Chap 9 -

Refer to Figure 9-17. With trade and a tariff, total surplus is

$1,704.

Figure 9-5 The figure illustrates the market for tricycles in a country. Refer to Figure 9-5. Without trade, total surplus amounts to

$6,480.

Figure 9-24 The following diagram shows the domestic demand and supply in a market. Assume that the world price in this market is $20 per unit. Refer to Figure 9-24. Suppose the government imposes a tariff of $10 per unit. With trade and a tariff, consumer surplus is

$625 and producer surplus is $225.

Figure 9-22 The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. Refer to Figure 9-22. Suppose the government imposes a tariff of $20 per unit. With trade and a tariff, consumer surplus is

$75,000 and producer surplus is $27,000.

The General Agreement on Tariffs and Trade (GATT) was initiated in response to

high tariffs imposed during the Great Depression of the 1930s.

When a country allows international trade and becomes an exporter of a good,

All of the above are correct.

For Country A, the world price of soybeans exceeds the domestic equilibrium price of soybeans. As a result, international trade allows buyers of soybeans in Country A to experience greater consumer surplus than they otherwise would experience.

False

For a given country, comparing the world price of aluminum and the domestic price of aluminum before trade indicates whether that country's demand for aluminum exceeds the demand for aluminum in other countries.

False

Suppose the Ivory Coast, a small country, imports wheat at the world price of $4 per bushel. If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat, then, other things equal, the price of wheat in Ivory Coast will increase, but by less than $1.

False

When a country that imports shoes imposes a tariff on shoes, buyers of shoes in that country become worse off.

True

Which of the following arguments for trade restrictions is often advanced?

Trade restrictions are sometimes necessary for national security.

According to the principle of comparative advantage, all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

True

If a country's domestic price of a good is lower than the world price, then that country has a comparative advantage in producing that good.

True

In principle, trade can make a nation better off, because the gains to the winners exceed the losses to the losers.

True

Tariffs cause deadweight loss because they move the price of an imported product closer to the equilibrium without trade, thus reducing the gains from trade.

True

The nation of Loneland does not allow international trade. In Loneland, you can buy 1 pound of beef for 2 pounds of cheese. In neighboring countries, you can buy 2 pounds of beef for 3 pounds of cheese. If Loneland were to allow free trade, it would export cheese.

True

Turkey is an importer of wheat. The world price of a bushel of wheat is $7. Turkey imposes a $3-per-bushel tariff on wheat. Turkey is a price-taker in the wheat market. As a result of the tariff,

Turkish consumers of wheat become worse off and Turkish producers of wheat become better off.

When a country allows trade and becomes an importer of a good,

consumer surplus increases and producer surplus decreases.

Suppose the world price of a television is $300. Before Paraguay allowed trade in televisions, the price of a television there was $350. Once Paraguay began allowing trade in televisions with other countries, Paraguay began

importing televisions and the price of a television in Paraguay decreased to $300.

Opponents of free trade often want the United States to prohibit the import of goods made in overseas factories that pay wages below the U.S. minimum wage. Prohibiting such goods is likely to

increase poverty in poor countries and benefit U.S. firms which compete with these imports.

Figure 9-1 The figure illustrates the market for coffee in Guatemala. Refer to Figure 9-1. When trade in coffee is allowed, producer surplus in Guatemala

increases by the area B + D + G.

When the nation of Duxembourg allows trade and becomes an importer of software,

residents of Duxembourg who produce software become worse off; residents of Duxembourg who buy software become better off; and the economic well-being of Duxembourg rises.

Suppose Iran imposes a tariff on lumber. For the tariff to have any effect, it must be the case that

the world price without the tariff is less than the price of lumber without trade.

A common argument in favor of restricting international trade in good x is based on the premise that

trade restrictions can be useful when one country bargains with its trading partners.

Scenario 9-1 The before-trade domestic price of peaches in the United States is $40 per bushel. The world price of peaches is $52 per bushel. The U.S. is a price-taker in the market for peaches. Refer to Scenario 9-1. If trade in peaches is allowed, the United States

will become an exporter of peaches.