Topic 6 - Political Economy of Trade

Why do governments intervene in trade?

• To eliminate all import and export activities

• To ensure that only large corporations benefit from trade

• To protect jobs, preserve national security, and respond to unfair trade practices

• To increase reliance on foreign economies

Which of the following is an economic motive for government intervention in trade?

• Protecting national security

• Promoting cultural identity

• Protecting infant industries

• Gaining political influence over smaller nations

What is the main purpose of a subsidy?

• To make imported products more expensive

• To provide financial assistance to domestic producers

• To ban the import of certain goods

• To impose additional taxes on foreign businesses

Which of the following is a trade restriction instrument?

• Export financing

• Foreign trade zones

• Import tariff

• Special government agencies

Which type of tariff is charged as a fixed percentage of an imported product’s price?

• Specific tariff

• Transit tariff

• Ad valorem tariff

• Compound tariff

What is the primary function of the World Trade Organization (WTO)?

• To regulate exchange rates between countries

• To promote and regulate free trade among nations

• To set domestic trade policies for individual nations

• To impose trade restrictions on developing countries

What is an embargo?

• A restriction on the amount of goods that can be imported

• A tax on exported goods

• A complete ban on trade with a particular country

• A government subsidy to domestic industries

Which of the following describes dumping in international trade?

• The disposal of excess goods in domestic markets

• Exporting products at prices lower than the domestic market price or production cost

• Imposing higher tariffs on imported goods

• Reducing government intervention in trade

Which agreement was established to promote free trade by reducing tariffs and non-tariff barriers?

• The General Agreement on Tariffs and Trade (GATT)

• The North American Free Trade Agreement (NAFTA)

• The United Nations Economic Agreement

• The World Economic Forum

What is a countervailing duty?

• A tax imposed on imported products to counteract subsidies given by foreign governments

• A tax charged on exports to prevent dumping

• A trade agreement to eliminate tariffs between countries

• A fee paid by businesses to enter foreign markets