Hill12e Chapter 07 TB Answer Key PDF

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1 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the priorInternational Business, 12e (Hill)Chapter 7 Government Policy and International Trade Tariffs are generally pro-consumer and anti-producer. Answer: FALSE Explanation: Tariffs are generally...

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International Business, 12e (Hill) Chapter 7

Government Policy and International Trade

1) Tariffs are generally pro-consumer and anti-producer. Answer: FALSE Explanation: Tariffs are generally pro-producer and anti-consumer. While they protect producers from foreign competitors, this restriction of supply also raises domestic prices. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 2) Export tariffs are far less common than import tariffs. Answer: TRUE Explanation: Export tariffs are far less common than import tariffs. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 3) Under a tariff rate quota, a higher tariff rate is applied to imports within the quota than those over the quota. Answer: FALSE Explanation: Under a tariff rate quota, a lower tariff rate is applied to imports within the quota than those over the quota. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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4) Unlike other trade policies, local content regulations tend to benefit consumers and not producers. Answer: FALSE Explanation: Local content regulations provide protection for a domestic producer of parts in the same way an import quota does: by limiting foreign competition. As with all trade policies, local content regulations tend to benefit producers and not consumers. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 5) Local content regulations provide protection for a domestic producer of parts by limiting foreign competition. Answer: TRUE Explanation: Local content regulations provide protection for a domestic producer of parts in the same way an import quota does: by limiting foreign competition. The aggregate economic effects are also the same; domestic producers benefit, but the restrictions on imports raise the prices of imported components. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 6) Antidumping policies are designed to punish foreign firms that are engaged in dumping. Answer: TRUE Explanation: Antidumping policies are designed to punish foreign firms that engage in dumping. The ultimate objective is to protect domestic producers from unfair foreign competition. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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7) Antidumping policies vary drastically from country to country. Answer: FALSE Explanation: Although antidumping policies vary somewhat from country to country, the majority are similar to those used in the United States. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 8) Protecting industries deemed important for national security and retaliating against unfair foreign competition are economic arguments for government intervention. Answer: FALSE Explanation: These are political arguments for government intervention and cover a range of issues, including preserving jobs, protecting industries deemed important for national security, retaliating against unfair foreign competition, protecting consumers from "dangerous" products, furthering the goals of foreign policy, and advancing the human rights of individuals in exporting countries. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-02 Understand why governments sometimes intervene in international trade. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 9) The infant industry argument is the latest argument for government intervention in trade. Answer: FALSE Explanation: The infant industry argument is by far the oldest economic argument for government intervention. Alexander Hamilton proposed it in 1792. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-02 Understand why governments sometimes intervene in international trade. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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10) GATT has not recognized the infant industry argument as a legitimate reason for protectionism. Answer: FALSE Explanation: The infant industry argument has had substantial appeal for the governments of developing nations during the past 50 years, and the GATT has recognized the infant industry argument as a legitimate reason for protectionism. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-02 Understand why governments sometimes intervene in international trade. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 11) Governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them. Answer: TRUE Explanation: Governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them. Difficulty: 1 Easy Topic: Government Policies Affecting Trade Learning Objective: 07-03 Summarize and explain the arguments against strategic trade policy. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 12) Trade wars benefit countries with interventionist governments. Answer: FALSE Explanation: In many cases, the resulting trade war between two or more interventionist governments will leave all countries involved worse off than if a hands-off approach had been adopted in the first place. Difficulty: 1 Easy Topic: Government Policies Affecting Trade Learning Objective: 07-03 Summarize and explain the arguments against strategic trade policy. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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13) During the 1980s and early 1990s, the world trading system erected by the GATT gained momentum as protectionist demands generally decreased across the world. Answer: FALSE Explanation: During the 1980s and early 1990s, the world trading system erected by the GATT came under strain as pressures for greater protectionism increased around the world. Difficulty: 1 Easy Topic: The World Trading System, GATT, and the WTO Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 14) The World Trade Organization was created as part of the Uruguay Round. Answer: TRUE Explanation: The Uruguay Round dragged on for seven years before an agreement was reached December 15, 1993. It went into effect July 1, 1995. The World Trade Organization was created to implement the GATT agreement. Difficulty: 1 Easy Topic: The World Trading System, GATT, and the WTO Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 15) The WTO does not have the power to impose trade sanctions. Answer: FALSE Explanation: Arbitration panel reports on trade disputes between member countries are automatically adopted by the WTO. Countries that have been found by the arbitration panel to violate GATT rules may appeal to a permanent appellate body, but its verdict is binding. If offenders fail to comply with the recommendations of the arbitration panel, trading partners have the right to compensation or, in the last resort, to impose trade sanctions. Difficulty: 1 Easy Topic: The World Trading System, GATT, and the WTO Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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16) Antidumping actions are concentrated in certain sectors of the economy such as basic metal industries, chemicals, plastics, and machinery and electrical equipment. Answer: TRUE Explanation: Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery and electrical equipment. These four sectors since 1995 have been characterized by periods of intense competition and excess productive capacity, which have led to low prices and profits (or losses) for firms in those industries. Difficulty: 1 Easy Topic: The World Trading System, GATT, and the WTO Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 17) The TRIPS regulations oblige WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years. Answer: TRUE Explanation: The TRIPS regulations oblige WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years. Rich countries had to comply with the rules within a year. Poor countries, in which such protection generally was much weaker, had five years' grace, and the very poorest had 10 years. Difficulty: 1 Easy Topic: The World Trading System, GATT, and the WTO Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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18) One of the successful outcomes of the Doha Round negotiations has been that many nations have proceeded with bilateral free trade agreements. Answer: FALSE Explanation: As of early 2017, the goal was to reduce tariffs for manufactured and agricultural goods by 60 to 70 percent and to cut subsidies to half of their current level—but getting nations to agree to those goals was proving exceedingly difficult. In response to the apparent failure of the Doha Round negotiations to progress, many nations have pushed forward with bilateral free trade agreements. Difficulty: 1 Easy Topic: The World Trading System, GATT, and the WTO Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 19) Tariffs on industrial goods remain higher than tariffs on services. Answer: FALSE Explanation: Tariffs on services remain higher than on industrial goods. The average tariff on business and financial services imported into the United States, for example, is 8.2 percent, into the EU it is 8.5 percent, and into Japan it is 19.7 percent. Given the rising value of cross-border trade in services, reducing these figures can be expected to yield substantial gains. Difficulty: 1 Easy Topic: The World Trading System, GATT, and the WTO Learning Objective: 07-04 Describe the development of the world trading system and the current trade issues. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 20) Tariff barriers lower the costs of exporting products to a country. Answer: FALSE Explanation: Trade barriers constrain a firm's ability to disperse its productive activities in such a manner. Tariff barriers raise the costs of exporting products to a country (or of exporting partly finished products between countries). Difficulty: 1 Easy Topic: Trade Restrictions Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 7 Copyright 20 19 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

