Question

Chapter overview

1. Reasons for international trade

Resources reasons

Economic reasons

Other reasons

2. Difference between international trade and domestic trade

More complex context

More difficult and risky

Higher management skills required

3. Basic concept s relating to international trade

Visible trade & invisible trade

Favorable trade & unfavorable trade

General trade system & special trade system

Volume of international trade & quantum of international trade

Commodity composition of international trade

Geographical composition of international trade

Degree / ratio of the dependence on foreign trade

II. Chapter Summary

1. International trade is the exchange of goods and services across national borders or territories. The reasons for international trade are: resources reasons (no nation has all of the commodities that it needs); economic reasons (countries also wish to gain economically by trading with each other) and other reasons.

2. International trade differs from domestic trade in that it is under more complex context, and it is usually more difficult and risky and requires higher management skills.

3. Visible trade refers to trade in goods (merchandise), the transactions of which are observable. SITC (Standard International Trade Classification), a popular standard of classifying goods, classifies international trade commodities into 10 sections.

4. Invisible trade refers to trade in services. At present, the United States is both the leading exporter and importer in trade in services. GATS (General Agreement on Trade in Services defines trade in services as the supply of a service through any of four modes of supply cross border supply of services, consumption abroad, commercial presence in the consuming country, and presence of natural persons.

5. When nations export more than they import within a certain period (usually one year), they are said to have a favorable balance of trade. Otherwise, an unfavorable balance of trade exists.

6. General trade system is a system under which statistic figures are collected on the basis of economic territory. Special trade system is a system under which statistic figures are collected on the basis of customs territory.

7. The volume of international trade refers to the total value of international trade in merchandise and services. The quantum of international trade is the value of international trade with constant price, which is the value of international trade divided by a price index.

8. Commodity composition of international trade refers to the share of all categories or kinds of merchandise in international trade within a certain period of time. Manufactures in world merchandise trade in 2008 accounted for 66. 5%. Machinery and transportation equipment are the main category of China's exports and imports at present.

9. Geographical composition of international trade is the share of nations, regions or economies in international trade. World trade tends to be concentrated among relatively few major traders, i.e., Germany China, the United States, Japan and so forth. Asia is the largest one in China's exports, followed by North America and Europe. The EU, the US Japan, ASEAN, etc are Chinas major trading partners.

10. The relative size of trade is often measured by comparing the size of a country's total value of foreign trade with its gross domestic product, namely, the ratio of exports and imports of goods to GDP. During 1985-2008, in general, the ratio of dependence on foreign trade for China has been increasing. In recent years, the ratio was above 60% generally and even close to 70% in some years.

III. Review questions

A. Single choice

1. Which of the following statements about SITC is NOT correct?

a. SITC is drafted for the purpose of collecting statistics of the many varieties of goods in international trade.

b. SITC is a standard for classification of international trade in commodities.

c. SITC is a standard for classification of international trade in services.

d. SITC classifies international trade commodities into 10 sections.

2. In 2011, ( ) was the world’s largest exporter and importer of commercial service.

a. U.S. b. Germany c. Japan d. France

3. The service of a professional adviser is supplied through a visit to him by his client. According to the definition of trade in service in GATS, the service is ( ).

a. Cross border supply

b. Consumption abroad

c. Commercial presence in the consuming country

d. Presence of natural persons

4. Which of the following statement is NOT correct?

a. A favorable balance of trade is known as a trade surplus and consists of exporting more than is imported.

b. The balance of trade is an important part of the current account of a nation’s balance of payment.

c. Since 1994, China has maintained favorable trade balance for 19 years in succession.

d. Since the mid-1980s, the United States has had a growing surplus in tradable goods.

5. If a country uses general trade system in collecting statistics figures, this means ( ).

a. The statistical territory of the country coincides with its customs territory.

b. The inward and outward movement of goods through its bonded warehouse is not recorded in its statistic figures.

c. The inward and outward movement of goods through the free trade zones is not recorded in its statistic figures.

d. The statistical territory of the country coincides with its economic territory.

