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Page 1
1.
How large a tariff did Donald Trump, the Republican candidate in the 2016 presidential
campaign, indicate that he would levy on Chinese exports to the United States?
A)
10%
B)
25%
C)
45%
D)
75%
2.
In 1995, the United States considered levying a tariff on luxury cars imported from
Japan. How did Japan react to this possibility?
A)
It reduced its purchases of U.S. Treasury bills, causing U.S. interest rates to
increase.
B)
It considered levying a tariff on beef imported from the United States.
C)
It submitted an unfair trade practice complaint to the World Trade Organization.
D)
It moved production of its luxury automobiles to the United States.
3.
Import tariffs are ___________ on imports, and import quotas are ____________ on
imports.
A)
subsidies; taxes
B)
quantity limits; subsidies
C)
taxes; quantity limits
D)
quantity limits; taxes
4.
GATT is the acronym (or abbreviation) for:
A)
the General Agreement on Taxes and Tariffs.
B)
the General Agreement on Tariffs and Trade.
C)
the General Agreement on Trade and Taxes.
D)
the General Agreement on Trade.
5.
WTO is the acronym for:
A)
the World Traffic Organization.
B)
the World Trade Organization.
C)
the World Tariff Organization.
D)
the World Tax Organization.
6.
An international conference in Bretton Woods, New Hampshire, in 1944 resulted in the
formation of:
A)
the European Union.
B)
the International Monetary Fund.
C)
the General Agreement on Tariffs and Trade (GATT).
D)
the International Red Cross.
Page 2
7.
An international conference in Geneva, Switzerland, in 1947 resulted in the formation
of:
A)
the European Union.
B)
the International Monetary Fund.
C)
the General Agreement on Tariffs and Trade (GATT).
D)
the International Red Cross.
8.
Which organization acts as a forum for countries to come to agreement on trade policies
and to resolve trade policy disputes?
A)
the International Trade Organization
B)
the United Nations
C)
the World Trade Organization
D)
the United Nations Conference on Trade and Development
9.
The General Agreement on Tariffs and Trade focused on:
A)
raising tariffs on agricultural products.
B)
lowering trade restrictions between countries.
C)
promoting full employment worldwide.
D)
increasing trade restrictions between countries.
10.
Under the GATT framework, nations met periodically to negotiate lower trade
restrictions. These negotiations are known as:
A)
conferee sessions.
B)
plenary meetings.
C)
sesqui-sessions.
D)
rounds.
11.
What organization emerged from the GATT, starting January 1, 1995, with expanded
responsibilities and global interaction?
A)
the Doha round
B)
the World Trade Organization
C)
the United Nations
D)
the Institute for International Economics
12.
What is the name of the MOST recent round of WTO negotiations?
A)
the Doha round
B)
the Kyoto round
C)
the Geneva accord
D)
the Paris round
Page 3
13.
One feature of the GATT and now the WTO is that all member nations get the same
treatment from their trading partners in terms of trade rules and restrictions. This
provision is:
A)
beggar thy neighbor.
B)
the good neighbor policy.
C)
rotating obligations.
D)
most favored nation status.
14.
Most favored nation status requires that a WTO member:
A)
reduces a tariff on imports from one WTO trading partner and applies the lower
tariff to imports from all other WTO members.
B)
reduces a tariff on imports from one WTO trading partner and applies the lower
tariff to imports from all other countries.
C)
increases a tariff on imports from one WTO trading partner and raises the tariff on
imports from all other WTO members.
D)
increases a tariff on imports from one WTO trading partner and raises the tariff on
imports from all other countries.
15.
What is an “export subsidy”?
A)
a payment by one government to another for exports
B)
a payment (or other benefit) to domestic firms by their government to help them
sell exports more cheaply
C)
the rule that says all exports must be taxed before they leave the port
D)
a provision that exporters must get their payments indirectly through a third party
16.
The escape clause in U.S. trade law:
A)
enables the United States to withdraw from NAFTA.
B)
permits the U.S. government to impose trade barriers if fairly traded imports are
the cause of significant injury to a U.S. industry and its workers.
C)
permits the government to impose trade remedies against nations that unfairly
subsidize their exports to the United States.
D)
enables immigrants to return to their home countries.
17.
What GATT provision did the United States use to justify levying tariffs on tire imports
in fall 2009?
A)
antidumping duties
B)
export subsidization
C)
safeguard clause
D)
national security
Page 4
18.
According to the GATT, a tariff applied under the safeguard provision must:
A)
be temporary.
B)
be permanent.
C)
apply to all imports.
D)
be no higher than 10%.
19.
Which of the following is an exception to the most favored nation principle?
A)
trade in petroleum
B)
trade with Japan
C)
tariff concessions negotiated within a free-trade area or a customs union
D)
trade in services
20.
Under the WTO provision of Article XIX, countries can:
A)
never charge a tariff on an import.
B)
always charge a tariff on imports.
C)
temporarily charge a higher tariff on certain imports.
D)
provide subsidies to all domestic producers of import competing products.
21.
The safeguard provision or escape clause allows a country to:
A)
import products below cost from foreign countries.
B)
export products by selling below cost to foreign countries.
C)
avoid tariffs in foreign countries temporarily.
D)
temporarily increase tariffs on certain imported goods.
22.
GATT maintained a provision that nations could enact temporary emergency tariffs or
quotas if imports threatened the existence of domestic producers. The WTO has
maintained that provision. Economists call this:
A)
the tariff bill.
B)
the escape clause.
C)
justifiable means.
D)
domestic job security provision.
23.
To help its domestic producers, the United States unilaterally raised tariffs on _____ in
early 2002, but after a ruling against the United States by the WTO, it was forced to
rescind the tariff.
A)
autos
B)
steel
C)
oil
D)
dairy products
Page 5
24.
Normally the WTO does not allow discriminatory treatment in trade of member nations,
but it makes an exception for nations:
A)
that have a large trade surplus.
B)
using environmentally harmful production techniques.
C)
that cannot control drugs and other illegal activities.
D)
engaging in regional free-trade agreements.
25.
A free-trade area is defined as:
A)
a trading agreement that allows for free flow of resources.
B)
a trading agreement that binds member countries to have a uniform tariff on other
countries.
