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decreases.
Topic: Efects of tarifs
Skill: Level 2: Using deinitions
Section: Checkpoint 18.2
Status: Old
AACSB: Analytical thinking
4) The United States imposes a tarif on foreign limes. How does the tarif afect the U.S.
price of a lime and the production of limes in the United States?
Skill: Level 2: Using deinitions
Section: Checkpoint 18.2
Status: Old
AACSB: Analytical thinking
5) Currently, the United States has an import quota on the amount of sugar that is allowed
to be imported into the United States. What would happen to the price of sugar in the
United States if the import quota was removed? What would happen to U.S. consumption
and U.S. production of sugar?
Skill: Level 2: Using deinitions
Section: Checkpoint 18.2
Status: Old
AACSB: Analytical thinking
6) How does an import quota afect the domestic price of the import, the domestic
consumption, the domestic production, and the quantity imported?
Skill: Level 2: Using deinitions
Section: Checkpoint 18.2
Status: Old
AACSB: Analytical thinking
7) The United States imports cheese from a variety of countries. The table above gives the
domestic supply of, and demand for, cheese in the United States. The world price of cheese
is $12 per pound, and trade is unrestricted.
a. How many pounds of cheese are consumed in the United States?
b. How many pounds of cheese are produced in the United States?
c. How many pounds of cheese are imported into the United States?
77
If a $3 per pound tarif is imposed,
d. How many pounds of cheese are consumed in the United States?
e. How many pounds of cheese are produced in the United States?
f. How many pounds of cheese are imported into the United States?
g. How much will the U.S. government collect in tarif revenue?
h. Who beneits from the tarif? Who loses?
Skill: Level 3: Using models
Section: Checkpoint 18.2
Status: Old
AACSB: Analytical thinking
8) The above igure shows the domestic supply of and domestic demand for an imported
good. The world price is $15 per unit.
a. At the world price of $15 per unit, what is the domestic consumption and domestic
production?
b. At the world price of $15 per unit, what is the quantity imported?
c. If the government imposes a tarif of $5 per unit, what is the domestic consumption and
domestic production?
d. With the $5 per unit tarif, what is the quantity imported?
e. How much revenue does the government collect with a tarif of $5 per unit?
d. The quantity imported is 4 million units per year.
e. The government collects $5 per unit imported and 4 million units are imported, so the
government's revenue from the tarif is $5 × 4 million = $20 million per year.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Status: Old
AACSB: Analytical thinking
79
18.8 Essay: The Case Against Protection
1) Three arguments used to promote trade barriers are the national security argument, the
infant-industry argument, and the dumping argument. Explain each of these arguments and
evaluate whether each one has any laws.
Skill: Level 3: Using models
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
2) What is the national security argument for restricting international trade? What is its
law?
Skill: Level 3: Using models
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
80
3) What is dumping?
Skill: Level 1: Deinition
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
4) Because wage rates are so low in Africa, why don't Microsoft, Cisco and other major
corporations close down their American operations and move to Africa?
Skill: Level 5: Critical thinking
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
5) Explain how governments restrict international trade and who beneits as well as who
loses from the restrictions.
Skill: Level 3: Using models
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
6) What is "rent seeking"? How does it apply to restricting imports?
Skill: Level 2: Using deinitions
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
7) Economics demonstrates that opening up unrestricted free international trade is
beneicial to all nations. However, are there any losers from such a policy change?
although there are losers from free trade, there also are substantial gains and the gains
exceed the loses so that the nation as a whole is made better of with free trade.
Skill: Level 3: Using models
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
8) How does the United States attempt to compensate losers from lower trade restrictions?
Skill: Level 2: Using deinitions
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
9) Suppose that elimination of tarifs on agricultural products means that 1,000 farm
workers lose jobs that pay an average of $20,000 per year. At the same time, because of the
importation of relatively cheaper foreign vegetables, 150 million consumers save $2 per
year on their grocery bills.
a. What is the total income lost by farm workers because of the free trade?
b. What is the total dollar amount saved by all consumers combined?
c. Which is greater, the lost income or the consumer savings? Do the beneits of free trade
outweigh the costs in this simple example?
d. Which group is most likely to become politically involved over the issue of removing the
tarifs, the farm workers or the consumers? Why?
Skill: Level 3: Using models
Section: Checkpoint 18.3
Status: Old
AACSB: Analytical thinking
82