6. The total volume of international trade in goods is ( ).

a. The summation of the value of imports and exports of all the nations in the world.

b. The summation of the value of imports of all the nations in the world.

c. The summation of the value of exports of all the nations in the world.

d. The summation of the value of imports and exports of the major traders in the world.

7. Which of the following statements is correct?

a. The value of international trade can reflect the real development of international trade.

b. The quantum of international trade can reflect the real development of international trade.

c. There is no different between the value of international trade and the quantum of international trade.

d. The value of international trade in different periods is usually comparable.

8. Most international trade is classified as trade in ( ).

a. Services b. Mineral products

c. Manufactured products d. Agriculture products

9. Which of the statements about the ratio of dependence on foreign trade is correct?

a. It is the ratio of exports of goods to GDP.

b. It is the ratio of exports and imports of goods to GDP.

c. In general, the ratio of dependence on foreign trade for China has been decreasing in recent years.

d. It is impossible that the ratio of dependence on foreign trade exceeds 100%.

B. True or false questions

1. General trade figures are generally greater than the corresponding special trade figures because the latter excludes certain trade flow such as goods shipped through bonded warehouse.

2. Special trade system narrows the coverage of the statistics as imports to and exports from customs warehouse or free trade zones are not recorded.

3. The total volume of international trade in merchandise is the aggregated volume of imports and exports of all nations throughout the world.

4. The world merchandise exports have on average outgrown the world production since 1970s.

5. The quantum of international trade is a less precise expression than the value of international trade in that it does not reflect the real change of international trade.

6. At present, world trade tends to be concentrated among relatively few major traders.

7. Toys, clothing, furniture have still dominated China’s export in recent years.

8. The ratio of dependence on foreign trade of an individual country means that its economic prosperity is dependent upon economic prosperity in the world as a whole.

C. Simple questions

1. Are there any other reasons for international trade other than those elaborated in the textbook?

2. In general, international trade is more complex, difficult and risky than domestic trade. Could you give some examples to illustrate the point?

3. In your view, what are the skill requirements for business professionals engaged in international trade?

4. GATS defined trade in services through 4 modes of supply. Could you give an example for each of them?

5. Analyze the factors that impact the balance of trade.

D. Case study

The US has had a bilateral trade deficit with China since the late 1980s; annual deficits increased throughout the 1990s, and skyrocketed in the half of the 21st century. According to US Census, Foreign Trade Statistics in 2008, the US trade deficit with China was a record-setting USD 268 billion, the largest in the world between any two countries. It means that the US exported 69.7 billion USD in goods and service to China, while it imported over 337.8 billion USD.

What accounts for the huge US-China trade imbalance? Who has benefited from China’s big trade surplus with US?

Hint: you may refer to the following articles for answers:

(1) The US-China Trade Council, “The US Trade Deficit: Is China the Problem?”,

http://www.uschina.org/public/documents/2009/us_trade_deficit.pdf.

(2) What is the US Trade Deficit with China?

http://useconomy.about.com/od/tradepolicy/p/us-china-trade.htm

(3) US-China Trade Imbalance,

http:// www.aasc.ucla.edu/uschina/trade_tradeimbalance.shtml​

​Chapter 2 CLASSICAL TRADE THEORIES

I. Chapter Overview

1. Mercantilist thought

Development of mercantilist thought

Mercantilist economic system

Economic policies pursued by the mercantilists

Discussions

2. Adam Smith's theory of absolute advantage

Assumptions of Adam Smith's theory of absolute advantage

Challenge to Mercantilism

Example

3. David Ricardo's theory of comparative advantage

The concept of comparative advantage

An example to illustrate the theory of comparative advantage

Analysis of the theory of comparative advantage by using modern tools

II. Chapter Summary

I. Mercantilism held that international trade should primarily serve to increase a nation's wealth, i.e., the holding of precious metals (gold and silver). To that end, they emphasized the desirability of an export surplus in international trade as a means of acquiring specie.