C)
a trading agreement that lets countries rely on subsidies on domestic production.
D)
a trading agreement in which a group of countries voluntarily agree to remove
trade barriers between themselves.
26.
A customs union is different from a free-trade area, in that:
A)
a free-trade area allows for free movement of factors, whereas a customs union
does not.
B)
a free-trade area allows for uniform tariffs, whereas a customs union does not.
C)
a free-trade area removes trade barriers between member countries, whereas a
customs union adopts identical tariffs with the rest of the world.
D)
a customs union removes trade barriers between member countries, whereas a
free-trade area adopts identical tariffs with the rest of the world.
27.
A country that becomes a member of the World Trade Organization agrees to bind its
tariffs. “Binding” means that the country agrees not to increase existing tariffs and that
it will not introduce new tariffs. However, GATT allows three exceptions to binding.
Which of the following is NOT an exception to binding?
A)
antidumping duties against dumped imports
B)
countervailing duties against subsidized imports
C)
safeguard or escape clause tariffs
D)
tariff reductions negotiated in free-trade areas
28.
Which of the following is NOT an important provision of GATT?
A)
the most favored nation clause
B)
the safeguard provision or escape clause
C)
antidumping tariffs
D)
approval of export subsidies
Page 6
29.
China is now a member of the World Trade Organization. For China, one of the benefits
of WTO membership is:
A)
the right to impose antidumping duties on its exports.
B)
the right to increase tariffs on all its imports.
C)
the right to subsidize all its exports.
D)
the right to impose antidumping duties on its imports.
30.
GATT/WTO allows nations to impose tariffs in response to unfair trade practices such
as:
A)
dumping.
B)
transportation costs.
C)
environmental degradation.
D)
import subsidies.
31.
Consumer surplus is:
A)
the difference between the price of a product and consumers' valuation of the last
unit of the product purchased.
B)
the difference between the price of a product and what consumers were willing to
pay for the product.
C)
the difference between the discounted price of a product and its retail price.
D)
the difference between the price paid by consumers and the price required of
producers.
32.
The difference between the price consumers are willing to pay and the price that they
actually pay is known as:
A)
price discrimination.
B)
government surplus.
C)
consumer surplus.
D)
producer surplus.
Page 7
33.
(Figure: Consumer Surplus) When the price of the product is $15, the consumer surplus
is:
A)
$441.
B)
$256.
C)
$13.
D)
$15.
34.
(Figure: Consumer Surplus) By how much will consumer surplus increase if the price of
the product decreases to $10?
A)
$441.
B)
$256.
C)
$185.
D)
$160.
Page 8
35.
When consumers are able to buy a product at a price lower than its marginal value to
them, it is called:
A)
consumer surplus.
B)
consumer sovereignty.
C)
producer surplus.
D)
marginal utility.
36.
When firms are able to sell units of a good at a price higher than the marginal cost of
production, they are getting:
A)
consumer surplus.
B)
higher efficiency.
C)
producer surplus.
D)
marginal utility.
37.
Suppose that consumer demand is given by this equation: P = 10 – Q. What is the value
of consumer surplus when P = 5?
A)
$5
B)
$12.50
C)
$25
D)
$50
38.
Producer surplus is:
A)
the difference between the price of a product and marginal cost of producing the
product.
B)
the difference between the price of a product and what consumers were willing to
pay for the product.
C)
the difference between the discounted price of a product and its retail price.
D)
the difference between the price of a product and its average cost of production.
39.
Suppose that the supply curve for widgets is described by this equation: P = 1/2Q. What
is the value of producer surplus when P = 5?
A)
$5
B)
$12.50
C)
$25
D)
$50
Page 9
40.
One interpretation of producer surplus is that it equals:
A)
the profits of a firm.
B)
the return to the fixed factors of production in an industry.
C)
consumer surplus.
D)
the difference between the price of a product and its average cost of production.
41.
If we assume perfect competition in the product markets, producer surplus is:
A)
maximized.
B)
minimized.
C)
equal to the firm's monopoly profits.
D)
equal to the return to the fixed factors of production.
42.
We can measure producer and consumer surplus by looking at a graph of supply and
demand. Consumer surplus is:
A)
the area above the supply curve but below the equilibrium price.
B)
the area below the demand curve but greater than the equilibrium price.
C)
the area below the demand curve all the way down to the quantity axis.
D)
the combined triangular area below the demand curve and above the supply curve.
43.
We can measure producer and consumer surplus by looking at a graph of supply and
demand. Producer surplus is:
A)
the area above the supply curve but below the equilibrium price.
B)
the area below the demand curve but greater than the equilibrium price.
C)
the area below the demand curve all the way down to the quantity axis.
D)
the combined triangular area below the demand curve and above the supply curve.
44.
We can measure producer and consumer gains by looking at a graph of supply and
demand. Total welfare in the economy would be:
A)
the area above the supply curve but below the equilibrium price.
B)
the area below the demand curve but greater than the equilibrium price.
C)
the area below the demand curve all the way down to the quantity axis.
D)
the combined triangular area below the demand curve and above the supply curve.
45.
How many units will a country import if S = 1P represents its home supply curve, D =
100 – 1P represents its home demand curve, and the world price is $25?
A)
25
B)
50
C)
75
D)
100
Page 10
46.
A small country in international trade faces:
A)
a perfectly elastic world supply curve.
B)
a perfectly inelastic world supply curve.
C)
a perfectly elastic world demand curve.
D)
a perfectly inelastic world demand curve.
47.
If there is free trade in a small economy, the nation will be able to import unlimited
quantities of the product at:
A)
the domestic price.
B)
the world price.
C)
the price measured in euros.
D)
the price determined after all tariffs are assessed.
48.
Suppose that Norway is a small country and currently produces 100,000 board feet of
lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500
per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet
and its consumption increases to 200,000 board feet.
How many board feet of lumber does Norway now import?
A)
250,000 board feet
B)
200,000 board feet
C)
150,000 board feet
D)
100,000 board feet
49.
Suppose that Norway is a small country and currently produces 100,000 board feet of
lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500
per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet
and its consumption increases to 200,000 board feet.
What is Norway's total gain in consumer surplus once it begins to trade?
