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Indicate whether the statement is true or false.
1. Consider Figure 5.5. Assuming that the revenue effect of the export quota accrues to Japanese firms, the overall welfare
loss to Mexico equals $2,100 as a result of the quota.
a. True
b. False
2. During periods of growing demand, a tariff more effectively restricts the volume of imports than an equivalent import
quota.
a. True
b. False
3. In 1933 the U.S. government enacted the Buy American Act, which requires federal agencies to purchase materials and
products from American suppliers if their prices are NOT unreasonably higher than those of foreign competitors.
a. True
b. False
4. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in Mexican consumer
surplus of $3,150.
a. True
b. False
5. For an export quota applied to manufactured goods, foreign exporters tend to capture only a negligible share of the
quota’s revenue effect.
a. True
b. False
6. 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.
a. True
b. False
7. 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.
a. True
b. False
8. With a quota placed on imported sugar, increased domestic demand leads to increased sugar imports but NOT to higher
sugar prices.
a. True
b. False
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9. Consider Figure 5.5. With free trade, Mexican producer surplus equals $2,450 and Mexican consumer surplus equals
$200.
a. True
b. False
10. A subsidy granted to import-competing producers is often preferred to an import tariff on the grounds that it results in
a smaller deadweight welfare loss and allows consumption to remain unchanged.
a. True
b. False
11. 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.
a. True
b. False
12. Today most industrial countries protect their industries via global import quotas rather than selective import quotas.
a. True
b. False
13. 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.
a. True
b. False
14. A subsidy granted to import-competing producers is intended to lead to increased domestic production and decreased
imports for the home country.
a. True
b. False
15. 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.
a. True
b. False
16. 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.
a. True
b. False
17. 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.
a. True
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b. False
18. Antidumping duties result in an increase in consumer surplus.
a. True
b. False
19. For most nations, the ratio of imports to total purchases in the public sector is much higher than in the private sector.
a. True
b. False
20. A subsidy granted to an import-competing producer shifts its supply schedule outward to the right.
a. True
b. False
21. Consider Figure 5.5. The deadweight welfare loss to Mexico, as a result of the Japanese export quota, totals $1,200.
a. True
b. False
22. 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.
a. True
b. False
23. The distribution of an import quota’s revenue effect depends on the relative concentration of bargaining power
between foreign exporters and domestic importers.
a. True
b. False
24. 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.
a. True
b. False
25. An effective Buy American law results in deadweight welfare losses for the United States in the form of the protective
effect and consumption effect.
a. True
b. False
26. A subsidy granted to an import-competing producer tends to be absorbed by producer surplus and higher-costs of
production.
a. True
b. False
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27. 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.
a. True
b. False
28. By limiting the amount of foreign sourcing, local content laws are viewed as a means of jobs preservation for
domestic workers.
a. True
b. False
29. 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.
a. True
b. False
30. For the United States, the Buy American Act has tended to increase consumer surplus for U.S. buyers of protected
merchandise.
a. True
b. False
31. 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.
a. True
b. False
32. Excessive sea transport and freight regulations are examples of nontariff trade barriers.
a. True
b. False
33. An import quota is a physical restriction on the quantity of goods that may be imported during a specified time period.
a. True
b. False
34. 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.
a. True
b. False
35. The result of antidumping duties is to impose a floor on foreign prices.
a. True
b. False
36. For a tariff-rate quota, the within-quota tariff rate is more than the over-quota tariff rate.
a. True
b. False
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37. In the post-World War II era, nontariff trade barriers have decreased in importance relative to tariff barriers.
a. True
b. False
38. Consider Figure 5.5. The Japanese export quota’s revenue effect totals $1,200.
a. True
b. False
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
39. Consider Figure 5.5. With free trade, Mexicans produce 4 TVs, consume 24 TVs, and import 20 TVs.
a. True
b. False
40. 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.
