43) The current U.S. average tariff rate
A) less than 5 percent.
B) greater than 10 percent.
C) approximately 20 percent.
D) over 50 percent.
44) An import quota is
A) a tariff that is a fixed percentage of the price of a good.
B) a tariff that is a fixed dollar amount per unit of a good.
C) an agreed upon price for a good to be imported at a specified future date.
D) a restriction that specifies the maximum amount of a good that may be imported.
45) Import quotas
A) are the same as tariffs.
B) set the maximum number of units of a good that can be imported.
C) are not used by the United States.
D) set the minimum percentage of the value of a product that must consist of imported
components.
46) An import quota is a
A) tariff imposed on goods that are dumped in the country.
B) law that prevents ecologically damaging goods from being imported into a country.
C) market-imposed balancing factor that keeps prices of imports and exports in equilibrium.
D) government-imposed restriction on the quantity of a specific good that can be imported.
47) An import quota specifies the
A) highest price that can be charged for an imported good.
B) per unit tax that must be paid on an imported good.
C) maximum quantity of a good that may be imported during a specified time period.
D) minimum quantity of a good that must be exported during a specified time period.
48) Import quotas
A) encourage freer trade.
B) are a tax on an imported good.
C) set the number of units of a good that can be imported.
D) set the minimum percentage of the value of a good that can consist of imported components.
49) An import quota protects domestic producers by
A) setting a limit on the amount of imports.
B) placing a prohibitive tax on imports.
C) encouraging competition among domestic producers.
D) increasing the total supply of the product.
50) The U.S. government limits the amount of sugar that can be imported into the United States.
This policy is
A) an import quota.
B) a tariff.
C) a comparative advantage limitation.
D) None of the above answers are correct.
51) The effect of an import quota is to
A) increase the supply of the good and lower its price.
B) increase the supply of the good and increase its price.
C) increase the demand for the good and increase its price.
D) decrease the supply of the good and raise its price.
52) An import quota directly restricts ________ and are designed to protect domestic ________.
A) exports; consumers
B) exports; producers
C) imports; consumers
D) imports; producers
53) The U.S. government imposes an import quota on sugar. This import quota helps ________
and harms ________.
A) U.S. producers of sugar; U.S. consumers of sugar
B) U.S. producers of sugar; the U.S. government
C) the U.S. government; U.S. consumers of sugar
D) U.S. consumers of sugar; U.S. producers of sugar
54) In 2012 the United States government tightened the import quota on sugar by decreasing the
quantity of sugar that could be imported. Which of the following groups would gain from this
change?
I. U.S. consumers of sugar
II. U.S. producers of sugar
III. Foreign producers of sugar
A) I only
B) I and II only
C) II only
D) I and III only
55) Import quotas ________ the price of imported goods and ________ the quantity consumed in
the nation imposing the quota.
A) raise; increase
B) raise; decrease
C) lower; increase
D) lower; decrease
56) In 2012 the U.S. government reduced the quantity of sugar that can be imported from other
nations. This action ________ the price of sugar in the United States and ________ the quantity
consumed in the United States.
A) raised; increased
B) raised; decreased
C) lowered; increased
D) lowered; decreased
57) If a government imposes a quota on imports of a popular doll, the price of the doll in the
country will ________ and the quantity purchased in the country will ________.
A) rise; increase
B) rise; decrease
C) fall; increase
D) fall; decrease
58) A key difference between imposing tariffs as opposed to imposing quotas is that
A) consumers are hurt with quotas but not with tariffs.
B) consumers are hurt with tariffs but not with quotas.
C) the government receives revenue with tariffs, but the importer receives the added revenue
with quotas.
D) the government receives revenue with quotas, but the importer receives the added revenue
with tariffs.
59) A difference between a quota and a tariff is that with a quota the
A) person who has the right to import the good captures an extra gain.
B) exporting government collects an extra gain in the form of revenue.
C) importing government collects an extra gain in the form of revenue.
D) domestic consumers are not harmed.
60) A difference between a quota and a tariff is that
A) a tariff generates a higher price than does a quota.
B) a tariff generates a greater reduction in exports than does a quota.
C) a quota increases profits of domestic producers more than does a tariff.
