Instructor’s Manual
1. Nontariff trade barriers include import quotas, voluntary export agreements, subsidies, buy-national
policies, product and safety standards, and content requirements.
2. The revenue effect of a tariff is captured by the government, while a quota’s revenue tends to be
3. Subsidies include domestic subsidies and export subsidies. Methods used to subsidize producers
include tax concessions, low interest rate loans, and loan guarantees.
4. Voluntary export restraints are market-sharing agreements negotiated by producing and consuming
countries. Because voluntary export quotas are typically administered from the supply side of the
Instructor’s Manual
© 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in
5. While antidumping laws are typically defined in terms of full cost, it may be rational for a firm to sell its
6. Since import quotas directly limit the number of goods that can enter the home nation, they tend to be
more restrictive than import tariffs which may be circumvented by foreign producers absorbing the
7. Sporadic dumping—firms with temporary inventories sell their products overseas at lower prices than at
home. . Persistent dumping—in an effort to maximize profits, firms continuously sell abroad at lower
8. Domestic subsidies avoid the deadweight losses due to the consumption effect.
9. Subsidies are not free goods since they are financed by taxpayer dollars. In return for granting
subsidies, governments often pressure management and labor to adopt measures to lower costs of
10. The import quota tends to permit domestic firms and workers to enjoy higher sales, profits, and
employment levels. Consumers tend to face higher prices and expenditure levels. The economy as a
11. The sugar import quota was viewed as a method of increasing the domestic price of sugar, so as to
12. Under an import quota, the distribution of the revenue effect is indeterminate, depending on the
relative bargaining power of foreign producers and domestic buyers. Because voluntary export quotas
13. Same general answer as Question 12. The distribution of the revenue effect tends to accrue to foreign
auto-makers.
14. By contributing to a scarcity of steel in the domestic market, quotas lead to higher steel prices and
production costs for domestic steel-using firms. Such cost increases detract from their international
15. According to the priced-based definition, dumping occurs whenever a foreign firm sells a product in the
importing country’s market at a price below that for which the product is sold in the firm’s home
16. a. Qs = 100, Qd = 800, Imports = 700. Consumer surplus = $160,000, producer surplus = $2500.
b. Price rises by $100 and consumer surplus falls by $70,000. Redistribution effect = $20,000,
consumption effect = $10,000, protective effect = $10,000, revenue effect = $30,000. Overall
17. a. Ecuador imports 80 computers from Hong Kong.
b. Price rises by $400 and consumer surplus falls by $30,000. Redistribution effect = $6000,
Instructor’s Manual
© 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in
18. a. Output = 9, price = $5, profit = $18. Profits on U.K. sales = $14 while profits on Canadian sales =
$4.
b. Price = $7 and profits = $20. Price = $4 and profit = $4. With dumping, total profits rise by $6.
19. A tariff-rate quota attempts to minimize the consumer costs of protectionism by applying a modest
within-quota tariff rate; it also shields home producers from severe import competition with a stiffer