Deck 7: Government Intervention and Regional Economic Integration

Question 1

Which of the following is an example of an offensive rationale for government intervention?

A) The government of Erbia imposes trade restrictions on the export of plutonium to certain countries.
B) The government of Berylia imposes a trade barrier to curtail the import of low-priced products from manufacturers in the developed economies.
C) The government of Argonia imposes investment barriers to safeguard special interest groups.
D) The government of Rhodia requires foreign companies to enter its huge markets through joint ventures with local firms.

Answer 1

D

Question 2

A quantitative restriction on specific imports from a specific country for a set period of time is referred to as ________.

A) tariff
B) quota
C) investment barrier
D) country risk

Answer 2

B

Question 3

Protectionist policies may also lead to ________.

A) price inflation
B) increased choices for buyers
C) easy availability of products
D) high incentive to improve quality

Answer 3

A

Question 4

Financing or other resources that a government grants to a firm or group of firms, to ensure their survival or success is referred to as a ________.

A) premium
B) subsidy
C) quota
D) grant

Question 5

Which of the following is an example of nontariff trade barrier?

A) Gayle Inc. is a U.S.-based retailer that imports cosmetic products manufactured in Thailand. These products pass through U.S. customs and are subject to a 5 percent import duty.
B) The U.S. imports chocolates manufactured in Belgium that cost $65 a box with taxes.
C) The U.S. Department of Commerce announced that white sugar imports will be limited to 7,500 million tons.
D) Spices imported from India to the U.S. for sale in the domestic market are subject to a 10 percent import duty.

Question 6

Governments impose offensive barriers to ________.

A) protect domestic industries
B) promote national security
C) pursue strategic or public policy objectives such as increasing employment
D) safeguard the interests of special interest groups

Question 7

A nontariff trade barrier is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs.

Question 8

________ refers to a tax imposed on imported products, effectively increasing the cost of acquisition for the customer.

A) Quota
B) Tariff
C) Embargo
D) Subsidy

Question 9

________ is(are) at odds with free trade, the unrestricted flow of products, services, and capital across national borders.

A) Lower-cost imports
B) Government intervention
C) FDI
D) Factors of production

Question 10

Which of the following statements is TRUE about protection of an infant industry?

A) Governments can impose temporary trade barriers on foreign imports to ensure that young firms gain a large share of the domestic market.
B) Such protection is easy to remove.
C) Protected companies become more efficient and produce products with lower prices.
D) Protecting infant industries rarely allows countries to develop a modern industrial sector.

Question 11

Offensive rationales for government intervention fall into two categories: national strategic priorities and increasing employment.

Question 12

Which of the following situations is an example of country risk?

A) Fiesta Corp. is an automobile manufacturer based in the U.S. The company's negotiation attempts with China to open a manufacturing factory in Beijing failed owing to cultural differences.
B) Frostees Inc. is a food and beverages company based in the U.S. Its attempt to set up an outlet in Thailand failed primarily owing to a misinterpretation of the memorandum of understanding by a potential business partner in Thailand.
C) Alpha Corp., a rice manufacturer based in Pakistan, suffered losses when the U.S. Department of Commerce decided to impose tariffs on the import of paddy rice to avoid competition for the domestic industry.
D) Tamiaz LLC is a U.S.-based manufacturer of clothing with outlets in China, Vietnam, and India. The company incurred a loss due to delayed payments from India owing to fluctuations in the currency exchange rates.

Question 13

Governments impose export controls for the purpose of ________.

A) improving available opportunities for domestic sales
B) boosting derived demand in the domestic market
C) preventing the export of certain products to certain countries
D) boosting derived demand in foreign markets

Question 14

The Chinese government's policy of requiring foreign firms to enter the Chinese market via joint ventures is intended to ________.

A) limit the amount of FDI
B) create jobs for Chinese workers
C) protect China's national security
D) stimulate foreign investment

Question 15

Which of the following is TRUE with regard to protectionism?

A) It increases the availability of raw materials for domestic industries.
B) It decreases the cost of products sold in the home market.
C) It increases the availability of products sold in the home market.
D) It can trigger retaliation from foreign governments, which reduces sales prospects for exports.

Question 16

Governments impose defensive barriers to ________.

A) safeguard industries
B) promote national security
C) protect workers
D) all of the these

Question 17

What type of tariff is assessed as a percentage of the value of the imported product?

A) specific tariff
B) protective tariff
C) reverse tariff
D) import tariff

Question 18

________ are checkpoints at the ports of entry in each country where government officials inspect imported products and levy tariffs.

