Trade Policy and Free Trade

The following are additional gains from free trade EXCEPT:

• The presence of scale economies favors free trade that generates more varieties and results in lower prices.

• Free trade agreements can provide access to larger markets, allowing firms to sell their goods and services to a wider audience. This can lead to increased economies of scale and lower costs.

• Free trade, as opposed to “managed” trade, provides a wider range of opportunities and thus a wider scope for innovation.

• Free trade can't allow countries to specialize in producing goods and services that they are most efficient at, leading to increased productivity and higher output.

What is an optimum tariff?

• This is a tax that a country puts on goods that are imported from other countries.

• This is like a race where different people or groups try to win votes from the public.

• This is a type of decision that a country makes by itself, without asking or talking to other countries.

• This is when the market for goods or services within a country is not working properly.

The following are reasons for trading EXCEPT:

• Natural Resources

• Human Capital

• Economic Activity Patterns

• Physical Attributes

The following statements are TRUE EXCEPT:

• Free-trade exists when nations can swap goods and services without the constraints of tariffs.

• It is possible that the terms of trade benefits of a tariff outweigh its costs.

• The efficiency argument for free trade is based on the result that in the case of a small country, free trade is the best policy.

• Free trade is when different countries agree to buy and sell things to each other by putting too many restrictions or rules.

The following statements are TRUE EXCEPT:

• The domestic market failure is when the market for goods or services within a country is not working properly.

• The idea of an optimum tariff is to make imported goods more expensive so that people will buy more of the same goods that are made in their own country.

• Unilateral policy is a type of decision that a country makes by asking or talking to other countries.

• With free trade, countries can trade things like food, clothes, and electronics with each other easily and everyone benefits.

Political scientists argue that policies are determined by competition among political parties that try to attract as many votes as possible.

• True

• False

Interest groups “buy” policies by offering contributions contingent on the policies followed by the government.

• True

• False

International integration has increased from the mid-1930s until about 1990 because the United States and other advanced countries gradually removed tariffs and nontariff barriers to trade.

• True

• False

Answer explanation

It's not 1990. It's 1980.

It is easier to lower tariffs as part of a mutual agreement than to do so as a unilateral policy because it helps mobilize exporters to support freer trade.

• True

• False

The following are the rules to Free Trade EXCEPT:

• Trade must be involuntary.

• All trading parties must benefit.

• Trade moves products from people who value them less to people who value them more.