a. True
b. False
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41. An orderly marketing agreement is a market-sharing pact negotiated by trading nations, and its effect is to moderate
the intensity of international competition.
a. True
b. False
42. Local content laws are consistent with the principle of import substitution, in which domestic production replaces the
importation of goods from abroad.
a. True
b. False
43. The most likely/common reason for international dumping is that firms are international price discriminators,
responding to different demand conditions in different markets.
a. True
b. False
44. 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.
a. True
b. False
45. A subsidy granted to an import-competing producer imposes a deadweight loss on the domestic economy equal to the
redistribution effect plus consumption effect.
a. True
b. False
46. 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.
a. True
b. False
47. In 2011 Whirlpool Inc. won an antidumping/subsidy case against clothes-washer imports from Samsung and LG. This
resulted in antidumping/subsidy duties being imposed on imports of clothes washers from these foreign producers.
a. True
b. False
48. Voluntary export restraint agreements typically apply to all of the world’s exporting nations rather than only the most
important exporting nations.
a. True
b. False
49. 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.
a. True
b. False
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50. According to U.S. trade law, dumping is defined as selling a product at a price that is greater than fair value.
a. True
b. False
51. An effective Buy American law would tend to increase U.S. producer surplus at the expense of U.S. consumer surplus.
a. True
b. False
52. Import quotas can yield revenue for the domestic government if it auctions import licenses to the highest bidder in a
competitive market.
a. True
b. False
53. To the extent that subsidies granted to exporting firms reduce the foreign price of their goods, the subsidizing
country’s terms of trade worsen.
a. True
b. False
54. 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.
a. True
b. False
55. A subsidy granted to import-competing producer reduces overall domestic welfare by the same amount as would a
tariff or quota that restricts imports by the same amount.
a. True
b. False
56. 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.
a. True
b. False
57. 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.
a. True
b. False
58. 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.
a. True
b. False
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59. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in Mexican producer
surplus of $1,050.
a. True
b. False
60. 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.
a. True
b. False
61. 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.
a. True
b. False
62. A firm would increase profits from dumping if it charged a lower price at home, where demand is inelastic, and a
higher price abroad, where demand is elastic.
a. True
b. False
63. 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.
a. True
b. False
64. 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.
a. True
b. False
65. 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.
a. True
b. False
66. Import tariffs and import quotas yield identical protection effects, consumption effects, redistribution effects, and
revenue effects.
a. True
b. False
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67. 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.
a. True
b. False
68. For the United States, corporate average fuel economy standards (CAFÉ) provide a minimum limit on the number of
gallons of gas that an automobile can consume per mile driven.
a. True
b. False
69. 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.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
70. In the early 1980s, the Japanese government limited shipments of Japanese automobiles to the United States. This
limitation was known as
a. an export tariff.
b. an export quota.
c. a domestic content requirement.
d. a foreign content requirement.
71. According to U.S. trade law, which of the following is/are illegal in American markets?
a. dumping only
b. export subsidies only
c. dumping and export subsidies
d. neither dumping nor export subsidies
72. Consider Figure 5.3. The quota’s revenue effect equals
a. $1.60.
b. $2.40.
c. $3.20.
d. $4.00.
73. 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.
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74. 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.
75. 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.
76. Import quotas will increase the price consumers pay for imported goods and
a. increase the volume of imports.
b. increase the volume of exports.
c. decrease the volume of imports.
d. decrease the volume of exports.
77. 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. allows producers with superior products to participate in market.
78. The following are quotes received by U.S. government for a particular work. Which is the most likely quote to get
selected based on the government procurement policies?
a. domestic supplier 1 – $112 per unit
b. Chinese supplier – $106 per unit
c. domestic supplier 2 – $115
d. French supplier – $110
79. 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.
80. Suppose that Airbus sells jetliners in the United States at prices below fair value, to drive Boeing out of business and
then become a monopoly. This conduct is known as
a. persistent dumping.
