Deck 8: Import Tariffs and Quotas Under Imperfect Competition

Question 1

An international conference in Bretton Woods, New Hampshire, in 1944
Resulted in the formation of:

A)the European Union in 1945.
B)the Kyoto Agreement in 1971.
C)the General Agreement on Tariffs and Trade (GATT) in 1947.
D)the International Red Cross in 1955.

Answer 1

C

Question 2

What is the MOST recent set of negotiations at WTO called?

A)the Doha round
B)the Kyoto round
C)the Geneva accord
D)the Paris negotiation

Answer 2

A

Question 3

GATT is the acronym (or abbreviation) for:

A)the General Agreement on Taxes and Tariffs.
B)the General Agreement on Tariffs and Trade.
C)the General Agreement on Trade and Taxes.
D)the General Agreement on Trade.

Answer 3

B

Question 4

Import tariffs are ___________ on imports, and import quotas are
____________ on imports.

A)subsidies; taxes
B)limits; subsidies
C)taxes; limits
D)limits; taxes

Question 5

The safeguard provision or escape clause 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.

Question 6

The escape clause in U.S.trade law:

A)enables the United States to withdraw from NAFTA.
B)permits the U.S.government to impose trade barriers if fairly traded imports are the cause of significant injury to a U.S.industry and its
Workers.
C)permits the government to impose trade remedies against nations that unfairly subsidize their exports to the United States.
D)enables immigrants to return to their home countries.

Question 7

Which of the following is an exception to the most favored nation
Principle?

A)trade in petroleum
B)trade with Japan
C)tariff concessions negotiated within a free­trade area or a customs union
D)trade in services

Question 8

What GATT provision did the United States use to justify levying tariffs on
Tire imports in fall 2009?

A)antidumping duties
B)export subsidization
C)safeguard clause
D)national security

Question 9

Which organization acts as a forum for countries to come to agreement on
Trade policies and resolve trade policy disputes?

A)the International Trade Organization
B)the United Nations
C)the World Trade Organization
D)the United Nations Conference on Trade and Development

Question 10

To help its domestic producers, the United States unilaterally raised tariffs
On ____ in early 2002, but after a ruling against the United States by the
WTO, it was forced to rescind the tariff.

A)autos
B)steel
C)oil
D)dairy products

Question 11

The General Agreement on Tariffs and Trade focused on:

A)raising tariffs on agricultural products.
B)lowering trade restrictions between countries.
C)promoting full employment worldwide.
D)increasing trade restrictions between countries.

Question 12

Under the WTO provision of Article XIX, countries can:

A)never charge a tariff on an import.
B)always charge a tariff on imports.
C)temporarily charge a higher tariff on certain commodities.
D)provide subsidies to all domestic producers of import competing products.

Question 13

WTO is the acronym for:

A)the World Traffic Organization.
B)the World Trade Organization.
C)the World Tariff Organization.
D)the World Tax Organization.

Question 14

Under the GATT framework, nations negotiated for up to six years,
Resulting in new trade agreements.These are known as:

A)conferee sessions.
B)plenary meetings.
C)sesqui­sessions.
D)rounds.

Question 15

The United States recently levied tariffs on tires imported from what
Country?

A)Japan
B)Brazil
C)Russia
D)China

Question 16

What organization emerged from the GATT, starting January 1, 1995, with
Expanded responsibilities and global interaction?

A)the Doha round
B)the World Trade Organization
C)the United Nations
D)the Institute for International Economics

Question 17

What is an "export subsidy"?

A)a payment by one government to another for exports
B)a payment (or other benefit) to domestic firms by their government to help them sell exports more cheaply
C)the rule that says all exports must be taxed before they leave the port
D)a provision that exporters must get their payments indirectly through a third party

Question 18

GATT maintained a provision that nations could enact temporary
Emergency tariffs or quotas if imports threatened the existence of
Domestic producers.The WTO has not struck that provision.Economists
Call this:

A)the tariff bill.
B)the escape clause.
C)justifiable means.
D)domestic job security provision.

Question 19

One feature of the GATT and now the WTO is that all member nations get
The same treatment from their trading partners in terms of trade rules and
Restrictions.This provision is called:

A)beggar thy neighbor.
B)the good neighbor policy.
C)rotating obligations.
D)most favored nation status.

Question 20

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.

Question 21

Figure: Consumer Surplus (Figure: Consumer Surplus) When the price of the product is $15, the
Consumer surplus is:

A)$416.
B)$208.
C)$13.
D)$15.

