ECO 305 Week 5 Quiz – Strayer
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Week 5 Quiz 4 Chapter 7
CHAPTER 7
TRADE POLICIES FOR THE DEVELOPING
NATIONS
MULTIPLE CHOICE
1. Which
of the following is not a major factor that encourages developing nations to
form international commodity agreements?
a. Inelastic commodity supply schedules
b. Inelastic commodity demand schedules
c. Export markets that tend to be unstable
d. Secular increases in their terms of
trade
2. International
commodity agreements do not:
a. Consist of consuming and producing
nations who desire market stability
b. Levy export cutbacks so as to offset
rising commodity prices
c. Utilize buffer stocks to generate
commodity price stability
d. 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 schedules
b. Inelastic supply schedules and elastic
demand schedules
c. Elastic supply schedules and inelastic
demand schedules
d. 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:
a. Decrease in price and a decrease in
sales revenue
b. Decrease in price and an increase in
sales revenue
c. Increase in price and a decrease in
sales revenue
d. 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 taxes
b. Nationalization of corporations
operating in member nations
c. Adoption of tariff protection against
industrialized nation sellers
d. 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 contracts
b. Export subsidies
c. Buffer stocks
d. 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 output
b. Buffer stock arrangements among
producing nations
c. Export restrictions applied to
international sales of commodities
d. 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
purposes
b. Export tariffs levied for protective
purposes
c. Import tariffs levied for protective
purposes
d. 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 inelastic
b. Substitute products exist for many
commodities
c. Commodity produces have been able to
dominate world markets
d. Production of most commodities is
capital intensive
10. Which
device has been used by the International Wheat Agreement to stipulate the
minimum prices at which importers will buy stipulated quantities from producers
and the maximum prices at which producers will sell stipulated quantities to
importers?
a. Buffer stocks
b. Export controls
c. Multilateral contracts
d. 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
changes
b. Is elastic with respect to price
changes
c. Will increase in response to a price
increase
d. 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:
a. Decrease in price and an increase in
sales revenue
b. Decrease in price and a decrease in
sales revenue
c. Increase in price and an increase in
sales revenue
d. Increase in price and a decrease in
sales revenue
13. Which
of the following could partially explain why the terms of trade of developing
countries might deteriorate over time?
a. Developing-country exports mainly
consist of manufactured goods
b. Developing-country imports mainly
consist of primary products
c. Commodity export prices are determined
in highly competitive markets
d. Commodity export prices are solely
determined by developing countries
14. Which
terms-of-trade concept emphasizes a nation's capacity to import?
a. Income terms of trade
b. Commodity terms of trade
c. Barter terms of trade
d. 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 agreement
b. Export promotion
c. Multilateral contract
d. 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 contract
b. Buffer stock
c. Export promotion
d. 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 preferences
b. Export-led growth
c. International commodity agreement
d. Reciprocal trade agreement
18. Which
nation accounts for the largest amount of OPEC's oil reserves and production?
a. Iran
b. Libya
c. Iraq
d. Saudi Arabia
19. Assuming
identical cost and demand curves, OPEC as a cartel will, in comparison to a
competitive industry:
a. Produce greater output and charge a
lower price
b. Produce greater output and charge a
higher price
c. Produce less output and charge a higher
price
d. Produce 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
expansion
b. The demand for cartel output is price
inelastic
c. The number of firms in the cartel is
large
d. It is very difficult for new firms to
enter the market
21. Which
industrialization policy used by developing countries places emphasis on the
comparative advantage principle as a guide to resource allocation?
a. Export promotion
b. Import substitution
c. International commodity agreements
d. Multilateral contract
22. A
widely used indicator to differentiate developed countries from developing countries
is:
a. International trade per capita
b. Real income per capita
c. Unemployment per capita
d. 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 hypothesis
b. Overwhelming support for the
deterioration hypothesis
c. Overwhelming opposition to the
deterioration hypothesis
d. None of the above
24. For
the oil-importing countries, the increases in oil prices in 1973-1974 and
1979-1980 resulted in all of the following except:
a. Balance of trade deficits
b. Price inflation
c. Constrained economic growth
d. Improving terms of trade
25. Hong
Kong and South Korea are examples of developing nations that have recently
pursued industrialization policies.
a. Import substitution
b. Export promotion
c. Commercial dumping
d. 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 disturbances
b. Supply-side disturbances
c. Demand-side and supply-side
disturbances
d. 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 disturbances
b. Supply-side disturbances
c. Demand-side and supply-side
disturbances
d. None of the above
28. To
be considered a good candidate for an export cartel, a commodity should:
a. Be a manufactured good
b. Be a primary product
c. Have a high price elasticity of supply
d. 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 good
b. Be a primary product
c. Have a low price elasticity of supply
d. 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
program
b. Multilateral contract program
c. Generalized system of preferences
program
d. Export-led growth program
The
diagram below illustrates the international tin market. Assume that producing
and consuming countries establish an international commodity agreement under
which the target price of tin is $5 per pound.
