Question 1

Compared to an import quota,an equivalent tariff may provide a less certain amount of protection for home producers since:

Accepted Answer

An equivalent tariff may provide a less certain amount of protection for home producers because foreign firms may absorb the tariff by offering exports at lower prices. This means that the tariff may not effectively limit the amount of imported goods and therefore, home producers may not have the same level of protection compared to an import quota. Option A is incorrect because while a tariff does not have deadweight loss, it may still not provide effective protection for home producers. Option C is incorrect because a tariff can still provide some level of protection, even if demand is not perfectly elastic. Option D is incorrect because quotas can result in an increase in the price of the imported good, depending on the level of demand and availability.

Question 2

Which trade restriction stipulates the percentage of a product's total value that must be produced domestically in order for that product to be sold domestically?

Accepted Answer

A local content requirement stipulates that a certain percentage of a product's total value must be produced domestically in order for that product to be sold domestically. This is often used to boost domestic production and employment, and to reduce reliance on imports. Import quotas are quantitative restrictions on the amount of a product that can be imported, while orderly marketing agreements are voluntary agreements between exporting and importing countries to regulate the flow of a particular product. Government procurement policies refer to rules governing the purchase of goods and services by government agencies.

Question 3

Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold overseas,the home country's:

Accepted Answer

Export subsidies lead to increased production and exports, which leads to a higher supply of the home country's currency in the foreign exchange market. This, in turn, causes the home country's currency to depreciate, which makes imports more expensive and exports cheaper. As a result, the terms of trade worsen as the value of imports relative to exports increases. This also means that export revenues may increase in the short term due to increased sales volume, but in the long term, the negative effects on the terms of trade will outweigh the benefits of the subsidies.

Question 4

A producer successfully practicing international dumping would charge:

Accepted Answer

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Question 5

Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes an export quota on its automakers.The largest share of the export quota's "revenue effect" would tend to be captured by:

Accepted Answer

Under a voluntary export agreement with a quota, Japanese automakers will produce less and therefore charge higher prices. This means that they will be able to capture a larger share of the revenue from each car sold, resulting in increased profits for the companies. The U.S. government, American auto consumers, and American autoworkers will not directly benefit from the export quota.

Question 6

The imposition of a tariff on imported steel for the home country results in:

Accepted Answer

When a tariff is imposed on imported steel, the price of steel in the home country will increase due to the added cost of the tariff. This in turn will lead to a decrease in steel consumption as consumers look for cheaper alternatives or reduce their usage.

Question 7

Empirical studies show that because voluntary export quotas are typically administered by exporting countries,foreign exporters tend to:

Accepted Answer

Empirical studies have shown that when voluntary export quotas are administered by exporting countries, foreign exporters tend to raise their export prices, thus capturing much of the quota's revenue effect. This is because the quota limits the amount of goods that can be exported, creating a shortage in the exporting country. As such, exporters are able to raise their prices to capture a larger share of the quota.

Question 8

Suppose the government grants a subsidy to domestic producers of an import-competing good.The subsidy tends to result in deadweight losses for the domestic economy in the form of the:

Accepted Answer

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Question 9

Suppose the government grants a subsidy to its export firms that permits them to charge lower prices on goods sold abroad.The export revenue of these firms would rise if the foreign demand is:

Accepted Answer

If the foreign demand is elastic, then the price reduction will result in a relatively large increase in the quantity demanded by foreign consumers. This means that the export revenue of the firms will rise significantly due to the increased sales volume. On the other hand, if foreign demand is inelastic or unit elastic, then the price reduction will result in a relatively small increase in the quantity demanded or the revenue may even decrease (in the case of unit elastic demand). Therefore, the subsidy will be most effective if foreign demand is elastic.

Question 10

A main factor behind the president's decision to extend relief to steel firms in the form of trigger prices was that:

Accepted Answer

The passage states that "Dumping complaints can be time consuming and expensive to implement", indicating that enforcing anti-dumping measures can be a lengthy and costly process. The decision to offer relief in the form of trigger prices may have been influenced by the desire to avoid these costs and streamline the process of supporting struggling steel firms. The other answer choices do not have clear support in the passage.

Question 11

If a tariff and an import quota lead to equivalent increases in the domestic price of steel,then:

Accepted Answer

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Question 12

Concerning the restrictive impact of an import quota,assume there occurs an increase in the domestic demand for the import product.As long as the quota falls short of what would be imported under free market conditions,the economy's adjustment to the increase in demand would take the form of:

Accepted Answer

The import quota restricts the amount of the import product that can be brought into the domestic market, so an increase in domestic demand would result in a shortage of supply. This shortage would lead to an increase in the domestic price of the import good as producers try to capitalize on the increased demand. Since the quota restricts the amount that can be imported, options A and B are not feasible adjustments. Option D may occur if the price increase is significant enough to discourage some consumers from purchasing the import good, but it is not a necessary adjustment. Therefore, the best choice is C - an increase in the domestic price of the import good.

Question 13

Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies.This is because,unlike domestic subsidies,import tariffs and quotas:

Accepted Answer

Import tariffs and quotas distort choices for domestic consumers, who now have access to fewer or more expensive choices than they would under free trade. Domestic subsidies may result in some inefficiency in home production, but they do not distort consumer choices in the same way. Import tariffs and quotas also tend to reduce competition, potentially resulting in higher prices for domestic consumers. While domestic subsidies may be funded through higher tax rates, import tariffs and quotas do not necessarily result in higher tax rates for domestic residents. Import tariffs do result in revenue being redistributed from domestic consumers to domestic producers, but this is not the main reason why they tend to harm national welfare more than domestic subsidies.

Question 14

Domestic content legislation applied to autos would tend to:

Accepted Answer

Domestic content legislation aims to increase the use of American-made components in automobiles, which would support the wage levels of American autoworkers.

Question 15

The practice of Canadian firms dumping their products in Sweden poses a problem for economic policymakers since dumping tends to:

Accepted Answer

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Question 16

The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to:

Accepted Answer

A domestic content requirement would restrict the availability of foreign goods in the US market, thus reducing competition and limiting the variety of products available to consumers. This reduction in consumer choice and competition would lead to a decrease in consumer surplus for Americans.

Question 17

A firm that faces problems of falling sales and excess productive capacity might resort to international dumping if it:

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Question 18

Assume the U.S.has a competitive advantage in producing calculators,while the rest of the world has a competitive advantage in steel.Suppose the U.S.and the rest of the world enter into an agreement to lower import quotas below existing levels on calculators and steel.Which of the following would least likely occur for the U.S.? Rising levels of:

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Question 19

The United Auto Workers union attempted to win the approval of legislation that would moderate the practice of foreign sourcing on the part of American auto manufacturers.Which of the following best represents this legislation?

Accepted Answer

The legislation that the United Auto Workers union attempted to win approval for is local content laws, which require a certain percentage of a product be manufactured domestically. This would moderate the practice of foreign sourcing, which involves importing components or finished goods from foreign countries. A, B, and C do not directly relate to local content laws or the issue of foreign sourcing.

Question 20

Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the intensity of international competition?

Accepted Answer

An orderly marketing agreement is a pact negotiated by trading partners to moderate the intensity of international competition by sharing a specific market. It typically involves setting quotas for each participating country's exports and coordinating pricing and marketing strategies. Local content requirements, import quotas, and trigger price mechanisms are other types of trade barriers used to regulate international trade.

Quiz 5: Nontariff Trade Barriers