Question 1

Protection provided to the infant industries is rarely withdrawn because:

Accepted Answer

A) the costs of withdrawing protection outweigh the benefits. 
B) the industries begin to experience diseconomies of scale. 
C) it leads to a loss of government revenue. 
D) the industries produce goods which are close substitutes of the imported goods. 
E) the larger and more successful the industry becomes, the more political power it wields. 
A) the costs of withdrawing protection outweigh the benefits. 
B) the industries begin to experience diseconomies of scale. 
C) it leads to a loss of government revenue. 
D) the industries produce goods which are close substitutes of the imported goods. 
E) the larger and more successful the industry becomes, the more political power it wields.

Question 2

While it is possible to erect barriers to foreign competition and save domestic jobs, restricting international trade may impose large costs on an economy.

Accepted Answer

A) True 
 B)False

Question 3

Proponents of strategic trade policy contend that:

Accepted Answer

A) government should tax domestic firms to generate greater revenues. 
B) government should encourage imports to prevent monopoly in the domestic market. 
C) government should provide subsidies to domestic firms with decreasing costs. 
D) government should discourage domestic firms with decreasing costs from continuing production. 
E) government should tax domestic import competing firms. 
A) government should tax domestic firms to generate greater revenues. 
B) government should encourage imports to prevent monopoly in the domestic market. 
C) government should provide subsidies to domestic firms with decreasing costs. 
D) government should discourage domestic firms with decreasing costs from continuing production. 
E) government should tax domestic import competing firms.

Question 4

The figure given below depicts the negatively sloped demand and positively sloped supply curves of wheat in a country. Figure 20.2   Refer to Figure 20.2.In the absence of international trade, what are the domestic equilibrium price and quantity?

Accepted Answer

A) $30 and 200 bushels 
B) $50 and 400 bushels 
C) $30 and 400 bushels 
D) $50 and 300 bushels 
E) $25 and 150 bushels 
A) $30 and 200 bushels 
B) $50 and 400 bushels 
C) $30 and 400 bushels 
D) $50 and 300 bushels 
E) $25 and 150 bushels

Question 5

When dealing with strategic trade policy, one practical problem for government is the likelihood of retaliation by the foreign government.

Accepted Answer

A) True 
 B)False

Question 6

Government standards for products sold in the domestic market can have the effect of protecting domestic producers from foreign competition.

Accepted Answer

A) True 
 B)False

Question 7

Tariffs are considered to be a popular tax in the first world countries, who justify them on the basis of the revenue they generate for government spending.

Accepted Answer

A) True 
 B)False

Question 8

It is often argued that if foreign goods are kept out of the domestic economy:

Accepted Answer

A) jobs will be lost at home. 
B) jobs will be created abroad. 
C) foreign consumers will enjoy product surpluses. 
D) jobs will be created at home. 
E) foreign consumers will suffer product shortages. 
A) jobs will be lost at home. 
B) jobs will be created abroad. 
C) foreign consumers will enjoy product surpluses. 
D) jobs will be created at home. 
E) foreign consumers will suffer product shortages.

Question 9

In the light of the infant industry argument, identify the industry which is likely to have substantially high initial costs.

Accepted Answer

A) Fashion designing 
B) Retail industry 
C) Iron and steel industry 
D) Dairy industry 
E) Software industry 
A) Fashion designing 
B) Retail industry 
C) Iron and steel industry 
D) Dairy industry 
E) Software industry

Question 10

By restricting the amount of a good that may be imported, quotas:

Accepted Answer

A) increase the price, thus causing domestic producers to sell less than they would with free trade. 
B) lower the price, thus allowing domestic producers to sell more than they would with free trade. 
C) increase the price and allow domestic producers to sell more at a higher price than they would with free trade. 
D) lower the price, thus causing domestic producers to realize lower total revenue from the quota item. 
E) simply replace foreign production with domestic production. 
A) increase the price, thus causing domestic producers to sell less than they would with free trade. 
B) lower the price, thus allowing domestic producers to sell more than they would with free trade. 
C) increase the price and allow domestic producers to sell more at a higher price than they would with free trade. 
D) lower the price, thus causing domestic producers to realize lower total revenue from the quota item. 
E) simply replace foreign production with domestic production.

