Econ 130 - Exam 2

Consumer surplus

The difference between the most that consumers would be willing to pay for a good and what they do pay. For each unit, this is the vertical distance between the demand curve and price. For all units purchased at some price, it is the area below the demand curve and above the price.

Producer surplus

The difference between the revenue of producers and production cost, measured as the area above the supply (or marginal cost) curve and below price, extending from the vertical axis out to the quantity supplied, and net of fixed cost and losses at low output. If input prices are constant, this is profit; if not, it includes gains to input suppliers, such as labor.

Quota rent

The economic rent received by the holder of the right (or license) to import under a quota. Equals the domestic price of the imported good, net of any tariff, minus the world price, times the quantity of imports.

A DECREASE in the import tariff will result in: a. An increase in imports but a decrease in domestic production b. A decrease in imports but an increase in domestic production c. An increase in price but a decrease in quantity purchased d. A decrease in price and a decrease in quantity purchased

a. An increase in imports but a decrease in domestic production

Free traders point out that: a. There is usually an efficiency gain from having tariffs b. There is usually an efficiency loss from having tariffs c. Producers lose from tariffs at the expense of consumers d. Producers lose from tariffs at the expense of the government

b. There is usually an efficiency loss from having tariffs

The WTO's Agreement on Textiles and Clothing promised a. To prevent job losses in these industries in developed countries. b. To phase out all quotas on textiles and apparel by Dec. 31, 2004. c. To eliminate tariffs on these products in the next round of trade negotiations. d. To help developing countries escape from these dead-end industries. e. To assign feasible export targets to each developing country.

b. To phase out all quotas on textiles and apparel by Dec. 31, 2004.

A beggar-thy-neighbor policy is imposition of: a. Free trade to increase domestic productivity b. Trade barriers to increase domestic demand and employment c. Import tariffs to curb domestic inflation d. Revenue tariffs to make products cheaper for domestic consumers

b. Trade barriers to increase domestic demand and employment

Specific tariff

A tariff specified as an amount of currency per unit of the good.

Compound tariff

A tariff that combines both a specific and an ad valorem component. Thus, on an import with quantity q and price p, a compound tariff collects a revenue equal to tsq + tapq, where ts is the specific tariff and ta is the ad valorem tariff.

Protectionism

Advocacy of protection. The word has a negative connotation, and few advocates of protection in particular situations will acknowledge being protectionists.

Import quota

An import quota specifies the maximum amount of an import per year, typically administered with import licenses that may be sold or directly allocated, to individuals or firms, domestic or foreign. May be global, bilateral, or by country. Holders of licenses may or may not be allowed to sell them.

Nontariff trade barrier

Any policy that interferes with exports or imports other than a simple tariff, prominently including quotas and VERs.

Ad valorem tariff

Tariff defined as a percentage of the value of an imported good.

Change in consumer surplus

The change in consumer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the demand curve between the two prices, indicating a gain if price falls and a loss if it rises.

Change in producer surplus

The change in producer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the (upward sloping part of the) supply curve between the two prices, indicating a gain if price rises and a loss if it falls.

Deadweight loss

The net loss in economic welfare that is caused by a tariff or other source of distortion, defined as the total losses to those who lose, minus the total gains to those who gain. Usually identified in a supply-and-demand diagram in terms of change in consumer and producer surplus together with government revenue. The net of these appears as one or two welfare triangles

Economic rent

The premium that the owner of a resource receives over and above its opportunity cost.

Rent seeking

The using up of real resources in an effort to secure the rights to economic rents that arise from government policies. In international economics the term usually refers to efforts to obtain quota rents.

If we consider the interest of both consumers and producers, then a policy of tariff REDUCTION in the US auto industry is: a. In the interest of the United States as a whole, but not in the interest of auto-producing states b. In the interest of the United States as a whole, and in the interest of auto-producing states c. Not in the interest of the United States as a whole, nor in the interest of auto-producing states d. Not in the interest of the United States as a whole, but is in the interest of auto-producing states

a. In the interest of the United States as a whole, but not in the interest of auto-producing states

The deadweight loss of a tariff: a. Is a social loss since it promotes inefficient production b. Is a social loss since it reduces the revenue for the government c. Is not a social loss because society as a whole doesn't pay for the loss d. Is not a social loss since only business firms suffer revenue losses

a. Is a social loss since it promotes inefficient production

The imposition of tariffs on imports results in deadweight welfare losses for the home economy. These losses consist of the: a. Protective effect plus consumption effect b. Redistribution effect plus revenue effect c. Revenue effect plus protective effect d. Consumption effect plus redistribution effect

a. Protective effect plus consumption effect

Which of the following policies permits a specified quantity of goods to be imported at one tariff rate and applies a higher tariff rate to imports above this quantity? a. Tariff quota b. Import tariff c. Specific tariff d. Ad valorem tariff

a. Tariff quota

According to the assigned article by Feenstra a. The efficiency costs of U.S. protectionism are quite small, less than one percent of U.S. GDP. b. The rents from U.S. quantitative restrictions are much smaller than the deadweight losses that they cause. c. The deadweight loss due to protection consists primarily of lost quota rents. d. The deadweight loss due to U.S. protection is large, more than 7% of U.S. GDP. e. The losses to foreigners due to U.S. protection are negligible, and can be ignored in estimating the global effects of U.S. trade policies.

a. The efficiency costs of U.S. protectionism are quite small, less than one percent of U.S. GDP.

