Page 1
1.
A foreign discriminating monopolist is engaging in:
A)
infant industry protection.
B)
dumping its product.
C)
giving preferential treatment to domestic consumers.
D)
charging higher prices to foreign consumers.
2.
The tariff imposed to punish a foreign discriminating monopolist is called:
A)
an antidumping duty.
B)
a subsidy.
C)
punitive damages.
D)
a fine.
3.
Which country has received the most attention under the Trade Facilitation and Trade
Enforcement Act of 2015?
A)
Japan
B)
Germany
C)
Brazil
D)
China
4.
A monopoly firm operating with no trade will produce the profit-maximizing quantity
where:
A)
the firm’s MC = MR, where MR is declining and below price.
B)
MR begins to increase and MC begins to decrease.
C)
P = MC.
D)
the firm’s MC = MR, where MR is declining and equal to price.
5.
A profit-maximizing monopolist will produce at the point where:
A)
total revenue = total costs.
B)
marginal revenue = marginal cost.
C)
average revenue = average cost.
D)
the difference between average revenue and average cost is maximized.
6.
The no-trade equilibrium in a monopolistic market occurs where:
A)
marginal revenue = price.
B)
marginal cost = marginal revenue.
C)
market demand = market supply.
D)
marginal cost = average revenue.
Page 2
7.
(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 – Q and
has total costs given by TC = Q2. By using a bit of calculus, you should be able to
determine that the firm’s marginal revenue is MR = 20 – 2Q and its marginal cost is MC
= 2Q.
What is its profit-maximizing output level?
A)
5
B)
6
C)
7
D)
8
8.
(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 – Q and
has total costs given by TC = Q2. By using a bit of calculus, you should be able to
determine that the firm’s marginal revenue is MR = 20 – 2Q and its marginal cost is MC
= 2Q.
What is its profit-maximizing price?
A)
$20
B)
$15
C)
$10
D)
$5
9.
(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 – Q and
has total costs given by TC = Q2. By using a bit of calculus, you should be able to
determine that the firm’s marginal revenue is MR = 20 – 2Q and its marginal cost is MC
= 2Q.
If the firm’s profit-maximizing output level is 5 and its profit-maximizing price is $15,
what are its monopoly profits at this price and quantity?
A)
$25
B)
$50
C)
$75
D)
$100
10.
A monopoly firm will sell ________output and charge a ________ price than a
perfectly competitive firm.
A)
less; higher
B)
more; higher
C)
more; lower
D)
less; lower
Page 3
11.
If a monopoly suddenly became a perfectly competitive industry, equilibrium output
would _________, and the equilibrium price would _________.
A)
increase; increase
B)
decrease; decrease
C)
increase; decrease
D)
decrease; increase
12.
(Figure: The Home Market) Under conditions of no-trade, the domestic monopolist will
produce and sell _______ at a price of _________.
A)
18; $15
B)
28; $15
C)
12; $25
D)
12; $15
Page 4
13.
(Figure: The Home Market) If the world price is $15, the domestic monopolist will
produce ______ and the country will import ________.
A)
18; 10
B)
12; 6
C)
18; 16
D)
12; 16
14.
Comparing the monopoly firm with a perfectly competitive firm reveals that:
A)
the competitive firm sells less quantity.
B)
the monopoly firm charges a lower price.
C)
the competitive firm’s price is above MC.
D)
None of these is revealed when the two firm are compared.
15.
The no-trade equilibrium in a perfectly competitive market occurs where:
A)
marginal revenue = price.
B)
marginal cost = total revenue.
C)
market quantity demanded = market quantity supplied.
D)
average revenue = price.
16.
If a perfectly competitive industry suddenly became a monopolist, equilibrium output
would _________, and the equilibrium price would _________.
A)
increase; increase
B)
decrease; decrease
C)
increase; decrease
D)
decrease; increase
Page 5
17.
What will happen to domestic monopolists’ prices and outputs when a small country
engages in international trade?
A)
Prices will rise and outputs will fall.
B)
Prices will rise and outputs will rise.
C)
Prices will fall and outputs will rise.
D)
Prices will fall and outputs will fall.
18.
If we allow free trade in a small nation’s industry where there is a domestic monopolist,
the monopoly firm:
A)
gains even more power.
B)
sees its profits rise.
C)
becomes a price taker, is not able to charge a higher price, and behaves like a
competitive firm.
D)
is able to charge a higher price.
19.
The small-country monopolist’s free-trade equilibrium occurs:
A)
where MC = MR, where MR is declining and below price.
B)
at the “world” price, which becomes a perfectly elastic demand curve for the
monopoly firm and the firm’s marginal cost curve.
C)
where the home demand is completely satisfied by foreign importers.
D)
at minimum marginal cost.
20.
The small-country monopolist’s free-trade equilibrium features a marginal revenue
curve equal to __________ and coincident with _____________.
A)
marginal cost; the consumer’s demand curve for the product
B)
the world price; the new competitive demand curve for the firm
C)
one; profits
D)
imports at each price; the supply curve
21.
(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 – Q and
has total costs given by TC = Q2. By using a bit of calculus, you should be able to
determine that the firm’s marginal revenue is MR = 20 – 2Q and its marginal cost is MC
= 2Q.
Now suppose that the country in which this monopolist is located decides to engage in
international trade. The world price of the product produced by the monopolist is $12.
What is the monopolist’s profit-maximizing output level?
A)
5
B)
6
C)
7
D)
8
Page 6
22.
(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 – Q and
has total costs given by TC = Q2. By using a bit of calculus, you should be able to
determine that the firm’s marginal revenue is MR = 20 – 2Q and its marginal cost is MC
= 2Q.
Now suppose that the country in which this monopolist is located decides to engage in
international trade. The world price of the product produced by the monopolist is $12.
What is its profit-maximizing price?
A)
$20
B)
$15
C)
$12
D)
$10
23.
(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 – Q and
has total costs given by TC = Q2. By using a bit of calculus, you should be able to
determine that the firm’s marginal revenue is MR = 20 – 2Q and its marginal cost is MC
= 2Q.
Now suppose that the country in which this monopolist is located decides to engage in
international trade. The world price of the product produced by the monopolist is $12.
The profit-maximizing output level is 6, and the profit-maximizing price equals $12.
What are its monopoly profits at this price and quantity?
A)
$25
B)
$36
C)
$50
D)
$75
Page 7
24.
(Figure: The Home Market) With free trade, the consumer surplus is _________ than in
the case of no-trade domestic monopoly.
A)
lower
B)
higher
C)
constant
D)
More information is needed to answer this question.
25.
(Figure: The Home Market) For a home monopolist, free trade results in:
A)
more control over the domestic market.
B)
more control over the foreign market.
C)
an inability to control prices.
D)
no change in the monopolistic behavior.
Page 8
26.
When a domestic monopolist becomes subject to international competition, it faces:
A)
a perfectly inelastic demand curve.
B)
a unitary elastic demand curve.
C)
a perfectly elastic demand curve.
D)
no demand curve.
27.
When a domestic monopolist in a small country becomes subject to international
competition, it behaves as a(n):
A)
monopolist.
B)
duopolist.
C)
imperfect competitor.
D)
perfect competitor.
28.
Because the small-country monopolist loses the ability to control the market price,
consumers enjoy more quantity, competitive prices, and:
A)
a bonus because the foreign goods are of higher quality.
B)
a loss because the monopoly loses profits.
C)
higher consumer surplus because the monopolist’s producer surplus is reduced.
D)
a loss because now unions have less power than before.
29.
