Question

True or False? Explain.

1.     T / F         An export subsidy is more common than an export duty.

2.     T / F         Although it discourages most tariffs, the WTO allows an importing country to levy antidumping tariffs.

3.     T / F         Strategic trade policy and predatory dumping are weapons of economic warfare.

4.     T / F         Japan is the world’s leading steel exporter.

5.     T / F         If a country levies a countervailing duty against a subsidized exporter, trade volumes and prices end up being about the same as those that would exist without the subsidy and duty.

Multiple Choice

1.         Which of the following is a correct statement?

A. Dumping is a money‑losing venture for any firm. Therefore, it can only be a temporary phenomenon.

B. Firms engage in dumping for the sole purpose of driving competition out of the market in order to later raise prices.

C. Dumping is only possible when a firm can discriminate between markets. Otherwise, the dumpee can re‑export the dumped goods at a profit.

D. Dumping is always a profitable venture. Otherwise, no one would ever engage in dumping.

2.         In 1970, a major dumping case was brought against Sony of Japan. Sony was selling televisions made in Japan to U.S. consumers for $180 while charging Japanese consumers $333 for the same model. In response to the threat issued by the U.S. government, Sony shifted its supply for the U.S. market to a plant built in California, but did not change prices of televisions in either country. This case best describes

A. protection by the U.S. government of Japanese producers and consumers.

B. persistent dumping.

C. predatory dumping.

D. trade retaliation.

3.         If a foreign government is subsidizing exports into your national market, what should you do to maximize the net welfare effect on your nation (assuming there is no monopsony power)?

A. Enjoy the bargain prices for imports.

B. Retaliate by imposing a countervailing duty to protect the domestic industry.

C. Subsidize your own exports to foreign markets.

D. Retaliate by imposing an import quota.

4.         For profitable persistent dumping to take place,

A. demand elasticities in both markets must be the same.

B. demand in both markets must be inelastic.

C. demand in both markets must be elastic.

D. demand in the foreign market must be more elastic than the demand in the home market.

5.         Agricultural price supports

A. may require a country to limit imports of agricultural products.

B.   may result in surplus domestic production being dumped on world markets.

C.   may turn an importer of agricultural products into an exporter of those products.

D. all of the above.

Answer 1

1) The statement is true. An export subsidy is more common than an export duty. Every countries in the world promotes export to have positive impact on trade balances. An export subsidy will thus provide an incentive to domestic exporters to export more. Whereas export duties harm the exports of a country.

2) The statement is true. Although it discourages most tariffs, the WTO allows an importing country to levy antidumping tariffs. Dumping results in domestic economy being flooded with foreign products due its very low prices and hence will severely affect the domestic producers and hence it should not be practiced and antidumping tariffs can be levied to raise its price.

3) The statement is false. Strategic trade policy and predatory dumping are not weapons of economic warfare. Strategic trade policies are often adopted as a means to protect domestic production and raise revenue of the government rather than as a weapon of economic warfare. They are used as weapons of economic warfare when countries go to war over trade.

4) The statement is false. China is the world’s leading steel exporter. Japan is the world’s second largest steel exporter.