# Chapter 5 And 6 Homework

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• 1.

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

• A.

• B.

Higher steel prices and falling steel consumption

• C.

Lower profits for domestic steel companies

• D.

Higher unemployment for domestic steel workers

B. 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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• 2.

### 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:

• A.

Elastic in response to the price reduction

• B.

Inelastic in response to the price reduction

• C.

Unit elastic in response to the price reduction

• D.

None of the above

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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• 3.

### 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?

• A.

Import quota

• B.

Orderly marketing agreement

• C.

Local content requirement

• D.

Government procurement policy

C. 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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• 4.

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

• A.

Rise

• B.

Fall

• C.

Remain unchanged

• D.

None of the above

B. 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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• 5.

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

• A.

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

• B.

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

• C.

Tariffs are effective only if home demand is perfectly elastic

• D.

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

B. 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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• 6.

### 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:

• A.

Consumer surplus for American buyers of steel

• B.

Producer surplus for American steelmakers

• C.

Production in the American calculator industry

• D.

Producer surplus for American calculator producers

B. 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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• 7.

### A producer successfully practicing international dumping would charge:

• A.

A relatively higher price in the more inelastic market

• B.

A relatively higher price in the more elastic market

• C.

The same price in all markets, regardless of their elasticities

• D.

Different prices in all markets, regardless of their elasticities

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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• 8.

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

• A.

Favor Swedish consumers over Canadian consumers

• B.

Favor Swedish producers over Canadian producers

• C.

Become widespread as firms operate at full productive capacity

• D.

Result in firms charging prices above the total costs of production

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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• 9.

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

• A.

Lower the welfare of all Americans

• B.

Lead to increases in U.S. consumer surplus

• C.

Encourage U.S. production of competing goods

• D.

Encourage U.S. workers to demand higher wages

B. 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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• 10.

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

• A.

Foreign corporations

• B.

Foreign workers

• C.

Domestic corporation

• D.

The domestic government

D. 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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• 11.

### 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.

A domestic subsudy

• B.

An export subsidy

• C.

An import quota

• D.

An export quota

C. An import quota
Explanation
An import quota refers to a maximum limit set by a country on the quantity of a foreign-produced good that can be imported within a specific time frame. This measure is used to restrict the amount of foreign goods entering the domestic market, protecting domestic industries from competition and promoting local production. By imposing import quotas, governments can control the supply of foreign goods, regulate trade, and safeguard domestic industries from being overwhelmed by foreign competition.

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• 12.

### 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 producers of the imported good being harmed

• B.

Domestic consumers of the imported good being harmed

• C.

Prices increasing in the importing country

• D.

Prices falling in the exporting country

A. Domestic producers of the imported good being harmed
Explanation
The correct answer is "Domestic producers of the imported good being harmed". This is because when a maximum amount of a foreign produced good is allowed to enter a country, it can lead to increased competition for domestic producers. This competition can harm domestic producers as they may struggle to compete with the lower prices or higher quality of the imported goods. This can result in a loss of market share, reduced profits, and potentially even job losses for domestic producers.

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• 13.

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

• A.

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

• B.

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

• C.

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

• D.

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

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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• 14.

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

• A.

Capture the entire subsidy in the form of higher profits

• B.

Increase their level of production

• C.

Reduce wages paid to domestic workers

• D.

Consider the subsidy as an increase in production cost

B. 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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• 15.

### 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:

• A.

U.S. oil companies and workers deserved higher incomes

• B.

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

• C.

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

• D.

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

C. 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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• 16.

### 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:

• A.

Orderly marketing

• B.

Trigger pricing

• C.

Domestic content pricing

• D.

Dumping

D. 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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• 17.

### Figure 5.1 illustrates the steel market for Mexico, assumed to be a "small" country that is unable to affect the world price. Suppose the world price of steel is given and constant at \$200 per ton. Now suppose the Mexican steel industry is able to obtain trade protection.Consider Figure 5.1. With free trade, the quantity of steel imported by Mexico equals:

• A.

2 tons

• B.

4 tons

• C.

6 tons

• D.

