QUESTION Some countries argue that government intervention to protect certain domestic industries can compromise national security. Indicate whether the statement is true or false. ANSWER FALSE Countries sometimes argue that it is necessary to protect certain industries because they are important for national security.
QUESTION The Common Agricultural Policy (CAP) established by the European Union was designed to reduce prices of domestic produce and protect consumers from unfair premiums. Indicate whether the statement is true or false. ANSWER FALSE The CAP was designed to protect the jobs of Europe’s politically powerful farmers by restricting imports and guaranteeing prices. […]
QUESTION The main gains from subsidies accrue to importers, whose international competitiveness is increased as a result of these subsidies. Indicate whether the statement is true or false. ANSWER FALSE The main gains from subsidies accrue to domestic producers, whose international competitiveness is increased as a result.
QUESTION According to Alexander Hamilton, governments must temporarily support new industries until they have grown strong enough to meet international competition. Indicate whether the statement is true or false. ANSWER TRUE The infant industry argument is by far the oldest economic argument for government intervention. Alexander Hamilton proposed it in 1792. According to this […]
QUESTION Dumping is variously defined as selling goods in a foreign market at below their costs of production, or as selling goods in a foreign market at below their “fair” market value. Indicate whether the statement is true or false. ANSWER TRUE Dumping is defined as selling goods in a foreign market at below […]
QUESTION Paul Krugman asserts that a strategic trade policy is almost certain to be captured by special-interest groups within the economy, who will distort it to their own needs. Indicate whether the statement is true or false. ANSWER TRUE A further reason for not embracing strategic trade policy, according to Krugman, is that such […]
QUESTION Both import quotas and voluntary export restraints (VERs) benefit domestic producers by limiting import competition. Indicate whether the statement is true or false. ANSWER TRUE As with tariffs and subsidies, both import quotas and VERs benefit domestic producers by limiting import competition.
QUESTION The Buy America Act specifies that government agencies must give preference to American products when putting contracts for equipment out for bid unless the foreign products have a significant advantage. Indicate whether the statement is true or false. ANSWER TRUE A little-known law in the United States, the Buy America Act, specifies that […]
QUESTION Which of the following theories supports government intervention and strategic trade policy? A. Theory of absolute advantage B. Theory of comparative advantage C. Heckscher-Ohlin theory D. New trade theory E. Poduct life-cycle theory ANSWER D
QUESTION Subsidies are a trade policy instrument. Indicate whether the statement is true or false. ANSWER TRUE Trade policy uses seven main instruments: tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping duties.
