ch 8, ch 9, ch 11- exam 2
Suppose that the equations S = 2P and D = 6 - P represent a small country's home supply and home demand curves, and the free-trade world price is $1. If the government imposed a 50% tariff on imports, how much revenue would it collect as a result of the tariff? (Note: It is possible to consume partial units of this product, such as 2.5 units.)
$0.75
Suppose that consumer demand is given by this equation: P = 10 - Q. What is the value of consumer surplus when P = 5?
$12.50
It has been estimated that the Trans-Pacific Partnership (TPP) could increase U.S. national income by as much as:
$130,000,000,000.
Suppose that Norway is a small country and currently produces 100,000 board feet of lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500 per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet and its consumption increases to 200,000 board feet. What is Norway's total gain in consumer surplus once it begins to trade?
$15,000
(Figure: The Import-Competing Industry) In the figure, what is the value of producer surplus in the absence of trade?
$150
(Figure: Consumer Surplus) By how much will consumer surplus increase if the price of the product decreases to $10?
$185
Consider an antidumping duty levied on a Norwegian producer of salmon who is selling salmon in Norway for $30 per pound but is charging $10 per pound for the salmon being exported to the United States. What is the appropriate antidumping duty?
$20 per pound
(Figure: Home Market II) For the large-country in the graph, the free-trade price of the product is ______ and the amount imported is _________.
$20; 30
(Figure: The Home and World Markets) If a tariff of $10 is imposed by the home country, it causes a loss in the world market (exclusive of any effects on the home market) of:
$240
(Figure: Consumer Surplus) When the price of the product is $15, the consumer surplus is:
$256
The figure compares the effect of a quota to the effect of an import tariff similar to that shown in Figure 9-4. If the world price is $4, a tariff of $2 results in a price _____ than would a quota set at the level of imports under the tariff.
$3 lower
The figure shows the effect of import tariff on the market with Home monopoly similar to the one shown in Figure 9-3. If the line PW + t shows the world price with the tariff, what is the size of the tariff?
$4
The figure shows a Foreign monopolist engaged in dumping, similar to the situation shown in Figure 9-8. What is the export price?
$60
In the example of trade diversion shown in the figure, the loss of U.S. tariff revenue from the North American Free Trade Agreement (NAFTA) is shown by area:
(a + b + c).
In the figure, the net welfare effect of an import tariff on the Foreign monopoly is given by:
+ (e − d).
The figure shows the effect of an import tariff on a large country, as in Figure 8-9. As a result of this tariff, the change in consumer surplus is:
-990
The following table gives the hypothetical supply and demand of television sets in Guatemala. Guatemala is a small country that is unable to affect world prices. The world price (free-trade price) is $300 per TV set. Suppose that Guatemala now imposes a 100% tariff on imported TVs. How many TVs will it now import?
0
The following table gives the hypothetical supply and demand of television sets in Guatemala. Guatemala is a small country that is unable to affect world prices. The world price (free-trade price) is $300 per TV set.
1,800
According to the results of surveys presented in Table 11-2, on average, consumers are willing to pay $_____ more for a T-shirt made under good working conditions.
1.83
It has been estimated that NAFTA increased U.S. GDP by _____ percentage point(s) relative to what it would have been had NAFTA not existed.
10
Based on the demand curve shown in the figure, the consumer surplus equals _____ if the price equals 12.
120
The figure shows the effect of a $5 per unit import tariff on a small country similar to the one shown in Figure 8-5. The deadweight loss from the tariff is $:
130.
The figure shows a Foreign monopolist engaged in dumping similar to the situation shown in Figure 9-8. The quantity of local sales equals _____ units.
14
The figure shows a Foreign monopolist engaged in dumping similar to the situation shown in Figure 9-8. What is the quantity of local sales?