Question 11

Trade diversion reduces worldwide efficiency, because:

Accepted Answer

A) production is diverted to the country with the comparative advantage. 
B) production is diverted from the country with the comparative advantage. 
C) unnecessary trade restrictions are created in the economies. 
D) consumption is diverted to the country having inadequate demand. 
E) the cost of transshipment of the goods increases thus raising their prices in the world market. 
A) production is diverted to the country with the comparative advantage. 
B) production is diverted from the country with the comparative advantage. 
C) unnecessary trade restrictions are created in the economies. 
D) consumption is diverted to the country having inadequate demand. 
E) the cost of transshipment of the goods increases thus raising their prices in the world market.

Question 12

The figure below shows the demand (D)and supply (S)curves of corn syrups. Figure 20.3   In Figure 20.3, what are the equilibrium price and quantity in the absence of trade?

Accepted Answer

A) $8, 50 gallons 
B) $12, 35 gallons 
C) $8, 35 gallons 
D) $4, 20 gallons 
E) $16, 50 gallons 
A) $8, 50 gallons 
B) $12, 35 gallons 
C) $8, 35 gallons 
D) $4, 20 gallons 
E) $16, 50 gallons

Question 13

The figure below shows the demand (D)and supply (S)curves of a good produced domestically in an economy as well as traded in the international market. Figure 20.1   In the figure,
P1: Price of the good in the international market.
P2: Price of the good in the domestic market after the imposition of tariff by the government.
P3: No-trade price of the good in the domestic market.
Refer to Figure 20.1.If the government imposes a tariff such that the price of the good in the domestic market is P2 while the international price is P1, the dollar value of the tariff is equal to:

Accepted Answer

A) P3 - P1. 
B) P2 - P3. 
C) P2 - P1. 
D) P1 - P2. 
E) P1 - P3. 
A) P3 - P1. 
B) P2 - P3. 
C) P2 - P1. 
D) P1 - P2. 
E) P1 - P3.

Question 14

Suppose the production of helicopters is an industry characterized by increasing returns to scale and an Argentine firm, Cicare, is the only player in this market.The firm caters to the global market and earns a profit of $10 million.Flettner, a German firm has been considering entering this market for a while, but it is aware that its entry will cause each firm to lose about $4 million.Although a government subsidy allows Flettner to enter the helicopter market, the company is unable to reap profits in the long run.Which of the following could have led to this outcome?

Accepted Answer

A) Flettner experienced high production costs due to inadequate supply of inputs. 
B) New firms had entered the helicopter industry. 
C) The German government ran a balance of payment deficit. 
D) The Argentine government retaliated by subsidizing Cicare. 
E) There was very low investment in research and development in this industry. 
A) Flettner experienced high production costs due to inadequate supply of inputs. 
B) New firms had entered the helicopter industry. 
C) The German government ran a balance of payment deficit. 
D) The Argentine government retaliated by subsidizing Cicare. 
E) There was very low investment in research and development in this industry.

Question 15

Protecting infant industries from foreign competition may make sense, but only until the industry matures.

Accepted Answer

A) True 
 B)False

Question 16

Steel producers in the United States observe that foreign sales of U.S.steel has drastically declined due to stringent trade policies adopted by the foreign governments and unfair treatment of U.S.steel exports in foreign countries.The lobbying efforts of such loss making U.S.steel manufacturers induces the domestic government to restrict the entry of imported steel and help stimulate the sales of domestically produced steel.Which of the following is most similar to the example mentioned above?

Accepted Answer

A) A tariff imposed by the government to stimulate domestic production of a high-technology good with positive spillover effects 
B) A tariff imposed by the government on the import of cotton textiles because it is an infant industry in the domestic country 
C) An import tariff applied against a foreign monopoly supplying the domestic market 
D) Taxes imposed by the government on an import competing industry that generates a negative production externality 
E) Reciprocal tariffs introduced by the government of Mexico on tobacco imports from Brazil in retaliation to unfair treatment of Mexican tobacco exports to the latter 
A) A tariff imposed by the government to stimulate domestic production of a high-technology good with positive spillover effects 
B) A tariff imposed by the government on the import of cotton textiles because it is an infant industry in the domestic country 
C) An import tariff applied against a foreign monopoly supplying the domestic market 
D) Taxes imposed by the government on an import competing industry that generates a negative production externality 
E) Reciprocal tariffs introduced by the government of Mexico on tobacco imports from Brazil in retaliation to unfair treatment of Mexican tobacco exports to the latter

Question 17

Suppose the production of helicopters is an industry characterized by increasing returns to scale and an Argentine firm, Cicare, is the only player in this market.The firm caters to the global market and earns a profit of $10 million.Flettner, a German firm has been considering entering this market for a while, but it is aware that its entry will cause each firm to lose about $4 million.However, a government subsidy allows Flettner to enter the helicopter market and Cicare incurs a loss of $4 million due to its entry.Eventually, Flettner evolves as the monopoly supplier of helicopters while Cicare is forced to shut down.This conclusion rests on which of the following assumptions?