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 tin
b. Selling 30 pounds of tin
c. Buying 15 pounds of tin
d. 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 tin
b. Selling 30 pounds of tin
c. Buying 15 pounds of tin
d. 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 pounds
b. Increasing the quantity of tin supplied
by 30 pounds
c. Decreasing the quantity of tin supplied
by 15 pounds
d. Decreasing the quantity of tin supplied
by 30 pounds
The
diagram below 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.
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 tin
b. Purchasing 30 pounds of tin
c. Selling 15 pounds of tin
d. 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 tin
b. Purchasing 30 pounds of tin
c. Selling 15 pounds of tin
d. 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 profits
b. Decrease their price as well
c. Keep on selling at the agreed-upon
price
d. 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
cartel's output decreases over time
b. Producers in the cartel have the
economic incentive to cheat
c. Economic profits discourage other
producers from entering the industry
d. 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 cartel's profits
b. Output changes by cartel members have
no effect on the market price
c. Each cartel member is tempted to cheat
on the cartel price in order to add to its profit
d. All cartel members have a strong
incentive to adhere to the agreed-upon price
Figure
7.3. World Oil Market
39. Consider
Figure 7.3. Under competitive conditions, the quantity of oil produced equals:
a. 40 barrels
b. 70 barrels
c. 90 barrels
d. 110 barrels
40. Consider
Figure 7.3. Under competitive conditions, the price of a barrel of oil equals:
a. $7
b. $11
c. $12
d. $16
41. Consider
Figure 7.3. Under competitive conditions, producer profits total:
a. $0
b. $140
c. $200
d. $280
42. Consider
Figure 7.3. Under a profit-maximizing cartel, the quantity of oil produced
equals:
a. 40 barrels
b. 70 barrels
c. 90 barrels
d. 110 barrels
43. Consider
Figure 7.3. Under a profit-maximizing cartel, the price of a barrel of oil
equals:
a. $7
b. $11
c. $16
d. $19
44. Consider
Figure 7.3. Under a profit-maximizing cartel, producers realize:
a. Profits totaling $280
b. Profits totaling $360
c. Losses totaling $140
d. Losses totaling $180
45. Import
substitution policies make use of:
a. Tariffs that discourage goods from
entering a country
b. Quotas applied to goods that are
shipped abroad
c. Production subsidies granted to
industries with comparative advantages
d. Tax breaks granted to industries with
comparative advantages
46. Export-led
growth tends to:
a. Exploit domestic comparative advantages
b. Discourage competition in the global economy
c. Lead to unemployment among domestic
workers
d. 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 Kong
b. South Korea
c. Argentina
d. 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 investment
b. Diseconomies of scale occurring at low
output levels
c. Large endowments of human capital
d. 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 rates
b. R&D and product innovation
c. Education and on-the-job training
d. High levels of saving and investment
50. For
most developing countries:
a. Productivity is high among domestic
workers
b. Population-growth and illiteracy rates
are low
c. Saving and investment levels are high
d. Agricultural goods and raw materials
constitute much of domestic output
51. East
Asian economies have performed well by
a. Obtaining foreign technology
b. Remaining open to international trade
c. Investing in their people
d. All of the above
52. East
Asian economies started enacting export-push strategies
a. By late 1950s and 1960s
b. Immediately after World War II
c. In the late 1980s
d. 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
market
b. Behaved like individual sellers in a
monopoly market
c. Had considerable control over the price
of oil
d. Both b and c.
54. A
key factor underlying the instability of primary product prices and export
receipts of developing nations is the
a. Low price elasticity of the demand of
primary products
b. High price elasticity of supply of
primary products
c. High price elasticity of demand of
primary products
d. None of the above
TRUE/FALSE
1. The
developing nations are most of those in Africa, Asia, North America, and
Western Europe.
2. Most
developing-nation exports go to industrial nations while most developing-nation
imports originate in industrial nations.
3. The
majority of developing-nation exports are primary products such as agricultural
goods and raw materials; of the manufactured goods exported by developing
nations, most are labor-intensive goods.
4. Developing
nations overwhelmingly acknowledge that they have benefited from international
trade according to the principle of comparative advantage.
5. Among
the economic problems facing developing countries have been low dependence on
primary-product exports, unstable export markets, and worsening terms of trade.
6. For
developing countries, a key factor underlying the instability of
primary-product prices and export receipts is the high price elasticity of
demand for products such as tin and copper.
7. Empirical
research indicates that the demand and supply schedules for most primary
products are relatively inelastic to changes in price.
8. If
the demand for coffee is price inelastic, an increase in the supply of coffee
leads to falling prices and rising sales revenues.
