COLLEGE OF BUSINESS ADMINISTRATION
ECONOMICS 3704
INTERNATIONAL TRADE
ANSWERS TO PRACTICE MC QUESTIONS FOR TEST #2
MULTIPLE CHOICE QUESTIONS
Note: The purpose of the multiple-choice questions below is to give you
an idea of the kind of questions that might appear in the exam. The
answers are indicated with two asterisks.
1. When a Japanese company buys a U.S. communications satellite the flow is usually
treated as
a. a capital flow.
b. a trade flow.**
c. a direct investment.
d. a portfolio investment.
e. None of the above.
2. GM’s owning five percent of an Irish software developer is considered
a. direct foreign investment.
b. portfolio investment.**
c. official aid.
d. short-term lending.
e. None of the above
3. Internalization refers to
a. the process by which a good is produced in two or more different countries
rather than one.
b. the process by which transactions cannot be done through the market, but
internally.**
c. the theory of location, which explains why Europe does not import its
automobiles from the United States.
d. all of the above.
e. It is an abbreviated expression for the term “internationalization”.
4. The U.S. tariff on gas meters is 27.6¢/meter plus 4.3 percent of the value of the
meter. This is an example of ________.
a. a specific tariff.
b. an ad valorem tariff.
c. a combination of a specific tariff and an ad valorem tariff.**
d. a nontariff barrier
e. None of the above
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5. International free labor mobility will under all circumstances
a. will not change total world output.
b. improve the economic welfare of everyone.
c. improve the economic welfare of workers everywhere.
d. improve the economic welfare of landlords (or capital owners) everywhere.
e. None of the above.**
6. During the mass migration period of late 19th-early 20th centuries,
a. wages rose in the origin countries and fell in the destination countries.
b. wages fell in the origin countries and rose in the destination countries.
c. wages generally rose faster in the origin countries.**
d. wages generally rose faster in the destination countries.
e. wages generally fell faster in the origin countries.
7. The import demand curve is
a. Horizontal
b. Vertical
c. Flatter than the domestic demand curve. **
d. Steeper than the domestic demand curve.
e. None of the above.
8. A voluntary export restraint is
a. An ad valorem tax on imports.
b. A specific tax on exports.
c. An import quota.
d. An export quota. **
e. A trade expansion policy instrument.
9. Ad valorem tariffs are
a. import taxes stated in ads in industry publications.
b. import taxes calculated as a fixed charge for each unit of imported goods.
c. import taxes calculated as a fraction of the value of the imported goods.**
d. the same as import quotas
e. None of the above.
10. If a small country imposes a tariff, then
a. the producers must suffer a loss.
b. the consumers must suffer a loss.**
c. the government revenue must suffer a loss.
d. the demand curve must shift to the left.
e. None of the above.
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Specific tariffs are
a. import taxes stated in specific legal statutes.
b. import taxes calculated as a fixed charge for each unit of imported goods.**
c. import taxes calculated as a fraction of the value of the imported goods.
d. the same as import quotas.
e. None of the above.
12. The imposition of tariffs on imports by a small country results in deadweight (triangle)
losses. These are
a. production and consumption distortion effects.**
b. redistribution effects.
c. revenue effects
d. efficiency effects.
e. None of the above.
13. Should the home country be "large" relative to its trade partners, its imposition of a
tariff on imports would lead to an increase in domestic welfare if the terms of the trade
rectangle exceed the sum of the
a. revenue effect plus redistribution effect.
b. protective effect plus revenue effect.
c. consumption effect plus redistribution effect.
d. production distortion effect plus consumption distortion effect.**
e. None of the above.
14. The term “collective action” refers to the situation in which
a. The country can affect the terms of trade.
b. There is a free-rider problem associated with lobbying the government to
establish protection.**
c. The industry is unionized.
d. There is a domestic market failure.
e. Migration
15. The main constraints that the WTO places on trade policy are:
a. Export subsidies may not be used except for agricultural products.
b. Import quotas can not be used except when imports threaten “marker
disruption”.
c. Any new tariff must be offset by reductions in other tariffs to compensate the
affected countries.
d. All of the above. **
e. None of the above.
16. Specific tariffs are
a. import taxes stated in specific legal statutes.
b. import taxes calculated as a fixed charge for each unit of imported goods. **
c. import taxes calculated as a fraction of the value of the imported goods.
d. the same as import quotas.
e. None of the above.
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17. The prohibitive tariff is a tariff that
a. is so high that it eliminates imports. **
b. is so high that it causes undue harm to trade-partner economies.
c. is so high that it causes undue harm to import competing sectors.
d. is so low that the government prohibits its use since it would lose an important
revenue source.
e. None of the above.
18. The fact that trade policy often imposes harm on large numbers of people, and benefits
only a few may be explained by
a. the lack of political involvement of the public.
b. the power of advertisement.
c. the problem of collective action. **
d. the basic impossibility of the democratic system to reach a fair solution.
e. None of the above.
19. The Smoot-Hawley Tariff Act of 1930 has generally been associated with
a. falling tariffs.
b. free trade.
c. intensifying the worldwide depression. **
d. recovery from the worldwide depression
e. Non-tariff barriers.
20. The infant industry argument was an important theoretical basis for
a. Neo-colonialist theory of international exploitation.
b. Import - substituting industrialization. **
c. Historiography of the industrial revolution in Western Europe.
d. East-Asian miracle.
e. None of the above.
21. The HPAE (High Performance Asian Economies) countries
a. Have all consistently supported free trade policies.
b. Have all consistently maintained import-substitution policies.
c. Have all consistently maintained non-biased efficient free capital markets.
d. Have all maintained openness to international trade. **
e. None of the above.
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