D) the government collects revenues from a tariff but does not collect revenues from a quota.
61) A key difference between a quota and a tariff is that
A) a quota has a larger effect on quantity than on price.
B) a tariff has a larger effect on quantity than on price.
C) the government of the importing country gains revenue from a tariff, but the price gap caused
by a quota benefits domestic importers.
D) All of the above answers are correct.
62) Voluntary export restraints (VERs)
A) do not protect domestic producers.
B) raise revenue for the governments involved.
C) raise the prices paid by domestic consumers.
D) Both answers B and C are correct.
63) A voluntary export restraint
A) is like a tariff.
B) is a very common form of trade barrier.
C) is like a quota on foreign exports.
D) Both answers B and C are correct.
64) A tariff is
A) a government imposed limit on the amount of a good that can be exported from a nation.
B) a government imposed barrier that sets a fixed limit on the amount of a good that can be
imported into a nation.
C) a tax on a good imported into a nation.
D) an agreement between governments to limit exports from a nation.
65) Who benefits from a tariff on a good?
A) domestic consumers of the good
B) foreign governments
C) domestic producers of the good
D) foreign producers of the good
66) Who benefits from an import quota on a good?
A) domestic consumers of the good
B) foreign governments
C) domestic producers of the good
D) foreign producers of the good
67) Tariffs ________ the domestic price of the good and import quotas ________ the domestic
price of the good.
A) lower; lower
B) lower; raise
C) raise; lower
D) raise; raise
68) When does the domestic government gain the MOST revenue?
A) when it imposes a tariff
B) when it imposes an import quota
C) when it negotiates a voluntary export restraint
D) The amount of revenue it gains is the same with a tariff and a voluntary export restraint.
69) Export subsidies are
A) payments by the government to producers of exported goods.
B) similar to voluntary export restraints.
C) illegal.
D) Both answers A and C are correct.
1) Economists usually agree with which of the following arguments that favor protectionism?
A) the competition with cheap foreign labor defense
B) the job protection defense
C) the anti-dumping defense
D) Economists in general do not agree with any of the arguments in favor of protectionism.
2) Most economists agree that valid reasons for protecting trade include which of the following?
I. the economies of scale argument
II. the saving jobs argument
III. the protection of high wages argument
A) I only
B) I and II
C) I and III
D) None of the reasons are valid.
3) Which of the following are valid reasons advanced by almost all economists? Protectionism
A) saves jobs.
B) prevents rich countries from exploiting poorer countries.
C) is a good way for governments in developed nations to raise revenue.
D) Economists would not support any of the above reasons.
4) Which of the following are reasons economists consider valid for trade protection?
I. Protection penalizes countries that have weak environmental standards.
II. Protection limits dumping of low-wage jobs into the domestic economy.
III. Protection prevents low-wage jobs in foreign countries from lowering wages in the United
States.
A) I and II
B) II and III
C) I, II, and III
D) none of the above
5) The idea of dynamic (i.e. changing) comparative advantage is the basis for which of the
following arguments for protection from foreign competition?
A) the cheap foreign labor argument
B) the infant-industry argument
C) the dumping argument
D) the saves jobs argument
6) The most efficient way to encourage the growth of an infant-industry is through a
A) voluntary export restraint.
B) tariff.
C) subsidy.
D) an import quota.
7) The infant industry argument is based on the idea of
A) dynamic comparative advantage.
B) absolute productivity advantage.
C) global monopoly.
D) countervailing duties.
8) Which of the following statements is TRUE?
A) The infant-industry argument is valid only if the benefits of learning-by-doing in the infant
industry spill over to other parts of the economy.
B) A subsidy to an infant industry is a more efficient way to protect it from foreign competition
than a tariff on the competing foreign goods.
C) Both statements are true.
D) Neither of the statements is true.
9) An assumption behind the infant-industry argument for tariff protection is that
A) foreign competitors are selling output below average cost.
B) the domestic industry will be facing an upward adjustment in its average cost.
C) the domestic industry will eventually gain a comparative advantage in producing the good.
D) the market needs additional competition to satisfy consumer demand.
10) Dumping occurs when a foreign firm ________.
