Chapter 5 And 6 Homework

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  • 1/60 Questions

    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 domestic subsudy
    • An export subsidy
    • An import quota
    • An export quota
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About This Quiz

This homework for Chapter 5 and 6 explores the economic impacts of tariffs, subsidies, and trade restrictions. It assesses understanding of trade dynamics, consumer surplus, and competitive advantages in international markets, essential for learners in economics.

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  • 2. 

    To maintain that South Koreans are dumping their VCRs in the United States is to maintain that: 

    • Koreans are selling VCRs in the United States below their production cost

    • Koreans are selling VCRs in the United States above their production cost

    • The cost of manufacturing VCRs in Korea is lower in Korea than in the United States since wages are lower in Korea

    • The cost of manufacturing VCRs in Korea is higher in Korea than in the United States since wages are higher in Korea

    Correct Answer
    A. Koreans are selling VCRs in the United States below their production cost
    Explanation
    The correct answer suggests that South Koreans are selling VCRs in the United States below their production cost. This implies that they are selling the VCRs at a price that is lower than what it costs them to produce the VCRs. This could be due to various reasons such as overproduction, a desire to enter the US market at any cost, or a strategy to drive out competitors. Regardless of the specific reason, the answer indicates that the selling price is lower than the production cost, resulting in a loss for the South Koreans.

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  • 3. 

    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:

    • Orderly marketing

    • Trigger pricing

    • Domestic content pricing

    • Dumping

    Correct Answer
    A. Dumping
    Explanation
    The practice described in the question, where Japanese employers sell goods in overseas markets at prices well below those in Japan to avoid losses, is known as dumping. Dumping is when a company exports goods at a price lower than their production cost or the price they are sold in the domestic market, which can harm the domestic industries of the importing country.

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  • 4. 

    Consider Figure 5.1. With free trade, Mexico's consumer surplus and producer surplus respectively equal:

    • $2000 and $1200

    • $3200 and $200

    • $3600 and $800

    • $4000 and $600

    Correct Answer
    A. $3200 and $200
    Explanation
    With free trade, Mexico's consumer surplus increases to $3200 because they can now access goods at a lower price than before. Producer surplus, on the other hand, decreases to $200 because domestic producers face competition from foreign producers who can offer goods at a lower cost. This leads to a decrease in their profits.

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  • 5. 

    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:

    • 1 tons

    • 2 tons

    • 3 tons

    • 4 tons

    Correct Answer
    A. 4 tons
    Explanation
    The subsidy provided by the Mexican government to its steel producers decreases the cost of production for the producers. As a result, the supply of steel increases, leading to a surplus in the domestic market. To eliminate this surplus, the excess steel is exported, resulting in an increase in imports. Therefore, the quantity of imports equals 4 tons.

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  • 6. 

    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?

    • Countervailing duties

    • Trade adjustment assistance

    • Domestic subsidies

    • Most-favored-nation standard

    Correct Answer
    A. Trade adjustment assistance
    Explanation
    Trade adjustment assistance 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. This policy aims to help individuals and communities that have been negatively affected by imports by providing them with financial support, job training, and other forms of assistance to help them adjust to the changes in the economy.

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  • 7. 

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

    • Domestic workers lobbying for import restrictions

    • Domestic workers lobbying for export restrictions

    • Domestic consumers lobbying for export restrictions

    • Domestic consumers lobbying for import restrictions

    Correct Answer
    A. Domestic workers lobbying for import restrictions
    Explanation
    Domestic workers lobbying for import restrictions would exert the strongest political pressure for a trade policy that results in higher protectionism. This is because import restrictions would limit foreign competition, allowing domestic industries to flourish and protect domestic jobs. By advocating for import restrictions, domestic workers aim to safeguard their employment opportunities and job security, thereby pressuring policymakers to adopt protectionist trade policies.

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  • 8. 

    The average tariff rate today on dutiable imports in the United States is approximately:

    • 5 percent of the value of imports

    • 15 percent of the value of imports

    • 20 percent of the value of imports

    • 25 percent of the value of imports

    Correct Answer
    A. 5 percent of the value of imports
    Explanation
    The correct answer is 5 percent of the value of imports. This means that on average, the United States charges a tariff rate of 5 percent on dutiable imports. Tariffs are taxes imposed on imported goods, and they are usually calculated as a percentage of the value of the goods. Therefore, the average tariff rate today in the United States is approximately 5 percent of the value of imports.

