Question 1

If the executives of the U.S.silicon chip industry lobby Congress for protection from imports on the grounds that theirs is a new industry that needs time to develop technological efficiency,they are using the _____ argument.

Accepted Answer

The argument of needing protection from imports to develop technological efficiency is a characteristic argument of the infant industry. This argument suggests that new industries need protection from more established industries in foreign countries until they mature and become technologically efficient enough to compete in a global market.

Question 2

Suppose the United States auctioned off all import quotas,the auctions were perfectly competitive,and the government received the revenues from the auction.In this case,the deadweight loss from a quota would be _____ the deadweight loss from an equivalent tariff.

Accepted Answer

When the United States auctions off all import quotas in a perfectly competitive market and receives the revenues, the economic effect is similar to that of a tariff. In both cases, the government collects revenue, either through tariffs or through auction proceeds. This means that the deadweight loss, which is the loss of economic efficiency when the equilibrium outcome is not achieved, would be the same for both a quota and an equivalent tariff, assuming other conditions are equal.

Question 3

Assume that the United States imposes an import quota on Italian shoes.Relative to the equilibrium world price that would exist in the absence of import quotas,the equilibrium price of shoes in the United States will most likely _____ and the equilibrium price of shoes in Italy will most likely _____.

Accepted Answer

Imposing an import quota on Italian shoes would limit the supply of shoes in the United States, leading to an increase in the price of shoes there due to the reduced supply. In Italy, the restriction on exports to the U.S. could lead to an oversupply in the domestic market, potentially decreasing the price of shoes there.

Question 4

Assume that the United States imposes an import quota on Columbian coffee.Relative to the equilibrium world price that would prevail in the absence of import quotas,it is likely that the equilibrium price of coffee in the United States will _____ and the equilibrium price of coffee in Columbia will _____.

Accepted Answer

When the U.S. imposes an import quota on Columbian coffee, the supply of coffee in the U.S. decreases and the demand for Columbian coffee in the U.S. increases. This leads to an increase in the equilibrium price of coffee in the U.S. On the other hand, the decrease in the quantity of coffee demanded by the U.S. also leads to a decrease in the equilibrium price of coffee in Columbia, as there is now a surplus of coffee in the Columbian market. Therefore, the equilibrium price of coffee in the U.S. will increase and the equilibrium price of coffee in Columbia will decrease.

Question 5

In the case of U.S.trade protection,quota rents for the most important import licenses are earned by:

Accepted Answer

Quota rents are typically earned by foreign governments when they are allocated the rights to sell a limited quantity of goods in the U.S. market at higher prices due to the restricted supply.

Question 6

Assume that the United States imposes an import quota on Scottish wool suits.Relative to the equilibrium price that would prevail in the absence of quotas,the equilibrium price of suits in the United States will most likely _____ and the equilibrium price of suits in Scotland will most likely _____.

Accepted Answer

When the United States imposes an import quota on Scottish wool suits, the supply of Scottish wool suits in the US market will decrease. This will cause an increase in the price of Scottish wool suits in the US market. At the same time, the decrease in demand for Scottish wool suits in the US market will cause a decrease in the price of Scottish wool suits in Scotland. Therefore, the equilibrium price of suits in the United States will most likely increase, and the equilibrium price of suits in Scotland will most likely decrease.

Question 7

The main difference between a tariff and an import quota is that:

Accepted Answer

Tariffs generate tax revenue for the government, while import quotas create rents for the license holders who are granted the right to import a limited quantity of a particular good. Tariffs and import quotas both have the effect of reducing imports, so A and D are incorrect. B is also incorrect because the extent to which prices are raised by either policy depends on the specific circumstances of the market.

Question 8

An example of an import quota is a:

Accepted Answer

An import quota is a limit on the quantity of a particular good that can be imported into a country. In this case, the import quota is a limit on the total number of Honda automobiles that can be imported from Japan.

Question 9

The infant industry argument for trade protection states that:

Accepted Answer

The infant industry argument states that new industries should be protected from foreign competition until they become established. This is because they may not be able to compete with foreign firms initially due to lack of experience, economies of scale, and other factors. The protection can be in the form of tariffs, quotas, or subsidies until the industry is able to stand on its own and compete globally. This argument has some validity but may also be subject to abuse and inefficiencies.

Question 10

If quota rents do not accrue to the government,then the net loss to the government from an import quota is _____ the deadweight loss from an equivalent tariff.

Accepted Answer

If quota rents do not accrue to the government, the net loss from an import quota is greater than the deadweight loss from an equivalent tariff because the government does not capture any revenue from the quota rents, leading to a larger overall economic inefficiency.

