CHAPTER 5—NONTARIFF TRADE BARRIERS
MULTIPLE CHOICE
1.
The imposition of a tariff on imported steel for the home country results in:
a.
Improving terms of trade and rising volume of trade
b.
Higher steel prices and falling steel consumption
c.
Lower profits for domestic steel companies
d.
Higher unemployment for domestic steel workers
2. Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the
intensity of international competition?
a.
Orderly marketing agreement
b.
Local content requirements
c.
Import quota
d.
Trigger price mechanism
3. Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes
an export quota on its automakers. The largest share of the export quota’s “revenue effect” would tend
to be captured by:
a.
The U.S. government
b.
Japanese automakers
c.
American auto consumers
d.
American autoworkers
4. Suppose the government grants a subsidy to domestic producers of an import-competing good. The
subsidy tends to result in deadweight losses for the domestic economy in the form of the:
a.
Consumption effect
b.
Redistribution effect
c.
Revenue effect
d.
Protective effect
5. Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur
under domestic subsidies. This is because, unlike domestic subsidies, import tariffs and quotas:
a.
Permit less efficient home production
b.
Distort choices for domestic consumers
c.
Result in higher tax rates for domestic residents
d.
Redistribute revenue from domestic producers to consumers
6. Suppose the government grants a subsidy to its export firms that permits them to charge lower prices
on goods sold abroad. The export revenue of these firms would rise if the foreign demand is:
a.
Elastic in response to the price reduction
b.
Inelastic in response to the price reduction
c.
Unit elastic in response to the price reduction
d.
None of the above
7. Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold
overseas, the home country’s:
a.
Export revenues will decrease
b.
Export revenues will rise
c.
Terms of trade will worsen
d.
Terms of trade will improve
8. Which trade restriction stipulates the percentage of a product’s total value that must be produced
domestically in order for that product to be sold domestically?
a.
Import quota
b.
Orderly marketing agreement
c.
Local content requirement
d.
Government procurement policy
9. The imposition of a domestic content requirement by the United States would cause consumer surplus
for Americans to:
a.
Rise
b.
Fall
c.
Remain unchanged
d.
None of the above
10. Domestic content legislation applied to autos would tend to:
a.
Support wage levels of American autoworkers
b.
Lower auto prices for American autoworkers
c.
Encourage American automakers to locate production overseas
d.
Increase profits of American auto companies
11. Compared to an import quota, an equivalent tariff may provide a less certain amount of protection for
home producers since:
a.
A tariff has no deadweight loss in terms of production and consumption
b.
Foreign firms may absorb the tariff by offering exports at lower prices
c.
Tariffs are effective only if home demand is perfectly elastic
d.
Quotas do not result in increases in the price of the imported good
12. Empirical studies show that because voluntary export quotas are typically administered by exporting
countries, foreign exporters tend to:
a.
Raise their export prices, thus capturing much of the quota’s revenue effect
b.
Lower their export prices, thus losing much of the quota’s revenue effect
c.
Raise their export prices, thus selling more goods overseas
d.
Lower their export prices, thus selling fewer goods overseas
13. Concerning the restrictive impact of an import quota, assume there occurs an increase in the domestic
demand for the import product. As long as the quota falls short of what would be imported under free
market conditions, the economy’s adjustment to the increase in demand would take the form of:
a.
A decrease in domestic production of the import good
b.
An increase in the amount of the good being imported
c.
An increase in the domestic price of the import good
d.
A decrease in domestic consumption of the import good
14. Assume the U.S. has a competitive advantage in producing calculators, while the rest of the world has
a competitive advantage in steel. Suppose the U.S. and the rest of the world enter into an agreement to
lower import quotas below existing levels on calculators and steel. Which of the following would least
likely occur for the U.S.? Rising levels of:
a.
Consumer surplus for American buyers of steel
b.
Producer surplus for American steelmakers
c.
Production in the American calculator industry
d.
Producer surplus for American calculator producers
15. A firm that faces problems of falling sales and excess productive capacity might resort to international
dumping if it:
a.
Can charge higher prices in markets that are elastic to price changes
b.
