ECO 336 Final Questions and Detailed Verified Solutions
Sixty years after the signing of GATT and following eight completed round of trade
negotiations, A. trade barrier have actually increased. B. there has been no real change in
trade barrier. C. trade barriers are no longer an issue. D. trade barriers have been
successfully reduced. - ✔✔D Which of the following is NOT a reason people tolerate tariffs
and quotas? A. Ignorance B. Their personal jobs depend on tariffs and quotas. C. Costs
may be hidden and hard to quantify. D. Costs of the policy are spread over a large number
of people. E. The marginal expenses to fight the protection outweigh the personal marginal
costs of the protection. - ✔✔B Historically, one of the most common reasons for countries
to impose tariffs was A. to counter inflation. B. to raise revenue for the government. C. to
eliminate unemployment. D. to protect their national security. - ✔✔B "Cheap foreign
wages" is a poor argument for protection because it fails to recognize the importance of
productivity. Which of the following does NOT contribute to increasing productivity? A.
Capital B. Infrastructure C. Education and training D. Government subsidies - ✔✔D If a
country faces action under Section 301 of the U.S. Trade Act of 1974, it means that the
country has A. tariffs that are above the legal limit. B. been charged by the WTO with
violating its trade obligations. C. exceeded average import growth by more than 50 percent.
D. been charged by the United States with systematically engaging in unfair trade
practices. - ✔✔D When comparing the U.S. and Mexican car assembly industries, the
disadvantage of higher U.S. wages is offset by A. trade adjustment assistance in the United
States. B. Mexican trade barriers. C. a lower opportunity cost in Mexico. D. higher
productivity in the United States. - ✔✔D A major difficulty with the infant industry argument
for protection is that A. it requires the nation to fall into the large country case for tariff
protection. B. government revenue will fall with a tariff. C. the measurement of production
externalities is hard and uncertain. D. effective rates of protection are usually greater than
nominal rates. - ✔✔C One reason why producers have an incentive to organize in favor of
protection is because A. producer gains are spread across so many firms that no one gets
a large share of the benefits. B. producer gains outweigh consumer losses. C. producer
gains are relatively concentrated. D. there is no real cost to the economy. - ✔✔C
Developed countries have lost comparative advantage in A. capital-intensive industries. B.
labor-intensive industries. C. high-tech industries. D. agricultural industries. - ✔✔B The
pattern of protection in industrial countries is particularly harmful to the interests of A.
European nations. B. high-income industrial countries. C. Asian nations. D. low-income
developing countries. - ✔✔D Dumping occurs when a firm A. sells in a foreign country at
prices that are below fair value. B. sells in a foreign market at prices that are below the
prices charged by firms based in the foreign market. C. sells in its home market at prices
,that are below the average price charged by its competitors. D. sells too much of a good in
a foreign country. - ✔✔A Which of the following is NOT a true statement? A. Trade barriers
are usually a good way of protecting jobs. B. There are diminishing returns to trade
negotiations. C. There have been significant reductions in trade barriers over the last 60
years. D. Economists generally favor further reductions in trade barriers. - ✔✔A There are
asymmetric incentives to support and to oppose protectionist trade policies, with the
stronger incentives going to those that would seek protection. True False - ✔✔T Which of
the following describes the asymmetry Moncur Olson observed in the incentives to support
and oppose trade policy? A. The benefits of protection are spread out over a large number
of firms and industries, but the costs are concentrated on consumers. B. The costs of
protection are concentrated on a few firms, and the benefits of protection are spread out
over a large number of consumers. C. The benefits of policy are concentrated, and the
costs are spread out over a large number of participants. D. The benefits of those seeking
protection outweigh the costs imposed by the protection. - ✔✔C If a nation protects an
industry because it believes that there are positive externalities in the production process,
it is asserting that the free market will A. produce the correct amount but charge too high a
price. B. produce the correct amount but charge too low a price. C. produce more than is
optimal from society's point of view. D. produce less than is optimal from society's point of
view. - ✔✔D Economic sanctions A. never work to create policy change in the targeted
country. B. are more likely to work if the international community supports them. C. are
more likely to work if military force is not used. D. usually work to create policy change in
the targeted country. - ✔✔B The biggest flaw in the logic of the labor argument is the failure
to consider A. the needs of developing countries. B. the impact of tariffs on inflation. C. the
differences in national productivity levels. D. the impact on employment levels. - ✔✔C
Some economists suggest that under the National Security Argument, the optimal way for
a nation to protect its access to a strategic mineral is with the use of A. an infant industry
tariff. B. a high rate of effective protection to keep local mines in business. C. a quota on
imports of the mineral. D. a low nominal rate of protection. E. a stockpile. - ✔✔E
Agriculture, clothing, and textiles are singled out for treatment in the chapter because A.
