Chapter 7

Question 1

Protectionism

Answer 1

policies that;
- affect the ability of foreign producers to compete in your home market
- limit or enhance your company’s ability to sell abroad or acquire needed foreign supplies

Question 2

Economic Rationales for government intervention

Answer 2

• fighting unemployment
• protecting infant industries
• promoting industrialization
• improving comparative position

Question 3

Non-economic Rationales for government intervention

Answer 3

• maintaining essential industries
• promoting acceptable practices abroad
• maintaining or extending spheres of influence
• preserving national culture

Question 4

Infant industry argument

Answer 4

government protection of import competition is necessary to help certain industries evolve from high-cost to low-cost production

Question 5

Countries promote industrialization because:

Answer 5

• brings faster growth than agriculture
• brings in investment funds
• diversifies the economy
• creates growth in manufactured goods
• reduces imports and promotes exports
• helps the nation-building process

Question 6

Essential industry argument

Answer 6

protect essential industries so the country is not dependent on foreign supplies during war

Question 7

Import trade controls

Answer 7

can be used to promote changes in foreign countries’ political policies or capabilities;
as a foreign policy weapon;
to pressure governments to alter their stances on a variety of issues

Question 8

Tariffs (duties)

Answer 8

refer to a government levied tax on goods shipped internationally

Question 9

Tariffs may be levied

Answer 9

on goods entering, leaving, or passing through a country; for protection or revenue, on a per unit basis or value basis (export, transit, and import tariffs)

Question 10

Subsidies

Answer 10

direct assistance to companies to make them more competitive (agricultural subsidies, overcoming market imperfections, valuation problems)

Question 11

Quotas

Answer 11

limit the quantity of a product that can be imported or exported in a given time frame (Voluntary export restraint, embargoes)

Question 12

Protectionism

Answer 12

governmental actions to influence international trade

Question 13

Countries seek to influence

Answer 13

trade and respond to their economic, social, and political objectives

Question 14

Stakeholders most affected by trade regulations

Answer 14

push hardest for trade rules favourable to them

Question 15

The unemployed

Answer 15

can form an effective pressure group for import restrictions

Question 16

Import restrictions to create domestic employment

Answer 16

• may lead to retaliation by other countries
• affect large and small economies differently
• reduce import handling jobs
• may decrease jobs in another industry
• may decrease export jobs because of lower incomes abroad

Question 17

The infant-industry argument

Answer 17

says that production becomes more competitive over time because of
- increased economies of scale
- greater worker efficiency

Question 18

Possible costs of import restrictions

Answer 18

include higher prices and higher taxes. Such costs should be compared with those of unemployment

Question 19

Countries seek protection to promote industrialization because that type of production

Answer 19

• can use surplus agricultural workers more easily
• brings in investment funds
• diversifies the economy
• brings faster growth than primary products do

Question 20

Industrialization argument

Answer 20

presumes that, although a country may develop an inefficient and non-globally competitive industrial sector, it will achieve economic growth by enabling the unemployed and underemployed to work in industry

Question 21

When a country shifts from agriculture to industry

Answer 21

• output may increase if the agricultural workers produced little before
• demands on social and political services in cities may increase
• development possibilities in the agricultural sector may be overlooked
• industrial jobs may not be forthcoming

Question 22

If import restrictions keep out foreign-made goods

Answer 22

foreign companies may invest to produce in the restricted area

Question 23

Although prices for commodities fluctuate markedly

Answer 23

a shift to production of manufactures creates competitive risk

Question 24

Terms of trade may deteriorate because

Answer 24

• demand for primary products grows more slowly than manufactured ones
• production cost savings for primary products will be passed on to consumers

Question 25

Import substitution

Answer 25

restricting imports to boost local production of products they would otherwise import

Question 26

Export-led development

Answer 26

promoting the development of industries with export potential

Question 27

Industrialization emphasizes either

Answer 27

• products to sell domestically
  OR
• products to export

Question 28

Comparable access argument

Answer 28

industries are entitled to the same access to foreign markets as foreign industries have to theirs

Question 29

If domestic producers have less access to foreign markets than foreign producers have to their market

Answer 29

they may be disadvantaged but:
- restricting foreign entry may disadvantage domestic consumers
- negotiating equal market access for each product is impractical

Question 30

Successful countries’ threats to levy trade restrictions to coerce other countries to change their policies

Answer 30

• must be believable
• involve products important to the other countries

Question 31

Export restrictions may

Answer 31

• raise world prices
• require more controls to prevent smuggling
• be ineffective for digital products
• lead to product substitution or new ways to produce the product
• keep domestic prices down by increasing domestic supply
• give producers less incentive to increase output

Question 32

Dumping

Answer 32

• may be used to introduce a new product
• may cause higher prices or subsidies in the exporting country
• is hard to prove

Question 33

Optimum-tariff theory

Answer 33

addresses whether a foreign producer lowers export prices when an importing country places a tax on its products

Question 34

An optimum tariff’s success

Answer 34

• shifts revenue to an importing country
• is difficult to predict
• may cause lower worker income in developing countries

Question 35

Essential-industry argument

Answer 35

nations apply trade restrictions to protect crucial domestic industries so that they are not dependent on foreign supplies during hostile political periods

Question 36

In protecting essential industries, countries must

Answer 36

• determine which ones are essential
• consider costs and alternatives
• consider political and economic consequences

Question 37

Trade limitations may be used

Answer 37

to compel a foreign country to amend an objectionable practice

Question 38

When facing import competition, companies can

Answer 38

• move abroad or find foreign supplies
• seek other market niches
• make domestic output competitive
• try to get protection