EXAM 3 - International Trade

the US and Japanese automakers ______ during the automobile VER of the 1980s

both enjoyed higher prices and higher profits

A home monopolist faces a demand curve given by P=20-Q and has total costs given by TC=Q^2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR=20-2Q and its marginal cost is MC=2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The World price of the product produced by the monopolist is $12. What is the profit maximizing price the domestic monopoly charges?

$12

A home monopolist faces a demand curve given by P=20-Q and has total costs given by TC=Q^2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR=20-2Q and its marginal cost is MC=2Q. What is the no-trade profit-maximizing price?

$15

Suppose that the free trade price of a ton of steel is $500. 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. How much total revenue will the Finnish government collect as a result of the tariff?

$18 million

Freedonia is a small country which is unable to affect world prices. Perfect competition prevails in the market for wine. Freedonia's import demand for wine is given by P=50-0.5M where M is the quantity of wine import that Freedonia is willing to buy from the rest of the world. The world price of wine is P* = $10. If the government of Freedonia imposes a specific tariff t=$5, it will face a dWL equal to

$25

Suppose that the supply curve for widgets is described by equation Q=2P where P is market price and Q is quantity supplied. What is the value of producer surplus when P=$5?

$25

Suppose that the $60 per-ton of steel tariff caused Finnish production of steel to increase by 100,000 and Finnish consumption of steel to fall by 100,000 tons. What is the value of deadweight (welfare) loss caused by the tariff?

$6 million

Gatorland is a small country which is unable to affect world prices. Its domestic demand curve for "Go Gators" T-shirts is given by P=90-Q and its domestic supply curve is given by P=2Q. The world price of T-shirts is P*=$10. If Gatorland's government imposes a specific tariff t=$10, it will collect tariff revenue equal to ____

$600

Gatorland is a small country which is unable to affect world prices. Its domestic demand curve for "Go Gators" T-shirts is given by P=90 -Q and its domestic supply curve is given by P=2Q. The World Price of T-shirts is P* = $10. If Gatorland's government imposes a specific tariff t=$10, it will face a deadweight loss equal to ________.

$75

Consider a discriminating monopolist facing the following market conditions: the demand curve in its home market is P=200-Q yielding a marginal revenue curve MR=200-2Q; the demand curve in its foreign market is P=160-Q yielding a MR curve Mr=160-2Q; and its marginal cost is constant and equal to $20 per unit produced. The monopolist's profit-maximizing price in the foreign market is

$90

A home monopolist faces a demand curve given by P=20-Q and has total costs given by TC= Q^2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR= 20-2Q and its marginal cost is MC=2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is the quantity of imports under free trade?

2

A home monopolist faces a demand curve given by P=20-Q and has total costs given by TC=Q^2. By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR=20-2Q and its marginal cost is MC=2Q. Now suppose that the country in which this domestic monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is the no-trade profit-maximizing price?

6

Consider a discriminating monopolist facing the following market conditions: the demand curve in its home market is P=200-Q yielding a marginal revenue curve MR=200-2Q; the demand curve in its foreign market is P=160-Q yielding a MR curve Mr=160-2Q; and its marginal cost is constant and equal to $20 per unit produced. The monopolist's profit-maximizing price in the foreign market is

70

Gatorland is a small country which is unable to affect world prices. Its domestic demand curve for "Go Gators" t-shirts is given by P=90-Q and its domestic supply curve is given by P=2Q. If the world price of T-shirts is P* = 10, under free trade, Gatorland imports _____ t-shirts.

75

Freedonia is a small country which is unable to affect world prices. Perfect competition prevails in the market for wine. Freedonia's import demand for wine is given by P=50-0.5 where M is the quantity of wine imports that Freedonia is willing to buy from the rest of the world. The world price of wine is P* = $10. Under free trade Freedonia will import ____ units of wine.

80

Consider a discriminating monopolist facing the following market conditions: The demand curve in its home market is P=200-Q yielding a marginal revenue curve MR=200-2Q; the demand curve in its foreign market is P=160-Q yielding a marginal revenue curve MR=160-2Q; and its marginal cost is constant and equal to $20 per unit produced. The monopolist's profit-maximizing output in the domestic market is

90

A foreign firm that is selling below cost and is accused of dumping often:

raises its export prices to reap the rents and avoid the antidumping tariff completely

Who collect quota rents when the government auctions quota licenses?

the government

Consider a discriminating monopolist facing the following market conditions: the demand curve in its home market is P=200-Q yielding a marginal revenue curve MR=200-2Q; the demand curve in its foreign market is P=160-Q yielding a MR curve Mr=160-2Q; and its marginal cost is constant and equal to $20 per unit produced. The monopolist's profit-maximizing price in the domestic market is

$110

Suppose that the free trade price of a ton of steel is $500. Finalnd, 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 Finnish production of steel and the domestic price of steel a result of the tariff?

