Question 1

Which barrier to international trade provides revenue to the federal government?

Accepted Answer

A tariff is a tax on imported goods that is collected by the government. This provides revenue to the federal government and is one of the most common barriers to international trade. Quotas and voluntary export restraints may limit the quantity of imported goods, but they do not directly generate revenue for the government.

Question 2

The U.S. government has agreed with the Rubber Thread Industry of America that a 15% tax should be levied on all rubber thread that enters the United States from foreign countries. This is an example of a:

Accepted Answer

The agreement between the U.S. government and the Rubber Thread Industry of America to impose a tax on imported rubber thread is an example of a tariff. A tariff is a tax on imported goods, designed to make them more expensive and less competitive with domestic products. This is a common tool used by governments to protect domestic industries from foreign competition.

Question 3

Which statement about the commercial aircraft industry is False?

Accepted Answer

The statement that the commercial aircraft industry would prefer to limit its sales to the United States is false. In fact, the industry relies heavily on international sales, particularly to emerging markets in Asia and the Middle East, to drive growth and profitability.

Question 4

If a quota is in place, what will happen to the price of rubber thread if there is a large increase in demand for spandex clothing (a major user of rubber thread)?

Accepted Answer

With a quota in place, the quantity of rubber thread that can be imported is limited. If there is a large increase in demand for spandex clothing, which is a major user of rubber thread, the limited quantity of rubber thread available will not be enough to meet the demand. This will result in an increase in prices, as buyers compete for the limited supply of rubber thread. Therefore, the increased demand will cause prices to increase, making C the best choice.

Question 5

The United States and Canada reach an agreement under which Canada volunteers to limit the number of automobile parts shipped to the U.S. This is an example of:

Accepted Answer

This is an example of a voluntary export restraint, as Canada is voluntarily limiting the number of automobile parts it exports to the U.S. It is not a negotiated tariff or a limiting restraint, and while it is similar to a quota in that it limits the amount of goods that can be imported, it is specifically a voluntary export restraint.

Question 6

Which is true about wages in America?

Accepted Answer

Wages in the U.S. are high because productivity is high. This is due to the fact that workers in the U.S. are generally more skilled and work more efficiently than their counterparts in other countries. As a result, American firms are able to produce more goods and services per worker, which in turn allows them to pay higher wages.

Question 7

Suppose a quota on electronic imports from Germany is lifted. This will result in:

Accepted Answer

Lifting a quota allows more imports, increasing supply and reducing prices for domestic buyers.

Question 8

Suppose the country of Oz has only one firm producing bicycles. In this instance:

Accepted Answer

Since there is only one firm producing bicycles in Oz, it has a monopoly in the market. Lowering trade restrictions can encourage other firms to enter the market and create competition for the existing firm. This would lead to lower prices for consumers.

Question 9

Which is not a provision of the North American Free Trade Agreement?

Accepted Answer

The provision that trade barriers with nonmember nations will be phased out within 25 years is not part of the North American Free Trade Agreement.

Question 10

Why would Japan agree to voluntarily limit the number of automobiles it shipped to the U.S.?

Accepted Answer

Japan may have agreed to voluntarily limit the number of automobiles it shipped to the U.S. out of fear that even more stringent import restrictions might be imposed if they did not agree. This would be a strategic move to maintain its market share in the U.S. market.

Question 11

"If a country has an absolute advantage in the production of all goods, this means there is no reason for it to trade with other countries." Explain why this statement is incorrect.

Accepted Answer

The answer of "If a country has an absolute advantage...

Question 12

Which of the following is incorrect about the World Trade Organization (WTO)?

Accepted Answer

There is no evidence to support a conspiracy theory involving the WTO and the United States. This statement is incorrect and unsubstantiated. The other options are correct.

Question 13

Congressperson Smith argues that tariffs must be passed because American labor cannot compete with cheap foreign labor. This is an example of:

Accepted Answer

The answer of Congressperson Smith argues that tariffs must be...

Question 14

Which of the following is an example of trade negotiation on a global level?

Accepted Answer

The World Trade Organization (WTO) is the international organization responsible for regulating and promoting international trade. It establishes rules and regulations for trade between its member countries and helps negotiate and resolve trade disputes on a global level. The European Union and North American Free Trade Agreement are regional trade agreements, whereas the WTO operates on a global level.

Question 15

Suppose protectionist measures are passed in attempts to save jobs in the automobile industry. The most likely result of this action will be to:

Accepted Answer

Protectionist measures, such as tariffs or quotas on imported vehicles, can indeed increase employment in the domestic automobile industry by making foreign cars more expensive and thus less competitive. However, these measures can lead to retaliation by other countries, increase the cost of imported components for other industries, and reduce the purchasing power of consumers, potentially leading to job losses in other sectors of the economy.

Question 16

Some individuals believe that trade agreements should also contain linkages to negotiations relating to:

Accepted Answer

Trade agreements can have far-reaching consequences, not just on economic factors, but also on social and environmental factors. Including linkages to negotiations regarding wages, working conditions, and environmental standards can help ensure that the benefits of trade are shared equitably and sustainably. This approach is sometimes referred to as "fair trade" or "ethical trade." By including these concerns in trade agreements, policymakers can create a more level playing field for workers and businesses, while reducing negative environmental impacts.

Question 17

Congressperson Jones argues that tariffs must be passed to protect the aviation industry because this industry is necessary to national defense. This is an example of:

Accepted Answer

The statement made by Congressperson Jones is an example of the national defense argument, which argues that certain industries are necessary for national defense and must be protected through measures such as tariffs. The argument does not relate to the other options presented, such as protecting a nascent industry (infant industry argument), preserving jobs (save American jobs argument), or competing with cheap foreign labor (cheap foreign labor argument).

Question 18

If Billington Company could increase production, its average cost of production would fall. Because domestic demand is so small, Billington is unable to take advantage of this opportunity. In this instance, free trade could:

Accepted Answer

Free trade would allow Billington to sell its additional output abroad, increasing its profits. The increased production would allow Billington to take advantage of economies of scale and reduce its average cost of production. As a result, it would be able to sell its output at a lower price and compete more effectively in the global market, increasing its overall profits.

Question 19

International trade increases the diversity of products that we have available. Which of the following products would be very difficult for us to purchase if there was no international trade?

Accepted Answer

Silk is produced mainly in Asian countries such as China, India, and Japan. Without international trade, it would be difficult or impossible to obtain silk products outside of these countries. The other options (tobacco, milk, wheat) are produced in many different countries and can be purchased domestically even without international trade.

Question 20

Suppose the U.S. demand for Japanese cars increases. Which of the following would most likely result in the greatest increase in price?

Accepted Answer

A quota would limit the quantity of Japanese cars that can be imported, creating a shortage and increasing the price due to higher demand and limited supply. Tariffs and export taxes would increase the price of Japanese cars, but not as much as a quota would. Voluntary import restraints are agreements between countries to limit exports voluntarily and would also not result in as much of an increase in price as a quota.

Quiz 17: International Trade: Beneficial, but Controversial