Earns revenues on foreign sales that at least cover variable costs
c.
Can sell at that price where domestic and foreign demand elasticities equate
d.
Is able to force foreign prices below marginal production costs
16. A producer successfully practicing international dumping would charge:
a.
A relatively higher price in the more inelastic market
b.
A relatively higher price in the more elastic market
c.
The same price in all markets, regardless of their elasticities
d.
Different prices in all markets, regardless of their elasticities
17. The practice of Canadian firms dumping their products in Sweden poses a problem for economic
policymakers since dumping tends to:
a.
Favor Swedish consumers over Canadian consumers
b.
Favor Swedish producers over Canadian producers
c.
Become widespread as firms operate at full productive capacity
d.
Result in firms charging prices above the total costs of production
18. The United Auto Workers union attempted to win the approval of legislation that would moderate the
practice of foreign sourcing on the part of American auto manufacturers. Which of the following best
represents this legislation?
a.
Voluntary export quotas
b.
Trigger price mechanism
c.
Tariff quotas
d.
Local content laws
19. A main factor behind the president’s decision to extend relief to steel firms in the form of trigger prices
was that:
a.
Dumping complaints can be time consuming and expensive to implement
b.
The Tokyo Round outlawed the granting of subsidies to steel firms
c.
Trigger prices involve zero deadweight welfare loss for the economy
d.
Orderly marketing agreements were too costly to administer
20. If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:
a.
The quota results in efficiency reductions but the tariff does not
b.
The tariff results in efficiency reductions but the quota does not
c.
They have different impacts on how much is produced and consumed
d.
They have different impacts on how income is distributed
21. If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:
a.
The quota results in efficiency reductions but the tariff does not
b.
The tariff results in efficiency reductions but the quota does not
c.
They have identical impacts on how much is produced and consumed
d.
They have identical impacts on how income is distributed
22. From the perspective of the American public as a whole, export subsidies levied by overseas
governments on goods sold to the United States:
a.
Help more than they hurt
b.
Hurt more than they help
c.
Are equivalent to an import quota
d.
Are equivalent to an export quota
23. Export subsidies levied by foreign governments on products in which the United States has a
comparative disadvantage:
a.
Lower the welfare of all Americans
b.
Lead to increases in U.S. consumer surplus
c.
Encourage U.S. production of competing goods
d.
Encourage U.S. workers to demand higher wages
24. If import licenses are auctioned off to domestic importers in a competitive market, their scarcity value
(revenue effect) accrues to:
a.
Foreign corporations
b.
Foreign workers
c.
Domestic corporations
d.
The domestic government
25. A specification of a maximum amount of a foreign produced good that will be allowed to enter the
country over a given time period is referred to as:
a.
A domestic subsidy
b.
An export subsidy
c.
An import quota
d.
An export quota
26. Import quotas tend to lead to all of the following except:
a.
Domestic producers of the imported good being harmed
b.
Domestic consumers of the imported good being harmed
c.
Prices increasing in the importing country
d.
Prices falling in the exporting country
27. To maintain that South Koreans are dumping their VCRs in the United States is to maintain that:
a.
Koreans are selling VCRs in the United States below their production cost
b.
Koreans are selling VCRs in the United States above their production cost
c.
The cost of manufacturing VCRs in Korea is lower in Korea than in the United States
since wages are lower in Korea
d.
The cost of manufacturing VCRs in Korea is higher in Korea than in the United States
since wages are higher in Korea
28. If the home country’s government grants a subsidy on a domestically produced good, domestic
producers tend to:
a.
Capture the entire subsidy in the form of higher profits
b.
Increase their level of production
c.
Reduce wages paid to domestic workers
d.
Consider the subsidy as an increase in production cost
29. For years the U.S. government levied quotas on inexpensive oil imported from the Middle East. The
quotas led to cost increases for U.S. consumers totaling $3 billion for oil products. An apparent
justification for this policy was that:
a.
U.S. oil companies and workers deserved higher incomes
b.
U.S. oil was of superior quality and merited higher prices
c.
One should not be too dependent on foreign suppliers of crucial resources
d.