Question 22

We can measure producer and consumer surplus by looking at the supply
And demand graphical representation.Producer surplus is:

A)the area above the supply curve but below the equilibrium price.
B)the area below the demand curve but greater than the equilibrium price.
C)the area below the demand curve all the way down to the quantity axis.
D)the combined triangular area below the demand curve and above the supply curve.

Question 23

If we assume perfect competition in the product markets, producer
Surplus is:

A)maximized.
B)minimized.
C)equal to the firm's monopoly profits.
D)equal to the return to the fixed factors of production.

Question 24

When consumers are able to buy a product at a price lower than its
Marginal value to them, it is called:

A)consumer surplus.
B)consumer sovereignty.
C)producer surplus.
D)marginal utility.

Question 25

A customs union is different from a free­trade area, in that:

A)the latter allows for free movement of factors, whereas the former does not.
B)the latter allows for uniform tariffs, whereas the former does not.
C)the latter removes trade barriers between member countries, whereas the former adopts identical tariffs with the rest of the world.
D)the former removes trade barriers between member countries, whereas the latter adopts identical tariffs with the rest of the world.

Question 26

GATT/WTO allows nations to impose tariffs in response to unfair trade
Practices such as:

A)dumping.
B)transportation costs.
C)environmental degradation.
D)import subsidies.

Question 27

Which of the following is NOT an important provision of GATT?

A)the most favored nation clause
B)the safeguard provision or escape clause
C)antidumping tariffs
D)approval of export subsidies

Question 28

Normally the WTO does not allow discriminatory treatment in trade of
Member nations, but it makes an exception for nations:

A)that have a large trade surplus.
B)using environmentally harmful production techniques.
C)that cannot control drugs and other illegal activities.
D)engaging in regional free­trade agreements.

Question 29

Suppose that consumer demand is given by this equation: P = 10 - Q.
What is the value of consumer surplus when P = 5?

A)$5
B)$12.50
C)$25
D)$50

Question 30

(Figure: Consumer Surplus) If the price of the product decreases to $10,
The consumer surplus increases by:

A)$378.
B)$208.
C)$420.
D)$170.

Question 31

China recently became a member of the World Trade Organization.For
China, one of the benefits of WTO membership is:

A)most favored nation treatment of its exports.
B)the right to increase tariffs on all its imports.
C)the right to subsidize all its exports.
D)the right to impose antidumping duties on its imports.

Question 32

One interpretation of producer surplus is that it equals:

A)the profits of a firm.
B)the return to the fixed factors of production in an industry.
C)consumer surplus.
D)the difference between the price of a product and its average cost of production.

Question 33

Producer surplus is:

A)the difference between the price of a product and marginal cost of producing the product.
B)the difference between the price of a product and what consumers were willing to pay for the product.
C)the difference between the discounted price of a product and its retail price.
D)the difference between the price of a product and its average cost of production.

Question 34

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, GATT
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 or escape clause tariffs
D)tariff reductions negotiated in free­trade areas

Question 35

Suppose that the supply curve for widgets is described by this equation: P
= 2Q.What is the value of producer surplus when P = 5?

A)$5
B)$12.50
C)$25
D)$50

Question 36

A free­trade area is defined as:

A)a trading agreement that allows for free flow of resources.
B)a trading agreement that binds member countries to have a uniform tariff on other countries.
C)a trading agreement that lets countries rely on subsidies on domestic production.
D)a trading agreement in which a group of countries voluntarily agree to remove trade barriers between themselves.

Question 37

Consumer surplus is:

A)the difference between the price of a product and consumers' valuation of the last unit of the product purchased.
B)the difference between the price of a product and what consumers were willing to pay for the product.
C)the difference between the discounted price of a product and its retail price.
D)the difference between the price paid by consumers and the price required of producers.

Question 38

We can measure producer and consumer gains by looking at the supply
And demand graphical representation.Total welfare in the economy would
Be:

A)the area above the supply curve but below the equilibrium price.
B)the area below the demand curve but greater than the equilibrium price.
C)the area below the demand curve all the way down to the quantity axis.
D)the combined triangular area below the demand curve and above the supply curve.

Question 39

We can measure producer and consumer surplus by looking at the supply
And demand graphical representation.Consumer surplus is:

A)the area above the supply curve but below the equilibrium price.
B)the area below the demand curve but greater than the equilibrium price.
C)the area below the demand curve all the way down to the quantity axis.
D)the combined triangular area below the demand curve and above the supply curve.

Question 40

The difference between the price consumers are willing to pay and the
Price that they actually pay is known as:

A)price discrimination.
B)government surplus.
C)consumer surplus.
D)producer surplus.

