International Agreements: Trade, Labor, and the Environment

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Name TestBanks Chapter 11: International Agreements: Trade, Labor, and the Environment

Description Question pool for TestBanks Chapter 11: International Agreements: Trade, Labor, and the Environment

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Multiple Choice 0 points

Question

During which round of negotiations did the WTO toughen its stance against domestic policies that limit trade?

Answer Bretton Woods

Uruguay

Doha

The WTO never toughened its stance against domestic policies.

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Question

Where was the Climate Summit held in December 2009?

Answer Brussels

New York

Seattle

Copenhagen

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Question

What was the result of the Climate Summit held in December 2009?

Answer All countries signed binding agreements to reduce their greenhouse gases by 20% during the next

10 years.

No countries signed binding agreements to reduce their greenhouse gases.

Only developed industrialized countries agreed to reduce their greenhouse gases by 20% during the

next 10 years.

Only China and India agreed to reduce their greenhouse gases by 20% during the next 10 years.

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Question

The World Trade Organization is called a _______________ because it involves many if not most of the nations

in the world.

Answer bilateral trade organization

trilateral trade organization

multilateral trade agreement

quasi-political trade organization

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Question

A regional trade agreement involves:

Answer most if not all the nations in the world.

several nations, usually trading partners, with a common agenda or geographically linked.

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nations who agree to trade only with nations in their region.

a region of the world with not only trade issues but also political cohesiveness.

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Question

In which type of trade agreement does the WTO allow exclusions to the most favored nation principle?

Answer multilateral trade agreements

free-trade areas

customs unions

free-trade areas and customs unions

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Question

Many regional trade agreements include other provisions that are not part of the treaty, but they are add-ons that

might be important to trade issues. These are called:

Answer addenda.

side agreements.

environmental pacts.

worker rights documents.

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Question

Which of the following is not a part of the NAFTA?

Answer eliminating tariff between members

an agreement on worker rights in each country

an agreement on environmental conditions in each country

elimination of restrictions on movement of labor between member countries

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Question

Which of the following is included in the NAFTA agreement?

Answer tariff elimination on trade among Canada, Mexico, and the United States

a common tariff structure adopted by Canada, Mexico, and the United States

free mobility of labor and capital among Canada, Mexico, and the United States

tariff elimination on trade among Canada, Mexico, and the United States, a common tariff structure

adopted by Canada, Mexico, and the United States, and free mobility of labor and capital among

Canada, Mexico, and the United States

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Question

What is the “most favored nation” principle of the WTO?

Answer It means that trading partners may choose a favorite nation to trade with.

It means that any nation can refuse to trade with another that is not its most favored nation.

It means that the WTO has the right to choose the nation that has performed best within the WTO

guidelines as its most favored nation.

It means that every nation must grant the same rights and treatment to other nations in the WTO as

its “most favored nation.”

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Question

The “most favored nation principle” means that:

Answer Member countries can enter into exclusive favorable agreements with some countries.

Member countries are barred from forming agreements outside their geographic vicinity.

Member countries must extend the same low tariff to all WTO member countries.

Member countries can charge differential tariff on other countries.

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Question

The WTO is considered a _________, whereas NAFTA and the European Union are __________ .

Answer free-trade area; cartels

cartel; multilateral agreements

free-trade area; multilateral agreements

multilateral agreement; regional trade agreements

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Question

Of the following, which is NOT a regional trade agreement?

Answer the World Trade Organization

the European Union

the North American Free Trade Agreement

the Central American Free Trade Agreement

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Question

In a large-country case, an optimal tariff would be:

Answer one that increases the producer surplus.

one that raises the price of the product imported.

one in which the terms-of-trade gain exceeds the deadweight loss.

one that easily passes the legislative process.

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Question

In a large-country case, an optimal tariff is one for which the terms-of-trade gain exceeds the:

Answer producer surplus.

increased price of the product imported.

deadweight loss.

consumer surplus.

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Question

In the large-country case, when a tariff is imposed, the country:

Answer sees a terms-of-trade gain.

is able to reduce world price of the imported good.

is going to experience an increase in consumer surplus.

sees a terms-of-trade gain and is able to reduce world price of the imported good.

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Question

When a large nation imposes a tariff, which of the following is NOT a cost incurred?

Answer deadweight efficiency loss

reduced consumer surplus

deterioration of terms of trade for the trading partners

falling government revenues of the importing nation

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Question

Figure: The Home and World Markets

The supplied graph shows the case for a tariff imposed by a large country.

Reference: Ref 11-1

(Figure: The Home and World Markets) If the world price of the product is given as $30, then home market firms

will produce _______ and the total demand for the good will be _______ .

Answer 40; 100

20; 80

20; 100

40; 80

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Question



Reference: Ref 11-1

(Figure: The Home and World Markets) The amount imported by the home market under free trade is:

Answer 20.

40.

60.


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80.

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Question



Reference: Ref 11-1

(Figure: The Home and World Markets) If a tariff of $10 is imposed by the home country, it causes a loss in the

world market of:

Answer $240.

$160.

$200.

$80.

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Question



Reference: Ref 11-1

(Figure: The Home and World Markets) The loss of consumer surplus in the home country is:

Answer $480.

$540.

$160.

$600.

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Question



Reference: Ref 11-1

(Figure: The Home and World Markets) The terms-of-trade gain is _______, and the deadweight loss is ______ .

Answer $120; $160

$160; $160

$160; $120

$120; $120

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Question

Suppose that a large country imposes optimal tariffs on imports from another large country. The second country

then responds with optimal tariffs on imports from the first country. For these two countries, the Nash equilibrium

results in ___________ for the first country and __________ for the second country.