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  • 9. 

    Which international organization stipulates procedures for the settlement of international trade disputes?

    • World Trade Organization

    • World Bank

    • International Monetary Fund

    • Organization of Economic Development

    Correct Answer
    A. World Trade Organization
    Explanation
    The World Trade Organization (WTO) is the international organization that stipulates procedures for the settlement of international trade disputes. It provides a platform for member countries to negotiate and resolve trade-related issues through its dispute settlement mechanism. The WTO plays a crucial role in ensuring the smooth functioning of global trade by promoting and enforcing rules and regulations that govern international trade. Its dispute settlement procedures help to maintain a fair and level playing field for all member countries, ensuring that trade disputes are resolved in a transparent and impartial manner.

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  • 10. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    An import quota refers to a limit imposed on the amount of goods that can be imported within a specific timeframe. This restriction aims to control and regulate the volume of foreign products entering a country's market. By implementing import quotas, governments can protect domestic industries, promote local production, and manage the balance of trade. Therefore, the statement "An import quota is a physical restriction on the quantity of goods that may be imported during a specified time period" is true.

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  • 11. 

    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.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    This statement is true because a global import quota only sets a limit on the quantity of goods that can be imported each year, without specifying the source or the importers. This means that as long as the quantity limit is not exceeded, the goods can be imported from any country and by any permitted importer.

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  • 12. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Local content laws are regulations that require a certain percentage of goods or services to be produced domestically. By implementing such laws, countries aim to promote domestic industries and protect local jobs. By limiting foreign sourcing, these laws ensure that a certain portion of production remains within the country, thus preserving jobs for domestic workers. Therefore, the statement that local content laws are viewed as a means of jobs preservation for domestic workers is true.

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  • 13. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The Smoot-Hawley Act, passed in 1930, increased average tariffs on protected imports in the United States to over 50 percent. This legislation aimed to protect domestic industries from foreign competition during the Great Depression. The higher tariffs were intended to make imported goods more expensive, encouraging consumers to buy domestically produced goods instead. This act is often criticized for exacerbating the global economic downturn by triggering retaliatory tariffs from other countries and reducing international trade.

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  • 14. 

    The imposition of a tariff on imported steel for the home country results in:

    • Improving terms of trade and rising volume of trade

    • Higher steel prices and falling steel consumption

    • Lower profits for domestic steel companies

    • Higher unemployment for domestic steel workers

    Correct Answer
    A. Higher steel prices and falling steel consumption
    Explanation
    When a tariff is imposed on imported steel for the home country, it leads to higher steel prices. This is because the tariff increases the cost of imported steel, making it more expensive for consumers. As a result, the demand for steel decreases, leading to falling steel consumption. This can have negative effects on domestic steel companies, as lower consumption means lower sales and potentially lower profits. Additionally, if the steel companies are unable to compete with the higher-priced imported steel, it could lead to higher unemployment for domestic steel workers.

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  • 15. 

    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.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The explanation for the given correct answer is that members of the General Agreement on Tariffs and Trade and its successor, the World Trade Organization, do indeed agree to the principle of nondiscrimination in trade and the reduction of trade barriers through multilateral negotiations. This means that they commit to treating all trading partners equally and not imposing unfair trade barriers or discriminatory practices.

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  • 16. 

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

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, symbols, names, and images used in commerce. It is not limited to rare books and pieces of art, but also includes patents, copyrights, trademarks, and trade secrets. Therefore, the statement that intellectual property refers to holdings of rare books and pieces of art is false.

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  • 17. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Copyrights, trademarks, and patents are indeed used to protect the intellectual property of a nation from foreign imitators. These legal mechanisms grant exclusive rights to creators and inventors, allowing them to control and profit from their creations or inventions. Copyrights protect original works of authorship, such as books, music, and software. Trademarks protect brands and logos, ensuring that consumers can identify and differentiate products or services. Patents protect inventions, granting inventors the exclusive right to produce, use, and sell their inventions for a limited period of time. These protections are crucial in fostering innovation and encouraging creativity in a country.

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  • 18. 

    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?

    • Import quota

    • Orderly marketing agreement

    • Local content requirement

    • Government procurement policy

    Correct Answer
    A. Local content requirement
    Explanation
    A local content requirement is a trade restriction that stipulates the percentage of a product's total value that must be produced domestically in order for that product to be sold domestically. It is a policy implemented by governments to promote domestic production and protect local industries. This requirement ensures that a certain portion of the product's value is contributed by local manufacturers, which helps to stimulate the domestic economy and create job opportunities.

