EC340 Exam 2

(Figure: Home Market I) What is the deadweight loss because of the tariff? A) $24 B) $12 C) $48 D) $44

A) $24

(Table: Information on a Firm) Which of the following are the monopoly profits that this firm will earn if it sells in both local and export markets? A) $275 B) $175 C) $125 D) $375

A) $275

(Figure: The Import-Competing Industry) The producer surplus without trade in the figure is: A) 0.5*($22-$5)*30. B) ($22-$5)*30. C) 0.5*($15-$5)*15. D) ($15-$5)*15.

A) 0.5*($22-$5)*30.

Which of the following regional trade agreements is a free-trade area? A) NAFTA B) the European Union C) Mercosur D) NATO

A) NAFTA

In 2012, the United States imposed countervailing duties ranging from 24 to 36% (on imports of about solar panels from China. Which of the following do you predict will happen if the United States decides to eliminate these duties? A) The U.S. price of solar panels will fall. B) U.S. production of solar panels will rise. C) U.S. imports of Chinese solar panels will fall. D) The U.S. price of solar panels will rise.

A) The U.S. price of solar panels will fall.

Suppose that the United States is a large country. In fall 2009, the United States imposed tariffs on tires imported from China. Who was better off and who was worse off as a result of these tariffs? A) U.S. tire producers were better off and U.S. consumers, and Chinese tire producers were worse off. B) U.S. tire producers, U.S. consumers, and Chinese tire producers were all worse off. C) U.S. tire producers and Chinese tire producers were better off, and U.S. consumers were worse off. D) U.S. tire producers and U.S. consumers were better off, and Chinese tire producers were worse off.

A) U.S. tire producers were better off and U.S. consumers, and Chinese tire producers were worse off.

Most favored nation status requires: A) a WTO member that reduces a tariff on imports from one WTO trading partner to apply the lower tariff to imports from all other WTO members. B) a WTO member that reduces a tariff on imports from one WTO trading partner to apply the lower tariff to imports from all other countries. C) a WTO member that increases a tariff on imports from one WTO trading partner to raise the tariff on imports from all other WTO members. D) a WTO member that increases a tariff on imports from one WTO trading partner to raise the tariff on imports from all other countries.

A) a WTO member that reduces a tariff on imports from one WTO trading partner to apply the lower tariff to imports from all other WTO members.

When a tariff is imposed, there is always an additional loss. One loss occurs when consumers purchase fewer units of the good because prices have risen, so society loses the value of that consumption. This loss is the: A) consumption loss. B) transfer loss. C) production loss. D) none of the above.

A) consumption loss.

Trade diversion may be such that the combined welfare of two nations in the agreement actually ____ because of ____, not completely offset by the _____ . A) falls; loss of tariff revenue for the importing nation; gain in the exporting nation's producer surplus B) rises; gain in the exporting nation's producer surplus; loss of jobs in the importing nation C) falls; loss of tariff revenue and consumer surplus for the importing nation; gain in jobs in the exporting nation D) falls; loss of tariff revenue for the importing nation; gains from product variety for both nations

A) falls; loss of tariff revenue for the importing nation; gain in the exporting nation's producer surplus

(Figure: U.S. Imports from Mexico and Asia) Initially, the U.S. imposes a $100 tariff on imports from both Asia and Mexico. After the U.S. joins a free-trade area with Mexico, the tariff is eliminated on imports from Mexico, but the tariff on imports from Asia remains unchanged. As a result of the free trade area, the combined welfare of the United States and Mexico is _______ by ______. A) lower; $7,500 B) higher; $7,500 C) lower; $40,000 D) none of the above

A) lower; $7,500

If a large country imposes a tariff: A) the terms-of-trade gains may offset deadweight losses on its economy, and the net effect on its economy is positive. B) the terms-of-trade losses may offset gains by domestic producers, and the net effect on its economy is negative. C) the terms-of-trade gains may offset consumption losses, and the net effect on its economy is positive. D) none of the above.

A) the terms-of-trade gains may offset deadweight losses on its economy, and the net effect on its economy is positive.

