Download Study Guide: Midterm 2

Study Guide: Midterm 2
Chapters 8-12, 14-15
Please look at your notes. Seriously… No, really…
Tariff and CS, PS, Tax revenue, dead weight loss etc…
Tariff: small vs. large country
Quotas and CS, PS, tax Revenue
Costs of Quotas
VER’s and other non-tariff barriers to trade
What are the costs to GDP from protection?
1st vs 2nd best outcomes in trade policy
CS, PS, tax revenue and social costs from tariff/domestic subsidy due to foreign trade
policy
National Defense and the Infant Industry
$ costs to protect a job
Dumping
Trade bloc types and welfare considerations
Trade Embargoes and welfare considerations
Irrelevant embargoes, embargoes that backfire and other failures of embargoes
Trade policy choices for LDC’s and challenges
Predicting primary product prices (I see alliteration in the future..)
Cartels
ISI vs. Export Promotion
FDI and MNE’s
Migration and Labor Markets
Ch. 8 - #6
Ch. 9 - #5
Ch. 10 - #8a, #14
Ch. 12 - #3, #5
Ch. 14 - #1, #3
Ch. 8
1. If a small country imposes a tariff on imported motorcycles, the surplus of domestic
producers of motorcycles will ____ and the surplus of domestic consumers of
motorcycles will _____.
A. Rise; rise
B. Fall; fall
C. Fall; rise
D. Rise; fall
Figure 8.1: The U.S. Market for shoes
2. Referring to figure 8.1, the revenue collected by the US government as a result of the
tariff on shoes is shown by area ____.
A. a
B. b
C. c
D. d
3. Referring to figure 8.1, what area measures the consumption effect of the tariff on
shoes?
A. a
B. b
C. c
D. d
4.
A tariff allows domestic producers of import-competing goods to:
(I) Expand their own production and sales
(II) Raise the price they charge
(III) Begin to export their product
A. I
B. I and II
C. I, II, and III
D. I and III
5. If a small country imposes a tariff on imported motorcycles, the world price of
motorcycles will _____ and the domestic price of motorcycles will ____.
A. Rise; rise
B. Fall; rise
C. Stay constant; rise
D. Stay constant; fall
Ch 9
1. Which of the following is a means of allocating import licenses by assigning the
licenses without competition, applications, or negotiation?
A. Fixed favoritism
B. Resource-using application procedures
C. Import-license auctions
D. Domestic content requirements
2. The most efficient method a government can use in allocating import licenses is:
A. Fixed favoritism.
B. A competitive auction.
C. Resource-using application procedures.
D. A free lottery
3. When a large country imposes a tariff:
A. World prices rise.
B. World prices fall.
C. Domestic prices fall.
D. Domestic production falls.
4. With a voluntary export restraint (VER), the economic rent created by the quantitative
limit on trade is collected by:
A. The government of the importing county.
B. Consumers in the importing country.
C. Producers in the importing country.
D. Exporting firms in the exporting country.
Ch 10
1. Tariffs imposed by a developing country:
A. May benefit the country because they represent an efficient mechanism for collecting
revenue, but are unlikely to benefit the rest of the world.
B. Can benefit both the country and the rest of the world by creating net social gains.
Such tariffs likely represent the most efficient means of government revenue for a
country with limited means of collecting income or sales taxes.
C. Will be as inefficient as tariffs imposed by developed countries.
D. Are likely to represent only a very small fraction of government revenues because the
volume of imports to developing countries is relatively small.
Ch 11
1. Which of the following is occurring when a firm lowers its price to limit the decline in
the quantity sold during a period of recession?
A. Persistent dumping.
B. Cyclical dumping.
C. Predatory dumping.
D. Seasonal dumping.
2. Which of the following is occurring when a firm with market power uses price
discrimination between markets to increase its total profit?
A. Persistent dumping.
B. Cyclical dumping.
C. Predatory dumping.
D. Seasonal dumping.
Ch 12
1.
Which of the following features does a common market have?
(I) Free trade among the members
(II) Common external tariffs
(III) Free movement of factors of production
(IV) Harmonization of all economic policies
A. I
B. I and II
C. I, II, and III
D. I, II, III, and IV
2. Which of the following features does a economic union have?
(I) Free trade among the members
(II) Common external tariffs
(III) Free movement of factors of production
(IV) Harmonization of all economic policies
A. I
B. I and II
C. I, II, and III
D. I, II, III, and IV
3. Who is harmed by a trade embargo?
A. Only the target country.
B. Only the country that initiates the embargo.
C. Both the target country and the country initiating the embargo.
D. The target country and those countries that did not join the embargo.
Figure 12.2: A trade embargo
4. Referring to figure 12.2, the embargo initiator(s) lose area ___ while the target country
losses ____.
A. b+c; a+c
B. a+c; b+c
C. a; b
D. a; b+c
Figure 12.1: The U.S. Market for Imported Wine
5. Referring to figure 12.1, if the United States imposes a $80 per case tariff on each case
of imported wine, how many cases of wine will the United States import and who will
they import from?
A. 15 million cases from Chile.
B. 22 million cases from France.
C. 10 million cases from France.
D. 10 million cases from Chile.
Ch 14
1. An example of policies designed to encourage the development of new industries
whose products can be readily exported would be:
A. Taxing exports of skilled-labor-intensive goods.
B. Subsidizing imports to the domestic market.
C. Providing subsidies to domestic industries that exploit the country's comparative
advantage.
