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Internationl Trade: Econ 433

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True or False?: Global trade in manufactured goods has been growing more rapidly than global trade in agricultural goods.
TRUE
Which of the following statements regarding world trade and foreign direct investment since 1970 is incorrect? a. Global FDI has been growing relative to global production. b. Global trade has been growing relative to global production. c. Global trad
c. Global trade in final goods has been growing relative to global trade in intermediate goods.
Which of the following statements concerning the US current account deficit is correct? a. The CA deficit reflects the fact that the US is using more goods and services than it is producing. b. Expressed as a percentage of GDP, the CA deficit has remai
a. The current account deficit reflects the fact that the United States is using more goods and services than it is producing.
Which of the following best summarizes the post WWII behavior of the global price of primary products relative to the global price of manufactured products? a. The relative price of primary products generally fell. b. The relative price of primary produ
c. While there are were fluctuations, the relative price of primary products did not show a clear long run tendency to rise or fall.
Suppose a country can produce cows and/or corn. It does so using three parcels of land, each differing in its ability to supply these goods. The table below summarizes production possibilities on each parcel. (For ex, parcel A can produce 1 cow or 3 bushe
e. Only parcels B and C will be devoted to cow production.
Which of the following conditions is not necessary for an economy to be in competitive equilibrium? a. Producers must be paying each factor the value of its marginal product. b. The marginal rate of transformation (MRT) between goods on the production
d. Capitalists and workers must be equally well off.
Consider a Ricardian model with two identical countries and two goods. If the production of good Y is subject to sector-wide increasing returns to scale, and the production of good X is subject to sector-wide constant returns to scale: a. Opening to tr
d. Opening to trade will help both countries unless both continue to produce Y.
When President Jefferson imposed a trade embargo during the Napoleonic wars, a. the prices of commodities imported by the U.S. rapidly rose. b. the prices of U.S. export commodities rose in response. c. the volume of exports fell off, but imports remai
a. the prices of commodities imported by the U.S. rapidly rose.
Which of the following statements regarding rates of growth in world trade and foreign direct investment (FDI) since 1970 is correct? a. Relative to global production, FDI has been stable, while trade has been shrinking. b. Relative to global producti
d. Both trade and FDI have been growing relative to global production.
Which of the following statements concerning the United States current account deficit is not correct? a. The current account deficit reflects the fact that the United States is purchasing more goods and services than it is producing. b. The current a
b. The current account deficit could be eliminated with a modest depreciation in the Chinese yuan.
Referring to the Edgeworth box above, which of the following statements is correct? a. Good X is more capital-intensive than good Y. b. Production of good Y is higher at point A1 than at point A2. c. Point A1 corresponds to a point inside the productio
b. Production of good Y is higher at point A1 than at point A2.
5. Ignore the foreign wage (wforeign) for this question. Which of the following is a likely consequence of an increase in the world price of industrial goods? a. an increase in the ratio of wages to the price of industrial goods. b. a reduction in the
d. an increase in the price of capital (r) relative to the price of industrial goods.
Holding world prices constant, suppose that migrant labor becomes available from a neighboring country at the wage rate wforeign . If the government allows domestic employers to hire these migrant workers, which of the following is not a likely consequ
a. an increase in the total income of domestic (non-migrant) workers.
Under the assumptions of the Heckscher-Ohlin model, if a small, open economy manages to accumulate more capital, a. it will expand production of both goods. b. it will expand production of the capital-intensive good and reduce production of the other
b. it will expand production of the capital-intensive good and reduce production of the other good.
The textbook version of the Heckscher-Ohlin theorem concerns two countries (A and B) that produce two goods (X and Y) using two factors (K and L). It states that, if country A has less capital per worker than country B, and if X production is less capi
a. Country A will export X to B in exchange for Y.
Under the assumptions of the Ricardian model with increasing returns to scale in one sector, going from autarky to free trade: a. will always increase national welfare b. will always reduce national welfare c. can hurt national welfare if a country re
c. can hurt national welfare if a country reduces, but does not shut down, production in the increasing returns sector.
Consider a competitive economy that produces two goods (X and Y) and a production possibility frontier that is concave toward the origin (i.e., bowed outward). If consumers are at a point on their indifference curves where the slope exceeds y x P P
producers will want to shift into X production out of Y production, and consumers will want to increase the ratio of their X consumption to their Y consumption.
If a country wishes to encourage production in the software industry, perhaps because it generates public knowledge, which type of policy is best from a welfare perspective? a. A tariff on imports of software. b. A quota on imports of software. c. A s
d. A subsidy for production of software.
