Deck 9: Import Tariffs and Quotas Under Imperfect Competition

Question 1

Which country has received the most attention under the Trade Facilitation and Trade Enforcement Act of 2015?

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

Answer 1

D

Question 2

A monopoly firm will sell ________output and charge a ________ price than a perfectly competitive firm.

A) less; higher
B) more; higher
C) more; lower
D) less; lower

Answer 2

A

Question 3

(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. What is its profit-maximizing output level?

A) 5
B) 6
C) 7
D) 8

Answer 3

A

Question 4

(Figure: The Home Market) If the world price is $15, the domestic monopolist will produce ______ and the country will import ________.

A) 18; 10
B) 12; 6
C) 18; 16
D) 12; 16

Question 5

If a monopoly suddenly became a perfectly competitive industry, equilibrium output would _________, and the equilibrium price would _________.

A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase

Question 6

A monopoly firm operating with no trade will produce the profit-maximizing quantity where:

A) the firm's MC = MR, where MR is declining and below price.
B) MR begins to increase and MC begins to decrease.
C) P = MC.
D) the firm's MC = MR, where MR is declining and equal to price.

Question 7

A profit-maximizing monopolist will produce at the point where:

A) total revenue = total costs.
B) marginal revenue = marginal cost.
C) average revenue = average cost.
D) the difference between average revenue and average cost is maximized.

Question 8

(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. What is its profit-maximizing price?

A) $20
B) $15
C) $10
D) $5

Question 9

(Figure: The Home Market) Under conditions of no-trade, the domestic monopolist will produce and sell _______ at a price of _________.

A) 18; $15
B) 28; $15
C) 12; $25
D) 12; $15

Question 10

The small-country monopolist's free-trade equilibrium occurs:

A) where MC = MR, where MR is declining and below price.
B) at the "world" price, which becomes a perfectly elastic demand curve for the monopoly firm and the firm's marginal cost curve.
C) where the home demand is completely satisfied by foreign importers.
D) at minimum marginal cost.

Question 11

The no-trade equilibrium in a perfectly competitive market occurs where:

A) marginal revenue = price.
B) marginal cost = total revenue.
C) market quantity demanded = market quantity supplied.
D) average revenue = price.

Question 12

Comparing the monopoly firm with a perfectly competitive firm reveals that:

A) the competitive firm sells less quantity.
B) the monopoly firm charges a lower price.
C) the competitive firm's price is above MC.
D) None of these is revealed when the two firm are compared.

Question 13

If we allow free trade in a small nation's industry where there is a domestic monopolist, the monopoly firm:

A) gains even more power.
B) sees its profits rise.
C) becomes a price taker, is not able to charge a higher price, and behaves like a competitive firm.
D) is able to charge a higher price.

Question 14

The small-country monopolist's free-trade equilibrium features a marginal revenue curve equal to __________ and coincident with _____________.

A) marginal cost; the consumer's demand curve for the product
B) the world price; the new competitive demand curve for the firm
C) one; profits
D) imports at each price; the supply curve

Question 15

If a perfectly competitive industry suddenly became a monopolist, equilibrium output would _________, and the equilibrium price would _________.

A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase

Question 16

A foreign discriminating monopolist is engaging in:

A) infant industry protection.
B) dumping its product.
C) giving preferential treatment to domestic consumers.
D) charging higher prices to foreign consumers.

Question 17

The no-trade equilibrium in a monopolistic market occurs where:

A) marginal revenue = price.
B) marginal cost = marginal revenue.
C) market demand = market supply.
D) marginal cost = average revenue.

Question 18

The tariff imposed to punish a foreign discriminating monopolist is called:

A) an antidumping duty.
B) a subsidy.
C) punitive damages.
D) a fine.

Question 19

(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. If the firm's profit-maximizing output level is 5 and its profit-maximizing price is $15, what are its monopoly profits at this price and quantity?

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

Question 20

What will happen to domestic monopolists' prices and outputs when a small country engages in international trade?

A) Prices will rise and outputs will fall.
B) Prices will rise and outputs will rise.
C) Prices will fall and outputs will rise.
D) Prices will fall and outputs will fall.

Question 21

Because the small-country monopolist loses the ability to control the market price, consumers enjoy more quantity, competitive prices, and:

A) a bonus because the foreign goods are of higher quality.
B) a loss because the monopoly loses profits.
C) higher consumer surplus because the monopolist's producer surplus is reduced.
D) a loss because now unions have less power than before.

Question 22

(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 - 2Q and has total costs given by TC = Q². Its marginal revenue is MR = 60 - 4Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $10. What is the firm's profit-maximizing output level?

A) 5
B) 20
C) 30
D) 40

Question 23

If we allow free trade in a small nation's industry where there is a domestic monopolist, the monopoly firm:

A) gains even more power.
B) earns higher profits.
C) charges a lower price and produces more output.
D) charges a higher price and produces less output.