they are more important to job creation than other sectors. B. the policies of high-income
nations in these sectors may have beneficial effects in low-income countries. C. they tend
to be the most highly protected sectors of industrial economies. D. they tend to be the
most-protected sectors internationally. - ✔✔C Television programming might be targeted
for protection in a country using which of the following arguments? A. Need for retaliation
B. National security C. Cultural protection D. Infant industry E. Labor argument - ✔✔C
Highminus income industrial nations such as the United States and Japan tend to have
their highest tariffs in A. capital- intensive, diversified manufacturing. B. newer, high-
, technology manufacturing industries. C. agriculture, clothing, and textiles D. automobiles -
✔✔C Some economists argue that free trade is beneficial regardless of the actions of a
country's trading partners, including trading partners that heavily protect their home
markets. True False - ✔✔T Tariffs are highest in which sector internationally? A. Energy B.
Automobiles C. Technology D. Agriculture - ✔✔D A countervailing duty is a tariff that is
levied to counteract A. the dumping of goods in the domestic market by foreign firms. B.
low prices for imported goods that are made in countries with low wages. C. a sudden
surge of imports which hurt a domestic industry. D. subsidies given to foreign firms by their
own governments. - ✔✔D One reason why consumers are unlikely to be too upset about
tariffs is because A. consumer losses are not real losses. B. the costs are so spread out
that no one pays a big share of the total. C. most consumers benefit from protection. D.
tariffs are an inexpensive way to create jobs. - ✔✔B Predatory dumping occurs when A.
foreign firms sell below cost with the intent to drive firms out of the domestic market. B.
foreign firms sell at a price that covers the cost of their variable inputs. C. foreign firms sell
below cost because the product is perishable. D. foreign firms sell at a price that is below
the price of domestic firms. - ✔✔A If a large percentage of economic activity in developing
countries is unrecorded, then the countries are likely to rely on which of the following taxes
to provide government revenue? A. Tariffs B. Sales taxes C. Income taxes D. Property taxes
- ✔✔A The system of trade rounds under GATT and the WTO has been successful at
creating trade rules and reducing trade barriers. True False - ✔✔T Which of the following is
an example of a countervailing duty? A. A tariff is granted because foreign firms are selling
below cost. B. A temporary tariff is granted to allow for adjustment of the domestic
industry. C. A tariff is granted to an industry because foreign firms are subsidized by their
governments. D. A tariff is granted to an industry because another nation persistently uses
unfair trade practices. - ✔✔C Some economists suggest the optimal way for a nation to
protect its access to a strategic mineral is with A. a quota on imports of the mineral. B. an
infant industry tariff. C. a stockpile. D. a low nominal rate of protection. E. a high rate of
effective protection to keep local mines in business. - ✔✔C The best way to address
differences in labor and environmental standards is through trade barriers. True False -
✔✔F Most regional trade and WTO agreements practice A. separate standards only. B.
mutual recognition standards only. C. the harmonization standards only. D. a combination
of harmonization, mutual recognition, and separate standards. - ✔✔D Low labor standards
are usually associated with A. high-wage countries. B. low foreign investment. C. high-
income countries. D. nondemocratic governments. - ✔✔B Separate standards refers to A.
