Deck 24: International Trade

Question 1

The following chart shows world growth in GDP and the real value of exports.
Which of the following statements are correct?
(i) Export growth fluctuates more than GDP growth.
(ii) The average rate of growth in exports from 1955 to 2011 has been higher than the average rate of growth in GDP.
(iii) The years when the rate of growth in GDP is the higher than average tend to be the same years in which the rate of growth in exports is higher than average.

A) (ii) and (iii) only
B) (i) and (iii) only
C) (i), (ii) and (iii)
D) (i) only

Answer 1

(i), (ii) and (iii)

Question 2

Which of the following statements are true?
(i) The average annual growth in world output was higher than the growth in world exports.
(ii) Trade is expected to continue to increase as a percentage of world GDP.
(iii) The developed economy's share of world trade has been growing.
(iv) The most rapid growth in trade can be found in developing countries.
(v) With increased trade, countries have become more interdependent.
(vi) The BRICS have seen especially rapid growth in trade.

A) (ii), (iv), (v) and (vi)
B) (i), (iii), (iv) and (vi)
C) (i), (iv) and (vi)
D) (ii), (iv) and (vi)
E) (iii), (iv) and (v)

Answer 2

(ii), (iv), (v) and (vi)

Question 3

If Argentina has an absolute advantage in the production of wheat and Chile has an absolute advantage in the production of copper, then trade

A) enables both countries to move out beyond their previous resource and productivity constraints.
B) does not permit either country to move out beyond its previous resource and productivity constraints.
C) enables both countries to move out beyond their previous resource constraints, but not their productivity constraints.
D) enables both countries to move out beyond their previous productivity constraints, but not their resource constraints.

Answer 3

enables both countries to move out beyond their previous resource and productivity constraints.

Question 4

Sweaters are produced using wool and labour. In Montega, a sweater can be produced with three skeins of wool and three hours of labour time. In Xena, a sweater can be produced with three skeins of wool and two hours of labour time. Which of the following is true?

A) Xena has both a comparative and an absolute advantage in the production of sweaters.
B) Montega has an absolute advantage in the production of sweaters but, from this information, it cannot be determined if Montega has a comparative advantage in the production of sweaters.
C) Xena has an absolute advantage in the production of sweaters but, from this information, it cannot be determined if Xena has a comparative advantage in the production of sweaters.
D) Montega has both a comparative and an absolute advantage in the production of sweaters.

Question 5

A country enjoys a comparative advantage in the production of a good if

A) that good can be produced at a lower cost in terms of other goods.
B) that good can be produced at a lower monetary cost.
C) it uses fewer resources to produce that product than the other country does.
D) it uses more resources to produce that product than the other country does.

Question 6

For a given amount of resources, Japan and the UK can produce the following quantities of motorbikes or bicycles:
Which statement is correct?

A) The UK has a comparative advantage in motorbikes.
B) Japan has a comparative advantage in bicycles.
C) The UK has a comparative advantage in bicycles.
D) The UK has an absolute advantage in bicycles.
E) The UK has no absolute or comparative advantage in either product.

Question 7

A variety of factors can make trade beneficial. An example of a benefit of trade is that the marginal utility ratios for products differ between different countries. Into which category does this example fit?

A) Trade is an engine of growth
B) Decreasing costs
C) Non- economic factors
D) Differences in demand
E) Increased competition

Question 8

Which of the following statements is not true?

A) Trade is beneficial because it allows everyone to have a higher standard of living.
B) Trade is beneficial because it allows consumption beyond the production possibility frontier.
C) Trade is beneficial because it allows more efficient production.
D) Trade is beneficial because it allows consumers to buy goods at cheaper prices.

Question 9

Which of the following statements is false?

A) If the US imposes a quota on Japanese car imports, the price of cars in the US is likely to increase.
B) If the US imposes a tariff on Japanese car imports, the price of cars in the US is likely to increase.
C) If Japan imposes a subsidy on car exports to the US, the price of cars in the US is likely to increase.
D) If Japan imposes a 'voluntary export restraint' on car exports to the US, the price of cars in the US is likely to increase.