9. Not
only do changes in demand induce relatively wide fluctuations in price when
supply is inelastic, but changes in supply induce relatively wide fluctuations
in price when demand is inelastic.
10. Developing
countries have complained that because their commodity terms of trade has
deteriorated in recent decades, they should receive preferential tariff
treatment from industrialized countries.
11. To
promote stability in commodity markets, International Commodity Agreements have
utilized production and export controls, buffer stocks, and multilateral
contracts.
12. During
periods of falling demand for coffee, an International Commodity Agreement
could offset downward pressure on price by implementing policies to increase
the supply of coffee.
13. To
prevent the market price of tin from rising above the target price, the manager
of a buffer stock will purchase excess supplies of tin from the market.
14. To
prevent the market price of tin from falling below the target price, the
manager of a buffer stock would purchase any excess supply of tin that exists
at the target price.
15. Prolonged
defense of a price ceiling tends to increase the supply of a commodity held by
a buffer stock manager, thus putting downward pressure on price.
16. Rather
than conduct massive stabilization operations, buffer stock officials will
periodically revise target prices should they move out of line with long-term
price trends.
17. A
multilateral contract stipulates the maximum price at which importing nations
will purchase guaranteed quantities from producing nations and the minimum
price at which producing nations will sell guaranteed amounts to importing
nations.
18. It
is widely agreed that import-substitution policies have been a main contributor
to above-average growth rates in developing countries.
19. Under
the Generalized System of Preferences program, the major industrial countries
agree to temporarily reduce tariffs on designated imports from other industrial
countries.
20. The
"newly industrializing countries" of East Asia have emphasized the
implementation of import-substitution policies to insulate their industries
from international competition.
21. In
recent decades, the East Asian "newly industrializing countries" have
pursued export-led growth (outward orientation) as an industrialization
strategy.
22. The
purpose of a cartel is to support prices higher than would occur under more
competitive conditions, thus increasing the profits of cartel members.
23. A
cartel tends to be most successful in maximizing the profits of its members
when there are a large number of producers in the cartel and these producers'
cost and demand conditions greatly differ from each other.
24. When
cartel members agree to restrict output to increase the price of their product,
a single member of the cartel has an economic incentive to violate the
agreement by increasing its output so as to increase profits.
25. Developing
countries have often felt that it is easier to protect their manufacturers, via
import-substitution policies, against foreign competitors than to force
industrial nations to reduce trade restrictions on products exported by
developing countries.
26. Import-substitution
policies are supported by the fact that many developing countries have small
domestic markets and thus their producers enjoy the benefits of diseconomies of
small-scale production.
27. Export-led
growth industrialization suffers a major problem: it depends on the willingness
and ability of foreign nations to absorb the goods exported by the country
pursuing such a policy.
28. The
so-called Four Tigers include Australia, South Korea, Taiwan, and Hong Kong.
29. By
the 1990s, China had departed from a capitalistic economy and shifted to a
Soviet-type economy encompassing small-scale, labor-intensive industry.
30. During
the late 1980s and early 1990s, China dismantled much of its centrally-planned
economy and permitted free enterprise to replace it.
31. In
its transition toward capitalism, by the 1990s China permitted free enterprise
as well as democracy for its people.
32. Most
of China's manufactured exports have constituted labor-intensive goods.
33. In
1999 the United States revoked the normal-trade-relations (most-favored-nation)
status it provided China in retaliation for China's suppression of human
rights.
34. A
multilateral contract specifies the maximum price at which exporting countries
agree to sell a product and the minimum price at which importing countries
agree to buy a product.
35. As
a profit-maximizing cartel, the Organization of Petroleum Exporting Countries
would produce a greater output and charge a lower price than what would occur
in a competitive market.
36. The
success of buffer stocks is limited by the fact that stockpiles of a product
may be exhausted after prolonged sales, while funds may be exhausted after
prolonged purchases.
37. The
United Nation Conference on Trade and Development in 1964 was successful in
convincing developing countries to switch from export-led industrialization to
import-substitution industrialization.
38. Under
the Generalized System of Preferences program, the industrialized countries
agree to maintain lower tariffs on imports of natural resources and higher
tariffs on imports of manufactured goods.
39. The
replacement of imports of one nation with imports of another nation is known as
"import substitution."
40. During
periods of weak demand, the Organization of Petroleum Countries has implemented
production (export) quotas to ensure that excess oil supplies be kept off the
market.
SHORT ANSWER
1. What
are some major trade problems faced by developing nations?
2. Are
economic downturns helpful to cartels?
ESSAY
1. What
are some of the growth strategies that have been employed by the developing
nations? How successful are these strategies?
2. Describe
the flying-geese pattern of economic growth? What countries have pursued this
strategy?
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