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Chapter 6: Trade Policy Analysis
MULTIPLE CHOICE
1. Which of the following is a non-tariff measure (NTM):
a. Quota.
b. Technical barrier to trade.
c. Countervailing duty.
d. All of the above.
2. In the figure above, how much wheat is imported by country J before the tariff?
a. 𝑄𝐷− 𝑄𝑆.
b. A.
c. C.
d. None of the above.
3. In the figure above, how much is imported after the tariff is imposed?
a. B.
b. C.
c. 𝑄𝑡𝑎𝑟𝑖𝑓𝑓
𝐷− 𝑄𝑡𝑎𝑟𝑖𝑓𝑓
𝑆.
d. None of the above.
4. What do suppliers in the figure above gain from imposition of the tariff?
a. They receive a higher price for their product.
b. They increase their production of the product.
c. They benefit from an increase in producer surplus.
d. All of the above.
ANS: D
5. What happens to consumer surplus in the figure above after the tariff is imposed?
a. It rises by area A+B+C+D.
b. It falls by area A+B+C+D.
c. It rises by area D.
d. It falls by area C.
6. How do we measure the governments gain from tariff revenue in the figure above?
a. Area B.
b. Area C.
c. Area D.
d. Area A.
7. What is the net welfare effect to the country of the tariff in the figure above?
a. Area A+C.
b. Area A+B+C+D.
c. Area –(B+D).
d. Area B+D.
8. A domestic-allocated quota involves:
a. Giving the import licenses to domestic importers.
b. Giving the import licenses to foreign exporters.
c. Giving terms-of-trade effects to domestic importers.
d. Giving quota premia to foreign exporters.
9. Consider a quota in the figure above. What is the net welfare gain for the country
assuming that quota licenses are allocated to domestic importers?
a. Area C.
b. Area B.
c. Area –(B+D).
d. Area –(B+C+D).
10. Consider a quota in the figure above. What is the net welfare gain for the country
assuming that quota licenses are allocated to foreign exporters?
a. Area C.
b. Area D.
c. Area –(B+C+D).
d. Area B+C+D.
ANS: C
TRUE/FALSE
1. A specific tariff is a percentage applied to the border value of the import.
2. An ad valorem tariff is a percentage applied to the border value of the import.
3. A tariff increases the domestic price of an imported good above the world price.
4. The imposition of a tariff by a country will result in reduced production by suppliers in
the country.
5. The consumer surplus of households in a country will fall after the imposition of a tariff.
6. Although suppliers and the government gain from the imposition of a tariff, the loss of
consumer surplus is greater, contributing to a negative net welfare effect.
7. If a country imposes a tariff, then the world price of the product will rise.
8. When a country imposes an import quota on a product, domestic producers can supply
more of that product to the domestic market.
9. If a country imposes an import quota and allocates the import licenses to foreign
exporters, the net welfare effects will be more negative than if the licenses were allocated
to domestic importers.
SHORT ANSWER
1. When a country imposes a tariff on an import, what happens to the domestic price of the
good?
2. What effect can a tariff in a country have on the world price of the product?
3. What is a tariff rate quota (TRQ)?
4. What are anti-dumping (AD) duties?
5. What are countervailing duties?
6. What insight into protection do comparative advantage models offer that absolute
advantage models do not?