If we allow free trade in a small nation’s industry where there is a domestic monopolist,
the monopoly firm:
A)
gains even more power.
B)
earns higher profits.
C)
charges a lower price and produces more output.
D)
charges a higher price and produces less output.
30.
The small country monopolist’s free-trade equilibrium occurs:
A)
where MC = MR and where MC is greater than the world price.
B)
at the same price as in autarky.
C)
at a higher price than the autarkic price.
D)
where MC = the world price.
31.
With free trade, the demand curve facing a small-country monopolist:
A)
is horizontal at the world price.
B)
shifts upward by the amount of imports demanded.
C)
shifts downward by the amount of imports demanded.
D)
is horizontal at the firm’s MC.
Page 9
32.
(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 – 2Q
and has total costs given by TC = Q2. Its marginal revenue is MR = 60 – 4Q and its
marginal cost is MC = 2Q.
In autarky, what is the firm’s equilibrium output?
A)
5
B)
10
C)
15
D)
20
33.
(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 – 2Q
and has total costs given by TC = Q2. Its marginal revenue is MR = 60 – 4Q and its
marginal cost is MC = 2Q.
What price does the monopolist charge with no trade?
A)
$5
B)
$20
C)
$25
D)
$40
34.
(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 – 2Q
and has total costs given by TC = Q2. Its marginal revenue is MR = 60 – 4Q and its
marginal cost is MC = 2Q.
Now suppose that the country in which this monopolist is located decides to engage in
international trade. The world price of the product produced by the monopolist is $10.
What is the firm’s profit-maximizing output level?
A)
5
B)
20
C)
30
D)
40
Page 10
35.
(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 – 2Q
and has total costs given by TC = Q2. Its marginal revenue is MR = 60 – 4Q and its
marginal cost is MC = 2Q.
Now suppose that the country in which this monopolist is located decides to engage in
international trade. The world price of the product produced by the monopolist is $10.
Calculate the value of the firm’s profits.
A)
$400
B)
$1,200
C)
–$1,600
D)
$25
36.
(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 – 2Q
and has total costs given by TC = Q2. Its marginal revenue is MR = 60 – 4Q and its
marginal cost is MC = 2Q.
Compared with the no-trade equilibrium, consumer surplus ___________ when the
monopolist engages in free trade.
A)
increases
B)
decreases
C)
remains the same
D)
first decreases, then increases
37.
(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 – 2Q
and has total costs given by TC = Q2. Its marginal revenue is MR = 60 – 4Q and its
marginal cost is MC = 2Q.
Compared with the no-trade equilibrium, producer surplus ___________ when the
monopolist engages in free trade.
A)
increases
B)
decreases
C)
remains the same
D)
first increases, then decreases
38.
When the small home nation imposes a tariff of $10, the domestic price:
A)
rises by more than $10.
B)
rises by $10.
C)
rises by less than $10.
D)
does not change.
Page 11
39.
What is the outcome when the home nation imposes a tariff on a product currently
produced by a home firm monopoly?
A)
The home firm then will regain its monopoly control over the price.
B)
The home firm will be able to charge a higher price (world price + tariff), but it
will become a price taker, just like a competitive firm.
C)
The home nation’s firm will be able to limit quantity and charge a higher price.
D)
The monopoly firm will lower price, increase sales, and undercut the foreign
competition.
40.
In comparison to the welfare effects of a tariff in a perfectly competitive home market,
the welfare effects of a tariff under a home monopoly are _______, and the deadweight
loss for the home monopoly is ________.
A)
the same; the same
B)
higher; lower
C)
lower; higher
D)
lower; lower
41.
(Figure: The Home Monopolist’s Market) The graph shows a home monopolist market
with free trade and with the imposition of a tariff. The world price is $250. With free
trade, the home country will produce ________ and import ________.
A)
110; 185
B)
75; 110
C)
150; 185
D)
75; 75
Page 12
42.
(Figure: The Home Monopolist’s Market) The graph shows a home monopolist market
with free trade and with the imposition of a tariff. What is the value of the consumer
surplus with free trade?
A)
$150,000
B)
$157,250
C)
$78,625
D)
$850
43.
(Figure: The Home Monopolist’s Market) The graph shows a home monopolist market
with free trade and with the imposition of a tariff. What is the dollar value of the tariff
and the new quantity of imports?
A)
$70; 40
B)
$70; 75
C)
$320; 185
D)
$250; 110
Page 13
44.
(Figure: The Home Monopolist’s Market) The graph shows a home monopolist market
with free trade and with the imposition of a tariff. What is the decrease in consumer
surplus due to the tariff?
A)
$58,500
B)
$78,625
C)
$20,125
D)
$11,725
45.
(Figure: The Home Monopolist’s Market) The graph shows a home monopolist market
with free trade and with the imposition of a tariff. After the imposition of the tariff, the
home monopolist’s production increased by ______ and the country’s producer surplus
increased by ________.
A)
55 units; $5,250
B)
75 units; $1,225
C)
100 units; $6,475
D)
35 units; $6,475
Page 14
46.
(Figure: The Home Monopolist’s Market) The graph shows a home monopolist market
with free trade and with the imposition of a tariff. With the tariff, how much does the
home government collect in tariff revenue?
A)
$5,600
B)
$2,800
C)
$1,000
D)
$3,200
47.
(Figure: The Home Monopolist’s Market) The graph shows a home monopolist market
with free and with the imposition of a tariff. What is the value of the country’s
deadweight loss due to the tariff?
A)
$1,225
B)
$4,900
C)
$2,450
D)
$1,000
Page 15
48.
When we compare a tariff levied on an import where the home firm is a monopoly with
an import tariff where the home firms are competitive, we find:
A)
the exact same result—both the monopolist and the competitive firm charge the
world price plus the tariff and both firms produce a quantity where MC = MR =
world price plus the tariff.
B)
that the monopoly firm will be able to charge a higher price and limit its quantity.
C)
that the competitive firm will not be able to survive the impact of the tariff.
D)
the monopoly firm will pay its workers less and earn higher profits.
49.
When a country imposes a tariff to protect a domestic monopolist from international
competition, the monopolist will produce _______ output and charge _______ if the
domestic industry was perfectly competitive.
A)
more; a higher price than
B)
the same; the same price as
C)
less; a higher price than
D)
less; a lower price than
50.
When the home country is small, how will a tariff protecting a home monopolist affect
the home country’s demand curve?
A)
There will be an upward parallel shift in the perfectly elastic demand curve.
B)
The demand curve will pivot upwards from its vertical intercept.
C)
There will be a downward parallel shift in the demand curve.
D)
The demand curve will pivot downward from its vertical intercept.
51.
How do the deadweight losses of a tariff differ when the domestic industry is perfectly
competitive from when it is a monopoly?
A)
They are the same.
B)
Deadweight losses are larger for a perfectly competitive industry than for a
monopoly.
C)
Deadweight losses are larger for a monopoly than for a perfectly competitive
industry.
D)
It is not possible to compare deadweight losses of a monopoly with those of a
perfectly competitive industry.
52.
The WTO has encouraged nations to replace their import quotas with tariffs. Why?
A)
Quotas are more difficult to administer for the customs people.
B)
Quotas are more discriminatory.
C)
Quotas hurt domestic firms more than tariffs.
D)
Quotas result in larger losses than tariffs with equivalent protection.
Page 16
53.
For a home monopolist, a quota allows the firm to increase the price by
_______________ they could with an equivalent tariff.
A)
a higher amount than
B)
a lower amount than
C)
the same amount as
D)
Not enough information is provided to answer the question.
