Chapter 6 ib

Chapter 6 – Governmental Influence on Trade

23.    Countries sometimes withhold supplies from international markets in order to raise prices abroad. However, which of the following situations would be considered practical for a country to withhold supplies from international markets?

a.       Other countries can easily substitute the resource.

b.      The resource is produced in abundance by other countries.

c.       The country holds a monopoly or near monopoly of that resource.

d.       The resource is unique and not many countries currently use the resource.

27.    Companies can afford to dump products in all of the following situations EXCEPT:

a.       The competitive landscape allows them to charge high domestic prices.

b.       The home country government subsidizes them.

c.       The company is on the verge of bankruptcy.

d.       The company commands a profitable monopoly in its home market.

28.    A company that believes it is competing against dumped products may ask its government to restrict the imports. However, determining a foreign company’s production cost or wholesale price is often difficult because of all of the following reasons EXCEPT:

a.       non-access to the foreign producers’ accounting statements

b.       fluctuations in exchange rates

c.       The passage of products through layers of distribution before reaching consumers is often difficult to determine.

d.       easy access and interpretation of foreign producers’ accounting statements

e.        

42.    A form of quantitative trade control in which governments sometimes specify a content restriction, that a certain percentage of a product is of local origin, is known as:

a.        “buy imports” legislation.

b.      “buy local” legislation.

c.        “buy abroad” legislation.

d.       “export” legislation.

54.    Why do developing countries sometimes impose import restrictions to increase their levels of industrialization?

         Answer

Countries with a large manufacturing base generally have higher per-capita incomes than do countries without such a base. Moreover, a number of countries, such as the United States and Japan, developed an industrial base while largely preventing competition from foreign-based production. Many developing countries use protection to increase their level of industrialization because of industrial countries’ economic success and experience. Specifically, they believe:

a.       Surplus workers can more easily increase manufacturing output than they can increase agricultural output.

b.       Inflows of foreign investment in the industrial area will promote growth.

c.       Prices and sales of traditional agricultural products and raw materials fluctuate too much.

d.       Markets for industrial products will grow faster than markets for agricultural products

63.    In a short essay, list and discuss the non-tariff barriers that relate to direct price influences.

         Answer

a.       Subsidies – Countries sometimes make direct payments (called subsidies) to domestic companies to compensate them for losses incurred from selling abroad.

b.       Aids and loans – Governments also give aid and loans to other countries. Because the recipient is required to spend the funds in the donor country, some products can compete abroad that might otherwise be noncompetitive. Most industrial countries also provide repayment insurance for their exporters, thus reducing the risk of nonpayment for overseas sales.

c.       Customs valuation – Most countries have agreed on a procedure for assessing values when their customs agents levy tariffs.

d.       Other direct price influences – Countries frequently use other means to affect prices, including special fees, requirements that customs deposits be placed in advance of shipment, and minimum price levels at which goods can be sold after they have customs clearance.