A)
$10,000
B)
$15,000
C)
$100,000
D)
$150,000
Page 11
50.
Suppose that Norway is a small country and currently produces 100,000 board feet of
lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500
per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet
and its consumption increases to 200,000 board feet.
What is Norway's total welfare gain once it begins to trade?
A)
$5,000
B)
$7,500
C)
$15,000
D)
$17,500
51.
(Figure: The Import-Competing Industry) In the figure, what is the value of producer
surplus in the absence of trade?
A)
$510.
B)
$150.
C)
$25.
D)
$15.
Page 12
52.
(Figure: The Import-Competing Industry) What is the increase in producer surplus if the
demand for the product increases and the new equilibrium price is 30 and quantity is
50?
A)
$525
B)
$475
C)
$255
D)
$325
53.
(Figure: The Import-Competing Industry) Suppose that, with free trade, the world price
of the product is $15. What is the value of consumer surplus?
A)
$1,395.
B)
$697.50.
C)
$22.50.
D)
$2,250.
Page 13
54.
(Figure: The Import-Competing Industry) Suppose that, with free trade, the world price
of the product is $15. In comparison to a no-trade situation, with free trade, producer
surplus:
A)
increases to $75.
B)
decreases to $75.
C)
increases to $150.
D)
decreases to $150.
55.
(Figure: Home's Import-Competing Industry) What is the domestic price before trade?
A)
$100
B)
$800
C)
$50
D)
$1,300
Page 14
56.
(Figure: Home's Import-Competing Industry) What is the domestic price after trade?
A)
$100
B)
$800
C)
$50
D)
$1,300
57.
(Figure: Home's Import-Competing Industry) What is the consumer surplus before
trade?
A)
triangle ADB
B)
triangle AEC
C)
quadrangle DEBC
D)
triangle EFG
Page 15
58.
(Figure: Home's Import-Competing Industry) What is the consumer surplus after trade?
A)
triangle ADB
B)
triangle AEC
C)
quadrangle DEBC
D)
triangle EFG
59.
(Figure: Home's Import-Competing Industry) What is this nation's “welfare” before
trade?
A)
triangle AFB
B)
triangle AEC
C)
quadrangle DEBC
D)
triangle EFC
Page 16
60.
(Figure: Home's Import-Competing Industry) What is this nation's “welfare” after trade?
A)
triangle AFB
B)
triangle AEC + triangle EFG
C)
quadrangle DEB
D)
triangle EFG
61.
(Figure: Home's Import-Competing Industry) How would we measure the “gains” from
trade in this diagram?
A)
triangle AFB
B)
triangle AEC
C)
quadrangle DECB (consumer gains) – DEBG (producer losses)
D)
triangle EFC
Page 17
62.
(Figure: Home's Import-Competing Industry) Based on the graph, which of the
following statements is (are) correct?
A)
This nation will not produce anything if the world price is greater than $100.
B)
This nation will import nothing if the world price is $50.
C)
This nation would import 1,700 units if the world price is $50.
D)
This nation will produce 800 units if the world price is $50.
63.
The home import demand curve is downward sloping because:
A)
as the government forces the price down, consumers buy more.
B)
foreign companies want to help domestic competitors.
C)
as the price falls below domestic equilibrium, the shortage in demand is filled by
importing more quantity from abroad.
D)
consumers can control the price of the good.
64.
If S = 1P represents a country's home supply curve and D = 100 – 1P represents its
home demand curve, then the equilibrium price and quantity in autarky are:
A)
$100 and 0 units.
B)
$50 and 50 units.
C)
$0 and 100 units.
D)
$75 and 25 units.
65.
If S = 1P represents a country's home supply curve and D = 100 – 1P represents its
home demand curve, then the equation representing its import demand curve is:
A)
100 – 2P.
B)
50 – 1P.
C)
100 – 1P.
D)
50 – 2P.
Page 18
66.
Suppose that the world price of radios is above the no-trade domestic price. In that case,
the country:
A)
imports radios at the world price.
B)
imports radios at the no-trade domestic price.
C)
exports radios at the world price.
D)
exports radios at the no-trade domestic price.
67.
Suppose that the equations S = 2P and D = 6 – P represent a small country's home
supply and home demand curves. Which of the following is the equilibrium price in
autarky?
A)
$2
B)
$4
C)
$6
D)
$8
68.
Suppose that the equations S = 2P and D = 6 – P represent a small country's home
supply and home demand curves. If the world price is $1, which of the following is the
increase in the country's welfare when it trades compared with autarky?
A)
$6.00
B)
$4.50
C)
$1.50
D)
$0.50
69.
Suppose that the equations S = 2P and D = 6 – P represent a small country's home
supply and home demand curves, and the free-trade world price is $1. If the government
imposed a 50% tariff on imports, how much revenue would it collect as a result of the
tariff? (Note: It is possible to consume partial units of this product, such as 2.5 units.)
A)
$1.50
B)
$2.75
C)
$0.50
D)
$0.75
Page 19
70.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
What is the purpose of this €60-per-ton tariff?
A)
Its purpose is to protect Finnish steel consumers from foreign competition.
B)
Its purpose is to protect Finnish steel producers and consumers from the World
Trade Organization.
C)
Its purpose is to protect Finnish steel producers from foreign competition.
D)
Its purpose is to cause Finland to comply with provisions of the General
Agreement on Tariffs and Trade.
71.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
What is likely to happen to Finnish production of steel and the price of steel sold in
Finland after the €60-per-ton tariff is imposed?
A)
Finnish steel production will fall, and the Finnish price of steel will fall.
B)
Finnish steel production will rise, and the Finnish price of steel will fall.
C)
Finnish steel production will fall, and the Finnish price of steel will rise.
D)
Finnish steel production will rise, and the Finnish price of steel will rise.
72.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
Who will gain and who will lose as a result Finland's €60-per-ton tariff on imported
steel?
A)
Both Finnish steel producers and steel consumers will be worse off with the tariff
than without it.
B)
Finnish steel producers will be better off; Finnish steel consumers will be worse off
with the tariff than without it.
C)
Finnish steel producers will be worse off; Finnish steel consumers will be better off
with the tariff than without it.
D)
Both Finnish steel producers and steel consumers will be better off with the tariff
than without it.
