Econ 302 Exam 2
Under free trade: Domestic price=$8 per ton Under free trade: World price=$8 per ton Under free trade: QSd=6 tons Under free trade: QDd=24 tons With tariff: Domestic price=$10 per ton With tariff: World price=$8 per ton With tariff: QSd=12 tons With tariff: QDd=20 tons 2. What is the impact of the $2 tariff on producers' surplus?
+18
Under free trade: Domestic price=$8 per ton Under free trade: World price=$8 per ton Under free trade: QSd=6 tons Under free trade: QDd=24 tons With tariff: Domestic price=$10 per ton With tariff: World price=$8 per ton With tariff: QSd=12 tons With tariff: QDd=20 tons 4. What is the effect of applying the $2 tariff on national economic well being?
-10
Under free trade: Domestic price=$8 per ton Under free trade: World price=$8 per ton Under free trade: QSd=6 tons Under free trade: QDd=24 tons With tariff: Domestic price=$10 per ton With tariff: World price=$8 per ton With tariff: QSd=12 tons With tariff: QDd=20 tons 1. What is the impact on domestic consumers of setting a $2 per ton tariff?
-44
10. In an attempt to restrict imports in a country, imposition of a tariff is likely to be more efficient than using voluntary export restraints.
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11. Government procurement practices can restrict imports if the purchasing processes are heavily biased toward domestic goods.
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12. Imposition of trade barriers by one country can cause other countries to retaliate, and may lead to a trade war in which all countries raise high import barriers.
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13. The use of quotas and tariffs to restrict imports can inhibit the incentive of domestic producers to innovate and may reduce the variety of products available in the domestic 1
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14. If the government of a member country believes that another member country government is violating a commitment or a WTO rule, it can file a complaint.
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15. In a first-best world, for any commodity, the price of the commodity, the private marginal benefit, the marginal cost of producing it, the marginal social benefit, and the marginal social cost are all equal at the margin.
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16. External effects arise from a transaction because there is a misalignment between private and social benefits or costs.
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17. Monopoly power can create distortions because a powerful seller can raise price and profits by restricting output
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18. Government loans are more efficient than production subsidies if a young industry faces financial markets that are unwilling to provide funding to the industry due to the high risk.
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19. Import tariffs are efficient second-best policy solutions for many developing countries where government revenue is difficult to obtain by other means such as an income or sales tax.
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20. The national defense argument justifies the use of import barriers on goods that would be important in the case of a military emergency.
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21. Firms that are participating in persistent dumping need to be able to prevent resale between the foreign and domestic markets.
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22. In the United States, the tests used to evaluate injury from dumping not only consider the loss of welfare of the import-competing producers from dumping but also emphasize on the benefits to consumers of the low-priced imports.
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23. Proposals for reform of antidumping policy include restricting its use to cases where predatory dumping is plausible, accounting for consumer interests in the analysis of injury from dumping, and replacing antidumping policy with safeguard policy.
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24. More price supports and subsidies are provided to agriculture worldwide than any other sector of the economy.
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25. A large enough production-subsidy can turn an imported-product into an exportable product.
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26. A major reason why agricultural products are heavily subsidized in the European Union is because farmers have strong political lobbies.
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27. It is generally the case that imposing a countervailing duty in response to a foreign export subsidy provides less welfare gain for a country than had it not imposed the countervailing duty.
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28. If export competition takes the form of an oligopoly game between two giant producers, each of which could dominate the market alone, then a government can offer a subsidy to its exporter as a strategic trade policy.
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29. A trade bloc allows member countries to import from other member countries freely, but imposes trade barriers against imports from countries outside the bloc.
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30. In a customs union, members remove all trade barriers among themselves and adopt a common set of external barriers.
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31. Gains from joining a trade bloc will be higher if the import demands of the member countries are relatively elastic.
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32. After the formation of the NAFTA, Mexico became a more attractive country for business investments of foreign firms.
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33. NAFTA has not only eliminated all tariffs and nontariff barriers to trade within the member countries but has also made provision for free human migration across the countries.
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34. If the target country of an embargo has a very inelastic demand for imports, the embargo is more likely to be successful in an economic sense.
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35. An embargo can fail politically while at the same time succeed economically.
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36. Political risk is the possibility that the government of the host country will alter its policies in ways that harm the multinational enterprise.
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37. Trade among parent and affiliates engaged in different stages of production shows that foreign direct investment and trade can sometimes be complements.
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38. The changes in China's FDI policy since 2006 are likely to shift manufacturing FDI away from unskilled-labor-intensive production like toys.
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39. The existence of migration costs implies that factor-price-equalization in the labor market is unlikely.