14
Suppose that Norway is a small country and currently produces 100,000 board feet of lumber at $600 per 1,000 board feet. Then it begins to trade at the world price of $500 per 1,000 board feet. As a result of trade, Norway's production falls to 50,000 board feet and its consumption increases to 200,000 board feet. How many board feet of lumber does Norway now import?
150,000 board feet
The figure shows the effect of a $4 Home import tariff on a market with a Foreign monopoly similar to the one in Figure 9-7. As a result of the tariff on the Foreign monopoly, home imports fall from 10 to 8 and the loss of the consumer welfare is $:
18
The figure shows the effect of a $4 Home import tariff on a market with a Foreign monopoly similar to the one in Figure 9-7. What is the loss of consumer welfare when home imports fall from 10 to 8 as a result of the tariff on the Foreign monopoly?
18
(Figure: The Home Market) If the world price is $15, the domestic monopolist will produce ______ and the country will import ________.
18; 10
The tuna-dolphin case was filed in: Please choose the correct answer from the following choices, and then select the submit answer button.
1991
Consider an antidumping duty levied on a Norwegian producer of salmon who is selling salmon in Norway for $30 per pound but is charging $10 per pound for the salmon being exported to the United States. The antidumping duty should be $_____ per pound.
20
The figure shows a foreign monopolist engaged in dumping similar to the situation shown in Figure 9-8. How many units are sold to BOTH markets?
20
The figure shows supply and demand in the trade equilibrium in a small country's corn market. The world price equals $7 per bushel. The gain from trade for the consumer is equal to:
225
The two panels of the accompanying figure show a home market and an import demand similar to those illustrated in Figure 8-3. Based on the numbers shown in panel (a), the quantity of imports at point B in panel (b) is equal to _____ units.
25
The figure shows the effect of a $4 Home import tariff on a market with a Foreign monopoly similar to the one in Figure 9-7. As a result of the tariff on the Foreign monopoly, the government collects $_____ in tariff revenue.
32
According to the results of surveys presented in Table 11-2, what proportion of consumers indicate they care SOMEWHAT about the condition of workers who make the clothing they buy?
38%
(Table: U.S. Demand for and Supply of Widgets) The United States can import widgets from China at $4 each and from Mexico at $5 each. The United States imposes a tariff of $2 on each of its widget imports. Suppose that the United States and Mexico form a free-trade area. How much trade in widgets is diverted in the U.S.-Mexican free-trade area?
4 widgets
The figure shows the effect of a 50-unit import quota on imports to a small country similar to what is shown in Figure 8-11. Assuming that the world price equals $12, the quota rents earned by the foreign producers in the case of voluntary export restraints are equal to $:
400
The figure shows the current situation in an industry that requires infant industry protection similar to the industry shown in panel (a) of Figure 9-10. If a tariff is set at a level that is just sufficient to prevent the industry from shutting down, imports will decrease from _____ units to _____ units.
40; 20
The figure shows supply and demand in the trade equilibrium in the market for corn in a small country. The world price equals $7 per bushel. The quantity of imports equals _____ bushels of corn.
45,000
The figure shows the effect of an import tariff on a large country, as in Figure 8-9. The terms of trade gain from this tariff equals:
480
According to the Application section "Antidumping Duties Versus Safeguard Tariffs," how many China-specific safeguard duties received a positive ITC ruling during the period 2001-2011?
5
The figure shows a successful case of infant industry protection, similar to the case shown in Figure 9-10. How much will the firm produce after the protection is removed and the average cost curve shifts down?
50
The figure shows the effect of a tariff on a small country similar to the one shown in Figure 8-4. With the tariff, equilibrium imports are _____ units.
50
The figure compares the effect of a quota to the effect of an import tariff similar to that shown in Figure 9-4. The quota is assumed to be set at the level of units that would have been imported under the tariff shown. If the world price is equal to $4, a quota reduces imports from _____ to _____ units.