Question 41

How many units will a country import if S = 1P represents its home supply
Curve, D = 100 - 1P represents its home demand curve, and the world
Price is $25?

A)25
B)50
C)75
D)100

Question 42

SCENARIO: PRODUCTION IN NORWAY
Suppose that Norway is a small country and currently produces 100,000
Board feet of lumber at $600 per 1,000 board feet.Then it begins to trade
At the world price of $500 per 1,000 board feet.As a result of trade,
Norway's production falls to 50,000 board feet and its consumption
Increases to 200,000 board feet.
Reference: Ref 8­2
(Scenario: Production in Norway) How many board feet of lumber does
Norway now import?

A)250,000 board feet
B)200,000 board feet
C)150,000 board feet
D)100,000 board feet

Question 43

Figure: Home's Import­Competing Industry (Figure: Home's Import­Competing Industry) What is this nation's
"welfare" before trade?

A)triangle AFB
B)triangle AEC
C)quadrangle DEBC
D)triangle EFC

Question 44

Figure: Home's Import­Competing Industry (Figure: Home's Import­Competing Industry) What is the consumer
Surplus before trade?

A)triangle ADB
B)triangle AEC
C)quadrangle DEBC
D)triangle EFG

Question 45

(Figure: The Import­Competing Industry) In the figure, with free trade, if
The world price of the product is $15, then the total consumer surplus is:

A)$1,395.
B)$697.50.
C)$22.50.
D)$2,250.

Question 46

(Figure: Home's Import­Competing Industry) What is the consumer
Surplus after trade?

A)triangle ADB
B)triangle AEC
C)quadrangle DEBC
D)triangle EFG

Question 47

(Figure: Home's Import­Competing Industry) What is the domestic price
After trade?

A)$100
B)$800
C)$50
D)$1,300

Question 48

A small country in international trade faces:

A)a perfectly elastic world supply curve.
B)a perfectly inelastic world supply curve.
C)a perfectly elastic world demand curve.
D)a perfectly inelastic world demand curve.

Question 49

Figure: Home's Import­Competing Industry (Figure: Home's Import­Competing Industry) How would we measure the
"gains" from trade in this diagram?

A)triangle AFB
B)triangle AEC
C)quadrangle DECB (consumer gains) - DEBG (producer losses)
D)triangle EFC

Question 50

(Figure: Home's Import­Competing Industry) What is the domestic price
Before trade?

A)$100
B)$800
C)$50
D)$1,300

Question 51

SCENARIO: PRODUCTION IN NORWAY
Suppose that Norway is a small country and currently produces 100,000
Board feet of lumber at $600 per 1,000 board feet.Then it begins to trade
At the world price of $500 per 1,000 board feet.As a result of trade,
Norway's production falls to 50,000 board feet and its consumption
Increases to 200,000 board feet.
Reference: Ref 8­2
(Scenario: Production in Norway) What is the Norway's total welfare gain
Once it begins to trade?

A)$5,000
B)$7,500
C)$15,000
D)$17,500

Question 52

(Figure: The Import­Competing Industry) If the demand for the product
Increases and the new equilibrium price is 30 and quantity is 50, what is
The increase in producer surplus?

A)$625
B)$550
C)$255
D)$370

Question 53

(Figure: Home's Import­Competing Industry) What is this nation's
"welfare" after trade?

A)triangle AFB
B)triangle AEC + triangle EFG
C)quadrangle DEB
D)triangle EFG

Question 54

(Figure: The Import­Competing Industry) In comparison to a no­trade
Situation, with free trade, producer surplus __________ to _________.

A)increases; $75
B)decreases; $75
C)increases; $150
D)decreases; $150

Question 55

If S = 1P represents a country's home supply curve and D = 100 - 1P
Represents its home demand curve, then the equilibrium price and
Quantity in autarky are:

A)$100 and 0 units
B)$50 and 50 units.
C)$0 and 100 units
D)All the answer choices are incorrect.

Question 56

(Figure: Home's Import­Competing Industry) Based on the graph, which
Of the following statement(s) about the Home import demand curve
Is(are) CORRECT?
I)The Home import demand curve shows total imports of the product at
Various world prices
II)According to the Home import demand curve, this nation would import
Nothing when the world price is $100.
III)According to the Home import demand curve, this nation would import
900 units when the world price of $50.

A)I
B)II
C)III
D)I, II, and III

Question 57

If there is free trade in a small economy, the nation will be able to import
Unlimited quantities of the product at:

A)the domestic price.
B)the world price.
C)the price measured in euros.
D)the price determined after all tariffs are assessed.

