72) A tax on a good that is imposed when it is imported is called
A) an import quota.
B) a VER.
C) a tariff.
D) a sanction.
E) a border tax.
73) The average U.S. tariff was highest in the
A) 1930s.
B) 1940s.
C) 1970s.
D) 1980s.
E) 1990s.
74) Suppose the world price of a shirt is $10. If the United States imposes a tariff of $5 a shirt,
then the price of a shirt in the
A) United States falls to $5.
B) United States rises to $15.
C) world falls to $5.
D) world rises to $5.
E) world rises to $15
75) When a tariff is imposed on a good, the ________ increases.
A) domestic quantity purchased
B) domestic quantity produced
C) quantity imported
D) quantity exported
E) world price
76) When a tariff is imposed on a good, domestic consumers of the good ________ and domestic
producers of the good ________.
A) win; lose
B) lose; win
C) win; win
D) lose; lose
E) lose; neither win nor lose
77) Which of the following parties benefits from an import quota but not from a tariff?
A) the domestic government
B) domestic producers
C) domestic consumers
D) the person with the right to import the good
E) the foreign government
9.4 The Case Against Protection
1) If supporters of restrictions on imports argue that protection is needed to preserve a strategic
industry; which of the following is being used?
A) Save domestic jobs argument.
B) National security argument.
C) Dumping argument.
D) Infant-industry argument.
E) Protecting national culture argument.
2) Which of the following is the national security argument against free trade?
A) A country must protect industries that produce defense equipment and armaments.
B) A country must protect new industries to give them a chance to mature before facing foreign
competition.
C) A country must protect firms from dumping by foreign companies.
D) A country must protect its consumers from foreign influences.
E) A country must preserve its jobs.
3) What is the national security argument to support protection from international trade?
A) Domestic firms must be protected until they gain a comparative advantage.
B) Any firm necessary in wartime must be protected.
C) Foreign producers selling below cost to drive domestic firms bankrupt must be stopped.
D) Domestic jobs must be protected from competition from low-paid foreign workers.
E) Foreigners selling products in the economy limit the nation’s diversity and stability.
4) What is the infant-industry argument for protection from international trade?
A) Domestic firms must be protected until they gain a comparative advantage.
B) Any firm necessary in wartime must be protected.
C) Foreign producers selling below cost to drive domestic firms bankrupt must be stopped.
D) Domestic jobs must be protected from competition from low-paid foreign workers.
E) Foreigners selling products in the economy limit the nation’s diversity and stability.
5) When protection is encouraged to protect a growing domestic industry; which of the following
is being used?
A) Save domestic jobs argument
B) National security argument
C) Anti-dumping argument
D) Infant-industry argument
E) Diversity and stability argument
6) The infant-industry argument is used by those who assert they want to
A) limit imports to protect new industries.
B) increase exports to encourage growth of new industries.
C) limit exports.
D) increase imports to earn money to support new industries.
E) encourage foreign firms to dump in the United States.
7) The infant-industry argument for protection is based on the idea of
A) learning-by-doing.
B) dumping.
C) absolute advantage.
D) quotas are the least harmful method of protecting domestic firms.
E) saving jobs in the U.S. economy.
8) What is the dumping argument for protection from international trade?
A) Domestic firms must be protected until they gain a comparative advantage.
B) Any firm necessary in wartime must be protected.
C) Foreign producers selling below cost to drive domestic firms bankrupt must be stopped.
D) Domestic jobs must be protected from competition from low-paid foreign workers.
E) Foreigners selling products in the economy limit the nation’s diversity and stability.
9) When a tariff supporter argues that foreign producers are selling their products for prices
below the costs of production, which of the following is being used?
A) Save domestic jobs argument
B) National security argument
C) Dumping argument
D) Infant-industry argument
E) Diversity and stability argument
10) Dumping is defined as the situation in which
A) domestic producers sell a product at prices below the cost of production.
B) foreign producers sell a product at a price below the cost of production.
C) foreign producers sell a product at a price above a fair level.
D) domestic producers cut production to drive up domestic prices.
E) domestic producers are protected by tariffs.
11) Which of the following is NOT a major argument for restricting international trade?
A) the promotion of dumping in America
B) the national security argument
C) the infant industry argument
D) the prevention of dumping argument
E) saves U.S. jobs argument
12) A flawed argument for protection from foreign trade is that
i. tariffs save domestic jobs.
ii. tariffs protect the national culture.
iii. quotas bring about diversity and stability.
A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) i, ii, and iii.
13) Which of the following is an argument that is used for protection from free trade?
i. the national security argument
ii. the infant-industry argument
iii. the dumping argument
A) i only.
