Practice Test 3

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* Mexican DVD manufacturers gain ____ because of the tariff. *a.* $75 *b.* $85 *c.* $95 *d.* $105

*a.* $75

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

To maintain that South Koreans are dumping their VCRs in the United States is to maintain that: *a.* Koreans are selling VCRs in the United States below their production cost *b.* Koreans are selling VCRs in the United States above their production cost *c.* The cost of manufacturing VCRs in Korea is lower in Korea than in the United States since wages are lower in Korea *d.* The cost of manufacturing VCRs in Korea is higher in Korea than in the United States since wages are higher in Korea

*a.* Koreans are selling VCRs in the United States below their production cost

The claim that lower environmental standards in foreign countries reduce industrial competitiveness for high standard countries is on firm theoretical ground because: *a.* higher environmental standards requirements raise the cost of production to a firm or industry abiding by the rules. *b.* there will be a race-to-the-bottom competition on environmental standards. *c.* the interests of firms that are subject to the high standards coincide with the nation's interests, one-for-one. *d.* environmental standards in most countries have gotten more lax over time.

*a.* higher environmental standards requirements raise the cost of production to a firm or industry abiding by the rules.

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* The tariff results in the Mexican government collecting: *a.* $100 *b.* $120 *c.* $140 *d.* $160

*b.* $120

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* In the absence of trade, Mexico's producer surplus and consumer surplus respectively equal: *a.* $120, $240 *b.* $180, $180 *c.* $180, $320 *d.* $240, $240

*b.* $180, $180

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* With a tariff levied on DVDs, Mexico's imports decrease to: *a.* 20 *b.* 40 *c.* 50 *d.* 70

*b.* 40

Assume that the United States imports automobiles from South Korea at a price of $20,000 per vehicle and that these vehicles are subject to an import tariff of 20 percent. Also assume that U.S. components are used in the vehicles assembled by South Korea and that these components have a value of $10,000. The effective rate of protection after the tariff has been levied is: *a.* 20% *b.* 40% *c.* 50% *d.* 100%

*b.* 40%

Countervailing duties are intended to neutralize any unfair advantage that foreign exporters might gain over domestic producers because of foreign: *a.* Tariffs *b.* Subsidies *c.* Quotas *d.* Buy-national policies

*b.* Subsidies

Which policy reflects the notion that if society enjoys gains due to increased efficiency stemming from trade liberalization, some sort of compensation should be provided to those who are temporarily hurt by import competition? *a.* Countervailing duties *b.* Trade adjustment assistance *c.* Domestic subsidies *d.* Most-favored-nation standard

*b.* Trade adjustment assistance

One claim that trade barrier proponents use to enforce environmental standards is that: *a.* environmental standards do not reduce industrial competitiveness and do not induce race-to-the-bottom, where countries are forced to rescind their standards in order to maintain employment. *b.* high standards in industrialized nations motivates some firms to "export pollution" to developing countries by relocating their dirty industries. *c.* enforcing environmental standards is essential, as there are no differences between labor standards and environmental standards. *d.* all environmental impacts are non-transboundary.

*b.* high standards in industrialized nations motivates some firms to "export pollution" to developing countries by relocating their dirty industries.

Developing countries are usually unwilling to negotiate over labor standards because *a.* the WTO always tends to rule in favor of industrialized nations. *b.* they fear that industrialized nations are trying to undermine their comparative advantage—production of agriculture and textiles/apparel—and close the markets of high-income countries in these areas. *c.* they fear that they may be unable to compete without some protection of their industries. *d.* organized labor would not allow them to negotiate with other countries.

*b.* they fear that industrialized nations are trying to undermine their comparative advantage—production of agriculture and textiles/apparel—and close the markets of high-income countries in these areas.

Assume that the United States imports automobiles from South Korea at a price of $20,000 per vehicle and that these vehicles are subject to an import tariff of 20 percent. Also assume that U.S. components are used in the vehicles assembled by South Korea and that these components have a value of $10,000. The price of an imported vehicle to the U.S. consumer after the tariff has been levied is: *a.* $22,000 *b.* $23,000 *c.* $24,000 *d.* $25,000

*c.* $24,000

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* The loss in Mexican consumer surplus due to the tariff equals: *a.* $225 *b.* $265 *c.* $285 *d.* $325

*c.* $285

Suppose that the production of $500,000 worth of steel in the United States requires $100,000 worth of iron ore. The U.S. nominal tariff rates for importing these goods are 15 percent for steel and 5 percent for iron ore. Given this information, the effective rate of protection for the U.S. steel industry is approximately: *a.* 6% *b.* 12% *c.* 18% *d.* 24%

*c.* 18%

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* In the absence of trade, Mexico produces and consumes: *a.* 10 DVDs *b.* 40 DVDs *c.* 60 DVDs *d.* 80 DVDs

*c.* 60 DVDs

A major difference between tariffs and import quotas is that: *a.* tariffs create deadweight losses, but import quotas do not. *b.* tariffs help domestic consumers, and import quotas help domestic producers. *c.* tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import. *d.* All of the above are correct.

*c.* tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import.

Several arguments for restricting trade have been advanced. Those arguments do not include: *a.* the jobs argument *b.* the protection-as-a-bargaining-chip argument. *c.* the no-deadweight-loss argument. *d.* the infant-industry argument.

*c.* the no-deadweight-loss argument.

If a country is an exporter of a good, then it must be the case that: *a.* the world price is less than its domestic price *b.* consumer surplus is higher than a no trade situation. *c.* the world price is greater than its domestic price. *d.* they used an infant-industry argument to protect its producers.

*c.* the world price is greater than its domestic price.

Using trade barriers to address labor standards does all of the following except it *a.* leads to deadweight losses *b.* redistributes incomes *c.* works more effectively for countries that are small relative to the total market. *d.* potentially makes conditions worse as production moves to the informal sector.

*c.* works more effectively for countries that are small relative to the total

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* The deadweight loss of the tariff totals: *a.* $60 *b.* $70 *c.* $80 *d.* $90

*d.* $90

Assume the figure below illustrates the demand and supply curves for DVDs in Mexico and that Mexico is a small nation that does not affect world price. *See Figure 1* With free trade, Mexico imports: *a.* 40 DVDs *b.* 60 DVDs *c.* 80 DVDs *d.* 100 DVDs

*d.* 100 DVDs

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

When a country allows trade and becomes an exporter of a good: *a.* consumer surplus and producer surplus both increase. *b.* consumer surplus and producer surplus both decrease. *c.* consumer surplus increases and producer surplus decreases. *d.* consumer surplus decreases and producer surplus increases.

*d.* consumer surplus decreases and producer surplus increases.

When a country that imports a particular good imposes an import quota on that good: *a.* consumer surplus increases and total surplus increases in the market for that good. *b.* consumer surplus increases and total surplus decreases in the market for that good. *c.* consumer surplus decreases and total surplus increases in the market for that good. *d.* consumer surplus decreases and total surplus decreases in the market for that good.

*d.* consumer surplus decreases and total surplus decreases in the market for that good.

Low labor standards are usually associated with *a.* nondemocratic governments *b.* high-income countries *c.* high-wage countries *d.* low foreign investment

*d.* low foreign investment