54.
How does the demand curve facing a home monopolist compare in a no-trade situation
to a situation in which a quota protects the monopolist’s output?
A)
They are identical.
B)
The quota-protected demand curve lies to the right of the no-trade demand curve.
C)
The quota-protected demand curve lies to the left of the no-trade demand curve.
D)
The no-trade demand curve is perfectly price elastic at the world price; the
quota-protected demand curve has a negative slope.
55.
(Figure: Supply and Demand at Home) Suppose the world price is $18, which line in the
graph describes the “new” demand curve for the monopolist after a quota of 200 units is
imposed?
A)
A
B)
B
C)
C
D)
MC
Page 17
56.
(Figure: Supply and Demand at Home) Which line describes the new MR curve after the
quota is imposed?
A)
A
B)
B
C)
C
D)
MC
57.
(Figure: Supply and Demand at Home) How many units will be imported after the quota
is imposed?
A)
50
B)
100
C)
150
D)
200
Page 18
58.
(Figure: Supply and Demand at Home) With a quota of 200 units, what would be the
price in a perfectly competitive home market?
A)
$18
B)
$23
C)
$25
D)
$30
59.
(Figure: Supply and Demand at Home) With a quota of 200 units, how many units
would be produced in a perfectly competitive home market?
A)
400
B)
650
C)
850
D)
1,000
Page 19
60.
(Figure: Supply and Demand at Home) With a quota of 200 units, what would be the
price in a home monopoly situation?
A)
$18
B)
$23
C)
$25
D)
$30
61.
(Figure: Supply and Demand at Home) How many units will be produced in a home
monopoly situation?
A)
400
B)
650
C)
850
D)
1,000
Page 20
62.
(Figure: Supply and Demand at Home) With a quota of 200 units, what would be the
total quantity available to consumers in a home monopoly situation?
A)
400
B)
600
C)
650
D)
850
63.
(Figure: Supply and Demand at Home) In the situation illustrated by the figure, the
monopoly firm’s quantity produced after a quota is imposed ________, thus leading to a
worse situation for the employees of the firm compared with a free-trade situation.
A)
increases
B)
decreases
C)
remains the same
D)
changes to different products
Page 21
64.
With a home monopolist, the imposition of a tariff results in:
A)
a higher deadweight loss than a quota.
B)
a higher price for consumers than a quota.
C)
a lower deadweight loss than a quota.
D)
the same welfare effects as a quota.
65.
When the monopoly firm is able to charge a higher price because of a quota, the amount
of ________ also increases, thus magnifying the importing nation’s __________.
A)
quota rents; losses
B)
comparative advantage; gains from trade
C)
profits; welfare
D)
protection; employment gains
66.
What will happen to profits and domestic prices when a quota is used to protect a
domestic monopolist from international competition?
A)
Profits will fall and domestic prices will fall.
B)
Profits will fall and domestic prices will rise.
C)
Profits will rise and domestic prices will rise.
D)
Profits will rise and domestic prices will fall.
67.
Which of the following forms of protection will a home monopolist prefer?
A)
a large quota
B)
a small quota
C)
a low tariff
D)
It would like all of these equally; that is, they are equivalent.
68.
Will a home monopolist prefer a quota or a tariff to protect its output?
A)
The home monopolist will prefer a tariff, because a tariff allows it to earn higher
profits than a quota.
B)
The home monopolist will prefer a quota, because a quota may allow it to earn
higher profits than a tariff.
C)
It is immaterial to the home monopolist because it will earn the same higher profits
with each form of protection.
D)
The home monopolist will prefer neither, because it earns higher profits in a
free-trade situation.
Page 22
69.
A case study of Japanese auto imports during the 1980s focuses on an agreement
between Japan and the United States to undertake a:
A)
coordinated effort to improve gas mileage.
B)
study of wage concessions by Japanese carmakers in the United States.
C)
review of unionization and employee benefits in both nations.
D)
voluntary export restraint.
70.
In order to avoid congressional action in the United States, in the early 1980s the
Japanese resorted to:
A)
infant industry protection.
B)
the dumping of automobiles.
C)
a voluntary export restraint (VER).
D)
price discrimination.
71.
If a foreign country imposes a voluntary export restraint, then the:
A)
consumer surplus will be lower than would be so if the home country imposes a
tariff.
B)
producer surplus will be lower than would be so if the home country imposes a
tariff.
C)
foreign country will capture the area of government revenue collected with an
equivalent tariff.
D)
deadweight loss is smaller than would be so if the home country imposes a tariff.
72.
U.S. and Japanese automakers __________ during the automobile VER of the 1980s.
A)
both suffered losses
B)
were locked in a contentious trade war
C)
both enjoyed higher prices and higher profits
D)
both felt that the other side had more gains
73.
Under the VER of the 1980s, Japan’s automakers received:
A)
additional quota rents of about $2.2 billion.
B)
approximately 10% lower prices.
C)
censure by the WTO for failing to behave in a competitive manner.
D)
wage concessions from their U.S. employees to keep plants open in the United
States.
Page 23
74.
Roughly ________ of the increased prices of Japanese automobiles during the 1980s
was due to the voluntary export restraints.
A)
25%
B)
35%
C)
50%
D)
95%
75.
Under the voluntary export restraints, the Japanese government allocated each Japanese
auto producer a certain number of cars that they could export to the United States. As a
result, Japanese auto producers exported:
A)
fewer and more luxurious cars to the United States.
B)
fewer and less luxurious cars to the United States.
C)
more luxurious cars to the United States.
D)
less luxurious cars to the United States.
76.
Under the VER of the 1980s, U.S. automakers:
A)
continued their downward slide.
B)
could not recover because they were also faced with other issues, such as labor
unrest, increased oil and steel prices, and higher taxes.
C)
were able to slightly improve quality and greatly raise prices.
D)
were able, with the quota, to ignore world market conditions.
77.
The GATT prohibits quotas. Why didn’t the United States or other countries try to stop
the voluntary export restraint on automobiles implemented by the Japanese during the
early 1980s?
A)
At the time, the GATT did not prohibit quotas administered by the exporting
country; that is, it did not prohibit voluntary export restraints.
B)
Other countries did try to stop the voluntary export restraints but were unsuccessful
in their efforts.
C)
Quotas were only prohibited after the WTO was established in 1995.
D)
The GATT only prohibits developing countries from using quotas.
78.
The WTO opposes quotas. Why did the WTO not stop the U.S.–Japanese quota during
the 1980s?
A)
There was a loophole in the GATT (at the time) that did not restrict nations from
“voluntarily” curtailing their own exports.
B)
Quotas are permitted under the GATT and WTO—as long as they are implemented
for an approved reason.
C)
The political situation at the time was tense; the GATT did not want to take on the
powerhouses of the United States and Japan over such a small issue.
D)
The WTO operates by consensus; all parties wanted the quotas.
Page 24
79.
The voluntary export restraint that the United States negotiated with Japan:
A)
violated provisions of the GATT that encouraged countries to avoid using quotas.
B)
exploited a loophole in the GATT because the exporting country administered the
quota.
C)
did not allow U.S. auto producers to raise their prices.
D)
did not impose any deadweight losses on the United States.
80.
When there is a foreign monopoly exporting to the home nation, under free trade it will
sell a quantity where the home ______ is just equal to the foreign ______.
A)
MC; MR
B)
supply; demand
C)
demand; supply
D)
MR; MC
81.
Suppose that there is no home production of a good (imports supply all home demand).
