CHAPTER 4—TARIFFS
MULTIPLE CHOICE
1. The imposition of tariffs on imports results in deadweight welfare losses for the home economy. These
losses consist of the:
a.
Protective effect plus consumption effect
b.
Redistribution effect plus revenue effect
c.
Revenue effect plus protective effect
d.
Consumption effect plus redistribution effect
2. Suppose that the United States eliminates its tariff on steel imports, permitting foreign-produced steel
to enter the U.S. market. Steel prices to U.S. consumers would be expected to:
a.
Increase, and the foreign demand for U.S. exports would increase
b.
Decrease, and the foreign demand for U.S. exports would increase
c.
Increase, and the foreign demand for U.S. exports would decrease
d.
Decrease, and the foreign demand for U.S. exports would decrease
3. A $100 specific tariff provides home producers more protection from foreign competition when:
a.
The home market buys cheaper products rather than expensive products
b.
It is applied to a commodity with many grade variations
c.
The home demand for a good is elastic with respect to price changes
d.
It is levied on manufactured goods rather than primary products
4. A lower tariff on imported aluminum would most likely benefit:
a.
Foreign producers at the expense of domestic consumers
b.
Domestic manufacturers of aluminum
c.
Domestic consumers of aluminum
d.
Workers in the domestic aluminum industry
5. When a government allows raw materials and other intermediate products to enter a country duty free,
its tariff policy generally results in a:
a.
Effective tariff rate less than the nominal tariff rate
b.
Nominal tariff rate less than the effective tariff rate
c.
Rise in both nominal and effective tariff rates
d.
Fall in both nominal and effective tariff rates
6. Of the many arguments in favor of tariffs, the one that has enjoyed the most significant economic
justification has been the:
a.
Infant industry argument
b.
Cheap foreign labor argument
c.
Balance of payments argument
d.
Domestic living standard argument
7. The redistribution effect of an import tariff is the transfer of income from the domestic:
a.
Producers to domestic buyers of the good
b.
Buyers to domestic producers of the good
c.
Buyers to the domestic government
d.
Government to the domestic buyers
8. Which of the following is true concerning a specific tariff?
a.
It is exclusively used by the U.S. in its tariff schedules.
b.
It refers to a flat percentage duty applied to a good’s market value.
c.
It is plagued by problems associated with assessing import product values.
d.
It affords less protection to home producers during eras of rising prices.
9. The principal benefit of tariff protection goes to:
a.
Domestic consumers of the good produced
b.
Domestic producers of the good produced
c.
Foreign producers of the good produced
d.
Foreign consumers of the good produced
10. Which of the following policies permits a specified quantity of goods to be imported at one tariff rate
and applies a higher tariff rate to imports above this quantity?
a.
Tariff quota
b.
Import tariff
c.
Specific tariff
d.
Ad valorem tariff
11. Assume the United States adopts a tariff quota on steel in which the quota is set at 2 million tons, the
within-quota tariff rate equals 5 percent, and the over-quota tariff rate equals 10 percent. Suppose the
U.S. imports 1 million tons of steel. The resulting revenue effect of the tariff quota would accrue to:
a.
The U.S. government only
b.
U.S. importing companies only
c.
Foreign exporting companies only
d.
The U.S. government and either U.S. importers or foreign exporters
12. When the production of a commodity does not utilize imported inputs, the effective tariff rate on the
commodity:
a.
Exceeds the nominal tariff rate on the commodity
b.
Equals the nominal tariff rate on the commodity
c.
Is less than the nominal tariff rate on the commodity
d.
None of the above
13. Developing nations often maintain that industrial countries permit raw materials to be imported at very
low tariff rates while maintaining high tariff rates on manufactured imports. Which of the following
refers to the above statement?
a.
Tariff-quota effect
b.
Nominal tariff effect
c.
Tariff escalation effect
d.
Protective tariff effect
14. Should the home country be “large” relative to the world, its imposition of a tariff on imports would
lead to an increase in domestic welfare if the terms-of-trade effect exceeds the sum of the:
a.
Revenue effect plus redistribution effect
b.
Protective effect plus revenue effect
c.
Consumption effect plus redistribution effect
d.
Protective effect plus consumption effect
15. Should Canada impose a tariff on imports, one would expect Canada’s:
a.
Terms of trade to improve and volume of trade to decrease
b.
Terms of trade to worsen and volume of trade to decrease
c.
Terms of trade to improve and volume of trade to increase
d.
Terms of trade to worsen and volume of trade to increase
16. A beggar-thy-neighbor policy is the imposition of:
a.
Free trade to increase domestic productivity
b.
Trade barriers to increase domestic demand and employment
c.
Import tariffs to curb domestic inflation
d.
Revenue tariffs to make products cheaper for domestic consumers
17. A problem encountered when implementing an “infant industry” tariff is that:
a.
Domestic consumers will purchase the foreign good regardless of the tariff
b.
Political pressure may prevent the tariff’s removal when the industry matures
c.
Most industries require tariff protection when they are mature
d.