8 tons

C. 6 tons
Explanation
In Figure 5.1, the world price of steel is given as \$200 per ton. With free trade, the quantity of steel imported by Mexico can be determined by the point where the world price line intersects the domestic supply curve. In this case, the intersection point shows that Mexico would import 6 tons of steel. Therefore, the correct answer is 6 tons.

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• 18.

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

• A.

\$2000 and \$1200

• B.

\$3200 and \$200

• C.

\$3600 and \$800

• D.

\$4000 and \$600

B. \$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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• 19.

### 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:

• A.

1 tons

• B.

2 tons

• C.

3 tons

• D.

4 tons

D. 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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• 20.

### 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:

• A.

\$200

• B.

\$400

• C.

\$600

• D.

\$800

D. \$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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• 21.

### 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 \$____.

• A.

15, \$35, 9, \$45

• B.

15, \$45, 9, \$35

• C.

21, \$105, 6, \$30

• D.

21, \$30, 6, \$105

C. 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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• 22.

### 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:

• A.

Specific subsidy

• B.

• C.

Domestic subsidy

• D.

Export subsidy

D. 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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• 23.

### The Smoot-Hawley Tariff Act of 1930 has generally been associated with:

• A.

Falling tariffs

• B.

Increases in the volume of trade

• C.

Intensifying the worldwide depression

• D.

Efforts to liberalize nontariff trade barriers

C. Intensifying the worldwide depression
Explanation
The Smoot-Hawley Tariff Act of 1930 was a protectionist measure that significantly raised tariffs on imported goods in the United States. This act led to retaliatory tariffs from other countries, resulting in a decrease in international trade. The reduction in trade worsened the global economic downturn, known as the worldwide depression. Therefore, the Smoot-Hawley Tariff Act is associated with intensifying the worldwide depression.

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• 24.

### 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?

• A.

Countervailing duties

• B.

• C.

Domestic subsidies

• D.

Most-favored-nation standard

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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• 25.

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

• 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

D. 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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• 26.

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

• A.

Tariffs

• B.

Subsidies

• C.

Quotas

• D.

B. 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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• 27.

### The U.S. "trade-remedy laws" could establish all of the following except:

• A.

Import tariffs to protect U.S. firms seriously injured by foreign competition

• B.

Countervailing duties which neutralize foreign export subsidies

• C.

Antidumping duties which protect U.S. firms from imports sold at less-than-fair-value

• D.

Economic sanctions levied against hostile nations

D. Economic sanctions levied against hostile nations
Explanation
The U.S. "trade-remedy laws" are designed to protect domestic industries from unfair trade practices. Import tariffs, countervailing duties, and antidumping duties are all measures that can be implemented under these laws to address specific issues such as foreign competition, export subsidies, and imports sold at less-than-fair-value. However, economic sanctions are not typically considered a trade remedy and are more commonly used as a political tool to address issues unrelated to trade, such as national security or human rights concerns.

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• 28.

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

• A.

Increased

• B.

Decreased

• C.

Remained the same

• D.

None of the above

B. 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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• 29.

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

• A.

• B.

Industrial policies

• C.

• D.

Economic sanctions

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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• 30.

### Export embargoes induce greater losses in consumer surplus for the target country:

• A.

The lesser its initial dependence on foreign produced goods

• B.

The more elastic the target country's demand schedule

• C.

The greater the available output from alternative suppliers

• D.

The more inelastic the target country's supply schedule

D. The more inelastic the target country's supply schedule
Explanation
When the target country's supply schedule is more inelastic, it means that the country is not able to easily increase its domestic production in response to the export embargo. This leads to a decrease in the available output from alternative suppliers, as the target country cannot effectively substitute the goods it used to import. As a result, the target country's consumer surplus is reduced to a greater extent, as consumers have limited options and may have to pay higher prices for the goods they need.

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• 31.

### 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:

• A.

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

• B.

Escape clause if rising unemployment occurs even though imports remain unchanged

• C.

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

• D.

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

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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• 32.

### During the past four decades:

• A.

Nontariff barriers (NTBs) and tariffs have increased in importance

• B.