According to U.S. law, a foreign producer is guilty of dumping if a. it is selling its product in the U.S. market at a price above the price it charges in its home market. b. it is selling its product in the U.S. market at a price below its marginal pr
c. it is selling its product in the U.S. market at a price below its average production costs.
Tests of the factor content theorem reveal that: a. countries tend to export their scarce factors. b. globally, there is far less trade in factors than predicted by the theory. c. Canada and the U.S. trade far more than predicted by theory. d.. all co
b. globally, there is far less trade in factors than predicted by the theory.
The diagram below depicts the domestic market for tomatoes in the presence of a tariff. The world price of tomatoes is identified as Pw, and the tariff rate is t: P domestic supply domestic demand (1+t)Pw Pw a b c d Q Which of the following stateme
a. The tariff generates revenues for the domestic government represented by area c.
According to the study discussed in class, the multilateral trade policy reforms negotiated during the Uruguay Round: a benefited the low income countries, at the expense of the high income countries. b. benefited the low income countries at the expens
c. increased global income by a modest (less than 1 percent) amount.
The following two questions refer to the graph below, which depicts the effect of a tariff on imports of good X:6) What tariff rate is consistent with the indicated slopes? a. 10 percent b. 20 percent c. 40 percent d. 50 percent e. none of the above
c. 40 percent
Which of the following statements concerning the graph is incorrect? a. The tariff encouraged production of X b. A tax on consumption of Y could have been used to generate the same adjustment in X production. c. The welfare effects of the tariff are r
b. A tax on consumption of Y could have been used to generate the same adjustment in X production.
Which statement about workers displaced by import competition in the U.S. is not correct? a. Those that take advantage of the Trade Adjustment Assistance program find much better jobs than those that simply re-enter the job market. b. When they find re
a. Those that take advantage of the Trade Adjustment Assistance program find much better jobs than those that simply re-enter the job market.
The United States has recently re-imposed quotas on apparel imports. Which of the following statements concerning this policy is incorrect? a. The quotas are an example of “escape clause” (section 201) protection. b. The quotas are not inconsistent
c. The quotas put the U.S. at odds with the European Union, which has refrained from limiting imports of apparel from China.
A large country with a comparative advantage in good Y is debating whether to impose an export tax on good Y or an import tariff on good X. Which of the following statements comparing these policies is correct? a. An export tax puts downward pressure o
d. Qualitatively, an export tax on Y has the same effects on domestic production, consumption and government revenues as an import tariff on X.
Which of the following statements best summarizes recent trends in international trade and foreign direct investment (FDI)? a. Economies are becoming increasingly self-reliant, and so both trade and FDI have been falling. b. Increasingly, firms have b
c. Both trade and FDI have been growing more rapidly than global production, but FDI has outstripped trade.
Suppose two countries begin trading with each other, and one of the goods they trade is subject to increasing internal returns to scale at the industry level. Which of the following statements is correct? a. These countries will gain from the trade onl
d. Production of the good subject to increasing returns will tend to be concentrated in one country.
Suppose two countries produce and consume X and Y. If these countries go from autarky to free trade with one another, and the ratio of X consumption to Y consumption in each country is unaffected, the gains from trade must be coming from: a. gains from
a. gains from specialization.
When a country’s terms of trade improve: a. the global price of its exported good rises relative to the global price of its imported good. b. the terms of trade for its trading partners must have improved as well. c. it is usually a result of a glob
a. the global price of its exported good rises relative to the global price of its imported good.
Evidence on the factor content of trade flows suggests that: a. countries typically export the factors in which they are poorly endowed. b. there is far less implicit trade in factors than the Factor Content Theorem predicts. c. globally, the factor co
b. there is far less implicit trade in factors than the Factor Content Theorem predicts.
Suppose a small country produces and trades two goods—food and clothing—using labor and capital. Food is relatively labor-intensive and, under autarky, the domestic price of food (relative to clothing) is lower than the global price of food (relativ
a. food production will increase and clothing production will decrease.
It depicts an economy that produces clothing and food. Capital and labor are used for clothing production, while land and labor are used for food production. Labor is mobile across sectors, but capital and land are only useful in the production of clot
c. the wage rate will go up relative to the prices of both food and clothing
Now assume there is no change in the capital stock, but the Workers’ Rights Consortium manages to impose a minimum wage (wmin) in the clothing industry, where production is dominated by multinationals. The probable effect is to: a. raise wages in bot
d. raises wages in the clothing industry, but reduce wages in the food industry.