the acceptance or keeping of a trading partner's standards as valid and sufficient by
another trading partner. B. common product safety, environment, labor, and fair
Sixty years after the signing of GATT and following eight completed round of trade
negotiations, A. trade barrier have actually increased. B. there has been no real change in
trade barrier. C. trade barriers are no longer an issue. D. trade barriers have been
successfully reduced. - ✔✔D Which of the following is NOT a reason people tolerate tariffs
and quotas? A. Ignorance B. Their personal jobs depend on tariffs and quotas. C. Costs
may be hidden and hard to quantify. D. Costs of the policy are spread over a large number
of people. E. The marginal expenses to fight the protection outweigh the personal marginal
costs of the protection. - ✔✔B Historically, one of the most common reasons for countries
to impose tariffs was A. to counter inflation. B. to raise revenue for the government. C. to
eliminate unemployment. D. to protect their national security. - ✔✔B "Cheap foreign
wages" is a poor argument for protection because it fails to recognize the importance of
productivity. Which of the following does NOT contribute to increasing productivity? A.
Capital B. Infrastructure C. Education and training D. Government subsidies - ✔✔D If a
country faces action under Section 301 of the U.S. Trade Act of 1974, it means that the
country has A. tariffs that are above the legal limit. B. been charged by the WTO with
violating its trade obligations. C. exceeded average import growth by more than 50 percent.
D. been charged by the United States with systematically engaging in unfair trade
practices. - ✔✔D When comparing the U.S. and Mexican car assembly industries, the
disadvantage of higher U.S. wages is offset by A. trade adjustment assistance in the United
States. B. Mexican trade barriers. C. a lower opportunity cost in Mexico. D. higher
productivity in the United States. - ✔✔D A major difficulty with the infant industry argument
for protection is that A. it requires the nation to fall into the large country case for tariff
protection. B. government revenue will fall with a tariff. C. the measurement of production
externalities is hard and uncertain. D. effective rates of protection are usually greater than
nominal rates. - ✔✔C One reason why producers have an incentive to organize in favor of
protection is because A. producer gains are spread across so many firms that no one gets
a large share of the benefits. B. producer gains outweigh consumer losses. C. producer
gains are relatively concentrated. D. there is no real cost to the economy. - ✔✔C
Developed countries have lost comparative advantage in A. capital-intensive industries. B.
labor-intensive industries. C. high-tech industries. D. agricultural industries. - ✔✔B The
pattern of protection in industrial countries is particularly harmful to the interests of A.
European nations. B. high-income industrial countries. C. Asian nations. D. low-income
developing countries. - ✔✔D Dumping occurs when a firm A. sells in a foreign country at
prices that are below fair value. B. sells in a foreign market at prices that are below the
prices charged by firms based in the foreign market. C. sells in its home market at prices
,that are below the average price charged by its competitors. D. sells too much of a good in
a foreign country. - ✔✔A Which of the following is NOT a true statement? A. Trade barriers
are usually a good way of protecting jobs. B. There are diminishing returns to trade
negotiations. C. There have been significant reductions in trade barriers over the last 60
years. D. Economists generally favor further reductions in trade barriers. - ✔✔A There are
asymmetric incentives to support and to oppose protectionist trade policies, with the
stronger incentives going to those that would seek protection. True False - ✔✔T Which of
the following describes the asymmetry Moncur Olson observed in the incentives to support
and oppose trade policy? A. The benefits of protection are spread out over a large number
of firms and industries, but the costs are concentrated on consumers. B. The costs of
protection are concentrated on a few firms, and the benefits of protection are spread out
over a large number of consumers. C. The benefits of policy are concentrated, and the
costs are spread out over a large number of participants. D. The benefits of those seeking
protection outweigh the costs imposed by the protection. - ✔✔C If a nation protects an
industry because it believes that there are positive externalities in the production process,
it is asserting that the free market will A. produce the correct amount but charge too high a
price. B. produce the correct amount but charge too low a price. C. produce more than is
optimal from society's point of view. D. produce less than is optimal from society's point of
view. - ✔✔D Economic sanctions A. never work to create policy change in the targeted
country. B. are more likely to work if the international community supports them. C. are
more likely to work if military force is not used. D. usually work to create policy change in
the targeted country. - ✔✔B The biggest flaw in the logic of the labor argument is the failure
to consider A. the needs of developing countries. B. the impact of tariffs on inflation. C. the
differences in national productivity levels. D. the impact on employment levels. - ✔✔C
Some economists suggest that under the National Security Argument, the optimal way for
a nation to protect its access to a strategic mineral is with the use of A. an infant industry
tariff. B. a high rate of effective protection to keep local mines in business. C. a quota on
imports of the mineral. D. a low nominal rate of protection. E. a stockpile. - ✔✔E
Agriculture, clothing, and textiles are singled out for treatment in the chapter because A.