A) pollutes international waters
B) disposes of waste material internationally
C) sells inferior output to foreigners
D) sells its exports at a lower price than its cost of production
11) ________ occurs when a foreign firm sells its exports at a lower price than it costs to
produce the goods.
A) Dumping
B) Comparative advantage
C) Learning-by-doing
D) A tariff
12) When a foreign firm sells its exports at a lower price than its cost of production, the firm is
A) imposing an economies of scale cost.
B) dumping.
C) avoiding a tariff.
D) competing in an infant industry.
13) In 2012 the U.S. government claimed that Chinese producers of solar panels were dumping
panels in the United States, which means that the producers were accused of
A) avoiding the U.S. tariff on solar panels.
B) selling the panels in the United States at a price lower than their cost of production.
C) selling the panels in the United States at a higher price than they were selling the panels in
China.
D) None of the above answers are correct.
14) Which of the following statements is TRUE?
A) Dumping is illegal under the rules of the WTO.
B) Dumping occurs when a foreign firm sells its exports at a higher price than its cost of
production.
C) Both statements are true.
D) Neither of the statements is true.
15) Suppose that the country of Pacifica sold its cars in Atlantica for less than it costs to produce
the cars. Pacifica could be accused of
A) avoiding import quotas.
B) increasing its gains from trade.
C) dumping.
D) engaging in learning-by-doing.
16) When a firms “dumps” some of its products in another country, it
A) creates an environmental hazard in the receiving country.
B) sells its products abroad at a price lower than it costs to produce the goods.
C) increases the total level of employment in the receiving country.
D) is specializing according to comparative advantage.
17) Japan was accused of dumping in the steel industry within the United States when it
A) negotiated an illegal agreement to raise prices with U.S. steel industries.
B) prohibited imports of U.S. steel into Japan.
C) sold steel in the United States at a price below its cost of production.
D) negotiated an illegal trade deal with Canada.
18) Some observers opposing free trade argue that when we buy shoes from Brazil or shirts from
Taiwan, U.S. workers lose their jobs. The fact of the matter is that
A) no U.S. worker has actually lost a job because of free trade.
B) most jobs lost because of free trade pay less than the poverty level.
C) free trade creates jobs in export industries.
D) the jobs lost are concentrated in restricted geographic areas.
19) Using calculations of the cost to Americans per job saved in protected industries, it can be
concluded that
A) import quotas are an efficient way to redistribute income.
B) each job saved is worth more than the cost imposed on consumers per job saved.
C) each job saved is worth less than the cost imposed on consumers per job saved.
D) tariffs are an efficient way to redistribute income to disadvantaged groups.
20) It is possible for the United States to compete against cheap foreign labor because expensive
domestic workers
A) pay U.S. taxes.
B) receive subsidies.
C) are more productive.
D) belong to unions.
21) In poorer countries, free trade ________ the demand for labor in these countries and
________ the wages paid in these countries.
A) decreases; lowers
B) decreases; raises
C) increases; lowers
D) increases; raises
22) Which of the following statements is TRUE?
A) International trade raises wages in developing countries.
B) International trade with rich industrial countries forces people in the developing countries to
work for lower wages.
C) International trade leads to job losses in both import competing industries and exporting
industries.
D) Unlike other types of international trade, offshoring does not bring any gains from trade.
23) Which of the following is an effective counter argument to the claim that protectionism saves
domestic jobs?
A) Protectionism eliminates domestic jobs in export industries.
B) Imports create jobs in this country for people selling and servicing imported items.
C) The cost of saving domestic jobs through protectionism may be high.
D) all of the above
24) The reason that average labor costs are higher in the United States than in Haiti is that
A) workers are more productive in the United States.
B) U.S. workers have a comparative advantage.
C) Haitian workers have a comparative advantage.
D) Haitian workers do not have union representation.
25) Which of the following are TRUE regarding the argument that trade barriers protect U.S.
workers from cheap foreign labor?
I. Low-wage foreigners are just as productive as U.S. workers.
II. U.S. workers have a comparative advantage in low-wage jobs.
A) I only
B) II only
C) I and II
D) Neither I nor II is correct.
26) The argument that protection ________.
A) penalizes poor environmental standards is true
B) allows us to compete with cheap foreign wages is true
C) is necessary for infant industries is true
D) saves jobs is flawed
27) Which of the following is an explanation for the existence of trade restrictions?
