Government Intervention in Trade Policies
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Questions and Answers

What is at odds with free trade, the unrestricted flow of products, services, and capital across national borders?

  • Factors of production
  • FDI
  • Trade openness (correct)
  • Lower-cost import

    • What are checkpoints at the ports of entry in each country where government officials inspect imported products and levy tariffs?

  • Nontariff trade barriers
  • Quotas
  • Customs (correct)
  • Subsidies

    • Which of the following may be a result of protectionist policies?

  • high incentive to improve quality
  • price inflation (correct)
  • increased choices for buyers
  • easy availability of products

    • What is the primary motive behind governments imposing offensive barriers?

    <p>increase employment</p> Signup and view all the answers

    Which of the following statements is true regarding protectionism?

    <p>It can trigger retaliation from foreign governments, which reduces sales prospects for exports.</p> Signup and view all the answers

    Which of the following statements is true about the protection of an infant industry?

    <p>Governments can impose temporary trade barriers on foreign imports to ensure that young firms gain a large share of the domestic market.</p> Signup and view all the answers

    What refers to a government measure intended to manage or prevent the export of certain products or trade with certain countries?

    <p>Export control</p> Signup and view all the answers

    A nontariff trade barrier is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs.

    <p>True</p> Signup and view all the answers

    Governments impose offensive barriers to safeguard industries, workers, and special interest groups and to promote national security.

    <p>False</p> Signup and view all the answers

    Why have nontariff trade barriers increased in popularity?

    <p>are easier to conceal from the WTO</p> Signup and view all the answers

    Subsidies may allow a manufacturer to practice dumping – that is, to charge an unusually low price for exported products.

    <p>True</p> Signup and view all the answers

    Dumping violates WTO rules because it amounts to unfair competition.

    <p>True</p> Signup and view all the answers

    Which of the following was the first major effort to systematically reduce trade barriers worldwide?

    <p>GATT</p> Signup and view all the answers

    The GATT created a forum for resolving trade disputes.

    <p>True</p> Signup and view all the answers

    If high tariffs are present, managers may consider other strategies, such as FDI, licensing, and joint ventures that allow the firm to operate directly in the target market, avoiding import barriers.

    <p>True</p> Signup and view all the answers

    A formal arrangement between two or more countries to reduce or eliminate tariffs is known as a(n)

    <p>free trade agreement</p> Signup and view all the answers

    NAFTA is an example of which of the following levels of regional integration?

    <p>free trade area</p> Signup and view all the answers

    Regional integration greatly increases the scale of the marketplace for firms inside the economic bloc.

    <p>True</p> Signup and view all the answers

    When was the WTO established (round, city, date)?

    <p>Uruguay Round, Marrakech, Morocco, 1994 (It started on January 1, 1995)</p> Signup and view all the answers

    In a few sentences, explain what the WTO is and its main objectives.

    <p>The World Trade Organization (WTO) is a global organization that regulates international trade. It aims to ensure that trade flows smoothly and predictably, encouraging free trade, and settling trade disputes between member countries.</p> Signup and view all the answers

    What are the two main methods of government intervention in trade?

    <p>Tariffs and Nontariff barriers</p> Signup and view all the answers

    List the four main defensive motives for government intervention in trade.

    <p>Protection of the national economy, protection of an infant industry, national security, and protection of national culture and identity.</p> Signup and view all the answers

    Explain the main argument for protection of the national economy.

    <p>Proponents argue that firms in advanced economies cannot compete with firms in developing countries that employ low-cost labor, and therefore need protection from imports.</p> Signup and view all the answers

    Explain the main argument for protection of an infant industry.

    <p>Young industries, which may be inexperienced and need time to develop technology and scale, require protection from foreign competition.</p> Signup and view all the answers

    Explain why governments might impose trade restrictions on products related to national security.

    <p>Countries may restrict imports of products considered critical to national security, such as military technology or sensitive software, to protect domestic industries and prevent potential adversaries from gaining access to strategic technologies.</p> Signup and view all the answers

    Explain why governments might restrict imports of cultural products to protect national identity.

