Exam 7: Trade Policies for the Developing Nations

Import-substitution policies are supported by the fact that many developing countries have small domestic markets and thus their producers enjoy the benefits of diseconomies of small-scale production.

To help developing countries expand their industrial base, some industrial countries have reduced tariffs on designated manufactured imports from developing countries below the levels applied to imports from industrial countries. This scheme is referred to as:

The development of countries like South Korea and Singapore has been underlaid by all of the following except:

East Asian economies started enacting export-push strategies

During periods of falling demand for coffee, an International Commodity Agreement could offset downward pressure on price by implementing policies to increase the supply of coffee.

Developing countries have complained that because their commodity terms of trade has deteriorated in recent decades, they should receive preferential tariff treatment from industrialized countries.

Under the Generalized System of Preferences program, the industrialized countries agree to maintain lower tariffs on imports of natural resources and higher tariffs on imports of manufactured goods.

One factor that has $\underline { \text { prevented } }$ the formation of cartels for producers of commodities is that:

Most of China's manufactured exports have constituted labor-intensive goods.

Developing countries have often felt that it is easier to protect their manufacturers, via import-substitution policies, against foreign competitors than to force industrial nations to reduce trade restrictions on products exported by developing countries.

The diagram below illustrates the international tin market. Assume that producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound. Figure 7.1. Defending the Target Price in Face of Changing Demand Conditions -Consider Figure 7.1. Suppose the demand for tin decreases from D₀ to D₂. Under a system of export quotas, the tin producers could maintain the target price by:

To be considered a good candidate for an export cartel, a commodity should:

Are economic downturns helpful to cartels?

Not only do changes in demand induce relatively wide fluctuations in price when supply is inelastic, but changes in supply induce relatively wide fluctuations in price when demand is inelastic.

When cartel members agree to restrict output to increase the price of their product, a single member of the cartel has an economic incentive to violate the agreement by increasing its output so as to increase profits.

The success of buffer stocks is limited by the fact that stockpiles of a product may be exhausted after prolonged sales, while funds may be exhausted after prolonged purchases.

If the supply schedule for tin is relatively inelastic to price changes, a decrease in the demand schedule for tin will cause a:

A multilateral contract specifies the maximum price at which exporting countries agree to sell a product and the minimum price at which importing countries agree to buy a product.

Rather than conduct massive stabilization operations, buffer stock officials will periodically revise target prices should they move out of line with long-term price trends.

A key factor underlying the instability of primary product prices and export receipts of developing nations is the