If the home country then applies a tariff to this good exported by a foreign monopoly,
the increase in the equilibrium home price is ________ the tariff applied.
A)
more than
B)
less than
C)
the same as
D)
more than twice as much as
82.
Suppose that there is no home production of a good (imports supply all home demand).
If the home country then applies a tariff to this good exported by a foreign monopoly,
the price net of the tariff received by the foreign monopolist is:
A)
lower than under free trade.
B)
higher than under free trade.
C)
the same as under free trade.
D)
so high that no sales are possible.
83.
If a country imposes a $10 tariff on a foreign monopolist, the domestic price (including
the tariff) will rise by:
A)
more than $10.
B)
$10.
C)
less than $10.
D)
$0.
Page 25
84.
If a country imposes a $10 tariff on a foreign monopolist, the price set by the
monopolist will:
A)
rise by $10.
B)
fall by less than $10.
C)
fall by $10.
D)
fall by $0.
85.
Suppose that a foreign monopolist supplies the entire domestic market (there is no
domestic production). The home country then applies a 5% tariff on imports from the
foreign monopolist. How will the tariff affect the price in the home market?
A)
It will increase by more than 5%.
B)
It will increase by 5%.
C)
It will increase by less than 5%.
D)
It will not change.
86.
If the marginal revenue curve is twice as steep as the demand curve, a tariff imposed on
a foreign monopoly seller will raise the domestic price by _______________ of the
tariff and lower the seller’s net price by _______________ of the tariff.
A)
one-fourth; three-fourths
B)
10%; 90%
C)
one-half; one-half
D)
100%; 0%
87.
The effect of a tariff on a foreign monopolist is similar to a large nation imposing a
tariff on a small nation. What is the implication for the welfare of the home nation?
A)
Only very large tariffs bring any benefit to the home nation.
B)
No tariffs are the best policy; all tariffs have a deadweight net loss.
C)
Small tariffs can be beneficial, but only to a certain point.
D)
The foreign producer may actually raise prices to make the tariff impossible to
impose.
88.
A country’s net welfare will increase when it imposes a tariff on a foreign monopolist if
its:
A)
terms-of-trade gain is greater than its increase in tariff revenues.
B)
terms-of-trade gain is less than its increase in tariff revenues.
C)
terms-of-trade gain is greater than its lost consumer surplus.
D)
increase in tariff revenues is greater than its lost consumer surplus.
Page 26
89.
A country is more likely to have net welfare gains when it imposes a tariff on a foreign
monopolist if:
A)
the tariff is small.
B)
the tariff is large.
C)
the tariff revenues are large.
D)
the deadweight losses are large.
90.
Suppose that a foreign monopolist supplies the entire domestic market (there is no
domestic production). The home country then applies a $10 tariff on imports from the
foreign monopolist. The home country will be better off if:
A)
the terms-of-trade gain is less than the deadweight loss from the tariff.
B)
the price change is more than the deadweight loss of the tariff.
C)
the deadweight loss is more than the price change from the tariff.
D)
the terms-of-trade gain is more than the deadweight loss from the tariff.
91.
Were the results of the U.S. tariff increase on imported small Japanese truck imports
consistent with the predictions of the model of a tariff applied to a good exported by a
foreign monopoly?
A)
No; the imports of trucks declined from 1980 to 2000.
B)
Yes; the rise in market price was less than the tariff imposed, implying that
Japanese producers lowered their prices to maintain market share.
C)
Yes; but trucks and SUVs became indistinguishable, and a number of conclusions
can be drawn.
D)
No clear conclusions can be drawn.
92.
At one time, most compact trucks (like the Toyota Tacoma) were imported as cab and
chassis with some final assembly needed. These were classified as ___________ with a
tariff of ______.
A)
complete or unfinished trucks; 4%
B)
complete or unfinished trucks; 25%
C)
parts of trucks; 25%
D)
parts of trucks; 4%
93.
The U.S. Customs Service reclassified imports of compact trucks (like the Toyota
Tacoma) from “parts of trucks” to “complete or unfinished trucks.” As a result of this
reclassification, a tariff of _____ was applied, and U.S. prices of Japanese compact
trucks rose by _____.
A)
25%; 25%
B)
25%; more than 25%
C)
25%; less than 25%
D)
4%; more than 4%
Page 27
94.
Why did the U.S. price of imports of compact trucks (like the Toyota Tacoma) not
increase by 25% when the U.S. Customs Service reclassified them as “complete or
unfinished trucks” with a tariff of 25%?
A)
U.S. truck dealers that retailed imported compact trucks lowered their retail prices
and absorbed part of the tariff.
B)
U.S. consumers negotiated lower retail prices from U.S. truck dealers selling
imported compact trucks.
C)
The U.S. government decided not to collect the 25% tariff on imported Japanese
compact trucks and instead made them subject to voluntary export restraints.
D)
Japanese truck manufacturers lowered their prices on trucks exported to the U.S.
market and absorbed part of the tariff.
95.
When the United States imposed a 25% tariff on imported pickup trucks, the price of
Japanese pickup trucks in the United States:
A)
rose by 25%.
B)
rose by less than 25%.
C)
rose by more than 25%.
D)
fell by less than 25%.
96.
Why does the United States impose a 25% tariff on pickup truck imports and only a
2.5% tariff on automobile imports?
A)
The 25% tariff was a response to a surge in Japanese pickup truck imports during
the 1980s.
B)
The 25% tariff was a response to German tariffs on imported U.S. poultry.
C)
U.S. automakers lobbied Congress to impose the 25% tariff in order to increase
their profit margins on their pickup trucks.
D)
The 25% tariff was a response to the European Economic Community’s imposition
of a 25% tariff on US pickup truck exports.
97.
International dumping occurs when:
A)
monopolistic firms charge the same price in domestic and foreign markets.
B)
monopolistic firms charge a higher price in the domestic market and a lower price
in the foreign market.
C)
monopolistic firms charge a lower price in the domestic market and a higher price
in the foreign market.
D)
domestic monopolistic firms relocate operations abroad.
Page 28
98.
Antidumping duties are a type of:
A)
tariff.
B)
quota.
C)
export.
D)
trade agreement.
99.
When a firm sells products at lower prices to foreign purchasers, it is known as:
A)
international dumping.
B)
restraint of trade.
C)
price gouging.
D)
reciprocal dumping.
100.
Monopolistic firms that practice international dumping:
A)
suffer losses on their sales in foreign markets.
B)
suffer losses on their sales in domestic markets.
C)
maximize their monopoly profits.
D)
are subject to antidumping taxes in their home countries.
101.
What is meant by a “discriminating monopolist”?
A)
The firm discriminates on the basis of hiring workers.
B)
The firm violates all antitrust laws.
C)
The firm evades taxes.
D)
The firm sells its product at different prices in different markets.
102.
An internationally discriminating monopolist will maximize its profits if it sets quantity
where:
A)
MC = home P and MC = foreign MR.
B)
MC = home MR and MC = foreign P.
C)
MC = home P = foreign P.
D)
MC = home MR = foreign MR.
103.
An internationally discriminating monopolist is one that:
A)
can charge different prices to each customer in its domestic market.
B)
can charge different prices in its domestic and foreign markets.
C)
faces a downward-sloping demand curve in its domestic market and a perfectly
elastic demand curve in its foreign market.
D)
faces a perfectly elastic demand curve in its domestic market and a
downward-sloping demand curve in its foreign market.
Page 29
104.
Dumping goods is profitable whenever:
A)
the firm does not get caught.
B)
the firm can hire illegal workers to process the production.