Question 24

(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. The profit-maximizing output level is 6, and the profit-maximizing price equals $12. What are its monopoly profits at this price and quantity?

A) $25
B) $36
C) $50
D) $75

Question 25

When a domestic monopolist in a small country becomes subject to international competition, it behaves as a(n):

A) monopolist.
B) duopolist.
C) imperfect competitor.
D) perfect competitor.

Question 26

(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 - 2Q and has total costs given by TC = Q². Its marginal revenue is MR = 60 - 4Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $10. Calculate the value of the firm's profits.

A) $400
B) $1,200
C) -$1,600
D) $25

Question 27

When a domestic monopolist becomes subject to international competition, it faces:

A) a perfectly inelastic demand curve.
B) a unitary elastic demand curve.
C) a perfectly elastic demand curve.
D) no demand curve.

Question 28

(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 - 2Q and has total costs given by TC = Q². Its marginal revenue is MR = 60 - 4Q and its marginal cost is MC = 2Q. In autarky, what is the firm's equilibrium output?

A) 5
B) 10
C) 15
D) 20

Question 29

(Figure: The Home Market) For a home monopolist, free trade results in:

A) more control over the domestic market.
B) more control over the foreign market.
C) an inability to control prices.
D) no change in the monopolistic behavior.

Question 30

In comparison to the welfare effects of a tariff in a perfectly competitive home market, the welfare effects of a tariff under a home monopoly are _______, and the deadweight loss for the home monopoly is ________.

A) the same; the same
B) higher; lower
C) lower; higher
D) lower; lower

Question 31

With free trade, the demand curve facing a small-country monopolist:

A) is horizontal at the world price.
B) shifts upward by the amount of imports demanded.
C) shifts downward by the amount of imports demanded.
D) is horizontal at the firm's MC.

Question 32

(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 - 2Q and has total costs given by TC = Q². Its marginal revenue is MR = 60 - 4Q and its marginal cost is MC = 2Q. Compared with the no-trade equilibrium, consumer surplus ___________ when the monopolist engages in free trade.

A) increases
B) decreases
C) remains the same
D) first decreases, then increases

Question 33

(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 - 2Q and has total costs given by TC = Q². Its marginal revenue is MR = 60 - 4Q and its marginal cost is MC = 2Q. Compared with the no-trade equilibrium, producer surplus ___________ when the monopolist engages in free trade.

A) increases
B) decreases
C) remains the same
D) first increases, then decreases

Question 34

(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is the monopolist's profit-maximizing output level?

A) 5
B) 6
C) 7
D) 8

Question 35

(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is its profit-maximizing price?

A) $20
B) $15
C) $12
D) $10

Question 36

(Figure: The Home Market) With free trade, the consumer surplus is _________ than in the case of no-trade domestic monopoly.

A) lower
B) higher
C) constant
D) More information is needed to answer this question.

Question 37

The small country monopolist's free-trade equilibrium occurs:

A) where MC = MR and where MC is greater than the world price.
B) at the same price as in autarky.
C) at a higher price than the autarkic price.
D) where MC = the world price.

Question 38

When the small home nation imposes a tariff of $10, the domestic price:

A) rises by more than $10.
B) rises by $10.
C) rises by less than $10.
D) does not change.

Question 39

(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 - 2Q and has total costs given by TC = Q². Its marginal revenue is MR = 60 - 4Q and its marginal cost is MC = 2Q. What price does the monopolist charge with no trade?

A) $5
B) $20
C) $25
D) $40

Question 40

What is the outcome when the home nation imposes a tariff on a product currently produced by a home firm monopoly?

A) The home firm then will regain its monopoly control over the price.
B) The home firm will be able to charge a higher price (world price + tariff), but it will become a price taker, just like a competitive firm.
C) The home nation's firm will be able to limit quantity and charge a higher price.
D) The monopoly firm will lower price, increase sales, and undercut the foreign competition.

Question 41

(Figure: Supply and Demand at Home) With a quota of 200 units, how many units would be produced in a perfectly competitive home market?

A) 400
B) 650
C) 850
D) 1,000

Question 42

(Figure: Supply and Demand at Home) With a quota of 200 units, what would be the price in a home monopoly situation?

A) $18
B) $23
C) $25
D) $30

Question 43

(Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. What is the value of the consumer surplus with free trade?

A) $150,000
B) $157,250
C) $78,625
D) $850

Question 44

When we compare a tariff levied on an import where the home firm is a monopoly with an import tariff where the home firms are competitive, we find:

A) the exact same result-both the monopolist and the competitive firm charge the world price plus the tariff and both firms produce a quantity where MC = MR = world price plus the tariff.
B) that the monopoly firm will be able to charge a higher price and limit its quantity.
C) that the competitive firm will not be able to survive the impact of the tariff.
D) the monopoly firm will pay its workers less and earn higher profits.