2. Adam Smith's theory of absolute advantage concluded that in the two-country, two-commodity model, each country should specialize in and export the commodity that it had absolute advantage (the commodity that it produced more efficiently)and import the commodity that its trading partner had absolute advantage. In this way, both countries could benefit from trading.

4. David Ricardo's comparative advantage model demonstrated that gains from trade occurred even if a country was absolutely more or absolutely less efficient in the production of all of its goods than other countries. The source of these gains lay in the fact that relative prices with trade differed from relative prices in autarky. The gains were shown through numerical examples and through the use of production-possibilities frontier, community indifference curve as well as general equilibrium analysis.

III. Review Questions

A. Single choice

1. In the Mercantilist view of international trade (in a two-country world), ( ).

a. both countries could gain from trade at the same time, but the distribution of the gains depended upon the terms of trade.

b. both countries could gain from trade at the same time, and the terms of trade were of no consequence for the distribution of the gains.

c. neither country could ever gain from trade.

d. one country's gain from trade was associated with a loss for the other country.

2. The policy of minimum government interference in or regulation of economic activity advocated by Adam Smith and the classical economists was known as ( ).

a. the law of comparative advantage, b. laissez-faire.

c. the labor theory of value d. Mercantilism.

3. In Adam Smith's view, international trade ( ).

a. benefited both trading countries.

b. was based on absolute cost differences.

c. reflected the resource base of the countries in question.

d. all of the above.

4. In the Ricardo model, ( )

a. there is only one factor of production.

b. international trade is a negative-sum game.

c. differences in factor endowments give rise to international trade

d. there is only one industry in each country.

5. If Country A has an absolute advantage in every good, then ( )

a. it should not engage in international trade.

b. it should engage in a small percentage of trade.

c. it should still export goods in which it has a comparative advantage.

d. this is an impossible situation.

6. If Country A has a comparative advantage over Country B in producing textile, it means that ( )

a. Country A produces textile relatively less efficiently than Country B does.

b. the labor productivity in textile industry in Country A is lower than in Country B.

c. the relative price of textile (to another product) in Country A is lower than in Country B

d. Country B will never produce textile if free trade is allowed.

7. The Ricardian model exhibits gains from trade ( )

a. for both trading countries.

b. only if countries specialize completely.

c. only for one of the trading countries.

d. only if each country has an absolute advantage in one of the industries.

8. Which of the following is NOT an assumption in the Ricardian model? ( )

a, Labor productivity in each country is fixed.

b. Markets are perfectly competitive.

c. Each country has only one factor of production and its amount is fixed.

d. Labor can freely move across countries.

9. Suppose the relative prices of goods X and Y are PX/PY =3 in Country A and PX/PY = 7 in Country B under autarky. Which statement is correct? ( )

a. Country A has definitely an absolute advantage in both goods.

b. Only Country B would profit from opening up to free trade.

c. Country B has a comparative advantage in good Y.

d. None of the above statements is correct.

10. Given the following Classical-type table showing the number of days of labor input required to obtain one unit of output of each of the two commodities in each of the two countries:

Ships Computers

United States 4 days 3 days

United Kingdom 5 days 6 days

The United States has an absolute advantage in the production of ( )

a. ships (only) b. computers (only)

c. both ships and computers d. neither ships nor computers

11. Given the following Ricardo-type table showing the amount of labor input needed to produce one unit of output of the two goods in the two countries:

Steel Cloth

United Kingdom 4 days 8 days

Germany 6 days 9 days

a. The United Kingdom has an absolute advantage in both goods and a comparative advantage in cloth.

b. The pre-trade price ratio in the United Kingdom is 1 steel : 2 cloth.

c. The United Kingdom has an absolute advantage in neither good but a comparative advantage in steel.

d. The pre-trade price ratio in Germany is 1 cloth : 1.5 steel.