(Figure: The Import-Competing Industry) In the figure, with free trade, if the world price of the product is $15, then the total consumer surplus is: A) ($46-$15)*45. B) 0.5*($46-$15)*45. C) 0.5*($22-$15)*30. D) ($22-$15)*30.

B) 0.5*($46-$15)*45.

(Figure: U.S. Imports from Mexico and Asia) With a $100 tariff imposed on imports from both Mexico and Asia, the United States will import ______ from Mexico and _______ from Asia. A) 400; 100 B) 250; 250 C) 250; 500 D) 400; 200

B) 250; 250

Which of the following is(are) the effect(s) of an international trade agreement that provides an incentive and reward for nations NOT to impose tariffs? I. an increase in world welfare. II. an opportunity for all trading partners to obtain the gains from trade. III. an opportunity for large countries to improve their terms of trade A) I B) I and II C) I and III D) I, II, and III

B) I and II

Suppose that the United States imposes an antidumping duty on imported steel. Which of the following is likely to occur? A) The U.S. terms of trade will improve, and U.S. steel imports will rise. B) The U.S. price of steel will rise, and U.S. steel consumption will fall. C) The foreign price of steel will rise, and foreign steel consumption will fall. D) U.S. steel companies will earn lower profits.

B) The U.S. price of steel will rise, and U.S. steel

Suppose that the U.S. International Trade Commission determines that there is material injury to the U.S. furniture industry because of Brazilian subsidies on its exports of furniture to the United States. Which type of tariff will be applied on U.S. imports of Brazilian furniture? A) antidumping duties B) countervailing duties C) export duties D) safeguard tariffs

B) countervailing duties

Without any trade agreements, the Nash equilibrium would indicate that the best response by each large nation would be to: A) not impose a tariff. B) impose a tariff. C) not impose a tariff if the other large country imposes a tariff. D) impose or not impose a tariff, depending on what the other large country decides to do.

B) impose a tariff.

(Figure: Home Market I) After the imposition of the tariff, the producer surplus in the Home country: A) decreases by $84. B) increases by $72. C) increases by $84. D) increases by $12.

B) increases by $72.

A profit-maximizing monopolist will produce at the point where: A) price = marginal costs. B) marginal revenue = marginal cost. C) average revenue = average cost. D) the price is the highest.

B) marginal revenue = marginal cost.

(Scenario: Electric Fan Trade) Now suppose that the United States forms a free-trade area (NAFTA) with Canada and Mexico. As a result, the tariff on imports from Canada is eliminated. But the 30% tariff remains on imports from China. For the United States, are there trade diversion losses, trade creation gains, or both as a result of the formation of NAFTA? A) only trade diversions losses B) only trade creation gains C) both trade creation gains and trade diversion losses D) neither trade creation gains nor trade diversion losses

B) only trade creation gains

A regional trade agreement involves: A) most, if not all, the nations in the world. B) several nations, usually trading partners, with a common agenda or geographically linked. C) nations that agree to trade only with nations in their region. D) a region of the world with common trade issues.

B) several nations, usually trading partners, with a common agenda or geographically

Foreign supply curves facing a large importing country differ from those facing a small importing country. Large importing countries face _____________ foreign supply curves, and small importing countries face ______________ foreign supply curves. A) perfectly price elastic (flat); upward-sloping B) upward-sloping; perfectly price elastic (flat) C) downward-sloping; perfectly price elastic (flat) D) upward-sloping; downward-sloping

B) upward-sloping; perfectly price elastic (flat)

(Figure: Home Market II) The net welfare loss (in absolute value) for the home country because of the tariff is: A) $50. B) $25. C) $0. D) $100

C) $0.

(Table: Information on a Firm) What are this firm's monopoly profits if it only sells in its local market? A) $250 B) $200 C) $150 D) $100

C) $150

(Figure: Home Market I) The government revenue due to the tariff is: A) $132. B) $108. C) $48. D) $8.

C) $48.

