. 
A)  the European government made an explicit subsidy offer, but the U.S. government did not. 
B)  Airbus' prices were better when adjusted for quality and warranty services. 
C)  Boeing traditionally refused to undertake any exchange rate risk in its transactions. 
D)  the U.S. acted in accordance with its ideological reliance on market solutions, whereas the Europeans ignored market and technological factors. 
E)  the Airbus plane benefited from more advanced technology.

Question 6

The shipbreakers of Alang are

Accepted Answer

A)  a metaphysical representation of the WTO, deriving from Edgar Rice Burroughs' Princess of Mars. 
B)  an early version of the Russian Ice-breaker of the Dnieper-Alang class. 
C)  a capital-intensive industry. 
D)  competing with pollution-producing industries in countries outside of India. 
E)  doing environmentally conscious work. 
A)  a metaphysical representation of the WTO, deriving from Edgar Rice Burroughs' Princess of Mars. 
B)  an early version of the Russian Ice-breaker of the Dnieper-Alang class. 
C)  a capital-intensive industry. 
D)  competing with pollution-producing industries in countries outside of India. 
E)  doing environmentally conscious work.

Question 7

The argument that strategic planning is NOT likely to be practical due to insufficient information means that

Accepted Answer

A)  because of trade secrets, the government does not know true cost relationships in any given industry. 
B)  if the government had all the relevant information in a given industry then it could decide whether a subsidy would enhance the public's welfare. 
C)  even if the government had all the relevant information in a given industry, it still could not decide whether a subsidy would enhance the public's welfare. 
D)  due to recent cuts in the Department of the Census' sampling budgets, industry surveys are no longer reliable, so that there is no way to determine if a subsidy is in the public's interest. 
E)  the government would need to employ its intelligence agencies in order to gain a complete understanding of the market. 
A)  because of trade secrets, the government does not know true cost relationships in any given industry. 
B)  if the government had all the relevant information in a given industry then it could decide whether a subsidy would enhance the public's welfare. 
C)  even if the government had all the relevant information in a given industry, it still could not decide whether a subsidy would enhance the public's welfare. 
D)  due to recent cuts in the Department of the Census' sampling budgets, industry surveys are no longer reliable, so that there is no way to determine if a subsidy is in the public's interest. 
E)  the government would need to employ its intelligence agencies in order to gain a complete understanding of the market.

Question 8

The Ricardian model of comparative advantage lends support to the argument that

Accepted Answer

A)  trade tends to worsen the conditions of unskilled labor in rich countries. 
B)  trade tends to worsen the conditions of owners of capital in rich countries. 
C)  trade tends to worsen the conditions of workers in poor countries. 
D)  trade tends to worsen the conditions of workers in rich countries. 
E)  trade is mutually beneficial to the countries that engage in it. 
A)  trade tends to worsen the conditions of unskilled labor in rich countries. 
B)  trade tends to worsen the conditions of owners of capital in rich countries. 
C)  trade tends to worsen the conditions of workers in poor countries. 
D)  trade tends to worsen the conditions of workers in rich countries. 
E)  trade is mutually beneficial to the countries that engage in it.

Question 9

It is argued that high-tech industries typically generate new technologies but cannot fully appropriate the commercial benefits associated with their inventions or discoveries. If this is TRUE, then in order to maximize a country's real income, the government should

Accepted Answer

A)  tax the high-tech firms. 
B)  subsidize the high-tech firms. 
C)  protect the high-tech firms. 
D)  outsource high-tech production. 
E)  discourage high-tech investments. 
A)  tax the high-tech firms. 
B)  subsidize the high-tech firms. 
C)  protect the high-tech firms. 
D)  outsource high-tech production. 
E)  discourage high-tech investments.

