Question 1

The two basic approaches that a country can take as a means to achieve free trade are the

Accepted Answer

The two basic approaches that a country can take to achieve free trade are the unilateral approach, which involves eliminating trade barriers on its own, and the multilateral approach, which involves negotiating with other countries to abolish trade barriers together. The other options presented in the question are not accurate descriptions of the different approaches to achieving free trade.

Question 2

About what percent of total world trade is accounted for by countries that belong to the World Trade Organization?

Accepted Answer

The World Trade Organization (WTO) members account for about 97 percent of total world trade, as the organization includes most of the world's major trading nations.

Question 3

If the Korean steel industry subsidizes the steel that it sells to the United States,the

Accepted Answer

The harm done to U.S. steel producers from subsidized Korean steel is typically less than the benefit to U.S. consumers, who gain from lower prices. This is because the overall economy benefits from cheaper inputs (like steel), which can reduce costs for a wide range of industries and lead to lower prices for consumers.

Question 4

Several arguments for restricting trade have been advanced.Those arguments do not include

Accepted Answer

The other three arguments (jobs, protection-as-a-bargaining-chip, and infant-industry) have been used to justify trade restrictions in certain circumstances. The no-deadweight-loss argument, however, is not a commonly cited reason for restricting trade. Deadweight loss refers to the reduction in economic efficiency that can occur when the market fails to allocate resources in the most desirable way. In general, free trade is seen as a way to minimize deadweight loss by allowing market forces to determine the most efficient allocation of resources.

Question 5

One should be especially wary of the national-security argument for restricting trade when that argument is made by

Accepted Answer

Industry representatives may use the national-security argument to protect their own interests rather than genuine security concerns.

Question 6

Congresswoman Gaga represents a state in which several firms manufacture furniture.She wants to impose tariffs on all imported furniture.Which of the following is the least likely consequence of such tariffs?

Accepted Answer

Imposing tariffs on imported furniture will protect domestic furniture producers, leading to an increase in producer surplus and market power. However, it is unlikely to impact the rate of technological advance. In fact, competition from foreign firms often leads to greater innovation and technological progress. Option A is also likely, as domestic furniture buyers will face higher prices and less variety due to the tariffs.

Question 7

Which of the following is not a commonly-advanced argument for trade restrictions?

Accepted Answer

The efficiency argument is actually a commonly-advanced argument for free trade, not trade restrictions. The efficiency argument suggests that free trade allows countries to specialize in what they are most efficient at producing, leading to a more efficient allocation of resources and thus lower costs for consumers.

Question 8

Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade;he argues that everything can be produced at lower cost in other countries.The likely flaw in Congressman Smith's reasoning is that he ignores the fact that

Accepted Answer

Congressman Smith's argument ignores the concept of comparative advantage, which suggests that countries can benefit from specializing in producing goods or services in which they have a lower opportunity cost than other countries. This leads to gains from trade, including job creation in industries where a country has a comparative advantage. By focusing only on the fact that other countries may have a lower cost of production, Congressman Smith overlooks the potential benefits of trade and the possibility that restricting trade could harm job creation in certain industries.

Question 9

Countries that restrict foreign trade are likely to

Accepted Answer

Restricting foreign trade limits competition from abroad, which can lead to domestic firms having more market power as they face less competition.

Question 10

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S.minimum wage.Prohibiting such goods is likely to

Accepted Answer

Prohibiting imports from factories paying below the U.S. minimum wage could lead to increased poverty in poor countries as these factories may lose business, and it could benefit U.S. firms by reducing competition from cheaper imports.

Question 11

The "unfair-competition" argument might be cited by an American who believes that

Accepted Answer

The answer of The "unfair-competition" argument might be cited by...

Question 12

The infant-industry argument

Accepted Answer

The infant-industry argument is based on the belief that protecting industries when they are young will allow them to develop and become competitive in the global market, eventually leading to economic benefits for the country. This argument is not without criticism, as some economists argue that it can lead to inefficiencies and rent-seeking behavior.

Question 13

Critics of free trade sometimes argue that allowing imports from foreign countries causes a reduction in the number of domestic jobs.An economist would argue that

Accepted Answer

While foreign competition may lead to unemployment in import-competing industries, other industries, especially export-oriented ones, can expand due to greater consumer surplus created by free trade. This can help to counter the temporary job losses and benefit the overall economy in the long run. Protectionist measures like tariffs or quotas can have negative consequences and reduce consumer welfare.

Question 14

Suppose France subsidizes French wheat farmers,while Germany offers no subsidy to German wheat farmers.As a result of the French subsidy,sales of French wheat to Germany

Accepted Answer

The French subsidy makes French wheat cheaper, potentially leading German farmers to claim unfair competition (A). German consumers benefit from lower prices, increasing their consumer surplus (B). The overall economic welfare in Germany may increase due to cheaper imports, thus increasing total surplus (C).

Question 15

"Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

Accepted Answer

The statement highlights the concept of "infant-industry" argument, which proposes that new industries need temporary protection from competition to grow and become profitable in the long run. Thus, the statement supports the argument for protecting young industries, which many economists are skeptical about.

Question 16

At present,the United States uses a system of quotas to limit the amount of sugar imported into the country.Which of the following statements is most likely true?

Accepted Answer

The quotas are likely the result of lobbying from U.S. producers of sugar, who benefit from the protection from foreign competition. The quotas increase producer surplus for the United States, but decrease consumer surplus as consumers have to pay more for sugar. Foreign sugar producers are also harmed as they are unable to sell as much sugar in the U.S. market.

Question 17

If the United States threatens to impose a tariff on Honduran blueberries if Honduras does not remove agricultural subsidies,the United States will be

Accepted Answer

If Honduras does not give in to the threat and the tariff is imposed, it could lead to higher prices for blueberries in the U.S. and potential trade tensions, making the U.S. worse off.

Question 18

Which of the following is the most accurate statement?

Accepted Answer

The answer of Which of the following is the most...

Question 19

Which of the following arguments for trade restrictions is often advanced?

Accepted Answer

It is often argued that trade restrictions are necessary for national security reasons, such as protecting domestic industries that are vital to defense or preventing the import of goods that may pose a threat to national security. This argument is often used to justify tariffs or quotas on certain imports. However, it is important to weigh the potential benefits of trade against the costs and unintended consequences of protectionism.

Question 20

Workers displaced by trade eventually find jobs in

Accepted Answer

Workers displaced by trade often find jobs in industries where the country has a comparative advantage, as these sectors tend to grow and create new employment opportunities.

Quiz 9: Application International Trade: The Arguments for Restricting Trade