International Economics 7th Edition Gerber Test Bank

International Economics 7th Edition Gerber Test Bank
International Economics 7th Edition Gerber Test

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International Economics, 7e (Gerber)
Chapter 8 International Trade and Labor and Environmental Standards
8.1 Introduction: Income and Standards
1) All of the following are responsible for the removal of the formal trade barriers EXCEPT
A) the General Agreement on Tariffs and Trade (GATT).
B) the World Trade Organization (WTO).
C) regional trade agreements such as NAFTA.
D) the World Bank and the IMF.
Answer: D
Topic: Introduction: Income and Standards
Difficulty: Easy
Objective: LO 8.1 Compare and contrast the three options for setting standards in trade rules.
AACSB: Application of knowledge
2) Monopoly powers given to domestic utility companies to create economies of scale might
unintentionally
A) be an obstacle to increased international trade.
B) be useful for the creation of a comparative advantage for the domestic country.
C) not be used for rent-seeking behaviors.
D) be a positive externality for the world as a whole.
Answer: A
Difficulty: Easy
3) Which of the following is NOT an obstacle to increased international economic integration?

A) Monopoly powers given to domestic companies of individual nations
B) High tariff rates imposed by industrialized nations
C) Health and safety standard requirements
D) Labor and environmental standard requirements
Answer: B
Difficulty: Easy
1
Copyright © 2018 Pearson Education, Inc.
4) Greater specialization within a country
A) increases risks to the country.
B) is rarely beneficial.
C) creates winners and losers and raises issues about fairness.
D) evenly distributes benefits in the long run.
Answer: C
Difficulty: Easy
5) Which of the following is a true statement about obstacles to increased economic integration?
A) Countries generally agree about appropriate environmental standards.
B) Domestic policies do not affect international trade.
C) Production changes due to trade redistribute income fairly.
D) Adopting common standards gives an advantage to firms that already meet those standards.
Answer: D
Difficulty: Easy
6) Domestic policies can have unintended effects on international trade.

Answer: TRUE
Difficulty: Easy
7) Health and safety standards are generally similar in most countries.

Answer: FALSE
Difficulty: Easy
8) Many conflicts over standards result from the differences in income between countries.
Answer: TRUE
Difficulty: Easy
2
9) What are two main obstacles to increased international integration?
Answer: Laws and regulations adopted strictly for domestic reasons that unintentionally limit
international commerce when economies become more integrated, and conflicts over standards
Difficulty: Easy
10) Why does a country's increased specialization due to trade raise issues of fairness?
Answer: Comparative advantage based trade causes a nation to shift its production mix in order
to produce relatively more of the export good. As discussed in previous chapters, this raise the
return to the factor of production that is used intensively and lowers the return to the other
factor(s). This in turn increases national income but also redistributes it. This means that there
are both winners and losers, and thus there are issues as to fairness.
Difficulty: Moderate
AACSB: Analytical thinking
8.2 Setting Standards: Harmonization, Mutual Recognition or Separate?
1) Harmonization of standards refers to

A) the elimination of tariffs and quotas by trading partners.
B) common product safety, environment, labor, and fair competition standards agreed upon by
trading partners.
C) the acceptance or keeping of a trading partner's standards as valid and sufficient by another
trading partner.
D) separate standards held by different trading partners which other partners refuse to recognize.
Answer: B
Topic: Setting Standards: Harmonization, Mutual Recognition, or Separate?
Difficulty: Easy
2) Mutual recognition of standards refers to

trading partners.
C) the acceptance of a trading partner's standards as valid and sufficient by another trading
partner.
D) separate standards held by different trading partners which other partners refuse to recognize.
Answer: C
Difficulty: Easy
3
3) Separate standards refers to
trading partners.
C) the acceptance of a trading partner's standards as valid and sufficient by another trading
partner.
D) standards held by different trading partners which other partners refuse to recognize.
Answer: D
Difficulty: Easy
4) Most regional trade and WTO agreements practice

