Deck 34: Trade Policy

Question 1

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Canadian governments (provincial and federal)currently provide enormous protection (through tariffs)to which of the following domestic industries?

A)lumber
B)electronic gaming
C)steel
D)dairy
E)textile

Answer 1

D

Question 2

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Refer to Figure 34- 2.Suppose Canada has free trade in jeans and then imposes a tariff of $t per pair.Canadian consumers will lose consumer surplus equal to the area

A)A.
B)A + B + C.
C)B + C + E + F + G + H.
D)D.
E)D + E + F + G + H.

Answer 2

E

Question 3

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
If all countries try to expand their exports and restrict their imports through the use of export subsidies and import tariffs,the net effect will probably be

A)a fall in the volume of trade and an increase in the standard of living in each country.
B)no change in the volume of trade but an increase in the overall unemployment rates.
C)no change in the volume of trade but less unemployment.
D)a fall in the volume of trade and a decline in the average living standards in each country.
E)an increase in the volume of trade but little change in unemployment levels.

Answer 3

D

Question 4

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Consider the following statement: "With unemployment at its highest level in years,Canada needs to protect domestic jobs by promoting a "Buy Canadian" policy." This statement is because _ .

A)correct; a "Buy Canadian" policy will take advantage of Canada's comparative advantage
B)incorrect; it fails to recognize that imports of foreign goods also help to encourage the export of domestic goods
C)correct; it recognizes that such a policy can sustain high levels of domestic employment
D)incorrect; it confuses the real and nominal gains from trade
E)incorrect; it will work against Canada's pattern of absolute advantage

Question 5

Suppose you are an economist advising the Canadian government as to whether to erect trade barriers for the protection of Canada's textile industry.You are likely to study the gains to be realized in this industry and weigh those against

A)the cost in terms of lower national income of Canada's trading partners.
B)the cost in terms of higher prices to Canadian consumers.
C)the lower factor prices that occur in competing domestic industries.
D)the effect on factor incomes of Canada's trading partners.

Question 6

Consider trade between country A and country B.If country A has wages that are substantially less than those in country B,

A)country A will have an absolute advantage over country B.
B)country B will benefit by placing tariffs on imports from country A.
C)country A will not have to subsidize its export industries.
D)the pattern of comparative advantage will depend also on the relative productivities of labour in the two countries.
E)country B will import from A but will not be able to export to country A.

Question 7

The main difference between a tariff and an "equivalent" voluntary export restriction (VER)is that

A)a tariff keeps the price in the importing country higher than it would otherwise be; a VER does not.
B)a tariff allows the importing country to protect wages and other factor incomes in the affected industry,while a VER does not.
C)a tariff allows the extra market value of the good to accrue to the supplier,but a VER allows the extra market value to be appropriated by the government of the importing country.
D)a tariff restricts free trade between two countries and a VER does not.
E)a tariff allows the government of the importing country to appropriate the extra market value of the imported good,but with a VER the extra market value accrues to the good's foreign producers.

Question 8

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
Refer to Figure 34- 4.Assume there is free trade in bicycles.At a world price of $300,Canada's will be _ bicycles per year.

A)exports; 50 000
B)exports; 30 000
C)exports; 20 000
D)imports; 30 000
E)imports; 20 000

Question 9

Consider the following statement: "Canadians on average are worse off when some manufacturing jobs migrate from Canada to low- wage countries in Central America." This statement is because _ .

A)incorrect; the permanent gains to consumers from lower prices outweigh the temporary losses to the displaced manufacturing workers
B)incorrect; low- wage countries do not produce manufactured goods
C)correct; Canadian firms cannot compete with production in low- wage countries
D)incorrect; there are no Canadians made worse off by such an event
E)correct; the loss of manufacturing jobs leads to permanent income losses in Canada

Question 10

It is not possible for one country to sell all products more cheaply than other countries for any length of time because the

A)depreciation of the importing countries' currencies ensures that trade will flow in both directions.
B)exporting country will find its cost of production decreasing relative to the importing country.
C)depreciation of the exporting country's currency will lead to trade in both directions.
D)importing countries will react by constructing severe trade barriers.
E)the principle of absolute advantage would then be violated.

Question 11

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Consider the North American Free Trade Agreement (NAFTA)between Canada,the United States and Mexico.Some industries in Canada,however,continue to have some trade protection.An example is

A)mining.
B)auto parts.
C)computer software.
D)beef.
E)dairy products.

Question 12

Any policy designed to benefit domestic industries at the expense of foreign export industries is called

A)monopolization.
B)cartelization.
C)protection.
D)commercialization.
E)predatory practice.

Question 13

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Consider the following statement: "Without a doubt,free trade improves the lives of every Canadian citizen." This statement is _ because .

A)correct; there are no net costs associated with the movement to free trade
B)correct; it is consistent with the idea of comparative advantage
C)incorrect; we do not know much about the benefits of free trade
D)correct; because Canada has long been a successful trading nation
E)incorrect; it fails to recognize that the movement to free trade involves both winners and losers

Question 14

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
Refer to Figure 34- 4.Suppose the world price of bicycles is $200 and Canada has in place a 50% tariff on this good.The deadweight loss to the Canadian economy resulting from this tariff is per year.