Question 45

(Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. After the imposition of the tariff, the home monopolist's production increased by ______ and the country's producer surplus increased by ________.

A) 55 units; $5,250
B) 75 units; $1,225
C) 100 units; $6,475
D) 35 units; $6,475

Question 46

(Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. The world price is $250. With free trade, the home country will produce ________ and import ________.

A) 110; 185
B) 75; 110
C) 150; 185
D) 75; 75

Question 47

(Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. What is the decrease in consumer surplus due to the tariff?

A) $58,500
B) $78,625
C) $20,125
D) $11,725

Question 48

(Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. With the tariff, how much does the home government collect in tariff revenue?

A) $5,600
B) $2,800
C) $1,000
D) $3,200

Question 49

For a home monopolist, a quota allows the firm to increase the price by _______________ they could with an equivalent tariff.

A) a higher amount than
B) a lower amount than
C) the same amount as
D) Not enough information is provided to answer the question.

Question 50

The WTO has encouraged nations to replace their import quotas with tariffs. Why?

A) Quotas are more difficult to administer for the customs people.
B) Quotas are more discriminatory.
C) Quotas hurt domestic firms more than tariffs.
D) Quotas result in larger losses than tariffs with equivalent protection.

Question 51

How does the demand curve facing a home monopolist compare in a no-trade situation to a situation in which a quota protects the monopolist's output?

A) They are identical.
B) The quota-protected demand curve lies to the right of the no-trade demand curve.
C) The quota-protected demand curve lies to the left of the no-trade demand curve.
D) The no-trade demand curve is perfectly price elastic at the world price; the quota-protected demand curve has a negative slope.

Question 52

When a country imposes a tariff to protect a domestic monopolist from international competition, the monopolist will produce _______ output and charge _______ if the domestic industry was perfectly competitive.

A) more; a higher price than
B) the same; the same price as
C) less; a higher price than
D) less; a lower price than

Question 53

(Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free and with the imposition of a tariff. What is the value of the country's deadweight loss due to the tariff?

A) $1,225
B) $4,900
C) $2,450
D) $1,000

Question 54

(Figure: The Home Monopolist's Market) The graph shows a home monopolist market with free trade and with the imposition of a tariff. What is the dollar value of the tariff and the new quantity of imports?

A) $70; 40
B) $70; 75
C) $320; 185
D) $250; 110

Question 55

(Figure: Supply and Demand at Home) Which line describes the new MR curve after the quota is imposed?

A) A
B) B
C) C
D) MC

Question 56

How do the deadweight losses of a tariff differ when the domestic industry is perfectly competitive from when it is a monopoly?

A) They are the same.
B) Deadweight losses are larger for a perfectly competitive industry than for a monopoly.
C) Deadweight losses are larger for a monopoly than for a perfectly competitive industry.
D) It is not possible to compare deadweight losses of a monopoly with those of a perfectly competitive industry.

Question 57

(Figure: Supply and Demand at Home) Suppose the world price is $18, which line in the graph describes the "new" demand curve for the monopolist after a quota of 200 units is imposed?

A) A
B) B
C) C
D) MC

Question 58

When the home country is small, how will a tariff protecting a home monopolist affect the home country's demand curve?

A) There will be an upward parallel shift in the perfectly elastic demand curve.
B) The demand curve will pivot upwards from its vertical intercept.
C) There will be a downward parallel shift in the demand curve.
D) The demand curve will pivot downward from its vertical intercept.

Question 59

(Figure: Supply and Demand at Home) With a quota of 200 units, what would be the price in a perfectly competitive home market?

A) $18
B) $23
C) $25
D) $30

Question 60

(Figure: Supply and Demand at Home) How many units will be imported after the quota is imposed?

A) 50
B) 100
C) 150
D) 200

Question 61

Under the voluntary export restraints, the Japanese government allocated each Japanese auto producer a certain number of cars that they could export to the United States. As a result, Japanese auto producers exported:

A) fewer and more luxurious cars to the United States.
B) fewer and less luxurious cars to the United States.
C) more luxurious cars to the United States.
D) less luxurious cars to the United States.

Question 62

Under the VER of the 1980s, Japan's automakers received:

A) additional quota rents of about $2.2 billion.
B) approximately 10% lower prices.
C) censure by the WTO for failing to behave in a competitive manner.
D) wage concessions from their U.S. employees to keep plants open in the United States.

Question 63

(Figure: Supply and Demand at Home) How many units will be produced in a home monopoly situation?

A) 400
B) 650
C) 850
D) 1,000

Question 64

When there is a foreign monopoly exporting to the home nation, under free trade it will sell a quantity where the home ______ is just equal to the foreign ______.