Page 20
73.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
Suppose that the €60-per-ton tariff caused Finnish production of steel to increase by
100,000 tons and Finnish consumption of steel to fall by 100,000 tons. What is the value
of Finland's welfare loss due to the tariff?
A)
200,000 tons
B)
€6 million
C)
€12 million
D)
€15 million
74.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
How much total tariff revenue will the Finnish government collect as a result of the
€60-per-ton tariff?
A)
€6 million
B)
€12 million
C)
€18 million
D)
€30 million
75.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
What will happen to the Finnish price of steel if Finnish demand increases and the tariff
remains at €60-per-ton?
A)
It will not change.
B)
It will increase.
C)
It will decrease.
D)
It will first increase, then decrease.
Page 21
76.
The following table gives the hypothetical supply and demand of television sets in
Guatemala. Guatemala is a small country that is unable to affect world prices. The world
price (free-trade price) is $300 per TV set.
In the absence of trade, how many TV sets will Guatemala produce?
A)
1,400
B)
1,200
C)
1,000
D)
800
77.
The following table gives the hypothetical supply and demand of television sets in
Guatemala. Guatemala is a small country that is unable to affect world prices. The world
price (free-trade price) is $300 per TV set.
With free trade, how many TV sets will Guatemala produce?
A)
800
B)
600
C)
400
D)
200
Page 22
78.
The following table gives the hypothetical supply and demand of television sets in
Guatemala. Guatemala is a small country that is unable to affect world prices. The world
price (free-trade price) is $300 per TV set.
With free trade, how many TV sets will Guatemala import?
A)
1,800
B)
1,200
C)
800
D)
600
79.
The following table gives the hypothetical supply and demand of television sets in
Guatemala. Guatemala is a small country that is unable to affect world prices. The world
price (free-trade price) is $300 per TV set.
Suppose that Guatemala now imposes a 100% tariff on imported TVs. How many TVs
will it now import?
A)
0
B)
200
C)
400
D)
600
Page 23
80.
The following table gives the hypothetical supply and demand of television sets in
Guatemala. Guatemala is a small country that is unable to affect world prices. The world
price (free-trade price) is $300 per TV set.
How much total tariff revenue will Guatemala collect when it imposes the 100% tariff
on imported TVs?
A)
$300
B)
$0
C)
$240,000
D)
$360,000
81.
The following table gives the hypothetical supply and demand of television sets in
Guatemala. Guatemala is a small country that is unable to affect world prices. The world
price (free-trade price) is $300 per TV set.
What is the value of the total welfare losses that Guatemala will suffer as a result of the
100% tariff on imported TVs?
A)
$270,000
B)
$360,000
C)
$540,000
D)
$720,000
Page 24
82.
The following table gives the hypothetical supply and demand of television sets in
Guatemala. Guatemala is a small country that is unable to affect world prices. The world
price (free-trade price) is $300 per TV set.
Who will benefit from Guatemala's 100% tariff on imported TVs?
A)
Guatemala's consumers
B)
Guatemala's TV producers
C)
Guatemala's TV importers
D)
foreign TV manufacturers
83.
In general, a tariff reduces the national welfare of the small importing nation because:
A)
there is a fall in producer surplus.
B)
there is a rise in consumer surplus.
C)
the gain in consumer surplus is smaller than the loss in producer surplus.
D)
the gain in producer surplus is smaller than the loss in consumer surplus.
84.
Which of the following is NOT an effect of an import tariff?
A)
It increases producer surplus by raising the market price and allowing more
production.
B)
It raises government revenue.
C)
It reduces consumer surplus by raising the market price.
D)
It improves efficiency in the economy overall because it saves high-paying jobs.
Page 25
85.
(Figure: Home Market I) The home market shown in the figure has imposed a _____
tariff.
A)
$3
B)
$16
C)
$6
D)
$22
86.
(Figure: Home Market I) Under free trade, the home country will import:
A)
26 units.
B)
22 units.
C)
16 units.
D)
10 units.
Page 26
87.
(Figure: Home Market I) After the imposition of the tariff, the producer surplus in the
home country:
A)
decreases by $84.
B)
increases by $72.
C)
increases by $84.
D)
increases by $64.
88.
(Figure: Home Market I) The government revenue due to the tariff is:
A)
$84.
B)
$14.
C)
$48.
D)
$8.
Page 27
89.
(Figure: Home Market I) What is the deadweight loss because of the tariff?
A)
$24
B)
$12
C)
$48
D)
$44
90.
To measure the impact of a tariff on the total welfare of society, we calculate the:
A)
rise in consumer surplus plus the rise in producer surplus.
B)
rise in producer surplus plus the increase in tariff revenue going to the government
minus the loss of consumer surplus.
C)
rise in government revenues plus the rise in consumer surplus.
D)
total number of jobs saved by the tariff times the average wage.
91.
When a tariff is imposed, there is always an additional loss. One loss occurs when
production moves from more efficient foreign producers to less efficient domestic
producers. This loss is the:
A)
consumption loss.
B)
efficiency transfer.
C)
production loss.
D)
X-factor.
Page 28
92.
When a tariff is imposed, there is always an additional loss. One loss occurs when
consumers purchase fewer units of the good because prices have risen, so society loses
the value of that consumption. This loss is the:
A)
consumption loss.
B)
efficiency transfer.
C)
production loss.
D)
X-factor.
93.
Which of the following taxes is easiest to collect?
A)
income taxes
B)
wealth taxes
C)
tariffs
D)
value-added taxes
94.
Developing countries have reduced their dependence on _____________ over the past
20 to 30 years.
A)
income taxes
B)
wealth taxes
C)
tariffs
D)
value-added taxes
95.
Which of the following is a possible reason for a country to impose a tariff?
A)
A tariff discourages domestic production.
B)
A tariff reduces the benefits for domestic producers.
C)
A tariff is a source of revenue for the government.
D)
A tariff will encourage domestic consumers to buy foreign goods.
96.
Which one of the following statements is a rationale for the imposition of tariffs?
A)
Tariffs reduce the benefits of trade to consumers.
B)
Under certain conditions, tariffs can be used to manipulate world prices.
C)
Tariffs discourage domestic production.
D)
Tariffs encourage exports.