Finnish steel production will rise and the Finnish steel price will rise

GATT is an acronym for ________.

General Agreement on Tariffs and Trade

What will happen to the domestic price of steel in Finland if the Finnish demand curve for steel increases (shifts to the right) and the specific tariff remains at $60 per ton of steel?

It will not change

Why didn't US tire producers support the recently enacted tariff on imported Chinese tires?

Many of them are multinational companies manufacturing tires in China

Which of the following is not an important provision of GATT?

approval of export subsidies

The Home import demand curve is downward sloping because

as the price falls below the no-trade equilibrium, the excess demand is filled by importing more quantity from abroad

A foreign discriminating monopolist may engage in

dumping its product

In 2002 the US relied upon GATT's ________ to impose tariffs on imported steel

escape clause

If rent-seeking occurs, then a country's welfare loss from quotas will

increase

Which of the following is not an effect of an import tariff?

it improves efficiency is the economy overall because it saves high-paying jobs

A country will impose a tariff because:

it is a source of revenue for the government

When a tariff is applied to a good exported by a foreign monopoly (with no home producer and linear demand curve) the increase in the equilibrium price is ___ the tariff applied

less than

The no-trade equilibrium is a perfectly competitive market occurs when

market quantity demanded equals market quantity supplied

A knowledge spillover occurs when firms

mimic the successful innovations of other firms

International dumping occurs when:

monopolistic firms charge a higher price in the domestic market and a lower price in the foreign market.

The WTO has encouraged nations to replace their import quotas with tariffs. Why?

none of these answer choices are correct

If a large country imposes a tariff:

the terms-of-trade effect may offset deadweight losses on its economy.

The WTO oppose quotas. Why did the WTO not stop the U.S. - Japanese quota during the 1980s?

there was a loophole in the GATT (at the time) that did not restrict nations from "voluntarily" curtailing their own exports

Why do monopolistic firms practice international dumping?

they ace more elastic demand conditions in their foreign market than in their domestic market

Suppose that the free trade price of a ton of steel is $500. 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 primary purpose of this tariff?

to protect Finnish steel producers from foreign competition

An analysis of the case of Harley-Davidson reveals that the deadweight loss of import protection ________ the gain in future producer surplus

was slightly less than

What is an export subsidy?

a payment (or other benefit) to domestic firms by their government to help them sell exports more cheaply

which of the examples cited in the next was the most successful case of infant industry protection?

Harley-Davidson

Section 421 of the amended US Trade Act of 1974 allows tariffs to be applied against rising imports from ______ that cause market disruption in a US industry.

China

As China's auto production capability has evolved, it is unclear whether protection was beneficial or harmful. Why?

Even greater progress in moving toward exports was made by firms that did not gain from tariffs or technology transfer

An example of infant industry protection is the computer industry in Brazil from 1977 to 1988. It is widely concluded that the effort was

a failure

A Free Trade Areas is defined as:

a trading agreement is with a group of WTO members voluntarily agree to adopt free trade among themselves

According to the GATT, a tariff applied under the safeguard provision must:

be temporary

A small country in international trade faces a:

perfectly elastic world supply curve

When an import quota is used to protect a domestic monopolist from international competition, quota rents will_______ and the domestic price will ______.

rise, rise

When the US imposed a 25% tariff on imported pickup trucks, the price of Japanese pickup trucks in the US

rose by less than 25%

Under the GATT framework, nations negotiated for up to 6 years, resulting in new trade agreements. These negotiations are known as

rounds

A country's net welfare will increase when it imposes a tariff on a foreign monopolist (with no domestic production) if its:

terms-of-trade gain is greater than its loss of consumer surplus

Consumer surplus is:

the difference between consumer willingness to pay for a product and its price

Import quota rents are equal to

the difference between the domestic price and world price following the imposition of an import quota

An import quota is different from a voluntary export restraint because:

the former is imposed by the importing country and the latter by the exporting country