Labor unions will capture the protective effect in higher wages
18. Tariffs are not defended on the ground that they:
a.
Improve the terms of trade of foreign nations
b.
Protect jobs and reduce unemployment
c.
Promote growth and development of young industries
d.
Prevent overdependence of a country on only a few industries
19. The deadweight loss of a tariff:
a.
Is a social loss since it promotes inefficient production
b.
Is a social loss since it reduces the revenue for the government
c.
Is not a social loss because society as a whole doesn’t pay for the loss
d.
Is not a social loss since only business firms suffer revenue losses
20. Which of the following is a fixed percentage of the value of an imported product as it enters the
country?
a.
Specific tariff
b.
Ad valorem tariff
c.
Nominal tariff
d.
Effective tariff
21. A tax of 20 cents per unit of imported cheese would be an example of:
a.
Compound tariff
b.
Effective tariff
c.
Ad valorem tariff
d.
Specific tariff
22. A tax of 15 percent per imported item would be an example of:
a.
Ad valorem tariff
b.
Specific tariff
c.
Effective tariff
d.
Compound tariff
23. Which type of tariff is not used by the American government?
a.
Import tariff
b.
Export tariff
c.
Specific tariff
d.
Ad valorem tariff
24. Which trade policy results in the government levying a “two-tier” tariff on imported goods?
a.
Tariff quota
b.
Nominal tariff
c.
Effective tariff
d.
Revenue tariff
25. If we consider the impact on both consumers and producers, then protection of the steel industry is:
a.
In the interest of the United States as a whole, but not in the interest of the state of
Pennsylvania
b.
In the interest of the United States as a whole and in the interest of the state of
Pennsylvania
c.
Not in the interest of the United States as a whole, but it might be in the interest of the
state of Pennsylvania
d.
Not in the interest of the United States as a whole, nor in the interest of the state of
Pennsylvania
26. If I purchase a stereo from South Korea, I obtain the stereo and South Korea obtains the dollars. But if
I purchase a stereo produced in the United States, I obtain the stereo and the dollars remain in
America. This line of reasoning is:
a.
Valid for stereos, but not for most products imported by the United States
b.
Valid for most products imported by the United States, but not for stereos
c.
Deceptive since Koreans eventually spend the dollars on U.S. goods
d.
Deceptive since the dollars spent on a stereo built in the United States eventually wind up
overseas
27. The most vocal political pressure for tariffs is generally made by:
a.
Consumers lobbying for export tariffs
b.
Consumers lobbying for import tariffs
c.
Producers lobbying for export tariffs
d.
Producers lobbying for import tariffs
28. If we consider the interests of both consumers and producers, then a policy of tariff reduction in the
U.S. auto industry is:
a.
In the interest of the United States as a whole, but not in the interest of auto-producing
states
b.
In the interest of the United States as a whole, and in the interest of auto-producing states
c.
Not in the interest of the United States as a whole, nor in the interest of auto-producing
states
d.
Not in the interest of the United States as a whole, but is in the interest of auto-producing
states
29. Free traders point out that:
a.
There is usually an efficiency gain from having tariffs
b.
There is usually an efficiency loss from having tariffs
c.
Producers lose from tariffs at the expense of consumers
d.
Producers lose from tariffs at the expense of the government
30. A decrease in the import tariff will result in:
a.
An increase in imports but a decrease in domestic production
b.
A decrease in imports but an increase in domestic production
c.
An increase in price but a decrease in quantity purchased
d.
A decrease in price and a decrease in quantity purchased
Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a “small”
nation that is unable to affect the world price.
31. Consider Figure 4.1. In the absence of trade, Mexico produces and consumes:
a.
10 calculators
b.
40 calculators
c.
60 calculators
d.
80 calculators
32. Consider Figure 4.1. In the absence of trade, Mexico’s producer surplus and consumer surplus
respectively equal:
a.
$120, $240
b.
$180, $180
c.
$180, $320
d.
$240, $240
33. Consider Figure 4.1. With free trade, Mexico imports:
a.
40 calculators
b.
60 calculators
c.
80 calculators
d.
100 calculators
34. Consider Figure 4.1. With free trade, the total value of Mexico’s imports equal:
a.
$220
b.
$260
c.
$290
d.
$300
35. Consider Figure 4.1. With free trade, Mexico’s producer surplus and consumer surplus respectively
equal:
a.
$5, $605
b.
$25, $380
c.
$45, $250
d.
$85, $195
36. Consider Figure 4.1. With a per-unit tariff of $3, the quantity of imports decreases to:
a.
20 calculators
b.
40 calculators
c.
50 calculators
d.
70 calculators
37. According to Figure 4.1, the loss in Mexican consumer surplus due to the tariff equals:
a.
$225
b.
$265
c.
$285
d.
$325
38. According to Figure 4.1, the tariff results in the Mexican government collecting:
a.
$100
b.
$120
c.
$140
d.
$160
39. According to Figure 4.1, Mexican manufacturers gain ____ because of the tariff.
a.
$75
b.
$85
c.
$95
d.