21) To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise. Answer: TRUE Explanation: To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise. From the firm's perspective, the consequence might be to raise costs above the level that could be achieved if each production activity was dispersed to the optimal location for that activity. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-05 Explain the implications for managers of developments in the world trading system. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 22) ________ are levied as a proportion of the value of the imported good. A) Specific tariffs B) Import quotas C) Ad valorem tariffs D) Tariff rate quotas Answer: C Explanation: Tariffs fall into two categories. Specific tariffs are levied as a fixed charge for each unit of a good imported. Ad valorem tariffs are levied as a proportion of the value of the imported good. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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23) A ________ helps domestic producers to compete against foreign imports. A) An ad valorem tariff B) A specific tariff C) An import quota D) A subsidy Answer: D Explanation: A subsidy is a government payment to a domestic producer. By lowering production costs, subsidies help domestic producers in two ways: (1) competing against foreign imports and (2) gaining export markets. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 24) The extra profit that producers make when supply is artificially limited by an import quota is referred to as a A) quota rent. B) specific tariff. C) tariff rate quota. D) subsidy. Answer: A Explanation: The extra profit that producers make when supply is artificially limited by an import quota is referred to as a quota rent. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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25) The ________ specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. A) General Agreement on Tariffs and Trade B) Buy America Act C) American Reinvestment Act D) Smoot-Hawley Act Answer: B Explanation: A little-known law in the United States, the Buy America Act, specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation 26) What term refers to a situation in which a government does not attempt to restrict what its citizens can buy or sell to another country? A) tariffs B) import quotas C) free trade D) subsidies Answer: C Explanation: Free trade refers to a situation in which a government does not attempt to restrict what its citizens can buy from or sell to another country. Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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27) Which of the following is one of the main instruments of trade policy? A) tariffs B) credit portfolios C) opportunity costs D) countervailing duties Answer: A Explanation: Trade policy uses seven main instruments: tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping duties. Tariffs are the oldest and simplest instrument of trade policy. Difficulty: 2 Medium Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Analyze AACSB: Knowledge Application Accessibility: Keyboard Navigation 28) Specific tariffs are A) levied as a proportion of the value of the imported good. B) government payment to domestic producers. C) in the form of manufacturing or production requirements of goods. D) levied as a fixed charge for each unit of a good imported. Answer: D Explanation: Specific tariffs are levied as a fixed charge for each unit of a good imported (for example, $3 per barrel of oil). Difficulty: 1 Easy Topic: Trade Policy and Government Intervention in International Trade Learning Objective: 07-01 Identify the policy instruments used by governments to influence international trade flows. Bloom's: Remember AACSB: Knowledge Application Accessibility: Keyboard Navigation

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