Deck 14: Trade Policies for Developing Countries

Question 1

_____ suggests that with an increase in economic prosperity, the world demand will shift toward luxury goods and away from staple goods.

A)Engel's law
B)The Heckscher-Ohlin theory
C)The law of convergence
D)The law of demand

Answer 1

A

Question 2

Which of the following factors is most likely to result in a decline in the relative price of the primary products in the world market?

A)Increase in imports of primary products
B)Development of synthetic substitutes for primary products
C)Rapid increase in world population
D)Increase in the prices of inputs used in producing primary products

Answer 2

B

Question 3

In comparing growth rates of per capita GDP in developing countries over the period of 1990-2012, the highest growth rates were reported in the _____ countries while the lowest growth rates have been reported in the _____ countries.

A)European and Central Asian; Sub-Saharan Africa
B)East Asian and the Pacific; South Asian
C)Latin America and the Caribbean; East Asian and the Pacific
D)East Asian and the Pacific; European and Central Asian

Answer 3

D

Question 4

Which of the following is indicated by the Engel's law?

A)Everything else remaining unchanged, an increase in the price of a commodity lowers the real income of the consumers.
B)In the long run an increase in per capita income will drive down the relative prices of primary products.
C)In the long run the developing countries will grow faster than the developed countries.
D)The rate of inflation in an economy is inversely proportional to the rate of unemployment.

Question 5

Countries having comparative advantages based on land and in various natural resources are most likely to:

A)export manufactured goods.
B)experience biased growth.
C)experience rapid accumulation of capital.
D)export products like gold, coffee, or cocoa.

Question 6

Which of the following is true of the developing countries

A)Almost half of the exports by developing countries go to the industrialized countries.
B)Exports of goods and services on average are about only 10 percent of gross domestic product in developing countries.
C)Exports from the developing countries comprise of about three-fourth of industrial- country imports.
D)Developing countries are the source of about 60 percent of all world exports.

Question 7

Identify the correct statement.

A)In some of the industrialized countries, the income per person declined between 1990 and 2009.
B)Most of the developing countries have been growing at a uniform rate since 1990.
C)The average product per person has grown faster in the developing countries than in the industrialized countries since 1990.
D)The developing countries are expected to catch up with the average per capita income in the industrialized countries in near future.

Question 8

For which of the following goods does the income elasticity of demand most clearly exceed unity?

A)Public goods like roads and bridges
B)Lifesaving drugs
C)Food grains
D)Luxury automobiles

Question 9

An example of policies designed to protect and encourage new industries serving the domestic market would be:

A)taxing exports of manufactured goods.
B)subsidizing imports to the domestic market.
C)imposing import tariffs or otherwise restricting imports.
D)removing all trade restrictions and price supports.

Question 10

Developing countries tend to have comparative advantages in:

A)only capital-intensive goods.
B)only skilled-labor-intensive goods.
C)land-intensive and unskilled-labor-intensive goods.
D)both skilled-labor and capital-intensive goods.

Question 11

The long-run trends of relative prices of primary products suggest that the countries that are dependent on the export of primary products are most likely to:

A)experience deterioration in their terms of trade.
B)experience improvement in their terms of trade.
C)be able to import more from abroad.
D)experience an increase in their growth rates.

Question 12

An example of policies designed to encourage the development of new industries whose products can be readily exported would be:

A)taxing exports of skilled-labor-intensive goods.
B)subsidizing imports to the domestic market.
C)providing subsidies to domestic industries that exploit the country's comparative advantage.
D)imposing tariffs on imports of skilled-labor-intensive goods.

Question 13

Which of the following suggests that labor markets work less efficiently in the developing countries?

A)The laborers are paid according to their marginal product and not according to the average product.
B)The minimum wage for the unskilled laborers in the developing countries is much lower compared to that in the developed countries.
C)There is an excess supply of skilled labor in the developing countries.
D)The wage gaps between the expanding and the declining sectors are greater than in the higher-income countries.

Question 14

According to comparative advantage theory, the developing countries are expected to export:

A)high-tech manufactured goods.
B)sophisticated capital equipment.
C)primary products.
D)specialized software services.

Question 15

Which of the following has been observed in the developing countries during 1990-2012?

A)The dispersion in the growth rates of the developing countries has been negligible during 1990-2012.
B)The East Asian countries like South Korea, Singapore, and Taiwan reported negative growth rates.
C)Countries like China and Vietnam reported positive but very low growth rates.
D)Several of the countries in Eastern Europe and Central Asia that were making a transition from centrally planning to market-based economy reported a decline in the per capita income.

