Ch. 9 Micro Econ 202

National-security argument

A political pundit argues that the government should impose a tariff on semiconductors because they are a necessary input into the production of various weapons. Free trade, she contends, would make the United States overly dependent on foreign countries for the supply of semiconductors and thus, in case of war, unable to make enough weapons to defend itself. Which of the following justifications is the pundit using to argue for the trade restriction on semiconductors?

Tariff

A tax on imported goods

Need to Know 1

According to the Principle of Comparative Advantage, all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

import restrictions

Because producers are better able to organize than consumers are, we would expect there to be political pressure to create

Infant-industry argument

Domestic producers of steel rods send a lobbyist to the U.S. government to request that the government impose trade restrictions on imports of steel rods. The lobbyist claims that the U.S. steel-rod industry is new and cannot currently compete with foreign firms. However, if trade restrictions were temporarily imposed on steel rods, the domestic steel-rod industry could mature and adjust and would eventually be able to compete in the world market. Which of the following justifications is the lobbyist using to argue for the trade restriction on steel rods?

Unfair-competition argument

Domestic producers of tires send a lobbyist to the U.S. government to request that the government impose trade restrictions on imports of tires. The lobbyist claims that producers in other countries receive subsidies to export tires and that domestic suppliers can't compete in the international marketplace. Which of the following justifications is the lobbyist using to argue for the trade restriction on tires?

USE PIC FROM MARCH 10

FOR 20-25

USE SECOND PIC FROM MARCH 10

FOR 28-32

E

Government revenue from the tariff is the area

the domestic quantity supplied

If a nation that imports a good imposes a tariff, it will increase

A + B

If a tariff is placed on this good, consumer surplus is the area

G + C

If a tariff is placed on this good, producer surplus is the area

above the before-trade domestic price of the good

If free trade is allowed, a country will export a good if the world price is

A

If free trade is allowed, consumer surplus is the area

A + B + C + D + E + F

If free trade is allowed, consumer surplus is the area

B + C + D

If free trade is allowed, producer surplus is the area

a comparative advantage in the production of the good

If the world price for a good exceeds the before-trade domestic price for a good, then that country must have

A + B

If trade is not allowed, consumer surplus is the area

C

If trade is not allowed, producer surplus is the area

continue trading at the subsidized price

Lilliput imports rope from Brobdingnag, where rope producers are subsidized by the government because of their great political clout. The most efficient policy from the standpoint of Lilliput is to

consumers will gain and producers will lose

Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,

Autarka does not have a comparative advantage in producing suits and would become a suit importer if it opened up trade

The country Autarka does not allow international trade. In Autarka, you can buy a wool suit for 3 ounces of gold. Meanwhile, in neighboring countries, you can buy the same suit for 2 ounces of gold. This suggests that

D + F

The deadweight loss from the tariff is the area

D

The gains from trade correspond to the area

reduce tariffs in various nations simultaneously to blunt political pressure for protectionism

The goal of multilateral trade agreements is usually to

lower, consumers

The nation of Openia allows free trade and exports steel. If steel exports were prohibited, the price of steel in Openia would be ________, benefiting steel ________.

Need to Know 4

When a country allows trade and becomes an exporter of a good, producers of the good are better off, and consumers of the good are worse off. When a country allows trade and becomes an importer of a good, consumers are better off, and producers are worse off.

Need to Know 2

When a country allows trade and becomes an importer of a good, domestic consumers of the good are better off, and domestic producers of the good are worse off

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

When a country allows trade and exports a good,

False

When a country is too small to affect the world price, allowing free trade will always decrease total surplus in that country, regardless of whether it imports or exports as a result of international trade.

True

When a country is too small to affect the world price, allowing free trade will have a non-negative effect on total surplus in that country, regardless of whether it imports or exports as a result of international trade.

producer surplus decreases, but consumer surplus and total surplus both increase

When a nation opens itself to trade in a good and becomes an importer,

the jobs argument

When politicians argue that outsourcing or offshoring of technical support to India by Dell Computer Corporation is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade?

Domestic production of coffee falls, and Ectenia becomes a coffee importer

When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation?

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

Which of the following is not employed as an argument in support of trade restrictions?

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

Which of the following statements about a tariff is true?

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

Which of the following statements about import quotas is true?

starting to allow trade when the world price is greater than the domestic price

Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade?

Free Trade Allows...

increases variety for consumers, allows firms to take advantage of economies of scale, makes markets more competitive, makes the economy more productive, and facilitates the spread of technology

World Price

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

Price Takers

they take the price of textiles as given by the forces of supply and demand in the world market

Need to Know 3

A low domestic price indicates that the country has a comparative advantage in producing the good and that the country will become an exporter. A high domestic price indicates that the rest of the world has a comparative advantage in producing the good and that the country will become an importer.