Question 11

According to the infant industry argument,import protection is needed because:

Accepted Answer

The infant industry argument states that certain industries in a country need temporary protection from foreign competition in order to develop the necessary technology and efficiency to compete with foreign industries in the long run. Therefore, choice B is the correct one as it directly refers to the main argument behind import protection.

Question 12

Tariffs and import quotas tend to:

Accepted Answer

Tariffs and import quotas are trade barriers that increase the prices of imported goods and reduce the quantity imported. This leads to a decrease in consumer surplus and a reduction in total surplus because the cost of producing goods domestically may be higher than the cost of importing them. Additionally, these measures can lead to retaliation from trading partners, which can harm domestic industries that rely on exports. Therefore, the best choice is D.

Question 13

If the United States removed the tariffs and quotas on sugar,in the U.S.market for sugar:

Accepted Answer

Removing tariffs and quotas would likely lead to a decrease in producer surplus as domestic producers face increased competition from cheaper imported sugar.

Question 14

Which argument is one that is common for trade protection?

Accepted Answer

The argument of national security is often cited as a reason for implementing trade protection measures, such as tariffs or import quotas, to protect domestic industries that are deemed critical to national defense or strategic interests.

Question 15

In 2002,the steel industry argued that higher tariffs on steel were necessary to help fight the war on terrorism.This is an example of the _____ argument.

Accepted Answer

The argument made by the steel industry in 2002 that higher tariffs on steel were necessary to help fight the war on terrorism is an example of the national security argument. This argument suggests that protecting domestic production of certain goods, in this case steel, is necessary for national security reasons.

Question 16

A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country.

Accepted Answer

A tariff or quota will raise prices by increasing the cost of imported goods, and this will decrease the consumption of the protected goods in the importing country, as consumers will have to pay more for the goods or may switch to substitute goods that are relatively cheaper.

Question 17

The MOST likely effects of tariffs and/or import quotas are to _____ prices and to _____ consumption of the protected goods in the importing country.

Accepted Answer

Tariffs and import quotas directly increase the cost of importing goods into a country, which raises prices for the consumers in the importing country. This generally leads to a decrease in consumption of the protected goods. However, in the short term, the increased prices may lead to an increase in domestic production of the protected goods.

Question 18

Which item is an example of an import quota?

Accepted Answer

An import quota is a limit on the quantity of a certain good that can be imported into a country. Choice A outlines a limit on the total number of shoes that can be imported from Italy, thus making it an example of an import quota. The other choices do not fit this definition. Choice B outlines safety guidelines that imports from China must meet, but does not specify a limit on the quantity that can be imported. Choice C and D both involve taxes, but do not specify any limit on quantity.

Question 19

If the United States imposes an import quota on French wines,the result in the short run is likely to be _____ profits for American wine producers and _____ profits for French wine producers.

Accepted Answer

When the United States imposes an import quota on French wines, the supply of French wines in the United States will decrease, which will shift the demand curve for American wines to the right. This will increase the price and the quantity of American wines sold, resulting in higher profits for American wine producers. On the other hand, French wine producers will experience lower profits due to the decrease in demand for their products. Therefore, the correct answer is C, higher profits for American wine producers and lower profits for French wine producers.

Question 20

A direct restriction on the quantity of an import is called a(n):

Accepted Answer

An import quota is a direct restriction on the quantity of an import, which limits the amount of a particular imported good that is allowed into a country. Tariffs, on the other hand, are taxes on imported goods and do not necessarily restrict the quantity of imports. Import subsidies are payments made to domestic producers to help them compete with foreign imports. Import restrictions is a broad term that may refer to any policies or measures that limit imports, including import quotas and tariffs.

Quiz 8: International Trade

If the executives of the U.S.silicon chip industry lobby Congress for protection from imports on the grounds that theirs is a new industry that needs time to develop technological efficiency,they are using the _____ argument.

Suppose the United States auctioned off all import quotas,the auctions were perfectly competitive,and the government received the revenues from the auction.In this case,the deadweight loss from a quota would be _____ the deadweight loss from an equivalent tariff.

Assume that the United States imposes an import quota on Italian shoes.Relative to the equilibrium world price that would exist in the absence of import quotas,the equilibrium price of shoes in the United States will most likely _ and the equilibrium price of shoes in Italy will most likely _.

Assume that the United States imposes an import quota on Columbian coffee.Relative to the equilibrium world price that would prevail in the absence of import quotas,it is likely that the equilibrium price of coffee in the United States will _ and the equilibrium price of coffee in Columbia will _.

In the case of U.S.trade protection,quota rents for the most important import licenses are earned by:

Assume that the United States imposes an import quota on Scottish wool suits.Relative to the equilibrium price that would prevail in the absence of quotas,the equilibrium price of suits in the United States will most likely _ and the equilibrium price of suits in Scotland will most likely _.