A)$1.0 million
B)$2.0 million
C)$0.5 million
D)$0
E)$1.5 million

Question 15

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Refer to Figure 34- 2.Suppose Canada has free trade in jeans and then imposes a tariff of $t per pair.Canada's jean- producing firms will gain producer surplus equal to the area

A)A.
B)A + B + C.
C)A + D.
D)D.
E)D + E + F + G + H.

Question 16

Suppose that at the current world price bananas are imported into Canada.Suppose also that domestic supply is perfectly inelastic and domestic demand has unit elasticity.If Canada were to place a tariff on imported bananas,the

A)revenues of the foreign exporters of bananas would rise.
B)quantity imported would be unaffected.
C)price of bananas in Canada would rise,but total domestic expenditures would fall.
D)quantity imported would rise.
E)price of bananas in Canada would rise,but total domestic expenditures would be unaffected.

Question 17

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
Refer to Figure 34- 4.Assume there is free trade in bicycles.If the world price of bicycles is $500,domestic consumption is at a price of _ _.

A)40 000; $500
B)50 000; $300
C)30 000; $300
D)40 000; $400
E)30 000; $500

Question 18

When a firm sells its product abroad for less than the price at which it sells it in its domestic market,it is often accused of

A)dumping.
B)strategic selling.
C)cross- subsidization.
D)countervailing.
E)predatory pricing.

Question 19

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Refer to Figure 34- 3.If Canada imposes a tariff of $t per cotton towel,the deadweight loss to the Canadian economy is shown by area

A)A + B + C + D.
B)A + B + C.
C)B + D.
D)C.
E)C + H.

Question 20

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Refer to Figure 34- 2.Suppose Canada has free trade in jeans and then imposes a tariff of $t per pair.The deadweight loss to the Canadian economy is represented by the area

A)D + E + F + G + H.
B)A + B + C.
C)E + H.
D)E + F + G + H.
E)B + C.

Question 21

The diagram below shows the demand and supply curves for refrigerators in Canada.
FIGURE 34- 1
Refer to Figure 34- 1,and assume the world price is P0.The Canadian government now imposes an import quota of the amount Q2Q4.The result would be that the price in Canada would:

A)rise to P2 and consumption would decrease to Q5.
B)stay at P0 and consumption would rise to Q3.
C)rise to P1 and consumption would decrease to Q4.
D)stay at P0 and consumption would stay at Q5.
E)rise to P2 and consumption would decrease to Q4.

Question 22

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Refer to Figure 34- 2.Suppose Canada has free trade in jeans and then imposes a tariff of $t per pair.Canada's production will then be at the quantity

A)Q1
B)Q2
C)Q3
D)Q4
E)Q5

Question 23

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Refer to Figure 34- 3.If Canada has free trade in cotton towels,foreign producers' revenues from their Canadian sales will be equal to the amount

A)E + F.
B)E + F + G + H + I.
C)G + H + I.
D)A + B + E + F + G.
E)E + F + G + H + I + J.

Question 24

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Assume Canada is trading with a country that has lower costs of production for some good and can therefore sell that good at a lower price.If Canada imposes a tariff large enough to equalize the foreign country's price with ours,then

A)this tariff will eliminate exploitation of Canadian markets.
B)the gains from international specialization would be reduced.
C)Canada would gain absolute advantage.
D)a "level playing field" will be created.
E)all Canadians would realize an increase in their standard of living.

Question 25

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Refer to Figure 34- 3.If Canada imposes a tariff of $t per cotton towel,the Canadian government's tariff revenues will be equal to the area

A)A + B + C + D.
B)C.
C)C + H.
D)A + B + C.
E)B + C + D.

Question 26

The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical. $$\begin{array} { | l | c | c | } \hline \text { Producing Country } & \text { Canadian Price in } \$ & \text { C anadian Price in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Import Tariff } \\\hline \text { Canada } & 10.00 & \\\hline \text { United Kingdom } & 9.00 & \\\hline \text { United States } & 8.00 & \\\hline\end{array}$$ TABLE 34- 1

-Refer to Table 34- 1.Suppose Canada and the United Kingdom negotiate a free- trade agreement in cheese.But Canada has a 40% tariff on cheese imported from other countries.From which country will Canada now buy its cheese?

A)from Canada and United States
B)all from the United States
C)from United Kingdom and United States
D)all from Canada
E)all from United Kingdom

Question 27

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Refer to Figure 34- 2.Suppose Canada has free trade in jeans and then imposes a tariff of $t per pair.Canadian jean producers' revenues will increase by the area equal to

A)A + B + F + J.
B)F + G.
C)D + E + I.
D)F + G + H.
E)E + F + G + H.

Question 28

An agreement among a group of countries that allows for tariff- free trade among the members but leaves each member free to levy its own tariffs on imports from other countries is called a

A)customs union.
B)confederation.
C)reciprocity association.
D)common market.
E)free- trade area.