C)
the foreign market price (including transportation costs) is higher than marginal
cost but lower than the home price.
D)
the foreign firm eventually closes because it cannot compete.
105.
Why do monopolistic firms practice international dumping?
A)
They face the same demand conditions in their domestic and foreign markets.
B)
They face more elastic demand conditions in their domestic market than in their
foreign markets.
C)
They face more elastic demand conditions in their foreign market than in their
domestic market.
D)
They are able to take advantage of increasing costs.
106.
To maximize profits, the discriminating monopolist sells abroad rather than selling
additional units at home because:
A)
the home market is just too competitive.
B)
there would be more incentive for entry from other firms.
C)
the market price at home would rise and the firm would lose customers.
D)
it would lower total profits if it lowered its home price in order to sell the
additional units.
107.
(Table: Information on a Firm) What are this firm’s monopoly profits if it only sells in
the domestic market?
A)
$250
B)
$200
C)
$150
D)
$100
Page 30
108.
(Table: Information on a Firm) Should this firm enter the foreign market?
A)
Yes; it can increase its monopoly profits.
B)
No; its monopoly profits will fall.
C)
No; its monopoly profits will not change if it enters the foreign market.
D)
Yes; its total fixed costs will fall if it enters the foreign market.
109.
(Table: Information on a Firm) Which of the following are the extra monopoly profits
that this firm will earn if it enters the foreign market?
A)
$375
B)
$250
C)
$125
D)
–$125
110.
(Scenario: Discriminating Monopolist) The demand curve in its home market is P = 200
– Q; the demand curve in its foreign market is P = 160 – 2Q; and its marginal cost is a
constant $20 per unit. Its marginal revenue in the home market is MR =200 – 2Q and is
MR = 160 – 4Q in the foreign market.
What is the discriminating monopolist’s profit-maximizing output in the domestic
market?
A)
90
B)
110
C)
70
D)
35
Page 31
111.
(Scenario: Discriminating Monopolist) The demand curve in its home market is P = 200
– Q; the demand curve in its foreign market is P = 160 – 2Q; and its marginal cost is a
constant $20 per unit. Its marginal revenue in the home market is MR =200 – 2Q and is
MR = 160 – 4Q in the foreign market.
What is the discriminating monopolist’s profit-maximizing output in the foreign market?
A)
90
B)
110
C)
70
D)
35
112.
(Scenario: Discriminating Monopolist) The demand curve in its home market is P = 200
– Q; the demand curve in its foreign market is P = 160 – 2Q; and its marginal cost is a
constant $20 per unit. Its marginal revenue in the home market is MR =200 – 2Q and is
MR = 160 – 4Q in the foreign market.
What is the discriminating monopolist’s price in the domestic market?
A)
$90
B)
$110
C)
$70
D)
$35
113.
(Scenario: Discriminating Monopolist) The demand curve in its home market is P = 200
– Q; the demand curve in its foreign market is P = 160 – 2Q; and its marginal cost is a
constant $20 per unit. Its marginal revenue in the home market is MR =200 – 2Q and is
MR = 160 – 4Q in the foreign market.
What is the discriminating monopolist’s price in the foreign market?
A)
$90
B)
$110
C)
$70
D)
$35
Page 32
114.
(Scenario: Discriminating Monopolist)
The demand curve in its home market is P = 200 – Q; the demand curve in its foreign
market is P = 160 – 2Q; and its marginal cost is a constant $20 per unit. Its marginal
revenue in the home market is MR =200 – 2Q and is MR = 160 – 4Q in the foreign
market.
What is the discriminating monopolist’s profit per unit in the foreign market?
A)
$90
B)
$110
C)
$70
D)
$35
115.
(Scenario: Discriminating Monopolist) The demand curve in its home market is P = 200
– Q; the demand curve in its foreign market is P = 160 – 2Q; and its marginal cost is a
constant $20 per unit. Its marginal revenue in the home market is MR =200 – 2Q and is
MR = 160 – 4Q in the foreign market.
What is the discriminating monopolist’s profit per unit in the home market?
A)
$90
B)
$110
C)
$70
D)
$35
116.
Dumping occurs when a foreign monopolist charges ______ price in the domestic
market than/as in a foreign market.
A)
a lower
B)
a higher
C)
the same
D)
an equivalent
117.
Which of the following is a criterion for determining whether a foreign nation is
dumping?
A)
The good is not produced at home.
B)
The good is selling below the price in the exporting nation.
C)
The good is priced below average total cost.
D)
The good is selling below the price in the exporting nation or is priced below
average total cost.
Page 33
118.
Which criterion must be met to identify if an imported product is being dumped on the
home country?
A)
The foreign firm sells the product at a lower price in the home market than in the
foreign market.
B)
The foreign firm raises the price in the home country.
C)
The foreign firm sells the product at a lower price in the foreign market than in the
home market.
D)
The foreign firm sells the product below average cost in the home market.
119.
Which type of tariff is used to offset subsidies on exports entering the United States?
A)
antidumping duties
B)
countervailing duties
C)
export duties
D)
safeguard duties levied under the escape clause
120.
Suppose that the U.S. International Trade Commission determines that there is material
injury to the U.S. furniture industry because of Brazilian subsidies on its exports of
furniture to the United States. Which type of tariff will be applied on U.S. imports of
Brazilian furniture?
A)
antidumping duties
B)
countervailing duties
C)
export duties
D)
safeguard duties levied under section 421 of the amended U.S. Trade Act of 1974
121.
It is generally easier for a firm to get _______________ than _______________ ;
therefore, many more of the former are in place than the latter.
A)
import quotas; tariffs
B)
safeguard tariffs; antidumping duties
C)
subsidies; tariffs
D)
antidumping and countervailing duties; safeguard tariffs
122.
A foreign firm that is selling below cost and is accused of dumping often:
A)
lowers its price further to increase the tariff imposed.
B)
moves its production to the importing nation to avoid the tariff completely.
C)
raises its export prices to avoid the antidumping tariff completely.
D)
calls for a ruling by the WTO.
Page 34
123.
Countervailing duties are:
A)
applied to dumped imports.
B)
applied to subsidized imports.
C)
another name for safeguard duties.
D)
not allowed under terms of the GATT.
124.
Countervailing duties are used to offset any advantages that foreign exporters might
gain over domestic producers because of foreign:
A)
tariffs.
B)
subsidies.
C)
infant industry protection.
D)
quotas.
125.
In 2006, the European Union imposed antidumping duties of 10% to 16.5% on products
imported from China. What were those products?
A)
wooden pencils
B)
shirts
C)
shoes
D)
coated paper
126.
Which of the following groups were losers after the European Union’s imposition of an
antidumping duty on shoes imported from China?
A)
European consumers and European shoe manufacturers
B)
Chinese consumers and Chinese shoe manufacturers
C)
Chinese consumers and European shoe manufacturers
D)
European consumers and Chinese shoe manufacturers
127.
An antidumping duty equals the difference between:
A)
the price charged by the exporter in its home market and the price charged in the
export market.
B)
the price charged by the exporter in the export market and the price charged in its
home market.
C)
the price charged by the exporter in its home market and the price of an equivalent
product in the export market.
D)
the price of an equivalent product in the export market and the price charged by the
exporter in the export market.
Page 35
128.
In 2012, the United States imposed antidumping and countervailing duties totaling 24%
and 36%, respectively, on imports of solar panels from two groups of Chinese solar
panel exporters. Which of the following describes the process that led to these duties?
A)
The World Trade Organization determined that China was dumping and
subsidizing solar panels in the U.S. market.
