Question 1

For which of the following goods does the income elasticity of demand most clearly exceed unity?

Accepted Answer

A) Public goods like roads and bridges 
B) Lifesaving drugs 
C) Food grains 
D) Luxury automobiles 
A) Public goods like roads and bridges 
B) Lifesaving drugs 
C) Food grains 
D) Luxury automobiles D

Question 2

Suppose country A relies on exports of two primary products, sugar cane and rubber.
A) According to the predictions of Engel's law, what will happen to the terms of trade of country A in the long run?
B) If you are to provide economic policy advice to this nation's government, what advice would you give? In your answer, be sure to explain the reasons behind your advice

Accepted Answer

Engel’s law states that in the long run, with an increase in the per capita income, the relative demand for primary products will decline. Therefore, it can be predicted that with a decline in the relative prices of the primary products, the terms of trade of country A would deteriorate.

.
 Relying on exports of primary products may hold back the growth of a developing country. The country may try to form international cartels with other exporters of each product. However, a cartel may not work because the incentive to cheat will be high. In addition, it is important for a cartel to consider that, the higher the price-elasticity of demand and the higher the price-elasticity of non-cartel supply, the lower will be the price that they can set. The country instead should attempt to diversify its export base. The most promising path is probably to encourage production and export of products that exploit the country’s comparative advantage, perhaps products that use less-skilled labor intensively in production.
Difficulty: 02 Medium

Question 3

An example of policies designed to encourage the development of new industries whose products can be readily exported would be:

Accepted Answer

A) taxing exports of skilled-labor-intensive goods. 
B) subsidizing imports to the domestic market. 
C) providing subsidies to domestic industries that exploit the country's comparative advantage. 
D) imposing tariffs on imports of skilled-labor-intensive goods. 
A) taxing exports of skilled-labor-intensive goods. 
B) subsidizing imports to the domestic market. 
C) providing subsidies to domestic industries that exploit the country's comparative advantage. 
D) imposing tariffs on imports of skilled-labor-intensive goods. C

Question 4

Industrialized countries are often alleged to discriminate against exports of manufactures from developing countries.

Accepted Answer

A) True 
 B)False

Question 5

Given the limits of international cartel power, one alternative for a developing country to put upward pressures on the world prices of its primary product exports is to:

Accepted Answer

A) tax its primary-product exports. 
B) impose tariffs on primary-product imports. 
C) subsidize its primary product exports. 
D) subsidize its manufacturing imports. 
A) tax its primary-product exports. 
B) impose tariffs on primary-product imports. 
C) subsidize its primary product exports. 
D) subsidize its manufacturing imports.

Question 6

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output.   How much would the consumer surplus fall after the formation of the cartel?

Accepted Answer

A) $5 billion 
B) $15 billion 
C) $20 billion 
D) $50 billion 
A) $5 billion 
B) $15 billion 
C) $20 billion 
D) $50 billion

Question 7

The increasing oil prices during 2004-2008 show OPEC's power to overcome market pressures for declining prices.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is NOT one of the four main arguments in favor of import-substituting industrialization?

Accepted Answer

A) The infant industry argument 
B) The developing government argument 
C) The argument of using cheap and convenient market information 
D) The argument of using skilled labor 
A) The infant industry argument 
B) The developing government argument 
C) The argument of using cheap and convenient market information 
D) The argument of using skilled labor

Question 9

Engel's law is consistent with the proposition that the income elasticity for primary products is less than unity.

Accepted Answer

A) True 
 B)False

Question 10

One way developing countries have been able to break into the world export market is by:

Accepted Answer

A) using ISI to force exports by limiting imports. 
B) carrying out extensive research and development giving impetus to high technological progress. 
C) joining international export cartels and creating monopoly in the export market. 
D) becoming locations for low-cost assembly of more technologically advanced products. 
A) using ISI to force exports by limiting imports. 
B) carrying out extensive research and development giving impetus to high technological progress. 
C) joining international export cartels and creating monopoly in the export market. 
D) becoming locations for low-cost assembly of more technologically advanced products.

Question 11

During the Great Depression in the 1930s, world prices of most primary products plummeted. This caused many countries to turn toward:

Accepted Answer

A) exporting manufacturing goods. 
B) importing agricultural goods. 
C) import-substituting industrialization. 
D) exporting agricultural goods. 
A) exporting manufacturing goods. 
B) importing agricultural goods. 
C) import-substituting industrialization. 
D) exporting agricultural goods.

Question 12

Which of the following has been observed in the developing countries during 1990-2012?

Accepted Answer

A) The dispersion in the growth rates of the developing countries has been negligible during 1990-2012. 
B) The East Asian countries like South Korea, Singapore, and Taiwan reported negative growth rates. 
C) Countries like China and Vietnam reported positive but very low growth rates. 
D) Several of the countries in Eastern Europe and Central Asia that were making a transition from centrally planning to market-based economy reported a decline in the per capita income. 
A) The dispersion in the growth rates of the developing countries has been negligible during 1990-2012. 
B) The East Asian countries like South Korea, Singapore, and Taiwan reported negative growth rates. 
C) Countries like China and Vietnam reported positive but very low growth rates. 
D) Several of the countries in Eastern Europe and Central Asia that were making a transition from centrally planning to market-based economy reported a decline in the per capita income.

