Macroeconomics Chapter 9

A "price taker" can influence the world price.

False

A tariff will decrease the price to consumers.

False

An import quota will cause domestic consumers to gain and domestic producers to lose.

False

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

False

If a foreign country subsidizes its commodity, this affects whether or not our country should import it.

False. It has no effect on our decision to import; our decision would be based on world price, no matter how it is achieved. However, domestic producers would complain that they are being driven out of business by the unfair advantage of the foreign producers.

A tariff is a tax on goods produced domestically and sold abroad.

False. Tariffs are imposed on imports.

What are the 4 common arguments used to support trade restrictions?

Jobs National Security Infant-industry Unfair competition

A "prohibitive tariff" or "prohibitive import quota" is so restrictive it returns the domestic market to its original no-trade equilibrium.

True

A multilateral approach to reducing trade restrictions requires the cooperation of other countries.

True

It is possible for a government to achieve the same revenue from an import quota as from a tariff.

True if the quota licenses are sold at their maximum price.

There are advantages to a multilateral approach to reducing trade restrictions (over a unilateral approach).

True, but it can be hard to get other countries to cooperate.

A tariff creates a deadweight loss.

True. Because it reduces consumer surplus by a greater amount than the increase in producer surplus and government revenue.

There is only one argument against free trade that cannot be countered on economic grounds.

True. The national security argument is not based on economics but rather on other strategic objectives.

Import quota are preferred over tariffs because they raise more money for the government.

False

Many economists recommend a unilateral approach to reducing trade restrictions.

True

The results of a tariff and an import quota are nearly the same.

True

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

True