Microecon Chapter 9: Application: International Trade

Tariff

A tax on goods produced abroad and sold domestically.

Because producers are better able to organize than consumers are, we would expect there to be political pressure to create a. free trade b. import restrictions c. export restrictions d. none of the above

b. import restrictions

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good, a. consumers will gain and producers will lose. b. produces will gain and consumers will lose. c. both producers and consumers will gain. d. both producers an consumers will lose.

a. consumers will gain and producers will lose.

Price Takers

Market participants that cannot influence the price so they view the price as given

World Price

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

Which of the following statements about a tariff is true? a. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus b. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and reduces total surplus. c. A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government and increases total surplus. d. A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and increases total surplus.

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

If free trad is allowed, a country will export a good if the world price is a. below the before-trade domestic price of the good. b. above the before-trade domestic price of the good. c. equal to the before-trade domestic price of the good. d. none of the above.

b. above the before-trade domestic price of the good.

When politicians argue that outsourcing or offshoring of technical support to India by Dell Company Corp. is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade? a. the infant-industry argument b. the jobs argument c. the national-security argument d. the deadweight-loss argument

b. the jobs argument

Which of the following statements about import quotas is true? a. Import quotas are preferred to tariffs because they raise more revenue for the imposing government b. Voluntary quotas established by the exporting country generate no deadweight loss for the importing country. c. For every tariff, there is an import quota that could have generated a similar result d. An import quota reduces the price to the domestic consumers.

c. For every tariff, there is an import quota that could have generated a similar result.

Which of the following is not employed as an argument in support of trade restrictions? a. Free trade destroys domestic jobs. b. Free trade harms the national security if vital products are imported. c. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus. d. Free trade harms infant industries in an importing country.

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

If the world price for a good exceeds the before-trade domestic price for a good, then that country must have a. an absolute advantage in the production of the good. b. an absolute disadvantage in the production of the good. c. a comparative advantage in the production of the good. d. a comparative disadvantage in the production of the good.

c. a comparative advantage in the production of the good.

When a country allows trade and exports a good, a. domestic consumers are better off, domestic producers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. b. domestic consumers are better off, domestic producers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers. c. domestic producers are better off, domestic consumers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners. d. 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.

d. 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.