55; 30
The figure shows a Foreign monopolist engaged in dumping, similar to the situation shown in Figure 9-8. The export price equals $:
60
The following table gives the hypothetical supply and demand of television sets in Guatemala. Guatemala is a small country that is unable to affect world prices. The world price (free-trade price) is $300 per TV set. With free trade, how many TV sets will Guatemala produce?
600
According to the results of surveys presented in Table 11-2, what proportion of consumers indicate they would NOT buy a T-shirt at all if it was made under poor working conditions?
65%
The figure compares the effect of a quota to the effect of an import tariff similar to that shown in Figure 9-4. If the world price is $4, a tariff of $2 increases the price at Home to $_____, and a quota set at the level of imports under the tariff increases the Home price to $_____.
6; 9
(Figure: The Home and World Markets) Using the graphs, the amount imported by the home market under free trade is:
80
Why is NAFTA a free-trade area requiring rules of origin rather than a customs union?
A free-trade agreement allows politically sensitive tariffs of each nation to remain unchanged
What are customs unions?
A group of countries that already have trade agreements with each other and that adopt identical tariffs between themselves and the rest of the world.
Why is it better to protect an infant industry with monopoly power with a tariff than a quota
A tariff causes domestic production to increase, whereas a quota causes production to decrease
What is a difference between a tariff imposed by a large country and a tariff imposed by a small country?
A tariff imposed by a large country has a terms-of-trade effect
_____ is a trade policy tool discussed in the textbook.
An import quota
In the figure, the quantity of auto parts imported from Mexico BEFORE the North American Free Trade Agreement (NAFTA) corresponds to point:
B
What happens when two countries apply tariffs against each other in an attempt to capture their terms-of-trade gain?
Both countries lose because the terms-of-trade gain for one country is canceled by the tariff in the other country.
In the figure, the quantity of auto parts imported from Mexico AFTER the North American Free Trade Agreement (NAFTA) corresponds to point _____ if Mexico does not undertake any investments that could shift the supply curve.
C
The _____ climate agreement was signed in April 2016.
COP21
According to the Application section "United States Imports of Solar Panels from China," the Department of Commerce considered Thailand's costs of production to determine antidumping duties on Chinese producers because:
China is a nonmarket economy.
In the figure, the total quantity of imports AFTER the North American Free Trade Agreement (NAFTA), if Mexico undertakes investments that shift its supply curve, corresponds to point:
D
The figure shows supply and demand in the trade equilibrium of a small country when the world price corresponds to point D on the price axis. The gains from trade correspond to area:
ECF
The figure shows supply and demand in the trade equilibrium of a small country when the world price corresponds to point D on the price axis. Point _____ corresponds to the price and quantity demanded at the free-trade equilibrium.
F
Which of the following statements explains why trading partners are often concerned about each other's labor standards?
From a humanitarian perspective, people do not want to buy products if workers are in oppressive conditions.
The figure shows the effect of an import tariff on the market with the Home monopoly similar to the one shown in Figure 9-3. The loss of consumer surplus from the tariff is given by area(s):
G + K + M + N.
Which of the following is(are) why antidumping actions are used more frequently than safeguard actions? I. It is easier to meet the criterion that imports have caused "material injury" to a domestic industry than the criterion that imports were a "substantial cause of serious injury." II. The President does not need to approve antidumping duties. III. The President has to approve duties imposed under safeguard actions.
I, II, and III
Which of the following was an important reason why the United States did NOT sign the Kyoto Protocol?
It believed that exemptions for some of its major developing-country trading partners (such as China and India) were unfair.
What impact does an import tariff imposed by a large country have on the price received by the foreign producers?
It decreases.
Which of the following is NOT an effect of an import tariff?
It improves efficiency in the economy overall because it saves high-paying jobs.
Suppose that a foreign monopolist supplies the entire domestic market (there is no domestic production). The home country then applies a 5% tariff on imports from the foreign monopolist. How will the tariff affect the price in the home market?