12. In the Classical (Ricardo) analysis, ( )

a. if a country has an absolute advantage in a good, it also has a comparative advantage in the good.

b. if a country has a comparative advantage in a good, it cannot have an absolute advantage in the good.

c. a country can have a comparative advantage in a good at the same time that it has an absolute advantage in that good.

d. a country with an absolute advantage in all goods cannot gain from trade.

13. If a country's (PX/PY) in autarky is greater than the (PX/PY) on the world market, it has a comparative advantage in good ( ), and it will ( )

a. X; export Y and import X. b. X; export X and import Y.

c. Y; export Y and import X. d. Y; export X and import Y.

B. Questions and problems

1. Why did the Mercantilists consider holdings of precious metals so important to nation-state building?

2. What are the critical pillars of Mercantilism?

3. Is there a basis for trade in the following case, according to Smith's view? Why or why not? If there is, which commodity should each country export?

Cell Phones Toys

Sweden 60 hrs./unit 10 hrs./unit

China 80 hrs./unit 6 hrs./unit

4. The following table shows the hours of labor required to produce 1 unit of each commodity in each country:

Machinery Apparel

China 100 days 2 days​

Vietnam 300 days 3 days

Which country has an absolute advantage in machinery? In apparel? Why? Which country has a comparative advantage in machinery? In apparel? What product should each country specialize in and export? If trade takes place between China and Vietnam at a barter price of 1 machinery for 80 apparel (or 1 apparel for 1/80 machinery), what does each country gain from trade? Explain.

Chapter 3 Neoclassical Trade Theories

I. Chapter Overview

1. Reciprocal demand theory

A countries offer curve

Trading equilibrium

Measurement of terms of trade

2. Factor endowment theory

Factor intensity in production

Factor endowments, factor prices and comparative advantages

Assumption of the factor proportions theory

The Hechscher-Ohlin theory ​

An example to illustrate H-O theory

The factor price equalization theory

3. The Leontief paradox – an empirical test of the factor endowment theory

The Leontief Paradox

Suggested explanations for the Leontief paradox and related theories

II. Chapter Summary

1. With trade, at the world exchange ratio of good X to good Y, the world exchange ratio Pw must lie between the two internal price ratios. Gains from trade are composed of two parts: one is consumption gain which is the gain from exchange without changes in production, and the other is production gain which is the gain from specialization.

2. A country’s offer curve (or reciprocal demand curve) indicates the quantity of imports and exports the country is willing to buy and sell on world markets at all possible relative prices. The construction of the offer curve is completed by connecting all possible points at which a country is willing to trade. The trading equilibrium and the equilibrium terms of trade when Country A’s and Country B’s offer curves are brought together in one figure.

3. The Heckscher-Ohlin theorem can be stated as: A country will export the commodity that uses relatively intensively its relatively abundant factor of production, and will import the good that uses relatively intensively its relatively scarce factor of production.

4. Factor price equalization theorem states that with trade the prices of factors in different countries, like wages, are driven towards equality.

5. The Stolper-Samuelson theorem argues that with full employment before and after trade takes place, the increase in the price of abundant factor and the fall in the price of the scarce factor because of trade implying that the owners of the abundant factor will find their real incomes rising and the owners of the scarce factor will find their real income falling.

6. The doubt cast on the widely accepted H-O theorem by this study became known as the Leontief paradox.

7. A variety of explanations attempted to solve the Leontief paradox, including different skill levels of labor, demand reversal, factor-intensity reversal, US tariff structure and the role of natural resources.

III. Review Questions

A. Single choice

1. Which of the following is NOT an assumption of the H-O model?

a. Markets are competitive.

b. Technology is same across countries.

c. The supply of factors of production grows over time.

d. Factors of production can be used in different industries.