Question 10

The invocation of beggar-thy-neighbor arguments with respect to industrial policies

Accepted Answer

A)  strengthens the argument for subsidies. 
B)  makes sense if the international Keynesian multipliers exceed unity. 
C)  applies only to rich countries most of whose trade partners are very poor countries. 
D)  weakens the argument for subsidies. 
E)  does not apply to rich countries who can influence relative world prices. 
A)  strengthens the argument for subsidies. 
B)  makes sense if the international Keynesian multipliers exceed unity. 
C)  applies only to rich countries most of whose trade partners are very poor countries. 
D)  weakens the argument for subsidies. 
E)  does not apply to rich countries who can influence relative world prices.

Question 11

When one applies the Heckscher-Ohlin model of trade to the issue of trade-related income redistributions, one must conclude that North-South trade, such as U.S.-Mexico trade

Accepted Answer

A)  must help low-skilled workers on both sides of the border. 
B)  is likely to hurt high-skilled workers in the U.S. 
C)  is likely to hurt low-skilled workers in the U.S. 
D)  is likely to hurt low-skilled workers in Mexico. 
E)  is likely to help highly skilled workers in Mexico. 
A)  must help low-skilled workers on both sides of the border. 
B)  is likely to hurt high-skilled workers in the U.S. 
C)  is likely to hurt low-skilled workers in the U.S. 
D)  is likely to hurt low-skilled workers in Mexico. 
E)  is likely to help highly skilled workers in Mexico.

Question 12

It is still the conventional wisdom in the U.S. that compliance with NAFTA requirements is having a deleterious effect on U.S. highway safety standards, on U.S. pollution and other environmental standards, and on U.S. jobs. What facts would proponents of an expansion of NAFTA (e.g., to include all of Central and South American countries) need to marshall in order to convince you?

Accepted Answer

The answer is subjective. Pres

Question 13

The existence of positive externalities due to the impossibility of full appropriability

Accepted Answer

A)  supports the conclusions of the Heckscher-Ohlin model. 
B)  rejects the usefulness of government protectionism. 
C)  supports the concept that the government should support only high-tech industries. 
D)  provides support for government protectionism. 
E)  supports arguments for free trade. 
A)  supports the conclusions of the Heckscher-Ohlin model. 
B)  rejects the usefulness of government protectionism. 
C)  supports the concept that the government should support only high-tech industries. 
D)  provides support for government protectionism. 
E)  supports arguments for free trade.

Question 14

-Refer to the above table. How could the U.S. government justify its decision to offer a subsidy to a profitable and successful business?

Accepted Answer

It could point out that this $10 million

Question 15

The Shipbreakers of Alang arouse the ire of Greenpeace because of

Accepted Answer

A)  India's non-repentant nuclear stance. 
B)  India's import-competing industrialization policies. 
C)  the difficulty of avoiding ship accidents between Greenpeace's sailboat and the reconstructed container ships of Alang. 
D)  the large amount of pollution associated with the operations at Alang. 
E)  their competition with capital-intensive industries. 
A)  India's non-repentant nuclear stance. 
B)  India's import-competing industrialization policies. 
C)  the difficulty of avoiding ship accidents between Greenpeace's sailboat and the reconstructed container ships of Alang. 
D)  the large amount of pollution associated with the operations at Alang. 
E)  their competition with capital-intensive industries.

Question 16

The fact that articles of clothing sold in Walmart are produced by very poorly paid workers in Honduras, is a fact that if taken into account

Accepted Answer

A)  would prove to economists that the Ricardian model of comparative advantage is false. 
B)  would prove to economists that the equal-value in trade concept summed up in the trade triangles is incorrect. 
C)  proves to economists that trade is a negative sum game. 
D)  proves to the Anti-Globalization Movement that trade is a negative sum game. 
E)  proves that corporations are exempt from labor standards. 
A)  would prove to economists that the Ricardian model of comparative advantage is false. 
B)  would prove to economists that the equal-value in trade concept summed up in the trade triangles is incorrect. 
C)  proves to economists that trade is a negative sum game. 
D)  proves to the Anti-Globalization Movement that trade is a negative sum game. 
E)  proves that corporations are exempt from labor standards.

