Module 6

Question 1

What refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country?

Answer 1

Free Trade

Question 2

What are the seven main instruments of trade policy?

LAVA-SIT

Answer 2

1. Local content requirements
2. Administrative policies
3. Voluntary export restraints
4. Antidumping policies
5. Subsidies
6. Import quotas
7. Tariffs

Question 3

What do you call a tax levied on imports that effectively raises the cost of imported products relative to domestic products.

Answer 3

Tariffs

Question 4

What are levied as a fixed charge for each unit of a good imported?

Answer 4

Specific Tariffs

Question 5

What are are levied as a proportion of the value of the imported good

Answer 5

Ad Valorem Tariffs

Question 6

What is a government payment to a domestic producer?

Answer 6

Subsidies

Question 7

Why do governments impose tariffs?

Answer 7

– increase government revenues
– provide protection to domestic producers against
foreign competitors
– force consumers to pay more for certain imports

Question 8

What are pro-producer and anti-consumer, and reduce the overall efficiency of the world economy?

Answer 8

Tariffs

Question 9

How do subsidies help domestic producers?

Answer 9

By competing against low-cost foreign imports and gaining export markets

Question 10

What is a direct restriction on the quantity of some good that may be imported into a country?

Answer 10

Import Quota

Question 11

What are a hybrid of a quota and a tariff where a lower tariff is applied to imports within the quota than to those over the quota?

Answer 11

Tariff Rate Quota

Question 12

What are quotas on trade imposed by the exporting country, typically at the request of the importing country’s government?

Answer 12

Voluntary Export Restraints

Question 13

What is the extra profit that producers make when supply is artificially limited by an import quota?

Answer 13

Quota Rent

Question 14

Who benefits from import quotas and voluntary
export restraints?

Answer 14

domestic producers because it limits import competition, and raise the prices of imported goods for consumers

Question 15

What demands that some specific fraction of a good be produced domestically?

Answer 15

Local Content Requirement

Question 16

What benefits domestic producers and jobs, but makes consumers face higher prices?

Answer 16

Local Content Requirement

Question 17

What are bureaucratic rules that are designed to make it difficult for imports to enter a country?

Answer 17

Administrative Trade Policies

Question 18

Administrative policies hurt consumers by what?

Answer 18

denying access to possibly superior foreign products

Question 19

What do you call of selling goods in a foreign market below their cost of production, or selling goods in a foreign market at below their “fair” market value?

Answer 19

Dumping

Question 20

What can be a way for firms to unload excess production
in foreign markets?

Answer 20

Dumping

Question 21

How does dumping may be predatory behavior?

Answer 21

By driving indigenous competitors out of that market, and later raising prices and earning substantial profits

Question 22

What are designed to punish foreign firms that engage in dumping?

Answer 22

Antidumping Policies

Question 23

Antidumping policies’ goal is to protect domestic producers from what?

Answer 23

Unfair foreign competition

Question 24

What are the two types of arguments about why do governments intervene in trade?

Answer 24

1. Political arguments
2. Economic arguments

Question 25

Which type of argument means protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers)?

Answer 25

Political Arguments

Question 26

Which type of argument means boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)?

Answer 26

Economic Arguments

Question 27

What are included in the economic arguments for government intervention in international trade?

Answer 27

1. Infant Industry Argument 2. Strategic Trade Policy

Question 28

Which argues that an industry should be protected until it can develop and be viable and competitive internationally

Answer 28

Infant Industry Argument

Question 29

Critics of which argument argues that it is useless unless it makes the industry more efficient?

Answer 29

Infant Industry Argument

Question 30

Critics of which argument argues that if a country has the potential to develop a viable competitive position, its firms should be capable of raising necessary funds

Answer 30

Infant Industry Argument

Question 31

Which economic argument means there may be important first mover advantages, governments can help firms from their countries attain these advantages?

Answer 31

Strategic Trade Policy

Question 32

Which economic argument means that governments can help firms overcome barriers to entry into industries where foreign firms have an initial advantage?

Answer 32

Strategic Trade Policy

Question 33

What are the two situations where restrictions on trade may be inappropriate?

Answer 33

– Retaliation – Domestic Policies

Question 34

Strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry are what kind of policies?

Answer 34

beggar-thy-neighbor policies that boost national income at the expense of other countries

Question 35

In its first fifty years, the international trading framework that has evolved to govern world trade is known as what?

Answer 35

General Agreement on Tariffs and Trade (GATT)