2. Which of the following is NOT an assumption of the H-O model?

a. Imperfect competition.

b. Constant returns to scale.

c. Identical tastes across countries.

d. Identical production functions across countries.

3. If Country A is defined as "relatively capital-abundant" in relation to Country B by the "price" definition of factor abundance, then the price of labor relative to the price of capital is ( ) in Country A than in Country B, and the H-O theorem would suggest that Country A would export relatively ( ) goods to Country B.

a. higher; capital-intensive b. higher; labor-intensive

c. lower; capital-intensive d. lower; labor-intensive

4. What is the main difference between the H-O model and the Ricardian model?

a. Unlike in the Ricardian model, endowments of factors of production affect trade patterns in the H-O model.

b. Unlike in the Ricardian model, factors are mobile across industries in the Hechscher- Ohlin model.

c. Unlike in the Ricardian model, trade is not assumed to be free in the H-O model.

d. Unlike in the Ricardian model, all factors of production gain as a result of trade in the H-O model.

5. What does the H-O model predict about the pattern of trade?

a. Each country sells abundant factors of production.

b. The pattern of trade depends on the size of the economy.

c. Each country specializes in the production of goods that use available technology efficiently.

d. Each country specializes in the production of goods that use its abundant factors intensively.

6. The Stopler-Samuelson theory suggests that, when a country is opened to international trade, the relative price of the country’s abundant factor will ( ) and the relative price of the country’s scare factor will ( ).

a. rise; also rise b. rise; fall c. fall; rise d. fall; also fall

7. An implication of H-O theory is that ( ).

a. if 2 countries have identical tastes, then no trade will occur between them

b. the relative price of a country’s scare factor will rise when the country is opened to trade

c. income distribution in a country doesn’t change when a country is opened to trade

d. 2 countries with identical tastes can still have a basis for trade if factor endowments of the countries differ and if factor intensities of the commodities differ.

8. The Leontief paradox states that ( ).

a. owners of abundant factor don’t gain from the trade

b. US exports are less capital-intensive than US imports

c. prices of factors are not equalized across countries

d. countries export goods that use available technology inefficiently

9. If demand reversal is the explanation of the Leontief paradox, this would imply that the demand by the US for labor-intensive goods is relatively ( ) and therefore that US wages would be relatively ( ) in comparison to wages in US trading partners.

a. low; low b. low; high c. high; low d. high; high

10. If a commodity is classified as “labor-intensive” at one set relative factor price but “capital-intensive” at another set of relative factor price is known as ( ).

a. demand reversal b. factor-intensity reversal

c. balance of payment reversal d. factor price reversal

B. Simple Questions

1. If the K/land ratio for Japan is higher than that for Australia, what kind of products might Australia export to Japan? Why?

Chapter 5 Import Protection Policy: Import Tariffs

I. Chapter Overview

1. Types of import tariffs

in terms of the means of collection

in terms of the different tariff rates applied

in terms of special purposes for collection

2. The effects of import tariffs

concepts of consumers surplus and producers surplus

the welfare effects of import tariffs

3. Measurement of import tariffs

the "height" of import tariffs

nominal versus effective tariff rates

II. Chapter Summary

1. The means of collecting import duties are specific duty, ad valorem duty, mixed or compound duty and alternative duty.

2. Preferential duty, generalized preferential duty, MFN duty and general duty are different tariff rates.

3. A countervailing duty (CVD) is a tariff designed to "counter" the effects of the foreign export subsidy. An anti-dumping duty is a duty to imports to offset the effects of dumping.

4. The Agreement on Implementation of Article VI of GATT 1994 (the Anti-Dumping Agreement) defines the determination of normal value.

5. In recent one or two decades, the People's Republic of China has been the number one target of anti-dumping actions filed by WTO members. There are two main reasons: One is because the PRC is one of the world's lowest cost producers. The other is it is classified as a nonmarket economy, and special rules must be used to determine the cost of production.

