CHAPTER 7

TRADE POLICIES FOR THE DEVELOPING NATIONS

MULTIPLE-CHOICE QUESTIONS

1. Which of the following is not a major factor that encourages developing nations to form international commodity agreements?a. Inelastic commodity supply schedulesb. Inelastic commodity demand schedulesc. Export markets that tend to be unstabled. Secular increases in their terms of trade

2. International commodity agreements do not:a. Consist of consuming and producing nations who desire market stabilityb. Levy export cutbacks so as to offset rising commodity pricesc. Utilize buffer stocks to generate commodity price stabilityd. Increase the supply of commodities to prevent rising prices

3. Concerning the price elasticities of supply and demand for commodities, empirical estimates suggest that most commodities have:a. Inelastic supply schedules and inelastic demand schedulesb. Inelastic supply schedules and elastic demand schedulesc. Elastic supply schedules and inelastic demand schedulesd. Elastic supply schedules and elastic demand schedules

4. If the demand schedule for bauxite is relatively inelastic to price changes, an increase in the supply schedule of bauxite will cause a(n):a. Decrease in price and a decrease in sales revenueb. Decrease in price and an increase in sales revenuec. Increase in price and a decrease in sales revenued. Increase in price and an increase in sales revenue

5. A primary goal of international commodity agreements has been the:a. Maximization of members revenues via export taxesb. Nationalization of corporations operating in member nationsc. Adoption of tariff protection against industrialized nation sellersd. Moderation of commodity price fluctuations when markets are unstable

6. Which device has the International Tin Agreement utilized as a way of stabilizing tin prices?a. Multilateral contractsb. Export subsidiesc. Buffer stocksd. Export tariffs

7. Which method has not generally been used by the international commodity agreements to stabilize commodity prices?a. Production quotas applied to the level of commodity outputb. Buffer stock arrangements among producing nationsc. Export restrictions applied to international sales of commoditiesd. Measures to nationalize foreign-owned production operations

8. The OPEC nations during the 1970s manifested their market power by utilizing:a. Export tariffs levied for revenue purposesb. Export tariffs levied for protective purposesc. Import tariffs levied for protective purposesd. Import tariffs levied for revenue purposes

9. One factor that has prevented the formation of cartels for producers of commodities is that:a. The demand for commodities tends to be price inelasticb. Substitute products exist for many commoditiesc. Commodity produces have been able to dominate world marketsd. Production of most commodities is capital intensive

10. Which device has been used by the International Wheat Agreement to stipulate the mini-mum prices at which importers will buy stipulated quantities from producers and the maxi-mum prices at which producers will sell stipulated quantities to importers?a. Buffer stocksb. Export controlsc. Multilateral contractsd. Production controls

11. If the bauxite exporting countries form a cartel to boost the price of bauxite so as to increase sales revenue, they believe that the demand for bauxite:a. Is inelastic with respect to price changesb. Is elastic with respect to price changesc. Will increase in response to a price increased. Will not change in response to a price change

12. If the supply schedule for tin is relatively inelastic to price changes, a decrease in the demand schedule for tin will cause a(n):a. Decrease in price and an increase in sales revenueb. Decrease in price and a decrease in sales revenuec. Increase in price and an increase in sales revenued. Increase in price and a decrease in sales revenue

13. Which of the following could partially explain why the terms of trade of developing coun-tries might deteriorate over time?a. Developing-country exports mainly consist of manufactured goodsb. Developing-country imports mainly consist of primary productsc. Commodity export prices are determined in highly competitive marketsd. Commodity export prices are solely determined by developing countries

14. Which terms-of-trade concept emphasizes a nations capacity to import?a. Income terms of tradeb. Commodity terms of tradec. Barter terms of traded. Price terms of trade

15. Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers, who thus can take over markets already established in the country?a. International commodity agreementb. Export promotionc. Multilateral contractd. Import substitution

16. Which trade strategy have developing countries used to replace commodity exports with exports such as processed primary products, semi-manufacturers, and manufacturers?a. Multilateral contractb. Buffer stockc. Export promotiond. Export quota

17. To help developing countries expand their industrial base, some industrial countries have reduced tariffs on designated manufactured imports from developing countries below the levels applied to imports from industrial countries. This scheme is referred to as:a. Generalized system of preferencesb. Export-led growthc. International commodity agreementd. Reciprocal trade agreement

18. Which nation accounts for the largest amount of OPECs oil reserves and production?a. Iranb. Libyac. Iraqd. Saudi Arabia