B) ii only.
C) iii only.
D) i and iii.
E) i, ii, and iii.
14) When politicians debated the North American Free Trade Agreement (NAFTA), some told
stories of U.S. workers whose jobs would be moved to Mexico. Which of the following
arguments in favor of protection was being used?
A) Save domestic jobs argument
B) National security argument
C) Anti-dumping argument
D) Infant-industry argument
E) Diversity and stability argument
15) The argument that jobs are lost to free trade is
A) totally false because no jobs are lost to free trade.
B) correct because jobs are lost but foreign countries are helped and we can afford losses.
C) incorrect because no jobs are lost and new jobs are created by trade.
D) correct because some jobs are lost but incorrect because new jobs also are created.
E) true only when tariffs are imposed on the goods being imported.
16) International trade decreases the demand for workers in domestic industries that
A) produce goods that are exported from the country.
B) produce goods that also are imported into the country.
C) help businesses import and export.
D) service imported goods.
E) produce the goods in which the nation has a comparative advantage.
17) What is an effective counter against the argument that international trade should be restricted
to protect domestic jobs?
A) A more effective policy would be to support the industry with subsidies.
B) The more diversified the economy, the more stable it is.
C) Free trade increases the number of jobs in which workers earn higher incomes.
D) Rent seeking behavior should be encouraged.
E) Free trade in “green” goods will increase jobs.
18) The typical relationship between a worker’s productivity and the worker’s wage rate is
A) high productivity workers receive low wage rates.
B) low productivity workers receive low wage rates.
C) no link between productivity and wages earned.
D) high productivity workers find that their jobs are often outsourced.
E) that workers with high productivity need to have their high wages protected by tariffs.
19) While high-paid American workers fear competition with low-paid foreign workers, low-
paid foreign workers fear competition with high-paid American workers. Why?
A) It is completely irrational and unfounded.
B) Because America has such a large market it can protect its workers.
C) Because high wages reflect high worker productivity and the low-paid foreign workers are not
as productive.
D) Because high wages are the result of extensive tariff and other trade restrictions.
E) Because high wages mean that U.S. workers can buy more goods and services.
20) What is the best hope for reducing environmental pollution in less-developed nations?
A) strong international standards for pollution control
B) free international trade that raises incomes in less-developed nations
C) boycott of polluting nation’s products
D) limiting international trade
E) producing the goods in advanced, economically developed nations
21) The ________ are hurt by importing a good.
A) domestic consumers of the good
B) domestic producers of the good
C) domestic governments
D) foreign producers of the good
E) foreign governments
22) When the United States imports goods from the rest of the world, which of the following
parties is harmed?
i. domestic producers of the good
ii. domestic consumers of the good
iii. foreign producers of the good
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
23) The two main reasons why international trade is restricted is because restricting trade means
that governments can ________ and because domestic businesses ________.
A) create jobs; earn profits
B) obtain revenue; rent seek
C) rent seek; want to dump
D) prevent dumping; want to dump
E) rent seek; obtain revenue
24) Comparing developed and developing nations in their use of tariffs, we see that
A) the developing nations’ governments get very little revenue from tariffs.
B) both governments get large amounts of revenue from tariffs.
C) many developing nations’ governments get a large portion of their revenue from tariffs.
D) developing nations almost never impose tariffs because they want their people to obtain
goods and services at the lowest possible price.
E) developed nations rely much more than developing nations on tariff revenue.
25) A major reason why it is difficult to lower the barriers to free trade is
A) that total benefits are less than total costs from free trade.
B) the uneven distribution of gains and losses from free trade.
C) the loss of jobs without any gain of jobs from free trade.
D) the inability to compensate losers from free trade.
E) that the barriers allow us to compete with cheap foreign labor.
26) What is rent seeking with respect to restricting international trade?
A) The rent on factory buildings increases if trade is restricted.
B) The government avoids paying rent on buildings when importers pay the tariff.
C) An attempt to capture the gains from trade by imposing a tariff.
D) The government’s efforts to capture tariff rents.
E) The attempt by importers to avoid paying a tariff.
27) Which of the following groups gain from international trade?
i. producers of exported goods
ii. domestic consumers of imported goods
iii. workers in exporting firms
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
28) Why are the losers from free international trade not fully compensated for their losses?
A) The amount of compensation needed would bankrupt the government.
B) The people who claim to lose are also the same ones who benefit.
C) Identifying all losers and the size of their losses is extremely difficult.
D) No one actually loses from international trade.
E) The losers are foreigners.
29) Trade is often restricted because the
A) total gain to all producers is larger than the total loss to all consumers.