The Multi-fiber Arrangement was: a. a program initiated by the World Trade Organization to stabilize global trade in textiles and apparel. b. a set of bilateral agreements that limited textile and apparel exports by developing countries to developed c
b. a set of bilateral agreements that limited textile and apparel exports by developing countries to developed countries like the United States.
If the German company Krup were to sell its coffee makers to U.S. consumers at prices below those it charged to German consumers, and if U.S. producers of coffee makers were to seek tariffs on imported Krup coffee makers, what provision of U.S. law woul
b. Anti-dumping laws.
The diagram above (graph c) depicts the general equilibrium effects of a tariff on X imports. Which of the following statements concerning this diagram is incorrect? a. It shows that the welfare loss Ub – Uc could have been avoided if a production tax
b. It shows that welfare falls from Ua to Ub when the country moves from free trade to the tariff .
Which of the following is most likely to characterize an industry that makes horizontal multinational investments abroad? a. It produces standardized products using well-known technologies. b. Its production processes exhibit strong returns to scale at
c. Its products involve significant research and development.
Which of the following statements concerning the WTO is incorrect? a. Unlike the GATT, the WTO deals with labor standards. b. The WTO is better able to enforce trade agreements than the GATT. c. The WTO deals with trade-related aspects of intellectual
a. Unlike the GATT, the WTO deals with labor standards.
According Sachs and Warner (1995), countries with relatively low trade barriers (i.e., “open” economies): a. have grown more slowly than “closed” economies. b. have tended to have other macro problems. c. are located in Africa. d. have grown
d. have grown more rapidly than “closed” economies.
According to the model of strategic trade policy developed in class, the predicted effect of a production subsidy for Airbus is: a. an increase in production by both Airbus and Boeing. b. an increase in production by Airbus, and a reduction in producti
b. an increase in production by Airbus, and a reduction in production by Boeing.
Suppose the government of Examistan wishes to encourage chocolate production because it smells good. In terms of social welfare, the most efficient way to accomplish this objective is with: a. a tariff on imports of chocolate. b. a tax on exports of n
d. a subsidy to producers for chocolate production.
Economists who have tested the factor content theorem have found: a. It dramatically understates the volume of implicit trade in factors. b. It dramatically overstates the volume of implicit trade in factors. c. It accurately predicts the volume of imp
a. It dramatically understates the volume of implicit trade in factors.
Suppose there are two goods in the world, X and Y, and two factors of production, human capital (H) and unskilled labor (L). Further suppose that the unit revenue isoquants for these two goods, given world prices, are as depicted below. Then, if a count
b. This country will specialize in the production of good Y and its relative wage for unskilled labor (wL / wH ) will exceed ½.
Which of the following statements concerning the Multi-fiber Arrangement (MFA) is correct? a. The arrangement encouraged apparel manufacturers in the United States to “dump” cheap shirts in developing countries. b. The developing countries insiste
d. This arrangement placed quantitative restrictions on developing countries’ exports of textiles and apparel to the United States and the European Union.
According to Lori Kletzer, which of the following does not describe those workers who are most vulnerable to job loss from heightened import competition? a. They are younger than average. b. They have less education than average. c. They are more like
a. They are younger than average.
According to the Stolper-Samuelson theorem, when there are two goods and two factors of production (labor and capital): a. An increase in the price of the labor-intensive good will drive up the relative price of labor (w/r). b. An increase in the supp
a. An increase in the price of the labor-intensive good will drive up the relative price of labor (w/r).
After the Uruguay round of trade negotiations was completed in 1995: a. average tariffs were lower in developing countries than in industrialized countries. b. average tariffs in industrialized countries were typically around 20 percent. c. tariffs in
c. tariffs in the United States, Japan and the European Union still exceeded 100 percent for selected agricultural products.
The diagram below depicts the domestic shoe market in the presence of a quota. The world price of shoes is identified as Pw:(graph e) Which of the following statements concerning this diagram is correct? a. The area a+b represents the deadweight loss t
c. Relative to free trade, this quota has induced some additional domestic production.
The graph f below depicts the effect of a tariff on imports of good X. Which of the following statements concerning this graph is incorrect? a. If producers had been moved from point A to point B with a production subsidy rather than a tariff, social
d. The tariff induces consumption at point D.
The Factor Content Theorem states that, under the assumptions of the Heckscher-Ohlin model: a. Countries effectively expand their factor stocks through trade. b. Countries with large factor stocks benefit more from trade than countries with meager fac
c. Each country implicitly exports the factor(s) with which it is relatively well-endowed.