A) the harmonization standards only.
B) separate standards only.
C) mutual recognition standards only.
D) a combination of harmonization, mutual recognition, and separate standards.
Answer: D
Difficulty: Easy
5) When the evolution of new technologies is unknown, or it is unclear which country has the
"best" rules for standards, the adoption of ________ is the superior option.
A) a harmonization of standards
B) separate standards
C) mutual recognition standards
D) larger country standards
Answer: C
Difficulty: Easy
4
6) All of the following are reasons countries may be unable to use discriminatory trade practices
to enforce labor standards EXCEPT
A) countries can never impose trade barriers on other sovereign nations.
B) the WTO requires nations to treat other nations the same.
C) a single country may be unsuccessful in convincing members of its trading block to
participate in imposing the sanctions.
D) retaliation or a full blown trade war might result.
Answer: A
Difficulty: Easy
7) Domestic firms operating abroad may find it economically beneficial to adopt environment-
friendly standards because
A) foreign nations may be upset if firms do not use the environment-friendly technology.
B) the least-cost strategy usually involves the adoption of one set of environment-friendly
technology rather than multiple standards.
C) they may be forced to replace the old technology whenever the foreign country experiences
positive economic development.
D) their environment-unfriendly technology may be replaced by foreign-based technology.
Answer: B
Difficulty: Easy
Objective: LO 8.2 Give examples of the relationship between income levels and environmental
and labor problems.
8) Requiring a firm with international operations to follow the standards of its home country
instead of those of the foreign country has all of the following advantages EXCEPT
A) it takes care of the fear of a race-to-the-bottom by making it impossible for a home-based
company to exploit low standards.
B) it shifts the costs of improved standards to firms and consumers in high-income countries.
C) it avoids the problems of high-income countries dictating what standards are to be used. In
this situation, firms that cross national boundaries must conform to whichever standards are
higher.
D) it is a comprehensive measure, since it addresses the problem of production in foreign firms
as well as firms from high-standards countries that relocate abroad.
Answer: D
and labor problems.
5
9) Which of the following is true?
A) Generally, the lower the country's average income, the less administrative, scientific, and
technical capacity it has to design and enforce standards.
B) National priorities do not change as income changes—countries of all income levels seem to
share the same priorities and values.
C) Differences in income are always an obstacle to the harmonization of standards.
D) The adoption of a common set of rules usually narrows the market and raises prices.
Answer: A
and labor problems.
10) Which of the following is FALSE?

A) Most of the world's population lives in countries classified as low- or lower-middle income.
B) All labor and environmental conditions improve with income growth.
C) Percentage wise, more children work in low-income countries than in higher income
countries.
D) With such large income differences internationally, it is not surprising that there are very
large differences in most social, economic, and environmental indicators.
Answer: B
Difficulty: Easy
and labor problems.
11) Race to the bottom refers to which of the following?

A) Firms have an incentive to relocate to countries with lower standards.
B) Countries have an incentive to conform to the standards of the lowest income country.
C) Countries will compete with each other to offer incentives to firms.
D) Firms will underpay workers in low income countries.
Answer: A
6
12) Harmonization of standards
A) is costly for high income countries.
B) can reduce firm costs.
C) is less difficult for dissimilar countries.
D) is part of the race to the bottom.
Answer: B
Difficulty: Easy
13) Imposing the same standards on high- and low-income countries can be a problem because
A) it widens the market and lowers prices.
B) there are no economies of scale for low-income countries.
C) high-income countries have few environmental problems.
D) low-income countries may have less ability to enforce standards.
Answer: D
Difficulty: Easy
and labor problems.
14) As national income rises,

A) water problems are eliminated.
B) infant mortality falls.
C) emissions from fossil fuels decrease.
D) depletion of forest reserves increases at an increasing rate.
Answer: B
Difficulty: Easy
and labor problems.
15) Harmonization of standards

A) can make it less costly for exporting firms to produce.
B) is easy to agree on.
C) is not possible for countries of different income levels.
D) is required under WTO rules.
Answer: A
Difficulty: Easy
7
16) Low-income countries are largely responsible for excess carbon dioxide emissions globally.
Answer: FALSE
Difficulty: Easy
17) Mutual recognition is more efficient than other approaches to setting standards.
Answer: FALSE
Difficulty: Easy
18) Lower income countries may have more difficulties in enforcing standards.
Answer: TRUE
Difficulty: Easy
19) Harmonization of standards can institutionalize a set of inferior standards.