The U.S. government needed the quota revenue to balance its budget
30. In certain industries, Japanese employers do not lay off workers. Therefore, they sometimes have
excess supplies of goods that they cannot sell on the home market without lowering prices. To hold
down losses, they sell goods in overseas markets at prices well beneath those in Japan. This practice is
best referred to as:
a.
Orderly marketing
b.
Trigger pricing
c.
Domestic content pricing
d.
Dumping
Figure 5.1 illustrates the steel market for Mexico, assumed to be a “small” country that is unable to
affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now
suppose the Mexican steel industry is able to obtain trade protection.
Figure 5.1. Alternative Nontariff Trade Barriers Levied by a “Small” Country
31. Consider Figure 5.1. With free trade, the quantity of steel imported by Mexico equals:
a.
2 tons
b.
4 tons
c.
6 tons
d.
8 tons
32. Consider Figure 5.1. With free trade, Mexico’s consumer surplus and producer surplus respectively
equal:
a.
$2000 and $1200
b.
$3200 and $200
c.
$3600 and $800
d.
$4000 and $600
33. Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of
steel.
If Mexican steel importers behave as monopoly buyers and foreign exporters behave as competitive
sellers, the overall welfare loss of the quota to Mexico equals:
a.
$200
b.
$400
c.
$600
d.
$800
34. Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of
steel.
If foreign exporters behave as monopoly sellers, and Mexican importers behave as competitive buyers,
the overall welfare loss of the quota to Mexico equals:
a.
$200
b.
$400
c.
$600
d.
$800
35. Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of
steel.
If the Mexican government auctions import licenses to the highest foreign bidder, the overall welfare
loss of the quota to Mexico equals:
a.
$200
b.
$400
c.
$600
d.
$800
36. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel
producers, as indicated by the supply schedule SM (with subsidy).
The quantity of imports equals:
a.
1 ton
b.
2 tons
c.
3 tons
d.
4 tons
37. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel
producers, as indicated by the supply schedule SM (with subsidy).
The total cost of the subsidy to the Mexican government equals:
a.
$200
b.
$400
c.
$600
d.
$800
38. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel
producers, as indicated by the supply schedule SM (with subsidy).
As a result of the subsidy Mexican steel producers gain ____ of producer surplus.
a.
$200
b.
$400
c.
$600
d.
$800
39. Consider Figure 5.1. Suppose instead that the Mexican government provides a subsidy of $200 per ton
to its steel producers, as indicated by the supply schedule SM (with subsidy).
As a result of the subsidy, the welfare loss to Mexico due to inefficient domestic production equals:
a.
$200
b.
$400
c.
$600
d.
$800
40. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel
producers, as indicated by the supply schedule SM (with subsidy).
The overall deadweight welfare loss to Mexico equals:
a.
$200
b.
$400
c.
$600
d.
$800
41. Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to
Mexico vis-a-vis an export quota equal to 2 tons.
Assuming Mexican importers behave as competitive buyers while foreign exporters behave as
monopoly sellers, the overall welfare loss of the quota to Mexico is:
a.
$200
b.
$400
c.
$600
d.
$800
42. Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to
Mexico vis-a-vis an export quota equal to 2 tons.
Assuming Mexican importers behave as monopoly buyers while foreign exporters behave as
competitive sellers, the overall welfare loss of the quota to Mexico is:
a.
$200
b.
$400
c.
$600
d.
$800
Figure 5.2 illustrates the revenue and cost conditions of ABC Inc. which sells calculators in Canada
and France.
Figure 5.2. International Dumping
43. Consider Figure 5.2. In the absence of international dumping, ABC Inc. maximizes profits by selling
____ calculators at a price of $____; the firm realizes profits totaling $____.
a.
27, $5, $54
b.
27, $5, $36
c.
24, $4, $46
d.
24, $4, $28
44. Referring to Figure 5.2, consider if ABC Inc. sells 27 calculators at a price of $5 each, realizing profits
totaling $54. Of this quantity, ABC Inc. sells ____ calculators in Canada and realizes revenues totaling
$____; the firm sells ____ calculators in France and realizes revenues totaling $____.
a.