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b. predatory dumping.
c. sporadic dumping.
d. subsidization dumping.
81. Under U.S. law, a(n) ___________duty is levied when the U.S. Department of Commerce determines a class or kind
of foreign merchandise is being sold at less than fair value (LTFV).
a. dumping
b. antidumping
c. margin of dumping
d. below-cost sales
82. 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.
83. If Canada was to levy a quota on chocolate imported from Denmark
a. Canada would decrease its exports of chocolate.
b. the price of chocolate in Denmark would increase.
c. employment of workers in Denmark’s chocolate industry would increase.
d. consumer surplus would decline in Canada.
84. Assume that a truck manufacturer has light trucks with the following fuel economy. Which would NOT meet the
CAFÉ standard?
a. 28.8 miles per gallon
b. 32.3 miles per gallon
c. 30.6 miles per gallon
d. 27.2 miles per gallon
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
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85. 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.
86. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the U.S. demands at
$8 per bottle. If the U.S. imposes a quota of 15 bottles of wine, how much revenue will the U.S. government collect?
a. 0
b. $35
c. $70
d. $105
87. 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.
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88. A licensing requirement, or an unreasonable standard regulating the safety or quality of a product that is imported into
a country, is called a
a. nontariff barrier to trade.
b. voluntary export restriction.
c. protective tariff.
d. customs duty.
89. Assume that a U.S. importer imports furniture from China. If the Commerce Department makes a preliminary
investigation and finds evidence of dumping, the U.S. importer must pay a special tariff equal to the
a. estimated dumping margin on all imports of that product.
b. estimated dumping margin on all sales of that product.
c. estimated manufacturing cost on all imports of that product.
d. estimated dumping margin on all exports of that product.
90. 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.
91. 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.
92. A removal of an import quota tends to result in
a. lower import prices for domestic consumers.
b. higher profits for domestic producers.
c. a reduced quantity of the imported good.
d. lower levels of consumer surplus.
93. The U.S. government, through explicit laws, openly discriminates against __________ in its purchasing decisions.
a. government agencies
b. domestic suppliers
c. foreign suppliers
d. private agencies
94. 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.
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95. 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.
96. 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.
97. In the long run, increased import quotas by Mexico’s government would tend to
a. increase Mexico’s imports and exports.
b. decrease Mexico’s imports and exports.
c. increase Mexico’s imports and decrease its exports.
d. decrease Mexico’s imports and increase its exports.
98. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the U.S. demands at
$8 per bottle. If the U.S. 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
99. For a tariff-rate quota there is a limitation on
a. the within-quota tariff rate exceeds the over-quota tariff rate.
b. the within-quota tariff rate equals the over-quota tariff rate.
c. the within-quota tariff rate is less than the over-quota tariff rate.
d. the amount of the product that may be imported during the quota period.
100. 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.
101. 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.
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c. raise their export prices, thus selling more goods overseas.
d. lower their export prices, thus selling fewer goods overseas.
102. 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.
103. 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.
104. 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. weak.
105. 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.
106. 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.
107. 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
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108. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the U.S. demands at
$8 per bottle. If the U.S. imposes a quota of 15 bottles of wine, how much wine will U.S. consumers demand, how much
wine will U.S. 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
109. 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.
110. A home appliance manufacturer observes the following and determines that his competitors are pricing their
imported goods below-cost sale. Which point would have helped him come to this conclusion?
a. The amount of general expenses was 12 percent of the cost of manufacturing.
b. The cost of packaging the merchandise for shipment was included.
c. The cost of product in the U.S. is below that in the home market.
d. The amount of profit was equal to 9 percent of the manufacturing cost plus general expenses.
111. 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
112. 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
113. 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.
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d. $1.80 per pound.
114. 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.
115. Consider Figure 5.4. The cost of the production subsidy to the Venezuelan government totals
a. $32.
b. $40.
c. $48.
d. $54.
