Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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:

Accepted Answer

A)  Specific subsidy 
B)  Ad valorem subsidy 
C)  Domestic subsidy 
D)  Export subsidy

Question 4

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:

Accepted Answer

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

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

The strongest political pressure for a trade policy that results in higher protectionism comes from:

Accepted Answer

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

Question 8

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
 
-Consider Figure 6.2. As a result of the South Korean subsidy, Mexicans find their consumer surplus:

Accepted Answer

A)  Rising by $160 
B)  Rising by $220 
C)  Falling by $160 
D)  Falling by $220

Question 9

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
 
-Consider Figure 6.3. With free trade, Iraq purchases ____ computers at a price of $____, and realizes $____ of consumer surplus from the availability of computers.

Accepted Answer

A)  30, $3,000, $25,000 
B)  30, $3,000, $35,000 
C)  30, $3,000, $45,000 
D)  30, $3,000, $55,000

Question 10

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
 
-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:

Accepted Answer

A)  Tax revenue 
B)  Export revenue 
C)  Producer surplus 
D)  Consumer surplus

Question 11

The General Agreement on Tariffs and Trade and its successor, the World Trade Organization, have resulted in:

Accepted Answer

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

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Figure 6.4 Japanese Market for Jetliners
 
-Consider the Japanese market for jetliners as depicted in Figure 6.4. Suppose lone producer of jetliners in the world is Boeing and Boeing faces a constant marginal cost of $20 million per jetliner. What price will Boeing charge for jetliners in the Japanese market and how many will they sell?

Accepted Answer

A)  $20 million, 23 
B)  $20 million, 46 
C)  $30 million, 46 
D)  $30 million, 23

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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
 
-Consider Figure 6.2. The South Korean subsidy helps/hurts Mexican manufacturers, since their producer surplus rises/falls by $____.

Accepted Answer

A)  Helps, rises, $60 
B)  Helps, rises, $100 
C)  Hurts, falls, $60 
D)  Hurts, falls, $100

Question 16

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
 
-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 $____.

Accepted Answer

A)  6, $10 million, $36 million 
B)  6, $12 million, $24 million 
C)  12, $10 million, $36 million 
D)  12, $12 million, $24 million

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

Figure 6.4 Japanese Market for Jetliners
 
-Consider the Japanese market for jetliners as depicted in Figure 6.4. Suppose lone producer of jetliners in the world is Boeing and Boeing faces a constant marginal cost of $20 million per jetliner. How much consumer surplus will the Japanese airlines who purchase the jetliners earn from their transactions with Boeing?

Accepted Answer

A)  0 
B)  $115 million 
C)  $230 million 
D)  $250 million

Question 19

For the United States, which organization makes loans to foreign buyers of U.S. manufactured goods?

Accepted Answer

A)  Export-Import Bank 
B)  Domestic International Sales Corporation 
C)  Organization for Economic Cooperation and Development 
D)  Commodity Credit Corporation

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 6: Trade Regulations and Industrial Policies

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.

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

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:

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:

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.

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.

The strongest political pressure for a trade policy that results in higher protectionism comes from:

The General Agreement on Tariffs and Trade and its successor, the World Trade Organization, have resulted in:

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.

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.

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.

For the United States, which organization makes loans to foreign buyers of U.S. manufactured goods?

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.