Government subsidies of the domestic production of military weapons is an example of what rationale for government intervention in trade?
Answer(s): B
Providing subsidies to military weapons manufacturers is an example of the essential industry argument. The government protects essential domestic industries during peacetime so that a country is not dependent on foreign sources of supply during war.
Which of the following provides the best justification for reducing trade barriers among nations?
Answer(s): D
The general effect of free trade would be to maximize world output because resources in each country would be deployed most efficiently according to the principle of comparative advantage. Comparative advantage means that a country can produce a greater output of certain goods for a given level of input than other goods. Thus, that country should specialize in and export the goods it can produce most efficiently. Total world output will increase in these circumstances.
If a country uses trade quotas to overcome chronic trade deficits, what would the most likely outcome be?
With trade quotas, home jobs will be saved, hence, unemployment will decline. Since jobs will be saved for inefficient industries less efficient than foreign competitors), productivity rates will decline because they will not be specializing in those goods with which they have a comparative advantage.
What are revenue tariffs designed to do?
Revenue tariffs are usually applied to products that are not produced domestically. Their purpose is to provide the government with tax revenue.
Governments most likely restrict trade in the long run to:I). Help foster new industries.II). Protect declining industries.III). Increase tax revenues.IV). Foster national security.
Governmental impediments to global competition are generally imposed for the announced purpose of protecting local entities and jobs and developing new industries.They also may have the effect of raising revenue in the short run. In the long run, tax and revenues will decline because of reduced trade. Examples of governmental impediments are tariffs; duties; quotas; domestic content rules; preferences for local entities regarding procurement, taxes. R&D, labor regulations, and other operating rules; and laws e.g., anti bribery or tax) enacted by a national government that impede national entities from competing globally. These impediments are most likely when industries are viewed as crucial.
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