97.
Why didn't U.S. tire producers support the recently enacted tariff on imported Chinese
tires?
A)
Many of them manufacture tires in China.
B)
They were already earning monopoly profits.
C)
Since the union supported the tariff, they naturally had to oppose it.
D)
They wanted the government to impose an import quota rather than an import
tariff.
Page 29
98.
The politics behind tariff protection suggests that, other things equal, tariffs are more
likely to be imposed when:
A)
the benefits to consumers and producers are concentrated on specific firms and
states.
B)
the benefits to producers and their labor forces are concentrated on specific firms
and states.
C)
the benefits to producers and their labor forces are spread nationwide.
D)
the losses to consumers are concentrated on specific firms and states.
99.
In 2002 the United States relied on GATT's ________ to impose tariffs on imported
steel.
A)
escape clause
B)
antidumping clause
C)
countervailing duty clause
D)
most favored nation clause
100.
Section 421 of the amended Trade Act of 1974 allows tariffs to be applied against:
A)
rising imports from China that cause “market disruption” in a U.S. industry.
B)
any imports that cause market disruption in a U.S. industry.
C)
subsidized Chinese imports.
D)
any imports from Canada or Mexico that violate NAFTA provisions.
101.
When the United States imposed tariffs of 30% on many steel imports in March 2002,
the estimated total cost to the United States over the period of March 2002 to December
2003 was:
A)
$1 million.
B)
$3.32 for each job saved—certainly worth it.
C)
$185 million.
D)
too small to measure.
102.
U.S. consumers were hurt by the 2002 steel tariff; U.S. producers who use steel were
also hurt, but the biggest outcry came from:
A)
exporters of steel to the United States—Europe, Japan, and South Korea.
B)
the United Nations.
C)
the big labor unions.
D)
Ralph Nader, who is very opposed to restrictions on free trade.
Page 30
103.
How did the WTO react to the U.S. imposition of steel tariffs in 2002?
A)
It said that even though the tariffs were high, it was okay because of the escape
clause.
B)
It suspended the United States temporarily, stripping it of all its rights in the
organization.
C)
It made the United States promise to repeal the tariff as soon as possible.
D)
It allowed other nations to impose tariffs on U.S. exports to retaliate.
104.
What is the term used to describe when one country retaliates to a tariff on its exports
with tariffs on its imports?
A)
a tariff war
B)
a tariff tiff
C)
a tariff conflict
D)
a tariff fight
105.
One difference between the tariffs on steel imports levied in 2002 and the tariffs on
Chinese tire imports levied in 2009 was that:
A)
U.S. steel producers supported the steel tariff, while U.S. tire producers did not
support the tire tariff.
B)
U.S. tire producers supported the tire tariff, while U.S. steel producers did not
support the steel tariff.
C)
U.S. steel workers supported the steel tariff, while U.S. tire workers did not support
the tire tariff.
D)
U.S. tire workers supported the tire tariff, while U.S. steel workers producers did
not support the steel tariff.
106.
U.S. tire producers did not support the 2009 tariff on Chinese tire imports because U.S.
producers that also produce tires in China would have experienced a(n) ___________ in
their ___________.
A)
increase; consumer surplus
B)
increase; producer surplus
C)
decline; consumer surplus
D)
decline; producer surplus
107.
In addition to deadweight losses, the 2009 tariff on Chinese tire imports shifted U.S. tire
demand to other higher-cost import sources not subject to the tariff. What was the
approximate value of the higher payments to these other higher-cost import sources?
A)
$512 million per year
B)
$817 million per year
C)
$1,112 million per year
D)
$5 billion per year
Page 31
108.
How does a tariff imposed by a large country differ from a tariff imposed by a small
country?
A)
If a large nation imposes a tariff, that government gets more revenue.
B)
It may not have any effect at all in the large country, since its consumers have so
many other choices.
C)
Because of its size, the large nation's tariff not only decreases the quantity
demanded of the product but may also reduce the world price of the good.
D)
The large nation can just buy up foreign producers if the foreign producers don't
like having a tariff imposed.
109.
What is a difference between a tariff imposed by a large country and a tariff imposed by
a small country?
A)
A tariff imposed by a large country has no deadweight consumption and production
losses.
B)
A tariff imposed by a large country has a terms-of-trade effect.
C)
A tariff imposed by a small country has a terms-of-trade effect.
D)
A tariff imposed by a large country has no deadweight consumption loss.
110.
Foreign supply curves facing a large country differ from those facing a small country.
Large countries face _____________ foreign supply curves, and small countries face
______________ foreign supply curves.
A)
perfectly price elastic; upward-sloping
B)
upward-sloping; perfectly price elastic
C)
downward-sloping; perfectly price elastic
D)
upward-sloping; downward-sloping
111.
A large nation faces a(n) ____ foreign export supply curve, rather than a(n) ____
foreign export supply curve.
A)
flat; upward-sloping
B)
downward-sloping; upward-sloping
C)
upward-sloping; flat
D)
flat; downward-sloping
112.
When a large country imposes a tariff, the burden is often shared by:
A)
foreign consumers and domestic producers.
B)
domestic consumers and foreign producers.
C)
all producers and consumers in each nation equally.
D)
its government.
Page 32
113.
If a large country imposes a tariff:
A)
its economic welfare may increase.
B)
its economic welfare must always fall.
C)
its economic welfare will increase if its deadweight losses exceed gains from its
terms-of-trade effect.
D)
the tariff will have the same impact as an identical tariff imposed by a small
country.
114.
Who bears the burden of the terms-of-trade effect when a large country imposes a tariff?
A)
foreign consumers
B)
foreign producers
C)
domestic producers
D)
domestic consumers
115.
Because a large nation can force the nation exporting the product to pay a substantial
amount of the tariff, its _________ may improve after the tariff is imposed.
A)
consumption
B)
production
C)
terms of trade
D)
income tax collection rate
116.
If a large country imposes a tariff:
A)
the terms-of-trade effect may offset deadweight losses on its economy.
B)
the terms-of-trade effect can never offset deadweight losses on its economy.
C)
there will be no terms-of-trade effect.
D)
the country will always be worse off.
117.