A $100 specific tariff provides home producers MORE protection from foreign competition when: a. The home market buys cheaper products rather than expensive products b. It is applied to a commodity with many grade variations c. The home demand for a good is elastic with respect to price changes d. It is levied on manufactured goods rather than primary products

a. The home market buys cheaper products rather than expensive products

When a tariff on imported inputs exceeds that on the finished good, a. The nominal tariff rate on the finished product would tend to overstate its protective effect b. The nominal tariff rate would tend to understate it's protective effect c. It is impossible to determine the protective effect of a tariff d. Tariff escalation occurs

a. The nominal tariff rate on the finished product would tend to overstate its protective effect

Suppose the the United States ELIMINATES its tariff on steel imports, permitting foreign-produced steel to enter the US market. Steel prices to US consumers would be expected to: a. Increase, and the foreign demand for U.S. exports would increase b. Decrease, and the foreign demand for U.S. exports would increase c. Increase, and the foreign demand for U.S. exports would decrease d. Decrease, and the foreign demand for U.S. exports would decrease

b. Decrease, and the foreign demand for U.S. exports would increase

The principal benefit of tariff protection goes to: a. Domestic consumers of the good produced b. Domestic producers of the good produced c. Foreign producers of the good produced d. Foreign consumers of the good produced

b. Domestic producers of the good produced

A tariff on imports benefits domestic producers of the imported good because a. They get the tariff revenue. b. It raises the price for which they can sell their product on the domestic market. c. It prevents imports from rising above a specified quantity. d. It reduces their producer surplus, making them more efficient. e. All of the above.

b. It raises the price for which they can sell their product on the domestic market.

A problem encountered when implementing an "infant industry" tariff is that: a. Domestic consumers will purchase the foreign good regardless of the tariff b. Political pressure may prevent the tariff's removal when the industry matures c. Most industries require tariff protection when they are mature d. Labor unions will capture the protective effect in higher wages

b. Political pressure may prevent the tariff's removal when the industry matures

Suppose an importer of steel is required to pay a tariff of $20 per ton plus 5% of the value of steel. This is an example of a (an): a. Specific tariff b. Ad valorem tariff c. Compound tariff d. Tariff quota

c. Compound tariff

Starting from free trade, when a tariff is applied to imports in a small country, which of the following increase? I. Domestic output II. Domestic demand III. Domestic price IV. Tariff revenue V. Quantity of imports a. I and III only b. II, and IV only c. I, III, and IV only d. All but V e. II and V only

c. I, III, and IV only

The offshore assembly provisions in the US a. Provides favorable treatment to U.S. trading partners b. Discriminates against primary product importers c. Provides favorable treatment to products assembled abroad from U.S. manufactured components d. Hurts the U.S. consumer

c. Provides favorable treatment to products assembled abroad from U.S. manufactured components

A specific tariff is a. Any tax on a particular imported good (as opposed to one on all imports). b. An import tax that must be paid in kind (giving the government the good itself). c. A requirement to pay the government a specified fraction of the monetary value of an imported good. d. A tax on imports defined as an amount of currency per unit of the good. e. The revenue that the government earns by auctioning off import quotas.

d. A tax on imports defined as an amount of currency per unit of the good.

Which of the following refers to the fact that a large country can benefit by levying a tariff? a. The "optimal tariff" b. The "terms of trade effect of a tariff" c. The "monopoly effect of a tariff" d. All of the above e. None of the above

d. All of the above

Which of the following is true concerning a specific tariff? a. It is exclusively used by the U.S. in its tariff schedules. b. It refers to a flat percentage duty applied to a good's market value. c. It is plagued by problems associated with assessing import product values. d. It affords less protection to home producers during eras of rising prices.

d. It affords less protection to home producers during eras of rising prices.

The most vocal political pressure for tariffs is generally made by: a. Consumers lobbying for export tariffs b. Consumers lobbying for import tariffs c. Producers lobbying for export tariffs d. Producers lobbying for import tariffs

d. Producers lobbying for import tariffs

A compounded tariff is a combination of a (an): a. Tariff quota and a two-tier tariff b. Revenue tariff and a protective tariff c. Import tariff and an export tariff d. Specific tariff and an ad valorem tariff

d. Specific tariff and an ad valorem tariff

The main difference between a tariff and a quota is a. A quota reduces the quantity of imports more than a tariff. b. A tariff raises the price of imports more than a quota. c. A quota does not harm domestic consumers. d. A tariff does not harm foreign producers. e. A tariff generates government revenue, while a quota, unless it is sold, does not.

e. A tariff generates government revenue, while a quota, unless it is sold, does not.

When a large country levies a tariff on imports a. The world price falls. b. Demanders of the good on the domestic market are hurt c. Foreigners are hurt. d. The domestic price rises by less than the tariff. e. All of the above.

e. All of the above.

Import quotas are most commonly administered a. By permitting all imports until the quota is filled for the year, then none after that. b. By taxing imports. c. By auctioning import licenses to the highest bidder. d. By granting import rights to domestic firms. e. By granting import rights to foreign firms or governments.

e. By granting import rights to foreign firms or governments.