InternationalEconomics,8e(Krugm

an)

Chapter11

ControversiesinTradePolicy

1)

Theexistenceofpositiveexternalitiesduetotheimpossibilityoffullappropriability

A)

supportstheconclusionsoftheHeckscher-Ohlinmodel.

B)

rejectstheusefulnessofgovernmentprotectionism.

C)

supportstheconceptthatthegovernmentshouldsupportonlyhightechindustries.

D)

providessupportforgovernmentprotectionism.

E)

Noneoftheabove.

Answer:

D

2)

TheUnitedStates

A)

doesnotprovidemoresupportforR&Dascomparedtootherformsofinvestment.

B)

providessupportforR&DbyimposinghightariffsonR&Dintensiveproducts.

C)

providessupportforR&Dbyprovidingdirectsubsidiesforsuchactivities.

D)

providessupportforR&Dthroughtaxlegislation.

E)

Noneoftheabove.

Answer:

D

3)

TheBrander-Spencermodelidentifiedmarketfailureincertainindustriesdueto

A)

unfaircompetition.

B)

wildcatdestructivecompetition.

C)

environmentalnegativeexternalitiesassociatedwithpollution.

D)

limitedcompetition.

E)

Noneoftheabove.

Answer:

D

4)

IntheBrander-Spencermodelthesubsidyraisesprofitsbymorethanthesubsidybecauseof

A)

the"multiplier"effectofgovernmentexpenditures.

B)

themilitary-industrialcomplex.

C)

theforwardandbackwardlinkageeffectsofcertainindustries.

D)

thedeterrenteffectofthesubsidyonforeigncompetition.

E)

Noneoftheabove.

Answer:

D

5)

Iffirmsinanindustryaregeneratingknowledgethatotherfirmscanusewithoutpayingforit,thisindustryischaracterizedby

A)

socialcoststhatexceedprivatecosts.

B)

socialbenefitsthatexceedprivatebenefits.

C)

socialcoststhatexceedsocialbenefits.

D)

privatebenefitsthatexceedsocialbenefits.

E)

Noneoftheabove.

Answer:

B

6)

Itisarguedthathigh-techindustriestypicallygeneratenewtechnologiesbutcannotfullyappropriatethecommercialbenefitsassociatedwiththeirinventionsordiscoveries.Ifthisistruetheninordertomaximizeacountry'srealincome,thegovernmentshould

A)

taxthehigh-techfirms.

B)

subsidizethehigh-techfirms.

C)

protectthehigh-techfirms.

D)

BothBandC.

E)

Noneoftheabove.

Answer:

B

7)

Ineffect,theU.S.doessubsidizehigh-techfirmsbysubsidizingR&D.Thisisdonethrough

A)

thebudgetoftheDepartmentofEducation.

B)

systematicprotectionthroughthelevyingoftariffs.

C)

systematicprotectionthroughtheestablishmentofNTBs.

D)

relativelyaccelerated"depreciation"ofR&DinvestmentintheFederaltaxcodes.

E)

Noneoftheabove.

Answer:

D

8)

SpencerandBrander'smodelhighlightstheexistenceof

A)

aircraftindustries.

B)

excessreturnspresentinhighlycompetitivemarkets.

C)

excessreturns,orrents,availableinnon-competitivemarkets.

D)

thefutilityofgovernmentbureaucrats'attemptstobuildanairplane.

E)

Noneoftheabove.

Answer:

C

9)

ThereasonAirbussucceededintheBranderSpencerexampleisthat

A)

theEuropeangovernmentmadeanexplicitsubsidyoffer,buttheU.S.governmentdidnot.

B)

Airbus'priceswerebetterwhenadjustedforqualityandwarrantyservices.

C)

Boeingtraditionallyrefusedtoundertakeanyexchangerateriskinitstransactions.

D)

theU.S.actedinaccordancewithitsideologicalrelianceonmarketsolutions,whereastheEuropeansignoredmarketandtechnologicalfactors.

