Review Questions

8 . How does the cost of “saving” jobs in protected industries compare to the workers’ wages and salaries? 9 . Explain how predatory pricing could be a motivation for dumping. 10 . Why do low-income countries like Brazil, Egypt, or Vietnam have lower environmental standards than high-income countries like the Germany, Japan, or the United States? 11 . Explain the logic behind the “race to the bottom” argument and the likely reason it has not occurred. 12 . What are the conditions under which a country may use the unsafe products argument to block imports? 13 . Why is the national security argument not convincing? 14 . Assume a perfectly competitive market and the exporting country is small. Using a demand and supply diagram, show the impact of increasing standards on a low-income exporter of toys. Show the tariff's impact. Is the effect on toy prices the same or different? Why is a standards policy preferred to tariffs? 15 . What is the difference between a free trade association, a common market, and an economic union? 16 . Why would countries promote protectionist laws, while also negotiate for freer trade internationally? 17 . What might account for the dramatic increase in international trade over the past 50 years? 18 . How does competition, whether domestic or foreign, harm businesses? 19 . What are the gains from competition?

Review Questions

20 . Who does protectionism protect? From what does it protect them? 21 . Name and define three policy tools for enacting protectionism. 22 . How does protectionism affect the price of the protected good in the domestic market? 23 . Does international trade, taken as a whole, increase the total number of jobs, decrease the total number of jobs, or leave the total number of jobs about the same? 24 . Is international trade likely to have roughly the same effect on the number of jobs in each individual industry? 25 . How is international trade, taken as a whole, likely to affect the average level of wages? 26 . Is international trade likely to have about the same effect on everyone’s wages? 27 . What are main reasons for protecting “infant industries”? Why is it difficult to stop protecting them? 28 . What is dumping? Why does prohibiting it often work better in theory than in practice? 29 . What is the “race to the bottom” scenario? 30 . Do the rules of international trade require that all nations impose the same consumer safety standards? 31 . What is the national interest argument for protectionism with regard to certain products? 32 . Name several of the international treaties where countries negotiate with each other over trade policy. 33 . What is the general trend of trade barriers over recent decades: higher, lower, or about the same? 34 . If opening up to free trade would benefit a nation, then why do nations not just eliminate their trade barriers, and not bother with international trade negotiations? 35 . Who gains and who loses from trade? 36 . Why is trade a good thing if some people lose? 37 . What are some ways that governments can help people who lose from trade?

Critical Thinking Questions

38 . Show graphically that for any tariff, there is an equivalent quota that would give the same result. What would be the difference, then, between the two types of trade barriers? Hint: It is not something you can see from the graph. 39 . From the Work It Out "Effects of Trade Barriers," you can see that a tariff raises the price of imports. What is interesting is that the price rises by less than the amount of the tariff. Who pays the rest of the tariff amount? Can you show this graphically? 40 . If trade barriers hurt the average worker in an economy (due to lower wages), why does government create trade barriers? 41 . Why do you think labor standards and working conditions are lower in the low-income countries of the world than in countries like the United States? 42 . How would direct subsidies to key industries be preferable to tariffs or quotas? 43 . How can governments identify good candidates for infant industry protection? Can you suggest some key characteristics of good candidates? Why are industries like computers not good candidates for infant industry protection? 44 . Microeconomic theory argues that it is economically rationale (and profitable) to sell additional output as long as the price covers the variable costs of production. How is this relevant to the determination of whether dumping has occurred? 45 . How do you think Americans would feel if other countries began to urge the United States to increase environmental standards? 46 . Is it legitimate to impose higher safety standards on imported goods than those that exist in the foreign country where the goods were produced? 47 . Why might the unsafe consumer products argument be a more effective strategy (from the perspective of the importing country) than using tariffs or quotas to restrict imports? 48 . Why might a tax on domestic consumption of resources critical for national security be a more efficient approach than barriers to imports? 49 . Why do you think that the GATT rounds and, more recently, WTO negotiations have become longer and more difficult to resolve? 50 . An economic union requires giving up some political autonomy to succeed. What are some examples of political power countries must give up to be members of an economic union? 51 . What are some examples of innovative products that have disrupted their industries for the better? 52 . In principle, the benefits of international trade to a country exceed the costs, no matter whether the country is importing or exporting. In practice, it is not always possible to compensate the losers in a country, for example, workers who lose their jobs due to foreign imports. In your opinion, does that mean that trade should be inhibited to prevent the losses? 53 . Economists sometimes say that protectionism is the “second-best” choice for dealing with any particular problem. What they mean is that there is often a policy choice that is more direct or effective for dealing with the problem—a choice that would still allow the benefits of trade to occur. Explain why protectionism is a “second-best” choice for: a. helping workers as a group