Suppose that the world price of resins is $100 per ton. Now suppose that the United
States imposes a 10% tariff on imported resins. What is the U.S. domestic price of resins
after the 10% tariff is imposed (rounded to the nearest dollar) if exporters bear half of
the tariff?
A)
$90
B)
$100
C)
$105
D)
$95
Page 33
118.
The United States applies a 25% tariff on imported pickup trucks (mainly from Japan).
If the United States is considered to be a “large” country, then:
A)
the U.S. price of imported Japanese pickup trucks will increase by 25%.
B)
the U.S. price of imported Japanese pickup trucks will increase by less than 25%.
C)
the U.S. price of imported Japanese pickup trucks will increase by more than 25%.
D)
the U.S. price of imported Japanese pickup trucks will increase by 35%.
119.
When a large nation imposes a tariff on a smaller nation and causes its terms of trade to
deteriorate, the tariff is sometimes referred to as:
A)
a beggar-thy-neighbor tariff.
B)
a hate-thy-neighbor tariff.
C)
a love-thy-neighbor tariff.
D)
an aid-thy-neighbor tariff.
120.
(Figure: Home Market II) For the large-country in the graph, the free-trade price of the
product is ______ and the amount imported is _________.
A)
$20; 30
B)
$25; 10
C)
$15; 30
D)
$15; 10
Page 34
121.
(Figure: Home Market II) Now suppose that the large country in the graph imposes a
tariff. How large is the tariff?
A)
$10
B)
$20
C)
$25
D)
$15
Page 35
122.
(Figure: Home Market II) The foreign producers in the figure absorbed _____ of the
overall tariff.
A)
$10
B)
$8
C)
$5
D)
10%
Page 36
123.
(Figure: Home Market II) The net welfare loss for the home country because of the
tariff is:
A)
$50.
B)
$25.
C)
$0.
D)
$100.
124.
Suppose that the United States is a large country. In fall 2009, the United States
imposed tariffs on tires imported from China. The deadweight losses of these tariffs
were larger than the terms-of-trade gains to the U.S. economy. Who was better off and
who was worse off as a result of these tariffs?
A)
U.S. tire workers were better off; U.S. consumers and Chinese tire producers were
worse off.
B)
U.S. tire workers, U.S. consumers, and Chinese tire producers were all worse off.
C)
U.S. tire workers and Chinese tire producers were better off; U.S. consumers were
worse off.
D)
U.S. tire workers and U.S. consumers were better off; Chinese tire producers were
worse off.
Page 37
125.
Suppose that the U.S. government imposes a 20% tariff to protect U.S. clothing
manufacturers adversely affected by the expiration of the Multifibre Arrangement.
Compared with a free-trade situation, the price of clothing in the United States will
______, and U.S. clothing production will ________.
A)
fall; fall
B)
fall; rise
C)
rise; rise
D)
rise; fall
126.
Suppose that the world price of steel is $500 per ton. Now suppose that the United
States imposes a 20% tariff on imported steel (as it did in 2002). What is the U.S.
domestic price of steel after the 20% tariff is imposed (rounded to the nearest dollar) if
exporters bear two-thirds of the tariff?
A)
$433
B)
$467
C)
$533
D)
$567
127.
The United States applies a 25% tariff on imported pickup trucks. If the United States is
considered to be a large country, then the U.S. price of an imported Toyota pickup with
a CIF price (price landed at the U.S. border prior to the imposition of the tariff) of
$20,000 will be:
A)
$25,000.
B)
$15,000.
C)
between $15,000 and $25,000.
D)
between $20,000 and $25,000.
128.
A tariff levied on a good produced in a small nation with an inelastic supply that
maximizes the gain to a large nation is called a(n):
A)
retaliatory tariff.
B)
prime tariff.
C)
inelastic tariff.
D)
optimal tariff.
Page 38
129.
(Table: Export Supply Elasticities) This table gives the foreign elasticity of supply for
several types of U.S. steel imports.
According to the table, for which product is the U.S. optimal tariff the largest?
A)
alloy steel
B)
steel bars and rods
C)
steel tubes and pipes
D)
steel flat-rolled products
130.
(Table: Export Supply Elasticities) This table gives the foreign elasticity of supply for
several types of U.S. steel imports.
For which product is the U.S. optimal tariff the smallest?
A)
alloy steel
B)
steel bars and rods
C)
steel tubes and pipes
D)
steel flat-rolled products
131.
(Table: Export Supply Elasticities) This table gives the foreign elasticity of supply for
several types of U.S. steel imports.
According to the table, the United States can be considered a “small-country” importer
of which of the following steel products?
A)
alloy steel
B)
steel bars and rods
C)
steel tubes and pipes
D)
steel flat-rolled products
Page 39
132.
(Table: Export Supply Elasticities) This table gives the foreign elasticity of supply for
several types of U.S. steel imports.
It is almost certain that the 2002 imposition of 13% to 15% tariffs on steel tubes and
pipes resulted in:
A)
terms-of-trade gains that were greater than deadweight losses.
B)
terms-of-trade gains that equaled deadweight losses.
C)
deadweight losses that were greater than terms-of-trade gains.
D)
no deadweight losses.
133.
Suppose that the United States is a large country and it wishes to impose optimal tariffs
on its imports of avocados, bananas, and cherries. The export supply elasticities of
avocados, bananas, and cherries are 1, 2, and 3, respectively. Which of the following
ranks the products on the basis of their optimal tariffs from lowest to highest tariff?
A)
cherries, bananas, avocados
B)
avocados, cherries, bananas
C)
bananas, avocados, cherries
D)
avocados, bananas, cherries
134.
Why did the European Union put tariffs on banana imports from some countries and not
from other countries?
A)
to encourage organic farming in the Caribbean
B)
to support former colonies in Africa
C)
to discourage European banana consumption
D)
to encourage European banana production
135.
In 2009, the European Union agreed to grant tariff-free access to its former colonies and
to reduce tariffs on imports by 35% over seven years on _________, which finally
ended a 15-year feud between the European Union and the United States and Latin
American producers.
A)
pineapples
B)
bananas
C)
avocados
D)
oranges
Page 40
136.
Which country saw the largest increase in its textile and clothing exports to the United
States after the Multifibre Arrangement was abolished?