Question 58

The Home import demand curve is downward sloping because:

A)as the government forces the price down, consumers buy more.
B)foreign companies want to help domestic competitors.
C)as the price falls below domestic equilibrium, the shortage in demand is filled by importing more quantity from abroad.
D)consumers can control the price of the good.

Question 59

SCENARIO: PRODUCTION IN NORWAY
Suppose that Norway is a small country and currently produces 100,000
Board feet of lumber at $600 per 1,000 board feet.Then it begins to trade
At the world price of $500 per 1,000 board feet.As a result of trade,
Norway's production falls to 50,000 board feet and its consumption
Increases to 200,000 board feet.
Reference: Ref 8­2
(Scenario: Production in Norway) What is Norway's total gain in consumer
Surplus once it begins to trade?

A)$10,000
B)$15,000
C)$100,000
D)$150,000

Question 60

Figure: The Import­Competing Industry Reference: Ref 8­3
(Figure: The Import­Competing Industry) The producer surplus without
Trade in the figure is:

A)$255.
B)$510.
C)$22.
D)$17.

Question 61

Suppose that the equations S = 2P and D = 6 - P represent a small
Country's home supply and home demand curves.If the world price is $1,
Which of the following is the increase in the country's surplus when it
Trades compared with autarky?

A)$6.00
B)$4.50
C)$2.50
D)$0.50

Question 62

Which of the following is NOT an effect of an import tariff?

A)It increases producer surplus by raising the market price and allowing more production.
B)It raises government revenue.
C)It reduces consumer surplus by raising the market price.
D)It improves efficiency in the economy overall because it saves high­ paying jobs.

Question 63

SCENARIO: FINNISH STEEL
Suppose that the free­trade price of a ton of steel is €500.(Note: € is the
Symbol for the euro, a common currency used in 16 European countries,
Including Finland.) Finland, a small country, imposes a €60 per­ton
Specific tariff on imported steel.With the tariff, Finland produces 300,000
Tons of steel and consumes 600,000 tons of steel.
Reference: Ref 8­5
(Scenario: Finnish Steel) What is the purpose of this €60­per­ton tariff?

A)Its purpose is to protect Finnish steel consumers from foreign competition.
B)Its purpose is to protect Finnish steel producers and consumers from the World Trade Organization.
C)Its purpose is to protect Finnish steel producers from foreign competition.
D)Its purpose is to cause Finland to comply with provisions of the General Agreement on Tariffs and Trade.

Question 64

(Scenario: Guatemala's Television Market) With free trade, how many TV
Sets will Guatemala produce?

A)800
B)600
C)400
D)200

Question 65

(Scenario: Guatemala's Television Market) Suppose that Guatemala now
Imposes a 100% tariff on imported TVs.How many TVs will it now import?

A)0
B)200
C)400
D)600

Question 66

Suppose that the equations S = 2P and D = 6 - P represent a small
Country's home supply and home demand curves.If the government
Imposed a 50% tariff on imports, how much revenue would it collect as a
Result of the tariff? (Note: It is possible to consume partial units of this
Product, such as 2.5 units.)

A)$1.50
B)$2.75
C)$0.50
D)$0.75

Question 67

SCENARIO: FINNISH STEEL
Suppose that the free­trade price of a ton of steel is €500.(Note: € is the
Symbol for the euro, a common currency used in 16 European countries,
Including Finland.) Finland, a small country, imposes a €60 per­ton
Specific tariff on imported steel.With the tariff, Finland produces 300,000
Tons of steel and consumes 600,000 tons of steel.
Reference: Ref 8­5
(Scenario: Finnish Steel) How much total tariff revenue will the Finnish
Government collect as a result of the €60­per­ton tariff?

A)€6 million
B)€12 million
C)€18 million
D)€30 million

Question 68

(Scenario: Guatemala's Television Market) With free trade, how many TV
Sets will Guatemala import?

A)1,800
B)1,200
C)800
D)600

Question 69

(Scenario: Guatemala's Television Market) In the absence of trade, how
Many TV sets will Guatemala produce?

A)1,400
B)1,200
C)1,000
D)800

Question 70

SCENARIO: FINNISH STEEL
Suppose that the free­trade price of a ton of steel is €500.(Note: € is the
Symbol for the euro, a common currency used in 16 European countries,
Including Finland.) Finland, a small country, imposes a €60 per­ton
Specific tariff on imported steel.With the tariff, Finland produces 300,000
Tons of steel and consumes 600,000 tons of steel.
Reference: Ref 8­5
(Scenario: Finnish Steel) Who will gain and who will lose as a result
Finland's €60­per­ton tariff on imported steel?

