58. Consider Figure 5.4. Suppose the rest of the world supplies calculators to Venezuela at a price of $4
each. With free trade, Venezuelan imports total:
a.
8 calculators
b.
16 calculators
c.
20 calculators
d.
24 calculators
59. Consider Figure 5.4. Assume the Venezuelan government grants its manufacturers a production
subsidy of $4 per calculator. After the subsidy is granted, Venezuelan imports total:
a.
8 calculators
b.
12 calculators
c.
16 calculators
d.
20 calculators
60. Consider Figure 5.4. The cost of the production subsidy to the Venezuelan government totals:
a.
$32
b.
$40
c.
$48
d.
$54
61. Consider Figure 5.4. The increase in Venezuelan producer surplus under the production subsidy totals:
a.
$16
b.
$20
c.
$24
d.
$32
62. Consider Figure 5.4. The production subsidy results in an overall welfare loss for Venezuela totaling:
a.
$8
b.
$12
c.
$16
d.
$20
63. A voluntary export agreement
a.
Typically applies only to the world’s most important exporting nation(s)
b.
Typically applies only to the world’s least important exporting nation (s)
c.
Is always more restrictive on trade than a tariff or import quota
d.
All of the above
64. When voluntary export limits are imposed on the world‘s chief exporter
a.
The exports of the non-restrained suppliers may be stimulated
b.
A trade diversion effect may occur
c.
Both a and b
d.
None of the above
65. Subsidies to domestic firms may lead to
a.
An increase in prices
b.
Higher volume of exports
c.
Higher volume of imports
d.
Increase in welfare of the trading partner
66. Concerning international dumping, many economists argue that “fair value” should be based on
a.
Average variable cost
b.
Average fixed cost
c.
Marginal cost
d.
Total cost
Figure 5.6 Domestice Supply and demand for Wine – US
67. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the
US demands at $8 per bottle. How much will the US produce and import in these circumstances?
a.
5 bottles, 40 bottles
b.
40 bottles, 0 bottles
c.
5 bottles, 35 bottles
d.
5 bottles, 0 bottles
68. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the
US demands at $8 per bottle. What will happen to the price of a bottle of wine in the US if a quota of
15 bottles of wine is imposed?
a.
increase to $15
b.
increase to $10
c.
stay the same at $8
d.
decrease to $5
69. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the
US demands at $8 per bottle. IF the US imposes a quota of 15 bottles of wine, how much wine will
US consumers demand, how much wine will US producers produce and how much wine will be
imported?
a.
30 bottles, 20 bottles, 10 bottles
b.
40 bottles, 25 bottles, 15 bottles
c.
30 bottles, 30 bottles, 0 bottles
d.
30 bottles, 15 bottles, 15 bottles
70. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the
US demands at $8 per bottle. IF the US imposes a quota of 15 bottles of wine what will happen to
consumer surplus?
a.
decreases by $210
b.
decreases by $245
c.
stays the same
d.
increases by $70
71. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the
US demands at $8 per bottle. If the US imposes a quota of 15 bottles of wine , how much revenue
will the US government collect?
a.
0
b.
$35
c.
$70
d.
$105
TRUE/FALSE
1. In the post-World War II era, Nontariff trade barriers have decreased in importance relative to tariff
barriers.
2. An import quota is a physical restriction on the quantity of goods that may be imported during a
specified time period.
3. Today most industrial countries protect their industries via global import quotas rather than selective
import quotas.
4. A global import quota permits a specified number of goods to be imported each year, but does not
specify where the product is shipped from and who is permitted to import.
5. Import tariffs and import quotas yield identical protection effects, consumption effects, redistribution
effects, and revenue effects.
6. Import quotas can yield revenue for the domestic government if it auctions import licenses to the
highest bidder in a competitive market.
7. To the extent that domestic importing companies organize as a monopoly buyer, and foreign exporting
companies behave as competitive sellers, the importing companies capture the revenue effect of a
quota.
8. An import quota tends to reduce the overall welfare of the importing nation by an amount equal to the
protective effect, consumption effect, and the portion of the revenue effect that is captured by the
domestic government.
9. The sugar import quotas of the U.S. government have tended to increase the market price of sugar,
thus reducing the costs to the government of maintaining sugar price supports for domestic growers.
10. During periods of growing demand, a tariff more effectively restricts the volume of imports than an
equivalent import quota.
11. With a quota placed on imported sugar, increased domestic demand leads to increased sugar imports
but not to higher sugar prices.
12. With a tariff on auto imports, increased domestic demand leads to a fall in the number of autos
imported and a rise in the number of autos produced domestically.
13. An orderly marketing agreement is a market-sharing pact negotiated by trading nations, and its effect
is to moderate the intensity of international competition.
14. An elimination of nontariff barriers on apples tends to increase apple imports, reduce profits of
import-competing apple producers, and generate job losses for domestic apple workers.
15. The distribution of an import quota’s revenue effect depends on the relative concentration of
bargaining power between foreign exporters and domestic importers.
16. Voluntary export restraint agreements typically apply to all of the world’s exporting nations rather than
only the most important exporting nations.
17. For an export quota applied to manufactured goods, foreign exporters tend to capture only a negligible
share of the quota’s revenue effect.
18. When increases in nonrestraint supply offset part of the cutback in shipments that occur under an
export quota, the overall inefficiency loss for the importing country is less than that which would have
occurred in the absence of nonrestrained exports.
19. Export quotas, placed on Japanese auto shipments to the United States in the 1980s, led to rising prices
of both Japanese autos and U.S.-produced autos purchased by the U.S. consumer.
20. During the 1980s, U.S. steel-using companies (Caterpillar) actively supported the U.S. government’s
negotiation of voluntary export agreements with foreign steel-exporting countries.