It will increase by less than 5%.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the euro, a common currency used in 19 European countries, including Finland.) Finland, a small country, imposes a €60-per-ton specific tariff on imported steel. With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel. What will happen to the Finnish price of steel if Finnish demand for steel increases and a 300,000-ton quota remains unchanged?
It will increase.
Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the euro, a common currency used in 19 European countries, including Finland.) Finland, a small country, imposes a €60 per-ton specific tariff on imported steel. With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel. What is the purpose of this €60-per-ton tariff?
Its purpose is to protect Finnish steel producers from foreign competition.
The figure shows a Foreign monopolist engaged in dumping similar to the situation shown in Figure 9-8. Point _____ corresponds to the local price and quantity.
J
Who captured the quota rents of the 1980s U.S-Japanese voluntary export agreement for automobiles?
Japanese auto producers
What is the profit maximization condition for the price-discriminating monopoly?
MR = MR* = MC*.
Why might infant industry protection of the Chinese automobile industry be considered successful?
Many foreign auto producers established operations in China behind the high infant industry tariff protection.
What became known as the tuna-dolphin case was filed with the GATT by:
Mexico
NAFTA includes countries in:
North America.
What will happen to domestic monopolists' prices and outputs when a small country engages in international trade?
Prices will fall and outputs will rise.
In the Numerical Example of Dumping section, what would happen to profits from selling in the local market if the marginal cost fell and the quantity sold did not change?
Profits would increase.
There are several conditions that justify limiting imports to ensure the survival of the "infant industry" and to justify government protection. Which of the following is(are) a justification?
Protection allows a firm to reduce future costs and cause its average cost curve to shift downwards
The WTO has encouraged nations to replace their import quotas with tariffs. Why?
Quotas result in larger losses than tariffs with equivalent protection.
_____ was at least as important as tariffs in explaining the boom in domestic auto sales in China.
Rapid income growth
ASEAN includes countries in:
Southeast Asia.
Will a home monopolist prefer a quota or a tariff to protect its output?
The home monopolist will prefer a quota, because a quota may allow it to earn higher profits than a tariff.
Suppose that there is a negative externality associated with alcohol consumption in the United States (e.g., the costs of publicly funded alcoholism treatment centers). What will happen to the social costs of this externality if the United States eliminates all tariffs on alcohol imports?
The social coasts will increase
Under which condition would a small country import a good?
The world price is lower than the autarky price.
Which of the following statements about the European Union (EU) is correct?
There is free trade among EU member countries.
Which of the following statements characterizes NAFTA's economic arrangements among its member countries (Canada, Mexico, and the United States)?
There is free trade among the three member countries.
Suppose country X currently produces widgets. Then it establishes a regional trade agreement with country Y. Following the formation of the regional trade agreement, country X no longer produces widgets and now imports widgets from country Y. What has occurred?
There is trade creation and a welfare gain for both country X and country Y.
(Scenario: Far North Canadian Lumber) Suppose that Far North Canadian Lumber, Ltd., sells lumber in Canada at a price of $1,000 per 1,000 board feet and exports the same lumber to the United States at a price of $600 per 1,000 board feet. U.S. Lumber, Inc., produces and sells lumber for $700 per 1,000 board feet in the United States. What other condition must be satisfied in order for the U.S. government to impose an antidumping duty on Canadian lumber imports?
There must be material injury to a U.S. lumber producer.
According to the Application section "U.S. Imports of Japanese Automobiles", what happened to U.S. prices of European cars during the voluntary export restraint on Japanese cars?
They also increased despite not being subjected to a quota.
Why do the United States and the European Union governments apply tariffs to solar panel imports, even though solar panels generate positive consumption externalities?
They believe that domestic production of solar panels generates positive production externalities that outweigh the positive consumption externalities of imports.
Which of the following is true about labor standards?
They consist of all issues that directly affect workers.
Why do monopolistic firms practice international dumping?
They face more elastic demand conditions in their foreign market than in their domestic market.
