62. The offshore assembly provision in the U.S.
a.
Provides favorable treatment to U.S. trading partners
b.
Discriminates against primary product importers
c.
Provides favorable treatment to products assembled abroad from U.S. manufactured components
d.
Hurts the U.S. consumer
United States – BPROG: Reflective Thinking – BPROG: Analysis
Arguments for Trade Protection
BLOOM’S: Knowledge
63. Arguments for U.S. trade restrictions include all of the following except
a.
Job protection
b.
Infant industry support
c.
Maintenance of domestic living standard
d.
Improving incomes for developing countries
United States – BPROG: Reflective Thinking – BPROG: Analysis
Arguments for Trade Protection
BLOOM’S: Knowledge
64. For the United States, a foreign trade zone (FTZ) is
a.
A site within the United States
b.
A site outside the United States
c.
Always located in poorer developing countries
d.
Is used to discourage trade
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – BPROG: Reflective Thinking – BPROG: Analysis
BLOOM’S: Comprehension
Figure 4.3 Domestic Market for Gasoline in the United States
65. Figure 4.3 represents the domestic market for gasoline in the United States. What is the consumer surplus in this
market?
a.
60 gallons of gasoline
b.
$120
c.
$60
d.
$3
66. Figure 4.3 represents the domestic market for gasoline in the United States. What is the producer surplus in this
market?
a.
60 gallons of gasoline
b.
$120
c.
$60
d.
$3
Figure 4.4 Market for Gasoline in a Small Nation
67. Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is
$3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in producer surplus would
be
a.
b.
c.
d.
United States – BPROG: Analytic
United States – BPROG: Analytic
Tariff Welfare Effects: Consumer Surplus & Producer Surplus
BLOOM’S: Analysis
68. Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is
$3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in producer surplus would
be
a.
$15
b.
$12.5
c.
$47.50
d.
$57.50
United States – BPROG: Analytic
Tariff Welfare Effects: Small-Nation Model
BLOOM’S: Analysis
69. Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is
$3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in consumer surplus would
be
a.
area a + b
b.
area a
c.
area a + b + c + d + e
d.
area a + b + f + g + h
c
United States – BPROG: Analytic
graphs
Tariff Welfare Effects: Small-Nation Model
BLOOM’S: Analysis
70. Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is
$3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in consumer surplus would
be
a.
$15
b.
$12.50
c.
$27.50
d.
$57.50
c
United States – BPROG: Analytic
United States – PA – DESC: Reading and interpreting g – DESC: Reading and interpreting
Tariff Welfare Effects: Small-Nation Model
BLOOM’S: Analysis
71. To protect domestic producers from foreign competition, the U.S. government levies both import tariffs and export
tariffs.
a.
True
b.
False
False
Easy
72. With a compound tariff, a domestic importer of an automobile might be required to pay a duty of $200 plus 4 percent
of the value of the automobile.
a.
True
b.
False
True
Moderate
73. With a specific tariff, the degree of protection afforded domestic producers varies directly with changes in import
prices.
a.
True
b.
False
False
Easy
74. During a business recession, when cheaper products are purchased, a specific tariff provides domestic producers a
greater amount of protection against import-competing goods.
a.
True
b.
False
graphs
75. A ad valorem tariff provides domestic producers a declining degree of protection against import-competing goods
during periods of changing prices.
a.
True
b.
False
False
Easy
76. With a compound duty, its “specific” portion neutralizes the cost disadvantage of domestic manufacturers that results
from tariff protection granted to domestic suppliers of raw materials, and the “ad valorem” portion of the duty grants
protection to the finished-goods industry.
a.
True
b.
False
True
Moderate
77. The nominal tariff rate signifies the total increase in domestic productive activities compared to what would occur
under free-trade conditions.
a.
True
b.
False
False
Moderate
True
Easy
78. When material inputs enter a country at a very low duty while the final imported product is protected by a high duty,
the result tends to be a high rate of protection for domestic producers of the final product.
a.
True
b.
False
Moderate
79. According to the tariff escalation effect, industrial countries apply low tariffs to imports of finished goods and high
tariffs to imports of raw materials.
a.
True
b.
False
False
Moderate
80. Under the Offshore Assembly Provision of U.S. tariff policy, U.S. import duties apply only to the value added in the
foreign assembly process, provided that U.S.-made components are used by overseas companies in their assembly
operations.
a.