D. Imposing tariffs on imports of skilled-labor-intensive goods.
2. The lack of an established legal system with contract laws and recognized property
rights:
A. Encourages direct foreign investment.
B. Favors manufacturing activities over primary product development.
C. Has eased the transition of the former countries of the Soviet Union to market based
economies.
D. Discourages private investment.
3. Engle's law states that as per capita incomes rise in the long run, demand shifts toward
__________ and away from __________.
A. Luxuries; staples.
B. Staples; luxuries.
C. Imports; exports.
D. Exports; imports.
4. Long-run trends in relative primary product prices suggest that the countries that rely
on the production of primary products will:
A. Experience deterioration in their terms of trade.
B. Experience improving terms of trade.
C. Lose market share to more diversified economies.
D. Soon be forced to import synthetic substitutes.
5. Which of these statements about cartel pricing power is true?
(I) The more inelastic is the demand for the cartel's product, the lower is the price.
(II) The larger the share of world production controlled by the cartel, the higher is the
price.
(III) The larger is the elasticity of supply of non-cartel members, the lower is the price.
A. I only
B. I and II
C. II and III
D. I, II, and III
6. Studies comparing growth rates of countries practicing ISI with growth rates of
countries using policies that emphasize exporting have found:
A. Little difference in the two groups.
B. Higher growth rates in those countries using policies that emphasize exporting.
C. Higher growth rates in those countries practicing ISI.
D. No evidence that either type of policy has been successful.
Ch 15
1. Foreign Direct Investment (FDI) refers to:
A. The flow of funding provided by an investor or lender to establish or acquire a foreign
company or to expand or finance an existing foreign company that the investor owns and
controls.
B. Foreign investments that do not involve management control.
C. Any investment in foreign stocks or bonds.
D. Foreign investments made by a nation's central bank.
2. Foreign direct investment from the parent company generally provides a small
percentage of foreign affiliates total funding because:
A. The returns on such investment are taxed at too high a rate.
B. The parent firm wants to reduce the risks to which its foreign activities are exposed.
C. Foreign governments prohibit foreign investment in their domestic firms.
D. Domestic governments prohibit investment in foreign firms by their domestic firms.
3. Which of the following are risks faced when undertaking FDI?
(I) Exchange rate risk
(II) political risk
(III) capital gains taxation risk
A. I only
B. II only
C. I and II
D. I, II, and III
4. Among the inherent disadvantages a multinational enterprise has is:
A. It does not initially have the native understanding of local laws, customs, procedures,
practices, and relationships.
B. It does not have the same assets as those held by its local competitors in the host
market.
C. It does not have the same comparative advantages as those of its local competitors in
the host market.
D. It is doubled-taxed as it must pay taxes to two governments.
5. Import tariffs and non-tariff barriers suggest that:
A. FDI is preferable to exporting.
B. Exporting is preferable to FDI.
C. Exporting is preferable to licensing local firms in the foreign markets.
D. Restrict the ability of MNE's to expand their operations.
6. Concern about the ability of foreign firms to maintain product quality:
A. Is an internalization disadvantage.
B. Makes licensing firms in the foreign markets preferable to FDI.
C. Is an inherent disadvantage faced by MNE's.
D. Makes FDI preferable to licensing firms in the foreign markets.
7. Multinational enterprises use transfer pricing to:
A. Lower prices and gain market share.
B. Reduce the global taxes the enterprise pays.
C. Move products to the markets where there is the most demand.
D. Insure their home country receives the majority of the taxes they pay.
8. China's economic growth and emergence as a major exporter was assisted by:
A. Opening the country to FDI.
B. Restricting inflows of FDI.
C. The use of inward-oriented policies.
D. Exploiting a comparative advantage in primary products.
9. __________ is the movement of people from one country to another country in which
they plan to reside for some noticeable period of time.
A. Domestic trade
B. International trade
C. Internal migration
D. International migration
Figure 15.1: Labor Market Effects of Migration
10. Referring to figure 15.1, when migration is not allowed, northern workers earn
__________ per hour and southern workers earn ___________ per hour.
A. $6.75; $.4.25
B. $8.00; $4.25
C. $6.75; $3.00
D. $8.00; $3.00
11. Referring to figure 15.1, when migration between the "North" and the "South", how
many workers will choose to migrate to the "North"?
A. 20 million
B. 30 million
C. 40 million
D. 50 million
12. Referring to figure 15.1, the net gain to the migrants is represented by the area:
A. a+b
B. e+f
C. d+e
D. a+f
ANSWERS, Ch. 8:
1=D, 2=C, 3=D, 4=B, 5=C
ANSWERS, CH. 9:
1=A, 2=B, 3=B, 4=D
ANSWERS, Ch 10:
1=B
ANSWERS, Ch.11:
1=B, 2=A
ANSWERS, Ch. 12:
1=C, 2=D, 3=C, 4=D, 5=C
ANSWERS, CH.14:
1=C, 2=D, 3=A, 4=A, 5=C, 6=B
ANSWERS, CH 15:
1=A, 2=B, 3=C, 4=A, 5=A, 6=D, 7=B, 8=A, 9=D, 10=D, 11=D, 12=B