21. By limiting the amount of foreign sourcing, local content laws are viewed as a means of jobs
preservation for domestic workers.
22. Local content laws stipulate the maximum percentage of a product’s total value that must be produced
domestically for that product to be sold domestically.
23. Local content laws are consistent with the principle of import substitution, in which domestic
production replaces the importation of goods from abroad.
24. To the extent that a local content requirement forces firms to locate production in a high-cost nation,
product price rises and consumer surplus falls.
25. A subsidy granted to import-competing producers results in a welfare loss to the economy by an
amount equal to the protective effect plus the consumption effect.
26. A subsidy granted to import-competing producers is intended to lead to increased domestic production
and decreased imports for the home country.
27. A subsidy granted to an import-competing producer shifts its supply schedule outward to the right.
28. A subsidy granted to an import-competing producer imposes a deadweight loss on the domestic
economy equal to the redistribution effect plus consumption effect.
29. A subsidy granted to import-competing producers reduces overall domestic welfare by the same
amount as would a tariff or quota that restricts imports by the same amount.
30. To the extent that subsidies granted to exporting firms reduce the foreign price of their goods, the
subsidizing country’s terms of trade worsen.
31. If the U.S. demand for Korean steel is price elastic, an export subsidy granted to Korean steel firms
will increase Korea’s export revenue.
32. International dumping occurs when foreign buyers are charged higher prices than domestic buyers for
an identical product, after allowing for transportation costs and tariff duties.
33. Sporadic (distress) dumping would occur if domestic orange producers dispose of an excess quantity
of oranges, resulting from an abnormally large harvest, by selling them at lower prices abroad than at
home.
34. Predatory dumping would occur if Toyota Inc. of Japan sells autos to U.S. consumers at lower prices
than to Japanese consumers in order to put Chrysler Inc. out of business.
35. A firm would increase profits from dumping if it charges a lower price at home, where demand is
inelastic, and a higher price abroad where demand is elastic.
36. The purpose of international dumping is to decrease a firm’s costs and increase its profits, compared to
what would be realized in the absence of dumping.
37. A firm granting lifetime employment to its workers has the incentive to engage in international
dumping during periods of business recession and excess production capacity.
38. A firm suffering idle plant capacity would minimize losses by selling its product abroad at a lower
price than at home, provided that the foreign price more than covers average variable cost.
39. Under U.S. antidumping law, an antidumping duty can be levied when the U.S. Commerce
Department determines that a foreign product is being sold in the United States at less than fair value
and the U.S. International Trade Commission determines that the dumped product is causing economic
harm to domestic producers.
40. The margin of dumping equals the amount by which the foreign price is greater than the domestic
price, or the amount by which the foreign price exceeds the cost of production.
41. For most nations, the ratio of imports to total purchases in the public sector is much higher than in the
private sector.
42. According to the U.S. Buy American Act, federal government agencies cannot purchase materials and
products from U.S. suppliers if their prices are higher than those of foreign competitors.
43. For the United States, the Buy American Act has tended to increase consumer surplus for U.S. buyers
of protected merchandise.
44. An effective Buy American law would tend to increase U.S. producer surplus at the expense of U.S.
consumer surplus.
45. An effective Buy American law results in deadweight welfare losses for the United States in the form
of the protective effect and consumption effect.
46. Although the Tokyo Round of international trade negotiations reduced the Buy-American restrictions
of the U.S. government, many state governments have maintained restrictive Buy-American policies.
47. According to the cost-based definition of dumping, dumping begins to occur when a firm sells a
product at a price that is less than average variable cost.
48. If the Japanese demand for computers is elastic and the Canadian demand for computers is inelastic, a
profit-maximizing firm would charge a higher price to Canadian buyers than to Japanese buyers.
49. If the Australian government imposes a domestic content requirement of 75 percent on autos, at least
25 percent of an auto’s value must be produced in a foreign country if that auto is to be sold in
Australia.
50. During the 1980s, the U.S. government imposed sugar import quotas in an attempt to reduce its costs
of maintaining price supports for U.S. sugar growers.
Figure 5.5 illustrates the television market for Mexico, assumed to be a small country that is unable to
affect the world price. SMexico is the domestic supply schedule and DMexico is the domestic demand
schedule. Suppose that Japan can supply televisions to Mexico at a price of $100 per set.
Figure 5.5. Mexico’s Television Market
51. Consider Figure 5.5. With free trade, Mexicans produce 4 TVs, consume 24 TVs, and import 20 TVs.
52. Consider Figure 5.5. With free trade, Mexican producer surplus equals $2450 and Mexican consumer
surplus equals $200.
53. Consider Figure 5.5. Suppose that the governments of Mexico and Japan negotiate a voluntary export
agreement in which Japanese TV exports to Mexico are limited to 8 units. Under the quota, the price
of TVs in Mexico equals $250 while Mexicans produce 10 TVs and purchase 18 TVs.
54. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in
Mexican consumer surplus of $3150.
55. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in
Mexican producer surplus of $1050.
56. Consider Figure 5.5. The deadweight welfare loss to Mexico, as a result of the Japanese export quota,
totals $1200.
57. Consider Figure 5.5. The Japanese export quota’s revenue effect totals $1200.
58. Consider Figure 5.5. The government of Mexico collects 50 percent of the export quota’s revenue
effect, or $600, in the form of tax revenue.
59. Consider Figure 5.5. Assuming that the revenue effect of the export quota accrues to Japanese firms,
the overall welfare loss to Mexico equals $2100 as a result of the quota.
SHORT ANSWER
1. Is a tariff-rate quota a two-tier tariff? Why?
2. What is an OMA?
ESSAY
1. Describe some of the differences between tariffs and quotas?
2. What are the intent and impact of domestic content requirements?