Deck 7: Trade Policies for the Developing Nations

Question 1

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

A) decrease in price and an increase in sales revenue.
B) decrease in price and a decrease in sales revenue.
C) increase in price and an increase in sales revenue.
D) increase in price and a decrease in sales revenue.

Answer 1

decrease in price and a decrease in sales revenue.

Question 2

A primary goal of international commodity agreements has been the

A) maximization of members' revenues via export taxes.
B) nationalization of corporations operating in member nations.
C) adoption of tariff protection against industrialized nation sellers.
D) moderation of commodity price fluctuations when markets are unstable.

Answer 2

moderation of commodity price fluctuations when markets are unstable.

Question 3

Assuming identical cost and demand curves, OPEC as a cartel will, in comparison to a competitive industry,

A) produce greater output and charge a lower price.
B) produce greater output and charge a higher price.
C) produce less output and charge a higher price.
D) produce less output and charge a lower price.

Answer 3

produce less output and charge a higher price.

Question 4

One factor that has prevented the formation of cartels for producers of commodities is that

A) the demand for commodities tends to be price inelastic.
B) substitute products exist for many commodities.
C) commodity produces have dominated world markets.
D) the production of most commodities is capital intensive.

Question 5

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

A) generalized system of preferences.
B) export-led growth.
C) international commodity agreement.
D) reciprocal trade agreement.

Question 6

Which device has been used by the International Wheat Agreement to stipulate the minimum prices at which importers will buy stipulated quantities from producers and the maximum prices at which producers will sell stipulated quantities to importers?

A) buffer stocks
B) export controls
C) multilateral contracts
D) production controls

Question 7

International commodity agreements do NOT

A) consist of consuming and producing nations who desire market stability.
B) levy export cutbacks to offset rising commodity prices.
C) utilize buffer stocks to generate commodity price stability.
D) increase the supply of commodities to prevent rising prices.

Question 8

Which of the following is NOT a major factor that encourages developing nations to form international commodity agreements?

A) inelastic commodity supply schedules
B) inelastic commodity demand schedules
C) export markets that tend to be unstable
D) secular increases in their terms of trade

Question 9

Which device uses the International Tin Agreement to stabilize tin prices?

A) multilateral contracts
B) export subsidies
C) buffer stocks
D) export tariffs

Question 10

Which of the following situations reduces the likelihood of successful operation of a cartel?

A) Cartel sales experience a rapid expansion.
B) The demand for cartel output is price inelastic.
C) The number of firms in the cartel is large.
D) It is very difficult for new firms to enter the market.

Question 11

If the countries that export bauxite form a cartel to boost the price of bauxite in order to increase sales revenue, then they believe that the demand for bauxite

A) is inelastic with respect to price changes.
B) is elastic with respect to price changes.
C) will increase in response to a price increase.
D) will not change in response to a price change.

Question 12

Concerning the price elasticities of supply and demand for commodities, empirical estimates suggest that most commodities have

A) inelastic supply schedules and inelastic demand schedules.
B) inelastic supply schedules and elastic demand schedules.
C) elastic supply schedules and inelastic demand schedules.
D) elastic supply schedules and elastic demand schedules.

Question 13

Which terms-of-trade concept emphasizes a nation's capacity to import?

A) income terms of trade
B) commodity terms of trade
C) barter terms of trade
D) price terms of trade

Question 14

If the demand schedule for bauxite is relatively inelastic to price changes, an increase in the supply schedule of bauxite will cause a

A) decrease in price and a decrease in sales revenue.
B) decrease in price and an increase in sales revenue.
C) increase in price and a decrease in sales revenue.
D) increase in price and an increase in sales revenue.

Question 15

Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers, who thus can take over markets already established in the country?

A) international commodity agreement
B) export promotion
C) multilateral contract
D) import substitution

Question 16

During the 1970s, the nations in the Organization of Petroleum Exporting Countries (OPEC) manifested their market power by utilizing

A) export tariffs levied for revenue purposes.
B) export tariffs levied for protective purposes.
C) import tariffs levied for protective purposes.
D) import tariffs levied for revenue purposes.