Question 10

Which of the following would be classed as an 'economic' argument for protection? The country may wish

A) to keep some declining industries going in order to retain as diverse a society as possible, maintaining the culture that is associated with employment in those industries.
B) to heavily subsidise sheep farming on the uplands of Britain in order to keep farmers as the 'custodians of the landscape' in those areas.
C) not to trade with certain countries that have a human rights problem.
D) to give its infant industries a chance to develop and grow.

Question 11

Which of the following is not a non- tariff barrier?

A) Subsidies on domestic goods
B) Import levies on agricultural products
C) Administrative delays
D) Restrictions on investment by overseas companies

Question 12

It costs a computer manufacturer £2000 to produce a personal computer. This manufacturer sells these computers abroad for £1800. This is an example of

A) export subsidy.
B) dumping.
C) a trade- related economy of scale.
D) a negative tariff.

Question 13

When exports are sold at a price below marginal cost, this is called

A) a tariff.
B) dumping.
C) an export subsidy.
D) an export licence.

Question 14

The owners of steel companies in the US have argued that they need to be protected from foreign competition because the wages paid to workers in foreign countries are significantly lower than the wages paid to US steel workers. What is the best economic response to this argument?

A) Even though US workers earn more than workers in foreign countries, the United States would still have an absolute advantage in the production of steel and should therefore be able to compete internationally.
B) The steel industry should be protected from foreign competition because low foreign wages are an unfair barrier to trade.
C) It is essential to protect the steel industry so that there are no additional job losses in this industry.
D) Wages reflect productivity and so, if US steel workers are more productive than workers in foreign countries, then the US steel industry should still be able to compete internationally.

Question 15

The following four options are the arguments for restricting trade. If imported goods undercut the price of home- produced goods, it is desirable to put tariffs on them to bring them up to the price of home- produced goods. This is an example of

A) a non- economic argument.
B) those arguments with validity for specific countries, but where there is nevertheless a net world loss.
C) a fallacious argument.
D) those arguments with some general validity in a world context.

Question 16

Which of the following statements would be supported by most economists?

A) A good argument for protection against foreign competition is that it costs UK workers their jobs.
B) UK industries need to be protected from foreign competition because wages in Asian countries are lower than wages in the UK.
C) Trade protection may be necessary when a country's currency is overvalued and therefore buys more foreign currency than it should.
D) New industries should receive protection from foreign competition because new industries need time to develop a comparative advantage.

Question 17

Which of the following examples refers to licensing?

A) Governments or local authorities permitting only national firms to operate domestic coach and bus services
B) Credit controls that favour domestic firms
C) Governments preferring to buy military equipment from domestic armaments manufacturers
D) Professions that only recognise their own national qualifications

Question 18

The cost (or 'deadweight welfare loss') from protection consists of

A) the loss in consumer surplus.
B) the gain in producer surplus - the loss in consumer surplus + the gain in tariff revenue.
C) the loss in consumer surplus + the loss in producer surplus + the gain in tariff revenue.
D) the loss in consumer surplus - the gain in producer surplus - the gain in tariff revenue.

Question 19

The following diagram shows a country which is a price- taker in world trade for a particular product. It initially has a tariff on the product as shown by the vertical difference between the two world supply curves.
If the tariff were abolished, the net efficiency gain would be areas

A) 2 and 4
B) 3
C) 1 and 3
D) 1, 2, 3 and 4

Question 20

The following diagram shows a country which is a price- taker in world trade for a particular product. It initially has a tariff on the product as shown by the vertical difference between the two world supply curves.
If a tariff were imposed, the tax revenue received would be area(s)

A) 1, 2, 3 and 4
B) 1 and 3
C) 3
D) 2 and 4

Question 21

Which of the following is not a problem with protection?

A) It risks retaliation from other countries.
B) It may be a second- best solution.
C) It reduces the amount supplied by domestic producers.
D) It leads to a smaller world multiplier.

Question 22

The WTO requires its members to operate under various rules. Which of the following are included in these rules?

