Question 1

The redistribution effect of an import tariff is the transfer of income from the domestic:
A) Producers to domestic buyers of the good
B) Buyers to domestic producers of the good
C) Buyers to the domestic government
D) Government to the domestic buyers

Accepted Answer

An import tariff will increase the price of imported goods, making them less competitive in the domestic market. Domestic producers of the same or similar goods will be able to increase their prices and increase their profits. This means that buyers of the good - domestic consumers - will have to pay a higher price for the good, and some of the income will be transferred from them to the domestic producers. Therefore, the redistribution effect of an import tariff is from the domestic buyers to the domestic producers of the good.

Question 2

Suppose that the United States eliminates its tariff on steel imports,permitting foreign-produced steel to enter the U.S.market.Steel prices to U.S.consumers would be expected to:
A) Increase,and the foreign demand for U.S.exports would increase
B) Decrease,and the foreign demand for U.S.exports would increase
C) Increase,and the foreign demand for U.S.exports would decrease
D) Decrease,and the foreign demand for U.S.exports would decrease

Accepted Answer

Eliminating the tariff on steel imports would increase competition in the domestic market, which would lead to a decrease in steel prices to U.S. consumers. However, foreign demand for U.S. exports would increase because the decrease in steel prices would lower production costs for U.S. manufacturers, making their goods more competitive in the global market.

Question 3

Assume the United States adopts a tariff quota on steel in which the quota is set at 2 million tons,the within-quota tariff rate equals 5 percent,and the over-quota tariff rate equals 10 percent.Suppose the U.S.imports 1 million tons of steel.The resulting revenue effect of the tariff quota would accrue to:
A) The U.S.government only
B) U.S.importing companies only
C) Foreign exporting companies only
D) The U.S.government and either U.S.importers or foreign exporters

Accepted Answer

Since the imports are within the quota, the U.S. government collects the 5 percent tariff on the 1 million tons of steel, resulting in revenue for the government.

Question 4

A lower tariff on imported aluminum would most likely benefit:
A) Foreign producers at the expense of domestic consumers
B) Domestic manufacturers of aluminum
C) Domestic consumers of aluminum
D) Workers in the domestic aluminum industry

Accepted Answer

A lower tariff on imported aluminum would reduce the cost of aluminum for domestic consumers, making it cheaper for them to purchase.

Question 5

The principal benefit of tariff protection goes to:
A) Domestic consumers of the good produced
B) Domestic producers of the good produced
C) Foreign producers of the good produced
D) Foreign consumers of the good produced

Accepted Answer

Tariff protection benefits domestic producers of the good produced by making it more expensive for foreign producers to sell their goods in the domestic market. This provides domestic producers with a competitive advantage and can allow them to increase sales and profits. Domestic consumers and foreign producers, on the other hand, may be harmed by higher prices and reduced access to the domestic market. Foreign consumers are generally unaffected by tariff protection.

Question 6

When the production of a commodity does not utilize imported inputs,the effective tariff rate on the commodity:
A) Exceeds the nominal tariff rate on the commodity
B) Equals the nominal tariff rate on the commodity
C) Is less than the nominal tariff rate on the commodity
D) None of the above

Accepted Answer

When a commodity is produced without using any imported inputs, the effective tariff rate on the commodity equals the nominal tariff rate, as there are no additional costs added to the production process due to the tariff. This assumes that there are no other factors, such as subsidies, that can affect the production process.

Question 7

A $100 specific tariff provides home producers more protection from foreign competition when:
A) The home market buys cheaper products rather than expensive products
B) It is applied to a commodity with many grade variations
C) The home demand for a good is elastic with respect to price changes
D) It is levied on manufactured goods rather than primary products

Accepted Answer

A specific tariff is a fixed fee per unit, so it provides more protection when applied to cheaper products because the tariff represents a larger percentage of the product's price, making imports relatively more expensive compared to domestic goods.