Answer: TRUE
Difficulty: Easy
20) What environmental problem gets worse as income rises according to your text?
Answer: Carbon dioxide emissions
Difficulty: Easy
and labor problems.
8
21) Suppose two nations are seeking to expand their commercial relations. What options do they
have in terms of addressing conflicts in standards? Describe each and what conditions might
favor different approaches to setting standards.
Answer: With harmonization of standards, the nations create a mutually acceptable common
standard. With mutual recognition of standards, each nation keeps its own standards, but accepts
the other nation's standard as equally valid and acceptable. With separate standards, each nation
keeps its own standards, and any products flowing into the nation must meet that nation's
individual standards. Adoption of a common set of standards gives a competitive advantage to
firms that are already producing to that standard. Wide variation in world incomes means that
economic conditions and living standards are vastly different between low-income and high-
income countries, which might make separate standards a better choice. Sharing standards
creates a larger, more unified market and creates greater efficiency. If, however, an inferior
standard is adopted, it might lock in place a less efficient solution and harm future development.
It may also be difficult for low-income countries to have the administrative, scientific, and
technological capacity to design and enforce standards, much less have the same priorities as
high-income countries.
22) Describe the connections between rising income and environmental and social indicators.
Which indicators improve and which worsen as national income rises?
Answer: Carbon dioxide emissions get worse as income rises; access to safe drinking water
improves. Child mortality and child labor both decrease as national income rises. Other
indicators are more mixed. Deforestation occurs more in low- and upper-middle income
countries, while lower-middle countries have deforestation but less than the upper middle
income group, and high-income countries both experience reforestation.
and labor problems.
23) Explain the three options for setting standards in trade rules.
Answer: Harmonization of standards refers to the case where two or more countries share a
common set
of standards in an area of concern, such as product safety, labor, environment, fair competition,
and so on. Another option is mutual recognition of standards, in which countries keep their
own product and process standards, but accept the standards of others as equally valid and
sufficient. A third option is separate standards. In this case, countries keep their own standards
and refuse to recognize those of anyone else.
9
24) Explain how harmonization of standards might increase productive efficiency.
Answer: The harmonization of technical standards having to do with product design or
performance can create greater efficiency since firms have to consider only one set of standards,
reducing the costs of making modifications for different markets.
8.3 Labor Standards
1) The race-to-the-bottom concept described in the text refers to

A) the situation in which countries with high standards are forced to lower their standards or face
the loss of jobs and industry.
B) the situation in which human rights are not respected by trading countries.
C) adopting the standards of a few selected middle-income and high-income countries.
D) the use of low per-capita income as a means of comparing the well-being of individuals.
Answer: A
Topic: Labor Standards
Difficulty: Easy
Objective: LO 8.3 Define labor standards.
2) The use of trade barriers to enforce standards abroad raises all of the following concerns
EXCEPT
A) the potential deadweight losses in consumption and production at home.
B) the potential for the use of trade barriers to erupt into a bigger trade war.
C) the difficulty of knowing whether some of the concerns are over standards or are veiled
protectionism.
D) only small countries may be able to use trade barriers effectively.
Answer: D
Difficulty: Easy
Objective: LO 8.4 State four potential problems with using trade sanctions to enforce labor
standards.
10
3) Developing countries are usually unwilling to negotiate over labor standards because
A) the WTO always tends to rule in favor of industrialized nations.
B) they fear that industrialized nations are trying to undermine their comparative advantage—
production of agriculture and textiles/apparel—and close the markets of high-income countries
in these areas.
C) they fear that they may be unable to compete without some protection of their industries.
D) organized labor would not allow them to negotiate with other countries.
Answer: B
standards.
4) Discriminatory trade practices are allowed among sister WTO member countries, especially
when it comes to
A) the use of child labor in agricultural and textile/apparel products.
B) national security and special benefits given to other members of a free trade area.
C) the protection of agriculture and textile/apparel from open trade.
D) environmental protection.
Answer: B
Difficulty: Easy
standards.
5) Low labor standards are usually associated with

A) nondemocratic governments.
B) high-income countries.
C) high-wage countries.
D) low foreign investment.
Answer: D
Difficulty: Easy
standards.
11
6) Which of the following is true?
A) Child labor is most common in urban areas.
B) Child labor is most common in the textile industry.
C) If child labor were stopped, families would have greater economic success.
D) Agriculture is the main industry that uses child labor.
Answer: D
standards.
7) When countries try to ban child labor,