Answer losses; losses

gains; gains

losses; gains

gains; losses

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Question

What happens when two countries apply tariffs against each other in an attempt to capture their terms-of-trade

gain?

Answer Both countries lose because the terms-of-trade gain for one country is canceled by the tariff in the

other country.

Both countries gain because the terms-of-trade gain for one country is canceled by the tariff in the

other country.

Neither country gains nor loses because the terms-of-trade gain for one country is canceled by the

tariff in the other country.

The country initially applying the tariff gains because it captures the terms-of-trade gain; the other

country neither gains nor loses

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Question

Using game theory as an analytical tool, if one large nation imposes tariffs, the total cost is small; however, when

several trading partners do the same:

Answer the costs are even smaller.

the costs balance out and there is no harm.

the costs are the same but the potential gains are much smaller.

then all nations gain.

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Question

In a prisoner's dilemma:

Answer all competing parties gain.

one competitor gains at the expense of another.

all competing parties lose.

one competitor loses.

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Question

It can be shown that the Nash equilibrium would indicate that without any agreements, the best outcome for

each large nation would be to:

Answer not impose a tariff.

impose a tariff.

find other ways to reward their domestic firms.

impose a consumption tax.

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Question

Which is a better outcome for income and standard of living levels in each nation?

Answer no tariffs

low tariffs

high tariffs

equal tariffs for all nations

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Question

A “prisoner's dilemma” can arise when:

Answer two large countries simultaneously and independently apply tariffs on imports from each other.

two large countries simultaneously and independently eliminate tariffs on imports from each other.

one large country eliminates tariffs on imports from another large country.

one small country eliminates tariffs on imports from a large country.

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Question

An international trade agreement that provides an incentive and reward for nations NOT to impose tariffs would

have what effect?

Answer an increase in world welfare and standard of living

higher efficiency

opportunity for low-income nations to exploit the gains from trade

an increase in world welfare and standard of living, higher efficiency, and opportunity for low-income

nations to exploit the gains from trade

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Question

The WTO (under the GATT agreement) provides that nations may enter into regional trade agreements as long

as they:

Answer limit such agreements to one.

extend the provisions to all other nations in the WTO.

do not jointly increase tariffs against outside countries.

make sure they include smaller nations in their regions.


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Question

Which principle of the GATT/WTO do regional trade agreements violate?

Answer the principle of first mover

the targeting principle

the most favored nation principle or normal trade relations status

the principle of comparative advantage

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Question

Which is NOT another name for a free-trade agreement?

Answer preferential trade agreement

discriminatory trade agreement

customs union

impartial trade agreement

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Question

Because regional trade agreements discriminate, giving better tariff treatment to other nations in the agreement

over outside nations, they are often called:

Answer super-regionals.

preferential trade agreements.

exclusive trade arrangements.

equity trade agreements.

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Question

A free-trade area is:

Answer a group of countries that agrees there will be “no rules” about trade—anything goes.

a group of countries that agrees to eliminate customs fees and containerized shipping charges on

goods traded among them.

a group of countries agreeing to eliminate barriers to trade between themselves but keeping tariffs in

place against the rest of the world.

a group of countries that eliminates trade barriers among themselves and erects a common tariff

against all other nations.

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Question

Which of the following statements characterizes economic arrangements among NAFTA member countries

(Canada, Mexico, and the United States)?

Answer There are no restrictions on the movement of labor from one country to another.

There are no restrictions on the movement of capital from one country to another.

All three countries have adopted the same identical tariff system.

There is free trade among the three member countries.

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Question

Which agreement, established in 1989, was the precursor to NAFTA?

Answer The U.S.-Mexico Free Trade Agreement

The Canada-Mexico Free Trade Agreement


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The Canada-U.S. Free Trade Agreement

The Canada-Mexico-U.S. Free Trade Agreement

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Question

A customs union is:

Answer a group of countries that agrees there will be “no rules” about trade—anything goes.

a group of countries that agrees to eliminate customs fees and containerized shipping charges on

goods traded among them.

a group of countries agreeing to eliminate barriers to trade between themselves but keeping tariffs in

place against the rest of the world.

a group of countries that eliminates trade barriers among themselves and erects a common tariff

against all other nations.

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Question

Which statement about the European Union (EU) is correct?

Answer EU member countries maintain separate tariff schedules.

There is free trade among EU member countries.

All EU member countries use a common currency (the Euro).

All EU member countries have eliminated tariffs on imports from non-EU member countries.

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Question

What is the main difference between a customs union and a free-trade area?

Answer There are no restrictions on the movement of labor and capital among customs union member

countries, whereas labor and capital cannot move freely among free-trade member countries.

Customs union member countries use the identical tariffs, whereas free-trade area member

countries have different tariff structures.

There is free trade among customs union member countries but not among free-trade area member

countries.

Customs union member countries have adopted a common currency, whereas free-trade member

countries use their separate national currencies.

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Question

A customs union is a trade agreement:

Answer where member countries are free to set their separate tariffs on other countries.

where members agree to set similar tariffs on nonmembers.

where resources are free to move between member countries.

where member countries have common currency.

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Question

Which of the following regional trade agreements is a free-trade area?

Answer NAFTA

the European Union

Mercosur

NATO

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Question

To be able to enforce the rules of a free-trade area, goods from outside the region imported into the lowest-tariff

nation cannot be shipped ________ into another nation in the area.

Answer with no transportation costs

without a labor certificate

with no customs inspection

duty free

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Question

What complex set of regulations has been devised to protect a free-trade area from outside encroachment?

Answer environmental certification

rules of origin

health and safety standards

a codified trade agreement

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Question

Automobiles imported from Canada or Mexico must have 60% North American content to be eligible for tariff

elimination under NAFTA rules. This is an example of a(n):

Answer rules of origin requirement.

environmental standard.

health and safety requirement.

preferential trade agreement.