Question 8

Which of the following is a fixed percentage of the value of an imported product as it enters the country?
A) Specific tariff
B) Ad valorem tariff
C) Nominal tariff
D) Effective tariff

Accepted Answer

An ad valorem tariff is a fixed percentage of the value of an imported product as it enters the country. The other options are not accurate descriptions of this type of tariff:

A) Specific tariff is a fixed amount charged per unit of the imported product 
C) Nominal tariff refers to the official rate set by a government, but it may not reflect the actual percentage or amount paid by importers
D) Effective tariff is the actual percentage or amount paid by importers after taking into account any exemptions or discounts.

Question 9

Of the many arguments in favor of tariffs,the one that has enjoyed the most significant economic justification has been the:
A) Infant industry argument
B) Cheap foreign labor argument
C) Balance of payments argument
D) Domestic living standard argument

Accepted Answer

The infant industry argument suggests that new domestic industries in developing countries need temporary protection from foreign competition through tariffs. This allows them time to become competitive and achieve economies of scale. This argument is supported by the idea that without tariffs, domestic industries may never develop, which could result in a lack of diversity in the economy and national security risks.

Question 10

A beggar-thy-neighbor policy is the imposition of:
A) Free trade to increase domestic productivity
B) Trade barriers to increase domestic demand and employment
C) Import tariffs to curb domestic inflation
D) Revenue tariffs to make products cheaper for domestic consumers

Accepted Answer

A beggar-thy-neighbor policy involves a country implementing trade barriers (such as tariffs) to protect their own domestic industries and increase employment, but this often comes at the expense of other countries, leading to reduced international trade and potentially negative economic consequences for all parties involved.

Question 11

When a government allows raw materials and other intermediate products to enter a country duty free,its tariff policy generally results in a:
A) Effective tariff rate less than the nominal tariff rate
B) Nominal tariff rate less than the effective tariff rate
C) Rise in both nominal and effective tariff rates
D) Fall in both nominal and effective tariff rates

Accepted Answer

The answer of When a government allows raw materials and...

Question 12

The deadweight loss of a tariff:
A) Is a social loss since it promotes inefficient production
B) Is a social loss since it reduces the revenue for the government
C) Is not a social loss because society as a whole doesn't pay for the loss
D) Is not a social loss since only business firms suffer revenue losses

Accepted Answer

The deadweight loss of a tariff is a social loss since it promotes inefficient production. This inefficiency comes from the fact that the production of the good now costs more (due to the tariff) than it would without the tariff. As a result, society as a whole loses out on potential gains from trade.

Question 13

Should Canada impose a tariff on imports,one would expect Canada's:
A) Terms of trade to improve and volume of trade to decrease
B) Terms of trade to worsen and volume of trade to decrease
C) Terms of trade to improve and volume of trade to increase
D) Terms of trade to worsen and volume of trade to increase

Accepted Answer

Imposing a tariff generally leads to an improvement in the terms of trade because it raises the price of imports relative to exports. However, it also tends to decrease the volume of trade as imports become more expensive and less attractive to consumers.

Question 14

Should the home country be "large" relative to the world,its imposition of a tariff on imports would lead to an increase in domestic welfare if the terms-of-trade effect exceeds the sum of the:
A) Revenue effect plus redistribution effect
B) Protective effect plus revenue effect
C) Consumption effect plus redistribution effect
D) Protective effect plus consumption effect

Accepted Answer

A tariff can increase domestic welfare if the terms-of-trade gain (from improved export prices) exceeds the protective effect (cost of inefficient domestic production) and the consumption effect (loss from reduced consumption).

Question 15

The imposition of tariffs on imports results in deadweight welfare losses for the home economy.These losses consist of the:
A) Protective effect plus consumption effect
B) Redistribution effect plus revenue effect
C) Revenue effect plus protective effect
D) Consumption effect plus redistribution effect

Accepted Answer

The deadweight welfare losses from tariffs consist of the protective effect (loss of efficiency due to resources being diverted to less efficient domestic production) and the consumption effect (loss of consumer surplus due to higher prices and reduced consumption).

Question 16

Which of the following is true concerning a specific tariff?
A) It is exclusively used by the U.S.in its tariff schedules.
B) It refers to a flat percentage duty applied to a good's market value.
C) It is plagued by problems associated with assessing import product values.
D) It affords less protection to home producers during eras of rising prices.

