CHAPTER 13
THE INSTRUMENTS OF TRADE POLICY
B. Multiple-Choice Questions
8. Which of the following is NOT an example of a nontariff barrier to the free flow of
goods and services in accordance with comparative advantage?
9. The 2015 U.S. MFN/normal trade relations tariff on men’s knitted wool blazers was
38.6¢ per kilogram of weight plus 10 percent of the value of the blazer. This is an
example of __________.
10. Suppose that a country’s nominal tariff rate on imports of good X is 20% and that the
country’s nominal tariff rate on good A [a raw material and the only input (an imported
input) used in making good X] is 5%. In this situation, the Effective Rate of Protection
(ERP or “effective tariff rate”) for the country’s domestic X industry will be __________,
and this type of escalated tariff structure __________ the type of tariff structures that
high-income, developed countries actually have in place on goods imported from low-
income, developing countries.
11. An import quota specifies the __________ amount of a good that can be imported into a
12. Which one of the following is NOT an example of making a trade instrument more
restrictive against imports, other things equal?
a. a decrease in the size of an import quota
13. Other things equal, which one of the following will cause an increase in the effective rate
of protection (ERP) in the automobile industry?
a. a decrease in the nominal tariff rate on automobiles
14. Given the following information for industry X in country A, and assuming that at least
some of input Y is imported, that one unit of Y is required for each unit of X, and that
country A is a “small” country: free trade price nominal tariff rate
final product X $100 19%
input Y (only input to X) $ 70 10%
The effective rate of protection (ERP) for industry X is __________ percent.
15. The United States gives China permanent most-favored-nation (MFN) treatment [or
normal trade relations (NTR)]. This means that the tariff schedules applicable to U.S.
imports from China
a. have lower tariff rates than the rates applicable to other countries to which the United
States grants permanent MFN treatment.
16. The situation in the United States (and other developed countries) whereby an import
good faces a lower tariff if the good comes from a developing country than if the good
comes from a developed country is known as __________.
17. Suppose that the free-trade offer curve of country I is drawn with country I’s exports of
good A on the horizontal axis and country I’s imports of good B on the vertical axis. If
country I now places an import quota of 100 units of good B, country I’s offer curve
d. will shift to the right or vertically downward by 100 units at each level of exports of
good A.
18. In general, a country’s unweighted-average nominal tariff rate tends to be __________
than the country’s weighted-average nominal tariff rate. The difference between the two
would be __________ if the goods with the highest tariffs became imported relatively
more heavily.
19. Given the following information for industry X in country A, and assuming that input Y
is imported, that one unit of Y is required for each one unit of X, and that country A is a
“small” country:
free trade price nominal tariff rate
final product X $120 10%
input Y (only input to X) $ 80 15%
The “effective tariff rate” or “Effective Rate of Protection (ERP)” for industry X in
country A is __________ percent.
20. Suppose that the offshore assembly provisions (OAP) of a country A are extended to a
final good X that is imported as well as produced domestically. This action will most
likely
21. Suppose that the nominal tariff rate on final good X is 8 percent and that the weighted
average of the nominal tariff rates on the inputs used in producing good X is 12 percent.
In this situation, the effective rate of protection (ERP) for final good industry X
22. Suppose that the nominal tariff rate on final good X is 10 percent and that the weighted
average of the nominal tariff rates on the inputs used in producing good X is 6 percent.
In this situation, the effective rate of protection (ERP) for final good industry X
23. The use of the most-favored-nation (MFN) principle [or normal trade relations (NTR)] is
an attempt to attain __________ toward competing suppliers of imports to a country.
Hence, the arrangement whereby developed countries permit duty-free entry on some
goods coming from developing countries but levy tariffs on the same goods if coming
from other developed countries is __________ the MFN [or NTR] principle.
a. discrimination; a departure from
24. Suppose that a country’s “unweighted–average (nominal) tariff rate” (call it “tU”) and
“weighted–average (nominal) tariff rate” (call it “tW”) are calculated both with and
without the inclusion of prohibitive tariffs, and that the country does in fact have some
prohibitive tariffs. In this situation, the tU that includes the prohibitive tariffs
__________ the same as the tU that excludes the prohibitive tariffs, and the tW that
includes the prohibitive tariffs __________ the same as the tW that excludes the
prohibitive tariffs.
25. Given the following information for industry X in country A, and assuming that input Y
is imported, that one unit of Y is required for each unit of X, and that country A is a
“small” country: free trade price nominal tariff rate
final product X $200 25%
input Y (only input to X) $100 15%
The effective rate of protection (ERP) for industry X is __________ percent. However, if
the nominal tariff rate on input Y is eliminated (i.e., the 15% rate become 0%), the ERP
for industry X would become __________ percent.
a. 20; 25
26. Suppose that the nominal tariff rate on final good X is 7 percent and that the weighted
average of the nominal tariff rates on the inputs used in producing good X is 10 percent.
In this situation, the effective rate of protection (ERP) for final good industry X
27. Given the following information for industry X in country A, and assuming that input Y
is imported, that one unit of Y is required for each unit of X, and that country A is a
“small” country:
free trade price nominal tariff rate
final product X $100 20%
input Y (only input to X) $ 80 15%
The effective rate of protection (ERP), or “effective tariff rate,” for industry X is
__________ percent. However, if the nominal tariff rate on input Y is eliminated
(i.e., the 15% rate becomes 0%), the ERP for industry X would become
__________ percent.