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Question

Why isn't NAFTA a customs union, making the rules of origin irrelevant?

Answer A free-trade agreement allows politically sensitive tariffs of each nation to remain unchanged.

A customs union also requires rules of origin.

The overall level of U.S. tariffs was much higher than the overall level of tariffs in Mexico and

Canada.

The overall levels of tariffs in Canada, Mexico, and the United States are similar, making rules of

origin irrelevant.

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Question

Rules of origin are required in which form of regional trading agreement?

Answer a free-trade area

a customs union

a common market

an economic union

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Question

Which of the following represents the stage where economic integration is LEAST complete?

Answer free-trade area

customs union

common market

economic union

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Question

Implementing a regional free-trade agreement may have an effect in which, due to reduced tariffs, a nation in the

agreement begins to import a product it had produced itself. This effect is called:

Answer trade creation.

trade diversion.

reciprocal trade agreements.

the employment effect of FTAs.

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Question

Implementing a regional free-trade agreement may have an effect in which, due to reduced tariffs, a nation

begins to import a product from another nation in the agreement that it had imported from outside the region.

This effect is called:


trade diversion.

reciprocal trade agreements.

the employment effect of FTAs.

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Question

When products from a high-cost country within a customs union replace imports from a low-cost country that is

not a member of the union, this is called:


trade diversion.

trade deflection.

trade development.

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Question

A customs union will increase the welfare of its members and the rest of the world if:

Answer trade creation is greater than trade diversion.

trade creation is less than trade diversion.

trade creation is positive.

trade diversion is positive.

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Question

Suppose country X currently produces widgets. Then it establishes a preferential trading agreement with country

Y. Following the formation of the PTA, it no longer produces widgets and imports widgets from country Y. What

has occurred?

Answer There is trade diversion and a welfare gain for both country X and country Y.

There is trade diversion, a welfare gain for country Y, and a welfare loss for country X.

There is trade creation and a welfare gain for both country X and country Y.

There is trade creation, a welfare gain for country Y, and a welfare loss for country X.

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Question

Suppose country X currently does not produce widgets. Instead, it imports widgets from country Z. Then it

establishes a preferential trading agreement with country Y. Following the formation of the PTA, it imports

widgets from country Y. What has occurred?


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Answer There is trade diversion and a welfare loss for country X.

There is trade creation and a welfare loss for country Y.

There is trade diversion and a welfare gain for country X.

There is trade creation and a welfare gain for country Y.

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Question

Indian exporters are concerned about trade diversion because _________ made an agreement with the ASEAN

free-trade area.

Answer India

China

the United States

Mexico

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Question

India is not a member of the China-ASEAN (Association of South East Asian Nations) free-trade area

implemented on January 1, 2010. India fears that some of its:

Answer exports to China will be diverted to ASEAN countries.

exports to the United States will be diverted to China.

exports to China and to ASEAN countries will be diverted to trade among members of the

China-ASEAN free-trade area.

imports from ASEAN countries will be diverted to China

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Question

An example of how trade diversion results in a suboptimal situation is auto parts trade between Mexico and the

United States. After NAFTA:

Answer Mexico decreased its sales of auto parts to the United States.

the United States purchased more auto parts from Mexico due to the elimination of tariffs but

reduced purchases from East Asia, which was the lowest-cost producer.

the United States brought a complaint against Mexico for low-quality auto parts.

tariff revenues to the U.S. government increased.

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Question

SCENARIO: ELECTRIC FAN TRADEU.S. firms can produce and sell electric fans for $25. The United States can also import electric fans from Chinaat $40 each and from Canada at $45 each. Electric fans made in the United States, China, and Canada areidentical. Currently, the United States imposes a 30% tariff on imported electric fans.

Reference: Ref 11-2

(Scenario: Electric Fan Trade) From which country will the United States import fans?

Answer China

Canada

both China and Canada

neither China nor Canada

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Question

SCENARIO: ELECTRIC FAN TRADEU.S. firms can produce and sell electric fans for $25. The United States can also import electric fans from Chinaat $40 each and from Canada at $45 each. Electric fans made in the United States, China, and Canada are


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identical. Currently, the United States imposes a 30% tariff on imported electric fans.

Reference: Ref 11-2

(Scenario: Electric Fan Trade) Now suppose that the United States forms a free-trade area (NAFTA) with

Canada and Mexico. From which country will the United States import fans?

Answer China

Canada

both China and Canada

neither China nor Canada

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Question


Reference: Ref 11-2

(Scenario: Electric Fan Trade) For the United States, are there trade diversion losses, trade creation gains, or

both as a result of the formation of NAFTA?

Answer only trade diversions losses

only trade creation gains

both trade creation gains and trade diversion losses

neither trade creation gains nor trade diversion losses

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Question


Reference: Ref 11-2

(Scenario: Electric Fan Trade) Suppose that the United States levied a 10% tariff on imported electric fans

(rather than the 30% tariff described in the scenario). Would there be trade diversion losses, trade creation

gains, or both as a result of the formation of NAFTA?

Answer only trade diversions losses

only trade creation gains

both trade creation gains and trade diversion losses

neither trade creation gains nor trade diversion losses

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Question

In terms of efficiency, trade diversion is a _____ desirable outcome of a regional free-trade agreement, because

trade is diverted from the ___________ producer to the __________ producer.

Answer more; high-cost; low-cost

more; less deserving; more deserving

less; low-cost; high-cost

less; foreign; domestic

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Question

Table: Demand and Supply for Gloves

Price $1 $2 $3 $4 $5 $6 $7 $8 $9 $10

Quantity Supplied 5 6 7 8 9 10 11 12 13 14

Quantity Demanded 20 19 18 17 15 14 13 12 11 10

Reference: Ref 11-3

(Table: Demand and Supply for Gloves) The United States can also import gloves from China at $4 per pair and

from Mexico at $5 per pair. Currently, the United States imposes a specific tariff of $2 on its glove imports.