Question 16

While developing countries have over _____ of the world's population, they produce less than _____ of the world's output.

A)5/6; 1/4
B)7/8; 1/8
C)2/3; 1/3
D)5/6; 1/2

Question 17

Which of the following was the main economic policy goal of the countries of the former Soviet Union?

A)Export promotion
B)National self-sufficiency
C)Privatization
D)Deindustrialization

Question 18

Suppose country A is a major exporter of limestone in the world market. Which of the following policies can be taken by the government of country A to enhance the gains from exporting limestone by raising its world price?

A)Taxing limestone exports
B)Subsidizing export of limestone
C)Subsidizing the extraction of limestone
D)Setting a price ceiling on the limestone sold in the domestic market

Question 19

The world prices of the primary products are less likely to decline if:

A)the government of the countries that export primary products subsidize the production of these primary products.
B)the production of the primary commodities is increased by a greater proportion than the increase in their demand.
C)the exporters of the primary products form international cartels.
D)the major importers of the primary products impose high tariff barriers on their imports.

Question 20

Which of the following, if happens, may result in an increase in the relative price of primary products in the world market?

A)The marginal cost of producing the primary goods declines over time
B)Productivity growth in the primary sectors is slower than that in the manufacturing sectors
C)The demand for primary products declines over time
D)The stock of inventories of primary products unexpectedly increases

Question 21

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. A declining market share of the cartel would lead to a:

A)rightward shift of the cartel marginal cost curve and a rise in cartel output.
B)rightward shift of the cartel demand curve and a fall in output.
C)leftward shift of the cartel marginal cost curve and a rise in output.
D)leftward shift of the cartel demand curve and a fall in cartel output.

Question 22

Which of the following increases the speed at which a cartel's power erodes?

A)The cartel agreement is more stringent in imposing penalties on the members who cheat
B)The share of the cartel in the world market increases
C)The price elasticity of competing supplies decreases
D)The product's price elasticity of demand increases

Question 23

Given the limits of international cartel power, one alternative for a developing country to put upward pressures on the world prices of its primary product exports is to:

A)tax its primary-product exports.
B)impose tariffs on primary-product imports.
C)subsidize its primary product exports.
D)subsidize its manufacturing imports.

Question 24

Cartel power is weakened by the tendency for:

A)the non-members to join a successful cartel.
B)the cartel members to increase output above their production quotas.
C)the cartel members to decrease output below their production quotas.
D)demand for the cartel's product to increase over time.

Question 25

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. How much well-being would world lose as a result of the formation of the cartel?

A)$5.0 billion
B)$12.5 billion
C)$15.0 billion
D)$50.0 billion

Question 26

Studies comparing growth rates of countries practicing ISI with growth rates of countries using policies that emphasize expansion of exports have found:

A)little difference in growth rates between the two groups of countries.
B)higher growth rates in those countries using policies that emphasize export expansion.
C)higher growth rates in those countries practicing ISI.
D)no evidence that either type of policy has been successful.

Question 27

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. If the world market for good A were perfectly competitive, the price per unit would be _____ and the industry profits (before subtracting any fixed costs) would be _____.

A)$600; $90.0 billion
B)$600; $22.5 billion
C)$1,000; $50.0 billion
D)$500; $10.0 billion

Question 28

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. At the perfectly competitive price, the cartel would see that:

A)MR > MC.
B)MR = MC.
C)MR < MC.
D)P < MR.

Question 29

Since 1980, developing countries have turned increasingly toward emphasizing:

A)exports of less-skilled-labor-intensive primary goods.
B)imports of less-skilled-labor-intensive agriculture goods.
C)exports of less-skilled-labor-intensive manufactured goods.
D)imports of less-skilled-labor-intensive manufactured goods.

Question 30

During the Great Depression in the 1930s, world prices of most primary products plummeted. This caused many countries to turn toward:

A)exporting manufacturing goods.
B)importing agricultural goods.
C)import-substituting industrialization.
D)exporting agricultural goods.

Question 31

If a cartel is functioning at full effectiveness, then as a cartel's marginal cost of production increases, the cartel's profit maximizing price:

A)decreases.
B)also increases.
C)remains constant.
D)initially decreases and then increases.

Question 32

For a large country, replacing imports with domestic goods can result in:

A)a decrease in the price of its exports.
B)an increase in the world price of its imports.
C)a more efficient allocation of resources based on comparative advantage.
D)improvement in the country's terms of trade.

Question 33

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. If the producers of good X form a cartel and use monopoly pricing, the price per unit would be _____ and the industry profits (before subtracting any fixed costs) would be _____.