A) Tariffs generate revenue for the government.
B) rent seeking
C) inefficient quotas
D) Both answers A and B are key explanations.
28) International trade is restricted because
A) there is an uneven distribution of benefits and costs of free trade.
B) free trade creates an inefficient use of resources.
C) free trade leads to higher costs.
D) free trade stifles diversity and stability.
29) In industrial countries, there is more reliance on ________, as opposed to ________ for
government revenue.
A) tariffs; tax collection
B) quotas; tariffs
C) tax collection; tariffs
D) tariffs; quotas
30) In developing countries, there is more reliance on ________ as opposed to ________ for
government revenue.
A) tariffs; tax collection
B) quotas; tariffs
C) tax collection; tariffs
D) tariffs; quotas
31) Which of the following is a TRUE statement?
A) Everyone benefits from free trade.
B) Only exporters benefit from trade.
C) All producers benefit from trade and but not all consumers benefit.
D) Free trade harms domestic producers of goods that face import competition.
32) Suppose that the country of Pacifica imposes a quota on bananas. The reason that the
government imposed this trade restriction could be
A) that the government of Pacifica needs to increase its revenue.
B) lobbying from banana farmers in Pacifica.
C) comparative advantage.
D) Both answers A and B are correct.
33) in 2013 the U.S. government imposed a tariff on Chinese solar panels. The group that
lobbied for this tariff was
A) U.S. consumers of solar panels.
B) only U.S. producers of solar panels.
C) only Chinese producers of solar panels.
D) Both U.S. and Chinese producers of solar panels.
34) Of the groups listed below, which is most likely to lobby for protection?
A) workers in the import industry
B) workers in the export industry
C) consumers in the import industry
D) producers in the export industry
35) Rent seeking is one reason why countries choose to
A) restrict trade.
B) export and import the same goods.
C) work for freer trade.
D) follow the theory of comparative advantage.
36) When a group lobbies for the prevention of free trade, the most likely reason is
A) rent seeking.
B) tariff revenue.
C) defense against expensive domestic labor.
D) preservation of the environment.
37) When considering rent seeking, which of the following is TRUE?
A) The anti-free trade group generally will lobby more than the pro-free trade group.
B) The pro-free trade group generally will lobby more than the anti-free trade group.
C) Usually only the anti-free trade group is concerned about what is best for society at large.
D) Only the pro-free trade group is concerned about the government’s revenue from tariffs.
38) A tariff will benefit
A) domestic producers by maintaining a higher than free-trade price.
B) foreign producers by allowing them to sell at a higher price in markets with tariffs.
C) consumers who are able to better afford domestically produced goods.
D) All of the above answers are correct.
39) A tariff hurts
A) the government by decreasing its revenue.
B) domestic producers who can’t compete with cheaper imports.
C) consumers who will pay more for the imported good.
D) All of the above answers are correct.
40) The reason tariffs and quotas are imposed is that
A) their costs are spread among many people and their benefits are concentrated.
B) their costs are concentrated and their benefits are spread among many people.
C) they create net benefits in the long run.
D) they reduce import dependence.
41) One reason that international trade is restricted is that
A) the individual gain to parties who benefit from the protection will be much larger than the
individual loss to parties who lose.
B) the government completely pays the losers from international trade for their losses.
C) protectionism benefits consumers.
D) the government cannot measure the cost of protectionism.
42) In 2013 the U.S. government removed its tariff on imported ethanol. Removing the tariff
benefited ________ of ethanol, each of whom gained a ________.
A) U.S. producers; little
B) U.S. producers; lot
C) U.S. consumers; little
D) U.S. consumers; lot
43) Usually the removal of trade barriers affecting a particular good benefits ________ people
domestically, each of whom gains a ________.
A) a few; little
B) a few; lot
C) many; little
D) many; lot
44) Usually the imposition of trade barriers affecting a particular good benefits ________ people
domestically, each of whom gains a ________.
A) a few; little
B) a few; lot
C) many; little
D) many; lot
45) The gains from free trade are enjoyed by a ________ number of people and the costs of free
trade are imposed by a ________ number of people.
A) small; large
B) large; small
C) small; small
D) large; large