Suppose that the United States and Mexico form a free-trade area. How much trade in gloves is created?

Answer zero pairs of gloves

six pairs of gloves

two pairs of gloves

four pairs of gloves

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Question


Price $1 $2 $3 $4 $5 $6 $7 $8 $9 $10



Reference: Ref 11-3


from Mexico at $5 per pair. Currently, the United States imposes a specific tariff of $2 on its glove imports. How

much trade in gloves is diverted in the U.S.-Mexican free-trade area?

Answer zero pairs of gloves

six pairs of gloves

two pairs of gloves

four pairs of gloves

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Question


Price $1 $2 $3 $4 $5 $6 $7 $8 $9 $10



Reference: Ref 11-3


from Mexico at $5 per pair. Currently, the United States imposes a specific tariff of $2 on its glove imports. Is the

United States better off or worse off in its trade in gloves following the free-trade agreement with Mexico?

Answer It is better off because trade creation gains exceed trade diversion losses.

It is worse off because trade diversion losses exceed trade creation gains.

It is worse off because trade creation losses exceed trade diversion gains.

It is better off because trade diversion gains exceed trade creation losses.

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Question


Price $1 $2 $3 $4 $5 $6 $7 $8 $9 $10


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Reference: Ref 11-3


from Mexico at $5 per pair. Currently, the United States imposes a specific tariff of $2 on its glove imports.

Suppose instead that the United States negotiated a free-trade agreement with China. Will the United States be

better off or worse off as a result of its trade in gloves in the free-trade area with China?

Answer It is better off because there are no trade diversion losses.

It is worse off because there are no trade creation gains.

It is worse off because trade creation gains exceed trade diversion losses.

It is better off because trade diversion gains exceed trade creation losses.

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Question

If a regional trading agreement causes products from member countries to replace imports from nonmember

countries, then the regional trading agreement will experience:

Answer economic gains.

trade creation gains.

trade diversion losses.

trade perversion.

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Question

If a customs union includes the lowest-cost world producer of a product, then member countries:

Answer will always be better off in trade with that product.

will always be worse off in trade with that product.

can be better off or worse off depending on the strengths of the trade diversion and trade creation

effects for that product.

will no longer export or import that product.

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Question

The customs union could lead to losses for the home country if:

Answer the other country in the customs union is the most efficient producer.

the other country in the customs unions is not the most efficient producer.

there are other countries outside the customs union who are inefficient.

all countries are efficient producers.

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Question

Figure: U.S. Imports from Mexico and Asia


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Reference: Ref 11-4

(Figure: U.S. Imports from Mexico and Asia) Refer to the figure, which illustrates a customs union between the

United States and Mexico. Under free trade the United States will import ________ units of the good from

_______ at the price of _______ .

Answer 600; Mexico; $150

600; China; $250

350; China; $150

500; China; $250

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Question


Reference: Ref 11-4

(Figure: U.S. Imports from Mexico and Asia) Suppose the United States imposes a tariff of $100; then the total

imports will be:

Answer 600.

250.

400.

500.

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Question



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Reference: Ref 11-4

(Figure: U.S. Imports from Mexico and Asia) With the $100 tariff, the United States will import ______ from

Mexico and _______ from China.

Answer 400; 100

250; 250

250; 500

400; 200

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Question


Reference: Ref 11-4

(Figure: U.S. Imports from Mexico and Asia) The $100 tariff by the United States results in a tariff revenue of:

Answer $25,000.

$5,000.

$50,000.

$2,500.

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Reference: Ref 11-4

(Figure: U.S. Imports from Mexico and Asia) If the United States forms a customs union with Mexico, it will result

in a(n) _______ in producer surplus of ______ for Mexico.

Answer increase; $25,000

increase; $50,000

increase; $32,500

decrease; $50,000

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Question


Reference: Ref 11-4

(Figure: U.S. Imports from Mexico and Asia) The combined welfare of the United States and Mexico is _______

by ______ .

Answer lower; $7,500

higher; $10,000

lower; $25,000

higher; $25,000

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Question

Suppose initially there is no customs union and that the $100 tariff is imposed by the United States. Now, Mexico

invests in productive technology and it shifts the Mexican supply curve to Smex

. The United States now forms a

customs union with Mexico. This will result in a price of _______ and imports of _______ .

Answer $250; 500

$250; 400

$150; 600

$150; 500


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Question

Trade diversion may be such that the combined welfare of two nations in the agreement actually ____ because

of _____ , not completely offset by the _____ .

Answer falls; loss of tariff revenue for the importing nation; gain in the exporting nation's producer surplus

rises; gains from trade; loss of jobs in the importing industry

rises; gain in tariff revenue; gain in jobs

remains the same; loss of tariff revenue; gains from product variety

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Question

Trade diversion is one reason that some economists:

Answer believe we should not even bother to promote free trade.

recommend we change our focus from regional trade agreements to the WTO, a multilateral trade

agreement.

recommend we reinstate some tariffs that were actually beneficial to all nations.

think we should exclude low-wage nations from trade agreements.

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Question

Which of the following statements are false?

Answer Trade creation is always bad for countries.

Trade diversion is always good for countries.

Regional trade agreements never cause welfare losses.

All of these statements are false.

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Question

The negative effects of trade diversion are reduced when:

Answer trade diversion is more than offset by trade creation.

consumers in the importing nation have a change in their buying habits.

there is a cost increase in nations outside the region.

the free-trade agreement includes more members.