A)
Japan
B)
India
C)
Mexico
D)
China
137.
Why does the United States maintain high sugar quotas?
A)
to fight the obesity problem in America
B)
to punish sugar production in Communist nations
C)
to support sugar producers in low-income countries
D)
to avoid subsidizing U.S. sugar producers
138.
Which statement best describes the result of a small country imposing a quota on
imported sugar?
A)
The domestic price of sugar will fall.
B)
Domestic sugar consumption will fall.
C)
Domestic sugar production will fall.
D)
Domestic sugar consumption will rise.
139.
Which of the following is NOT an effect of an import quota imposed by a small nation?
A)
It raises producer prices.
B)
It generates revenue for the nation.
C)
It causes more production by domestic industries.
D)
It causes a reduction in imports of the product.
140.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60-per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
Suppose that Finland decides to use an import quota to achieve the same effects on
domestic steel production as the tariff. How large a quota must it use?
A)
€60
B)
100,000 tons
C)
200,000 tons
D)
300,000 tons
Page 41
141.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60-per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
What will happen to the Finnish price of steel if Finnish demand for steel increases and
a 300,000-ton quota remains unchanged?
A)
It will not change.
B)
It will increase.
C)
It will decrease.
D)
It will first increase, then decrease.
142.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the
euro, a common currency used in 19 European countries, including Finland.) Finland, a
small country, imposes a €60-per-ton specific tariff on imported steel. With the tariff,
Finland produces 300,000 tons of steel and consumes 600,000 tons of steel.
What will happen to Finnish welfare losses if Finnish demand for steel increases and the
quota remains unchanged?
A)
They will decrease.
B)
They will not change.
C)
They will increase.
D)
They will first increase, then decrease.
143.
Suppose that: (1) the United States has a comparative advantage in producing
chemicals; (2) Costa Rica has a comparative advantage in producing sugar, and (3) the
United States imposes a quota on its imports of Costa Rican sugar. Now suppose that
the United States eliminates its import quotas on Costa Rican sugar. Which of the
following is MOST likely to occur for the United States?
A)
Consumer surplus for American consumers of sugar products will fall.
B)
Producer surplus for American sugar producers will rise.
C)
Consumer surplus for American consumers of sugar products will rise.
D)
Tariff revenues for the U.S. government will rise.
Page 42
144.
(Figure: The Soybean Market) A quota generates a protective effect just like a tariff.
Using the graph, calculate the “equivalent import tariff” that would produce the same
result as an import quota of 200 units.
A)
$1
B)
$2
C)
$3
D)
$4
Page 43
145.
(Figure: The Soybean Market) Because there is no government revenue as a result of the
quota, one of the parties in the trade transaction makes a “return” equal to lost
government revenue (P – MC) · Qimports. This is called:
A)
a windfall profit.
B)
a quota rent.
C)
gains from trade.
D)
unearned income.
146.
Quota rents are:
A)
the extra return to quota license holders following imposition of a quota.
B)
the extra return to land that occurs following imposition of a quota.
C)
the difference between imports with no quota and imports with the quota.
D)
the extra payment to labor that occurs following imposition of a quota.
147.
Who collects quota rents when the government gives quota licenses to domestic firms?
A)
domestic consumers
B)
foreign suppliers
C)
domestic producers
D)
the government
148.
Rent-seeking activities are:
A)
landowners' efforts to receive higher returns for their land.
B)
bribery and lobbying activities to obtain quota licenses.
C)
foreign suppliers' efforts to reduce quotas.
D)
domestic consumers' efforts to reduce tariffs.
Page 44
149.
If rent-seeking occurs, then a country's welfare losses from quotas will:
A)
increase.
B)
decrease.
C)
not change.
D)
first increase, then decrease.
150.
If a quota license is awarded to a domestic firm without an auction, it may generate
bribes or lobbying spending to earn this revenue. Economists call this a(n) ____ activity.
A)
efficient
B)
unnecessary
C)
wasteful rent-seeking
D)
profit-maximizing
151.
Who collects quota rents when the government auctions quota licenses?
A)
domestic consumers
B)
foreign suppliers
C)
domestic producers
D)
the government
152.
One way to fairly distribute quotas, while getting revenue for the government, is to:
A)
auction quotas in a public sale to the highest bidder.
B)
conduct a lottery for quotas for the lucky winner.
C)
allow Congress to apportion quotas among their constituents.
D)
restrict quotas on the basis of handicap, gender, and other protected status.
153.
Suppose a nation agrees to limit its own exports by imposing quotas on its own firms in
order to keep their revenues high, keep from breaking WTO rules, and pacify
protectionist interests in the import nation. Which of the following terms describes this
practice?
A)
lost profit opportunities
B)
reverse import restrictions
C)
voluntary export restraints
D)
deadweight welfare loss
154.
An import quota is different from a voluntary export restraint because:
A)
the former is imposed by the exporting country and the latter by the home country.
B)
the former is imposed by the home country and the latter by the exporting country.
C)
the latter is specified by domestic importers.
D)
the former results in less gain for the country.
Page 45
155.
What is the main difference between a quota and a voluntary export restraint?
A)
There are no differences between a quota and a voluntary export restraint.
B)
The importing country administers a quota; the exporting country administers a
voluntary export restraint.
C)
A quota affects a country's imports, while a voluntary export restraint affects its
exports.
D)
A quota has deadweight losses, while a voluntary export restraint has no
deadweight losses.
156.
In the 1980s, the United States used _________ to restrict imports of Japanese
automobiles.
A)
quotas
B)
tariffs
C)
voluntary export restraints
D)
antidumping duties
157.
In the 1980s, the United States negotiated a voluntary export agreement with Japan in
which each Japanese auto producer voluntarily agreed to reduce the number of its
automobiles exported to the United States. This voluntary export agreement caused each
Japanese auto producer to:
A)
raise the prices of its automobile exports to the United States.
B)
lower the prices of its automobile exports to the United States.
C)
not change the prices of its automobile exports to the United States.
D)
increase the number of automobiles exported to the United States.
158.
Who captured the quota rents of the 1980s U.S–Japanese voluntary export agreement
for automobiles?
A)
Japanese auto producers
B)
U.S. consumers of Japanese automobiles
C)
U.S. auto producers
D)
the U.S. government
159.