B) total gain to all producers is smaller than the total loss to all consumers.
C) gain per producer is larger than the loss per consumer.
D) gain per producer is less than the loss per consumer.
E) gain per consumer is larger than the loss per producer.
30) The national security argument is used by those who assert they want to
A) increase imports as a way of strengthening their country.
B) increase exports as a way of earning money to strengthen their country.
C) limit imports that compete with domestic producers important for national defense.
D) limit exports to control the flow of technology to third world nations.
E) limit all imports.
31) The argument that it is necessary to protect a new industry to enable it to grow into a mature
industry that can compete in world markets is known as the
A) national security argument.
B) diversity argument.
C) infant-industry argument.
D) environmental protection argument.
E) national youth protection argument.
32) ________ occurs when a foreign firm sells its exports at a lower price than its cost of
production.
A) Dumping
B) The trickle-down effect
C) Rent seeking
D) Tariff avoidance
E) Nontariff barrier protection
33) The United States
A) needs tariffs to allow us to compete with cheap foreign labor.
B) does not need tariffs to allow us to compete with cheap foreign labor.
C) should not trade with countries that have cheap labor.
D) will not benefit from trade with countries that have cheap labor.
E) avoids trading with countries that have cheap labor.
34) Why do governments in less-developed nations impose tariffs?
A) The government gains revenue from the tariff.
B) The government’s low-paid workers are protected from high-paid foreign workers.
C) The nation’s total income will be increased.
D) The national security of the country definitely is improved.
E) The government diversify its economy.
35) What is a major reason international trade is restricted?
A) rent seeking
B) to allow competition with cheap foreign labor
C) to save jobs
D) to prevent dumping
E) to eliminate monopolies
9.5 Chapter Figures
The figure above shows the U.S. market for T-shirts, where SUS is the domestic supply curve
and DUS is the domestic demand curve. The United States trades freely with the rest of the
world. The world price of a T-shirt is $5.
1) In the figure above, with international trade U.S. consumers buy ________ million T-shirts
per year at ________ per T-shirt.
A) 60; $5
B) 40; $8
C) 20; $5
D) 40; $5
E) 60; $11
2) Based on the figure above, as a result of international trade, U.S. domestic production
________ million T-shirts per year.
A) decreases by 20
B) increases by 20
C) decreases by 10
D) increases by 40
E) increases by 10
3) In the figure above, with international trade the United States ________ million T-shirts per
year.
A) imports 40
B) exports 40
C) exports 20
D) imports 20
E) imports 60
4) Based on the figure above, as a result of international trade, consumer surplus
A) increases by $150 million.
B) decreases by $150 million.
C) increases by $90 million.
D) decreases by $90 million.
E) remains unchanged.
5) Based on the figure above, as a result of international trade, producer surplus
A) increases by $150 million.
B) decreases by $150 million.
C) increases by $90 million.
D) decreases by $90 million.
E) remains unchanged.
6) Based on the figure above, international trade leads to
A) a net gain of surplus of $60 million.
B) a net loss of surplus of $60 million.
C) a net gain of surplus of $90 million.
D) a net loss of surplus of $90 million.
E) no net gain or loss of surplus.
The figure above shows the U.S. market for airplanes, where SUS is the domestic supply curve
and DUS is the domestic demand curve. The United States trades freely with the rest of the
world. The world price of an airplane is $150 million.
7) Based on the figure above, as a result of international trade, U.S. domestic production
________ airplanes per year.
A) decreases by 200
B) increases by 300
C) decreases by 100
D) increases by 500
E) increases by 200
8) In the figure above, U.S. consumers buy ________ airplanes per year at ________ million per
airplane.
A) 200; $150
B) 400; $100
C) 700; $150
D) 400; $150
E) 200; $100
9) In the figure above, the United States ________ airplanes per year.
A) imports 500
B) exports 500
C) exports 400
D) imports 400
E) exports 200
10) Based on the figure above, as a result of international trade, consumer surplus
A) increases by $15 billion.
B) decreases by $15 billion.
C) increases by $27.5 billion.
D) decreases by $12.5 billion.
E) remains unchanged.
11) Based on the figure above, as a result of international trade, producer surplus
A) increases by $15 billion.
B) decreases by $15 billion.
C) increases by $27.5 billion.
D) decreases by $12.5 billion.
E) remains unchanged.
12) Based on the figure above, international trade leads to
A) a net gain in surplus of $12.5 billion.
B) a net loss of surplus of $12.5 billion.
C) a net gain in surplus of $27.5 billion.
D) a net loss of surplus of $15 billion.
E) no net gain or loss of surplus.