(Figure: Home's Import-Competing Industry) Based on the graph, which of the following statements is (are) correct?
This nation will produce 800 units if the world price is $50.
Which of the following groups favored the suspension of preferential trade treatment for Bangladesh in 2013?
U.S labor leaders
On what did the United States increase tariffs in the wake of the collapse of a garment factory in Bangladesh?
U.S. imports of other items from Bangladesh
Following the collapse of a garment factory in Bangladesh, the United States increased tariffs on:
U.S. imports of other items from Bangladesh.
When does consumer surplus arise?
When consumers value the product at a price that is higher than the purchase price.
In which form of regional trading agreements are rules of origin required?
a free-trade area
A customs union is different from a free-trade area, in that:
a free-trade area removes trade barriers between member countries, whereas a customs union adopts identical tariffs with the rest of the world
For a home monopolist, a quota allows the firm to increase the price by _______________ they could with an equivalent tariff.
a higher amount than
With a home monopolist, the imposition of a tariff results in:
a lower deadweight loss than a quota.
In the textbook model, a discriminatory tariff causes higher welfare losses for the home country than a uniform tariff does because:
a part of the government revenue from the tariff is transferred to the foreign producers who do not have to pay the tariff.
When a domestic monopolist becomes subject to international competition, it faces:
a perfectly elastic demand curve.
The most favored nation clause of the GATT postulates that: Please choose the correct answer from the following choices, and then select the submit answer button.
all trading partners should be treated the same.
Environmental groups around the world are concerned with World Trade Organization (WTO) rules governing the extent to which national laws can affect international trade. WTO rules:
allow countries to dispute exclusion from foreign markets due to unreasonable environmental regulations.
According to the Application section "Examples of Infant Industry Protection," protection of a solar panel producer is justified by:
an environmental externality.
An antidumping duty is most similar to:
an import tariff.
Which of the following is an effect of an international trade agreement that provides an incentive for nations NOT to impose tariffs?
an increase in world welfare and standard of living
The customs union could lead to losses for the home country if:
another country in the customs unions is not the most efficient producer.
According to the Application section "Antidumping Duties Versus Safeguard Tariffs," during the period 1980-2011, the total number of filed _____ was over 1,200.
antidumping cases
According to the GATT, a tariff applied under the safeguard provision must:
be temporary
The import demand curve lies:
below the autarky price.
If the price of auto parts produced in the United States were $19.50 instead of $22 (as is shown in the last row of Table 11-1), The North American Free Trade Agreement would _____ in the case of a 20% tariff.
cause neither trade diversion nor trade creation
What does the height of the demand curve represent?
consumers' willingness to pay
Which type of tariff is used to offset subsidies on exports entering the United States?
countervailing duties
A _____ a group of countries that agree to eliminate tariffs (and other barriers to trade) among themselves and to agree to a common schedule of tariffs with countries outside the agreement.
customs union is
The figure shows the effect of a tariff on a small country similar to the one shown in Figure 8-4. As a result of the tariff, imports _____ units.
decrease by 65
The figure shows the Home monopoly's free-trade equilibrium, similar to the one shown in Figure 9-2. If the world price equals $8, opening to trade will _____ the Home price by $_____.
decrease; 6
If a perfectly competitive industry suddenly became a monopolist, equilibrium output would _________, and the equilibrium price would _________.
decrease; increase
The figure shows the effect of a tariff on a small country similar to the one shown in Figure 8-4. As a result of the tariff, domestic consumption _____ units.
decreases by 35
According to the Application section "U.S. Imports of Japanese Automobiles," during the voluntary export restraint (VER) period the quality of U.S. small cars:
did not increase as fast as the quality of the Japanese cars.
In contrast to the ruling in the tuna-dolphin case, in the shrimp-turtle case, the GATT:
did not rule against the principle that one country could restrict imports based on the production process used in another country.
