Deck 19: Trade Policy

Question 1

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Import quota,deadweight loss

Answer 1

Answer will vary

Question 2

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Overvalued exchange rate,import-GDP ratio

Answer 2

Answer will vary

Question 3

What effect do high import tariffs have on a country's export industries?

A) Tariffs reduce the demand for foreign exchange, so the home currency appreciates; this hurts exports.
B) Tariffs reduce the demand for foreign exchange, so the home currency depreciates; this boosts exports.
C) Tariffs reduce the demand for foreign exchange, so the home currency appreciates; this boosts exports.
D) Tariffs do not affect exports, just imports.

Answer 3

A

Question 4

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Tariff revenue,quota rent

Question 5

The effective rate of protection measures how much:

A) investment will be drawn into the protected industry.
B) profit can be earned by producing the protected product.
C) the margin of price over input cost for domestic producers can exceed the margin at world market prices.
D) the price of the product increases due to the tariff.

Question 6

What was GATT?

A) an international organization that oversaw multilateral trade negotiations and tariff policies
B) a voluntary export-restriction agreement governing international trade in textiles
C) a free-trade area in southeast Asia
D) an Eastern European trading bloc that disbanded in the early 1990s

Question 7

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Import substitution,infant industry

Question 8

Suppose Kenya imports film at a border price of $5 per roll.If there are 70 Kenyan shillings to the dollar and Kenya imposes a 50 percent tariff on imported film,then the domestic price of the imported film per roll is:

A) 350 shillings.
B) 105 shillings.
C) 525 shillings.
D) 400 shillings.

Question 9

When the government auctions import licenses,it captures the quota rent.Who gets the quota rent when the government administratively allocates import licenses?

A) the foreign producer of the imported product
B) the importers
C) the domestic consumer
D) the domestic producers of the import substitutes

Question 10

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Rent seeking,import licensing

Question 11

The essence of outward-looking development is that it:

A) relies on primary exports until domestic industry is efficient enough to compete in export markets.
B) gets prices right and lets the free market dictate the development of manufactured exports.
C) establishes an incentive system that induces firms to seek export markets.
D) subsidizes export-oriented manufacturing firms.

Question 12

Effective rates of protection in developing countries typically:

A) are very high for manufactured consumer goods.
B) differ widely from industry to industry.
C) discriminate against the agricultural sector.
D) all of the above.

Question 13

What credit-market policy did the Korean government use to promote exports in its transition toward a rapidly industrializing nation?

A) The government liberalized financial markets and let market forces allocate credit.
B) The government set high interest rates on loans to exporters to screen out low-productivity investments.
C) The government cut off credit to exporters to make them compete for loans overseas.
D) The government used low-interest-rate loans as a form of indirect subsidy to exporters.

Question 14

Malawi's currency,the kwacha,is overvalued when the kwacha price of foreign exchange rate is:

A) too high compared to the equilibrium free-trade exchange rate.
B) too low compared to the equilibrium free-trade exchange rate.
C) rising.
D) falling.

Question 15

Economists generally prefer the use of subsidies instead of protective tariffs because:

A) subsidies create smaller deadweight losses.
B) subsidies can be targeted more carefully.
C) the visible cost of subsidies creates an automatic incentive to phase out protection.
D) all of the above.

Question 16

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Outward-looking strategy,global market

Question 17

Other things being equal,the effective rate of protection for domestic producers of steel nails will be higher:

A) when the tariff on imported nails is low.
B) when the tariff on imported steel is low.
C) when the value added in converting steel to nails is high.
D) all of the above.

Question 18

To minimize losses to consumer surplus,protection for infant industries should be provided through:

A) subsidies.
B) quotas.
C) tariffs.
D) an overvalued exchange rate.

Question 19

Zawana faces world prices for finished radios and radio components,which are 100 shillings and 95 shillings,respectively.There is a 30 percent tariff on imported radios and no tariff on imported components.The effective rate of protection for the radio assembly industry in Zawana is:

A) 30 percent.
B) 60 percent.
C) 600 percent.
D) 5 percent.

Question 20

Which of the following is NOT an argument in favor of export-oriented development over import substitution?

A) International competition compels domestic producers to become more efficient.
B) Exposure to world markets enhances opportunities to learn new technologies.
C) Producing for export permits greater specialization.
D) Outward-looking development favors firms that are better at rent seeking.

Question 21

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Effective rate of protection,value added

Question 22

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
East Asian Tigers,export-orientation

Question 23

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Trade protection,political economy

Question 24

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Trade liberalization,benefits of exporting

Question 25

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
GATT,most-favored-nation principle