A) most children start to attend school.
B) family poverty decreases.
C) child labor often moves to the informal economy.
D) GDP increases.
Answer: C
Difficulty: Easy
standards.
8) Using trade barriers to address labor standards does all of the following EXCEPT it
A) leads to deadweight losses.
B) redistributes income.
C) works more effectively for countries that are small relative to the total market.
D) potentially makes conditions worse as production moves to the informal sector.
Answer: C
standards.
9) The International Labor Organization has been around since 1919, and has a consistent record
of being willing to take action against countries that violate core labor standards.
Answer: FALSE
Difficulty: Easy
12
10) There is clear evidence of a race-to-the-bottom internationally, regarding working conditions
and the environment.
Answer: FALSE
Difficulty: Easy
standards.
11) Empirical studies show that countries with low standards are very successful at attracting
foreign investment.
Answer: FALSE
Difficulty: Easy
standards.
12) While Africa has the largest numbers of working children, Asia has the highest proportion of
working children, with an estimated one in four employed.
Answer: FALSE
Difficulty: Easy
standards.
13) Child labor is a common family survival strategy, especially for farmers in rural areas where
it is hard to enforce rules or to reach the poor with any supporting infrastructure or social
services.
Answer: TRUE
Difficulty: Easy
standards.
14) One reason why the plants of multinational corporations abroad may have better standards
than domestic contractors in low-income countries is because multinational corporations tend to
reduce costs by using one standard in terms of capital equipment and technology for all markets.
Answer: TRUE
Difficulty: Easy
standards.
13
15) Which region has the largest number of children working?
Answer: Asia
Difficulty: Easy
standards.
16) Which region has the highest proportion of its children working?
Answer: Sub-Saharan Africa
Difficulty: Easy
standards.
17) In what industrial sector are children most likely to be working?

Answer: Agriculture
Difficulty: Easy
standards.
18) Define labor standards as proposed by the ILO.

Answer: Prohibition of forced labor, freedom of association, the right to organize and bargain
collectively, an end to the exploitation of child labor, and nondiscrimination in employment
14
19) Why are universal standards for minimum wages and hours worked difficult to agree on?
Answer: Universal standards for minimum wages, limits on the number of hours someone can
work in a day, and health and safety issues in the workplace are difficult to define given the wide
variation in incomes and living conditions around the world. High-income countries, where
unskilled labor is relatively scarce, face an entirely different set of economic constraints
compared to those faced by low-income countries where unskilled labor is relatively abundant.
For example, if low-income countries are forced to pay a minimum wage high enough to satisfy
critics in high-income countries, many people fear that the result would be the closing down of
production and a rise in unemployment rather than an increase in living standards. In other
words, too high a minimum wage may be well intentioned, but it may reduce living standards in
low-income countries. Even this is ambiguous, however, since it is no easy matter to determine
how high is too high.
Difficulty: Difficult
20) Critics argue that concern about labor practices in other countries is often used to justify
protectionism. Is this a reasonable criticism? Explain.
Answer: Special interests sometimes use the issue of labor standards as a means to justify their
real goal, protection against foreign competition. Low- and middle-income countries tend to have
abundant supplies of unskilled labor and they depend on low-wage, low-productivity jobs for a
large share of their employment. In these countries, proposals to set labor standards and to use
trade barriers as an enforcement mechanism are widely viewed as a form of protectionism on the
part of high-income countries. Given that most high-income countries continue to protect their
markets in key areas of developing country activity such as agriculture, clothing, and textiles,
there is a strong suspicion that calls for labor standards are a way to undermine the comparative
advantage of low-income countries and to close the markets of high-income countries in selected
areas.
standards.
15
8.4 Trade and the Environment
1) Some proponents of trade sanctions argue for changes in policy because they fear low
standards will be used to capture markets and foreign investment. While theoretically possible,
there is little or no support for the view that countries use low labor standards this way, because
A) countries with low labor standards generally have trouble attracting foreign investment.
B) low standards can change a country's comparative advantage.
C) it is impossible to lower labor standards.
D) countries would not have an incentive to have low standards.
Answer: A
Topic: Trade and the Environment
Difficulty: Easy
Objective: LO 8.5 Compare and contrast transboundary and nontransboundary environmental
problems.
2) One claim that trade barrier proponents use to enforce environmental standards is that
A) environmental standards do not reduce industrial competitiveness and do not induce race-to-
the-bottom, where countries are forced to rescind their standards in order to maintain
employment.
B) high standards in industrialized nations motivates some firms to "export pollution" to
developing countries by relocating their dirty industries.
C) enforcing environmental standards is essential, as there are no differences between labor
standards and environmental standards.
D) all environmental impacts are non-transboundary.
Answer: B
problems.
3) The claim that lower environmental standards in foreign countries reduce industrial
competitiveness for high standard countries is on firm theoretical ground because
A) higher environmental standards requirements raise the cost of production to a firm or industry
abiding by the rules.
B) there will be a race-to-the-bottom competition on environmental standards.
C) the interests of firms that are subject to the high standards coincide with the nation's interests,
one-for-one.
D) environmental standards in most countries have gotten more lax over time.
Answer: A
problems.
16
4) Countries that compete by offering foreign firms a reduced set of environmental compliance
requirements are known as
A) transboundary members.
B) pollution havens.
C) pollutants.
D) pollution exporters.
Answer: B
Difficulty: Easy
problems.
5) Transborder environmental impacts can take place when one country's pollution spills over
into a second country in all of the following situations EXCEPT
A) when an upstream user pollutes a shared watershed.
B) when industrial production in one country creates acid rain in another country.
C) when heavy traffic between two or more countries creates semi-global warming.
D) the production of exported products degrades the local environment.
Answer: D
Difficulty: Easy
problems.
6) Is the claim that environmental standards reduce industrial competitiveness valid?

