Question 1

Even when earning zero profit, exporters (nearly) equalize prices across markets.

Accepted Answer

Exporters engage in price discrimination strategies to maximize profits, which involves charging different prices in different markets based on factors such as demand, competition and costs. However, even when earning zero profit, exporters still seek to equalize prices to avoid alienating customers who might perceive the differences in prices as unfair. This is because customers are increasingly sophisticated and can easily compare prices across markets through online sources, which could result in lost sales for the exporter. Therefore, even when not aiming for profit maximization, exporters will still attempt to maintain consistent prices across markets through mechanisms such as bundling, promotional pricing or geographical pricing.

Question 2

Suppose the price of good x in country A is lower than the price of good x in country B when no trade is permitted.In the absence of transportation costs, if the supply curve for good x in the two countries is sufficiently elastic, free trade in good x implies that country B will stop producing x.

Accepted Answer

With free trade, consumers in country B will be able to import good x from country A at a lower price than they could produce it domestically. This will create a higher demand for the lower-priced imported good x, causing the domestic producers in country B to lose market share and potentially exit the market, leading to a decrease in domestic production. If the supply curve for good x is sufficiently elastic, the decrease in domestic production will be significant enough that country B will stop producing good x altogether.

Question 3

A speculator who takes a long position in a market buys low and sells high, whereas a speculator who taxes a short position in a market buys high and sells low.

Accepted Answer

A speculator who takes a short position in a market sells high first and buys low later to profit from the market's decline.

Question 4

If country A is importing good x from country B where x is produced in a perfectly competitive industry (composed of identical firms), then, in the long run, country A will suffer the entire deadweight loss from any tariff it might impose on imports of x from country B.

Accepted Answer

In a perfectly competitive industry, firms are price takers and cannot influence the market price. Therefore, any tariff imposed by country A will be passed on to consumers in the form of higher prices, and country A will suffer the entire deadweight loss.

Question 5

The smaller a country is, the less of an ability it has to export a portion of the burden of an import tariff to other countries.

Accepted Answer

This statement is true. Smaller countries typically have less bargaining power in international trade negotiations and may struggle to export the burden of an import tariff to other countries. They may also be more dependent on imports for certain goods and may have a limited ability to substitute with domestic production. Therefore, smaller countries may feel the full impact of import tariffs on their economy and consumers.

Question 6

In a world of certainty about future demand and supply, speculators cause price fluctuations across time to decrease.

Accepted Answer

In a world of certainty about future demand and supply, speculators, by buying when prices are low and selling when prices are high, help to stabilize prices over time, thus decreasing price fluctuations.

Question 7

For any import quota a country imposes, there exists a tariff the country could have imposed that will have the same impact on producers and consumers.

Accepted Answer

This is known as the tariff quota equivalence theorem, which states that the imposition of a quota on imports is equivalent to imposing a tariff on those imports. The two policies could have different distributive effects, but their impact on domestic producers and consumers is the same.

Question 8

Consider the case of labor outsourcing and labor migration in tradeable goods markets with no barriers to trade.

Accepted Answer

The answer of Consider the case of labor outsourcing and...

Question 9

The larger a country is relative to the rest of the world, the less likely it is to be able to produce a net benefit for its citizens by imposing an import tariff.

Accepted Answer

The answer of The larger a country is relative to...

Question 10

When tariffs on imports are eliminated, everyone benefits.

Accepted Answer

Eliminating tariffs on imports can benefit consumers through lower prices and increased choices, but it can harm domestic industries that face increased competition from foreign producers, potentially leading to job losses and business closures in the affected sectors.

Question 11

If worker productivity is the same in each country, outsourcing and labor migration will both result in an equalization of wages across the two countries.

Accepted Answer

If worker productivity is the same in each country, then wages will adjust to be equal in each country as companies will seek to minimize costs. This could happen through outsourcing or through labor migration, where workers move from low-wage countries to high-wage countries.

Question 12

Because trade across markets creates winners and losers,the overall surplus in the loser's market is diminished.

Accepted Answer

Trade across markets generally increases overall surplus by allowing resources to be allocated more efficiently, even though it may create winners and losers within specific markets.

Question 13

Explain how an import quota might be more inefficient than an import tariff that has the same impact on prices.

Accepted Answer

The answer of Explain how an import quota might be...

Question 14

If country A is importing good x from country B where x is produced along a perfectly inelastic supply curve, then country B will suffer the entire deadweight loss from any tariff imposed on imports to country A.

Accepted Answer

If country A imposes a tariff on imports of good x from country B, the demand for good x in country A may decrease, leading to a reduction in the quantity imported. As a result, country B may shift their production to other goods or markets, and hence the deadweight loss may be shared by both countries.

Question 15

When speculators buy gasoline during the low demand spring in order to sell it during the high demand summer, they cause an increase in dead weight loss in the spring that is more than made up for by an increase in social surplus in the summer.

Accepted Answer

Speculators buying gasoline in the spring to sell in the summer can actually reduce deadweight loss by smoothing prices over time, leading to a more efficient allocation of resources and potentially increasing social surplus by stabilizing supply and demand across seasons.

Question 16

Explain the impact of speculators on markets is similar and how it may be different from the impact of exporters and importers.

Accepted Answer

The answer of Explain the impact of speculators on markets...

Question 17

While some countries might be better off (in terms of social surplus) from the imposition of a tariff, the world overall is always worse off (in terms of social surplus) when import tariffs are imposed.

Accepted Answer

This statement is true according to the theory of comparative advantage, which states that when countries specialize in producing goods that they can produce most efficiently and trade with each other, both countries benefit and social surplus increases. Imposing tariffs disrupts this system and leads to a decrease in overall social surplus.

Question 18

Regardless of what types of workers are available in different countries, unrestricted labor outsourcing always results in an equalization of wages across countries.

Accepted Answer

Unrestricted labor outsourcing does not always result in an equalization of wages across countries. Other factors such as differences in productivity, technological advancements, and the overall economic and political climate can also play a significant role in determining wage levels. Additionally, outsourcing can have negative effects on the domestic labor market and lead to job displacement and wage stagnation for workers in the outsourcing country.

Question 19

Which of the following is true about outsourcing and labor migration:

Accepted Answer

All of the statements are true.

Question 20

When tariffs on exports are eliminated, there is at least in principle a way for everyone to benefit.

Accepted Answer

Eliminating tariffs on exports can lead to increased trade and economic growth, which can benefit all parties involved. However, the impact on individual countries or industries may vary depending on their specific circumstances.

Quiz 20: Prices and Distortions Across Markets