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Question

Because it is difficult to negotiate multilateral trade agreements, some economists argue that preferential trade

agreements are always beneficial since they represent a movement toward freer trade, which is better than no

movement at all. Is this argument always correct?

Answer Yes, any movement toward freer trade is better than no movement at all.

No, some preferential trade agreements may have higher trade diversion costs than trade

creation gains.

Yes, all preferential trade agreements have higher trade creation gains than trade diversion

losses.

No, all preferential trade agreements have higher trade diversion losses than trade creation

gains.

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Question

A case study of NAFTA, with regard to the benefits for Canada from U.S. trade, found that:


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Answer Canada was not able to increase its exports due to barriers still remaining.

Canada had modest gains but was harmed by immigration into the United States from Mexico.

Canada had more trade diversion than trade creation and so was harmed overall.

Canada had more trade creation than trade diversion and so was benefited overall.

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Question

Professor Daniel Trefler at the University of Toronto concluded that Canada ________ from free trade with the

United States because _______________ .

Answer gained; trade creation exceeded trade diversion with the United States

lost; trade diversion exceeded trade creation with the United States

first gained, then lost; trade diversion exceeded trade creation after NAFTA was fully implemented

neither gained nor lost; trade creation equaled its trade diversion with the United States

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Question

“Labor standards” include which of the following?

Answer minimum wages

safety standards

child labor regulations

minimum wages, safety standards, and child labor regulations

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Question

Why are trading partners often concerned about the other's labor standards?

Answer From a humanitarian perspective, people do not want to buy products if workers are in oppressive

conditions.

Unions realize that low standards for labor will be less costly, and those products will compete more

effectively with products produced at home.

Some nations do not enforce their own lax labor standards, which are part of trade agreements.

All of these answer choices are correct.

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Question

Why do some say labor standards are “disguised protection”?

Answer They favor the nations who already have high labor standards and eliminate competition from

nations who do not.

Nations with low labor standards often disguise the fact.

Raising labor standards is not the issue—it is disguised by the fact that shoddy materials are used in

production.

Often children who should be in school work anyway, and their participation is “disguised” as if an

adult held the job.

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Question

Why are economists sometimes skeptical about international labor standards?

Answer They are difficult to enforce.

They create more competition for U.S. workers.

The GATT does not allow labor standards.

They may be used as a rationale to protect domestic activities that can no longer compete with

imports.

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Question

The purpose of the Labor Side Agreement under NAFTA is to:

Answer increase standards in Mexico only.

increase standards throughout NAFTA.

enforce existing standards throughout NAFTA.

renegotiate standards.

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Question

There is a side agreement to _______________ that calls for the enforcement of existing worker rights in

_______________ .

Answer the European Union; the European nations

the World Trade Organization; the less developed nations

NAFTA; the South American nations

NAFTA; Mexico, Canada, and the United States

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Question

Under NAFTA, labor disputes and issues will be dealt with by the:

Answer U.S. Department of Labor.

North American Agreement on Labor Cooperation.

National Labor Relations Board.

U.S. Department of Justice.

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Question

Although it has had some criticism for ineffectiveness, the North American Agreement on Labor Cooperation has

had some positive benefits in what way?

Answer by creating an institutional forum for the discussion of labor issues in Canada, the United States,

and Mexico

by allowing nations to reveal in a public way violations of labor laws in any of the three countries

by putting emphasis on labor rights as a legitimate trade issue

All of these answer choices are examples of the positive benefits.

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Question

Surveys of consumers regarding labor standards indicate that they are willing to pay:

Answer a large amount for a large improvement in working conditions.

a small amount for a large improvement in working conditions.

nothing for a large improvement in working conditions.

a small amount for a small decline in working conditions.

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Question

A study of consumer attitude toward labor standards for the products they buy revealed that consumers:

Answer just do not care.

would completely change their buying patterns and want to be 100% sure that products they buy are

made in foreign factories with good working conditions.

would pay a slight premium to ensure good working conditions.

are more concerned about the prices they pay than working conditions overseas.


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Question

Surveys of consumers indicate that:

Answer they do not care at all about labor standards in other countries.

many are willing to pay at least a small amount more for imports to ensure good labor standards in

other countries.

most are willing to pay a large amount more for imports to ensure good labor standards in other

countries.

they will not buy imports from any country with poor labor standards.

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Question

Surveys of consumers regarding labor standards reveal that they:

Answer treat potential losses and potential gains equally.

weigh potential losses more than potential gains.

weigh potential losses less than potential gains.

do not experience losses in gains.

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Question

Wal-Mart has been pursuing improvements in its reputation in response to growing criticism on environmental,

labor, and social issues in its foreign supplier factories. Among others, which requirement has Wal-Mart imposed

upon its Chinese suppliers?

Answer They must demonstrate compliance with Chinese environmental laws.

There must be a 100% improvement in energy efficiency at China's 200 largest suppliers.

They must increase their wages to the equivalent of the U.S. minimum wage.

All of the answer choices are correct

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Question

What is the role of nongovernmental organizations (NGOs) in promoting labor standards?

Answer They have no enforcement power, but they can investigate and bring attention to and put pressure

on firms, governments, and other groups to effect change.

Because they are nongovernmental, they have no power.

They can change laws for labor in many situations.

Because they are part of the United Nations, they often report their findings and cause major policy

changes.

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Question

According to one research study focusing on Indonesia, actions by nongovernmental organizations (NGOs) are

___________than importing countries' threats to raise tariffs.

Answer less effective in raising wages and limiting declines in employment

more effective in raising wages and limiting declines in employment

less effective in raising wages but more effective in limiting declines in employment

more effective in raising wages but less effective in limiting declines in employment

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Question

NGOs seem to do a better job than national policies because they:


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Answer can enforce regulations.

are better organized.

target the worst offenders.

target the worst offenders and are better organized.