True
b.
False
True
Easy
81. Bonded warehouses and foreign trade zones have the effect of allowing domestic importers to postpone and prorate
over time their import duty obligations.
a.
True
b.
False
True
82. A nation whose imports constitute a very small portion of the world market supply is a price taker, facing a constant
world price for its import commodity.
a.
True
b.
False
True
Moderate
83. Graphically, consumer surplus is represented by the area above the demand curve and below the product’s market
price.
a.
True
b.
False
False
Moderate
84. Producer surplus is the revenue producers receive over and above the minimum necessary for production.
a.
True
b.
False
True
Moderate
85. For a “small” country, a tariff raises the domestic price of an imported product by the full amount of the duty.
Moderate
a.
True
b.
False
86. Although an import tariff provides the domestic government additional tax revenue, it benefits domestic consumers at
the expense of domestic producers.
a.
True
b.
False
False
Moderate
87. An import tariff reduces the welfare of a “small” country by an amount equal to the redistribution effect plus the
revenue effect.
a.
True
b.
False
False
Moderate
88. The deadweight losses of an import tariff consist of the protection effect plus the consumption effect.
a.
True
b.
False
True
Moderate
True
Moderate
89. The redistribution effect is the transfer of producer surplus to domestic consumers of the import-competing product.
a.
True
b.
False
False
Challenging
90. As long as it is assumed that a nation accounts for a negligible portion of international trade, its levying an import
tariff necessarily increases its overall welfare.
a.
True
b.
False
False
Moderate
91. Changes in a “large” country’s economic conditions or trade policies can affect the terms at which it trades with other
countries.
a.
True
b.
False
True
Moderate
92. A “large” country, that levies a tariff on imports, cannot improve the terms at which it trades with other countries.
a.
True
b.
False
False
Moderate
93. For a “large” country, a tariff on an imported product may be partially absorbed by the domestic consumer via a higher
purchase price and partially absorbed by the foreign producer via a lower export price.
a.
True
b.
False
True
Moderate
94. If a “large” country levies a tariff on an imported good, its overall welfare increases if the monetary value of the tariff’s
consumption effect plus protective effect exceeds the monetary value of the terms-of-trade effect.
a.
True
b.
False
False
Moderate
95. If a “small” country levies a tariff on an imported good, its overall welfare increases if the monetary value of the
tariff’s consumption effect plus protective effect is less than the monetary value of the terms-of-trade effect.
a.
True
b.
False
False
Moderate
96. A tariff on steel imports tends to improve the competitiveness of domestic automobile companies.
a.
True
b.
False
97. If a tariff reduces the quantity of Japanese autos imported by the United States, over time it reduces the ability of
Japan to import goods from the United States.
a.
True
b.
False
True
Moderate
98. A compound tariff permits a specified amount of goods to be imported at one tariff rate while any imports above this
amount are subjected to a higher tariff rate.
a.
True
b.
False
False
Moderate
99. A tariff can be thought of as a tax on imported goods.
a.
True
b.
False
True
Easy
False
Moderate
100. Although tariffs on imported steel may lead to job gains for domestic steel workers, they can lead to job losses for
domestic auto workers.
a.
True
b.
False
101. Relatively low wages in Mexico make it impossible for U.S. manufacturers of labor-intensive goods to compete
against Mexican manufacturers.
a.
True
b.
False
False
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
specialization and trade
The Political Economy of Protectionism
BLOOM’S: Comprehension
102. According to the infant-industry argument, temporary tariff protection granted to an infant industry will help it
become competitive in the world market; when international competitiveness is achieved, the tariff should be removed.
a.
True
b.
False
True
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Political Economy of Protectionism
BLOOM’S: Comprehension
Exhibit 4.2
In the absence of international trade, assume that the equilibrium price and quantity of motorcycles in Canada is $14,000
and 10 units respectively. Assuming that Canada is a small country that is unable to affect the world price of motorcycles,
suppose its market is opened to international trade. As a result, the price of motorcycles falls to $12,000 and the total
quantity demanded rises to 14 units; out of this total, 6 units are produced in Canada while 8 units are imported. Now
assume that the Canadian government levies an import tariff of $1,000 on motorcycles.
