Economics 300 - Unit 4 - Chapter 4

Use the following table to define consumer surplus and producer surplus. Definition #1: The difference between the amount that buyers would be willing and able to pay for a good and the actual amount the buyer pays Definition #2 The difference between the minimum amount that producers would be willing sell their products for and the actual amount they receive

#1 Consumer Surplus #2 Producer Surplus

True or False: Two common valuation concepts used by customs appraisers are the free-on-board (FOB) technique and the cost-insurance-freight (CIF) technique. Under an FOB valuation, an ad valorem tariff is levied as a percentage of the imported commodity's total value as it arrives at its final destination. Under a CIF valuation, an ad valorem tariff is applied to a product's value as it leaves the exporting country.

False

Suppose that the production of $1 million worth of steel in Canada requires $100,000 worth of imported taconite. Canada's nominal tariff rates for importing these goods are 30% for steel and 10% for taconite. Given this information, the effective rate of protection for Canada's steel industry is

32%

Which of the following defines an ad valorem tariff? A fixed percentage of the value of the imported product as it enters the country A fixed amount of money per unit combined with a fixed percentage of the value of the imported product A fixed amount of money per unit of the imported product

A fixed percentage of the value of the imported product as it enters the country

Which of the following accurately describe the effects of an import tariff imposed on steel? Check all that apply. A loss of international competitiveness Lower output of domestic steel manufacturers An increase in jobs and compensation in the domestic steel industry A decrease in jobs and compensation in the domestic steel industry

A loss of international competitiveness An increase in jobs and compensation in the domestic steel industry

Although tariffs may improve the welfare of a single nation, the world's welfare may decline. Under what conditions would this be true? Check all that apply. A tariff sparks retaliatory tariffs by other nations. A small nation imposes a tariff on an imported good. An increase in tariffs reduces the deadweight loss. Tariffs lower the volume of trade. A tariff increases a nation's producer surplus.

A tariff sparks retaliatory tariffs by other nations. Tariffs lower the volume of trade.

Which of the following are arguments for trade restrictions that might be considered valid in today's world? Check all that apply. National security argument Infant-industry argument Equalization of production costs argument Level playing field argument

National security argument Infant-industry argument

Generally, what factors influence the size of the revenue, protective, consumption, and redistributive effects of a tariff? Check all that apply. The response of domestic producers and consumers to price changes The existence of the protection-biased sector of the economy The existence of an infant industry The impact of the tariffs on domestic prices

The response of domestic producers and consumers to price changes The impact of the tariffs on domestic prices

How do foreign trade zones help importers mitigate the effects of domestic import duties? They pose a significant entry barrier for any developing nation wishing to compete in the primary commodities area. They allow imported goods to be put into storage without the payment of duties until the goods are withdrawn for domestic consumption.

They allow imported goods to be put into storage without the payment of duties until the goods are withdrawn for domestic consumption.

Suppose CaliBerry, which makes smartphones, adds value by assembling smartphone components that are produced abroad. Suppose the imported components can enter the United States on a duty-free basis (zero tariff). Suppose also that 20% of a smartphone's final value can be attributed to domestic assembly activities (value added). The domestic price of a smartphone is $500. The remaining 80% reflects the value of the imported components. Let the cost of the smartphone's components be the same for both CaliBerry and its foreign competitor, which can produce and sell a smartphone for $500. Evaluate the following statement. True or False: When material inputs or intermediate products enter a country at a low duty while the final imported product is protected by a high duty, the nominal tariff rate on the final product understates the effective rate of protection. True False

True

True or False: An import tariff does not need to push the price of an imported computer above the price of its domestic counterpart for the domestic producers to prosper. The tariff should be just high enough to reduce the price differential between the imported products and the domestically made products.

True

True or False: The imposition of a tariff on a large nation improves its terms of trade, while trade volume declines.

True

A decrease in the market price results in an increase in _____ surplus and a decrease in _____ surplus.

consumer producer

Which of the following is the correct formula for the effective rate of protection? e=ab/1−a e=1-a/ab e=n-ab/1-a e=(n-ab)x(1-a)

e=n-ab/1-a

Industrialized nations' low tariffs on primary commodities ______ developing nations to expand operations in these sectors. The high protective rates levied on manufactured goods _______ developing nations wishing to compete in this area.

encourage create entry barriers for

Complete the following paragraph to explain the effect of imposing tariffs on imported goods on a nation's welfare. Suppose a large economy imposes a specific tariff of $1,000 on imported computers. If the terms-of-trade effect exceeds the deadweight losses resulting from the tariff, its national welfare _____.

increases

Which of the following tariffs provide protection to domestic producers during periods of changing prices? Check all that apply. A specific tariff An ad valorem tariff A compound tariff

An ad valorem tariff

What is meant by the term foreign trade zone? A storage facility for imported goods An area where foreign merchandise can be repackaged, repaired, or assembled into finished products

An area where foreign merchandise can be repackaged, repaired, or assembled into finished products