Self-Check Questions

1. Explain how a tariff reduction causes an increase in the equilibrium quantity of imports and a decrease in the equilibrium price. Hint: Consider the Work It Out “Effects of Trade Barriers.”

2. Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.

3. Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries.

4. Explain how trade barriers raise wages in protected industries by reducing average wages economy-wide.

5. How does international trade affect working conditions of low-income countries?

6. Do the jobs for workers in low-income countries that involve making products for export to high-income countries typically pay these workers more or less than their next-best alternative?

7. How do trade barriers affect the average income level in an economy?

8. How does the cost of “saving” jobs in protected industries compare to the workers’ wages and salaries?

9. Explain how predatory pricing could be a motivation for dumping.

10. Why do low-income countries like Brazil, Egypt, or Vietnam have lower environmental standards than high-income countries like the Germany, Japan, or the United States?

11. Explain the logic behind the “race to the bottom” argument and the likely reason it has not occurred.

12. What are the conditions under which a country may use the unsafe products argument to block imports?

13. Why is the national security argument not convincing?

14. Assume a perfectly competitive market and the exporting country is small. Using a demand and supply diagram, show the impact of increasing standards on a low-income exporter of toys. Show the tariff’s impact. Is the effect on toy prices the same or different? Why is a standards policy preferred to tariffs?

15. What is the difference between a free trade association, a common market, and an economic union?

16. Why would countries promote protectionist laws, while also negotiate for freer trade internationally?

17. What might account for the dramatic increase in international trade over the past 50 years?

18. How does competition, whether domestic or foreign, harm businesses?

19. What are the gains from competition?

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