15, $35, 9, $45
b.
15, $45, 9, $35
c.
21, $105, 6, $30
d.
21, $30, 6, $105
45. Consider Figure 5.2. With international dumping, ABC Inc. sells ____ calculators to Canadian buyers
at a price of $____ and ____ calculators to French buyers at a price of $____.
a.
15, $4, 12, $7
b.
15, $7, 12, $4
c.
9, $5, 15, $6
d.
9, $6, 15, $5
46. Consider Figure 5.2. Compared with the total revenue and total profit that ABC Inc. realizes in the
absence of dumping, with dumping the firm attains a:
a.
Fall in revenue of $18; fall in profits of $15
b.
Fall in revenue of $18, fall in profits of $18
c.
Rise in revenue of $18, rise in profits of $15
d.
Rise in revenue of $18, rise in profits of $18
Figure 5.3 illustrates the apple market for Sweden, assumed to be a “small” country that is unable to
affect the world price. SSweden is the domestic supply and DSweden is the domestic demand. SSweden+Quota is
Sweden’s supply schedule with an import quota.
Figure 5.3. Sweden‘s Apple Market
47. Consider Figure 5.3. In the absence of trade, Sweden’s equilibrium price and quantity of apples would
be:
a.
$0.60 and 22 pounds
b.
$0.60 and 14 pounds
c.
$1.00 and 18 pounds
d.
$1.40 and 14 pounds
48. Consider Figure 5.3. Suppose the rest of the world can supply apples to Sweden at a price of $0.60 per
pound. With free trade, Sweden produces ____ pounds of apples and imports ____ pounds of apples.
a.
10, 8
b.
10, 18
c.
6, 22
d.
6, 16
49. Consider Figure 5.3. At the free-trade price of $0.60 per pound, Sweden’s consumer surplus totals
$____ and producer surplus totals $____.
a.
$10.80, $2.40
b.
$14.60, $3.90
c.
$24.20, $1.80
d.
$32.40, $2.30
50. Consider Figure 5.3. If SSweden+Quota represents the supply schedule after a quota is levied, Sweden’s
imports will equal:
a.
6 apples
b.
8 apples
c.
10 apples
d.
12 apples
51. Consider Figure 5.3. After the quota is levied, the price of apples in Sweden will equal:
a.
$0.60 per pound
b.
$1.00 per pound
c.
$1.40 per pound
d.
$1.80 per pound
52. Consider Figure 5.3. As a result of the quota, Sweden’s consumer surplus:
a.
Increases by $6
b.
Increases by $8
c.
Decreases by $6
d.
Decreases by $8
53. Consider Figure 5.3. The quota leads to a deadweight welfare loss for Sweden of an amount equaling:
a.
$0.80
b.
$1.60
c.
$2.40
d.
$3.20
54. Consider Figure 5.3. The quota’s revenue effect equals:
a.
$1.60
b.
$2.40
c.
$3.20
d.
$4.00
55. Consider Figure 5.3. Assume that Swedish import companies behave as competitive buyers while
foreign export companies behave as a monopoly seller. Compared to free trade, Sweden’s import quota
results in domestic welfare:
a.
Gains totaling $3.20
b.
Gains totaling $4.80
c.
Losses totaling $3.20
d.
Losses totaling $4.80
56. Consider Figure 5.3. Assume that Swedish import companies behave as a monopoly buyer while
foreign export companies behave as competitive sellers. Compared to free trade, Sweden’s import
quota results in domestic welfare:
a.
Gains totaling $1.60
b.
Gains totaling $3.20
c.
Losses totaling $1.60
d.
Losses totaling $3.20
57. Consider Figure 5.3. If the Swedish government auctions import licenses to the highest bidder in a
competitive market, it could realize revenues of up to:
a.
$3.20
b.
$4.00
c.
$4.80
d.
$5.60
Figure 5.4 illustrates the calculator market for Venezuela, assumed to be a “small” country that is
unable to affect the world price. SVenezuela is the domestic supply schedule and DVenezuela is the domestic
demand schedule.
Figure 5.4. Venezuelan Calculator Market