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  • 19. 

    If import licenses are auctioned off to domestic importers in a competitive market, their scarcity value (revenue effect) accrues to:

    • Foreign corporations

    • Foreign workers

    • Domestic corporation

    • The domestic government

    Correct Answer
    A. The domestic government
    Explanation
    When import licenses are auctioned off to domestic importers in a competitive market, the scarcity value or revenue effect of these licenses accrues to the domestic government. This means that the government receives the additional revenue generated from the auctioning of these licenses. This revenue can then be used by the government for various purposes such as funding public projects, reducing the budget deficit, or investing in social programs.

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  • 20. 

    If the home country's government grants a subsidy on a domestically produced good, domestic producers tend to:

    • Capture the entire subsidy in the form of higher profits

    • Increase their level of production

    • Reduce wages paid to domestic workers

    • Consider the subsidy as an increase in production cost

    Correct Answer
    A. Increase their level of production
    Explanation
    When the home country's government grants a subsidy on a domestically produced good, domestic producers tend to increase their level of production. This is because the subsidy lowers the production costs for domestic producers, making it more profitable for them to produce more goods. By increasing their level of production, domestic producers can take advantage of the subsidy and maximize their profits. Therefore, the correct answer is to increase their level of production.

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  • 21. 

    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:

    • U.S. oil companies and workers deserved higher incomes

    • U.S. oil was of superior quality and merited higher prices

    • One should not be too dependent on foreign suppliers of crucial resources

    • The U.S. government needed the quota revenue to balance its budget

    Correct Answer
    A. One should not be too dependent on foreign suppliers of crucial resources
    Explanation
    The apparent justification for the policy of levying quotas on inexpensive oil imported from the Middle East is that one should not be too dependent on foreign suppliers of crucial resources. By implementing quotas, the U.S. government aims to reduce its reliance on foreign oil and ensure a more secure and stable domestic supply. This justification prioritizes national security and self-sufficiency in the energy sector over lower prices for consumers.

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  • 22. 

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

    • Termination of export subsidies applied to manufactured goods

    • Termination of import tariffs applied to manufactured goods

    • Encouragement of beggar-thy-neighbor policies

    • Reductions in trade barriers via multilateral negotiations

    Correct Answer
    A. Reductions in trade barriers via multilateral negotiations
    Explanation
    The correct answer is reductions in trade barriers via multilateral negotiations. The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) have worked towards reducing trade barriers such as import tariffs and export subsidies through negotiations among member countries. These agreements aim to promote free and fair trade by facilitating the removal of barriers that hinder the flow of goods and services across borders. Through multilateral negotiations, countries have been able to reach agreements on lowering trade barriers, thereby promoting international trade and economic growth.

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  • 23. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Import quotas can indeed yield revenue for the domestic government if they choose to auction import licenses to the highest bidder in a competitive market. By doing so, the government can generate additional income from the sale of these licenses, which can contribute to the overall revenue of the government. This approach ensures that the import licenses are allocated to those who value them the most, as they are willing to pay the highest price for them in the auction.

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  • 24. 

    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:

    • Specific subsidy

    • Ad valorem subsidy

    • Domestic subsidy

    • Export subsidy

    Correct Answer
    A. Export subsidy
    Explanation
    The correct answer is export subsidy. The Export-Import Bank of the United States provides loans and loan guarantees to foreign purchasers of American goods, which encourages American firms to sell their products overseas. This financial support is specifically aimed at promoting and supporting exports, making it an export subsidy.

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  • 25. 

    Countervailing duties are intended to neutralize any unfair advantage that foreign exporters might gain over domestic producers because of foreign:

    • Tariffs

    • Subsidies

    • Quotas

    • Buy-national policies

    Correct Answer
    A. Subsidies
    Explanation
    Countervailing duties are imposed on imported goods to offset the advantage that foreign exporters may have due to subsidies provided by their government. Subsidies can lower the production costs for foreign producers, allowing them to sell their goods at lower prices compared to domestic producers. By imposing countervailing duties, the government aims to level the playing field and prevent unfair competition that could harm domestic industries.

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  • 26. 