(Figure: Home Market I) The Home market shown in the figure has imposed a _____ tariff. A) $3 B) $16 C) $6 D) $22

C) $6

(Figure: U.S. Imports from Mexico and Asia) According to the graph, under free trade the United States will import ________ units of the good from _______ at the price of _______. A) 400; Mexico; $250 B) 600; Asia; $150 C) 350; Asia; $150 D) 500; Asia; $250

C) 350; Asia; $150

A free-trade area is: A) a group of countries that agrees there will be "no rules" about trade—anything goes. B) a group of countries that agrees to eliminate customs fees and containerized shipping charges on goods traded among them. C) a group of countries that agrees to eliminate barriers to trade between themselves while keeping tariffs in place against the rest of the world. D) a group of countries that eliminates trade barriers among themselves and imposes a common tariff schedule against all other nations.

C) a group of countries that agrees to eliminate barriers to trade between themselves while keeping tariffs in place against the rest of the world.

A foreign firm that is accused of dumping often: A) lowers its local price to be below its export price in order to avoid anti-dumping duties. B) moves its production to the importing nation to avoid anti-dumping duties. C) raises its export price. D) calls for a ruling by the WTO.

C) raises its export price.

Which of the following unfair trade remedies is used LEAST often? A) antidumping duties B) countervailing duties C) safeguard tariffs D) import tariffs.

C) safeguard tariffs

Dumping goods on the foreign market is profitable whenever: A) the foreign market price is higher than the variable cost of production. B) the foreign market price is higher than the fixed cost of production. C) the foreign market price is higher than the marginal cost of production. D) Insufficient information is provided.

C) the foreign market price is higher than the marginal cost of production.

Which principle of the GATT/WTO do regional trade agreements violate? A) the principle of free trade B) the principle of fair trade C) the most favored nation principle D) the principle of comparative advantage

C) the most favored nation principle

A large importing country may gain from imposing a tariff if : A) the increase in producer surplus and government revenue exceeds the terms-oftrade losses. B) the terms-of-trade gain exceeds the production loss. C) the terms-of-trade gain exceeds the deadweight loss. D) the terms-of-trade gain exceeds the loss of consumer surplus.

C) the terms-of-trade gain exceeds the deadweight loss.

(Figure: Home Market II) For the large-country in the graph, after the tariff is imposed, the world price of the product is ______ and the amount imported is _________. A) $20; 30 B) $25; 10 C) $20; 10 D) $15; 10

D) $15; 10

How does a tariff imposed by a large country differ from a tariff imposed by a small country? A) If a large nation imposes a tariff, both domestic consumers and foreign producers share the burden of paying the tariff. B) If a large nation imposes a tariff, both domestic consumers and domestic producers share the burden of paying the tariff. C) Because of its size, the large nation's tariff not only decreases the quantity demanded of the product but may also reduce the world price of the good. D) Both A and C.

D) Both A and C.

What is the "most favored nation" principle of the WTO? A) Trading partners may choose a favorite nation to trade with. B) Any nation can refuse to trade with another that is not its most favored nation. C) The WTO has the right to choose the nation that has performed best within the WTO guidelines as its most favored nation. D) Every nation must grant the same rights and treatment to other nations in the WTO as its "most favored nation."

D) Every nation must grant the same rights and treatment to other nations in the WTO as its "most favored nation."

The WTO is considered _________, whereas the European Union is __________ . A) a free trade area; a custom union B) an international trade agreement; a multilateral agreement C) an international trade organization; a multilateral agreement D) a multilateral agreement; a regional trade agreement

D) a multilateral agreement; a regional trade agreement

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, WTO allows three exceptions to binding. Which of the following is NOT an exception to binding? A) antidumping duties against dumped imports B) countervailing duties against subsidized imports C) safeguard tariffs D) tariff reductions negotiated in free-trade areas

D) tariff reductions negotiated in free-trade areas

The safeguard provision allows a country to: A) import products below cost from foreign countries. B) export products by selling below cost to foreign countries. C) avoid tariffs in foreign countries temporarily. D) temporarily increase tariffs on certain imported goods.

D) temporarily increase tariffs on certain imported goods.

In general, a tariff reduces the national welfare of the small importing nation because: A) there is a fall in producer surplus. B) there is a rise in consumer surplus. C) the gain in consumer surplus is smaller than the loss in producer surplus. D) the gain in producer surplus is smaller than the loss in consumer surplus.

D) the gain in producer surplus is smaller than the loss in consumer surplus.