Compared with a tariff, welfare losses will _______ when voluntary export restraints
are used to reduce imports.
A)
decrease
B)
not change
C)
increase
D)
first increase, then decrease
Page 46
160.
What is the major difference between a tariff and a quota that has equivalent effects
upon domestic production?
A)
A quota does not lead to an increase in domestic prices, while a tariff does.
B)
The government collects tariff revenue with a tariff; other domestic groups (e.g.,
domestic producers, importers) may collect the equivalent of this tariff revenue
with a quota.
C)
The government collects area c with a tariff; exporters collect area c with a quota,
thus leading to further deadweight losses for the quota-imposing country.
D)
The government collects area c with a tariff; importers collect area c with a quota,
offsetting consumption deadweight losses and leading to lower deadweight losses
for the quota-imposing country.
161.
The expiration of the Multifibre Arrangement in 2005 caused welfare gains for the
average U.S. household of approximately:
A)
$100.
B)
$100 annually.
C)
$1,000.
D)
$1,000 annually.
162.
What happened to the price of U.S. clothing and U.S. clothing production as a result of
the expiration of the Multifibre Arrangement in 2005?
A)
The price of clothing in the United States fell, and U.S. clothing production fell.
B)
The price of clothing in the United States fell, and U.S. clothing production rose.
C)
The price of clothing in the United States rose, and U.S. clothing production fell.
D)
The price of clothing in the United States rose, and U.S. clothing production rose.
163.
Suppose that the U.S. government imposes a 20% tariff to protect U.S. clothing
manufacturers adversely affected by the expiration of the Multifibre Arrangement.
Compared with a free-trade situation, what will happen to the price of clothing in the
United States and to U.S. production of clothing?
A)
The price of clothing will fall and U.S. clothing production will fall.
B)
The price of clothing will fall and U.S. clothing production will rise.
C)
The price of clothing will rise and U.S. clothing production will rise.
D)
The price of clothing will rise and U.S. clothing production will fall.
Page 47
164.
Suppose that the U.S. government imposes quotas rather than tariffs to replace the
protection to U.S. producers after the expiration of the Multifibre Arrangement. As U.S.
demand for clothing increases over time, U.S. clothing consumers will find that:
A)
the price of clothing in the United States will fall.
B)
the price of clothing in the United States will rise.
C)
the price of clothing in the United States will not change.
D)
U.S. clothing production will fall.
165.
Downgrading refers to:
A)
the slope of the import demand curve.
B)
a decline in tariffs.
C)
a decline in average quality when protection is eliminated.
D)
the result of deadweight loss.
166.
The following equations represent a small country's home supply and demand curves for
widgets: S = 0 + 2P and D = 1,000 – 2P.
I. Find the equilibrium price and quantity for widgets in autarky.
II. Now let the world price be $200. Find domestic production, domestic consumption,
and the amount of imports.
III. Derive the country's import demand curve for widgets.
IV. Let the country impose a 10% tariff. Calculate its deadweight losses.
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167.
(Figure: The Soybean Market)
I. What is the price of U.S. soybeans before trade?
II. What is the price of U.S. soybeans after trade?
III. After trade, what will be the quantity of soybeans consumed in the United
States?
IV. After trade, how many tons will be produced by the United States?
V. Suppose the U.S. government imposes a tariff of $3 per ton on imported
soybeans. What will be the new U.S. price?
VI. What is the new U.S. quantity produced domestically with the tariff of $3
per ton on imported soybeans?
VII. What is the new level of imports with the tariff of $3 per ton on imported
soybeans?
VIII. How much revenue will the U.S. government collect when it imposes the
$3 per ton tariff?
IX. How large a tariff would eliminate all imports?
168.
The 35% tariff on imported Chinese tires initiated a small trade war between the United
States and China. Describe what happened following the imposition of these tariffs.
169.
How high was the U.S. tariff on imported tires from China and when did it expire?
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170.
What were the differences between the U. S. tariffs on tires imposed in 2009 and the
U.S. tariffs on steel imposed in 2002?
171.
Why did no U.S. tire producer support the 2009 U.S. tariff on tires imported from
China?
172.
In what way did the U.S. tariff on tires imported from China violate provisions of the
GATT?
173.
Why would a discriminatory tariff against tires imported from China have a higher
deadweight loss than a nondiscriminatory tariff against all imported tires?
174.
About how large were the extra deadweight losses incurred by the United States as a
result of the discriminatory tariff against imported Chinese tires?
175.
The following graph shows the relationship between a large country importer of a good,
say steel, and its tariff rate (in percentages). Explain why the curve reaches maximum
and then declines.
176.
Explain why the exporting foreign country will always lose when a large home country
imposes a tariff.
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177.
I. Is a country a small or large country if it faces a perfectly price elastic foreign export
supply curve?
II. What is the optimal tariff for a country facing a perfectly price elastic foreign export
supply curve?
III. If the foreign export supply is less than perfectly price elastic, will the optimal
tariff increase or decrease as the price elasticity of demand increases?
IV. What happens to the country's welfare if it applies a tariff higher than the optimal
tariff?
178.
If the United States is a large country that imposes a 30% tariff on imported T-shirts
with a world price of $5 per T-shirt, what will be the value of T-shirts once they have
cleared U.S. customs?
179.
Why and how can large countries use an optimal tariff to increase net welfare?
180.
Rank the following in ascending order of an imposing small country's welfare. If there
are any two that are equivalent, explain their equivalencies.
I. a tariff of t in a small country resulting in imports of M units
II. a quota of M units of imports, with the government auctioning quota licenses to the
highest bidders
III. a quota of M units of imports in which domestic firms engage in rent-seeking
activities
IV. an arrangement in which the exporting country voluntarily agrees to limit its exports
to M units
181.
Several instances of U.S. agreements with its trading partners to limit their exports to
the United States have come under the category of “voluntary export restraint
agreements.” What are these and why do nations engage in them? Give at least one
example.
182.
Why is it politically difficult for the United States to eliminate or reduce its quotas on
imported sugar?
183.
Why do countries persist in using protective measures even though most economists
believe that tariffs and quotas yield welfare losses to countries?
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166.
167.
168.
169.
170.
171.
172.
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