A)Both Finnish steel producers and steel consumers will be worse off with the tariff than without it.
B)Finnish steel producers will be better off, and Finnish steel consumers will be worse off with the tariff than without it.
C)Finnish steel producers will be worse off, and Finnish steel consumers will be better off with the tariff than without it.
D)Both Finnish steel producers and steel consumers will be better off with the tariff than without it.

Question 71

SCENARIO: FINNISH STEEL
Suppose that the free­trade price of a ton of steel is €500.(Note: € is the
Symbol for the euro, a common currency used in 16 European countries,
Including Finland.) Finland, a small country, imposes a €60 per­ton
Specific tariff on imported steel.With the tariff, Finland produces 300,000
Tons of steel and consumes 600,000 tons of steel.
Reference: Ref 8­5
(Scenario: Finnish Steel) What is likely to happen to Finnish production of
Steel and the price of steel sold in Finland after the €60­per­ton tariff is
Imposed?

A)Finnish steel production will fall, and the Finnish price of steel will fall.
B)Finnish steel production will rise, and the Finnish price of steel will fall.
C)Finnish steel production will fall, and the Finnish price of steel will rise.
D)Finnish steel production will rise, and the Finnish price of steel will rise.

Question 72

(Scenario: Guatemala's Television Market) What is the value of the total
Welfare losses that Guatemala will suffer as a result of the 100% tariff on
Imported TVs?

A)$270,000
B)$360,000
C)$540,000
D)$720,000

Question 73

Suppose that the equations S = 2P and D = 6 - P represent a small
Country's home supply and home demand curves.Which of the following
Is the equilibrium price in autarky?

A)$2
B)$4
C)$6
D)$8

Question 74

SCENARIO: FINNISH STEEL
Suppose that the free­trade price of a ton of steel is €500.(Note: € is the
Symbol for the euro, a common currency used in 16 European countries,
Including Finland.) Finland, a small country, imposes a €60 per­ton
Specific tariff on imported steel.With the tariff, Finland produces 300,000
Tons of steel and consumes 600,000 tons of steel.
Reference: Ref 8­5
(Scenario: Finnish Steel) What is the value of the tariff revenue from the
€60­per­ton tariff?

A)€6 million
B)€12 million
C)€18 million
D)€30 million

Question 75

SCENARIO: GUATEMALA'S TELEVISION MARKET
The following table gives the hypothetical supply and demand of television
(Scenario: Guatemala's Television Market) How much total tariff revenue
Will Guatemala collect when it imposes the 100% tariff on imported TVs?

A)$300
B)$0
C)$240,000
D)$360,000

Question 76

SCENARIO: FINNISH STEEL
Suppose that the free­trade price of a ton of steel is €500.(Note: € is the
Symbol for the euro, a common currency used in 16 European countries,
Including Finland.) Finland, a small country, imposes a €60 per­ton
Specific tariff on imported steel.With the tariff, Finland produces 300,000
Tons of steel and consumes 600,000 tons of steel.
Reference: Ref 8­5
(Scenario: Finnish Steel) Suppose that the €60­per­ton tariff caused
Finnish production of steel to increase by 100,000 tons and Finnish
Consumption of steel to fall by 100,000 tons.What is the value of
Finland's welfare loss due to the tariff?

A)200,000 tons
B)€6 million
C)€12 million
D)€15 million

Question 77

SCENARIO: FINNISH STEEL
Suppose that the free­trade price of a ton of steel is €500.(Note: € is the
Symbol for the euro, a common currency used in 16 European countries,
Including Finland.) Finland, a small country, imposes a €60 per­ton
Specific tariff on imported steel.With the tariff, Finland produces 300,000
Tons of steel and consumes 600,000 tons of steel.
Reference: Ref 8­5
(Scenario: Finnish Steel) What will happen to the Finnish price of steel if
Finnish demand increases and the tariff remains at €60­per­ton?

A)It will not change.
B)It will increase.
C)It will decrease.
D)It will first increase, then decrease.

Question 78

Reference: Ref 8­6
(Scenario: Guatemala's Television Market) Who will benefit from
Guatemala's 100% tariff on imported TVs?

A)Guatemala's consumers
B)Guatemala's TV producers
C)Guatemala's TV importers
D)foreign TV manufacturers

Question 79

If S = 1P represents a country's home supply curve and D = 100 - 1P
Represents its home demand curve, then the equation representing its
Import demand curve is:

A)100 - 2P.
B)50 - 1P.
C)100 - 1P.
D)50 - 2P.

Question 80

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.