A) Tariffs must be reduced, but quota agreements are permitted.
B) Any national benefiting from a tariff reduction by another country must reciprocate by making similar tariff reductions itself.
C) Any trade concession that a country makes to one member must be granted to all signatories.
D) WTO- sanctioned retaliatory action is permitted in response to unfair barriers to trade.
E) B and D
F) A and B
G) C and D

Question 23

Under the WTO's 'most- favoured- nation' clause

A) any trade concession that a country makes to one member must be granted to all signatories.
B) countries can make special deals with other countries provided that they are agreed with the WTO.
C) exports from favoured nations will be subject to lower tariffs than those from other nations.
D) a country that receives a trade concession from another is then entitled to receive the same concession from all other signatories.

Question 24

Which of the following is not a WTO requirement of its members?

A) Not being permitted to raise existing tariffs without negotiating with their trading partners
B) Reciprocity of tariff reductions
C) General prohibition of quotas
D) Extending the benefits of members of free- trade areas to non members

Question 25

The problem of increasing non- tariff barriers was addressed in the GATT or WTO negotiations of the

A) Kennedy round.
B) Doha round.
C) Uruguay round.
D) Oslo round.
E) Tokyo round.

Question 26

Which of the following is not a rule for trade under GATT?

A) Greater protection for developing countries
B) The most- favoured- nation clause
C) Reciprocity of tariff reductions between countries
D) Quotas on agricultural imports are prohibited

Question 27

The problem of protection in the rich world against agricultural imports from the poor world was the main agenda item in the

A) Uruguay round.
B) Kennedy round.
C) Tokyo round.
D) Doha round.
E) Oslo round.

Question 28

Europe has a smaller share of world exports than America.

Question 29

The BRICS have experienced rapid growth in trade.

Question 30

Over the past few decades, world GDP has grown faster than world exports.

Question 31

The case for free trade is based on the theory of absolute advantage.

Question 32

It is always efficient for a country to specialise in goods in which it has an absolute advantage.

Question 33

If two countries, A and B, can produce the following amounts of two goods X and Y for a given amount of resources, then country A has a comparative advantage in the production of Good X.

Question 34

If two countries, A and B, can produce the following amounts of two goods X and Y for a given amount of resources then, assuming no transport costs, country A will export Good X to country B.

Question 35

If two countries, A and B, can produce the following amounts of two goods X and Y for a given amount of resources, then country A has a comparative advantage in the production of Good X.

Question 36

One of the main reasons for engaging in trade is to enjoy the benefits of economies scale.

Question 37

The 'competitive advantage of nations' refers to the ability of countries to compete in the market for exports and with potential importers to their country.

Question 38

In a simple world of just one export (X) and one import (M), the terms of trade are defined as Pm/Px.

Question 39

Dumping is where exports are sold at a price below marginal cost.

Question 40

The infant industry argument for protection is abused, but it is valid. In some cases new industries may well need protection from more powerful competitors.

Question 41

The efficiency loss from protection is the net loss in consumer, producer and government surplus.

Question 42

The WTO has no power to impose sanctions on countries breaking trade agreements.

Question 43

One of the WTO's rules is that any nation which benefits from a low tariff from one country must reciprocate.

Question 44

The Doha Agreement has been signed providing significant support for emerging markets in their trade negotiations with the developed world.

Question 45

Explain how specialisation and trade benefit all trading partners, even those that may be inefficient producers in an absolute sense.

Question 46

If the intellectual case for free trade, based on specialisation and comparative advantage, is so powerful, then why are protectionist policies so attractive to politicians in the US?

Question 47

What are some of the non- economic reasons for restricting international trade?

Question 48

Comparative advantage is not the only reason why countries trade. Explain two other reasons why countries trade.

Question 49

What are some of the limitations of specialisation and trade?

Question 50

Discuss the arguments that are made to justify trade barriers such as tariffs and quotas.

Question 51

Discuss the implications of strategic trade theory using the example of government intervention such as the case of Airbus.

Question 52

Discuss the merits of the argument that 'protection is needed from cheap foreign labour'.

Question 53

Discuss some of the possible drawbacks of protectionism.

Question 54

What is the role of the WTO?