Question 1

Rising tariffs increase domestic production,but reduce domestic consumption.

Accepted Answer

Rising tariffs increase the cost of importing goods, making domestic production more competitive. This results in an increase in domestic production. However, as the cost of imported goods increases, domestic consumption of those goods decrease. Thus, rising tariffs decrease domestic consumption.

Question 2

Reducing tariffs causes consumer surplus to increase but producer surplus to decrease.

Accepted Answer

Reducing tariffs leads to cheaper imported goods, which increases consumer surplus. However, it also leads to increased competition for domestic producers, reducing their ability to charge higher prices and thus decreasing their producer surplus.

Question 3

Protectionism policies restrain trade through price controls that burden foreign producers but not domestic producers.

Accepted Answer

The answer of Protectionism policies restrain trade through price controls...

Question 4

Trade moves jobs from import-competing industries to export industries.

Accepted Answer

When trade occurs, domestic companies may face competition from cheaper imported goods, leading to job losses in import-competing industries. However, trade can also increase demand for domestically produced goods in foreign markets, leading to job creation in export industries. Overall, trade can shift jobs from one industry to another within a country.

Question 5

The United States is the only government that engages in protectionist policies.

Accepted Answer

Many governments around the world engage in protectionist policies, including tariffs, quotas, and subsidies to protect industries and their domestic economies. The United States is not the only country that engages in such policies.

Question 6

Domestic consumers lose more than domestic producers gain because of import restrictions.

Accepted Answer

This is a well-established principle in economics known as the "deadweight loss of protection." When a country imposes import restrictions, it raises the price of the imported goods in the domestic market, reducing the quantity that consumers are willing and able to buy. At the same time, domestic producers of the restricted goods are able to charge higher prices and sell more in the domestic market. However, the gains to domestic producers are smaller than the losses to domestic consumers, because the higher prices reduce consumer surplus (the difference between what consumers are willing to pay and what they actually pay) and lead to a deadweight loss of efficiency. Overall, the net welfare effects of import restrictions are negative.

Question 7

Removing tariffs and quotas will ensure that goods are sold by the low-cost producers and increase the sum of consumer and producer surplus.

Accepted Answer

Tariffs and quotas artificially increase the price of imported goods, giving domestic producers an advantage. Removing them allows for competition from low-cost producers, leading to lower prices and increased consumer surplus. Removal of tariffs also allows producers to access a wider market, increasing producer surplus.

Question 8

Imposing tariffs results in both wasted resources and lost gains from trade.

Accepted Answer

Imposing tariffs creates barriers to trade, leading to less efficiency and increased costs for both producers and consumers. This results in wasted resources and lost gains from trade as both parties miss out on the benefits of specialization and comparative advantage.

Question 9

The United States subsidizes mohair (goat fleece)purportedly for national security reasons.

Accepted Answer

The U.S. government has historically subsidized mohair production for national security reasons, as it is used by the military in products like uniforms and blankets. However, subsidies have been cut in recent years due to budget constraints.

Question 10

Economic theory supports the existence of specialized majors in college.

Accepted Answer

Economic theory suggests that individuals should specialize in areas where they have a comparative advantage, which can be achieved through specialized education and training. This supports the existence of majors that focus on specific industries or career paths. Additionally, a highly educated and specialized workforce can lead to increased productivity and economic growth.

Question 11

If the world price of a good is greater than the domestic price in a country that can engage in international trade,then that country becomes an importer of that good.

Accepted Answer

If the world price of a good is greater than the domestic price, the country will become an exporter of that good, as it can produce the good more cheaply than it is sold for on the world market.

Question 12

Protectionism acts to encourage trade.

Accepted Answer

Protectionism is the imposition of barriers, such as tariffs or quotas, to restrict imports and protect domestic industries. This reduces competition and can limit trade, rather than encourage it. Free trade policies, on the other hand, promote trade and economic growth by removing barriers and allowing countries to specialize in their respective areas of comparative advantage.

Question 13

We pay for our exports with our imports.

Accepted Answer

The answer of We pay for our exports with our...

Question 14

A quota caps the quantity of an import.

Accepted Answer

A quota sets a limit on the amount of goods that can be imported.

Question 15

A tariff benefits domestic producers but hurts domestic consumers.

Accepted Answer

A tariff is a tax on imported goods, which makes those goods more expensive for domestic consumers. Domestic producers, on the other hand, are protected from competition by foreign producers and may benefit from the higher prices and increased demand for their products. However, this protectionism can ultimately harm the domestic economy and limit consumer choice.

Question 16

Protectionism tends to create a society that pits one interest group against another and seeds social discord.

Accepted Answer

Protectionist policies often prioritize certain industries or groups over others, leading to resentment and conflict between different sectors of society. This can ultimately lead to social unrest and division.

Question 17

In a demand and supply diagram,the effects of a tariff and a quota on the supply and demand curves are identical.

Accepted Answer

A tariff shifts the supply curve upward by the amount of the tariff, increasing the price of imported goods, while a quota limits the quantity of goods that can be imported, creating a new supply curve to the left of the original but does not shift the original supply curve upward. The effects on the supply and demand curves are therefore not identical.

Question 18

The tariff diagram illustrates that if the absolute value of the slopes of the demand and supply curves are equal,then the deadweight loss of any tariff always equals the wasted resources due to increased domestic production.

Accepted Answer

This statement is true. When the absolute value of the slopes of the demand and supply curves are equal, it means that the domestic industry is just as efficient as the foreign industry at producing the good or service. In this case, a tariff would only result in increased domestic production and no change in imports. The deadweight loss of the tariff would then be equal to the wasted resources due to this increased domestic production, as there is no gain in terms of consumer surplus or increased trade.

Question 19

There is strong evidence to support the idea that protectionism increases domestic job growth.

Accepted Answer

While protectionist policies may initially create jobs in protected industries, they also lead to higher prices for consumers and can lead to retaliation from trading partners, ultimately harming the overall economy and potentially costing jobs in other industries. Free trade and open markets have generally been shown to promote overall economic growth and job creation.

Question 20

Economic growth requires job destruction,since the destroyed jobs free up resources for more productive activities.

Accepted Answer

Economic growth is often accompanied by creative destruction, which is the process of job destruction or displacement as a result of technological advancements, market changes, or competitive forces. However, the freed-up resources can then be allocated to more productive and profitable activities, leading to overall economic growth. This phenomenon has been observed in various sectors throughout history, and it has often led to the emergence of new industries and job opportunities.

Quiz 19: International Trade