103. Refer to Exhibit 4.2. As a result of the tariff, the price of imported motorcycles equals $13,000 and imports total 4
cycles.
True
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
The Political Economy of Protectionism
BLOOM’S: Comprehension
a.
True
b.
False
104. Refer to Exhibit 4.2. The tariff leads to an increase in Canadian consumer surplus totaling $11,000.
a.
True
b.
False
False
Challenging
United States – BPROG: Analytic
Tariff Welfare Effects: Small-Nation Model
BLOOM’S: Analysis
105. Refer to Exhibit 4.2. The tariff’s redistribution effect equals $7,000.
a.
True
b.
False
True
Challenging
United States – BPROG: Analytic
specialization and trade
Tariff Welfare Effects: Small-Nation Model
BLOOM’S: Analysis
106. Refer to Exhibit 4.2. The tariff’s revenue effect equals $6,000.
a.
True
b.
False
False
Challenging
United States – BPROG: Analytic
specialization and trade
Tariff Welfare Effects: Small-Nation Model
BLOOM’S: Analysis
True
Challenging
United States – BPROG: Analytic
Tariff Welfare Effects: Small-Nation Model
BLOOM’S: Analysis
107. Refer to Exhibit 4.2. All of the import tariff is shifted to the Canadian consumer via a higher price of motorcycles.
a.
True
b.
False
108. Refer to Exhibit 4.2. The tariff leads to a deadweight welfare loss for Canada totaling $1,000.
a.
True
b.
False
False
Moderate
109. Unlike a specific tariff, an ad valorem tariff differentiates between commodities with different values.
a.
True
b.
False
True
Moderate
110. A limitation of a specific tariff is that it provides a constant level of protection for domestic commodities regardless
of fluctuations in their prices over time.
a.
True
b.
False
False
Moderate
True
Moderate
111. A tariff quota is a combination of a specific tariff and an ad valorem tariff.
a.
True
b.
False
False
Moderate
112. A specific tariff is expressed as a fixed percentage of the total value of an imported product.
a.
True
b.
False
False
Moderate
113. The protective effect of a tariff occurs to the extent that less efficient domestic production is substituted for more
efficient foreign production.
a.
True
b.
False
True
Moderate
114. A tariff can increase the welfare of a “large” levying country if the favorable terms-of-trade effect more than offsets
the unfavorable protective effect and consumption effect.
a.
True
b.
False
True
Moderate
115. If the world price of steel is $600 per ton, a specific tariff of $120 per ton is equivalent to an ad valorem tariff of 25
percent.
a.
True
b.
False
False
Easy
116. An import tariff will worsen the terms of trade for a “small” country but improve the terms of trade for a “large”
country.
a.
True
b.
False
False
Moderate
117. Suppose that the tariff on imported steel is 40 percent, the tariff on imported iron ore is 20 percent, and 30 percent of
the cost of producing a ton of steel consists of the iron ore it contains. The effective rate of protection of steel is
approximately 49 percent.
a.
True
b.
False
True
Moderate
118. There is widespread agreement among economists that import tariffs increase overall employment in the levying
country.
a.
True
b.
False
119. Assume that the United States imports VCRs from South Korea at a price of $200 per unit and that these VCRs are
subject to an import tariff of 20 percent. Also assume that U.S. components are used in the VCRs assembled by South
Korea and that these components have a value of $100. Under the Offshore Assembly Provision of U.S. tariff policy, the
price of an imported VCR to the U.S. consumer after the tariff has been levied is $220.
a.
True
b.
False
True
Moderate
120. Assume that the United States imports televisions from Taiwan at a price of $300 per unit and that these televisions
are subject to an import tariff of 25 percent. Also assume that U.S. components are used in the televisions assembled by
Taiwan and that these components have a value of $100. Under the Offshore Assembly Provision of U.S. tariff policy, the
price of an imported television to the U.S. consumer after the tariff has been levied is $375
a.
True
b.
False
False
Moderate
121. Can import duties have unintended side effects?
Moderate
False
Moderate
122. What happens to effective protection when the value added by the domestic producer declines?
123. Is it possible for a low nominal tariff rate to understate the effective rate of protection? What is tariff escalation?
124. How can tariffs be justified?