ARIZONA STATE UNIVERSITY POS 486 | POS486 FINALS VERIFIED 100% CORRECT ANSWERS.

Question 1 0 out of 2.5 points Which of the following is NOT a policy that trade liberalization would seek to eliminate? Selected Answer: Correct Answer: Response Feedback: 4. domestic content requirements 2. trade agreements Refer to Chapter 1, pp. 22-24, and Assignment 1 • Question 2 Which of the following does NOT describe the WTO? 2.5 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 2. was drafted in Havana, Cuba in 1948 2. was drafted in Havana, Cuba in 1948 The questions asks which is NOT correct. We know that a trade institution was discussed at Bretton Woods but not created. We also know that the WTO didn't come into creation until 1995, with the GATT guiding international trade from . We have also learned that it covers international trade for most countries globally, that it has a broad mandate, and that it expanded GATT. Therefore, the correct answer is 2. See Chapter 2/Lecture 2. • Question 3 The WTO relies on 2.5 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 1. agreement by consensus 1. agreement by consensus See Chapter 2/Lecture 2 on decision-making in WTO, intergovernmental bargaining, multiyear rounds and difficulty getting consensus. • Question 4 The majority of regional trade agreements 2.5 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 4. are Free Trade Areas 4. are Free Trade Areas See Chapter 2. For those of us who are visual learners, Oatley has provided quite a graphic representation on p. 37. • Question 5 The enforcement problem of trade agreements refers to the fact that 2.5 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 2. governments cannot be certain that other governments will comply with the trade agreements they conclude 2. governments cannot be certain that other governments will comply with the trade agreements they conclude Refer to pp. 58-59 • Question 6 2.5 out of 2.5 points If more trade is created than diverted, a regional trade agreement (RTA) Selected Answer: Correct Answer: Response Feedback: 2. has liberalized trade 2. has liberalized trade Refer to p. 40 • Question 7 The difference between a FTA and a Customs Union 2.5 out of 2.5 points Selected Answer: Correct Answer: 2. lies in the use of a common tariff policy 2. lies in the use of a common tariff policy Response Feedback: See Chapter 3, p. 37 and Lecture 3. While in an FTA members retain power to det tariffs on non-members, in a Customs Union members impose a common tariff on all goods entering from non-members. • Question 8 Consumption Indifference Curves 2.5 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 2. capture the combination of goods consumers will want based on their utility 2. capture the combination of goods consumers will want based on their utility See "The Economic Case for Trade" in Chapter 3, pp. 46-50, specifically the bottom of p. 47. • Question 9 In an autarkic country, the `production possibility frontier' 0 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 3. can be shifted to expand production and consumption through trade 1. defines the limits of consumption as there is no trade See "The Economic Case for Trade" in Chapter 3, p. 47. An autarkic country cannot consume more than it produces since it does not trade. • Question 10 2.5 out of 2.5 points Which of the following explains why coutnries that trade choose to produce goods that use a lot of their abundant factor? Selected Answer: Correct Answer: Response Feedback: 1. comparative advantage 1. comparative advantage Refer to Chapter and Lecture 3 on comparative advantage and trade, specifically p 52, Quiz 1 and Assignment 1 • Question 11 2.5 out of 2.5 points In developing countries, capital is considered a factor. Selected Answer: Correct Answer: Response Feedback: 2. scarc e 2. scarc e See Chapters 3 & 4 and Lecture 3 and Assignment 1. In developing countries, labor is abundant while capital is scarce. Note that given the dearth of capital in LDCs, its factor mobility is low, also making it a specific factor. • Question 12 2.5 out of 2.5 points In a liberalized country with an abundance of labor and land but little capital, we would expect Selected Answer: Correct Answer: Response Feedback: 1. agricultural interests to be exportoriented 1. agricultural interests to be exportoriented See Lecture 4 and Chapter 4. If it is a liberalized country, it trades. If there is an abundance of labor and land, interests surrounding these factors are exportoriented while capital (the scarce factor) is import-competing. Therefore, we would expect agriculture, dependent on labor and land, to be export-oriented. • Question 13 A sectoral model of trade assumes 0 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 4. trade politics are driven by differences among similar industries 3. that factor mobility is low See Lecture 4 and Chapter 4 and definition of factor mobility. • Question 14 0 out of 2.5 points When labor protested NAFTA while the car manufacturers were pushing for its ratification, this was an example of Selected Answer: 1. a sectoral model of trade preferences Correct Answer: Response Feedback: 3. a factor model of trade policy preferences This would be a factor based model of trade in which the car manufacturers are the MNCs representing capital while the workers are labor. As we learned, in developed economies labor is the scarce, import-competing factor while capital is the abundant, export-oriented factor. This explains why labor would oppose an FTA that would increase their competition while the manufacturers would support the FTA that would prove profitable for them. Review Chapter 3/Lecture 2 discussion of factor endowments and comparative advantage and Chapter 4/Lecture 4. • Question 15 A `specific factor' 2.5 out of 2.5 points Selected Answer: Correct Answer: Response Feedback: 1. is one tied to a particular sector or industry 1. is one tied to a particular sector or industry This is the definition of a specific factor, it is tied to a specific sector or industry, therefore, it has low factor mobility. See Chapter 4, p. 75 and your Glossary. • Question 16 2.5 out of 2.5 points Refer to the following figure depicting trade liberalization as a Prisoner's Dilemma (a variant of Figure 3.5 on page 59). Which quadrant represents Australia's most preferred outcome in its negotiated trade agreement with the EU? (note: L = liberalize; P = protect) European Union Australia L,L L,P P,L P,P Selected Answer: Correct Answer: Response Feedback: 4. Quadrant IV: P,L 4. Quadrant IV: