Question

1.A policy by which a government offers temporary protection to a domestic industry as it adjusts to increased competition from imports is a(n):

A.import-resistance policy.

B.infant industry policy.

C.protectionist policy.

D.safeguard policy.

2.An export subsidy usually:

A.discourages domestic buyers from importing substitute products at lower prices than the subsidized domestic product.

B.lowers the price paid for a product by foreign buyers relative to the price that domestic consumers pay for the subsidized product.

C.increases the world price of the product, if the exporting country is large.

D.increases domestic production of the subsidized product, thereby decreasing the price of the product in domestic markets.

3.One of the reasons that predatory dumping is rare is that:

A.the penalty for predatory dumping is expulsion from the WTO.

B.the lower price in the foreign country will result in increased demand for the product in that country, and, because the exporting firm loses money on each sale, its losses will mount as demand increases.

C.the exporting firm will lose money in the short run because it is selling the product at less than its cost and, in the long run, it may not be able to recoup those losses as new competitors enter the market as the price of the product increases.

D.production in the foreign country will decline as products from the exporting firm are bought by consumers in the foreign country and that decline in production will result in a decline in exports to the country where the exporting firm is located.

Answer 1

1) "D"

Safeguard policy is a WTO policy which allows the government to increase the tariffs in case of increased competition in the market and sudden fall in the price of the goods. It is generally done to protect the local industry from the effect of fall in the prices.

2) "B"

An export subsidy makes the things cheaper for the importing nation at the cost of the exporting nation. The local consumer will be paying a higher cost and the consumer importing those goods will get the things at a cheaper cost.

3) "C"

Dumping leads to selling goods at a lower price to ease some competition in the foreign market and create a monopoly. But when the firm tries to increase the price of the good it allows the other firms to enter the market which keeps the price suppressed causing a loss in the short as well as long-term for the country dumping goods.