Question 1

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 2

The Brander-Spencer model identified market failure in certain industries due to

Accepted Answer

A)  unfair competition. 
B)  wildcat destructive competition. 
C)  environmental negative externalities associated with pollution. 
D)  limited competition. 
E)  lack of excess returns. 
A)  unfair competition. 
B)  wildcat destructive competition. 
C)  environmental negative externalities associated with pollution. 
D)  limited competition. 
E)  lack of excess returns.

Question 3

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 4

Japan's protection of its semiconductor (RAM) producers is today seen as an object lesson in

Accepted Answer

A)  how strategic planning may backfire and cause a large waste of resources. 
B)  how externalities may be successfully exploited by protectionist policies. 
C)  how excess returns may be successfully exploited by protectionist policies. 
D)  how government intervention may create a meaningful comparative advantage. 
E)  how monopolies can outlast government intervention. 
A)  how strategic planning may backfire and cause a large waste of resources. 
B)  how externalities may be successfully exploited by protectionist policies. 
C)  how excess returns may be successfully exploited by protectionist policies. 
D)  how government intervention may create a meaningful comparative advantage. 
E)  how monopolies can outlast government intervention.

Question 5

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 6

-Refer to the above table. Suppose Airbus is set to produce the aircraft before Boeing. Which company will enter the market?

Accepted Answer

Airbus wil

Question 7

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 skill workers on both sides of the border. 
B)  is likely to hurt high-skilled workers in the U.S. 
C)  is likely to involve higher overall national economic gains that will be greater than any harm done to low-skilled workers in the U.S. 
D)  is likely to hurt low-skilled workers in Mexico. 
E)  gives no advantage to the workers in either country. 
A)  must help low skill workers on both sides of the border. 
B)  is likely to hurt high-skilled workers in the U.S. 
C)  is likely to involve higher overall national economic gains that will be greater than any harm done to low-skilled workers in the U.S. 
D)  is likely to hurt low-skilled workers in Mexico. 
E)  gives no advantage to the workers in either country.

Question 8

-Refer to the above table. Suppose the U.S. government (but not Europe) offers a $10 million subsidy?

Accepted Answer

In this case Airbus would deci

Question 9

-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 10

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 11

The fact that 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 12

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 13

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 14

It may be argued that Japan's explicit promotion of its microchip industry was an excellent example of successful industrial policy. What criteria would you apply to determine whether such a policy is or is not successful? Judging from your own stated criteria, was Japan's exercise successful? Why or why not? What information would a government require in order to increase the probability that its industrial policy would promote long term self-generated economic growth?

Accepted Answer

It is argued that Japan's subsidies to i

Question 15

The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country

Accepted Answer

A)  is consistent with the Invisible Hand paradigm. 
B)  is consistent with the market failure approach. 
C)  is consistent with the Ricardian theory of comparative advantage. 
D)  is consistent with the scale economies approach to trade theory. 
E)  is consistent with the principles laid out by the WTO. 
A)  is consistent with the Invisible Hand paradigm. 
B)  is consistent with the market failure approach. 
C)  is consistent with the Ricardian theory of comparative advantage. 
D)  is consistent with the scale economies approach to trade theory. 
E)  is consistent with the principles laid out by the WTO.

Question 16

The Shipbreakers of Alang utilize much labor and little capital, thereby supporting the applicability of the

Accepted Answer

A)  factor proportions explanation of the sources of comparative advantage. 
B)  specific factor theory of comparative advantage. 
C)  monopolistic competition theory of comparative advantage. 
D)  scale economies theory of comparative advantage. 
E)  basis of the non-dumping legislation. 
A)  factor proportions explanation of the sources of comparative advantage. 
B)  specific factor theory of comparative advantage. 
C)  monopolistic competition theory of comparative advantage. 
D)  scale economies theory of comparative advantage. 
E)  basis of the non-dumping legislation.

Question 17

What is a pollution haven?

Accepted Answer

A pollution haven is a country with rela

Question 18

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.

Question 19

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 20

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.

Exam 12: Controversies in Trade Policy

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

The Brander-Spencer model identified market failure in certain industries due to

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

Japan's protection of its semiconductor (RAM) producers is today seen as an object lesson in

The United States

-Refer to the above table. Suppose Airbus is set to produce the aircraft before Boeing. Which company will enter the market?

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,

-Refer to the above table. Suppose the U.S. government (but not Europe) offers a $10 million subsidy?

-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 argument that strategic planning is not likely to be practical due to insufficient information means that

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

Spencer and Brander's model highlights the conventional assumption that

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

The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country

The Shipbreakers of Alang utilize much labor and little capital, thereby supporting the applicability of the

What is a pollution haven?

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

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

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

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

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