Question 1

According to the infant-industry argument for trade protection,a new small industry

Accepted Answer

A) must be protected even if it will never have a comparative advantage. 
B) must be protected permanently to provide for a diversified economy. 
C) will need protection once it has exploited available economies of scale. 
D) may need protection temporarily until it can exploit its economies of scale. 
E) must be protected in order to provide a domestic supply of the product. 
A) must be protected even if it will never have a comparative advantage. 
B) must be protected permanently to provide for a diversified economy. 
C) will need protection once it has exploited available economies of scale. 
D) may need protection temporarily until it can exploit its economies of scale. 
E) must be protected in order to provide a domestic supply of the product. D

Question 2

Trade-remedy policies commonly used to achieve a "level playing field" are

Accepted Answer

A) countervailing duties. 
B) export taxes. 
C) export quotas. 
D) system-wide subsidies to domestic consumers. 
E) voluntary export restraints (VER). 
A) countervailing duties. 
B) export taxes. 
C) export quotas. 
D) system-wide subsidies to domestic consumers. 
E) voluntary export restraints (VER). A

Question 3

What is potentially an important argument against regional trade agreements?

Accepted Answer

A) The benefits of trade creation may be outweighed by the costs of trade diversion. 
B) They are more difficult to negotiate than multilateral agreements at the WTO. 
C) The gains from trade can only be realized with global trade agreements. 
D) Regional trade agreements lead to more volatile swings in national income. 
E) Regional trade agreements are not legally enforceable. 
A) The benefits of trade creation may be outweighed by the costs of trade diversion. 
B) They are more difficult to negotiate than multilateral agreements at the WTO. 
C) The gains from trade can only be realized with global trade agreements. 
D) Regional trade agreements lead to more volatile swings in national income. 
E) Regional trade agreements are not legally enforceable. A

Question 4

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PS1U1B1WS1U1B0.Assume that all cotton towels are identical.   FIGURE 33-3
-Refer to Figure 33-3.If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2 ),then domestic towel producers' revenues will be equal to the area

Accepted Answer

A) A + B + C + D. 
B) A + B + C + E + F + G + H. 
C) A + B + E + F + G. 
D) E + F + G. 
E) E + F + G + H. 
A) A + B + C + D. 
B) A + B + C + E + F + G + H. 
C) A + B + E + F + G. 
D) E + F + G. 
E) E + F + G + H.

Question 5

Continued tariff protection for industries that have already attained all the possible economies of scale will likely

Accepted Answer

A) reduce employment in the protected industries. 
B) reduce the stream of tariff revenue to the government. 
C) redistribute income away from the factors used in the protected industries. 
D) maintain high prices to consumers of the products produced in the protected industries. 
E) result in lower domestic prices for the products they produce. 
A) reduce employment in the protected industries. 
B) reduce the stream of tariff revenue to the government. 
C) redistribute income away from the factors used in the protected industries. 
D) maintain high prices to consumers of the products produced in the protected industries. 
E) result in lower domestic prices for the products they produce.

Question 6

Suppose the Canadian government imposed more stringent environmental regulations on U.S.-owned pulp and paper mills than on Canadian-owned mills.This practice would be a violation of

Accepted Answer

A) Canada's Charter of Rights and Freedoms. 
B) the NAFTA principle of national treatment. 
C) GATT rules. 
D) WTO rules. 
E) U.S.Environmental Protection Agency rules. 
A) Canada's Charter of Rights and Freedoms. 
B) the NAFTA principle of national treatment. 
C) GATT rules. 
D) WTO rules. 
E) U.S.Environmental Protection Agency rules.

Question 7

The concept of "trade creation" refers to

Accepted Answer

A) the opening up of new trading routes. 
B) inefficient trade that follows the establishment of a free-trade area. 
C) trade based on comparative advantage that typically follows the reduction of trade barriers. 
D) increased exports and reduced imports as a result of a high-tariff policy. 
E) regional trade agreements. 
A) the opening up of new trading routes. 
B) inefficient trade that follows the establishment of a free-trade area. 
C) trade based on comparative advantage that typically follows the reduction of trade barriers. 
D) increased exports and reduced imports as a result of a high-tariff policy. 
E) regional trade agreements.

Question 8

What is a tariff?