A) Nontariff trade barriers
B) Customs
C) Quotas
D) Subsidies

Question 19

Protectionism refers to national economic policies designed to restrict free trade and protect domestic industries from foreign competition.

Question 20

Imposing trade restrictions such as tariffs or quotas ________.

A) increases the availability of raw materials
B) increases the availability of products sold in the home market
C) reduces the availability of products sold in the home market
D) decreases the cost of products sold in the home market

Question 21

Nontariff trade barriers have increased in popularity partly because they ________.

A) generate profits for foreign firms
B) are easier to conceal from the WTO
C) restrict trade by imposing direct tax
D) have been fairly successful in eliminating smuggling along international borders

Question 22

________ are used when governments impose limits, under which firms agree to limit exports of certain products.

A) Voluntary export restraints
B) Antidumping duties
C) Countervailing duties
D) Quotas

Question 23

Governments sometimes retaliate against subsidies by imposing ________, tariffs on products imported into a country to offset subsidies given to producers or exporters in the exporting country.

A) local content requirements
B) investment incentives
C) countervailing duties
D) antidumping duties

Question 24

Countries with many high-tech or high value-adding industries, such as information technology, pharmaceuticals, car manufacturing, or financial services, create better jobs and higher tax revenue.

Question 25

In a short essay, describe the negative effects to the economy when a government intervenes in international trade.

Question 26

Restrictions on the outflow of hard currency from a country or on the inflow of foreign currencies is called ________.

A) antidumping duty
B) currency appreciation
C) currency control
D) currency depreciation

Question 27

Governments impose defensive barriers to pursue strategic or public policy objectives, such as increasing employment or generating tax revenues.

Question 28

Which of the following may allow a manufacturer to practice dumping?

A) countervailing duties
B) subsidies
C) currency control
D) import license

Question 29

Products are classified under about 8,000 different unique codes in the ________ schedule, a standardized system used worldwide.

A) harmonized (code) tariff
B) protective tariff
C) revenue tariff
D) specific tariff

Question 30

A(n) ________ is a tax that is assessed as a percentage of the value of the imported product.

A) specific tariff
B) export tariff
C) subsidy
D) ad valorem tariff

Question 31

In a short essay, describe two methods of government intervention and explain the four major defensive motives for government intervention.

Question 32

In Cadmia, foreign-owned automobile manufacturing companies must be managed by a Cadmian national and most board members must be Cadmian citizens. This exemplifies ________.

A) FDI and ownership restrictions
B) administrative and bureaucratic procedures
C) regulations and technical standards
D) antidumping duty

Question 33

________ represent a major driver of market globalization.

A) Continued reductions in trade restrictions
B) Export controls
C) Import controls
D) Prohibitive tariffs

Question 34

The United Nations estimated that trade barriers alone cost developing countries ________ in lost trading opportunities with developed countries every year.

A) $100 billion
B) $200 billion
C) less than $100 billion
D) more than $500 billion

Question 35

A flat fee or fixed amount per unit imposed by a government on an imported product is called a(n) ________.

A) ad valorem tariff
B) specific tariff
C) protective tariff
D) export tariff

Question 36

________ refers to the requirement that firms include a minimum percentage of locally sourced inputs in the production of given products or services.

A) Quotas
B) Regulations and technical standards
C) Local content requirements
D) Administrative and bureaucratic procedures

Question 37

An import license refers to a ________.

A) tax charged on an imported product whose price is below usual prices in the local market
B) list of complex procedures imposed on importers that hinder trade and investment
C) complicated system of establishing quotas
D) formal permission to import

Question 38

Typically, administrative and bureaucratic procedures ________.

A) speed up the investment activities of firms
B) hinder the activities of importers
C) boost investment activities
D) harm late importers

Question 39

Governments often impose trade barriers to restrict imports of products to protect infant industries,

Question 40

Under the ________, Canada, Mexico, and the United States have eliminated nearly all tariffs on product imports from each other.

A) APEC
B) FTAAP
C) GATT
D) NAFTA

Question 41

Currency controls can help conserve especially valuable currency or reduce the risk of capital flight.

Question 42

A import tariff aims to protect domestic industries from foreign competition.

Question 43

Cotton Quota (Scenario)
Cotton growers in the nation of Zanzi export nearly 700,000 bales of cotton every year. Zanzi is the home country for a fabric manufacturing facility that exports high-quality cotton fabric around the world. The government imposed a quota of 1 million bales of cotton that can be imported into Zanzi every year. The local fabric manufacturer is lobbying the government to remove the quota on cotton.
Which of the following questions would be most important for government officials to evaluate when considering the controversy over the cotton quota?