B)
The U.S. Department of Commerce determined that China was dumping and
subsidizing solar panels in the U.S. market.
C)
The U.S. Department of Commerce determined that Chinese solar panel imports
caused material injury to U.S. solar panel producers.
D)
The U.S. International Trade Commission determined that China was dumping and
subsidizing solar panels in the U.S. market.
129.
In 2012, the United States imposed countervailing duties ranging from 24 to 36% on
imports of about solar panels from China. Which of the following do you predict will
happen if the United States decides to eliminate these duties?
A)
The U.S. price of solar panels will fall.
B)
U.S. production of solar panels will rise.
C)
U.S. imports of Chinese solar panels will fall.
D)
Chinese production of solar panels will fall.
130.
Suppose that British Steel, Ltd., sells steel in Britain at $600 per ton and the same steel
in the United States at $450 per ton. The price of equivalent steel produced in the United
States is $550 per ton. How large an antidumping tariff (in percentage) will be applied
on imports from British Steel if it is found that it dumped steel on the U.S. market?
A)
9.11%
B)
22.22%
C)
25%
D)
33.33%
131.
Suppose that the United States imposes an antidumping duty on imported steel. Which
of the following is likely to occur?
A)
The U.S. terms of trade will improve, and U.S. steel imports will rise.
B)
The U.S. price of steel will rise, and U.S. steel consumption will fall.
C)
The foreign price of steel will rise, and foreign steel consumption will fall.
D)
U.S. steel companies will earn lower profits.
Page 36
132.
(Scenario: Far North Canadian Lumber) Suppose that Far North Canadian Lumber, Ltd.,
sells lumber in Canada at a price of $1,000 per 1,000 board feet and exports the same
lumber to the United States at a price of $600 per 1,000 board feet. U.S. Lumber, Inc.,
produces and sells lumber for $700 per 1,000 board feet in the United States.
Is Far North Canadian Lumber dumping lumber in the United States?
A)
Yes; its price in Canada is greater than its price in the United States.
B)
Yes; its price in Canada is greater than U.S. Lumber’s price.
C)
No; its price in the United States is less than U.S. Lumber’s price.
D)
No; it is maximizing its profits when it price discriminates between the United
States and Canada.
133.
(Scenario: Far North Canadian Lumber) Suppose that Far North Canadian Lumber, Ltd.,
sells lumber in Canada at a price of $1,000 per 1,000 board feet and exports the same
lumber to the United States at a price of $600 per 1,000 board feet. U.S. Lumber, Inc.,
produces and sells lumber for $700 per 1,000 board feet in the United States.
How large an antidumping duty will the United States apply to lumber imports from Far
North Canadian Lumber, Ltd.?
A)
$100
B)
$200
C)
$300
D)
$400
134.
(Scenario: Far North Canadian Lumber) Suppose that Far North Canadian Lumber, Ltd.,
sells lumber in Canada at a price of $1,000 per 1,000 board feet and exports the same
lumber to the United States at a price of $600 per 1,000 board feet. U.S. Lumber, Inc.,
produces and sells lumber for $700 per 1,000 board feet in the United States.
What might Far North Canadian Lumber, Ltd., do to avoid the antidumping duty?
A)
appeal to the U.S. International Trade Commission
B)
raise its price in the Canadian market
C)
raise its price in the U.S. market
D)
lower its price in the U.S. market
Page 37
135.
(Scenario: Far North Canadian Lumber) Suppose that Far North Canadian Lumber, Ltd.,
sells lumber in Canada at a price of $1,000 per 1,000 board feet and exports the same
lumber to the United States at a price of $600 per 1,000 board feet. U.S. Lumber, Inc.,
produces and sells lumber for $700 per 1,000 board feet in the United States.
What other condition must be satisfied in order for the U.S. government to impose an
antidumping duty on Canadian lumber imports?
A)
There must be material injury to a Canadian lumber producer.
B)
There must be material injury to a U.S. lumber producer.
C)
There must be material injury to both a U.S. and a Canadian lumber producer.
D)
All these conditions must be satisfied.
136.
A monopolist’s price is “less than fair value” when it sells in export markets at prices
________ prices in its domestic markets or at prices _________ its average costs of
production.
A)
above; above
B)
above; below
C)
below; above
D)
below; below
137.
A recent antidumping case charged Canadian tomato producers with dumping tomatoes
on the U.S. market. In order for the United States to impose antidumping duties,
Canadian tomatoes must be sold at _______ than their fair value in the United States,
and there must be injury to the ________ tomato industry.
A)
more; U.S.
B)
less; U.S.
C)
more; Canadian
D)
less; Canadian
138.
Suppose that the U.S. imposes a countervailing duty of 10% on coated paper imported
from China to offset alleged Chinese subsidies. Suppose further that the U.S. duty-free
price of Chinese coated paper imports is $500 per 1,000 meter roll and that the price of
an equivalent roll of U.S.-made coated paper is $600 per 1,000 meter roll. What is the
U.S. government’s estimate of the dollar value of the Chinese subsidies?
A)
$50 per 1,000 meter roll
B)
$60 per 1,000 meter roll
C)
$50 to $60 per 1,000 meter roll
D)
$100 per 1,000 meter roll
Page 38
139.
Suppose that the discriminating monopolist faces antidumping actions in its foreign
market. Why might it volunteer to raise its price by $10 in the foreign market in order to
settle the action without imposition of an antidumping duty?
A)
It might avoid an even higher antidumping duty.
B)
It wants to avoid the trouble of defending itself in an antidumping action.
C)
It should charge a higher price to maximize its profits in the foreign market.
D)
Raising its price will be good public relations.
140.
Which U.S. government agency determines the magnitude of antidumping duties?
A)
the U.S. International Trade Commission
B)
the Office of the Special Trade Representative
C)
the International Monetary Fund
D)
the Department of Commerce
141.
The U.S. International Trade Commission rejects many antidumping and countervailing
duty allegations because there is:
A)
insufficient evidence that a U.S. industry is materially injured as a result of
dumping or export subsidization.
B)
insufficient evidence of dumping or export subsidization.
C)
insufficient evidence of dumping or export subsidization and insufficient evidence
that a U.S. industry is materially injured as a result of dumping or export
subsidization.
D)
no evidence of dumping or export subsidization, but there is evidence that a U.S.
industry is materially injured.
142.
Which of the following unfair trade remedies is used LEAST often?
A)
antidumping duties
B)
countervailing duties
C)
safeguard or escape clause duties
D)
antidumping and countervailing duties
Page 39
143.
Which of the following is(are) why antidumping actions are used more frequently than
safeguard actions?
I. It is easier to meet the criterion that imports have caused “material injury” to a
domestic industry than the criterion that imports were a “substantial cause of serious
injury.”
II. The President does not need to approve antidumping duties.
III. The President has to approve duties imposed under safeguard actions.
A)
I
B)
II
C)
III
D)
I, II, and III
144.
The European Union applied temporary antidumping and countervailing duties on
Chinese solar cells in 2013. These duties were extended in 2015 because the European
Commission determined that:
A)
Chinese manufacturers were shipping their solar cells through Taiwan and
Malaysia to avoid the duties.
B)
Chinese manufacturers had not increased prices of their solar cells sold in China.
C)
Chinese manufacturers had not increased prices of their solar cells sold in Europe.
D)
Chinese manufacturers had not paid the antidumping and countervailing duties on
their exports to Europe.
145.
What are the likely effects of a U.S. antidumping duty on imported steel?
A)
The U.S. terms of trade will improve and U.S. steel imports will rise.