Question 17

Which of the following could partially explain why the terms of trade of developing countries might deteriorate over time?

A) Developing-country exports mainly consist of manufactured goods.
B) Developing-country imports mainly consist of primary products.
C) Commodity export prices are determined in highly competitive markets.
D) Commodity export prices are solely determined by developing countries.

Question 18

Which trade strategy have developing countries used to replace commodity exports with exports such as processed primary products, semi-manufacturers, and manufacturers?

A) multilateral contract
B) buffer stock
C) export promotion
D) export quota

Question 19

Which method has NOT generally been used by the international commodity agreements to stabilize commodity prices?

A) production quotas applied to the level of commodity output
B) buffer stock arrangements among producing nations
C) export restrictions applied to international sales of commodities
D) measures to nationalize foreign-owned production operations

Question 20

Which nation accounts for the largest amount of OPEC's oil reserves and production?

A) Iran
B) Libya
C) Iraq
D) Saudi Arabia

Question 21

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 buffer stock system, the buffer-stock manager could maintain the target price by

A) selling 15 pounds of tin.
B) selling 30 pounds of tin.
C) buying 15 pounds of tin.
D) buying 30 pounds of tin.

Question 22

The diagram below illustrates the international tin market. Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2. Defending the Target Price in Face of Changing Supply Conditions
?

-Consider Figure 7.2.Suppose the supply of tin increases from S₀ to S₁.Under a buffer stock system, the buffer-stock manager could maintain the target price by

A) purchasing 15 pounds of tin.
B) purchasing 30 pounds of tin.
C) selling 15 pounds of tin.
D) selling 30 pounds of tin.

Question 23

Which industrialization policy used by developing countries emphasizes the comparative advantage principle as a guide to resource allocation?

A) export promotion
B) import substitution
C) international commodity agreements
D) multilateral contract

Question 24

The diagram below illustrates the international tin market. Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2. Defending the Target Price in Face of Changing Supply Conditions
?

-Consider Figure 7.2.Suppose the supply of tin decreases from S₀ to S₂.Under a buffer stock system, the buffer-stock manager could maintain the target price by

A) purchasing 15 pounds of tin.
B) purchasing 30 pounds of tin.
C) selling 15 pounds of tin.
D) selling 30 pounds of tin.

Question 25

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 increases from D₀ to D₁.Under a buffer stock system, the buffer-stock manager could maintain the target price by

A) selling 15 pounds of tin.
B) selling 30 pounds of tin.
C) buying 15 pounds of tin.
D) buying 30 pounds of tin.

Question 26

Figure 7.3. World Oil Market
Consider Figure 7.3.Under competitive conditions, the quantity of oil produced equals

A) 40 barrels.
B) 70 barrels.
C) 90 barrels.
D) 110 barrels.

Question 27

Stabilizing commodity prices around long-term trends tends to benefit importers at the expense of exporters in markets characterized by

A) demand-side disturbances.
B) supply-side disturbances.
C) demand-side and supply-side disturbances.
D) no disturbance.

Question 28

A reason why it is difficult for producers to maintain a cartel is that

A) the elasticity of demand for the cartel's output decreases over time.
B) producers in the cartel have the economic incentive to cheat.
C) economic profits discourage other producers from entering the industry.
D) producers in the cartel have the motivation to lower price but not to raise price.

Question 29

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

A) be a manufactured good.
B) be a primary product.
C) have a low price elasticity of supply.
D) have a high price elasticity of demand.

Question 30

Stabilizing commodity prices around long-term trends tends to benefit exporters at the expense of importers in markets characterized by

A) demand-side disturbances.
B) supply-side disturbances.
C) demand-side and supply-side disturbances.
D) no disturbance.

