Chapter 11

Question 13

Which of the following refers to dumping?

A) Selling domestic goods in the international market at much lower prices.

B) Selling domestic goods of inferior quality in the international markets at higher prices.

C) Restricting the sale of domestic goods within the geographic boundary of the country.

D) Selling domestic goods at discounted prices to local consumers and selling the same at much higher

prices to foreign consumers.

Answer: A

Question 14

Which of the following is said to occur when a firm lowers its price to sell off excess inventories of a

product?

A) Persistent dumping

B) Cyclical dumping

C) Predatory dumping

D) Seasonal dumping

Answer: D

Question 15

Persistent dumping can occur if a profit-maximizing firm faces a ________ demand in the home market
and

sells its good in a ________ international market.

A) relatively elastic; less competitive

B) relatively inelastic; less competitive

C) relatively inelastic; highly competitive

D) relatively elastic; highly competitive

Answer: C

Question 16

In early 2018, nearly half of all antidumping duties in effect in the United States were on

A) textiles.
B) chemicals.

C) steel products.

D) food grains.6

Answer: C

Question 17

Which of the following statements about dumping is true?

A) Consumers and import-competing producers in the importing country are both hurt by dumping.

B) Logically, an import country should never allow seasonal and introductory-price dumping.

C) Dumping helps to improve the importing country's terms of trade.

D) Predatory dumping occurs quite frequently in modern markets.

Answer: C

Question 18

Which of the following is NOT a way in which a safeguard policy is better than antidumping policies?

A) Firms and governments do not need to show that foreign exporters have done anything unfair.

B) There is pressure for import-competing firms to adjust their production to be more competitive with

foreign exporters.

C) The interests of consumers can be disregarded since they do not play a role in determining whether
to

invoke a safeguard policy.

D) The protection provided to the import-competing sector is explicitly temporary.

Answer: C

Question 19

The figure below represents the domestic market for wheat in a small country. Imports of wheat are

prohibited.

With an export subsidy of $20 per bushel, the cost to the government of paying the export subsidy is

A) $1.2 billion.

B) $3 billion.

C) $600 million.

D) $2.2 billion.
Answer: D

Question 20

The figure below represents the domestic market for wheat in a small country. Imports of wheat are

prohibited. With an export subsidy of $20 per bushel, the net loss in national well-being as a result of

the export subsidy is

A) $200 million.

B) $300 million.

C) $500 million.

D) $2.2 billion.7

Answer: C

Question 21

The figure below illustrates the impact of an export subsidy as imposed by a large country. No imports
are

permitted.

The cost to the government of the indicated export subsidy is shown by area(s)

A) (a + b + c + d + e + f + g + h + i + j)

B) (c + h)

C) (b + c + d)

D) (b + c + d + f + g + h + i + j)

Answer: D

Question 22

The figure below illustrates the impact of an export subsidy as imposed by a large country. No imports
are

permitted.8

Which of the following correctly identifies the net change in national welfare due to the provision of the

export subsidy by the domestic government?

A) The net gain in well-being for the exporting country is area c.

B) The net loss in well-being for the exporting country is area (b + d).

C) The net gain in well-being for the exporting country is area (b + d + f + g + i +j).
D) The net loss in well-being for the exporting country is area (b + d + f + g + h + i + j).

Answer: D

Question 23

An export subsidy imposed by a large country can be more damaging to national welfare than an export

subsidy imposed by a small country because

A) the production effect is necessarily larger for the large country.

B) the consumption effect is necessarily larger for the large country.

C) the terms of trade worsen for the large country but not for the small country.

D) the net national gains of the large country are overshadowed by the net welfare loss of the world.

Answer: C

Question 24

The figure below represents the U.S. market for steel imports from Korea. The Korean government
provides

an export subsidy of $25 per ton, and Korean firms use the subsidy to reduce their export price to the
United

States to $375 per ton.

Consider the combination of the Korean export subsidy and a U.S. countervailing duty on the imports of

steel, both at the rate of $25 per ton. Who among the following is effectively paying the countervailing
duty?

A) The consumers of steel in the United States

B) The government of Korea

C) The steel-producers in the United States

D) The steel-producers in Korea

Answer: B

Question 25

The figure below represents the U.S. market for steel imports from Korea. The Korean government
provides

an export subsidy of $25 per ton, and Korean firms use the subsidy to reduce their export price to the
United

States to $375 per ton.