116. 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.
117. Nontariff trade barriers include all of the following EXCEPT
a. export subsidies.
b. import subsidies.
c. customs duties.
d. domestic content regulations.
118. Throughout the world, governments auction quota licenses
a. never.
b. always.
c. often.
d. seldom.
119. Similar to import tariffs, quotas on imports result in
a. higher levels of consumer surplus.
b. lower levels of producer surplus.
c. higher prices for domestic consumers.
d. higher prices for foreign consumers.
120. 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.
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c. the same price in all markets, regardless of their elasticities.
d. different prices in all markets, regardless of their elasticities.
121. Why do you think Whirlpool had to file multiple lawsuits before it won import protection?
a. due to the tough import competition it faced from Samsung and LG.
b. due to the country-hopping technique that Samsung and LG indulged in
c. due to president Donald Trump’s “America First” slogan
d. because Samsung and LG practiced unlawful pricing of washing machines imported from South Korea and
Mexico
122. Which is true about an elimination of nontariff barriers on import of furniture?
a. decreases furniture imports
b. decreases profits of import-competing furniture producers
c. generates jobs for domestic furniture workers
d. increases furniture costs
123. 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.
124. In recent years, the average antidumping duty imposed by the United States has been about
a. 70 percent.
b. 50 percent.
c. 45 percent.
d. >100 percent.
125. 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.
126. Which is NOT a material injury caused by LTFV?
a. unemployment
b. lost sales
c. lost profit
d. general expenses
127. An example of a nontariff trade barrier would be
a. a tax on an imported product.
b. a tax on an exported product.
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c. a minimum restriction on the quantity of imports.
d. a subsidy granted to import-competing producers.
128. For the United States, antidumping laws tend to result in
a. a decrease in consumer surplus.
b. a decrease in producer surplus.
c. a ceiling imposed on foreign prices.
d. lower tax revenue for the U.S. government.
129. The California Transit Authority implemented the Buy American policy when rebuilding portions of the earthquake-
damaged San Francisco–Oakland Bay Bridge. The learning from the project was that the policy
a. promotes free trade.
b. ensures welfare gains for the nation.
c. encourages other nations to follow the Buy American policy.
d. yields higher cost for government projects.
130. Which is NOT true about the practices in Japanese ports?
a. Port services were controlled by stevedore company association.
b. Foreign carriers had to negotiate with stevedore company association.
c. Japanese government disapproved restrictive practices.
d. Japanese government denied license to new entrants in port services.
131. 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.
132. Import quotas
a. increase the price to the domestic consumer.
b. have a protective effect but not a consumption effect.
c. have a consumption effect but not a protective effect.
d. generate no deadweight welfare losses for the home country.
133. 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.
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Figure 5.6 Domestice Supply and demand for Wine – U.S.
134. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the U.S. demands at
$8 per bottle. How much will the U.S. 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
135. 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
136. 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.
137. 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.
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138. __________________ are large buyers of goods and services.
a. Government agencies
b. Multinational companies
c. Exporters
d. Importers
139. Assume that the U.S. government is working on a large-sized infrastructure project and approaches China, Canada,
and France for various products it needs. Then, it would have to take an exception from adhering to the ________ policy.
a. Buy Canada
b. Buy France
c. Buy American
d. Buy China
140. Assume that the manufacturing cost of a company is $50,0000 and the general expenses is $50,000. Then, the
amount of profit must be equal to at least _____ for the cost-based definition criterion of foreign market value to be met.
a. $44,000
b. $6,500
c. $56,000
d. $49,000
Figure 5.2 illustrates the revenue and cost conditions of ABC Inc. which sells calculators in Canada and France.
Figure 5.2. International Dumping
141. 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
142. 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.
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143. Government imposed limits on the quantities of goods traded between nations are called
a. quotas.
b. domestic content requirements.
c. customs duties.
d. tariffs.