    Throughout the post-World War II era, the importance of tariffs as a trade barrier has:

    • Increased

    • Decreased

    • Remained the same

    • None of the above

    Correct Answer
    A. Decreased
    Explanation
    The correct answer is "Decreased" because over the post-World War II era, there has been a global trend towards reducing trade barriers and promoting free trade. This has been achieved through the establishment of organizations like the World Trade Organization (WTO) and the signing of various trade agreements, which have resulted in the lowering of tariffs and other trade barriers between countries. As a result, the importance of tariffs as a trade barrier has decreased over time.

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  • 27. 

    ____ attempt to produce a fair and free-trading environment in which there exists a level playing field

    • Trade-remedy laws

    • Industrial policies

    • Strategic trade policies

    • Economic sanctions

    Correct Answer
    A. Trade-remedy laws
    Explanation
    Trade-remedy laws are designed to create a fair and free-trading environment by addressing unfair trade practices and providing remedies for industries affected by them. These laws aim to protect domestic industries from unfair competition, such as dumping or subsidies, by imposing tariffs or quotas on imports. By doing so, trade-remedy laws help to level the playing field and ensure that all countries can compete on equal terms, promoting a more balanced and competitive global trading system.

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  • 28. 

    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:

    • Escape clause if rising imports substantially injure the U.S. radio industry

    • Escape clause if rising unemployment occurs even though imports remain unchanged

    • Infant industry clause if rising imports cause unemployment to rise among U.S. radio workers

    • Infant industry clause if rising imports result in losses for U.S. radio companies

    Correct Answer
    A. Escape clause if rising imports substantially injure the U.S. radio industry
    Explanation
    The correct answer is "Escape clause if rising imports substantially injure the U.S. radio industry." This is because the escape clause allows for temporary relief from trade agreements if a domestic industry is being significantly harmed by increased imports. In this case, if the president lowers tariffs on radios and it leads to a surge in imports that causes substantial harm to the U.S. radio industry, the industry can appeal for relief under the escape clause.

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  • 29. 

    During the past four decades:

    • Nontariff barriers (NTBs) and tariffs have increased in importance

    • NTBs and tariffs have decreased in importance

    • NTBs have increased and tariffs have decreased in importance

    • NTBs have decreased and tariffs have increased in importance

    Correct Answer
    A. NTBs have increased and tariffs have decreased in importance
    Explanation
    Over the past four decades, there has been a shift in the importance of nontariff barriers (NTBs) and tariffs. NTBs, which are trade barriers other than tariffs, have become more significant, while tariffs have become less important. This suggests that countries have increasingly relied on measures such as quotas, licensing requirements, and technical regulations to restrict trade, rather than using tariffs. This shift may be due to various factors, including changes in global trade patterns, the growth of multinational corporations, and the increasing complexity of international trade regulations.

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  • 30. 

    The most recent round of multilateral trade negotiations is the:

    • Kennedy Round

    • Tokyo Round

    • Doha Round

    • Geneva Round

    Correct Answer
    A. Doha Round
    Explanation
    The correct answer is Doha Round. The Doha Round refers to the most recent round of multilateral trade negotiations that took place between 2001 and 2008. It was launched in Doha, Qatar, and aimed to address various issues related to international trade, including agriculture, services, intellectual property rights, and market access. However, the negotiations faced significant challenges and were not able to reach a comprehensive agreement, leading to a stalemate. Despite this, some partial agreements were reached in areas such as trade facilitation.

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  • 31. 

    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 $____.

    • 15, $35, 9, $45

    • 15, $45, 9, $35

    • 21, $105, 6, $30

    • 21, $30, 6, $105

    Correct Answer
    A. 21, $105, 6, $30
    Explanation
    Based on the given information, ABC Inc. sells a total of 27 calculators. The question asks for the number of calculators sold in Canada and France, as well as the revenues generated from those sales. The answer "21, $105, 6, $30" indicates that ABC Inc. sells 21 calculators in Canada, generating $105 in revenue, and 6 calculators in France, generating $30 in revenue.

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  • 32. 

    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: 

    • Elastic in response to the price reduction

    • Inelastic in response to the price reduction

    • Unit elastic in response to the price reduction

    • None of the above

    Correct Answer
    A. Elastic in response to the price reduction
    Explanation
    If the foreign demand is elastic in response to the price reduction, it means that a decrease in price will lead to a proportionally larger increase in quantity demanded. In this case, the government subsidy allowing export firms to lower prices would result in a significant increase in demand for their goods, leading to a rise in export revenue.

