Macroeconomics study Guide part 2

The market system does not produce public goods because

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them

According to the Coase theorem

private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.

Market failure is said to occur whenever

private markets do not allocate resources in the most economically desirable way

Excise taxes on imported goods that help shield domestic producers of the good are called

protective tariffs

A "Buy American" policy strictly enforced is equivalent to a

quota

An excise tax on an imported good that is not produced domestically is called a

revenue tariff.

Which of the following is the best example of a supply-side market failure?

A firm keeps its production costs down by dumping its waste in the nearby river, adversely affecting water quality for residents in the area.

What two conditions must hold for a competitive market to produce efficient outcomes?

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay

A high tariff on imported good X might reduce domestic employment in industry Y if

X is an input used domestically in producing Y

Tariffs and quotas are costly to consumers because

consumers have to switch to higher-priced domestic goods

Studies show that

costs of trade barriers exceed their benefits, creating an efficiency loss for society

Market failures

result in overproduction or underproduction of a good

In effect, tariffs on imports are

subsidies for domestic producers

A positive externality or spillover benefit occurs when

the benefits associated with a product exceed those accruing to people who consume it.

Pigovian taxes

are used to correct negative externalities

Which is an example of a nontariff barrier (NTB)?

box-by-box inspection requirements for imported fruit

If a nation imposes a tariff on an imported product, then the nation will experience a

decrease in total supply and an increase in the price of the product

A public good

is available to all and cannot be denied to anyone

Supply-side market failures occur when

supply curves don't reflect the full cost of producing a good or service

In comparing a tariff and an import quota, we find that

the tariff generates revenue for the U.S. Treasury, but the quota does not

Demand-side market failures occur when

demand curves don't reflect consumers' full willingness to pay for a good or service.

A key difference between import quotas and voluntary export restraints (VERs) is that the

domestic government administers the former, whereas the foreign government administers the latter

The higher price of imported products due to trade barriers causes some consumers to shift their purchases to a domestically produced product that is now

higher in price because import competition has declined

Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a

import quota

The imposition of a tariff on a product is least likely to result in a

increase in efficiency in the domestic industry producing the product

A protective tariff will

increase the price and sales of domestic producers.

As it relates to international trade, dumping

is the practice of selling goods in a foreign market at less than cost

If a good that generates positive externalities was produced and priced to take into account these spillover benefits, then its

price and output would increase

Tariffs

may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs)

If one person's consumption of a good does not preclude another's consumption, the good is said to be

nonrival in consumption

The two main characteristics of a public good are

nonrivalry and nonexcludability

Which of the following arguments for trade protection contends that new domestic industries need support to establish themselves and survive?

the infant industry argument

A negative externality or spillover cost occurs when

the total cost of producing a good exceeds the costs borne by the producer

Non excludability describes a condition where

there is no effective way to keep people from using a good once it comes into being.

In the past, Canada has agreed to set an upper limit on the total amount of softwood lumber sold to the United States. This is an example of a

voluntary export restriction.

A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that

wage rates and labor productivity are directly related.