A) What would be the short-term effect of additional agricultural quotas?
B) What other nations utilize agricultural quotas and what are the effects?
C) Does the government of Zanzi impose heavy duties on dumping?
D) What will be the long-term effect of the cotton quota on the Zanzi economy?

Question 44

Dumping violates WTO rules because it amounts to unfair competition.

Question 45

A countervailing duty is a tariff on products imported into a country to offset subsidies given to producers or exporters in the exporting country.

Question 46

The imposition of trade barriers by governments is a major factor in the growth of developing nations and global commerce.

Question 47

Subsidies may allow a manufacturer to practice dumping-that is, to charge an unusually low price for exported products.

Question 48

Which of the following statements is TRUE of NAFTA?

A) It introduced a common currency for trade between the U.S., Mexico, and Canada.
B) It overrode the local content requirements and rules of origin for products manufactured in the member nations.
C) It eliminated all tariffs and nontariff trade barriers on goods originating from within North America.
D) It called for stringent rules regarding government procurement practices and the imposition of countervailing duties.

Question 49

Subsidies can help counterbalance harmful consequences that disproportionately affect the poor.

Question 50

Export-led development refers to government policies that impose high tariffs and quotas on imports from the developed world.

Question 51

Governments support domestic industries by ________.

A) incentivizing dumping
B) increasing the costs of production of domestic industries
C) alienating domestic industries
D) adopting procurement policies that restrict purchases to home-country suppliers

Question 52

Which of the following Asian countries had launched an ambitious program of industrialization and export-led development that contributed to its rise from poverty in the 1940s to one of the world's wealthiest countries by the 1980s?

A) Indonesia
B) China
C) Japan
D) India

Question 53

What is the primary ethical concern regarding the import of products from poor countries?

A) Higher tariffs hurt poor nations more than developed nations.
B) Nations lacking economic freedom cannot afford to export.
C) Emerging nations use government intervention to protect domestic industries.
D) Lack of subsidies adversely affects poor countries.

Question 54

Cotton Quota (Scenario)
Cotton growers in the nation of Zanzi export nearly 700,000 bales of cotton every year. Zanzi is the home country for a fabric manufacturing facility that exports high-quality cotton fabric around the world. The government imposed a quota of 1 million bales of cotton that can be imported into Zanzi every year. The local fabric manufacturer is lobbying the government to remove the quota on cotton.
Which of the following best supports maintaining the existing cotton quota?

A) Zanzi cotton growers are protected from cheaper cotton imports.
B) Zanzi cotton growers have an advantage when they export cotton fabric to other countries.
C) The local fabric manufacturer pays high prices for cotton.
D) The local fabric manufacturer uses mostly Zanzi-grown cotton.

Question 55

In 1930 the United States passed the Smoot-Hawley Tariff Act, which ________.

A) opened foreign markets for U.S. agricultural products
B) led to the consolidation of the U.S. banking system
C) instituted strict regulations to contain intellectual property theft
D) raised U.S. tariffs to near-record highs of more than 50 percent

Question 56

Cotton Quota (Scenario)
Cotton growers in the nation of Zanzi export nearly 700,000 bales of cotton every year. Zanzi is the home country for a fabric manufacturing facility that exports high-quality cotton fabric around the world. The government imposed a quota of 1 million bales of cotton that can be imported into Zanzi every year. The local fabric manufacturer is lobbying the government to remove the quota on cotton.
Which of the following most supports abolishing the cotton quota over maintaining it?

A) The cotton growers have a competitive edge over foreign cotton growers, and they are profitable.
B) The fabric manufacturer, a prime contributor to the nation's annual revenue, can earn better returns by shifting to another country that does not impose cotton quotas.
C) A competing fabric manufacturer is considering opening a production facility in Zanzi.
D) The price of cotton fabric has remained unchanged over the last decade.

Question 57

Explain how quotas work as an instrument of government intervention. What are voluntary export restraints? How can firms use foreign trade zones as a strategy to manage government intervention?

Question 58

FDI and ownership restrictions increase the competitive advantage of foreigners while diminishing that of the local firms.

Question 59

In a short essay, explain why agricultural subsidies have been implemented in Europe and the United States. What are the criticisms to these subsidies?

Question 60

Import tariffs are a principal instrument of trade intervention. In a short essay, briefly describe the five main types of import tariffs.

