INT ECON - Trade Agreements Practice Questions + Trade Barriers

With respect to environmental issues, the GATT:

a) does not allow countries to adopt environmental laws that affect imports.

b) allows countries to adopt more stringent laws affecting imports than domestic producers.

c) allows countries to adopt environmental laws that are applied uniformly against domestic producers and imports.

d) allows countries to adopt environmental laws that affect domestic production but not imports.

c) allows countries to adopt environmental laws that are applied uniformly against domestic producers and imports.

The WTO is considered a _____, whereas NAFTA and the European Union are _____.

a) free-trade area; cartels

b) cartel; multilateral agreements

c) multilateral agreement; regional trade agreements

d) free-trade area; multilateral agreements

c) multilateral agreement; regional trade agreements

A regional trade agreement involves:

a) several nations, usually trading partners, with a common agenda or geographically linked.

b) a region of the world with not only trade issues but also political cohesiveness.

c) most, if not all, of the nations in the world.

d) nations that agree to trade only with nations in their region.

a) several nations, usually trading partners, with a common agenda or geographically linked.

What is the "most favored nation principle" of the WTO?

a) Trading partners may choose a favorite nation to trade with.

b) The WTO has the right to choose the nation that has performed best within the WTO guidelines as its most favored nation.

c) Every nation must grant the same rights and treatment to other nations in the WTO as it grants to its "most favored nation."

d) Any nation can refuse to trade with another that is not its most favored nation.

c) Every nation must grant the same rights and treatment to other nations in the WTO as it grants to its "most favored nation."

A "prisoner's dilemma" can arise when:

a) one large country eliminates tariffs on imports from another large country.

b) two large countries simultaneously and independently apply tariffs on imports from each other.

c) two large countries simultaneously and independently eliminate tariffs on imports from each other.

d) one small country eliminates tariffs on imports from a large country.

b) two large countries simultaneously and independently apply tariffs on imports from each other.

In a payoff matrix of large countries, a Nash equilibrium will emerge in which each country, seeking to maximize its own gains, will

a) impose a tariff.

b) impose a consumption tax.

c) not impose a tariff.

d) find other ways to reward its domestic firms.

a) impose a tariff.

The "phase one" agreement between the United States and China in January 2020 specified that China would commit to the purchase of $200 billion more exports from the United States in 2021 than it did in 2017. This doubling of China's imports of U.S. products is a form of:

a) side arrangement.

b) customs union.

c) managed trade.

d) side agreement.

c) managed trade.

__________ specifies the amount that a country must purchase from another (in a trade agreement).

a) Managed trade

b) The terms-of-trade agreement

c)A side agreement

d) A forced objective

a) Managed trade

The U.S.-China trade war of 2018-19 and its temporary resolution in January 2020 illustrate:

a) the adage that trade wars are good and easy to win.

b) the undesirable outcome of a prisoner's dilemma.

c) the desirable outcome of a prisoner's dilemma.

d) the success of the WTO.

b) the undesirable outcome of a prisoner's dilemma.

What happens when two countries apply tariffs against each other in an attempt to capture their terms-of-trade gain?

a) The country initially applying the tariff gains because it captures the terms-of-trade gain; the other country neither gains nor loses.

b) Both countries gain because the terms-of-trade gain for one country is canceled by the tariff in the other country.

c) Both countries lose because the terms-of-trade gain for one country is canceled by the tariff in the other country.

d) Neither country gains or loses because the terms-of-trade gain for one country is canceled by the tariff in the other country.

c) Both countries lose because the terms-of-trade gain for one country is canceled by the tariff in the other country.

Which of the following is an effect of an international trade agreement that provides an incentive for nations not to impose tariffs?

a) an opportunity for large countries to improve their terms of trade

b) an opportunity for low-income nations to receive foreign aid

c) an increase in world welfare and standard of living

d) an opportunity for small countries to improve their terms of trade

c) an increase in world welfare and standard of living

The negative effects of trade diversion are reduced when:

a) consumers in the importing nation have a change in their buying habits.

b) the free-trade agreement includes more members.

c) trade creation more than offsets trade diversion.

d) there is a cost increase in nations outside the region.

c) trade creation more than offsets trade diversion.

Trade diversion is one reason that some economists:

a) recommend we change our focus from regional trade agreements to the WTO, a multilateral trade agreement.

b) recommend we reinstate some tariffs that were actually beneficial to all nations.

c) believe we should not even bother to promote free trade.

d) think we should exclude low-wage nations from trade agreements.

a) recommend we change our focus from regional trade agreements to the WTO, a multilateral trade agreement.

What is the main difference between a customs union and a free-trade area?

a) Customs union member countries use identical tariffs, whereas free-trade area member countries have different tariff structures.

b) Customs union member countries have adopted a common currency, whereas free-trade member countries use their separate national currencies.

c) There is free trade among customs union member countries but not among free-trade area member countries.

d) There are no restrictions on the movement of labor and capital among customs union member countries, whereas labor and capital cannot move freely among free-trade member countries.

a) Customs union member countries use identical tariffs, whereas free-trade area member countries have different tariff structures.

When would a large country gain from the imposition of tariffs?

It may gain if the gains in terms of trade exceed the deadweight loss

The shift in the terms of trade will come at the expense of the __________ __________ who might respond with retaliatory tariffs.

foreign exporter

Dumping refers to one or both of...

1) A firm exporting at a price below the local price

2) A firm exporting at a price below production costs

Multilateral agreements

Trade agreements negotiated among large groups of countries (such as all countries in the WTO) to reduce trade barriers among them

Regional agreements

Trade agreements that operate among a smaller group of countries, often within the same region, to reduce trade barriers.

Regional trade agreements are also known as ______________ trade agreements because...?

preferential; because they give preferential treatment (i.e., free trade) to the countries included within the agreement, but maintain tariffs against outside countries

What are the two types of regional trade agreements?

1) Free-trade areas - No common external tariffs, each member sets its own tariffs

2) Customs unions - Common external tariffs on goods from non-member countries

Trade creation occurs when...?

A country within a regional agreement imports a product from another member country that formerly it produced for itself. Therefore, there is a welfare gain for both the buying and selling country.

Trade diversion occurs when...?

A member country imports a product from another member country that it formerly imported from a country outside of the new trade region. Therefore, there are losses to the former exporting country and possibly for the importing country and the new trading region as a whole.