E)

Noneoftheabove.

Answer:

A

10)

Theinvocationofbeggar-thy-neighborargumentswithrespecttoindustrialpolicies

A)

strengthenstheargumentforsubsidies.

B)

makessenseiftheinternationalKeynesianmultipliersexceedunity.

C)

appliesonlytorichcountriesmostofwhosetradepartnersareverypoorcountries.

D)

weakenstheargumentforsubsidies.

E)

Noneoftheabove.

Answer:

D

11)

WhenoneappliestheHeckscher-Ohlinmodeloftradetotheissueoftrade-relatedincomeredistributions,onemustconcludethatNorthSouthtrade,suchasU.S.-Mexicotrade,

A)

musthelplowskillworkersonbothsidesoftheborder.

B)

islikelytohurthigh-skilledworkersintheU.S.

C)

islikelytohurtlow-skilledworkersintheU.S.

D)

islikelytohurtlow-skilledworkersinMexico.

E)

Noneoftheabove.

Answer:

C

12)

Theproposalthattradeagreementsshouldincludeasystemwhichmonitorsworkerconditionsandmaketheresultsavailabletoconsumersintherichimportingcountry

A)

isconsistentwiththeInvisibleHandparadigm.

B)

isconsistentwiththemarketfailureapproach.

C)

isconsistentwiththeRicardiantheoryofcomparativeadvantage.

D)

isconsistentwiththescaleeconomiesapproachtotradetheory.

E)

Noneoftheabove.

Answer:

B

13)

Laborstandardsintradearetypicallyopposedbymostdevelopingcountrieswhobelievethattheywillbeused

A)

tofurtherneo-imperialistcolonialexploitation.

B)

tochargethesecountrieswithcrimesagainstchild-laborstandardsattheHague.

C)

asaprotectionisttoolbyimport-competingproducersinindustrialcountries.

D)

asameansofspreadingU.S.CorporateValuesanddestroyinglocalcultures.

E)

Noneoftheabove.

Answer:

C

14)

TheWTOseemsattimestobeinterferingindomesticpolicysince

A)

thelinebetweendomesticpoliciesanddefactorprotectionismisoftenfuzzy.

B)

itisasupra-nationalorganizationwiththepowertooverturngovernments.

C)

itdetermineswhichnationsmaytradewhatwithwhom.

D)

itpunishesnaughtynations.

E)

Noneoftheabove.

Answer:

A

15)

ItmaybearguedthatJapan'sexplicitpromotionofitsmicrochipindustrywasanexcellentexampleofsuccessfulindustrialpolicy.Whatcriteriawouldyouapplytodeterminewhethersuchapolicyisorisnotsuccessful?Judgingfromyourownstatedcriteria,wasJapan'sexercisesuccessful?Whyorwhynot?Whatinformationwouldagovernmentrequireinordertoincreasetheprobabilitythatitsindustrialpolicywouldpromotelongtermself-generatedeconomicgrowth?

Answer:

ItisarguedthatJapan'ssubsidiestoitsnascientmicrochipindustrywasanimportantfactorinputtingJapanontheworldmapinthisarea.However,aminimalcriteriaforasuccessfulindustrialpolicywouldbethattheinfantindustrymature,andthatitprovetobeaprofitableareaofthecountry'scomparativeadvantage.Inthiscase,onemightarguethatthelatterpartoftheabovestatementwasnotfulfilled,sincethemicrochipindustrywasadoptedbysomanycountries,thatitbecamea"commodity."Thatis,itbecameaproductwithaverylowprofitmargin,whichwasnotreallyagooduseofJapan'sresources,giventheiralternativeuses.

16)

Refertotheabovetable.SupposeAirbusissettoproducetheaircraftbeforeBoeing.Whichcompanywillenterthemarket?

Answer:

AirbuswillproduceandBoeingwillnot.

17)

Refertotheabovetable.Supposebothgovernmentsoffertheirrespectivecompanyasubsidyof$4(million).

