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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 world price of a T-shirt is $5. The U.S. government
imposes a $2 per unit tariff on imported T-shirts.
13) The figure above shows that as a result of the tariff, the price of a T-shirt in the United States
________, and the quantity of T-shirts bought ________.
A) rises by $2; decreases by 15 million per year
B) rises by $2; increases by 15 million per year
C) falls by $2; increases by 5 million per year
D) does not change; decreases by 5 million per year
E) does not change; does not change
14) The figure above shows that as a result of the tariff, the quantity of T-shirts produced in the
United States ________, and the quantity of T-shirts imported ________.
A) increases by 15 million per year; decreases by 30 million per year
B) increases by 15 million per year; increases by 15 million per year
C) decreases by 15 million per year; decreases by 30 million per year
D) decreases by 30 million per year; increases by 30 million per year
E) does not change; decreases by 15 million per year
15) The figure above shows that as a result of the tariff, consumer surplus in the United States
A) decreases by $105 million per year.
B) increases by $55 million per year.
C) decreases by $30 million per year.
D) decreases by $20 million per year.
E) remains unchanged.
16) The figure above shows that as a result of the tariff, producer surplus in the United States
A) decreases by $105 million per year.
B) increases by $55 million per year.
C) decreases by $30 million per year.
D) decreases by $20 million per year.
E) remains unchanged.
17) The figure above shows that the government revenue from the tariff is
A) $20 million per year.
B) $30 million per year.
C) $15 million per year.
D) $55 million per year.
E) zero.
18) The figure above shows that the deadweight loss from the tariff is
A) $20 million per year.
B) $30 million per year.
C) $15 million per year.
D) $55 million per year.
E) zero.
19) The figure above shows that the U.S. net ________ surplus from the tariff is ________.
A) loss of; 30 million per year
B) gain in; $20 million per year
C) loss of; $10 million per year
D) gain in; $55 million per year
E) gain in; zero
9.6 Integrative Questions
1) Assume that the state of Missouri decided to place a tariff on every product produced outside
the state in an effort to increase the state's revenue and increase employment in the state. If
Missouri did so,
A) the state's total output would definitely increase.
B) workers with jobs in new firms replacing out-of-state imports would earn high income.
C) the standard of living within Missouri would decrease.
D) other states would begin to dump in Missouri.
E) the prices of goods imported into Missouri would fall.
2) During the 1980s, Harley-Davidson, the American motorcycle maker asked Congress for tariff
protection from large motorcycles imported from Japan. Harley-Davidson argued that their
company needed protection so the company could reorganize and, after some time had passed,
could become more competitive. Harley Davidson's argument is similar to the ________
argument for protection.
A) save domestic jobs
B) national security
C) anti-dumping
D) infant-industry
E) bring diversity and stability
3) In the 1950s, crude oil and natural gas imports were restricted to keep the domestic industries
viable in case of a war. The rationale for this protection is the ________ argument for protection.
A) save domestic jobs
B) national security
C) anti-dumping
D) infant-industry
E) penalizing lax environmental standards
4) In the 1980s, the U.S. government forced Japanese automakers to limit their exports to the
United States. The union representing the autoworkers (UAW), argued that otherwise the U.S.
auto industry would have contracted. The UAW's argument is the ________ argument for
protection.
A) save domestic jobs
B) national security
C) anti-dumping
D) infant-industry
E) bringing diversity and stability
5) In 2002, President Bush imposed a tariff on imported steel. He did so in response to rent
seeking by
A) domestic steel consumers.
B) domestic steel producers.
C) foreign steel consumers.
D) foreign steel producers.
E) foreign politicians.
6) Which of the following is true?
i. Comparative advantage drives international trade.
ii. Compared to a no-trade situation, in a market with imports, producer surplus is larger.
iii. Tariffs lower the domestic price of imported goods.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) i and iii
7) Which of the following is true?
i. When the world price of a good is lower than the price that balances domestic supply and
demand, a country gains from exporting the good.
ii. Compared to a no-trade situation, in a market with imports, consumer surplus is larger.
iii. Quotas raise the domestic price of imported goods.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) ii and iii
8) Which of the following is true?
i. Compared to a no-trade situation, in a market with exports, consumer surplus is larger.
ii. Tariffs decrease consumer surplus.
iii. Trade is restricted because protection brings small losses to a large number of people and
large gains to a small number of people.
A) Only i
B) Only ii
C) Only iii
D) i and iii
E) ii and iii
9.7 Essay: How Global Markets Work
1) How can a nation and its producers determine whether or not it has a comparative advantage
in producing a particular good or service?