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Question

Most economists are opposed to the “living wage” concept in foreign labor agreements because:

Answer it is barely enough for survival.

most workers in low-income nations already earn more.

workers should never earn more than the managers.

it is well above the market wage, and many workers in poor nations would lose the opportunity to be

employed.

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Question

Suppose that the U.S. government required firms to pay a living wage to workers in their subsidiaries or

contracting firms in developing countries. As a consequence of this requirement, wages would likely _______ to

the living wage and employment would likely _________ .

Answer rise; increase

fall; increase

rise; decrease

fall; decrease

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Question

With respect to environmental issues, the GATT:

Answer does not allow countries to adopt environmental laws that affect imports.

allows countries to adopt environmental laws that affect domestic production but not imports.

allows countries to adopt environmental laws that are applied uniformly against domestic producers

and imports.

allows countries to adopt more stringent laws affecting imports than domestic producers.

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Question

There is some misunderstanding of the WTO's provisions for environmental protection in trade. The WTO

actually:

Answer allows nations to bar all imports from nations that do not conform to their own standards.

provides that nations may enforce any standards for particular products as long as the standards

apply equally to domestic producers and importers.

does not make any pretense of caring at all about the environment.

is very inconsistent in its rulings.

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Question

Do the provisions of the GATT and WTO permit countries to apply their own environmental regulations against

imports?

Answer No, environmental regulations applying to domestic production and imports need to be negotiated

internationally under treaties such as the Kyoto Protocol.

No, environmental regulations applying only to imports need to be negotiated internationally under

treaties such as the Kyoto Agreement.

Yes, and countries may require stricter environmental regulations for imports than for domestic

production.


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Yes, as long as environmental regulations apply uniformly to domestic production and imports.

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Question

The tuna-dolphin dispute was ruled by the WTO in favor of nations that _______________. The ruling said that

trading partners _______________ bar imports based on _______________.

Answer exported tuna to the United States and Europe; could not; a production process such as the size

of the nets used

imported tuna; could; the production process

cared about wildlife in the seas; could; concerns over the safety of dolphins

produced seafood products; could not; the way the products were used, such as pet food

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Question

The ruling in the shrimp-turtle case resulted in:

Answer the United States being able to ban shrimp caught with nets unsafe for sea turtles.

the WTO upholding the environmental standard but ruling against the United States on technical

grounds that it did not provide sufficient notice; after negotiation the WTO reversed its decision.

the WTO refusing to hear the case.

a ruling that upheld the environmental standard.

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Question

The WTO also ruled on the U.S. restriction of gasoline imports from Venezuela and Brazil in 1994 on

environmental grounds. What was the outcome?

Answer The United States could ban those imports because they violated the U.S. Clean Air Act.

They could not ban the imports because they had not given Venezuela and Brazil a grace period as

they had given their own U.S. companies.

The United States could not use “environmental protection” as an excuse for every trade dispute

that came along.

The United States could bring counter-charges against Venezuela and Brazil on the banana issue.

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Question

Europe had refused to import genetically modified food products. The WTO ruled that:

Answer if Europe was afraid of these products, it could put an import ban on them.

Europe needed to base its ban on scientific evidence rather than fear of something unproven.

Europe could declare a moratorium until an investigation could be undertaken.

the products could be treated and then they would be safe.

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Question

WTO rulings with respect to environmental issues have:

Answer generally had very adverse effects on the environment.

generally not had adverse effects on the environment.

caused substantial decreases in international trade.

caused countries to adopt more stringent laws affecting imports than domestic producers.

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Question

Because of the relationship among ethanol production, sugar, and corn, the authors of your text concluded that:

Answer the corn subsidy is a big problem for ethanol exports.

the sugar quota makes sugar so cheap in the United States that producers are using it instead of

corn.

due to the sugar quota and its high price, there is a huge demand for less environmentally friendly

corn as a substitute in food products and for ethanol.

ethanol should be imported rather than exported.

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Question

The VER between the United States and Japan was shown to _______________ gas consumption,

_______________ the use of energy, and _______________ gas mileage from automobiles.

Answer raise; raise; lower

lower; lower; raise

raise; lower; lower

lower; raise; raise

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Question

“The tragedy of the commons” refers to the idea that:

Answer trade inherently results in losses.

common property often results in an abuse of the property, such as overfishing.

trade restrictions can be useful.

common property is always beneficial for people.

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Question

Which of the following best explains the term “the tragedy of the commons”?

Answer the plight of the common people, who are doomed to low-paying jobs and discrimination

the fact that public resources are becoming scarce

the idea that what we have in common is often not why we trade

the idea that when everyone has free access to a resource, it will be overused and depleted

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Question

The fundamental cause of the tragedy of the commons is:

Answer international trade.

lack of defined property rights.

ignorance.

tariffs.

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Question

The phenomenon known as the tragedy of the commons occurs whenever:

Answer the private sector owns resources and manages them tragically.

the government owns resources and manages them tragically.

there is no ownership of resources, so they become depleted due to lack of management.

two countries own the same resource and cannot agree on its management.

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Question

Which of the following is the best example of the tragedy of the commons?

Answer overproduction of Saudi Arabian crude oil

overregulation of the U.S. steel industry

overharvesting of many species of fish

U.S. farm subsidies

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Question

An example of the tragedy of the commons is:

Answer no worldwide fuel economy standard.

overfishing in international waters.

unsafe fishing practices that trap dolphins and sea turtles.

illegal copyright infringement.

