Question

Determine whether each of the following statements is true, false or uncertain, and brieflyjustify your answer (a few sentences). No credit will be given for unsupported answers.1. The optimal tariff for a large open economy is 0.2. Multinational firms are important primarily in labor-intensive industries.3. Horizontal FDI is more likely to occur when trade costs are low but plant-level economiesof scale are high.4. For a small open economy, import tariffs and import quotas have identical effects onprices, welfare, and import levels.5. The median voter theory has been very successful at explaining actual trade policyoutcomes.

Answer 1

Answer:

1) False

2) Uncertain

3) False

4) False

5) True

Explanation:

1) Optimal tariff for a Large open economy is not zero ( 0 ) and this is because a large open economy has control over interest rates both domestically and in a larger scale, and its engaged in exports and imports trades with other economies of the world. hence its Optimal tariff should be > 0

2) The Importance of Multinational firms primarily in labor-intensive industries is Uncertain because Multinational firms can have a positive effect on labor by providing them with better wages and it can also affect labor negatively by laying off incompetent workers in the long run

3) Horizontal FDI is less likely to occur when the trade costs are low but plant-level economies of scale are high because lower trade costs will lead to a vertical FDI and not horizontal FDI

4) In an open economy the effects of import tariffs and import quotas does not have same effect on prices and import levels .   reduction in import quota reduces import levels while increase in tariffs affects pricing of goods and services

5) True because increase in inequality and a country's endowment been held constant will raise trade barriers in a capital abundant economy and vice versa for less capital abundant economy .