Accepted Answer

A) an encouragement to worldwide specialization and division of labour 
B) a quota imposed on imported goods 
C) a tax imposed on domestically produced manufactured goods 
D) a tax imposed on exported goods 
E) a tax imposed on imported goods 
A) an encouragement to worldwide specialization and division of labour 
B) a quota imposed on imported goods 
C) a tax imposed on domestically produced manufactured goods 
D) a tax imposed on exported goods 
E) a tax imposed on imported goods

Question 9

According to the principle of "national treatment" in the North American Free Trade Agreement (NAFTA),member countries

Accepted Answer

A) have complete autonomy over their own laws and the way in which they are applied to any firm,domestic or foreign,operating on their soil. 
B) can establish new laws as they wish,as long as these laws apply equally to domestic and foreign-owned firms. 
C) must submit any new laws being considered to a cross-border judicial panel before the laws are enacted. 
D) cannot establish new laws which harm the domestic environment. 
E) can establish specific subsidies to favour their own national firms over international firms,as long as it applies only to domestic operations. 
A) have complete autonomy over their own laws and the way in which they are applied to any firm,domestic or foreign,operating on their soil. 
B) can establish new laws as they wish,as long as these laws apply equally to domestic and foreign-owned firms. 
C) must submit any new laws being considered to a cross-border judicial panel before the laws are enacted. 
D) cannot establish new laws which harm the domestic environment. 
E) can establish specific subsidies to favour their own national firms over international firms,as long as it applies only to domestic operations.

Question 10

An agreement among a group of countries to eliminate trade barriers among themselves,to present a common trading front to the rest of the world in terms of common tariffs,but which does not permit free movement of factors of production among member countries,is called a

Accepted Answer

A) confederation. 
B) common market. 
C) customs union. 
D) free-trade area. 
E) reciprocity association. 
A) confederation. 
B) common market. 
C) customs union. 
D) free-trade area. 
E) reciprocity association.

Question 11

It is not possible for one country to sell all products more cheaply than other countries for any length of time because the

Accepted Answer

A) importing countries will react by constructing severe trade barriers. 
B) exporting country will find its cost of production decreasing relative to the importing country. 
C) depreciation of the importing countries' currencies ensures that trade will flow in both directions. 
D) depreciation of the exporting country's currency will lead to trade in both directions. 
E) the principle of absolute advantage would then be violated. 
A) importing countries will react by constructing severe trade barriers. 
B) exporting country will find its cost of production decreasing relative to the importing country. 
C) depreciation of the importing countries' currencies ensures that trade will flow in both directions. 
D) depreciation of the exporting country's currency will lead to trade in both directions. 
E) the principle of absolute advantage would then be violated.

Question 12

An agreement among a group of countries that allows for tariff-free trade among the members but leaves each member free to levy its own tariffs on imports from other countries is called a

Accepted Answer

A) confederation. 
B) common market. 
C) customs union. 
D) free-trade area. 
E) reciprocity association. 
A) confederation. 
B) common market. 
C) customs union. 
D) free-trade area. 
E) reciprocity association.

Question 13

Which of the following actions (all of which affect international trade)would be undertaken by a private firm as opposed to a national government?

Accepted Answer

A) dumping 
B) tariff 
C) countervailing duty 
D) quota 
E) import duty 
A) dumping 
B) tariff 
C) countervailing duty 
D) quota 
E) import duty

Question 14

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.   FIGURE 33-4
-Refer to Figure 33-4.Assume there is free trade in bicycles.If the world price of bicycles is $200,domestic consumption is ________ and domestic production is ________.

Accepted Answer

A) 20 000; 60 000 
B) 30 000; 50 000 
C) 40 000; 40 000 
D) 50 000; 30 000 
E) 60 000; 20 000 
A) 20 000; 60 000 
B) 30 000; 50 000 
C) 40 000; 40 000 
D) 50 000; 30 000 
E) 60 000; 20 000

Question 15

An example of the "infant industry" argument for trade protection is that

Accepted Answer

A) tariffs should be implemented in order to improve the terms of trade and thereby maximize the gains from trade. 
B) tariffs should not be imposed on countries that have democratic governments. 
C) in the presence of unexploited scale economies,tariff protection may permit a country to develop future comparative advantage in certain products. 
D) imports of certain products should be limited in the interests of national defence. 
E) "strategic" trade policy is helpful when other countries are also being strategic. 
A) tariffs should be implemented in order to improve the terms of trade and thereby maximize the gains from trade. 
B) tariffs should not be imposed on countries that have democratic governments. 
C) in the presence of unexploited scale economies,tariff protection may permit a country to develop future comparative advantage in certain products. 
D) imports of certain products should be limited in the interests of national defence. 
E) "strategic" trade policy is helpful when other countries are also being strategic.

Question 16

The diagram below shows the demand and supply curves for refrigerators in Canada.   FIGURE 33-1
-Refer to Figure 33-1,and assume the world price is P0.The Canadian government now imposes an import quota of the amount Q2Q4.The result would be that the price in Canada would

Accepted Answer

A) stay at P0 and consumption would stay at Q5. 
B) stay at P0 and consumption would rise to Q3. 
C) rise to P2 and consumption would decrease to Q5. 
D) rise to P2 and consumption would decrease to Q4. 
E) rise to P1 and consumption would decrease to Q4. 
A) stay at P0 and consumption would stay at Q5. 
B) stay at P0 and consumption would rise to Q3. 
C) rise to P2 and consumption would decrease to Q5. 
D) rise to P2 and consumption would decrease to Q4. 
E) rise to P1 and consumption would decrease to Q4.