A) Yes, because environmental standards raise costs to businesses.
B) No, because consumers will want to buy from firms that pollute less.
C) No, because environmental standards have little effect in high-income countries.
D) Yes, because environmental standards will cause the imposition of WTO sanctions.
Answer: A
Difficulty: Easy
problems.
17
7) Which of the following is NOT a true statement about the WTO and the protection of
endangered species?
A) The environmental movement has been critical of the WTO.
B) Under WTO rules, countries have a right to impose import barriers to protect endangered
species.
C) The WTO did not allow the U.S. to protect sea turtles.
D) GATT rules prohibit discrimination based on the production process used.
Answer: C
problems.
8) The WTO explicitly stated that in making its sea turtle decision, it was NOT saying that
sovereign nations could not adopt effective measures to protect endangered species. Clearly, it
said, sovereign nations can and should develop effective measures, including trade measures, to
protect endangered species.
Answer: TRUE
Difficulty: Easy
problems.
9) The WTO encourages nations to take unilateral action on trade issues, including issues
involving environmental protection.
Answer: FALSE
Difficulty: Easy
problems.
10) Low standards reduce production costs and change a nation's comparative advantage.
Answer: FALSE
Difficulty: Easy
problems.
18
11) Over time, most countries have increased environmental standards.
Answer: TRUE
Difficulty: Easy
problems.
12) The WTO allows trade protection to protect endangered species.