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Question

The story about the mass slaughter of buffalo in the United States, which allowed the products to be exported

during the 1870s, is an example of:

Answer the first-mover principle.

the principle of comparative advantage.

the tragedy of the commons.

export subsidies.

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Question

A prisoner's dilemma exists for global pollutants because:

Answer countries do not face the full cost of pollution that they generate.

countries that regulate pollution gain more than countries that do not regulate pollution.

countries that regulate pollution lose more than countries that do not regulate pollution.

no country follows international agreements to limit pollution.

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Question

International agreements to limit pollution can lead to:

Answer a Nash equilibrium where no countries face the full cost of pollution that they generate.

a Nash equilibrium where countries that regulate pollution gain more than countries that do not

regulate pollution.

a Nash equilibrium where countries that regulate pollution lose more than countries that do not

regulate pollution.

a Nash equilibrium where no country regulates pollution.

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Question

Which of the following is not an example of a global pollutant?

Answer chlorofluorocarbons (CFCs)

carbon monoxide

carbon dioxide

carbon dioxide and chlorofluorocarbons

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Question

In the case of global pollution, a nation that pollutes gets benefit from production but:

Answer has to pay for it in terms of dirty air and water.

never receives any negative consequences.

cannot control the amount of pollution by private firms.

will not suffer the full costs of its own pollution and so has little incentive to control it.

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Question

SCENARIO: PAYOFF MATRIXThe payoff matrix shows outcomes of various strategies that a Home and Foreign country can follow to decide toregulate or not regulate pollution. The columns give Foreign's actions, and the rows give Home's actions. Thevalues in the upper right-hand side of each element give Foreign's net benefits; the values in the lower left-handside of each element give Home's net benefits. Net benefits are the environmental benefits from regulationminus costs associated with installing pollution control equipment.

Reference: Ref 11-5

(Scenario: Payoff Matrix) How can you tell that the governments of each country favor producer profits over

consumer well-being when calculated net benefits?

Answer A country's net benefits are higher when the other country regulates pollution.

A country's net benefits are lower when the other country regulates pollution.

A country's net benefits are lower when it regulates pollution than when it does not.

A country's net benefits are higher when it regulates pollution than when it does not.

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Question


Reference: Ref 11-5

(Scenario: Payoff Matrix) What is likely to happen if there are no international agreements to limit pollution?


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Answer Neither country will regulate pollution.

Both countries will regulate pollution.

Foreign will regulate pollution but Home will not.

Home will regulate pollution but Foreign will not.

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Question


Reference: Ref 11-5

(Scenario: Payoff Matrix) Which element represents a Nash equilibrium?

Answer A

B

C

D

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Question

In the case of global pollution, the Nash equilibrium shows that if one nation does not regulate its pollution, other

nations:

Answer will have to regulate even more strictly.

will not regulate either because of international price competition.

will regulate but will bring charges in the WTO against the other.

will regulate so they will not harm their own citizens.

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Question

In a situation where there is no incentive to cut pollution because it will make domestic firms less competitive, it

will improve world welfare if:

Answer nations impose tariffs on polluters.

there is an international agreement so that every nation regulates global pollutants and no firms

have competitive advantages because of lax pollution laws.

there is a ban on production until we can scientifically solve our pollution problems.

we allow the market to work in this case.

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Question

What is the Kyoto Protocol?

Answer It is a treaty on abolishing child labor and forced labor camps.

It is a guideline for using “force” when interrogating prisoners.

It is based on the 1992 U.N. climate treaty that set specific air pollution reduction targets for each

nation.

It is a set of rules for shipping dangerous chemicals to avoid harm and to lower the risk of a terrorist

attack.

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Question

Did the United States ratify the Kyoto Protocol? Why or why not?

Answer Yes, but it has failed to meet targets for a number of years.

No, but it promised to sign on January 1, 2008.

Yes, and it has met its target each year.

No, because it believed the targets were impossible to meet without great harm to the industrial

base in the United States.

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Question

Other U.S. issues with the Kyoto Protocol are all but which one of the following.

Answer Major U.S. trading partners (such as China and India) are exempt from the provisions—not fair!

Europe's targets were set ridiculously low.

We don't really know if pollution causes global warming.

There are less costly ways to deal with environmental problems.

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Question

The United States has not signed on to the Kyoto Protocol for all the following reasons except which of the

following?

Answer We still do not understand all the consequences of policy actions.

Meeting the Kyoto targets would negatively affect the U.S. economy.

Kyoto failed to include the developing countries, especially China and India.

There is not enough cash incentive being provided to the United States to sign the protocol.

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Question

The United States did not sign the Kyoto Protocol because it believed that:

Answer exemptions for some of its major developing-country trading partners (such as China and India)

were unfair.

Europe's targets were set ridiculously low.

pollution does not cause global warming.

targets for some of its major developing-country trading partners (such as China and India) were too

low.

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Question

Unlike the Kyoto Protocol, the Copenhagen Accord will:

Answer count India and China as participants.

strongly curtail emissions.

seek to reverse global warming.

be noncontroversial.


29 of 34 ص 07:30 9/17/2012

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True/False 0 points

Question

If two large countries impose a tariff on the same imported good, then the gains from trade are twice as much.

Answer True

False

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True/False 0 points

Question

Two large countries will both be better off if they both impose small tariffs against imports from the other country.

Answer True

False

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True/False 0 points

Question

Two large countries will both be better off if one imposes small tariffs against imports from the other country.

Answer True

False

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True/False 0 points

Question

Two large countries will both be better off if neither imposes small tariffs against imports from the other country.

Answer True

False

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True/False 0 points

Question

The WTO ensures international cooperation by levying fines against offending nations.

Answer True

False

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True/False 0 points

Question

The WTO (under the GATT agreement) allows countries to form regional trade agreements.

