Deck 12: Controversies in Trade Policy

Question 1

When one applies the Heckscher- Ohlin model of trade to the issue of trade- related income redistributions,one must conclude that North- South trade,such as U.S.- Mexico trade

A)is likely to hurt low- skilled workers in Mexico.
B)is likely to help highly skilled workers in Mexico.
C)is likely to hurt high- skilled workers in the U.S.
D)is likely to hurt low- skilled workers in the U.S.
E)must help low- skilled workers on both sides of the border.

Answer 1

D

Question 2

The best economic case one can make for an active industrial policy involves

A)the high value added argument.
B)raising the national income.
C)the environment preservation argument.
D)the technological spillover argument.
E)the national security argument.

Answer 2

B

Question 3

Labor standards in trade are typically opposed by most developing countries who believe that they will be used

A)as a protectionist tool by import- competing producers in industrial countries.
B)to further neo- imperialist colonial exploitation.
C)to charge these countries with crimes against child- labor standards at the Hague.
D)as a means of spreading U.S.Corporate Values and destroying local cultures.
E)to hinder investment in foreign- based multinational corporations.

Answer 3

A

Question 4

The Brander- Spencer model identified market failure in certain industries due to

A)lack of excess returns.
B)unfair competition.
C)wildcat destructive competition.
D)limited competition.
E)environmental negative externalities associated with pollution.

Question 5

The proposal that trade agreements should include a system which monitors worker conditions and make the results available to consumers in the rich importing country

A)is consistent with the Ricardian theory of comparative advantage.
B)is consistent with the scale economies approach to trade theory.
C)is consistent with the Invisible Hand paradigm.
D)is consistent with the principles laid out by the WTO.
E)is consistent with the market failure approach.

Question 6

In the Brander- Spencer model the subsidy raises profits by more than the subsidy because of

A)the economies of scale once the company enters the market.
B)the "multiplier" effect of government expenditures.
C)the military- industrial complex.
D)the forward and backward linkage effects of certain industries.
E)the deterrent effect of the subsidy on foreign competition.

Question 7

The invocation of beggar- thy- neighbor arguments with respect to industrial policies

A)applies only to rich countries most of whose trade partners are very poor countries.
B)strengthens the argument for subsidies.
C)does not apply to rich countries who can influence relative world prices.
D)makes sense if the international Keynesian multipliers exceed unity.
E)weakens the argument for subsidies.

Question 8

Spencer and Brander's model highlights the existence of

A)natural advantages in foreign technology firms.
B)excess returns present in highly competitive markets.
C)aircraft industries.
D)the futility of government bureaucrats' attempts to build an airplane.
E)excess returns,or rents,available in non- competitive markets.

Question 9

When the WTO met in Seattle to initiate a further move towards free international trade,thousands of activists met

A)in order to support the WTO efforts of bringing about a universal shift of resources in poor countries to higher efficiency and productivity uses,which would raise the real incomes of everyone.
B)in order to laud the WTO policy orientation which would bust local monopolies and therefore help ordinary relatively poor consumers everywhere.
C)in order to laud the WTO policy of disallowing government sweetheart deals,which typically meant that corrupt governments subsidized their in- laws' conglomerates on the backs of poor taxpayers.
D)in order to promote the WTO's goals of "Trade- not Aid."
E)in order to protest WTO free trade policies that they believed hurt workers.

Question 10

The United States

A)provides support for R&D through grant incentives.
B)does not provide more support for R&D as compared to other forms of investment.
C)provides support for R&D by providing direct subsidies for such activities.
D)provides support for R&D through tax legislation.
E)provides support for R&D by imposing high tariffs on R&D intensive products.

Question 11

It is argued that high- tech industries typically generate new technologies but cannot fully appropriate the commercial benefits associated with their inventions or discoveries.If this is TRUE,then in order to maximize a country's real income,the government should

A)protect the high- tech firms.
B)subsidize the high- tech firms.
C)tax the high- tech firms.
D)discourage high- tech investments.
E)outsource high- tech production.

Question 12

The existence of positive externalities due to the impossibility of full appropriability

A)rejects the usefulness of government protectionism.
B)supports arguments for free trade.
C)provides support for government protectionism.
D)supports the conclusions of the Heckscher- Ohlin model.
E)supports the concept that the government should support only high- tech industries.