B)
The U.S. terms of trade will worsen and U.S. steel imports will rise.
C)
The foreign price of steel will rise and the United States will avoid deadweight
losses.
D)
The U.S. price of steel will rise and the United States will suffer deadweight losses.
146.
“Infant industry protection” refers to:
A)
countries’ use of protection (tariffs and quotas) to protect their domestic
manufacturing activities.
B)
countries’ use of protection to protect their export activities.
C)
countries’ use of short-term protection to protect young industries while they
mature.
D)
countries’ use of short-term protection to protect their agricultural activities.
Page 40
147.
Infant industries are:
A)
manufacturing activities that make baby products.
B)
industries that cannot currently withstand foreign competition but are expected to
grow and mature so that they can compete internationally.
C)
industries that can currently withstand foreign competition in the domestic market
but are expected to mature into export industries.
D)
industries that cannot currently withstand foreign competition in either the
domestic or the export market but are expected to mature into multinational firms.
148.
Some nations try to nurture and encourage new firms with lots of promise, so they
protect them from foreign competition. This is called the _________ argument for trade
protection.
A)
home nation unemployment
B)
level playing field
C)
efficiency
D)
infant industry
149.
To justify infant industry protection:
A)
a firm must move down its average cost curve to produce more output.
B)
a firm’s average cost curve must shift upward over time.
C)
a firm’s total cost curve must shift leftward over time.
D)
a firm’s average cost curve must shift downward over time.
150.
Which of the following is a justification for infant industry protection?
A)
The firm’s learning must shift its average cost curve down over time so that it
becomes competitive at world prices.
B)
The firm’s output must increase so that it moves down along its average cost curve
over time and becomes competitive at world prices.
C)
The firm’s total cost curve must shift leftward over time so that it becomes
competitive at world prices.
D)
The firm’s learning allows it to produce more output and take advantage of
increasing returns to scale.
Page 41
151.
There are several conditions that justify limiting imports to ensure the survival of the
“infant industry” and to justify government protection. Which of the following is(are) a
justification?
A)
Protection allows a firm an opportunity to move down along its average cost curve
over time to become competitive at world prices.
B)
Protection allows a firm to reduce future costs and cause its average cost curve to
shift downwards.
C)
There should not be any knowledge spillovers.
D)
Protection allows a firm to shift its total cost curve to the left.
152.
A positive externality occurs whenever:
A)
an increase in the output of one firm lowers costs for other firms.
B)
a decrease in the output of one firm lowers costs for other firms.
C)
an increase in costs of one firm lowers costs for other firms.
D)
a decrease in one firm’s hiring of labor lowers labor costs for other firms.
153.
A knowledge spillover occurs when firms:
A)
restrict trade of inputs with each other.
B)
have wasteful expenditure.
C)
mimic the successful innovations of other firms.
D)
keep secrets from other firms.
154.
A knowledge spillover is a(n):
A)
negative externality.
B)
positive externality.
C)
constant externality.
D)
externality.
155.
To make a correct decision about limiting imports on behalf of an infant industry, a
government should look at:
A)
political pressure from key constituents.
B)
a cost-benefit analysis measuring the present value of the likely benefits from
lower production costs compared with the cost to society of higher prices in the
present.
C)
the value of retaining jobs versus the small cost of higher-priced units.
D)
the difficulty of keeping out imports from established trading partners and
weighing the number of workers employed in the industry that could not easily get
other jobs.
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156.
Assuming a firm would not survive without protection, what should the government do
if the present value of the profits and value added from operating an infant industry firm
exceed the deadweight loss of imposing protection?
A)
It should impose the tariff—the gains exceed the losses.
B)
It should not impose the tariff—the losses exceed the gains.
C)
If it imposes the tariff, it may actually create more problems that cannot be
foreseen—do not impose the tariff.
D)
The government should just ban all imports of that product until the “infant” is able
to compete on its own.
157.
What is the term used to describe banks’ unwillingness to lend to a firm because they do
not know with certainty that the firm will achieve lower costs and be profitable enough
in the future to repay the loan?
A)
a positive externality
B)
a knowledge spillover
C)
a market failure
D)
a knowledge failure
158.
Suppose the world price of pencils is $0.25 each and a country’s firm that produces
pencils has an average cost of $0.35 each. What will the firm do?
A)
It will continue to produce pencils.
B)
In the long run, it will shut down.
C)
It may temporarily shut down in the short run, but will continue to operate in the
long run.
D)
It will shift operations to another country.
159.
It is better to protect an infant industry with a _______ than a ________.
A)
voluntary export restraint; quota
B)
voluntary export restraint; tariff
C)
tariff; quota
D)
quota; tariff
Page 43
160.
Why is it better to protect an infant industry with monopoly power with a tariff than a
quota?
A)
A tariff causes domestic production to increase, whereas a quota causes production
to decrease.
B)
A tariff causes domestic production to decrease, whereas a quota causes domestic
production to increase.
C)
A tariff will raise the domestic price above the world price, whereas a quota will
not.
D)
A quota will raise the domestic price above the world price, whereas a tariff will
not.
161.
Which of the following policies have governments NOT used to encourage greater
production and use of solar panels?
A)
tax credits to consumers who install solar panels
B)
tax breaks and loan guarantees to companies that produce solar panels
C)
subsidies to promote exports of solar panels
D)
subsidies to promote imports of solar panels
162.
What rationale below best explains why governments have used policies to encourage
greater use of solar panels?
A)
Subsidies to consumers to install solar panels help correct negative externalities
created by using fossil fuels to generate electricity.
B)
Loan guarantees help offset losses of foreign solar panel exporters.
C)
There are no costs in using export subsidies allow domestic firms to compete in
world markets.
D)
WTO safeguard clauses are the best way of encouraging solar panel imports
163.
What firm is receiving $750 million of subsidies from the State of New York to convert
an old factory to produce solar panels in Buffalo?
A)
Suntech, a Chinese solar panel producer
B)
SolarWorld, a German solar panel producer
C)
SolarCity, an American company that formerly imported solar panels from China
D)
SunWorld, a Mexican solar panel producer
164.
The case of ________ has been referred to in the press and business publications as an
example of right-minded import protection in the United States.
A)
U.S. steel
B)
Dole bananas
C)
the Chrysler corporation
D)
Harley-Davidson motorcycles
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165.
The following formula is used to estimate the deadweight loss from a tariff:
where PM is import value; PW is the world price and M is the volume of imports.
Suppose that the United States imposes a 20% antidumping duty on Chinese steel
imports when the world price is $500 per ton, the value of imports with the duty is $400
million, and the volume of imports with the duty fell by 10%. Which of the following is
the deadweight loss?
A)
$0.01 million
B)
$0.10 million
C)
$4.0 million
D)
$8.0 million
166.
An analysis of the case of Harley-Davidson reveals that the deadweight loss of import
protection ___________ the gain in future producer surplus.
A)
was slightly less than
B)
slightly exceeded
C)
vastly exceeded
D)
was roughly the same as
167.
Measuring the impact of the protection on the U.S. economy and on Harley-Davidson:
A)
is very clear—it was a success.
B)
is very clear—it was a failure.
C)
is not as black and white as the numbers might show, but saving a profitable
company at a low cost has some merit for the U.S. economy.
D)
should take into consideration that Harley-Davidson was a private firm with private
stockholders. Most economists disagree with government efforts to save it from
bankruptcy.
168.
An example of infant industry protection is the computer industry in Brazil from 1977 to
1988. It is widely concluded that the effort was:
A)
a failure.