Question 31

For the oil-importing countries, the increases in oil prices in 1973-1974 and 1979-1980 resulted in all of the following EXCEPT

A) balance of trade deficits.
B) price inflation.
C) constrained economic growth.
D) improving terms of trade.

Question 32

To help developing nations strengthen their international competitiveness, many industrial nations have granted nonreciprocal tariff reductions to developing nations under the

A) international commodity agreements program.
B) multilateral contract program.
C) generalized system of preferences program.
D) export-led growth program.

Question 33

The diagram below illustrates the international tin market. Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2. Defending the Target Price in Face of Changing Supply Conditions
?

-Consider Figure 7.2.Assume there exists a cartel of several producers that is maximizing total profit.If one producer cheats on the cartel agreement by decreasing its price and increasing its output, then the rational action of the other producers is to

A) increase their price in order to regain sacrificed profits.
B) decrease their price as well.
C) continue selling at the agreed-upon price.
D) give the product away for free.

Question 34

Figure 7.3. World Oil Market
Consider Figure 7.3.Under competitive conditions, the price of a barrel of oil equals

A) $7.
B) $11.
C) $12.
D) $16.

Question 35

A widely used indicator to differentiate developed countries from developing countries is

A) international trade per capita.
B) real income per capita.
C) unemployment per capita.
D) calories per capita.

Question 36

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

A) increasing the quantity of tin supplied by 15 pounds.
B) increasing the quantity of tin supplied by 30 pounds.
C) decreasing the quantity of tin supplied by 15 pounds.
D) decreasing the quantity of tin supplied by 30 pounds.

Question 37

Hong Kong and South Korea are examples of developing nations that have recently pursued the industrialization policy of

A) import substitution.
B) export promotion.
C) commercial dumping.
D) multilateral contract.

Question 38

Once a cartel establishes its profit-maximizing price,

A) entry into the industry of new competitors will not affect the cartel's profits.
B) output changes by cartel members have no effect on the market price.
C) each cartel member is tempted to cheat on the cartel price in order to add to its profit.
D) all cartel members have a strong incentive to adhere to the agreed-upon price.

Question 39

Concerning the hypothesis that the developing countries' terms of trade have been deteriorating, empirical studies provide

A) mixed evidence that does not substantiate the deterioration hypothesis.
B) overwhelming support for the deterioration hypothesis.
C) overwhelming opposition to the deterioration hypothesis.
D) mixed evidence that substantiates the deterioration hypothesis.

Question 40

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

A) be a manufactured good.
B) be a primary product.
C) have a high price elasticity of supply.
D) have a low price elasticity of demand.

Question 41

Import substitution is an example of

A) an inward-oriented growth strategy.
B) an outward-oriented growth strategy.
C) the principle of absolute advantage.
D) export led growth.

Question 42

Recent trade patterns indicate that most of world trade occurs

A) among advanced (industrial) countries.
B) among developing countries.
C) between regional trade blocks, such as NAFTA and the EU.
D) between developing countries and advanced countries.

Question 43

Outward-oriented growth strategies emphasize

A) the allocation of resources according to the principle of absolute advantage.
B) the allocation of resources according to the principle of comparative advantage.
C) the principle of strategic trade policy.
D) the principle of industrial policy.

Question 44

East Asian economies started enacting export-push strategies

A) by the late 1950s and 1960s.
B) immediately after world war ii.
C) in the late 1980s.
D) in the early 2000s.

Question 45

For most developing countries

A) productivity is high among domestic workers.
B) population-growth and illiteracy rates are low.
C) saving and investment levels are high.
D) agricultural goods and raw materials constitute much of domestic output.

Question 46

Figure 7.3. World Oil Market
Consider Figure 7.3.Under a profit-maximizing cartel, the quantity of oil produced equals

A) 40 barrels.
B) 70 barrels.
C) 90 barrels.
D) 110 barrels.

Question 47

Prior to the formation of OPEC, individual oil producing nations

A) operated like sellers in a competitive market.
B) behaved like individual sellers in a monopoly market.
C) had considerable control over the price of oil.
D) operated like buyers in a competitive market.