Question 61

Minimizing Trade Barriers (Scenario)
National Appliance Corporation (NAC) needs to build a new manufacturing facility to meet the increasing demand for professional-grade appliances. NAC managers are considering building the facility in Mexico but are hesitant because of the high tariffs involved. Another possible location for the facility is India; however, the country also imposes high tariffs. Wherever NAC builds a plant, parts will need to be imported from other nations.
Given the high trade barriers in Mexico, the management of NAC is most likely to consider ________ to be an inappropriate entry strategy.

A) exporting
B) FDI
C) joint ventures
D) licensing

Question 62

Countries as diverse as Chile, Hungary, Turkey, and South Korea have liberalized their previously protected markets, lowering trade barriers and subjecting themselves to greater competition from abroad.

Question 63

Tariffs and most nontariff trade barriers impact importers by making products more expensive.

Question 64

Which of the following terms refers to two or more geographically connected nations in pursuit of free trade relations?

A) grey market
B) trading diaspora
C) economic bloc
D) business strategic unit

Question 65

Minimizing Trade Barriers (Scenario)
National Appliance Corporation (NAC) needs to build a new manufacturing facility to meet the increasing demand for professional-grade appliances. NAC managers are considering building the facility in Mexico but are hesitant because of the high tariffs involved. Another possible location for the facility is India; however, the country also imposes high tariffs. Wherever NAC builds a plant, parts will need to be imported from other nations.
Which of the following would be most important for NAC managers to consider while taking a decision in favor of building a facility in Mexico or India?

A) Has NAC engaged in dumping in the past?
B) How would appliance parts and finished products be categorized when passing through customs?
C) Is employee empowerment culturally favored in Mexico and India?
D) What entry strategies are available in both countries that would allow NAC to minimize import barriers?

Question 66

Firms use foreign trade zones to ________.

A) consolidate market monopolies
B) assemble foreign dutiable materials and components into finished products, which are then re-exported
C) create employment opportunities for the local people
D) meet quota demands established by the government

Question 67

The global recession and financial crisis that began in 2008 arose largely from inadequate regulation and insufficient enforcement of current regulations in the banking and finance sectors.

Question 68

Obtaining economic development incentives from host- or home-country governments increases the cost of trade and investment barriers.

Question 69

Which of the following entry strategies do most firms use in the absence of high tariffs?

A) FDI
B) licensing
C) joint ventures
D) exporting

Question 70

A formal arrangement between two or more countries to reduce or eliminate tariffs is known as a ________.

A) quota arrangement
B) free trade agreement
C) memorandum of association
D) memorandum of understanding

Question 71

What is a foreign trade zone (FTZ)? In a short essay, explain how FTZs are utilized by firms.

Question 72

One approach for reducing exposure to trade barriers is to have exported products classified in the appropriate harmonized product code.

Question 73

The General Agreement on Tariffs and Trade (GATT) and now the World Trade Organization (WTO) was organized to reduce trade barriers, because high tariffs inhibited free trade and economic growth.

Question 74

Minimizing Trade Barriers (Scenario)
National Appliance Corporation (NAC) needs to build a new manufacturing facility to meet the increasing demand for professional-grade appliances. NAC managers are considering building the facility in Mexico but are hesitant because of the high tariffs involved. Another possible location for the facility is India; however, the country also imposes high tariffs. Wherever NAC builds a plant, parts will need to be imported from other nations.

-Which of the following must NAC ensure in order to reduce exposure to trade barriers?

A) reduced production
B) strong emphasis on quality
C) accurate product classification
D) obtaining patents for inventions

Question 75

Tariffs are taxes that will increase the price to consumers.

Question 76

A ________ is an area within a country that receives imported goods for assembly or other processing and subsequent re-export.

A) single market
B) trade bloc
C) foreign trade zone
D) common market

Question 77

Which of the following is a method used by some manufacturers to avoid paying high tariffs?

A) assemble products in the target market
B) produce a large number of less expensive items in the target market
C) employ highly skilled workers in the export location regardless of the cost
D) ship products to fewer international locations

Question 78

Maquiladoras refer to export-assembly plants in northern Mexico along the U.S. border that produce components and typically finished products destined for the United States on a tariff-free basis.

Question 79

In a short essay, explain how the GATT changed international trade.

Question 80

If high tariffs are present, managers may consider other strategies, such as FDI, licensing, and joint ventures that allow the firm to operate directly in the target market, avoiding import barriers.