Answer True

False

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True/False 0 points

Question

Tariff reductions or eliminations on trade among members of a regional trading agreement do not need to be

extended to other nations under the WTO's most favored nation principle.

Answer True

False

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True/False 0 points

Question

The GATT does not allow countries to form preferential trade agreements.


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Answer True

False

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True/False 0 points

Question

Under terms of NAFTA (the North American Free Trade Agreement) Canada, the United States, and Mexico

have adopted a common tariff structure.

Answer True

False

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True/False 0 points

Question

There is no need for rules of origin requirements in a customs union.

Answer True

False

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True/False 0 points

Question

All customs unions result in welfare losses for member countries.

Answer True

False

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True/False 0 points

Question

Regional trade agreements always lower welfare of participating nations.

Answer True

False

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True/False 0 points

Question

There is no evidence of corporate responsibility in Wal-Mart

Answer True

False

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True/False 0 points

Question

Nike is unconcerned about the potential for abusive labor practices in its (or its suppliers') factories.

Answer True

False

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True/False 0 points

Question

The WTO does not allow any environmental restriction to be a trade barrier for any nation.

Answer True

False

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True/False 0 points


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Question

An exporter can complain to the WTO if it feels that an importing country's environmental laws adversely affect

its activities.

Answer True

False

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True/False 0 points

Question

Under GATT rules, countries can complain to the WTO if they believe that their exports are excluded from a

foreign market because of unreasonable environmental standards.

Answer True

False

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True/False 0 points

Question

The WTO permits no use of trade policy to protect the environment.

Answer True

False

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True/False 0 points

Question

The WTO ruled that the United States could not ban dolphin-unsafe tuna.

Answer True

False

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True/False 0 points

Question

Global pollutants are pollutants that cross national borders.

Answer True

False

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Essay 0 points

Question

Suppose that this figure gives the U.S. supply (S) of and demand (D) for auto parts (say steering wheels). U.S.

automakers can also import steering wheels from Mexico at $50 each and from Japan at $40 each. Currently,

there is a 60% tariff on imported steering wheels.

A. How many steering wheels will the United States import?


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B. How much tariff revenue will the U.S. government collect?

C. Suppose that the United States and Mexico become part of NAFTA and there is free trade

between the two countries. Now how many steering wheels will the United States import?

D. Calculate the trade creation gains from free trade in steering wheels with Mexico.

E. Calculate the trade diversion losses from free trade in steering wheels with Mexico.

F. Does the United States gain or lose as a result of free trade in steering wheels with Mexico?

Answer A. 50

B. 60%($40 × 50) = $1,200

C. 150

D. 1/2(50 × $14) + 1/2(50 × $14) = $700.

E. Trade diversion losses consist of the extra cost that the United States pays for steering wheels

from Mexico that were formerly imported from Japan (50 steering wheels were imported from

Japan at $40 each). Now these 50 steering wheels are imported from Mexico at a price of $50.

The cost of these 50 steering wheels diverted to Mexico is ($50 – $40) × 50 = $500.

F. It is a net gainer since trade creation gains ($700) are more than trade diversion losses ($500).

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Essay 0 points

Question

Why do some economists prefer multilateral trade agreements over regional trade agreements?

Answer There is a greater opportunity for trade diversion in regional trade agreements since only the countries

within the agreement have zero tariffs, while tariffs are maintained against the countries outside the

agreement. This feature may cause some trade to be diverted from lower-cost, third-country sources to

higher-cost member countries. Multilateral trade agreements have few, if any, opportunities for tariff

discrimination that can lead to trade diversion.

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Essay 0 points

Question

Suppose that the U.S. government required U.S. firms to pay a “living wage” to workers in its subsidiaries or

contracting firms in developing countries.

A. What are the likely consequences of this requirement?

B. How would one determine a living wage?

Answer A. Wages will most likely rise and employment will fall.

B. Presumably, a living wage is somewhat higher than the current market equilibrium wage. However,

it is difficult to determine how much higher. If set equal to U.S. average wages, then firms are likely to

close and employment will fall dramatically. It is also difficult to compare living standards across

countries. What U.S. workers consider a living wage may allow them to own several automobiles, live in

large homes, and avail themselves of the latest technological gadgets. The U.S. living wage is

inappropriate for developing countries that find their comparative advantage in labor-intensive products

where wages are expected to be lower.

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Question

Have the GATT-WTO rulings on environmental cases adversely affected the U.S. environment?

Answer No. Labeling and consumer concerns are expected to offset some adverse environmental issues (e.g.,

the tuna-dolphin case and the biotech food case); the WTO has allowed environmentally safe

harvesting techniques to be enforced (the shrimp-turtle case); and the United States made adjustments

to the Clean Air Act to allow imports (the Venezuela-Brazil oil case).

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Essay 0 points

Question

The U.S. sugar quota sometimes causes the U.S. domestic price of sugar to be as high as twice the world price.

How does the sugar quota affect the U.S. price of corn and the U.S. environment?

Answer One demand for imported sugar cane comes from firms that produce ethanol, an alternative (or

additive) to gasoline that can be produced from sugar or corn. The high import price for sugar causes

these firms to substitute corn grown by American farmers, which in turn, causes increased demand for

corn and higher corn prices. Producing ethanol from corn is much less energy efficient than producing it

from sugar cane. Corn also depletes the soil and requires fertilizers, which use energy in their

production. The net energy savings from making ethanol from corn is poor and it would be better to use


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sugar cane to produce ethanol, if it could be purchased at world prices. Eliminating the quota and

allowing free trade in sugar would benefit the environment because it would allow more sugar cane to

be used to produce ethanol.

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34 of 34 ص 07:30 9/17/2012

International Agreements: Trade, Labor, and the Environment

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