Question 13

The Heckscher- Ohlin,factor- proportions model lends support to the argument that

A)trade tends to worsen the conditions of workers in poor countries.
B)trade tends to worsen the conditions of workers in rich countries.
C)trade tends to worsen the conditions of owners of capital in rich countries.
D)trade tends to worsen the conditions of highly skilled workers in rich countries.
E)trade tends to worsen the conditions of unskilled labor in rich countries.

Question 14

The argument that strategic planning is NOT likely to be practical due to insufficient information means that

A)the government would need to employ its intelligence agencies in order to gain a complete understanding of the market.
B)due to recent cuts in the Department of the Census' sampling budgets,industry surveys are no longer reliable,so that there is no way to determine if a subsidy is in the public's interest.
C)if the government had all the relevant information in a given industry then it could decide whether a subsidy would enhance the public's welfare.
D)because of trade secrets,the government does not know true cost relationships in any given industry.
E)even if the government had all the relevant information in a given industry,it still could not decide whether a subsidy would enhance the public's welfare.

Question 15

The reason Airbus succeeded in the Brander Spencer example is that

A)Europeans tend to be better strategists than corn- fed Americans.
B)U)S.laws actually prohibit U.S.exporters from bribing foreign officials.
C)the subsidy removed the advantage that Boeing gained with their head start in production.
D)Boeing made the first move in this strategic game.
E)the Airbus actually was a better plane than the Boeing 747.

Question 16

Spencer and Brander's model highlights the conventional assumption that

A)government subsidies tend to waste taxpayer's money.
B)government subsidies can produce profits that exceed the subsidy's value.
C)government tends to distort when it displaces Adam Smith's Invisible Hand.
D)government involvement in business or in the economy tends to fail.
E)government subsidies cannot create a successfully competing export.

Question 17

Japan's protection of its semiconductor (RAM)producers is today seen as an object lesson in

A)how monopolies can outlast government intervention.
B)how strategic planning may backfire and cause a large waste of resources.
C)how externalities may be successfully exploited by protectionist policies.
D)how government intervention may create a meaningful comparative advantage.
E)how excess returns may be successfully exploited by protectionist policies.

Question 18

Criticisms of the Brander- Spencer model include all EXCEPT which of the following?

A)the problem of simultaneously causing harm to other industries
B)the problem of insufficient information
C)the problem of likely foreign retaliation
D)the problem of harm to interests of consumers
E)the problem of adverse effects of trade policy politics

Question 19

If firms in an industry are generating knowledge that other firms can use without paying for it,this industry is characterized by

A)social costs that exceed private costs.
B)social benefits that undermine private benefits.
C)social benefits that exceed private benefits.
D)private benefits that exceed social benefits.
E)social costs that exceed social benefits.

Question 20

The reason Airbus succeeded in the Brander Spencer example is that

A)the European government made an explicit subsidy offer,but the U.S.government did not.
B)Airbus' prices were better when adjusted for quality and warranty services.
C)the Airbus plane benefited from more advanced technology.
D)Boeing traditionally refused to undertake any exchange rate risk in its transactions.
E)the U.S.acted in accordance with its ideological reliance on market solutions,whereas the Europeans ignored market and technological factors.

Question 21

Working conditions for clothing workers in Bangladesh are very poor.If countries refuse to buy clothing from Bangladesh in order to encourage change,the effect is likely to be that

A)firms will try to comply and workers will be worse off.
B)firms will refuse to comply,but workers will be better off.
C)firms will be forced to comply and workers will be better off.
D)firms will try to comply and workers will be better off.
E)regardless of how firms respond,workers will be better off.

Question 22

The evidence usually cited to prove that globalization hurts workers in developing countries

A)is conclusive.
B)is inconclusive due to poor statistical design of the underlying samples.
C)is inconclusive due to the poorly funded Central Statistical Office of Mexico.
D)does not take into account the Heckscher- Ohlin model.
E)is inconclusive due to the ambiguous theoretical implications of the findings.

Question 23

The Shipbreakers of Alang represent a perfect example of how a developing country can apply the principles of the Heckscher- Ohlin model,since

A)shipbreaking is a capital- intensive operation elsewhere in the world,and therefore represents a case of a factor intensity reversal.
B)shipbreaking is generally considered to be a capital- intensive operation and India,being a large country has much capital.
C)shipbreaking is a labor- intensive operation in India,and India's availability of capital per worker is less than that of its trade partners.
D)India's climate lends itself to the work involved in shipbreaking.
E)shipbreaking is a labor- intensive operation in India,and India has many workers since it is such a large country.