Price discrimination occurs when a firm charges _____ at home and in its export markets.
different prices
Price discrimination occurs when a firm charges:
different prices at home and in its export markets.
The WTO (under the GATT agreement) provides that nations may enter into regional trade agreements as long as they:
do not jointly increase tariffs against outside countries.
Normally the WTO does not allow discriminatory treatment in trade of member nations, but it makes an exception for nations:
engaging in regional free-trade agreements.
Consider a situation in which a country applies import tariffs to protect domestic producers of cars from injury caused by foreign competition. The tariffs are most likely justified by the _____ of the GATT.
escape clause
Suppose that the world price of radios is above the no-trade domestic price. In that case, the country:
exports radios at the world price.
If a country imposes a $10 tariff on a foreign monopolist, the price set by the monopolist will:
fall by less than $10.
If a foreign country imposes a voluntary export restraint, then the:
foreign country will capture the area of government revenue collected with an equivalent tariff.
Who bears the burden of the terms-of-trade effect when a large country (Home) imposes a tariff?
foreign producers
A _____a group of countries that agree to eliminate tariffs (and other barriers to trade) among themselves but to keep whatever tariffs they formerly had with the rest of the world.
free-trade area is
In which type of trade agreement does the WTO allow exclusions to the most favored nation principle?
free-trade areas and customs unions
The figure shows supply and demand in the trade equilibrium of a small country when the world price corresponds to point D on the price axis. Consumers _____ from trade the amount equal to the area _____.
gain; BCFD
WTO rulings with respect to environmental issues have:
generally increased regard for environmental protection.
Which of the following is a way quota rents can be allocated?
giving the quota to home firms
For effective price discrimination in international trade, there must be some reason that consumers from the _____ market cannot import the product directly from the _____ market.
high-price; low-price
Producers get surplus for the units they can sell at a price that is _____ the marginal cost.
higher than
In a large-country case, an optimal tariff would be one:
in which the terms-of-trade gain exceeds the deadweight loss
Consider a small country with a Home monopoly. Assume that a tariff of $5 per unit reduces imports to 200 units. If instead of the tariff the government imposed a 200-unit import quota, the Home price would:
increase by more than $5.
Consider an antidumping duty levied on a Norwegian producer of salmon who is selling salmon in Norway for $30 per pound but is charging $20 per pound for the salmon being exported to the United States. To eliminate the antidumping duty entirely, the Norwegian producer can:
increase the U.S. price to $30.
In the case of a Home monopoly in a small country, which was analyzed in Chapter 9, an import tariff allows the Home monopoly to:
increase the price by the amount of the tariff.
If rent-seeking occurs, then a country's welfare losses from quotas will:
increase.
The shaded area (d) in the figure is the _____ in the social cost of pollution arising from a negative _____ externality when the country moves from autarky to free trade.
increase; consumption
If a monopoly suddenly became a perfectly competitive industry, equilibrium output would _________, and the equilibrium price would _________.
increase; decrease
In the case of a Home monopoly in a small country, an import tariff:
increases the Home price by the amount of the tariff.
The figure shows the effect of an import tariff on a large country, as in Figure 8-9. The import tariff:
increases the price to Home consumers by $6.
The figure shows Home monopoly's free-trade equilibrium similar to the one shown in Figure 9-2. If the world price equals $8, opening to trade _____ quantity produced by the Home monopoly by _____ units.
increases; 10
The figure shows the effect of a $5 per unit import tariff on a small country similar to the one shown in Figure 8-5. The tariff _____ producer surplus by $_____.
increases; 220
The figure shows the effect of an import tariff on the market with a Home monopoly similar to the one shown in Figure 9-3. The import tariff _____ monopoly surplus by $_____.
increases; 60
An import tariff _____ the quantity supplied by domestic producers and _____ the quantity demanded by the domestic consumers. Please choose the correct answer from the following choices, and then select the submit answer button.
increases; reduces
Trade creation occurs when a member country imports a product from another member country that:
it formerly produced for itself.