A)$500; $10 billion
B)$600; $90 billion
C)$1,000; $60 billion
D)$1,000; $40 billion

Question 34

The figure given below shows a situation where the producers of good X are forming an international cartel. Here, MR = Marginal Revenue, MC = Marginal Cost, and P = Price. The cartel use monopoly pricing for its output. How much would the consumer surplus fall after the formation of the cartel?

A)$5 billion
B)$15 billion
C)$20 billion
D)$50 billion

Question 35

A reason why agricultural cartels are not as effective as OPEC is that non-member countries can:

A)increase their supply of crops but not their oil supply.
B)decrease their supply of crops but not their oil supply.
C)increase their oil supply but not their supply of crops.
D)decrease their oil supply but not their supply of crops.

Question 36

Studies of ISI and related policies show that income growth is:

A)negatively correlated with antitrade policies like ISI.
B)negatively correlated with outward-oriented policies that are closer to free trade.
C)positively correlated with antitrade policies like ISI.
D)not correlated with either free trade or antitrade policies.

Question 37

One way developing countries have been able to break into the world export market is by:

A)using ISI to force exports by limiting imports.
B)carrying out extensive research and development giving impetus to high technological progress.
C)joining international export cartels and creating monopoly in the export market.
D)becoming locations for low-cost assembly of more technologically advanced products.

Question 38

Which of the following is NOT one of the four main arguments in favor of import-substituting industrialization?

A)The infant industry argument
B)The developing government argument
C)The argument of using cheap and convenient market information
D)The argument of using skilled labor

Question 39

If exporters of a primary product form an international cartel, then:

A)the importing countries will be forced to reduce the barriers on their imports.
B)the world supply of the primary product will expand substantially.
C)the world efficiency will increase.
D)output of the primary product will fall and its price will rise.

Question 40

Which of these statements about cartel pricing power is true?

A)The more inelastic the market-demand for the cartel's product, the lower will be the price that the cartel members can charge to maximize profits.
B)The higher the piling up of unsold inventories, the higher will be the price set by the cartel members.
C)The larger the share of world production controlled by the cartel, the higher will be the price set by the members.
D)The greater the elasticity of supply of the non-cartel members, the higher will be the price set by the cartel members.

Question 41

The long-run decline in the relative price of primary products is a strong reason for developing countries to avoid exporting primary products.

Question 42

The relative prices of the products that use natural resources intensively will decrease over time with the decrease in the availability of the natural resources.

Question 43

The increasing oil prices during 2004-2008 show OPEC's power to overcome market pressures for declining prices.

Question 44

What kind of progress was made by developing countries to break into world markets for their exports of manufactures?

Question 45

Industrialized countries are often alleged to discriminate against exports of manufactures from developing countries.

Question 46

What special challenges existed for the former Soviet Union countries transitioning from centrally planned economies to market based economies? How successful have these countries been?

Question 47

Engel's law is consistent with the proposition that the income elasticity for primary products is less than unity.

Question 48

Import-substituting industrialization policy moves a country toward national self-sufficiency.

Question 49

For a cartel behaving like a pure monopoly, equating marginal revenue to marginal cost maximizes profit over and above the perfectly competitive profit.

Question 50

There is substantial evidence to conclude that there is a very tight link between being a developing country and being an exporter of primary products.

Question 51

Evidence suggests that depth and speed of reforms did not matter for the success of transition in the formerly socialist countries.

Question 52

The infant industry argument goes against the initiative of some developing countries to develop more advanced manufacturing industries

Question 53

How successful has import-substituting industrialization been?

Question 54

"The countries which have implemented policies that emphasize exporting have been more successful than the countries practicing ISI." Does theory suggest that this must be the case? That is, theoretically, is there no support for ISI, or are the necessary conditions for successful ISI not being met?

Question 55

Growth rates have been consistently lower for developing counties than for developed countries.

Question 56

Why has emphasizing new exports of less-skilled-labor-intensive manufactured goods to industrialized countries been difficult for developing countries?

Question 57

Living standards were converging among developing countries during 1990-2012.

Question 58

The relative prices of wool, cocoa, aluminum, rice, cotton and sugar declined by more than half during the 20^th century.

Question 59

Explain why very few of the many international commodity cartels that have been formed since World War I have survived.

Question 60

Suppose country A relies on exports of two primary products, sugar cane and rubber.

A) According to the predictions of Engel's law, what will happen to the terms of trade of country A in the long run?
B) If you are to provide economic policy advice to this nation's government, what advice would you give? In your answer, be sure to explain the reasons behind your advice