Question 48

Figure 7.3. World Oil Market
Consider Figure 7.3.Under a profit-maximizing cartel, the price of a barrel of oil equals

A) $7.
B) $11.
C) $16.
D) $19.

Question 49

Figure 7.3. World Oil Market

-Consider Figure 7.3.Under a profit-maximizing cartel, producers realize

A) profits totaling $280.
B) profits totaling $360.
C) losses totaling $140.
D) losses totaling $180.

Question 50

Developing countries tend to export ______ because many of them have large endowments of ______.

A) primary products, natural resources
B) primary products, capital
C) capital goods, advanced technology
D) capital goods, investment funds

Question 51

All of the following nations EXCEPT ____ have recently utilized export-led (outward oriented) growth policies.

A) Hong Kong
B) South Korea
C) Argentina
D) Singapore

Question 52

Figure 7.5 Global Market for Tin
​
Figure 7.5 represents the global market for tin.The initial equilibrium price and quantity is at point A.As a result of an International Tin Agreement, a price range of $3.27-$4.02 is set.As the supply of tin increases from S₀ to S₁, the buffer-stock manager will need to

A) buy 10,000 pounds of tin.
B) buy 20,000 pounds of tin.
C) sell 10,000 pounds of tin.
D) sell 20,000 pounds of tin.

Question 53

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

A) low price elasticity of the demand of primary products.
B) high price elasticity of the supply of primary products.
C) high price elasticity of the demand of primary products.
D) high price elasticity of the demand and supply of primary products.

Question 54

East Asian economies have performed well by

A) obtaining foreign technology.
B) remaining closed to international trade.
C) investing in machinery.
D) reducing rates of investment.

Question 55

Import substitution policies make use of

A) tariffs that discourage goods from entering a country.
B) quotas applied to goods that are shipped abroad.
C) production subsidies granted to industries with comparative advantages.
D) tax breaks granted to industries with comparative advantages.

Question 56

The characteristics that have underlaid the economic success of the "high-performing Asian Economies" have included all of the following EXCEPT

A) high rates of domestic investment.
B) diseconomies of scale occurring at low output levels.
C) large endowments of human capital.
D) high levels of labor productivity.

Question 57

Figure 7.4 Global Market for Tin
​
Consider the global market for tin represented by Figure 7.4.Initially equilibrium is at point A with a market price of $3.50 per pound and 50,000 pounds.In order to keep tin price relatively stable, an International Tin Agreement has set a price floor of $3.27 and a ceiling of $4.02.As the demand for tin increases to D₁, how will the buffer-stock manager need to respond?

A) buy 10,000 pounds of tin
B) buy 20,000 pounds of tin
C) sell 10,000 pounds of tin
D) sell 20,000 pounds of tin

Question 58

Export-led growth tends to

A) exploit domestic comparative advantages.
B) discourage competition in the global economy.
C) lead to unemployment among domestic workers.
D) help firms benefit from diseconomies of large-scale production.

Question 59

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

A) high domestic interest rates.
B) r&d and product innovation.
C) education and on-the-job training.
D) high levels of saving and investment.

Question 60

Figure 7.3. World Oil Market
Consider Figure 7.3.Under competitive conditions, producer profits total

A) $0.
B) $140.
C) $200.
D) $280.

Question 61

Efforts to stabilize export prices and revenues include all of the following EXCEPT

A) production and export controls.
B) buffer stocks.
C) multilateral contracts.
D) limited market access.

Question 62

The mission of the ______ is to provide financial assistance to developing countries facing a balance of payments deficits and a financial crisis.

A) Bank for International Settlements
B) International Monetary Fund
C) World Trade Organization
D) World Bank

Question 63

For Saudi Arabia, oil exports constitute about ______ of its export revenue.

A) 40 percent
B) 55 percent
C) 70 percent
D) 90 percent

Question 64

The developing countries tend to reside in all of the following regions EXCEPT

A) North America.
B) Latin America.
C) Africa.
D) the Middle East.

