Download questions on chapter 9 of krugman-obstfeld eco 41 udayan roy

QUESTIONS ON THE POLITICAL ECONOMY OF TRADE POLICY (CHAPTER 10 OF KRUGMANOBSTFELD) ECO 41 UDAYAN ROY
Please find the answers on your own by actually reading the chapter.
Which of the following is true?
a. Although the economic arguments for free trade are strong and the economic
arguments against free trade are weak, it is politically difficult, as the median voter
theory explains, for a country to remove its tariffs unilaterally.
b. Although the economic arguments for free trade are strong and the economic
arguments against free trade are weak, it is politically difficult, as the theory of
collective action explains, for a country to remove its tariffs unilaterally.
c. The economic arguments for free trade are weak and the economic arguments against
free trade are strong. This is why tariffs tend to be popular.
d. The economic arguments for free trade are strong and the economic arguments against
free trade are weak. This is why tariffs tend to be unpopular.
It is politically harder for country A to reduce its tariffs (on imports from country B) unilaterally
than by means of a bilateral tariff-reduction agreement with country B. This is because
a. Free trade will maximize country A’s national welfare (or, total surplus) only if its trading
partners also practice free trade.
b. Country A’s exporters will form an organized group in support of tariff reduction by
country A only when there is a prospect of a bilateral tariff-reduction agreement with
country B.
c. Country A’s import-competing industries will form an organized group in support of
tariff reduction by country A only when there is a prospect of a bilateral tariff-reduction
agreement with country B.
d. None of the above.
The logic of the Prisoner’s Dilemma game, when applied to tariff reduction, suggests that
a. Although every country would be better off if all countries chose free trade, the
imposition of tariffs may be rational for each country. Therefore, the only way to
achieve free trade may be through a treaty.
b. It is usually rational for each country to adopt free trade unilaterally. Therefore, multicountry free trade treaties are unnecessary.
c. It is usually rational for each country to impose tariffs on imports. Therefore, multicountry free trade treaties are unlikely to ever be signed.
d. None of the above.
The huge tariff reductions that have happened since World War II were mainly
a. The result of unilateral tariff reductions by countries that became intellectually
convinced that free trade was a good idea.
b. The result of bilateral and multilateral tariff-reduction agreements among countries that
would have been unwilling to reduce tariffs unilaterally.
c. The result of the fact that the gains from free trade, which were earlier quite small,
suddenly became very large.
d. None of the above
Multilateral tariff-reduction agreements became more popular than bilateral agreements in the
post-World War II period because
a. The horrors of World War II convinced nations of the need for worldwide cooperation
b. A country’s exporters would be more likely to form an organized group to support a
reduction in that country’s tariffs when there is a prospect of broader access to markets
in a large number of countries than in just one other country.
c. Trade negotiations are easier for a large number of countries than for only two
countries
d. All of the above answers are correct
Which of the following is true?
a. It is against the GATT-WTO rules of international trade for country A to have lower
tariffs on imports from country B than on those from country C.
b. It is against the GATT-WTO rules of international trade for country A to have lower
tariffs on imports from country B than on those from country C. But if countries A and B
agree to have zero tariffs on each other’s products, then neither A nor B is required to
offer the same zero tariffs to country C.
c. According to the GATT-WTO rules of international trade, if countries A, B, and C charge
zero tariffs on each other’s products, they must also charge zero tariffs on all other
countries’ products.
d. All of the above.
Which of the following is true?
a. Two of the good aspects of a preferential trade agreement are trade creation and trade
diversion
b. Two of the bad aspects of a preferential trade agreement are trade creation and trade
diversion
c. A good consequence of a preferential trade agreement is trade creation and a bad
consequence is trade diversion
d. A bad consequence of a preferential trade agreement is trade creation and a good
consequence is trade diversion
Trade ____ is said to occur when ____ efficient producers of a good gain market share from
____ efficient producers because the former just signed a preferential trade agreement.
a. creation; less; more
b. diversion; less; more
c. creation; more; less
d. diversion; more; less
The efficiency case made for free trade is that as trade distortions such as tariffs are dismantled
and removed,
a) government tariff revenue will decrease, and therefore national economic welfare will
decrease.
b) government tariff revenue will decrease, and therefore national economic welfare will
increase.
c) deadweight losses for producers and consumers will decrease, hence increasing national
economic welfare.
d) deadweight losses for producers and consumers will decrease, hence decreasing
national economic welfare.
e) None of the above.
Answer: C
The opportunity to exploit economies of scale is one of the gains to be made from removing
tariffs and other trade distortions. These gains will be found by a decrease in
a) world prices of imports.
b) the consumption distortion loss triangle.
c) the production distortion loss triangle.
d) Both B and C.
e) None of the above.
Answer: E
Judging by the changes in the height of tariff rates in major trading countries, the world has
been experiencing a great
a) trade liberalization.
b) surge of protectionism.
c) lack of progress in the trade-policy area.
d) move towards regional integration.
e) None of the above.
Answer: A
The existence of marginal social benefits which are not marginal benefits for the industry
producing the import substitutes
a) is an argument supporting free trade and non-governmental involvement.
b) is an argument supporting the use of an optimum tariff.
c) is an argument supporting the use of market failures as a trade-policy strategy.
d) is an argument rejecting free trade and supporting governmental involvement.
e) None of the above.
Answer: D
The reason protectionism remains strong in the United States is that
a) economists can produce any result they are hired to produce.
b) economists cannot persuade the general public that free trade is beneficial.
c) economists do not really understand how the real world works.
d) the losses associated with protectionism are diffuse, making lobbying by the public
impractical.
e) None of the above.
Answer: D
The median voter model
a) works well in the area of trade policy.
b) is not intuitively reasonable.
c) tends to result in biased tariff rates.
d) does not work well in the area of trade policy.
e) None of the above.
Answer: D
The fact that trade policy often imposes harm on large numbers of people, and benefits only a
few may be explained by
a) the lack of political involvement of the public.
b) the power of advertisement.
c) the problem of collective action.
d) the basic impossibility of the democratic system to reach a fair solution.
e) None of the above.
Answer: C
The simple model of competition among political parties long used by political scientists tends
to lead to the practical solution of selecting the
a) optimal tariff.
b) prohibitive tariff.
c) zero (free-trad tariff.
d) the tariff rate favored by the median voter.
e) None of the above.
Answer: D
The political wisdom of choosing a tariff acceptable to the median U.S. voter is
a) a good example of the principle of the second best.
b) a good example of the way in which actual tariff policies are determined.
c) a good example of the principle of political negotiation.
d) not evident in actual tariff determination.
e) None of the above.
Answer: D
A game-theory explanation of the paradox that even though all countries would benefit if each
chose free trade, in fact each tends to follow protectionist policies is
a) trade war.
b) collective action.
c) prisoner's dilemma.
d) benefit-cost analysis.
e) None of the above.
Answer: C
The reason protectionism tends to be politically strong is that
a. The median voter is benefited by anti-free trade policies.
b. economists cannot persuade the general public that free trade is beneficial.
c. economists do not really understand how the real world works.
d. the losses associated with protectionism are usually spread over millions of individual
consumers, making lobbying by the public impractical.
e. None of the above.
The fact that trade policy often imposes harm on large numbers of people, and benefits only a
few may be seen as
a. Support for the median voter theory.
b. Evidence of the power of advertisement.
c. Support for the theory of collective action.
d. Proof of the basic impossibility of the democratic system to reach a fair solution.
e. None of the above.