When international competitiveness is achieved

Question

1. Of the many arguments in favor of tariffs, the one that has enjoyed the most significant economic justification has been the:

• Infant industry argument
• Cheap foreign labor argument
• Balance of payments argument
• Domestic living standard argument

2. If the U.S. demand for Korean steel is price elastic, an export subsidy granted to Korean steel firms will increase Korea's export revenue.

• True
• False

3.When a tariff on imported inputs exceeds that on the finished good,

• It is impossible to determine the protective effect of a tariff
• Tariff escalation occurs
• The nominal tariff rate would tend to understate it's protective effect
• The nominal tariff rate on the finished product would tend to overstate its protective effect

4.According to the infant-industry argument, temporary tariff protection granted to an infant industry will help it become competitive in the world market; when international competitiveness is achieved, the tariff should be removed.

• True
• False

5.A firm that faces problems of falling sales and excess productive capacity might resort to international dumping if it:

• Can sell at that price where domestic and foreign demand elasticities equate
• Is able to force foreign prices below marginal production costs
• Can charge higher prices in markets that are elastic to price changes
• Earns revenues on foreign sales that at least cover variable costs