Question 65

Developing countries have often argued that their terms of trade have worsened because

A) their import prices have declined relative to their export prices.
B) their import prices have risen relative to their export prices.
C) their import prices and export prices have increased.
D) their import prices and export prices have decreased.

Question 66

The mission of the ______ is to give loans to developing countries to build schools, hospitals, roads, and bridges in order to reduce poverty and stimulate economic development.

A) Bank for International Settlements
B) International Monetary Fund
C) World Trade Organization
D) World Bank

Question 67

Comparing per-capita incomes of many developing countries and industrial countries, we tend to see

A) lower per-capita incomes in industrial countries.
B) lower per-capita incomes in developing countries.
C) identical per-capita incomes in developing countries.
D) identical per-capita incomes in industrial countries.

Question 68

For most developing countries, the majority of their exports consists of

A) capital-intensive agricultural products.
B) capital intensive manufactured products.
C) financial and legal services.
D) primary products.

Question 69

A sweatshop includes all of the following EXCEPT

A) poor and unsafe working conditions.
B) high wages and benefits for workers.
C) unreasonable hours for workers.
D) child labor.

Question 70

Developing countries sometimes encounter the tariff-escalation policies of advanced countries.This means that advanced countries

A) impose higher tariffs on processed products than on primary products.
B) impose higher tariffs on primary products than on processed products.
C) impose identical tariffs on primary products and processed products.
D) allow free trade on primary products and processed products.

Question 71

The ability of OPEC nations to operate as a successful cartel tend to decrease as

A) the number of members of the cartel decline.
B) the cost of production differences among the cartel members rises.
C) the demand for oil rises in the world market.
D) the availability of substitutes for OPEC oil falls.

Question 72

The advanced (industrial) countries of the world tend to be characterized by all of the following EXCEPT

A) relatively high per-capita incomes.
B) relatively long-life expectancies.
C) relatively high levels of adult literacy.
D) relatively high reliance on exports of primary products.

Question 73

Economists note that instability of the prices of primary products (tin, coffee, copper) is mainly caused by

A) low price elasticity of demand and low price elasticity of supply.
B) low price elasticity of demand and high price elasticity of supply.
C) high price elasticity of demand and low price elasticity of supply.
D) high price elasticity of demand and high price elasticity of supply.

Question 74

Challenges for China's economy include

A) increasing the presence of state-owned enterprises.
B) lowering labor costs that detract from the competitiveness of China's exporting companies.
C) U.S holdings of China's securities.
D) reliance on investment spending.

Question 75

Of the manufactured goods exported by developing countries, most of them are ______ and include ______ of technology in their production.

A) labor intensive, modest amounts
B) labor intensive, large amounts
C) capital intensive, modest amounts
D) capital intensive, large amounts

Question 76

Import substitution emphasizes decreasing reliance on international trade by

A) developing import-competing industries.
B) adopting free-trade policies.
C) subsidizing efficient exporting industries.
D) reducing import tariffs on labor-intensive goods.

Question 77

Developing countries often argue that advanced countries protect their farmers with

A) low import tariffs and high export subsidies.
B) high import tariffs and high export subsidies.
C) high import tariffs and low export subsidies.
D) low import tariffs and low export subsidies.

Question 78

Comparing life expectancy and adult literacy of developing countries and industrial countries, we tend to see

A) lower life expectancy and higher adult literacy in developing countries.
B) higher life expectancy and lower adult literacy in developing countries.
C) higher life expectancy and higher adult literacy in developing countries.
D) lower life expectancy and lower adult literacy in industrial countries.

Question 79

Developing countries include all of the following EXCEPT

A) El Salvador.
B) Vietnam.
C) Canada.
D) India.

Question 80

The trade problems of the developing countries have included all of the following EXCEPT

A) unstable export markets.
B) worsening terms of trade.
C) rising prices of primary-product exports.
D) limited export access to the markets of industrial countries.