Question 17

Economists would tend to accept which of the following arguments in favour of tariffs?

Accepted Answer

A) Tariffs are needed to avoid exporting jobs. 
B) Tariffs are needed to limit imports and reduce the capital flow from the country. 
C) Tariffs help to reduce inflation by reducing the price of domestic products. 
D) Temporary tariff protection in some situations may help to generate an eventual comparative advantage in that product. 
E) Tariffs will stimulate the domestic economy. 
A) Tariffs are needed to avoid exporting jobs. 
B) Tariffs are needed to limit imports and reduce the capital flow from the country. 
C) Tariffs help to reduce inflation by reducing the price of domestic products. 
D) Temporary tariff protection in some situations may help to generate an eventual comparative advantage in that product. 
E) Tariffs will stimulate the domestic economy.

Question 18

A business which contends that it needs temporary protection so that it can expand significantly and thereby reduce its costs so as to enable it to compete with foreign producers is using an argument known as the

Accepted Answer

A) infant-industry case for tariffs. 
B) monopolistic competition case for tariffs. 
C) strategic case for tariffs. 
D) price fluctuations case for tariffs. 
E) social advantages case for tariffs. 
A) infant-industry case for tariffs. 
B) monopolistic competition case for tariffs. 
C) strategic case for tariffs. 
D) price fluctuations case for tariffs. 
E) social advantages case for tariffs.

Question 19

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PS1U1B1WS1U1B0.Assume that all cotton towels are identical.   FIGURE 33-3
-Refer to Figure 33-3.If Canada imposes a tariff of $t per cotton towel,the Canadian government's tariff revenues will be equal to the area

Accepted Answer

A) A + B + C. 
B) A + B + C + D. 
C) B + C + D. 
D) C. 
E) C + H. 
A) A + B + C. 
B) A + B + C + D. 
C) B + C + D. 
D) C. 
E) C + H.

Question 20

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PS1U1B1WS1U1B0.Assume that all cotton towels are identical.   FIGURE 33-3
-Refer to Figure 33-3.Consider the Canadian producers of towels currently in a free-trade situation in this market who then choose to lobby the government for protection of their industry.Suppose you are an advisor to this industry and are asked to recommend whether they should lobby for a tariff of $t per unit or an import quota of (   -   ).What should you recommend if the producers want to increase their revenues?

Accepted Answer

A) The tariff - their revenues will be higher. 
B) The import quota - their revenues will be higher. 
C) The tariff - the domestic producers will receive all of the revenue previously accruing to foreign suppliers. 
D) Either - it makes no difference to their revenues either way. 
E) Neither - their revenues will not increase with a tariff or an import quota. 
A) The tariff - their revenues will be higher. 
B) The import quota - their revenues will be higher. 
C) The tariff - the domestic producers will receive all of the revenue previously accruing to foreign suppliers. 
D) Either - it makes no difference to their revenues either way. 
E) Neither - their revenues will not increase with a tariff or an import quota.

Exam 33: Trade Policy

According to the infant-industry argument for trade protection,a new small industry

Trade-remedy policies commonly used to achieve a "level playing field" are

What is potentially an important argument against regional trade agreements?

Continued tariff protection for industries that have already attained all the possible economies of scale will likely

Suppose the Canadian government imposed more stringent environmental regulations on U.S.-owned pulp and paper mills than on Canadian-owned mills.This practice would be a violation of

The concept of "trade creation" refers to

What is a tariff?

According to the principle of "national treatment" in the North American Free Trade Agreement (NAFTA),member countries

An agreement among a group of countries to eliminate trade barriers among themselves,to present a common trading front to the rest of the world in terms of common tariffs,but which does not permit free movement of factors of production among member countries,is called a

It is not possible for one country to sell all products more cheaply than other countries for any length of time because the

An agreement among a group of countries that allows for tariff-free trade among the members but leaves each member free to levy its own tariffs on imports from other countries is called a

Which of the following actions (all of which affect international trade)would be undertaken by a private firm as opposed to a national government?

An example of the "infant industry" argument for trade protection is that

The diagram below shows the demand and supply curves for refrigerators in Canada. FIGURE 33-1 -Refer to Figure 33-1,and assume the world price is P0.The Canadian government now imposes an import quota of the amount Q2Q4.The result would be that the price in Canada would

Economists would tend to accept which of the following arguments in favour of tariffs?

A business which contends that it needs temporary protection so that it can expand significantly and thereby reduce its costs so as to enable it to compete with foreign producers is using an argument known as the

Economic Issues and Concepts

Economic Theories,Data,and Graphs

Demand, Supply, and Price

Elasticity

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: The Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, Interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Exchange Rates and the Balance of Payments

Filters

The diagram below shows the demand and supply curves for refrigerators in Canada. FIGURE 33-1 -Refer to Figure 33-1,and assume the world price is P₀.The Canadian government now imposes an import quota of the amount Q₂Q₄.The result would be that the price in Canada would