2) After NAFTA was signed, the United States allowed more tomatoes to be imported from
Mexico. What happened to the price of tomatoes in the United States when the United States
allowed more tomatoes to be imported?
3) A few years ago, as oil and gas prices continued to increase, a growing number of Americans
called for the United States to become less reliant on Middle-Eastern oil. Would it make sense
for the United States to try to become totally self-reliant in the production of oil? Why or why
not?
4) The United States imports television sets from Japan. The table above contains the U.S.
demand and U.S. supply schedules for television sets. The world price of a television set is $600
per set.
a. With no trade, what is the domestic price and quantity of television sets?
b. At the world price, what is the quantity of sets demanded in the United States?
c. At the world price, how many sets are produced in the United States?
d. At the world price, how many sets are imported into the United States?
e. What is the opportunity cost of producing the 4-millionth television set in the United States?
In Japan?
5) Merck, an American pharmaceutical company, produces a vaccination that is used against
chicken pox. The table shows the domestic demand for, and supply of, this medication, measured
in thousands of doses per day. The world price of this medicine is $24 per dose.
a. With no trade, what is the U.S. price and quantity of the vaccine?
b. At the world price, how many doses are demanded in the United States?
c. At the world price, how many doses are produced in the United States?
d. At the world price, how many doses are exported?
6) The table above has the domestic supply and domestic demand schedules for a product. What
is the equilibrium price with no trade? Over what range of prices will the country export the
good? Over what range will it import the good? Suppose the world price is $20. What is the
quantity demanded, the quantity supplied, and the amount of the good exported or imported?
7) The figure above shows the U.S. demand and the U.S. supply curves of canned peaches.
a. In the absence of trade, what is price of canned peaches in the United States?
b. In the absence of trade, what is the level of production in the United States?
c. If the world price of canned peaches is $1 a can and the United States engages in trade, does
the United States import or export canned peaches?
d. If the world price of canned peaches is $1 a can and the United States engages in trade, what
is the quantity produced in the United States and what is the quantity consumed? What is the
quantity imported or exported?
e. If the world price of canned peaches is $2 a can and the United States engages in trade, does
the United States import or export canned peaches?
f. If the world price of canned peaches is $2 a can and the United States engages in trade, what
is the quantity produced in the United States and what is the quantity consumed? What is the
quantity imported or exported?
9.8 Essay: Winners, Losers, and Net Gains from Trade
1) Who gains from imports? How do they gain? Who loses? How do they lose? Does the overall
economy gain or lose from imports?
2) How do imports affect buyers' consumer surplus?
3) How do imports affect sellers' producer surplus?
4) Who gains from exports? How do they gain? Who loses? How do they lose? Does the overall
economy gain or lose from exports?
5) How do exports affect buyers' consumer surplus?
6) How do exports affect sellers' producer surplus?
1) Briefly define a tariff and a quota. Do any of these methods restrict trade without harming
domestic consumers?
2) "Tariffs today in the United States are much higher than in the past." Is the previous statement
correct or incorrect?
3) How does a tariff affect the domestic price of the import, the domestic consumption, the
domestic production, and the quantity imported?
4) The United States imposes a tariff on foreign limes. How does the tariff affect the U.S. price
of a lime and the production of limes in the United States?
5) How does a tariff affect the consumer surplus and the producer surplus from the imported
good? Is the overall economy helped or harmed by tariffs? Briefly explain your answers.
6) Currently, the United States has a 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 quota
was removed? What would happen to U.S. consumption and U.S. production of sugar?
7) How does a quota affect the domestic price of the import, the domestic consumption, the
domestic production, and the quantity imported?
8) How does a quota affect the consumer surplus and the producer surplus from the imported
good? Is the overall economy helped or harmed by quotas? Briefly explain your answers.
9) 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?
If a $3 per pound tariff 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 tariff revenue?
h. Who benefits from the tariff? Who loses?
10) The above figure 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 tariff of $5 per unit, what is the domestic consumption and
domestic production?
d. With the $5 per unit tariff, what is the quantity imported?
e. How much revenue does the government collect with a tariff of $5 per unit?
9.10 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 flaws.
2) What is the national security argument for restricting international trade? What is its flaw?
3) What is dumping?
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?
5) Explain how governments restrict international trade and who benefits as well as who loses
from the restrictions.
6) What is "rent seeking"? How does it apply to restricting imports?
7) Economics demonstrates that opening up unrestricted free international trade is beneficial to
all nations. However, are there any losers from such a policy change?
8) How does the United States attempt to compensate losers from lower trade restrictions?
9) Suppose that elimination of tariffs 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 benefits 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
tariffs, the farm workers or the consumers? Why?