they are more important to job creation than other sectors. B. the policies of high-income
nations in these sectors may have beneficial effects in low-income countries. C. they tend
to be the most highly protected sectors of industrial economies. D. they tend to be the
most-protected sectors internationally. - ✔✔C Television programming might be targeted
for protection in a country using which of the following arguments? A. Need for retaliation
B. National security C. Cultural protection D. Infant industry E. Labor argument - ✔✔C
Highminus income industrial nations such as the United States and Japan tend to have
their highest tariffs in A. capital- intensive, diversified manufacturing. B. newer, high-
, technology manufacturing industries. C. agriculture, clothing, and textiles D. automobiles -
✔✔C Some economists argue that free trade is beneficial regardless of the actions of a
country's trading partners, including trading partners that heavily protect their home
markets. True False - ✔✔T Tariffs are highest in which sector internationally? A. Energy B.
Automobiles C. Technology D. Agriculture - ✔✔D A countervailing duty is a tariff that is
levied to counteract A. the dumping of goods in the domestic market by foreign firms. B.
low prices for imported goods that are made in countries with low wages. C. a sudden
surge of imports which hurt a domestic industry. D. subsidies given to foreign firms by their
own governments. - ✔✔D One reason why consumers are unlikely to be too upset about
tariffs is because A. consumer losses are not real losses. B. the costs are so spread out
that no one pays a big share of the total. C. most consumers benefit from protection. D.
tariffs are an inexpensive way to create jobs. - ✔✔B Predatory dumping occurs when A.
foreign firms sell below cost with the intent to drive firms out of the domestic market. B.
foreign firms sell at a price that covers the cost of their variable inputs. C. foreign firms sell
below cost because the product is perishable. D. foreign firms sell at a price that is below
the price of domestic firms. - ✔✔A If a large percentage of economic activity in developing
countries is unrecorded, then the countries are likely to rely on which of the following taxes
to provide government revenue? A. Tariffs B. Sales taxes C. Income taxes D. Property taxes
- ✔✔A The system of trade rounds under GATT and the WTO has been successful at
creating trade rules and reducing trade barriers. True False - ✔✔T Which of the following is
an example of a countervailing duty? A. A tariff is granted because foreign firms are selling
below cost. B. A temporary tariff is granted to allow for adjustment of the domestic
industry. C. A tariff is granted to an industry because foreign firms are subsidized by their
governments. D. A tariff is granted to an industry because another nation persistently uses
unfair trade practices. - ✔✔C Some economists suggest the optimal way for a nation to
protect its access to a strategic mineral is with A. a quota on imports of the mineral. B. an
infant industry tariff. C. a stockpile. D. a low nominal rate of protection. E. a high rate of
effective protection to keep local mines in business. - ✔✔C The best way to address
differences in labor and environmental standards is through trade barriers. True False -
✔✔F Most regional trade and WTO agreements practice A. separate standards only. B.
mutual recognition standards only. C. the harmonization standards only. D. a combination
of harmonization, mutual recognition, and separate standards. - ✔✔D Low labor standards
are usually associated with A. high-wage countries. B. low foreign investment. C. high-
income countries. D. nondemocratic governments. - ✔✔B Separate standards refers to A.
the acceptance or keeping of a trading partner's standards as valid and sufficient by
another trading partner. B. common product safety, environment, labor, and fair