If the price of auto parts produced in the United States were $20.50 instead of $22 (as is shown in the last row of Table 11-1), NAFTA would _____ in the case of a 10% tariff.
lead to trade creation
If the price of auto parts produced in the United States were $24 instead of $22 (as is shown in the last row of Table 11-1), The North American Free Trade Agreement would _____ in the case of a 20% tariff.
lead to trade diversion
Surveys of consumers indicate that:
many are willing to pay at least a small amount more for imports to ensure good labor standards in other countries.
According to the results of surveys presented in Table 11-2:
many more than half of consumers are willing to pay for goods made under better labor standards.
When comparing monopoly to perfect competition, we assume that the marginal cost (MC) curve in the figure represents the _____ of the competitive industry.
market supply
In the case of a large country, the optimal tariff is:
most likely a small but certainly a positive number.
The WTO is considered a _____, whereas NAFTA and the European Union are _____.
multilateral agreement; regional trade agreements
In the game described in the figure, with payoffs, the presence of global pollutants changes incentives in such a way that no regulation by either country can become a Nash equilibrium because:
neither country fully bears the social cost of pollution.
Which is a better outcome for income and standard of living levels for large nations?
no tariffs
Unions in the industrial countries are concerned with labor standards, partly because of solidarity with foreign workers and partly because:
of the concern that poor labor standards abroad will create more competition for U.S. workers.
In retaliation for the tariffs on steel imports, European countries imposed tariffs on _____ from the United States.
oranges
Why are unions in the industrial countries concerned with labor standards abroad?
partly because of solidarity with foreign workers and partly because of the concern that poor labor standards abroad will create more competition for U.S. workers.
Producer surplus is NOT the same as monopoly profit because the analysis of tariffs and quotas in this chapter assumes:
perfect competition.
Which of the following is often used to describe regional trade agreements that discriminate, giving better tariff treatment to other nations in the agreement over outside nations?
preferential trade agreements
An import quota:
puts a quantitative upper limit on the quantity of imports.
Import quotas are:
quantity limits on imports
When the monopoly firm is able to charge a higher price because of a quota, the amount of ________ also increases, thus magnifying the importing nation's __________.
quota rents; losses
The figure shows the effect of a quota on imports into a small country similar to what is shown in Figure 8-11. Assuming that the world price equals $12, an import quota set at 50 units will _____ imports by _____ units.
reduce; 65
Most favored nation status requires that a WTO member:
reduces a tariff on imports from one WTO trading partner and applies the lower tariff to imports from all other WTO members.
The figure shows the effect of a $5 per unit import tariff on a small country similar to the one shown in Figure 8-5. The tariff _____ consumer surplus by $_____.
reduces; 550
The shaded area (c) in the figure is the _____ in the social cost of pollution arising from a negative _____ externality when the country moves from autarky to free trade.
reduction; production
What type of trade agreement is the North American Free Trade Agreement (NAFTA)?
regional
Countervailing duties are used to offset any advantages that foreign exporters might gain over domestic producers because of foreign:
subsidies.
Total Home welfare is measured as the:
sum of consumer and producer surplus.
A country that becomes a member of the World Trade Organization agrees to bind its tariffs. "Binding" means that the country agrees not to increase existing tariffs and that it will not introduce new tariffs. However, GATT allows three exceptions to binding. Which of the following is NOT an exception to binding?
tariff reductions negotiated in free-trade areas
If Home applies an optimal tariff, then its _____ exceeds its _____.
terms-of-trade gain; deadweight loss
In what became known as the shrimp-turtle case, a suit was filed with the GATT against:
the United States.
What does trade policy aim to influence?
the amount of international trade
We can measure producer and consumer surplus by looking at a graph of supply and demand. Consumer surplus is:
the area below the demand curve but greater than the equilibrium price.