    <p>Governments may impose trade barriers on cultural products to ensure that domestic culture is preserved and not overly influenced by foreign media, entertainment, or other aspects of culture.</p> Signup and view all the answers

    What are the main negative effects of government intervention in international trade?

    <p>Trade barriers can lead to higher prices for consumers, reduced consumer choice, decreased efficiency, and potential retaliation from other countries.</p> Signup and view all the answers

    Match the following types of tariffs with their definitions:

    <p>Ad valorem tariff = A tax levied as a percentage of the value of the imported product. Specific tariff = A flat fee or fixed amount per unit of the imported product, based on weight, volume, or surface area. Revenue tariff = A tariff intended to raise money for the government. Protective tariff = A tariff designed to protect domestic industries from foreign competition. Prohibitive tariff = A tariff so high that no one can import any of the items.</p> Signup and view all the answers

    What is the main goal of the GATT and, subsequently, the WTO?

    <p>To reduce trade barriers and promote free trade among member countries.</p> Signup and view all the answers

    What are the five levels of economic integration, from least to most integrated?

    <p>Free trade area, customs union, common market, economic union, and political union.</p> Signup and view all the answers

    What are the four main advantages of regional integration?

    <p>Expansion of market size, achievement of scale economies and enhanced productivity, attraction of direct investment, and acquisition of greater political power.</p> Signup and view all the answers

    Give an example of how regional integration can lead to an expansion of market size.

    <p>A Belgian firm can benefit from access to the entire European market of 500 million people, even though Belgium itself has a much smaller population.</p> Signup and view all the answers

    Give an example of how regional integration can lead to greater efficiency and productivity.

    <p>A German firm producing 10,000 units for the domestic market may not be very efficient, but by producing 50,000 units for the entire EU market, it can achieve greater scale economies and improve efficiency.</p> Signup and view all the answers

    Give an example of how regional integration can attract direct investment from outside the bloc.

    <p>Foreign firms, such as General Mills or Samsung, are more likely to invest in countries that are part of a large economic bloc, like the EU, because they can benefit from preferential treatment and easier access to a larger market.</p> Signup and view all the answers

    Give an example of how regional integration can lead to greater political influence.

    <p>The EU is a powerful economic bloc with significant political influence in global trade negotiations and international affairs.</p> Signup and view all the answers

    Study Notes

    Government Intervention and Regional Economic Integration

    • Trade openness is contrasted with free trade, which involves the unrestricted flow of goods, services, and capital across borders.
    • Customs are checkpoints at national borders where officials inspect imported goods and assess tariffs.
    • Protectionist policies can lead to price inflation, as opposed to increased choices for buyers, easy availability of products, or high incentive for quality improvement.
    • Offensive barriers are imposed by governments to protect domestic industries and enhance national security.
    • Defensive barriers are implemented to safeguard national interests, such as generating tax revenue or promotion of strategic policy objectives.
    • Protectionism can lead to retaliation from other countries, potentially reducing export prospects.
    • Infant industry protection involves governments imposing temporary barriers to help young firms compete with established foreign competitors.
    • Export controls are government measures to restrict the export of certain products or trade with specified countries.
    • Nontariff barriers impede trade through regulations or procedures other than tariffs.
    • Dumping involves charging an unusually low price for exported products, violating WTO rules because it's considered unfair competition.
    • GATT (General Agreement on Tariffs and Trade) was a global initiative to reduce international trade barriers.
    • WTO (World Trade Organization) was created in 1995 to govern trade agreements and disputes, succeeding the GATT.
    • Economic integration involves a gradual reduction of trade barriers through different levels culminating in a political union.
    • Regional integration, a significant component of global economics, enhances market size for member firms, leads to greater efficiency, attract foreign investment, and creates greater bargaining power for bloc nations.

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    Description

    This quiz explores the concepts of government intervention in trade and its impacts on regional economic integration. It covers topics such as trade openness, customs regulations, and various protectionist policies. Test your understanding of how these factors influence both domestic industries and international relations.

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