19. Assuming identical cost and demand curves, OPEC as a cartelin comparison to a com-petitive industrywill produce:a. Greater output and charge a lower priceb. Greater output and charge a higher pricec. Less output and charge a higher priced. Less output and charge a lower price

20. Which of the following situations reduces the likelihood of successful operation of a cartel?a. Cartel sales experience a rapid expansionb. The demand for cartel output is price inelasticc. The number of firms in the cartel is larged. It is very difficult for new firms to enter the market

21. Which industrialization policy used by developing countries places emphasis on the com-parative advantage principle as a guide to resource allocation?a. Export promotionb. Import substitutionc. International commodity agreementsd. Multilateral contract

22. A widely used indicator to differentiate developed countries from developing countries is:a. International trade per capitab. Real income per capitac. Unemployment per capitad. Calories per capita

23. Concerning the hypothesis that there has occurred a long-run deterioration in the developing countries terms of trade, empirical studies provide:a. Mixed evidence that does not substantiate the deterioration hypothesisb. Overwhelming support for the deterioration hypothesisc. Overwhelming opposition to the deterioration hypothesisd. None of the above

24. For the oil-importing countries, the increases in oil prices in 19731974 and 19791980 resulted in all of the following except:a. Balance of trade deficitsb. Price inflationc. Constrained economic growthd. Improving terms of trade

25. Hong Kong and South Korea are examples of developing nations that have recently pursued industrialization policies. These countries are using:a. Import substitutionb. Export promotionc. Commercial dumpingd. Multilateral contract

26. Stabilizing commodity prices around long-term trends tends to benefit importers at the expense of exporters in markets characterized by:a. Demand-side disturbancesb. Supply-side disturbancesc. Demand-side and supply-side disturbancesd. None of the above

27. Stabilizing commodity prices around long-term trends tends to benefit exporters at the expense of importers in markets characterized by:a. Demand-side disturbancesb. Supply-side disturbancesc. Demand-side and supply-side disturbancesd. None of the above

28. To be considered a good candidate for an export cartel, a commodity should:a. Be a manufactured goodb. Be a primary productc. Have a high price elasticity of supplyd. Have a low price elasticity of demand

29. To be considered a good candidate for an export cartel, a commodity should:a. Be a manufactured goodb. Be a primary productc. Have a low price elasticity of supplyd. Have a high price elasticity of demand

30. To help developing nations strengthen their international competitiveness, many industrial nations have granted nonreciprocal tariff reductions to developing nations under the:a. International commodity agreements programb. Multilateral contract programc. Generalized system of preferences programd. Export-led growth program

The diagram in Figure 7.1 illustrates the international tin market. Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound. Answer Questions 3133 on the basis of this information.

Figure 7.1.Defending the Target Price in Face of Changing Demand Conditions

31. Consider Figure 7.1. Suppose the demand for tin increases from D0 to D1. Under a buffer stock system, the buffer-stock manager could maintain the target price by:a. Selling 15 pounds of tinb. Selling 30 pounds of tinc. Buying 15 pounds of tind. Buying 30 pounds of tin

32. Consider Figure 7.1. Suppose the demand for tin decreases from D0 to D2. Under a buffer stock system, the buffer-stock manager could maintain the target price by:a. Selling 15 pounds of tinb. Selling 30 pounds of tinc. Buying 15 pounds of tind. Buying 30 pounds of tin

33. Consider Figure 7.1. Suppose the demand for tin decreases from D0 to D2. Under a system of export quotas, the tin producers could maintain the target price by:a. Increasing the quantity of tin supplied by 15 poundsb. Increasing the quantity of tin supplied by 30 poundsc. Decreasing the quantity of tin supplied by 15 poundsd. Decreasing the quantity of tin supplied by 30 pounds

The diagram in Figure 7.2 illustrates the international tin market. Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound. Answer Questions 3436 on the basis of this information.