We can measure producer and consumer gains by looking at a graph of supply and demand. Total welfare in the economy would be:
the combined triangular area below the demand curve and above the supply curve.
Producer surplus is
the difference between the price of a product and marginal cost of producing the product.
Consumer surplus is:
the difference between the price of a product and what consumers were willing to pay for the product.
When we compare a tariff levied on an import where the home firm is a monopoly with an import tariff where the home firms are competitive, we find:
the exact same result—both the monopolist and the competitive firm charge the world price plus the tariff and both firms produce a quantity where MC = MR = world price plus the tariff.
In addition knowledge spillovers (for other firms in the industry), infant industry protection may be justified when:
the firm is able to learn better production techniques and lower its costs in the future.
For infant industry protection to be justified:
the firm's learning to produce output more efficiently and at lower cost must cause the average cost curve to shift downward.
In the free-trade equilibrium in which some of the product is imported and Home is a small country, the Home monopoly chooses a production quantity such that:
the monopoly marginal cost equals world price.
Which principle of the GATT/WTO do regional trade agreements violate?
the most favored nation principle
Because of the failure of the Doha Round of World Trade Organization (WTO) negotiations:
the number of proposed regional agreements has increased.
In the figure, zero payoffs in the free-trade equilibrium imply that:
the payoffs are expressed relative to free trade.
Quantity along the import demand curve equals:
the quantity demanded minus the quantity supplied by domestic producers at every price. This represents import demand.
When a large country applies an import tariff, the import price increases but the price received by foreign exporting firms falls. In this situation, the terms-of-trade gain for the importing country is:
the reduction in price received by exporters.
Which provision of the GATT allows a temporary increase in tariffs for certain products?
the safeguard provision
In comparison to the welfare effects of a tariff in a perfectly competitive home market, the welfare effects of a tariff under a home monopoly are _______, and the deadweight loss for the home monopoly is ________.
the same; the same
When a country imposes a tariff to protect a domestic monopolist from international competition, the monopolist will produce _______ output and charge _______ if the domestic industry was perfectly competitive.
the same; the same price as
How is total Home welfare measured?
the sum of consumer and producer surplus
A country is more likely to have net welfare gains when it imposes a tariff on a foreign monopolist if:
the tariff is small.
The phenomenon known as the tragedy of the commons occurs whenever:
there is no ownership of resources, so they become depleted due to lack of management.
In the case of the Brazilian PC manufacturers discussed in the Application section "Examples of Infant Industry Protection":
there were no future gains, only a deadweight loss.
The gains from trade that occur under _____ are analogous to those that in the Ricardian or Heckscher-Ohlin models occur from the opening of trade.
trade creation
Implementing a regional free-trade agreement may have an effect in which, due to reduced tariffs, a nation in the agreement begins to import a product it had previously produced itself. This effect is called:
trade creation.
Strategic trade policy is based on the idea that:
trade policy can give strategic advantages to Home firms.
(Figure: Home's Import-Competing Industry) What is the consumer surplus after trade?
triangle AEC
Consider how the tariff game shown in the figure can be used to analyze the steel tariffs applied by President George W. Bush. The tariff threatened to move the equilibrium from the _____ quadrant, where countries follow the World Trade Organization (WTO) rules.
upper left
In the game described in the figure, with payoffs and without global pollutants, if government cares only about the welfare of consumers, the _____ quadrant is a Nash equilibrium.
upper left
When does price discrimination occur?
when a firm charges different prices at home and in its export markets
If a customs union includes the lowest-cost world producer of a product, then member countries:
will always be better off in trade with that product.
A study discussed in Section 2 of Chapter 11 about a country's responsibility for labor standards found that withholding trade privileges to improve labor standards seems to:
work in about half the cases.
The figure shows domestic supply and domestic demand. At the autarky price, imports equal:
zero
In the figure, the effect of an import tariff on consumer surplus is given by:
− (c + d).