A) MC; MR
B) supply; demand
C) demand; supply
D) MR; MC

Question 65

Roughly ________ of the increased prices of Japanese automobiles during the 1980s was due to the voluntary export restraints.

A) 25%
B) 35%
C) 50%
D) 95%

Question 66

The GATT prohibits quotas. Why didn't the United States or other countries try to stop the voluntary export restraint on automobiles implemented by the Japanese during the early 1980s?

A) At the time, the GATT did not prohibit quotas administered by the exporting country; that is, it did not prohibit voluntary export restraints.
B) Other countries did try to stop the voluntary export restraints but were unsuccessful in their efforts.
C) Quotas were only prohibited after the WTO was established in 1995.
D) The GATT only prohibits developing countries from using quotas.

Question 67

With a home monopolist, the imposition of a tariff results in:

A) a higher deadweight loss than a quota.
B) a higher price for consumers than a quota.
C) a lower deadweight loss than a quota.
D) the same welfare effects as a quota.

Question 68

The voluntary export restraint that the United States negotiated with Japan:

A) violated provisions of the GATT that encouraged countries to avoid using quotas.
B) exploited a loophole in the GATT because the exporting country administered the quota.
C) did not allow U.S. auto producers to raise their prices.
D) did not impose any deadweight losses on the United States.

Question 69

U.S. and Japanese automakers __________ during the automobile VER of the 1980s.

A) both suffered losses
B) were locked in a contentious trade war
C) both enjoyed higher prices and higher profits
D) both felt that the other side had more gains

Question 70

Will a home monopolist prefer a quota or a tariff to protect its output?

A) The home monopolist will prefer a tariff, because a tariff allows it to earn higher profits than a quota.
B) The home monopolist will prefer a quota, because a quota may allow it to earn higher profits than a tariff.
C) It is immaterial to the home monopolist because it will earn the same higher profits with each form of protection.
D) The home monopolist will prefer neither, because it earns higher profits in a free-trade situation.

Question 71

(Figure: Supply and Demand at Home) With a quota of 200 units, what would be the total quantity available to consumers in a home monopoly situation?

A) 400
B) 600
C) 650
D) 850

Question 72

In order to avoid congressional action in the United States, in the early 1980s the Japanese resorted to:

A) infant industry protection.
B) the dumping of automobiles.
C) a voluntary export restraint (VER).
D) price discrimination.

Question 73

Which of the following forms of protection will a home monopolist prefer?

A) a large quota
B) a small quota
C) a low tariff
D) It would like all of these equally; that is, they are equivalent.

Question 74

What will happen to profits and domestic prices when a quota is used to protect a domestic monopolist from international competition?

A) Profits will fall and domestic prices will fall.
B) Profits will fall and domestic prices will rise.
C) Profits will rise and domestic prices will rise.
D) Profits will rise and domestic prices will fall.

Question 75

Under the VER of the 1980s, U.S. automakers:

A) continued their downward slide.
B) could not recover because they were also faced with other issues, such as labor unrest, increased oil and steel prices, and higher taxes.
C) were able to slightly improve quality and greatly raise prices.
D) were able, with the quota, to ignore world market conditions.

Question 76

(Figure: Supply and Demand at Home) In the situation illustrated by the figure, the monopoly firm's quantity produced after a quota is imposed ________, thus leading to a worse situation for the employees of the firm compared with a free-trade situation.

A) increases
B) decreases
C) remains the same
D) changes to different products

Question 77

The WTO opposes quotas. Why did the WTO not stop the U.S.-Japanese quota during the 1980s?

A) There was a loophole in the GATT (at the time) that did not restrict nations from "voluntarily" curtailing their own exports.
B) Quotas are permitted under the GATT and WTO-as long as they are implemented for an approved reason.
C) The political situation at the time was tense; the GATT did not want to take on the powerhouses of the United States and Japan over such a small issue.
D) The WTO operates by consensus; all parties wanted the quotas.

Question 78

A case study of Japanese auto imports during the 1980s focuses on an agreement between Japan and the United States to undertake a:

A) coordinated effort to improve gas mileage.
B) study of wage concessions by Japanese carmakers in the United States.
C) review of unionization and employee benefits in both nations.
D) voluntary export restraint.

Question 79

When the monopoly firm is able to charge a higher price because of a quota, the amount of ________ also increases, thus magnifying the importing nation's __________.

A) quota rents; losses
B) comparative advantage; gains from trade
C) profits; welfare
D) protection; employment gains

Question 80

If a foreign country imposes a voluntary export restraint, then the:

A) consumer surplus will be lower than would be so if the home country imposes a tariff.
B) producer surplus will be lower than would be so if the home country imposes a tariff.
C) foreign country will capture the area of government revenue collected with an equivalent tariff.
D) deadweight loss is smaller than would be so if the home country imposes a tariff.