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  • 33. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The Smoot-Hawley Act of 1930 was a protectionist trade policy implemented by the United States during the Great Depression. Proponents of the act believed that by raising tariffs on imported goods, it would protect domestic industries and stimulate the economy, thus reducing unemployment. They argued that by making foreign goods more expensive, consumers would be more likely to buy domestically produced goods, leading to increased demand and job creation. However, many economists argue that the act actually worsened the Great Depression by triggering retaliatory tariffs from other countries and reducing international trade.

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  • 34. 

    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.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    The statement is false because the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), have members from both developing and developed countries. The GATT/WTO is an international organization that aims to promote free trade and reduce trade barriers among its member countries. It includes countries from all stages of development, not just developing countries. Developed countries such as the United States, Japan, and European Union member states are also members of the GATT/WTO.

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  • 35. 

    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.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The fast-track provision of U.S. trade law allows the President to negotiate trade agreements with foreign governments more quickly. This means that the normal timetable for negotiations is expedited, allowing for faster decision-making and implementation of trade agreements.

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  • 36. 

    A producer successfully practicing international dumping would charge: 

    • A relatively higher price in the more inelastic market

    • A relatively higher price in the more elastic market

    • The same price in all markets, regardless of their elasticities

    • Different prices in all markets, regardless of their elasticities

    Correct Answer
    A. A relatively higher price in the more inelastic market
    Explanation
    A producer successfully practicing international dumping would charge a relatively higher price in the more inelastic market. This is because in a more inelastic market, the demand for the product is less responsive to price changes. Therefore, the producer can charge a higher price without losing a significant number of customers. By doing so, the producer can maximize their profits in the more inelastic market while still remaining competitive in the more elastic markets by charging a lower price.

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  • 37. 

    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.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    An import quota does not necessarily 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. The overall welfare impact of an import quota depends on various factors such as the specific market conditions, the efficiency of domestic producers, and the potential gains from international trade. Therefore, the statement is false.

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  • 38. 

    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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The elimination of nontariff barriers on apples, such as regulations or restrictions, would make it easier for apples to be imported into a country. This increased import of apples would likely lead to a reduction in profits for domestic apple producers who now face more competition. Additionally, the increased imports may result in job losses for domestic apple workers as the demand for their labor decreases. Therefore, it can be inferred that the statement is true.

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  • 39. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Local content laws are regulations that require a certain percentage of goods or services to be produced domestically rather than imported. These laws are based on the principle of import substitution, which aims to promote domestic industries and reduce reliance on foreign goods. By encouraging domestic production, local content laws can boost the economy, create jobs, and reduce trade imbalances. Therefore, the statement that local content laws are consistent with the principle of import substitution is true.

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  • 40. 

    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:

    • Lesser its initial dependence on foreign products

    • Less elastic Iraq's demand schedule

    • Lesser the available output from alternative suppliers

    • More inelastic Iraq's supply schedule

    Correct Answer
    A. Lesser its initial dependence on foreign products
    Explanation
    The correct answer is "Lesser its initial dependence on foreign products." When a country has a higher dependence on foreign products, trade embargoes will have a larger impact on its consumer surplus. In this case, if Iraq had a lesser initial dependence on foreign products, the trade embargoes would induce smaller losses in its consumer surplus. This is because Iraq would have alternative suppliers or domestic production to rely on, reducing the negative impact of the embargoes.

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  • 41. 

    In U.S. trade law, Section 301 cases involve accusations of:

    • International dumping by U.S. companies

    • Full-cost pricing by U.S. companies

    • Unfair trade practices by foreign nations

    • Trade embargoes by foreign nations

    Correct Answer
    A. Unfair trade practices by foreign nations
    Explanation
    Section 301 cases in U.S. trade law deal with allegations of unfair trade practices by foreign nations. This means that these cases involve situations where foreign countries are engaging in practices that are considered unfair or harmful to U.S. businesses or industries. These practices could include things like intellectual property theft, discriminatory trade policies, or subsidies that give foreign companies an unfair advantage in the market. Section 301 allows the U.S. government to take action, such as imposing tariffs or other trade barriers, to address these unfair practices and protect U.S. interests.

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  • 42. 

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

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The Commodity Credit Corporation is indeed responsible for providing export credit financing for U.S. agricultural exports. This means that they offer financial support to facilitate the export of agricultural products from the United States.

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  • 43. 