Accepted Answer

A) The German government was experiencing a budget surplus. 
B) There was low demand for Cicare automobiles in the world market. 
C) The German government was able to forecast accurately the subsidy required to induce Flettner to produce helicopters. 
D) The quality of Flettner's helicopters were inferior compared to that of Cicare's. 
E) Cicare diversified into the production of automobiles. 
A) The German government was experiencing a budget surplus. 
B) There was low demand for Cicare automobiles in the world market. 
C) The German government was able to forecast accurately the subsidy required to induce Flettner to produce helicopters. 
D) The quality of Flettner's helicopters were inferior compared to that of Cicare's. 
E) Cicare diversified into the production of automobiles.

Question 18

Developing countries often justify imposition of tariffs because:

Accepted Answer

A) it creates a burden on government budget. 
B) it is easy to collect direct taxes from people in the developing countries. 
C) a large number of people in the developing countries earn a taxable income. 
D) developing countries find income taxes difficult to levy and collect. 
E) the volume of imports of these countries is considerably low. 
A) it creates a burden on government budget. 
B) it is easy to collect direct taxes from people in the developing countries. 
C) a large number of people in the developing countries earn a taxable income. 
D) developing countries find income taxes difficult to levy and collect. 
E) the volume of imports of these countries is considerably low.

Question 19

The figure below shows the demand (D)and supply (S)curves of a good produced domestically in an economy as well as traded in the international market. Figure 20.1   In the figure,
P1: Price of the good in the international market.
P2: Price of the good in the domestic market after the imposition of tariff by the government.
P3: No-trade price of the good in the domestic market.
According to Figure 20.1, the tariff revenue earned by the domestic government is equal to the:

Accepted Answer

A) area ABEFH. 
B) area FEQ4Q2. 
C) area ABH. 
D) area HFP1P2. 
E) area BEFH 
A) area ABEFH. 
B) area FEQ4Q2. 
C) area ABH. 
D) area HFP1P2. 
E) area BEFH

Question 20

The trade-creation effect refers to:

Accepted Answer

A) a reduction in economic efficiency as a result of a preferential trade agreement. 
B) a production shift to a higher-cost producer as a result of a preferential trade agreement. 
C) the outcome of a preferential trade agreement that allows a country to obtain goods at a lower cost than is available at home. 
D) diversion of production from a country that has comparative advantage. 
E) a production shift to a country that does not have comparative advantage. 
A) a reduction in economic efficiency as a result of a preferential trade agreement. 
B) a production shift to a higher-cost producer as a result of a preferential trade agreement. 
C) the outcome of a preferential trade agreement that allows a country to obtain goods at a lower cost than is available at home. 
D) diversion of production from a country that has comparative advantage. 
E) a production shift to a country that does not have comparative advantage.

Exam 37: International Trade Restrictions

Protection provided to the infant industries is rarely withdrawn because:

While it is possible to erect barriers to foreign competition and save domestic jobs, restricting international trade may impose large costs on an economy.

Proponents of strategic trade policy contend that:

The figure given below depicts the negatively sloped demand and positively sloped supply curves of wheat in a country. Figure 20.2 Refer to Figure 20.2.In the absence of international trade, what are the domestic equilibrium price and quantity?

When dealing with strategic trade policy, one practical problem for government is the likelihood of retaliation by the foreign government.

Government standards for products sold in the domestic market can have the effect of protecting domestic producers from foreign competition.

Tariffs are considered to be a popular tax in the first world countries, who justify them on the basis of the revenue they generate for government spending.

It is often argued that if foreign goods are kept out of the domestic economy:

In the light of the infant industry argument, identify the industry which is likely to have substantially high initial costs.

By restricting the amount of a good that may be imported, quotas:

Trade diversion reduces worldwide efficiency, because:

The figure below shows the demand (D)and supply (S)curves of corn syrups. Figure 20.3 In Figure 20.3, what are the equilibrium price and quantity in the absence of trade?

Protecting infant industries from foreign competition may make sense, but only until the industry matures.

Developing countries often justify imposition of tariffs because:

The trade-creation effect refers to:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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