B)
a complete success, because now Brazil manufactures nearly all computer CPUs.
C)
successful, although there were costs to pay in higher prices, making PCs
unattainable for most Brazilian consumers.
D)
as measured on a cost-benefit basis, still unclear due to potential future gains.
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169.
A lesson from the Brazilian experiment was that:
A)
infant industry protection is almost never successful.
B)
there are many determinants other than market price that also factor into an
industry’s success—firms had supplier difficulties and were hampered by excessive
regulation.
C)
government usually knows better than the market whether an industry has
potential.
D)
when politicians get involved, rational decisions and good business practices are
more difficult.
170.
Which one of the following was NOT a reason why Brazil’s infant industry protection of
its personal computer industry was a failure?
A)
Imported silicon chips were expensive to obtain.
B)
Local regulations limited the entry of new firms in the industry.
C)
Domestically produced parts required by the Brazilian PC industry were expensive.
D)
The Brazilian government continued to purchase imported PCs.
171.
The Chinese protected its automobile industry through restrictive tariffs and quotas.
Which of the following BEST describes this practice?
A)
antidumping duties
B)
infant industry protection
C)
voluntary export restraints
D)
price discrimination
172.
Why might infant industry protection of the Chinese automobile industry be considered
successful?
A)
Many foreign auto producers established operations in China behind the high infant
industry tariff protection.
B)
The tariff rate on Chinese imports of automobiles fell from 260% in the early
1980s to about 25% today.
C)
Chinese demand for automobiles increased dramatically in the past 20 years.
D)
China has become the world’s second largest consumer of autos.
173.
China protected its fledgling auto industry through restrictive tariffs and quotas. What
were their effects on the Chinese market?
A)
China was able to lower the prices of autos domestically produced and imported.
B)
China’s auto prices from 1995 to 2001 substantially increased.
C)
China’s auto industry really never got off the ground despite high protection.
D)
China made a decision to import autos from Japan and export autos to the United
States.
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174.
Although tariff and quota protections for China auto imports were very costly to
consumers, which of the following was a benefit?
A)
Auto prices, compared with other prices in the economy, actually fell.
B)
Auto consumption skyrocketed, but there were environmental effects.
C)
Firms that were involved in joint ventures were able to “learn” and to significantly
lower their costs.
D)
China’s government realized it had to keep its hands off entrepreneurial concerns.
175.
As China’s auto production capability has evolved, it is unclear whether protection was
beneficial or harmful. Why?
A)
Accounting data must be translated from Chinese to English, and that is a difficult
task.
B)
After 30 years of infant industry protection, the tariff on auto imports is still
significant (a 25% tariff).
C)
China will probably never achieve exports, so whether any gains were made is
unclear.
D)
Chinese consumers are exerting more market power, and they are opposed to any
kind of import protection.
176.
Which of the following is one of the concerns over having U.S. auto producers in
China?
A)
They will dump back onto U.S. markets.
B)
They will allow technology to leak to Chinese competitors.
C)
They cannot compete with the Japanese.
D)
They will allow the Chinese competitors to steal their business model.
177.
One of the effects of Chinese protection on automobiles has been increases in the
number of foreign auto firms that have established auto plants in China. Which of the
following foreign auto firms has the largest share in the Chinese auto market?
A)
Saab
B)
BMW
C)
General Motors
D)
Peugeot-Citroen
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178.
In recent years, Chinese auto companies have invested in foreign auto and auto parts
companies. What is the major rationale for their investment?
A)
They are trying to get a foothold in the U.S. and European auto markets.
B)
They will learn from their acquisitions how to improve Chinese technology and
product lines.
C)
They have excess profits that cannot be easily invested in China.
D)
The Chinese government prohibits them from investing in other Chinese auto
companies.
179.
Which of the following examples cited in the text was the most successful case of infant
industry protection?
A)
the Chinese auto industry
B)
the Brazilian computer industry
C)
Harley-Davidson
D)
Daimler-Chrysler Corporation
180.
Suppose that this equation for a straight line represents the demand curve for a product:
P = 20 – 2Q
I. Fill in the missing information in the following chart:
II. What is the slope of the marginal revenue curve? How does that slope compare with
that of the demand curve?
181.
Suppose that a domestic monopolist in a small country faces demand of P = 200 – Q
and has a constant MC of $40 per unit.
I. Calculate the value of consumer and producer surplus in autarky.
II. Now suppose that trade occurs with a world price of $50. Calculate the value of
consumer and producer surplus.
III. By how much did the monopolist’s profits fall as a result of the opening of trade?
182.
How do the deadweight losses of a tariff differ when the domestic industry is perfectly
competitive from those when it is a monopoly?
Page 48
183.
Explain why a quota used to protect a domestic monopolist from international
competition will result in higher deadweight losses than a tariff imposed on the same
amount of imports.
184.
Are the effects of a tariff and a quota equivalent if the domestic industry is perfectly
competitive?
185.
How did Japanese automakers benefit from the voluntary export restraint agreement
between the United States and Japan?
186.
Rank the following in ascending order of welfare for the country imposing the duty or
quota. If two items are equivalent, indicate this accordingly.
I. tariff t in a small country with perfect competition
II. tariff t in a small country with a domestic monopoly
III. quota with the same imports M as under the tariff, in a small country with a home
monopoly
187.
Why might imperfect competition lead to small countries imposing positive optimal
tariffs against imports?
188.
Explain why it is possible for a country’s net welfare to increase when it imposes a tariff
on a foreign monopolist.
189.
What is the meaning of the term pass-through in the context of the analysis of a tariff?
190.
Does a tariff-imposing country gain or lose when it imposes a tariff on imports from a
foreign monopolist?
191.
Why do U.S. automakers oppose the U.S.–Korea Free Trade Agreement?
Page 49
192.
Use this information for a discriminating monopolist to answer this question: The home
market demand curve is P = 200 – Q; the foreign market demand curve is P = 160 – 2Q;
and the firm’s marginal cost is a constant $20 per unit.
I. Find the discriminating monopolist’s price and quantity in each market.
II. Find the discriminating monopolist’s profit in each market.
III. Suppose the foreign country imposes an antidumping tariff. How large is the tariff?
IV. What is the discriminating monopolist’s profit in the foreign market after the
antidumping tariff is applied?
193.
Describe the process for an antidumping complaint.
194.
According to the WTO, what condition(s) must be present to identify dumping?
195.
In 2012, the Unites States applied both antidumping and countervailing duties against
imports of solar panels from China. Why were both types of tariffs applied?
196.
Why didn’t all U.S. solar panel producers support the antidumping and countervailing
duty actions brought against Chinese solar panel imports?
197.
What are “safeguard” actions and why are they used less frequently than antidumping
actions?
198.
Why are antidumping actions used more frequently than safeguard actions?
199.
What conditions must exist in order to justify “infant industry”?
200.
Is Harley-Davidson a good example of an infant industry?
Page 50
201.
The text estimated the deadweight loss of protection on Harley-Davidson motorcycles
during the 1980s was about 3.8% of the annual value of imports or about $1,125.5
million over the four years that the tariffs were used. This estimate is based on this
formula for the deadweight loss of a tariff, measured relative to the import value:
Recalculate these deadweight losses, assuming that there were 200,000 comparable
motorcycles imported before the tariff and 150,000 comparable motorcycles imported
after the tariff was imposed; that average import sales were $800 million in each year
the tariff was applied; and that the tariff was 50% over the four-year period (compared
with the declining tariff of 45%, 35%, 20%, and 15% actually used over the four- year
period).
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