144. 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.
145. 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.
146. 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.
147. 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.
148. The margin of dumping is calculated as
a. difference between the local market value and the U.S. price.
b. difference between the foreign market value and the U.S. price.
c. difference between the U.S. market value and the foreign price.
d. difference between the foreign market value and the foreign price.
149. Consider Figure 5.2. 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
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b. 15, 45, 9, 35
c. 21, 105, 6, 30
d. 21, 30, 6, 105
150. Consider Figure 5.3. Assume that Swedish import companies behave as monopoly buyers 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.
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
151. 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.
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152. When voluntary export limits are imposed on the world’s chief exporter
a. the exports of the nonrestrained suppliers may be deterred.
b. a trade diversion effect may occur.
c. the exports of the non-restrained suppliers may not be deterred.
d. a trade diversion effect will not occur.
153. 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
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
154. 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.
155. Which government agency/agencies make investigations in order to resolve dumping cases?
a. Antitrust Division of the Justice Department
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b. Federal Trade Commission
c. the International Trade Commission and the Commerce Department
d. Federal Trade Commission and Consumer Product Safety Commission
156. 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.
157. Assume that the Commerce Department makes a preliminary investigation on imports of furniture by a company and
finds evidence of dumping and collects an estimated dumping margin on all imports of that product. On further
investigation it is determined that dumping has NOT happened. Then, the special tariff collected is
a. replaced with a permanent tariff, collected from the importer.
b. returned partially to the importer.
c. retained fully by the Commerce Department.
d. rebated to the importer.
158. Consider Figure 5.4. The increase in Venezuelan producer surplus under the production subsidy totals
a. $16.
b. $20.
c. $24.
d. $32.
159. A tariff-rate quota
a. tends to result in a revenue effect.
b. displays either tariff-like or quota-like characteristics
c. is a single-tier tariff.
d. is applied for many years continuously.
160. Consider Figure 5.4. The production subsidy results in an overall welfare loss for Venezuela totaling
a. $8.
b. $12.
c. $16.
d. $20.
161. Nontariff barriers on import of automobiles tend to
a. increase cost of imported automobiles.
b. decrease the jobs for domestic automobile workers.
c. decrease profits of import-competing automobile producers.
d. increase cost of automobiles at home market.
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162. The U.S.-Japanese agreement in 1981 to limit imports of small Japanese cars to the U.S.
a. affected Japanese automakers uniformly.
b. resulted in losses to the Japanese auto industry.
c. cost the U.S. consumer an extra $660 or so per Japanese import purchased.
d. did not save any U.S. jobs.
163. Consider Figure 5.3. Assume that Swedish import companies behave as competitive buyers while foreign export
companies behave as monopoly sellers. 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.
164. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the U.S. demands at
$8 per bottle. What will happen to the price of a bottle of wine in the U.S. 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
165. 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.
166. 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
167. 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.
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168. 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. impose downward pressure on wages of workers.
169. Antidumping law has been called unfair for all of the following reasons EXCEPT
a. they do not reflect currency fluctuations.
b. they are based on average variable cost.
c. they are based on average total cost.
d. U.S. firms selling at home are not subject to the same rules.
170. 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.
171. 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.
172. 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.
173. 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.
174. Government subsidies may take the form of all of these EXCEPT
a. cash disbursements.
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b. tax breaks.
c. bank credits.
d. insurance arrangements.
175. 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
176. A domestic content requirement placed on automobiles would tend to result in
a. rising production costs of autos.
b. decreasing prices of autos.
c. higher levels of consumer surplus.
d. higher levels of auto imports.
177. 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.
178. Is a tariff-rate quota a two-tier tariff? Why?
179. What is the price-based definition of dumping?
180. What are the intent and impact of domestic content requirements?
181. Describe some of the differences between tariffs and quotas?
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Answer Key
1. True
2. False
3. True
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