Question 24

The Shipbreakers of Alang utilize much labor and little capital,thereby supporting the applicability of the

A)monopolistic competition theory of comparative advantage.
B)basis of the non- dumping legislation.
C)scale economies theory of comparative advantage.
D)factor proportions explanation of the sources of comparative advantage.
E)specific factor theory of comparative advantage.

Question 25

The Shipbreakers of Alang arouse the ire of Greenpeace because of

A)their competition with capital- intensive industries.
B)the large amount of pollution associated with the operations at Alang.
C)India's non- repentant nuclear stance.
D)India's import- competing industrialization policies.
E)the difficulty of avoiding ship accidents between Greenpeace's sailboat and the reconstructed container ships of Alang.

Question 26

Faced with the evidence of poor working conditions and low wages in the border maquiladoras,economists

A)argue that U.S.consumers should not consume lettuce.
B)argue that the poor conditions and low wages are actually improvements for the Mexican workers,and may be cited as gains- from- trade.
C)argue that Mexico's generally high overall productivity offsets these conditions.
D)agree that trade theory is thus proven hollow and internally inconsistent.
E)shrug their shoulders and ignore the issue.

Question 27

Free trade and globalization is generally believed

A)to help each country safeguard the best of its own culture.
B)to help spread the best of each country's culture,so as to uplift global cultural standards.
C)to make no difference in the economic welfare of the world.
D)to cause a degradation in the world's environment.
E)to improve the environment by correcting for distortions caused by import competing policies.

Question 28

In the second half of the 1990s a rapidly growing movement focused on the harm caused by international trade to

A)land owners in poor countries.
B)land owners in rich industrialized countries.
C)capital owners in rich industrialized countries.
D)production workers in both rich and poor countries.
E)terms of trade in developing countries.

Question 29

The Ricardian model of comparative advantage lends support to the argument that

A)trade tends to worsen the conditions of unskilled labor in rich countries.
B)trade is mutually beneficial to the countries that engage in it.
C)trade tends to worsen the conditions of owners of capital in rich countries.
D)trade tends to worsen the conditions of workers in poor countries.
E)trade tends to worsen the conditions of workers in rich countries.

Question 30

The shipbreakers of Alang are

A)competing with pollution- producing industries in countries outside of India.
B)doing environmentally conscious work.
C)a metaphysical representation of the WTO,deriving from Edgar Rice Burroughs' Princess of Mars.
D)an early version of the Russian Ice- breaker of the Dnieper- Alang class.
E)a capital- intensive industry.

Question 31

Most developing countries oppose including labor standards in trade agreements because

A)multinational corporations control them.
B)they believe this would limit their ability to export to rich markets.
C)they believe this would involve a loss of their national sovereignty.
D)they do not want to improve wages for their workers.
E)they believe this would create an uneven playing field.

Question 32

The fact that articles of clothing sold in Walmart are produced by very poorly paid workers in Honduras,is a fact that if taken into account

A)would prove to economists that the Ricardian model of comparative advantage is false.
B)proves that corporations are exempt from labor standards.
C)proves to the Anti- Globalization Movement that trade is a negative sum game.
D)proves to economists that trade is a negative sum game.
E)would prove to economists that the equal- value in trade concept summed up in the trade triangles is incorrect.

Question 33

Low wages and poor working conditions in many U.S.trade partners

A)prove that the gains- from- trade arguments of the Ricardian model are true.
B)prove that the gains- from- trade arguments of the Ricardian model are false.
C)are facts emphasized by U.S.labor in its contract negotiations.
D)may be a fact of life,but economists don't care.
E)prove that international trade is exploitative.

Question 34

When Japan's MITI (Ministry of International Trade and Industry)focused resources on the semiconductor industry,and in particular on Random Access Memory (RAM),it was viewed as a typically successful Japanese foray into a new dynamic strategic sector.The results,as viewed by the late 1990s

A)justified this view.
B)propelled Japan into the leading country in high- tech manufacturing.
C)led to similar structuring of industrial policy in the U.S.
D)helped shift the focus of economists away from Japanese- style industrial policy.
E)lent support to the Brander- Spencer model.

Question 35

When one applies the Heckscher- Ohlin model of trade to the issue of trade- related income redistributions,one must conclude that North- South trade,such as U.S.- Mexico trade,

A)is likely to hurt low- skilled workers in Mexico.
B)is likely to hurt high- skilled workers in the U.S.
C)is likely to involve higher overall national economic gains that will be greater than any harm done to low- skilled workers in the U.S.
D)gives no advantage to the workers in either country.
E)must help low- skilled workers on both sides of the border.