Accepted Answer

A specific tariff is a fixed fee per unit of imported goods, so during periods of rising prices, the fixed fee represents a smaller percentage of the total cost, thus offering less protection to domestic producers compared to an ad valorem tariff.

Question 17

A problem encountered when implementing an "infant industry" tariff is that:
A) Domestic consumers will purchase the foreign good regardless of the tariff
B) Political pressure may prevent the tariff's removal when the industry matures
C) Most industries require tariff protection when they are mature
D) Labor unions will capture the protective effect in higher wages

Accepted Answer

Implementing a tariff to protect a nascent industry from foreign competition can be problematic as it may be difficult to remove the tariff once the industry matures. Political pressure from domestic producers and labor unions can increase, making it challenging to dismantle the tariff without facing domestic opposition. This can lead to a situation where an infant industry tariff becomes a permanent measure, even when it is no longer necessary, leading to inefficiencies and distortions in the market.

Question 18

Which of the following policies permits a specified quantity of goods to be imported at one tariff rate and applies a higher tariff rate to imports above this quantity?
A) Tariff quota
B) Import tariff
C) Specific tariff
D) Ad valorem tariff

Accepted Answer

This policy is called a tariff quota, where a lower tariff rate applies to imports up to a certain quantity, but imports above this quantity are subject to a higher tariff rate. This is generally utilized to protect domestic producers by limiting the amount of foreign competition they face.

Question 19

Developing nations often maintain that industrial countries permit raw materials to be imported at very low tariff rates while maintaining high tariff rates on manufactured imports.Which of the following refers to the above statement?
A) Tariff-quota effect
B) Nominal tariff effect
C) Tariff escalation effect
D) Protective tariff effect

Accepted Answer

The statement refers to the Tariff escalation effect, which is when industrial countries maintain higher tariff rates on processed and manufactured goods, while keeping lower tariffs on raw materials and agricultural products. This leads to developing countries facing higher barriers to trade when trying to export finished products, which can hinder their economic growth.

Question 20

Tariffs are not defended on the ground that they:
A) Improve the terms of trade of foreign nations
B) Protect jobs and reduce unemployment
C) Promote growth and development of young industries
D) Prevent overdependence of a country on only a few industries

Accepted Answer

Tariffs are typically defended as a means to protect domestic industries, create jobs, and reduce dependency on foreign goods. They are not defended on the grounds of improving the terms of trade for foreign nations, as tariffs are generally intended to benefit the imposing country's economy.

Quiz 4: Tariffs

The redistribution effect of an import tariff is the transfer of income from the domestic:

Suppose that the United States eliminates its tariff on steel imports,permitting foreign-produced steel to enter the U.S.market.Steel prices to U.S.consumers would be expected to:

A lower tariff on imported aluminum would most likely benefit:

The principal benefit of tariff protection goes to:

When the production of a commodity does not utilize imported inputs,the effective tariff rate on the commodity:

A $100 specific tariff provides home producers more protection from foreign competition when:

Which of the following is a fixed percentage of the value of an imported product as it enters the country?

Of the many arguments in favor of tariffs,the one that has enjoyed the most significant economic justification has been the:

A beggar-thy-neighbor policy is the imposition of:

When a government allows raw materials and other intermediate products to enter a country duty free,its tariff policy generally results in a:

The deadweight loss of a tariff:

Should Canada impose a tariff on imports,one would expect Canada's:

Should the home country be "large" relative to the world,its imposition of a tariff on imports would lead to an increase in domestic welfare if the terms-of-trade effect exceeds the sum of the:

The imposition of tariffs on imports results in deadweight welfare losses for the home economy.These losses consist of the:

Which of the following is true concerning a specific tariff?

A problem encountered when implementing an "infant industry" tariff is that:

Which of the following policies permits a specified quantity of goods to be imported at one tariff rate and applies a higher tariff rate to imports above this quantity?

Developing nations often maintain that industrial countries permit raw materials to be imported at very low tariff rates while maintaining high tariff rates on manufactured imports.Which of the following refers to the above statement?

Tariffs are not defended on the ground that they: