ECO 1311 Chapter 9 International Trade

Tariff

A tax on goods produced abroad and sold domestically.

A tariff raises the price of good, reduces the domestic quantity demanded, increases the domestic quantity supplied, and increases the quantity imported.

F

An import quota that restricts imports to the same degree as an equivalent tariff raises the same amount of government revenue as the equivalent tariff even if the government gives away the import licenses.

F

Countries should import products for which they have a comparative advantage in production.

F

If free trade is allowed and a country exports a good, domestic producers of the good are worse off and domestic consumers of the good are better off when compared to the before-trade domestic equilibrium.

F

If the world price for a good exceeds a country's before-trade domestic price for that good, the country should import that good.

F

Tariffs tend to benefit consumers.

F

Trade makes everyone better off.

F

Price Takers

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

If a foreign country subsidizes its export industries, its taxpayers are paying to improve the welfare of consumers in the importing countries.

T

If a worker in Brazil can produce 6 oranges or 2 apples in an hour while a worker in Mexico can produce 2 oranges or 1 apple in an hour, then Brazil should export oranges and Mexico should export apples.

T

If free trade is allowed and a country exports a good, the gains of domestic producers exceed the losses of domestic consumers and total surplus rises.

T

If free trade is allowed and a country imports wheat, domestic buyers of bread are better off and domestic farmers are worse off when compared to the before-trade domestic equilibrium.

T

Opponents of free trade often argue that free trade destroys domestic jobs.

T

Tariffs cause deadweight losses because they raise the price of the imported good and cause overproduction and underconsumption of the good in the importing country.

T

Trade can make everyone better off if the winners from the trade compensate the losers form trade.

T

Trade increases the economic well-being of a nation because the gains of the winners exceed the losses of the losers.

T

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.

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.

If free trade 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.

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

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.