NTBs and tariffs have decreased in importance

• C.

NTBs have increased and tariffs have decreased in importance

• D.

NTBs have decreased and tariffs have increased in importance

C. 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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• 33.

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

• 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

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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• 34.

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

• A.

5 percent of the value of imports

• B.

15 percent of the value of imports

• C.

20 percent of the value of imports

• D.

25 percent of the value of imports

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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• 35.

### 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:

• A.

Lesser its initial dependence on foreign products

• B.

Less elastic Iraq's demand schedule

• C.

Lesser the available output from alternative suppliers

• D.

More inelastic Iraq's supply schedule

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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• 36.

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

• A.

International dumping by U.S. companies

• B.

Full-cost pricing by U.S. companies

• C.

Unfair trade practices by foreign nations

• D.

C. 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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• 37.

### Industrial policy attempts to fulfill all of the following objectives except:

• A.

Improving the infrastructure for an industry

• B.

Easing transitions for workers in declining industries

• C.

Supporting troubled industries if the difficulty is temporary

• D.

Fostering industries which offer long-run comparative disadvantage

D. Fostering industries which offer long-run comparative disadvantage
Explanation
Industrial policy aims to promote and support industries that have a comparative advantage in the long run. This means that the policy focuses on fostering industries that have the potential to be competitive and successful in the global market. The objective is to encourage the growth and development of industries that can generate sustainable economic benefits for the country. Therefore, fostering industries which offer long-run comparative disadvantage is not a goal of industrial policy.

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• 38.

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

• A.

• B.

World Bank

• C.

International Monetary Fund

• D.

Organization of Economic Development

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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• 39.

### The most recent round of multilateral trade negotiations is the:

• A.

Kennedy Round

• B.

Tokyo Round

• C.

Doha Round

• D.

Geneva Round

C. 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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• 40.

### Economic sanctions are most effective in causing the target nation to modify its behavior when the:

• A.

Target nation had negligible economic relationships with the imposing nation prior to the sanctions

• B.

People of the target nation have weak cultural ties to the people of the imposing nation

• C.

Sanctions are levied by a large number of nations

• D.

Target government is supported by the majority of its people

C. Sanctions are levied by a large number of nations
Explanation
When economic sanctions are levied by a large number of nations, it increases the pressure on the target nation to modify its behavior. This is because when multiple nations impose sanctions, it demonstrates a widespread disapproval and reduces the target nation's ability to find alternative trade partners. It also increases the economic impact of the sanctions, making it harder for the target nation to sustain its current behavior. Therefore, when sanctions are imposed by a large number of nations, it is more likely to be effective in causing the target nation to modify its behavior.

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• 41.

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

• A.

True

• B.

False

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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• 42.

### 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.

• A.

True

• B.

False

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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• 43.

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

• A.

True

• B.

False

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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• 44.

### 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.

• A.

True

• B.

False

B. 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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• 45.

### During periods of growing demand, a tariff more effectively restricts the volume of imports than an equivalent import quota.

• A.

True

• B.

False

B. False
Explanation
During periods of growing demand, an import quota is more effective than a tariff in restricting the volume of imports. This is because an import quota sets a specific limit on the quantity of goods that can be imported, regardless of the demand, while a tariff is a tax imposed on imports, which can still allow for increased imports if the demand is high enough to offset the tax cost. Therefore, the statement that a tariff is more effective than an import quota during periods of growing demand is false.

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• 46.

### 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

• A.

True

• B.

False

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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• 47.

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

• A.

True

• B.

False

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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• 48.

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

• A.

True

• B.

False

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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• 49.

### To the extent that a local content requirement forces firms to locate production in a high-cost nation, product price rises and consumer surplus falls.

• A.

True

• B.

False

A. True
Explanation
When a local content requirement is imposed, firms are obligated to produce goods or services in a specific country, even if it is a high-cost nation. This means that firms may have to incur higher production costs, which can result in an increase in the price of the product. As a result, consumers have to pay more for the product, leading to a decrease in consumer surplus. Therefore, the statement that product price rises and consumer surplus falls is true.

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• 50.

• A.

True

• B.

False