    Compared to an import quota, an equivalent tariff may provide a less certain amount of protection for home producers since:

    • A tariff has no deadweight loss in terms of production and consumption

    • Foreign firms may absorb the tariff by offering exports at lower prices

    • Tariffs are effective only if home demand is perfectly elastic

    • Quotas do not result in increases in the price of the imported good

    Correct Answer
    A. Foreign firms may absorb the tariff by offering exports at lower prices
    Explanation
    Foreign firms may absorb the tariff by offering exports at lower prices. This means that when a tariff is imposed, foreign firms may choose to lower their prices in order to remain competitive in the home market. This can reduce the level of protection provided to home producers, as the lower prices offered by foreign firms may still attract consumers away from domestic producers. In contrast, an import quota restricts the quantity of imports allowed into the country, which can result in higher prices for the imported good and provide more certainty and protection for home producers.

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  • 44. 

    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: 

    • $200

    • $400

    • $600

    • $800

    Correct Answer
    A. $800
    Explanation
    The total cost of the subsidy to the Mexican government equals $800. This is because the subsidy is provided per ton of steel produced, and the supply schedule SM (with subsidy) indicates that the subsidy is $200 per ton. Therefore, if the government provides the subsidy for every ton of steel produced, and considering the given figure, the total cost of the subsidy would be $200 * 4 tons = $800.

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  • 45. 

    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.Correct! 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement is true because U.S. antidumping duties are designed to address unfair trade practices where foreign companies sell their products in the United States at prices below their average total cost or lower than the prices charged in their home market. These duties aim to protect domestic industries from the negative effects of such dumping practices by making imported goods more expensive and leveling the playing field for American businesses.

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  • 46. 

    The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to:

    • Rise

    • Fall

    • Remain unchanged

    • None of the above

    Correct Answer
    A. Fall
    Explanation
    The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to fall. This is because a domestic content requirement restricts the availability of foreign goods in the market, reducing competition and potentially leading to higher prices for consumers. With fewer options and higher prices, consumers would experience a decrease in their surplus, resulting in a fall.

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  • 47. 

    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:

    • Consumer surplus for American buyers of steel

    • Producer surplus for American steelmakers

    • Production in the American calculator industry

    • Producer surplus for American calculator producers

    Correct Answer
    A. Producer surplus for American steelmakers
    Explanation
    The U.S. has a competitive advantage in producing calculators, not steel. Therefore, if import quotas on steel are lowered, it is least likely that there would be rising levels of producer surplus for American steelmakers. This is because the U.S. does not have a comparative advantage in steel production, so lowering import quotas would likely result in increased competition from foreign steel producers, leading to a decrease in producer surplus for American steelmakers.

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  • 48. 

    The practice of Canadian firms dumping their products in Sweden poses a problem for economic policymakers since dumping tends to: 

    • Favor Swedish consumers over Canadian consumers

    • Favor Swedish producers over Canadian producers

    • Become widespread as firms operate at full productive capacity

    • Result in firms charging prices above the total costs of production

    Correct Answer
    A. Favor Swedish consumers over Canadian consumers
    Explanation
    Dumping refers to the practice of selling products in a foreign market at a lower price than in the domestic market. In this case, Canadian firms are dumping their products in Sweden. This situation favors Swedish consumers over Canadian consumers because they can purchase the products at a lower price. On the other hand, Canadian consumers may face higher prices for the same products in their own market. Therefore, the practice of dumping creates an imbalance in favor of Swedish consumers, leading to an advantage for them over Canadian consumers.

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  • 49. 

    Export subsidies levied by foreign governments on products in which the United States has a comparative disadvantage:

    • Lower the welfare of all Americans

    • Lead to increases in U.S. consumer surplus

    • Encourage U.S. production of competing goods

    • Encourage U.S. workers to demand higher wages

    Correct Answer
    A. Lead to increases in U.S. consumer surplus
    Explanation
    Export subsidies levied by foreign governments on products in which the United States has a comparative disadvantage lead to increases in U.S. consumer surplus. This is because these subsidies make the imported products cheaper for U.S. consumers, allowing them to purchase more of these products at a lower price. As a result, consumers benefit from a larger consumer surplus, which is the difference between the price consumers are willing to pay for a product and the actual price they pay.

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Quiz Review Timeline (Updated): Mar 21, 2023 +

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 05, 2017
    Quiz Created by
    Tkoike
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