Each of the following statements concerns trends in the terms of trade for developing countries since World War I. Which is correct? a. The terms of trade have steadily worsened. b. The terms of trade have steadily improved. c. The terms of trade have
d. There has been no clear tendency for the terms of trade to improve or worsen.
If a large country imports cotton, and it imposes tariffs on its cotton imports: a. it may drive down the world price of cotton. b. it may drive up the world price of cotton. c. it will necessarily worsen its own terms of trade. d. it will discourage
a. it may drive down the world price of cotton.
Which of the following has grown most rapidly during the past 30 years? a. global exports b. global imports c. global production (GDP) d. global foreign direct investment flows
d. global foreign direct investment flows
Which of the following is not a reason why trade liberalization might cause a country to grow more rapidly? a. Trade liberalization might give its producers access to a rapidly growing menu of foreign intermediate and capital goods. b. After liberaliz
d. The country’s comparative advantage might lie in goods with little scope for learning by doing.
When a country goes from autarky to free trade, there are typically gains from specialization because: a. Consumers adjust the proportions in which they consume goods. b. Domestic producers adjust the proportions in which they produce goods. c. The va
b. Domestic producers adjust the proportions in which they produce goods.
Which of the following was not a general obligation of signatories to the GATT, and more recently of WTO members? a. To honor the principles of non-discrimination—national treatment and most-favored nation (with a few exceptions) b. To reduce at lea
b. To reduce at least half of one’s trade barriers during each major round of negotiations (with a few exceptions).
(graph g)It depicts labor market equilibrium in the small open economy of Comercio, which produces food and clothing. Food is produced with land and labor (L); clothing is produced with capital and labor. Land is specific to food, capital is specific t
a. make capitalists better off and land owners worse off.
Now suppose Comercio has a comparative advantage in clothing, and that the wage depicted above (w) is far less than the market-clearing wage in the countries to which Comercio exports. If anti-sweatshop activists in these destination markets successfull
b. profits (i.e., producer surplus) for capital owners in Comercio will fall..
According to U.S. law, a foreign producer is guilty of dumping if a. it is selling is product in the U.S. market at a price above the price it charges in its home market. b. it is selling its product in the U.S. market at a price below its marginal pro
c. it is selling its product in the U.S. market at a price below its average production costs.
Which of the following is not likely to be necessary for multinational investments to take place? a. The parent company must have some source of profits that cannot be replicated by competitors—be it product, process, or brand reputation. b. There m
Which of the following is not likely to be necessary for multinational investments to take place? a. The parent company must have some source of profits that cannot be replicated by competitors—be it product, process, or brand reputation. b. There must be strong plant-level increasing returns to scale in production. c. The parent company must be able to reap some cost advantage by producing in the foreign market, as opposed to producing at home and exporting to the foreign market. d. There must be some “internalization advantage” that makes it more profitable to own foreign production facilities than to deal with others who operate such facilities under licensing or subcontracting agreements.
Suppose Cramistan is a small, open economy that satisfies the assumptions of the Heckscher-Ohlin model. It produces good X (which is labor-intensive) and good Y (which is capital-intensive). An increase in the efficiency with which this country produce
b. increase the relative price of capital in Cramistan.
There is a 37% production subsidy on brooms in the US. Assuming that the US economy is large enough that it affects World broom prices, what is the effect of this subsidy on: World price of brooms US price of brooms Broom consumption Broom produc
decrease decrease increase increase decrease
The Leontief paradox says that: 1. The input-output table in the U.S. is labor intensive. 2. The Stolper-Samuelson Theorem works in reverse in the U.S. 3. The sign test fails for most countries. 4. U.S. exports are labor intensive relative to U.S. imp
4. U.S. exports are labor intensive relative to U.S. imports.
The Stolper-Samuelson theorem says that: 1. An expansion in the quantity of one factor of production leads to an increase in the quantity produced of both goods 2. Factor prices are equalized through trade 3. An increase in the relative price of a goo
3. An increase in the relative price of a good increases the real price of the factor used intensively in its production
The Rybczynski theorem says that: 1. An increase in the international price of both final goods leads to an increase in the price of a country’s abundant factor 2. An increase in the endowment of a factor leads to an increase in the good that uses t
the price of a country’s abundant factor 2. An increase in the endowment of a factor leads to an increase in the good that uses that factor intensively and a decline in the other good
Which of the following has not been seriously proposed as an explanation for the raising skill premium in the U.S. over the 80s and 90s: 1. A contraction in the supply of skilled workers 2. The opening up of China to trade with the rest of the world 3
1. A contraction in the supply of skilled workers
Outsourcing in manufacturing is ruled by forces that are completely different from those that determine trade patterns
False
In a small country, a production subsidy is a more efficient way to help producers than a tariff
True
⬢ Productivity growth in China may actually improve the U.S. terms of trade
True
An increase in the stock of capital in an open economy that takes goods prices as given leads to a decline in the return to capital
False
A small country benefits less from trade than a large country
False
In contrast to an import tariff, a consumption tax does not lead to an increase in domestic production
True
A large country benefits from a small enough tariff
True
Outsourcing may in principle deteriorate the terms of trade for the US
True
n the Ricardian model, the terms of trade can be so bad for a country that it would actually be worse off trading than in autarky.