6. The welfare effect of a tariff imposed by a "small" importing country is a deadweight loss. For a "large" country that can affect foreign (world) prices, the welfare effect of a tariff is ambiguous.

7. There are two measures of a country's average tariff rate: unweighted average tariff rate and weighted average tariff rate. The difference between the two is that the unweighted average tariff rate does not take into account the relative importance of the imports while the weighted average tariff rate does.

8. The nominal tariff rate is the tariff rate in the tariff schedule and is the simplest way to estimate the nominal rate of protection of an industry. The effective rate of protection (ERP) is the rate by which the value added increase after the imposition of tariffs. The nominal tariff rate is useful for assessing the price impact of tariffs on consumers. For producers, however, the effective rate is more useful.

III. Review Questions

A. Briefly define the concepts

tariff

specific duty

ad valorem duty

mixed or compound duty

preferential duty

generalized preferential duty

GSP

MFN duty

general duty

countervailing duty (CVDs)

dumping

anti-dumping duty

consumer surplus

producer surplus

nominal tariff rate

effective tariff rate

B. Question and Problems

1. Explain why a country's use of preferential duties is inconsistent with MFN treatment of trading partners by that country.

2. What are the prerequisites for WTO members to impose anti-dumping measures according to Article VI of GATT 1994 and the Anti-Dumping (ADP) Agreement?

3. Explain why in recent one or two decades, China has been the number one target of anti­ dumping actions filed by WTO members.

4. Suppose that the free trade price of a good is US$10 and a 10 percent ad valorem tariff is put in place. As a result, domestic production in a small country rises from 100 units to 110 units and imports fall from 60 units to 30 units. Who are the winners and losers? What is the size of their gains and losses? What is the net effect on society?

5. Suppose that under free trade a final commodity F has a price of US$20 and the price of the only input A to commodity Fis US$15. Now consider the following three situations where protective tariffs exist.

(a) Suppose that the tariff rate on the final good is 10%, and no tariff rate on input A.

(b) Suppose that the tariff rates on both the final good and the input A are 10%.

(c) Suppose that the tariff rate on the final good and the input A is 10% and 20% respectively.

Calculate the ERP for the domestic industry producing good F and interpret the meaning of this calculated ERP.

6. Suppose that a country announces that it is moving toward free trade by reducing its tariffs on intermediate inputs while maintaining its tariffs on final goods. What is your evaluation of the announced "free-trade" direction of the country's policy?

C. Multiple-choice questions

1. Which of the following is NOT an example of a nontariff barrier to the free flow of goods?

a. Import quotas. ( )

b. Voluntary export quotas (VERs).

c. Restrictive official foreign exchange allocation.

d. Specific duty ofUS$20.00 per metric ton on each imported item.

2. The tariff on sugar by Country A was US$0.2 per kilogram plus 5.5 percent of the value of sugar. This is an example of ( ).

a. a specific tariff.

b. a nontariff barrier.

c. an ad valorem tariff.

d. a combination of a specific tariff and an ad Valorem tariff.

3. The situation in the developed countries whereby an import good faces a lower tariff if the good comes from a developing country than if the good comes from a developed country is known as ( )​.

a. GSP treatment​b. MFN treatment

c. OAP treatment​d. ERP treatment

4. If Country A gives most-favored-nation (MFN) treatment to Country B. This means that the tariff schedules applicable to Country A's imports from Country B ( )

a. have lower tariff rates than the rates applicable to other countries to which Country A grants MFN treatment.

b. have the same tariff rates as the rates applicable to other countries to which Country A grants MFN treatment.

c. have lower tariff rates than the rates applicable to any other country sending goods to Country A.

d. have tariff rates of zero percent.

