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 treatmentb. MFN treatment
c. OAP treatmentd. 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 fromd. 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
ispercent.
a. 5b. 10c. 30d. 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 reductionb. maximum; an enlargement
c. minimum; a reductiond. 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.