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40. In the past three decades many developing countries have shifted away from restricting FDI inflows to encouraging them.
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8. Compared to a tariff, a quota gives the government a better control over the quantity of imports.
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9. The mark-up revenue from a quota will be captured by the government if the government auctions off import licenses
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A nationally optimal tariff for a large country is a tariff that generates the largest net gain for the country imposing it.
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A small country always stands to lose by imposing a tariff because the tariff does not have any impact on its terms of trade.
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A tax imposed on the exports of a small country usually drives down the domestic prices of the exportable goods.
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Firms in a given industry are affected by the tariff imposed on the product they sell, but not by the tariffs imposed on their purchased inputs.
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For a small country, the sum of the production and the consumption effects indicate the net loss in economic welfare due to the imposition of a tariff.
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The one-dollar, one-vote metric implies that every dollar of gain or loss is just as important as every other dollar of gain or loss, regardless of who the gainers or losers are.
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When a tariff is imposed on an imported good, the prices of the similar products produced within the country also increases.
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A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles 7. 2. Refer to Scenario 1. The imposition of the tariff on wine will cause the surplus of the domestic producers to _____ by ____.
Rises, 2.75 million
18. What implications does the Specificity Rule have for public policy?
c. It asks that a domestic subsidy be used to support domestic production rather than a tariff since there is no consumption inefficiency loss with the subsidy.
15. Which below is the modern version of the mercantilism argument for protection?
c. The Preserves Domestic Employment Motive.
20. Which of the following arguments for protection states that import-competing firms that are struggling to stay in business should be provided protection in order to maintain jobs and continue domestic production?
c. The dying industry argument.
21. Under what circumstances does the WTO/GATT (begrudgingly, of course) permit trade discrimination?
c. When a nation joins or forms a trading bloc.
13. The U.S. is considering implementing a quota. Which of the procedures listed below for granting import licenses would you recommend so that the U.S. suffers the smallest economic loss from the quota.
d. Announce that an auction will be held and foreign suppliers will be required to bid competitively for the licenses.
A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles 4. Refer to Scenario 1. Calculate the government revenue from the tariff.
250,000
A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles 5. Refer to Scenario 1. The production effect of the tariff on wine is worth
250000
A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles 6. Refer to Scenario 1. The consumption effect of the tariff on wine is worth
250000
A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles 6. 1. Refer to Scenario 1. Before the tariff is imposed, the country imports _____ bottles of wine, but following the imposition of the tariff, the country will import _____ bottles of wine.
250000, 50000
A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: World price of wine (free trade): $20 per bottle Domestic production (free trade): 500,000 bottles Domestic production (after tariff): 600,000 bottles Domestic consumption (free trade): 750,000 bottles Domestic consumption (after tariff): 650,000 bottles Refer to Scenario 1. The imposition of the tariff on wine will cause the surplus of the domestic consumers to _____ by ____.
Falls, 3.5 million
Under free trade: Domestic price=$8 per ton Under free trade: World price=$8 per ton Under free trade: QSd=6 tons Under free trade: QDd=24 tons With tariff: Domestic price=$10 per ton With tariff: World price=$8 per ton With tariff: QSd=12 tons With tariff: QDd=20 tons 3. What is the effect of the $2 tariff on government revenue?
It rises by 16
5. In what ways are the effects of immigration similar to those of international trade?
a. All academic studies show immigration raises aggregate GDP or the economic pie. c. There are sharp income distribution effects, typically low skill workers suffer wage reductions even especially in the short run.
16. According to the Special Interest Model, politicians supply protection
a. Because they are concerned with getting re-elected. Thus, they grant protection in exchange for campaign contributions from the protected industry. b. Whenever the benefits of protection are concentrated among a few (who will be cognizant of the favor), while the costs are disbursed among the many.
19. Which argument for trade protection listed below is possibly valid for developing countries?
a. The Revenue Motive argument.
12. Generally, non tariff barriers have which of the following effects?
a. They limit the quantity of the imported good. b. They increase the cost of accessing the home market. c. They create uncertainty regarding access to the home market.
17. According to the text, tariff protection may be justified for start-ups or infant industries under which situations?
a. Whenever start-ups in poor nations lack access to well-developed capital markets.
14. Careful studies by economists indicate that trade restrictions
a. are an expensive way to try to save jobs. b. cost consumers approximately $169,000 per job saved. c. largely alter the mix of jobs in an economy.
22. Why does trade deflection occur after forming a FTA?
b. The reduction in tariffs within the FTA encourages suppliers outside the area to ship their products in a way that avoids paying import duties.