5. The use of the most-favored-nation (MFN) principle is an attempt to attain ( ) toward competing suppliers of imports to a country. Hence, the arrangement whereby developed countries permit duty-free entry on some goods coming from developing countries but levy tariffs on the same goods if coming from other developed countries is ( ) the MFN principle.

a. discrimination; a departure from ​b. discrimination; an example of

c. nondiscrimination; a departure from​d. nondiscrimination; an example of

6. In the following graph for a small country showing the situation under free-trade in a product (at a price of US$10) and the situation with a tariff (at a price ofUS$11), the net welfare loss (or total deadweight loss) to the country from the imposition of the tariff is ( ).

a. 2.​ b. 5.​ c. 6.​ d. 10.

7. In the graph in Question 6, after the imposition of the tariff, what is the amount of tariff revenue collected by the government? ( ).

a. US$2.​b. US$6.​c. US$8.​ d. US$10.

8. An import tariff imposed by a small country will ( ).

a. increase the domestic price of the good by an amount equal to the tariff.

b. decrease the domestic price of the good by an amount equal to the tariff.

c. increase the domestic price of the good by an amount less than the tariff.

d. lead to an increase in domestic consumption of the good.

9. Other things equal, which one of the following will cause an increase in the effective rate of protection (ERP) in the automobile industry?

a. A decrease in the nominal tariff rate on automobiles.

b. An increase in the nominal tariff rates on imported inputs used in making automobiles.

c. An increase in the world price of imported inputs used in making automobiles.

d. A decrease in the nominal tariff rates on imported inputs used in making automobiles.

10. Given the following information for industry X in country A, and assuming that at least some of input Y is imported, that one unit of Y is required for each unit of X, and that country A is a "small" country:

​ Free trade price Nominal tariff rate

Final product X​ US$100​ 10%

Input Y (onlv input to X)​ US$80​ 5%

the effective rate of protection (ERP) for industry X is​percent.

a. 5​b. 10​c. 30​d. 40

Chapter 6 IMPORT PROTECTION POLICY: NON-TARIFF BARRIERS

I. Chapter Overview

1. Forms of non-tariff barriers

Quantity control measures

Price control measures

Para-tariff measures

Finance measures

Anti-competitive measures

Miscellaneous measures

II. Review Questions

A. Briefly define the concepts

Quota

Absolute quota

Global quota

Country quota (allocated quota)

Tariff rate quota

"Voluntary" export restraints

B. Multiple-choice questions

1. An import quota specifies the ( ) amount of a good that can be imported into a country; a step to becoming more protectionist would involve ( ) in the quota.

a. maximum; a reduction​b. maximum; an enlargement

c. minimum; a reduction​d. minimum; an enlargement

2. Which of the following statements about tariff rate quota is NOT correct? ( )

a. It allows a limited quantity of specified merchandise into a country at a reduced duty rate during a specified period.

b. This is a system of multiple tariff rates applicable to a same product.

c. It means that the lower tariff rates apply up to a quota of imports, and the higher rates are charged on imports which exceed the quota amount.

d. It can only be defined in terms of value.

3. "Voluntary export restraints" involve ( )

a. a sharing of benefits by both countries equally.

b. the transfer of revenues to the importing consumers.

c. the exercise of monopoly power by the exporting country.

d. the exercise of monopoly power by the importing country.

4. Which of the following is NOT an example of making a trade instrument more restrictive against imports, other things equal? ( )

a. A decrease in the size of an import quota.

b. A withdrawal of GSP treatment for goods from a particular country.

c. A denial of most-favored-nation (MFN) treatment to a country that previously received such treatment.

d. A shifting of an import goods from an administrative classification category with a high tariff to an administrative classification category with a low tariff.

5. Which of the following is NOT an example of financial measures restricting imports?

a. Surrender reqmrement.​ b. Multiple exchange rates.

c. Admm1strat1ve class1ficat10n.​d. Advance payment requirement.

6. Which of the following is NOT an example of technical measures? ( )

a. Hygienic requirement.

b. Quarantine requirement.

c. Government procurement policy.

d. Labeling, marking and packaging requirement.