$105
40. According to Figure 4.1, the deadweight cost of the tariff totals:
a.
$60
b.
$70
c.
$80
d.
$90
41. Consider Figure 4.1. The tariff would be prohibitive (i.e., eliminate imports) if it equaled:
a.
$2
b.
$3
c.
$4
d.
$5
Assume the United States is a large consumer of steel that is able to influence the world price. Its
demand and supply schedules are respectively denoted by DU.S. and SU.S. in Figure 4.2. The overall
(United States plus world) supply schedule of steel is denoted by SU.S.+W.
Figure 4.2. Import Tariff Levied by a “Large” Country
42. Consider Figure 4.2. With free trade, the United States achieves market equilibrium at a price of
$____. At this price, ____ tons of steel are produced by U.S. firms, ____ tons are bought by U.S.
buyers, and ____ tons are imported.
a.
$450, 5 tons, 60 tons, 55 tons
b.
$475, 10 tons, 50 tons, 40 tons
c.
$525, 5 tons, 60 tons, 55 tons
d.
$630, 30 tons, 30 tons, 0 tons
43. Consider Figure 4.2. Suppose the United States imposes a tariff of $100 on each ton of steel imported.
With the tariff, the price of steel rises to $____ and imports fall to ____ tons.
a.
$550, 20 tons
b.
$550, 30 tons
c.
$575, 20 tons
d.
$575, 30 tons
44. Consider Figure 4.2. Of the $100 tariff, $____ is passed on to the U.S. consumer via a higher price,
while $____ is borne by the foreign exporter; the U.S. terms of trade:
a.
$25, $75, improve
b.
$25, $75, worsen
c.
$75, $25, improve
d.
$75, $25, worsen
45. Referring to Figure 4.2, the tariff’s deadweight welfare loss to the United States totals:
a.
$450
b.
$550
c.
$650
d.
$750
46. According to Figure 4.2, the tariff’s terms-of-trade effect equals:
a.
$300
b.
$400
c.
$500
d.
$600
47. According to Figure 4.2, the tariff leads to the overall welfare of the United States:
a.
Rising by $250
b.
Rising by $500
c.
Falling by $250
d.
Falling by $500
48. Suppose that the production of $500,000 worth of steel in the United States requires $100,000 worth of
iron ore. The U.S. nominal tariff rates for importing these goods are 15 percent for steel and 5 percent
for iron ore. Given this information, the effective rate of protection for the U.S. steel industry is
approximately:
a.
6 percent
b.
12 percent
c.
18 percent
d.
24 percent
49. Suppose that the production of a $30,000 automobile in Canada requires $10,000 worth of steel. The
Canadian nominal tariff rates for importing these goods are 25 percent for automobiles and 10 percent
for steel. Given this information, the effective rate of protection for the Canadian automobile industry
is approximately:
a.
15 percent
b.
32 percent
c.
48 percent
d.
67 percent
Exhibit 4.1
Assume that the United States imports automobiles from South Korea at a price of $20,000 per vehicle
and that these vehicles are subject to an import tariff of 20 percent. Also assume that U.S. components
are used in the vehicles assembled by South Korea and that these components have a value of $10,000.
50. Refer to Exhibit 4.1. In the absence of the Offshore Assembly Provision of U.S. tariff policy, the price
of an imported vehicle to the U.S. consumer after the tariff has been levied is:
a.
$22,000
b.
$23,000
c.
$24,000
d.
$25,000
51. Refer to Exhibit 4.1. Under the Offshore Assembly Provision of U.S. tariff policy, the price of an
imported vehicle to the U.S. consumer after the tariff has been levied is:
a.
$22,000
b.
$23,000
c.
$24,000
d.
$25,000
52. Suppose an importer of steel is required to pay a tariff of $20 per ton plus 5 percent of the value of
steel. This is an example of a (an):
a.
Specific tariff
b.
Ad valorem tariff
c.
Compound tariff
d.
Tariff quota
53. A compound tariff is a combination of a (an):
a.
Tariff quota and a two-tier tariff
b.
Revenue tariff and a protective tariff
c.
Import tariff and an export tariff
d.
Specific tariff and an ad valorem tariff
Table 4.1. Production Costs and Prices of Imported and Domestic VCRs
Imported VCRs
Domestic VCRs
Component parts
$150
Imported component parts
$150
Assembly cost/profit
50
Assembly cost
50
Nominal tariff
25
Profit
25
____
____
Import price
Domestic price
after tariff
225
after tariff
225
54. Consider Table 4.1. Prior to the tariff, the total price of domestically-produced VCRs is:
a.
$150
b.
$200
c.
$225
d.
$250
55. Consider Table 4.1. Prior to the tariff, the total price of imported VCRs is:
a.
$150
b.
$200
c.
$225
d.
$235
56. Consider Table 4.1. The nominal tariff rate on imported VCRs equals:
a.
11.1 percent
b.
12.5 percent
c.
16.7 percent
d.
50.0 percent
57. Consider Table 4.1. Prior to the tariff, domestic value added equals:
a.
$25
b.
$50
c.
$75