Chapter 9 Microeconomics

Which of the following statements about a tariff is true?

A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus.

T or F: If free trade is allowed and a country exports a good, domestic producers of the good are worse off and domestic consumers of the good are better off when compared to the before-trade domestic equilibrium.

False

T or F: A tariff raises the price of a good, reduces the domestic quantity demanded, increases the domestic quantity supplied, and increases the quantity imported.

False

T or F: An import quota that restricts imports to the same degree as a tariff raises more government revenue than the equivalent tariff.

False

T or F: Countries should import products for which they have a comparative advantage in production.

False

T or F: If the world price for a good exceeds a country's before-trade domestic price for that good, the country should import that good.

False

T or F: Tariffs tend to benefit consumers.

False

T or F: Trade makes everyone better off.

False

Which of the following is not employed as an argument in support of trade restrictions?

Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.

T or F: If a foreign country subsidizes its export industries, its tax payers are paying to improve the welfare of consumers in the importing countries.

True

T or F: If a worker in Brazil can produce 6 oranges or 2 apples in an hour while a worker in Mexico can produce 2 oranges or 1 apple in an hour, then Brazil should export oranges and Mexico should export apples.

True

T or F: If free trade is allowed and a country exports a good, the gains of domestic producers exceed the losses of domestic consumers and total surplus rises.

True

T or F: If free trade is allowed and a country imports wheat, domestic buyers of bread are better off and domestic farmers are worse off when compared to the before-trade domestic equilibrium.

True

If the world price for a good exceeds the before-trade domestic price for a good, then that country must have

a comparative advantage in the production of the good.

If free trade is allowed, a country will export a good if the world price is

above the before-trade domestic price of the good.

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,

consumers will gain and producers will lose.

When a country allows trade and exports a good,

domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.

When a country allows trade and imports a good,

domestic producers are worse off, domestic consumers are better off, and the nation is better off because the gains of the winners exceed the losses of the losers.

exporting country vs importing country

exporting- price is below world price, after domestic price is raised to world price, a surplus is created, these are the exports producer surplus increases, consumer surplus decreases (consumers have to pay more, producers make more money selling them at a higher price) importing- price is above world price, after domestic price is lowered to world price, a shortage is created, these are the imports consumer surplus increases, producer surplus decreases

Because producers are better able to organize than consumers, we would expect there to be political pressure to create

import restrictions.

when an economy does not participate in international trade, the price adjusts...

...to balance domestic supply and demand

T or F: Tariffs and quotas cause deadweight losses because they raise the price of the imported good and cause over-production and under-consumption of the good in the importing country.

True

T or F: Trade can make everyone better off if the winners from trade compensate the losers from trade.

True

T or F: Trade increases the economic well-being of a nation because the gains of the winners exceed the losses of the losers.

True

effects of a tariff

-price (of imports) increases -causing a smaller quantity demanded -moves a market closer to the equilibrium that would exist without trade -creates gov. revenue

T or F: Opponents of free trade often argue that free trade destroys domestic jobs.

True

tariff

a tax on goods produced abroad and sold domestically

world price

the price of a good that prevails in the world market for that good

other benefits of international trade

1. increased variety of goods 2. lower costs through economies of scale 3. increased competition 4. enhanced flow of ideas

arguments for restricting trade

1. jobs argument 2. national-security argument 3. infant-industry argument 4. unfair-competition argument 5. protection-as-a-bargaining-chip argument