Chapter 7 Export Promotion and Other Policy

I. Chapter Overview

II. Review Questions

A. Briefly define the concepts

1.

export subsidy

devaluation of home currency

sporadic dumping

predatory dumping

persistent dumping

bonded warehouse

special trade zone

B. Multiple-choice questions

1. The presence of an export subsidy ( ).

a. will increase the price of the export good in the home market and decrease the well-being of home consumers.

b. will decrease the price of the export good in the home market and increase the well-being of home consumers.

c. will lead to a net gain in welfare in the home country since producer surplus is enhanced.

d. can lead to a higher import price in the importing country in the large-country case.

2. Which of the following statements is NOT correct? ( )

a. Production subsidy is different from export subsidy in that it provides a payment based on all production regardless of where it is sold.

b. Production subsidy requires more expenditure by the government than export subsidy.

c. Production subsidy will effectively raise the price that the producer receives for each unit of the good produced and sold.

d. Production subsidy will raise the market price in the exporting country.

3. Other things equal, depreciation of Japanese currency is beneficial to the ( ) in Japan.

a. importers​ b. exporters

c. both importers and exporters​ d. neither importers nor exporters

4. For profitable persistent dumping to take place, ( ).

a. the demands in both markets must be elastic.

b. the demands in both markets must be inelastic.

c. the demand elasticity in both markets must be the same.

d. the demand in the foreign market must be more elastic than the demand in the home market.

Chapter 8 ARGUMENTS AGAINST FREE TRADE

I. Chapter Overview

Protect infant industry argument

II. Chapter Summary

1. Some traditional arguments against free trade including infant industry argument, terms of trade argument, balance of trade argument, fair competition argument and national security argument are discussed in this chapter.

2. Infant industry argument holds that the home country industry which is getting a "late start" may possess a long run comparative advantage if protection could temporarily be given to the industry.

III. Review Questions

A. Briefly define the concepts

infant industry argument

B. Question and Problems

1. What are the two problems that come up with the infant industry argument for protection?

2. Which are the main ideas of infant industry argument?

3. How to evaluate the infant industry argument?

C. Multiple-choice questions

1. The argument that a tariff can provide temporary protection to an industry so that the industry can expand, realize economies of scale, and eventually become an export industry is known as the ( ).

a. anti-dumping argument.​ b. national defense argument.

c. infant industry argument.​ d. reduce unemployment argument.

2. The existence of ( ) most likely constitutes the strongest argument for the imposition of an anti-dumping duty.

a. predatory dumping b. persistent dumping

c. sporadic dumping d. cyclic dumping

3. Which of the following statements does NOT seem generally valid with respect to the stance of trade policy?

a. Recession periods usually lead to greater protectionism.

b. Policy has tended toward freer trade when export interests are organized.

c. Policy tends toward freer trade in countries whose imports are inputs into important industries.

d. Since consumers outnumber producing firms, elected officials usually adopt free-trade policies to satisfy the consumer majority.

Answer 1

C. 1. Innovation- international trade gives ideas for innovation since we get feedback regarding the product from the consumers thoughout the world.

2. International trade is more risky, complex and difficult because of:

a. Different taxation system across domestic boundaries b. Involvement of foreign currencies.

c. Demands high quality standards.

d. Mobility of factors of production is restricted.

3. a. Need to have adaptive thinking

b. Networking abilities

c. Understanding of international trade and consumers' behavior

d. Cross-cultural communication skills

4. a. Cross-border supply: banking services

b. ConsunpCons abroad: tourism activities

c. Commercial presence: domestic subsidiary of foreign organization like any hotel chains

d. Presence of a natural person: movement of skilled persons like doctors or lawyers.

5. Factors affecting balance of trade

a. Availability of foreign exchange

b. Cost of production of consumer goods

c. Trade restrictions and taxation mechanism

d. Price of the goods in local market.