Reading 16: Trading with the World-LOS c 习题精选 likely, General, 2011, class, center

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Session 4: Economics for Valuation
Reading 16: Trading with the World

LOS c: Critique the arguments for trade restrictions.

 

 

Trade agreements like the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) that lower trade barriers are least likely to:

A) cause a recession in the United States.

B) increase competition worldwide.

C) lead to economic growth.

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The lowering of trade barriers is hoped to lead to economic growth opportunities and increased competition worldwide.

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Prior to the beginning of the baseball season, the United States government places a tariff on imported bubble gum. Assume for this example that this tariff has a significant impact on the supply of bubble gum. Which of the following statements about the impact of this tariff is least valid? The tariff:

A) will protect the jobs of domestic bubble gum industry workers in the long run.

B) will prohibit foreign firms from dumping bubble gum on the U.S. market at below cost.

C) is not necessary to maintain the high wages of the U.S. bubble gum industry workers.

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In the long run, trade restrictions do not protect the net number of jobs in the country. The number of jobs protected by import restrictions will be offset by jobs lost in the import/export industry. Import/export firms will be unable to sell the overpriced domestic products abroad or import and sell the lower priced restricted foreign-made product.

The other statements are at least partially valid. Some reasons for trade restrictions that have some or partial validity are: national defense argument, infant industries argument, and anti-dumping argument. The assertion that trade with low-wage countries depresses wage rates in high-wage countries stems from a misunderstanding of comparative advantage. When each country produces goods for which it has a comparative advantage, both countries will benefit. High-wage countries likely have a comparative advantage in high tech manufacturing and low wage countries will have an advantage in labor-intensive goods.

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"Import quotas will create jobs, increasing the employment level of a nation." Economic analysis indicates that this statement is incorrect in:

A) the long run only.

B) the short run only.

C) both the long and short run.

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The argument that trade restrictions protect jobs is of questionable validity. First, trade restrictions prevent trading partners from developing the purchasing power needed to buy import goods from the protected country, thus depressing the country's own export industry. Second, the higher price of the protected domestic goods dampens domestic purchasing power, taking sales away from other domestic products. Third, the jobs that would have been created in the import industry are never created.

The number of jobs protected by import restrictions will be offset by jobs lost in the import/export industry.

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The anti-dumping argument in favor of trade restrictions is the argument that restrictions should be imposed to:

A) discourage foreign firms from engaging in price competition.

B) prevent foreign firms from selling their product below cost.

C) prevent foreign firms from dumping unwanted products in domestic markets.

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The anti-dumping argument is that restrictions should be used to prohibit foreign firms from increasing market share by selling products below cost.

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Which of the following is a reason why trade with low-wage countries does NOT depress wage rates in high-wage countries?

A) High hourly wage rates mean high per unit labor costs.

B) When each country produces goods for which it has a comparative advantage, both countries benefit.

C) High-wage countries have an advantage in labor-intensive goods.

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When both countries produce the goods in which they have an advantage, total output and the availability of goods will increase.

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An anti-dumping restriction on trade:

A) keeps some highly sensitive products in the country.

B) prohibits foreign firms from selling products below cost to gain market share.

C) protects infant industries.

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Firms dump their goods at a price lower than cost in order to drive out the competition. Once this is complete, they will be able to raise prices to much higher levels in order to gain abnormal profits. Of course, once prices are increased, new competitors may arise.

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Which of the items below is NOT a valid reason why nations adopt trade restrictions? To:

A) prohibit foreign firms from increasing market share by selling products below cost.

B) protect industries that are highly sensitive to national security.

C) protect industries in which they have a comparative advantage.

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If a particular country enjoys a comparative advantage in a particular industry, no protection is needed.

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Which of the following arguments for trade restrictions is least valid?

A) Some industries are highly sensitive to national security, and their products should therefore remain in the country.

B) Trade restrictions create domestic jobs.

C) Tariffs are used to prohibit foreign firms from selling products in the country at below cost in an attempt to gain market share.

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While the other explanations have some support among economists, the argument that trade restrictions create domestic jobs has very little support. Part of the popularity of trade restrictions stems from their ability to protect easily identifiable jobs and the high wage levels in these jobs. However, in the long run, trade restrictions cannot protect the net number of jobs in the country.

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David Forsythe and Linda Novak are discussing the advantages and disadvantages of import restrictions. They state the following:

Forsythe: One of the groups that benefits from import restrictions is often the government that imposes them.

Novak: Import restrictions impose costs on specific groups, such as the country’s import industries, but these costs are more than offset by the benefits to other groups and to the economy as a whole.

With respect to these statements:

A) both are correct.

B) only one is correct.

C) both are incorrect.

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Forsythe is correct. A primary reason why trade restrictions remain widespread is the revenue that governments receive from tariffs. Novak is incorrect. Trade restrictions benefit specific groups, such as workers in the protected industries, but those benefits are less than the costs imposed on consumers and other industries as a whole.

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Which of the following reasons for a nation to adopt trade restrictions is the least valid? The:

A) job protection argument.

B) national defense argument.

C) anti-dumping argument.

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The number of jobs protected by import restrictions will be offset by jobs lost in the import/export industries. In the long run, trade restrictions cannot protect the net number of jobs in a country.