Question 17

The Heckscher-Ohlin, factor-proportions model lends support to the argument that

Accepted Answer

A)  trade tends to worsen the conditions of unskilled labor in rich countries. 
B)  trade tends to worsen the conditions of owners of capital in rich countries. 
C)  trade tends to worsen the conditions of workers in poor countries. 
D)  trade tends to worsen the conditions of workers in rich countries. 
E)  trade tends to worsen the conditions of highly skilled workers in rich countries. 
A)  trade tends to worsen the conditions of unskilled labor in rich countries. 
B)  trade tends to worsen the conditions of owners of capital in rich countries. 
C)  trade tends to worsen the conditions of workers in poor countries. 
D)  trade tends to worsen the conditions of workers in rich countries. 
E)  trade tends to worsen the conditions of highly skilled workers in rich countries.

Question 18

In today's world markets, poor developing countries tend to rely primarily on exports of

Accepted Answer

A)  agricultural products. 
B)  primary products. 
C)  mineral products. 
D)  manufactured products. 
E)  high-tech products. 
A)  agricultural products. 
B)  primary products. 
C)  mineral products. 
D)  manufactured products. 
E)  high-tech products.

Question 19

Spencer and Brander's model highlights the conventional assumption that

Accepted Answer

A)  government involvement in business or in the economy tends to fail. 
B)  government subsidies tend to waste taxpayer's money. 
C)  government subsidies cannot create a successfully competing export. 
D)  government tends to distort when it displaces Adam Smith's Invisible Hand. 
E)  government subsidies can produce profits that exceed the subsidy's value. 
A)  government involvement in business or in the economy tends to fail. 
B)  government subsidies tend to waste taxpayer's money. 
C)  government subsidies cannot create a successfully competing export. 
D)  government tends to distort when it displaces Adam Smith's Invisible Hand. 
E)  government subsidies can produce profits that exceed the subsidy's value.

Question 20

Low wages and poor working conditions in many U.S. trade partners

Accepted Answer

A)  prove that the gains-from-trade arguments of the Ricardian model are false. 
B)  may be a fact of life, but economists don't care. 
C)  are facts emphasized by U.S. labor in its contract negotiations. 
D)  prove that the gains-from-trade arguments of the Ricardian model are true. 
E)  prove that international trade is exploitative. 
A)  prove that the gains-from-trade arguments of the Ricardian model are false. 
B)  may be a fact of life, but economists don't care. 
C)  are facts emphasized by U.S. labor in its contract negotiations. 
D)  prove that the gains-from-trade arguments of the Ricardian model are true. 
E)  prove that international trade is exploitative.

Exam 12: Controversies in Trade Policy

In the Brander-Spencer model the subsidy raises profits by more than the subsidy because of

If firms in an industry are generating knowledge that other firms can use without paying for it, this industry is characterized by

The WTO seems at times to be interfering in domestic policy since

The United States

The reason Airbus succeeded in the Brander Spencer example is that

The shipbreakers of Alang are

The argument that strategic planning is NOT likely to be practical due to insufficient information means that

The Ricardian model of comparative advantage lends support to the argument that

It is argued that high-tech industries typically generate new technologies but cannot fully appropriate the commercial benefits associated with their inventions or discoveries. If this is TRUE, then in order to maximize a country's real income, the government should

The invocation of beggar-thy-neighbor arguments with respect to industrial policies

When one applies the Heckscher-Ohlin model of trade to the issue of trade-related income redistributions, one must conclude that North-South trade, such as U.S.-Mexico trade

The existence of positive externalities due to the impossibility of full appropriability

-Refer to the above table. How could the U.S. government justify its decision to offer a subsidy to a profitable and successful business?

The Shipbreakers of Alang arouse the ire of Greenpeace because of

The fact that articles of clothing sold in Walmart are produced by very poorly paid workers in Honduras, is a fact that if taken into account

The Heckscher-Ohlin, factor-proportions model lends support to the argument that

In today's world markets, poor developing countries tend to rely primarily on exports of

Spencer and Brander's model highlights the conventional assumption that

Low wages and poor working conditions in many U.S. trade partners

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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