International Trade Policies and Externalities: Tariffs, Trade Blocs, and Market Failures

If a small country imposes a tariff on imported motorcycles

The surplus of the domestic producers of motorcycles will increase, but the surplus of the domestic consumers will decline.

Which of the following is the basis for the consumption effect of a tariff imposed on imported automobiles?

The decline in the purchase of the product due to the increase in its price.

A voluntary export restraint is an agreement negotiated by two countries that places _______ that can be imported by one country from another country

a numerical limit on the quantity of a good

Which of the following is a means of allocating import licenses by assigning the licenses without competition, applications, or negotiation?

Fixed favoritism

Which of the following is the least efficient method of allocating import licenses by the government?

Resource-using application procedures

Which of the following nontariff barriers (NTBs) may generate revenue for the government?

Import quota

1. _______ are a form of regional integration where member countries lower internal trade barriers but maintain existing barriers against nonmembers

Free trade areas

2. _______ are a form of regional integration where member countries lower internal trade barriers and establish a common barrier against nonmembers

Customs unions

3. Which of the following is true of an economic union?

Harmonization of all economic policies in the member countries

4. If domestic production of a product causes pollution that imposes an external cost on the country, then:

Exports of the product can make the country worse off

5. If the use of fossil fuels is harming our nation, according to the specificity rule, the optimal policy to mitigate this harm is to:

Tax the consumption of fossil fuels

6. Which of the following exists when one person's activity results in direct costs or benefits to someone who is not part of the marketplace decision to undertake the activity?

Externality

7. For a large country, replacing imports with domestic goods can result in:

Improvement in the country's terms of trade

8. Cartel power is weakened by the tendency for:

The cartel members to increase output above their production quotas

9. If exporters of a primary product form an international cartel, then:

Output of the primary product will fall and its price will rise

10. The long-run trends of relative prices of primary products suggest that the countries dependent on exports of primary products are most likely to:

Experience deterioration in their terms of trade

11. Which of the following groups are positively affected by foreign direct investment outflows?

The owners of the multinationals

12. Which of the following groups are negatively affected by foreign direct investment flows?

The home country's workers

13. Which of the following refers to transfer pricing by an MNE?

Setting prices by the company for things that move between the units of the company

14. Foreign Direct Investment (FDI) refers to:

The flow of funding provided by an investor or lender to establish or acquire a foreign company or to expand or finance an existing foreign company that the investor owns and controls

If there is something extra bad about local consumption of a product, then a tariff can be good for the country because

the tariff leads to higher domestic price for the product.

In a "first-best" world

free trade is economically efficient.

In a "second-best" world

private actions do not lead to the best possible outcomes for society.

Which of the following refers to the positive or negative effect on parties who are not directly involved in a transaction?

Externality.

Which of the following activities create a negative externality?

keeping a junked car parked on your front lawn.

Which of the following is an example of a positive externality?

planting trees along a sidewalk which add beauty and create shade.

Pollution is an example of a

negative externality.

Suppose manufacturing of paper results in substantial ground-water pollution. One possible policy that can be used to reduce the inefficiency caused by this externality is

to impose a tax on the production of paper.

The ________ states that it is usually more efficient to use the government policy tool that acts as directly as possible on the source of the distortion that is separating private and social benefits or costs.

specificity rule.

Which of the following asserts that temporary protection from international competition is needed for a nascent industry that initially has high costs?

The infant industry argument.

Which of the following asserts that import-competing firms that are struggling to stay in business should be provided protection in order to maintain jobs and continue domestic production?

The dying industry argument.

According to the developing government argument, tariffs imposed by a developing country

can benefit the country by creating net social gains.

Which of the following allows member countries to import from other member countries freely, but imposes trade barriers against imports from outside countries?

A trade bloc.

Which of the following is true of a common market?

There is free movement of capital and labor among the member countries.

Which of the following is true of an economic union?

Harmonization of all economic policies in the member countries.

Which of the following features does a customs union have?

Common set of external tariffs.

Formation of trade blocs can be considered beneficial because it

encourages increased total trade by each member country.

Which of the following states that any trade concession given to any foreign country must be given to all other countries having the same status?

The most favored nation principle.

Which of the following refers to trade creation?

The net volume of new trade that results from the formation of a trade bloc.

Which of the following refers to trade diversion?

The volume of trade redirected from low-cost exporters to higher-cost trade bloc member countries.

________ occurs when a firm temporarily charges a low price in the foreign export market, with the purpose of driving its foreign competitors out of business.

Predatory dumping.

Which of the following is said to occur when a firm lowers its price to sell off excess inventories of a product?

Seasonal dumping.

dollar amount of tariff

specific tariff

ad valorem tariff

tariff represented by a percentage

compound tariff

percentage and dollar amount combination

what solves dumping

anti dumping duty, safeguard

What is the Specificity Rule in economics, and why is it important?

The Specificity Rule (or Principle of Targeting) states that a policy should directly target the specific cause of a market failure or distortion.

What is the Infant Industry Argument, and how do temporary tariffs help new industries grow?

The Infant Industry Argument says that new or developing industries may need temporary protection (like tariffs or subsidies) from foreign competition until they become efficient and competitive.

Persistent Dumping

Continuously selling abroad at a lower price than at home to maximize profits due to different demand elasticities across markets.

Reciprocal (or Reverse) Dumping

When firms in two countries sell the same product to each other at lower prices than they charge domestically.