False
It is a general proposition of trade theory that more jobs are created than destroyed by trade, so that trade liberalization is an effective tool to reduce unemployment.
False
An overall improvement in a country’s technology (e.g., its productivity increases by 10% in all goods) may worsen that country’s terms of trade
True
Immigration in an open economy necessarily leads to a decline in the wage.
False
In principle, free trade is a reasonable proposition. But in the real world international prices are distorted by export subsidies imposed by rich countries. If this is true for some particular good, countries should seriously consider protection for s
False
For a large country, a small tariff may increase welfare, but this is bad for the world as a whole.
True
Countervailing duties are special trade taxes allowed by the WTO in cases where a country can show that foreign companies are dumping their goods in their markets.
False
If there is a domestic monopoly in a good, then a tariff that leads to imports of M is equivalent to imposing a quota of M and auctioning off the corresponding import licenses.
False
What are the two models of comparative advantage:
The Ricardian Model and the Hecksher Ohlin Model
Wat is another reason for trade?
Economies of Scale (ES)
The gains from trade arise from what according to CA in the ricardian and HO models?
specialization according to CA and from exploiting economies of scale and benefiting from more variety in the ES model.
True or False: It's not about jobs:jobs are destroyed in import competing sectors, but created in exporting sectors,with results that should be neutral.
True
T or F: The size of the GT depend on the terms of trade (TOT)
True
T or F: The GT are large the more the international prices differ from autarky prices.
True
T or F: GT increases as TOT improves
True
What determines TOT?
Size, productivity, preferences
Althought the economy as a whole gains, some groups may lose.
True
Which is the short run approach and which is the long run? What do they serve?
Short run- specific factors long run- HO They serve to think about the distributional implications of immigration and FDI NOTE: The ricardian and ES model have no distributional implications
True or False: Rising costs of trade and communication together with increased fragmentation have generated new opportunities for trade in intermediate goods and services.
False! Falling costs of trade and communication, together with increased fragmentation, have generated new opportunities for trade in intermediate goods and services.
The motivation for offshoring is the same as for regular trade: Ricardo, HO
True
Offshoring can deteriorate a country's TOT
true
Offshoring can decrease skill premium in both countries
False! Offshoring can INCREASE skill premium in both countries
Tariff = production subsidy and ____
consumption tax
Tariff= quota under ____ competition , but with a domestic monopoly, a quota is ____
perfect; worse
Under WTO: most favored nation (except PTA) countervailing and anti dumping duties
True
Export subsidies do not lead to a terms of trade deterioration, in addition to consumption and production distortions
FALSE! They do lead to a terms of trade deterioration in addition to consumption and production distortions.
Export subsidies help the rest of the world, but they are not an efficient means to do so
True
Countervailing duties don't make sense in terms of aggregate welfare
True
Apart from TOT gains, a tariff may improve welfare if there are domestic distortions, such as externalities (infant industry)
True
But targeting principle says to go directly to the distortion – If there is a production externality, a production subsidy is better than a tariff
True
Ranking Policies: Similarly, – If goal is to restrict imports, quota is better than a VER – If goal is to increase production, production subsidy is better than export subsidy – If goal is to help others, export subsidies are dominated by direc
T
If countries attempt to improve their TOT through optimal tariffs, all may end up worse off (Prisoner's Dilemma) • Trade agreements can be seen as a way to prevent such a “trade war” • Enforcement provided through reputation, trigger/punishm
Trade Agreements
In certain industries with large ES, “strategic trade policy” may allow a country to capture some “rents” • But implementing such a policy is tricky • ES are another reason why there is trade, and lead to gains through lower costs and mo
Economies of Scale
The contraction in the US deficit is always a good thing.
False
The slope of the PPF can be expressed as the ration of the quantities of good 1 and good 2.
False
France and Italy only trade with each other. Each country produces wine and bread. The production of bread is relatively capital intensive while the production of wine is relatively labor intensive. France is relatively abundant in capital and italy is r
False

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