Figure 7.2.Defending the Target Price in Face of Changing Supply Conditions

34. Consider Figure 7.2. Suppose the supply of tin increases from S0 to S1. Under a buffer stock system, the buffer-stock manager could maintain the target price by:a. Purchasing 15 pounds of tinb. Purchasing 30 pounds of tinc. Selling 15 pounds of tind. Selling 30 pounds of tin

35. Consider Figure 7.2. Suppose the supply of tin decreases from S0 to S2. Under a buffer stock system, the buffer-stock manager could maintain the target price by:a. Purchasing 15 pounds of tinb. Purchasing 30 pounds of tinc. Selling 15 pounds of tind. Selling 30 pounds of tin

36. Consider Figure 7.2. Assume there exists a cartel of several producers that is maximizing total profit. If one producer cheats on the cartel agreement by decreasing its price and increasing its output, rational action of the other producers is to:a. Increase their price in order to regain sacrificed profitsb. Decrease their price as wellc. Keep on selling at the agreed-upon priced. Give the product away for free

37. A reason why it is difficult for producers to maintain a cartel is that:a. The elasticity of demand for the cartels output decreases over timeb. Producers in the cartel have the economic incentive to cheatc. Economic profits discourage other producers from entering the industryd. Producers in the cartel have the motivation to lower price but not to raise price

38. Once a cartel establishes its profit-maximizing price:a. Entry into the industry of new competitors will not affect the cartels profitsb. Output changes by cartel members have no effect on the market pricec. Each cartel member is tempted to cheat on the cartel price in order to add to its profitd. All cartel members have a strong incentive to adhere to the agreed-upon price

Use the graph shown in Figure 7.3 to answer Questions 3944.

Figure 7.3.World Oil Market

39. Consider Figure 7.3. Under competitive conditions, the quantity of oil produced equals:a. 40 barrelsb. 70 barrelsc. 90 barrelsd. 110 barrels

40. Consider Figure 7.3. Under competitive conditions, the price of a barrel of oil equals:a. $7b. $11c. $12d. $16

41. Consider Figure 7.3. Under competitive conditions, producer profits total:a. $0b. $140c. $200d. $280

42. Consider Figure 7.3. Under a profit-maximizing cartel, the quantity of oil produced equals:a. 40 barrelsb. 70 barrelsc. 90 barrelsd. 110 barrels

43. Consider Figure 7.3. Under a profit-maximizing cartel, the price of a barrel of oil equals:a. $7b. $11c. $16d. $19

44. Consider Figure 7.3. Under a profit-maximizing cartel, producers realize:a. Profits totaling $280b. Profits totaling $360c. Losses totaling $140d. Losses totaling $180

45. Import substitution policies make use of:a. Tariffs that discourage goods from entering a countryb. Quotas applied to goods that are shipped abroadc. Production subsidies granted to industries with comparative advantagesd. Tax breaks granted to industries with comparative advantages

46. Export-led growth tends to:a. Exploit domestic comparative advantagesb. Discourage competition in the global economyc. Lead to unemployment among domestic workersd. Help firms benefit from diseconomies of large-scale production

47. All of the following nations except ________ have recently utilized export-led (outward-oriented) growth policies.a. Hong Kongb. South Koreac. Argentinad. Singapore

48. The characteristics that have underlaid the economic success of the high-performing Asian Economies have included all of the following except:a. High rates of domestic investmentb. Diseconomies of scale occurring at low output levelsc. Large endowments of human capitald. High levels of labor productivity

49. The development of countries like South Korea and Singapore has been underlaid by all of the following except:a. High domestic interest ratesb. R&D and product innovationc. Education and on-the-job trainingd. High levels of saving and investment

50. For most developing countries:a. Productivity is high among domestic workersb. Population-growth and illiteracy rates are lowc. Saving and investment levels are highd. Agricultural goods and raw materials constitute much of domestic output

51. East Asian economies have performed well by:a. Obtaining foreign technologyb. Remaining open to international tradec. Investing in their peopled. All of the above

52. East Asian economies started enacting export-push strategies:a. By late 1950s and 1960sb. Immediately after World War IIc. In the late 1980sd. In the early 2000s

53. Prior to the formation of the Organization of Petroleum Exporting Countries, individual oil producing nations:a. Operated like sellers in a competitive marketb. Behaved like individual sellers in a monopoly marketc. Had considerable control over the price of oild. Both b and c

54. A key factor underlying the instability of primary product prices and export receipts of devel-oping nations is the:a. Low price elasticity of the demand of primary productsb. High price elasticity of supply of primary productsc. High price elasticity of demand of primary productsd. None of the above

Answers to Multiple-Choice Questions

1. d2. b3. a4. a5. d6. c7. d8. a9. b

10. c11. a

12. b13. c14. a15. d16. c17. a18. d19. c20. c21. a22. b

23. a24. d25. b26. a27. b28. d29. c30. c31. b32. d33. d

34. b35. d36. b37. b38. c39. d40. b41. a42. b43. c44. a

45. a46. a47. c48. b49. a50. d51. d52. a53. a54. a