Week 5

Question 1

What is free trade?

Answer 1

Occurs when governments do not restrict what citizens can buy or sell internationally.

Question 2

What are import tariffs?

Answer 2

Taxes levied on imports, which can be specific or ad valorem.

Question 3

What is the economic impact of import tariffs?

Answer 3

Pro-producer, anti-consumer, and reduce overall efficiency of the world economy.

Question 4

What is an export tariff?

Answer 4

A tax placed on the export of a good to ensure sufficient domestic supply.

Question 5

What is an export ban?

Answer 5

A policy that restricts the export of a good partially or entirely.

Question 6

What are subsidies in trade policy?

Answer 6

Government payments to domestic producers to help them compete against foreign imports.

Question 7

What are import quotas?

Answer 7

Direct restrictions on the quantity of a good that may be imported.

Question 8

What is a voluntary export restraint (VER)?

Answer 8

A quota on trade imposed by the exporting country.

Question 9

What are local content requirements (LCR)?

Answer 9

Regulations that require a certain fraction of a good to be produced locally.

Question 10

What is dumping in international trade?

Answer 10

Selling goods in a foreign market at below production costs or fair market value.

Question 11

What are antidumping policies?

Answer 11

Policies that punish foreign firms for dumping to protect domestic producers.

Question 12

What is the infant industry argument?

Answer 12

Governments should support new industries until they can compete internationally.

Question 13

What is strategic trade policy?

Answer 13

Government intervention to help domestic firms gain advantages in international markets.

Question 14

What is the General Agreement on Tariffs and Trade (GATT)?

Answer 14

A multilateral agreement aimed at promoting free trade by reducing tariffs and trade barriers.

Question 15

What is the World Trade Organization (WTO)?

Answer 15

An organization that encompasses GATT and aims to regulate international trade.

Question 16

What are the unresolved issues currently facing the WTO?

Answer 16

Anti-dumping policies, agricultural protectionism, intellectual property rights, and high tariffs.

Question 17

What is the Doha Round?

Answer 17

A series of trade negotiations under the WTO that began in 2001 and are currently stalled.

Question 18

What are multilateral and bilateral trade agreements?

Answer 18

Reciprocal trade agreements created in response to failed negotiations, designed for additional trade gains.

Question 19

True or False: Trade barriers can create competitive disadvantages for firms.

Answer 19

True

Question 20

Fill in the blank: The __________ is a policy that restricts the export of a good.

Answer 20

[export ban]

Question 21

What are the three drawbacks of government intervention in trade?

Answer 21

• Protects inefficient firms
• May invite retaliation
• Likely to be captured by special-interest groups

Question 22

What happened during the period from 1980 to 1993 in international trade?

Answer 22

Increased protectionism due to perceived unfair trade practices and persistent trade deficits.

Question 23

What was the goal of the Uruguay Round?

Answer 23

To extend GATT rules to services, develop intellectual property rules, and reduce agricultural subsidies.