Question 13

Which of the following increases the speed at which a cartel's power erodes?

Accepted Answer

A) The cartel agreement is more stringent in imposing penalties on the members who cheat 
B) The share of the cartel in the world market increases 
C) The price elasticity of competing supplies decreases 
D) The product's price elasticity of demand increases 
A) The cartel agreement is more stringent in imposing penalties on the members who cheat 
B) The share of the cartel in the world market increases 
C) The price elasticity of competing supplies decreases 
D) The product's price elasticity of demand increases

Question 14

While developing countries have over _____ of the world's population, they produce less than _____ of the world's output.

Accepted Answer

A) 5/6; 1/4 
B) 7/8; 1/8 
C) 2/3; 1/3 
D) 5/6; 1/2 
A) 5/6; 1/4 
B) 7/8; 1/8 
C) 2/3; 1/3 
D) 5/6; 1/2

Question 15

An example of policies designed to protect and encourage new industries serving the domestic market would be:

Accepted Answer

A) taxing exports of manufactured goods. 
B) subsidizing imports to the domestic market. 
C) imposing import tariffs or otherwise restricting imports. 
D) removing all trade restrictions and price supports. 
A) taxing exports of manufactured goods. 
B) subsidizing imports to the domestic market. 
C) imposing import tariffs or otherwise restricting imports. 
D) removing all trade restrictions and price supports.

Question 16

Developing countries tend to have comparative advantages in:

Accepted Answer

A) only capital-intensive goods. 
B) only skilled-labor-intensive goods. 
C) land-intensive and unskilled-labor-intensive goods. 
D) both skilled-labor and capital-intensive goods. 
A) only capital-intensive goods. 
B) only skilled-labor-intensive goods. 
C) land-intensive and unskilled-labor-intensive goods. 
D) both skilled-labor and capital-intensive goods.

Question 17

Which of the following was the main economic policy goal of the countries of the former Soviet Union?

Accepted Answer

A) Export promotion 
B) National self-sufficiency 
C) Privatization 
D) Deindustrialization 
A) Export promotion 
B) National self-sufficiency 
C) Privatization 
D) Deindustrialization

Question 18

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output.   At the perfectly competitive price, the cartel would see that:

Accepted Answer

A) MR > MC. B) MR = MC. C) MR < MC. D) P < MR. A) MR > MC. B) MR = MC. C) MR < MC. D) P < MR.

Question 19

Identify the correct statement.

Accepted Answer

A) In some of the industrialized countries, the income per person declined between 1990 and 2009. 
B) Most of the developing countries have been growing at a uniform rate since 1990. 
C) The average product per person has grown faster in the developing countries than in the industrialized countries since 1990. 
D) The developing countries are expected to catch up with the average per capita income in the industrialized countries in near future. 
A) In some of the industrialized countries, the income per person declined between 1990 and 2009. 
B) Most of the developing countries have been growing at a uniform rate since 1990. 
C) The average product per person has grown faster in the developing countries than in the industrialized countries since 1990. 
D) The developing countries are expected to catch up with the average per capita income in the industrialized countries in near future.

Question 20

Suppose country A is a major exporter of limestone in the world market. Which of the following policies can be taken by the government of country A to enhance the gains from exporting limestone by raising its world price?

Accepted Answer

A) Taxing limestone exports 
B) Subsidizing export of limestone 
C) Subsidizing the extraction of limestone 
D) Setting a price ceiling on the limestone sold in the domestic market 
A) Taxing limestone exports 
B) Subsidizing export of limestone 
C) Subsidizing the extraction of limestone 
D) Setting a price ceiling on the limestone sold in the domestic market

Exam 14: Trade Policies for Developing Countries

For which of the following goods does the income elasticity of demand most clearly exceed unity?

An example of policies designed to encourage the development of new industries whose products can be readily exported would be:

Industrialized countries are often alleged to discriminate against exports of manufactures from developing countries.

Given the limits of international cartel power, one alternative for a developing country to put upward pressures on the world prices of its primary product exports is to:

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. How much would the consumer surplus fall after the formation of the cartel?

The increasing oil prices during 2004-2008 show OPEC's power to overcome market pressures for declining prices.

Which of the following is NOT one of the four main arguments in favor of import-substituting industrialization?

Engel's law is consistent with the proposition that the income elasticity for primary products is less than unity.

One way developing countries have been able to break into the world export market is by:

During the Great Depression in the 1930s, world prices of most primary products plummeted. This caused many countries to turn toward:

Which of the following has been observed in the developing countries during 1990-2012?

Which of the following increases the speed at which a cartel's power erodes?

While developing countries have over _____ of the world's population, they produce less than _____ of the world's output.

An example of policies designed to protect and encourage new industries serving the domestic market would be:

Developing countries tend to have comparative advantages in:

Which of the following was the main economic policy goal of the countries of the former Soviet Union?

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. At the perfectly competitive price, the cartel would see that:

Identify the correct statement.

Suppose country A is a major exporter of limestone in the world market. Which of the following policies can be taken by the government of country A to enhance the gains from exporting limestone by raising its world price?

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

While developing countries have over _ of the world's population, they produce less than _ of the world's output.