What is the amount of revenue collected by the U.S. government by imposing this countervailing duty?9

A) $750 million

B) $3.75 billion

C) $4.125 billion

D) $375 million

Answer: B

Question 26

Consider Firm X belongs to Country A and Firm Y belongs to Country B. Suppose it's technologically

feasible for both firms to produce Good Z. Also, assume that if they do, then they will be the only
suppliers

of Good Z in the world. Now, both the firms have to decide simultaneously whether to produce Good Z
or

not. Figure (a) shows the payoffs for both firms if their respective governments do not provide them
with

export subsidies. Figure (b) shows the payoffs when the government of Country B grants an export
subsidy

to Firm Y, but the government of Country A does not grant an export subsidy to Firm X. From Figure (a),

we can correctly infer that

A) it is optimal for Firm X not to produce if Firm Y does not produce.

B) both firms can decide to produce since they can anticipate that the other firm will not produce.

C) it is optimal for Firm Y not to produce no matter what Firm X does.

D) both firms will suffer losses if they produce simultaneously.

Answer: D

Question 27

Consider Firm X belongs to Country A and Firm Y belongs to Country B. Suppose it's technologically

feasible for both firms to produce Good Z. Also, assume that if they do, then they will be the only
suppliers

of Good Z in the world. Now, both firms have to decide simultaneously whether to produce Good Z or
not.
Figure (a) shows the payoffs for both firms if their respective governments do not provide them with
export

subsidies. Figure (b) shows the payoffs when the government of Country B grants an export subsidy to
Firm

Y, but the government of Country A does not grant an export subsidy to Firm X. From Figure (b), the

decision of Country B's government to subsidize Firm Y10

A) can be good for Country B because Firm X will decide not to produce.

B) will be good for Country B only if the government of Country A decides to subsidize Firm X.

C) can never lead to an optimal solution since Firm X will surely produce.

D) will be suboptimal since it will lose its customers in Country A.

Answer: A

Question 28

If markets are competitive, policies that restrict imports are usually harmful to the importing country
while

policies that encourage exports are usually beneficial to the exporting country.

Answer: FALSE

Antidumping duties increase overall economic well-being in a country by protecting the domestic
importcompeting firms.

Answer: FALSE

In the United States, the tests used to evaluate injury from dumping not only consider the loss of well-
being

of the import-competing producers from dumping but also emphasize the benefits to consumers of the
lowpriced imports.

Answer: FALSE

While the U. S. government investigates few claims of dumping, nearly all of the claims are upheld by
the

International Trade Commission.

Answer: FALSE

Question 29

Country X is a small country, with demand and supply functions for the food grains:

QD = 150 – 0.6P
QS = –40 + 0.5P

where QD and QS

are in millions of tons and P is the price per ton. The world price of grain is $200 per ton.

a. In a situation of free trade, how much food grains would be produced, consumed, and traded in
Country

X?11

b. As a response to alleged unfair foreign practices, Country X farmers successfully lobby for a $20
export

subsidy per ton of the grains exported. Assuming that imports of food grains are banned, show
graphically

and explain the impact of the export subsidy on domestic prices, consumption, production, and exports
of

grain by this country. Also indicate, using your graph, the effects on well-being of domestic producers
and

consumers and the cost of the subsidy to the government, as well as the net change in well-being in
Country

X. For each of these changes, calculate the money amount of each of the changes in well-being and

government cost.

Answer: POSSIBLE RESPONSE:

a. Using the equations and the world price of $200, the quantity supplied of food grains by producers in

Country X is 60 million tons and the quantity demanded of grains is 30 million tons. Therefore 30 million

tons of food grains are exported by this country.

b. As Country X is a small country in the world market, there will be no effect on the world price when
the

export subsidy provided to the food grain producers in this country is implemented. For the food grain

producers in Country X, the revenue per ton exported rises to $220, and the exporting firms must
receive this

amount as the selling price from domestic buyers as well. Domestic production rises from 60 to 70
million

tons, domestic consumption falls from 30 to 18 million tons, and the country's exports increase from 30

million tons to (70 - 18) = 52 million tons. Domestic producers gain surplus equal to the area (e + f + g) or
$1.3 billion, domestic consumers lose surplus equal to the area (e + f) or $480 million, and the cost to
the

government of paying the export subsidy is area (f + g + h) or $1.04 billion. The net loss in national
wellbeing resulting from the export subsidy equals the sum of the areas f and h or $220 million.

The End