Answer: TRUE
Difficulty: Easy
problems.
13) What does empirical research suggest about the existence of pollution havens?
Answer: That countries with low standards are actually less successful at attracting foreign
investment
Difficulty: Easy
problems.
14) Is there one optimal environmental standard for the entire world? If not, how might using
trade barriers to enforce country-specific environmental standards reduce overall well-being?
Answer: No; because differences in income and preferences make the ideal standards vary by
country. Budgets and regulatory efforts are not unlimited, and the pressing problems and
environmental resources that need protection are not the same. Countries will likely have
different priorities. If one nation tries to impose its standards on another, this may actually
reduce global well-being. If resources and opportunities are different, so are the opportunity
costs. One answer doesn't fit all.
problems.
19
15) What is a pollution haven, and is there evidence that pollution havens exist?
Answer: Countries that compete by offering foreign firms a reduced set of environmental
compliance requirements are known as pollution havens. Empirically, there is evidence that
some dirty industries from high-income industrial economies moved to low- and middle-income
countries in the 1970s when the industrial economies first began cracking down on
environmental polluters. Steel and chemical industries fall into this pattern, although it is
possible that the developing countries were gaining a comparative advantage in these areas as
high-income countries were losing theirs. Regardless, there is strong evidence showing that the
idea of pollution havens is invalid; that is, it is impossible to identify any country that
successfully competes for new investment on the basis of low environmental standards.
problems.
8.5 Alternatives to Trade Measures
1) Trade measures are usually not the best way of addressing problems such as pollution and
child labor because
A) it is more efficient to address these problems at the production and consumption level.
B) trade measures are not effective in reducing pollution.
C) the governments of high-income countries are not interested in sanctioning pollution and
child labor.
D) the WTO prohibits most trade sanctions.
Answer: A
Topic: Alternatives to Trade Measures
Objective: LO 8.6 Explain three alternatives to trade measures for enforcing labor and
environmental standards.
2) Labeling that states that a product was produced under environmentally sustainable conditions
may not be an effective way to reduce pollution if
A) producers do not apply labels.
B) labeling increases costs.
C) consumers do not believe the information on the label.
D) governments require labels.
Answer: C
Difficulty: Easy
20
3) Under the Sullivan Principles, a multinational producing in different countries
A) should pay the same wages in all countries.
B) should comply with the same environmental standards that exist in the home country.
C) should lobby for better standards in all countries.
D) should produce in pollution havens.
Answer: B
4) Which of the following is NOT a problem with finding a solution to global climate change?
A) Countries have not recognized that there is a problem with climate change.
B) Solutions must be adopted globally, not unilaterally.
C) Science can only provide probabilities of future events, not certainties.
D) It is difficult to determine an appropriate level of response to climate change problems.
Answer: A
Difficulty: Easy
5) Harmful carbon emissions

A) are increasingly produced by industrializing countries such as China and India.
B) are only a problem in high-income countries.
C) must be reduced by countries individually.
D) have little effect on the environment.
Answer: A
6) The best way to address differences in labor and environmental standards is through trade
barriers.
Answer: FALSE
Difficulty: Easy
21
International Economics 7th Edition Gerber Test Bank
7) Coffee is an example of a product that has been successfully labeled and marketed based on
its production method or environmental protection.
Answer: TRUE
Difficulty: Easy
8) "Certified shade-grown, organic coffee" is an example of requiring home standards in a

foreign market instead of trade barriers.
Answer: FALSE
Difficulty: Easy
9) Why would a global carbon tax be desirable?

Answer: Since carbon emissions are a transboundary problem, solutions must be global rather
than individual. A harmonized global carbon tax could be adjusted up when estimates of future
damage increase in severity and adjusted down if the damage is understood to be less than
previously thought, which also reduces some of the problems with the uncertainty related to
determining an appropriate global response.
10) Explain the obstacles to more widespread adoption of labeling as a method of reducing
environmental and child labor problems.
Answer: First, countries resist what they consider an infringement of their sovereignty when
foreign inspectors are allowed to probe into the details of labor and environmental conditions.
Secondly, consumers have to be convinced that the label provides reliable information.
22
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International Economics 7th Edition Gerber Test

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8.1 Introduction: Income and Standards

3) Which of the following is NOT an obstacle to increased international economic integration?

6) Domestic policies can have unintended effects on international trade.

7) Health and safety standards are generally similar in most countries.

8.2 Setting Standards: Harmonization, Mutual Recognition or Separate?

1) Harmonization of standards refers to

2) Mutual recognition of standards refers to

4) Most regional trade and WTO agreements practice

10) Which of the following is FALSE?

11) Race to the bottom refers to which of the following?

14) As national income rises,

15) Harmonization of standards

19) Harmonization of standards can institutionalize a set of inferior standards.

8.3 Labor Standards

1) The race-to-the-bottom concept described in the text refers to

5) Low labor standards are usually associated with

7) When countries try to ban child labor,

17) In what industrial sector are children most likely to be working?

18) Define labor standards as proposed by the ILO.

6) Is the claim that environmental standards reduce industrial competitiveness valid?

12) The WTO allows trade protection to protect endangered species.

8.5 Alternatives to Trade Measures

5) Harmful carbon emissions

8) "Certified shade-grown, organic coffee" is an example of requiring home standards in a

9) Why would a global carbon tax be desirable?

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