Answer:

OnlyAirbuswillproducesinceitknowsthatthesubsidywouldnotbesufficientlylargetoenticeBoeingtoalsoenterthemarket.

18)

Refertotheabovetable.Supposebothgovernmentsoffertheirrespectivecompanya$10millionsubsidy.

Answer:

Bothcompanieswouldenterthemarket,sinceeachknowsthatregardlessoftheother'sdecision,itwillmakesomeprofithere.

19)

Refertotheabovetable.SupposetheU.S.government(butnotEurope)offersa$10millionsubsidy?

Answer:

InthiscaseAirbuswoulddecidenottoenterthemarketsinceitknowsBoeingwill,andthatthereforeitsownproductionwillentailalossof$5million.

20)

Refertotheabovetable.HowcouldtheU.S.governmentjustifyitsdecisiontoofferasubsidytoaprofitableandsuccessfulbusiness?

Answer:

Itcouldpointoutthatthis$10millionpump-primingexpenditureresultsinaprofitof$110million.IfBoeingpaidamarginalincometaxof20%,thiswouldnetthegovernment$55million,whichismorethan5timestheoriginalsubsidy,sothatthedecisionmaybejustifiednotonlyintermsofbenefit/costconsiderations,butevenintermsofpurebudgetaryterms.

21)

Intoday'sworldmarkets,poordevelopingcountriestendtorelyprimarilyonexportsof

A)

agriculturalproducts.

B)

primaryproducts.

C)

mineralproducts.

D)

manufacturedproducts.

E)

Noneoftheabove.

Answer:

D

22)

Mostdevelopingcountriesopposeincludinglaborstandardsintradeagreementsbecause

A)

theybelievethiswouldinvolvealossoftheirnationalsovereignty.

B)

theybelievethiswouldlimittheirabilitytoexporttorichmarkets.

C)

theybelievethiswouldcreateanunevenplayingfield.

D)

multinationalcorporationscontrolthem.

E)

Noneoftheabove.

Answer:

A

23)

LowwagesandpoorworkingconditionsinmanyU.S.tradepartners

A)

provethatthegains-from-tradeargumentsoftheRicardianmodelarefalse.

B)

maybeafactoflife,buteconomistsdon'tcare.

C)

arefactsemphasizedbyU.S.laborinitscontractnegotiations.

D)

provethatthegains-from-tradeargumentsoftheRicardianmodelaretrue.

E)

Noneoftheabove.

Answer:

C

24)

ThefactthatclothingsoldinWal-MartareproducedbyverypoorlypaidworkersinHonduras,isafactthatiftakenintoaccount

A)

wouldprovetoeconomiststhattheRicardianmodelofcomparativeadvantageisfalse.

B)

wouldprovetoeconomiststhattheequal-valueintradeconceptsummedupinthetradetrianglesisincorrect.

C)

provestoeconomiststhattradeisanegativesumgame.

D)

provestotheAnti-GlobalizationMovementthattradeisanegativesumgame.

E)

Noneoftheabove.

Answer:

D

25)

Facedwiththeevidenceofpoorworkingconditionsandlowwagesinthebordermaquiladoras,Economists

A)

shrugtheirshouldersandignoretheissue.

B)

agreethattradetheoryisthusprovenhollowandinternallyinconsistent.

C)

arguethatU.S.consumersshouldnotconsumelettuce.

D)

arguethatthepoorconditionsandlowwagesareactuallyimprovementsfortheMexicanworkers,andmaybecitedasgains-from-trade.

E)

Noneoftheabove.

Answer:

D

26)

TheShipbreakersofAlangutilizemuchlaborandlittlecapital,therebysupportingtheapplicabilityofthe

A)

factorproportionsexplanationofthesourcesofcomparativeadvantage.

B)

specificfactortheoryofcomparativeadvantage.

C)

monopolisticcompetitiontheoryofcomparativeadvantage.

D)

scaleeconomiestheoryofcomparativeadvan