Question 29

The diagram below shows the demand and supply curves for refrigerators in Canada.
FIGURE 34- 1
Refer to Figure 34- 1.If we compare the effect of an import tariff with the effect of an import quota,both of which cause the Canadian price to increase by the same amount,the major difference between the two policies is:

A)the tariff directly affects the price consumers pay whereas the quota has neither direct nor indirect price effects.
B)the tariff does not directly affect the price consumers pay whereas the quota does.
C)the tariff raises revenue for the government whereas the quota benefits foreign producers.
D)the quota does not directly reduce the quantity whereas the tariff does.
E)the tariff raises revenue for the protected producers whereas the quota benefits the government.

Question 30

Many of the world's industrialized countries initially developed their industries with heavy tariff protection.In Canada's case,this was the basis for

A)the Charlottetown Accord.
B)the NAFTA.
C)reciprocity.
D)the National Policy of 1876.
E)the National Energy Program of the 1980s.

Question 31

The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical. $$\begin{array} { | l | c | c | } \hline \text { Producing Country } & \text { Canadian Price in } \$ & \text { C anadian Price in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Import Tariff } \\\hline \text { Canada } & 10.00 & \\\hline \text { United Kingdom } & 9.00 & \\\hline \text { United States } & 8.00 & \\\hline\end{array}$$ TABLE 34- 1

-The effect of the imposition of a new tariff is to domestic production of the commodity and the domestic consumption of the commodity.

A)increase; increase
B)decrease; decrease
C)decrease; increase
D)increase; decrease
E)leave unaffected; decrease

Question 32

The diagram below shows the demand and supply curves for refrigerators in Canada.
FIGURE 34- 1
Refer to Figure 34- 1.The free- market equilibrium price of refrigerators in Canada is P0,implying that P0 is the

A)tariff- protected price.
B)cartel- induced price.
C)quota- induced price.
D)world price.
E)Canadian autarkic price.

Question 33

The diagram below shows the demand and supply curves for refrigerators in Canada.
FIGURE 34- 1
Many people argue that the imposition of tariffs in industry X will increase factor incomes in that industry and therefore be good for the country as a whole.The counter- argument is that

A)the increase in factor incomes would increase unemployment.
B)the increase in factor incomes in industry X would reduce profits to business owners by an equal amount.
C)the increase in industry X factor incomes would be more than offset by reductions in real incomes to all other domestic residents.
D)factor incomes would first rise and then decrease in industry X.
E)factor incomes overall would increase,but wages in industry X would fall,which would hurt workers in that industry.

Question 34

The diagram below shows the demand and supply curves for refrigerators in Canada.
FIGURE 34- 1
Refer to Figure 34- 1.At the price P0,the quantity of refrigerators imported into the Canadian market is

A)Q2Q4.
B)Q3Q5.
C)Q2Q5.
D)Q1Q5.
E)Q2Q3.

Question 35

The North American Free Trade Agreement (NAFTA)is guided by the principle of

A)most- favoured- nation status.
B)countervailing duties.
C)national treatment.
D)protectionism.
E)strategic trade policy.

Question 36

Suppose Canada imposed more stringent quality standards on pharmaceutical products being imported from Mexico than were imposed on firms producing the same products in Canada.This action would be

A)a violation of NAFTA's principle of national treatment.
B)a violation of Canadian Competition Bureau rules.
C)an example of a countervailing duty.
D)an example of an unfair subsidy to domestic firms.
E)a breach of WTO trade guidelines.

Question 37

The diagram below shows the demand and supply curves for refrigerators in Canada.
FIGURE 34- 1
According to the principle of "national treatment" in the North American Free Trade Agreement (NAFTA),member countries

A)must submit any new laws being considered to a cross- border judicial panel before the laws are enacted.
B)have complete autonomy over their own laws and the way in which they are applied to any firm,domestic or foreign,operating on their soil.
C)can establish specific subsidies to favour their own national firms over international firms,as long as it applies only to domestic operations.
D)can establish new laws as they wish,as long as these laws apply equally to domestic and foreign- owned firms.
E)cannot establish new laws which harm the domestic environment.

Question 38

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Which of the following actions (all of which affect international trade)would be taken by a private firm as opposed to a national government?

A)quota
B)countervailing duty
C)tariff
D)dumping
E)import duty

Question 39

Continued tariff protection for industries that have already attained all potential economies of scale and possibilities for learning by doing is likely to

A)increase employment in the protected industries.
B)reduce average real income for the country's residents.
C)decrease prices to consumers of the products produced in the protected industries.
D)redistribute income away from the factors used in the protected industries.
E)both A and B are correct.

Question 40

Trade- remedy policies commonly used to achieve a "level playing field" are

A)system- wide subsidies to domestic consumers.
B)voluntary export restraints (VER).
C)countervailing duties.
D)quotas.
E)export taxes.

Question 41

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Countervailing duties are a method of trade restriction designed to offset

A)a trading partner's countervailing duties.
B)dumping.
C)subsidies by foreign governments.
D)quotas.
E)foreign tariffs.

Question 42

The effect of imposing a tariff on a specific imported good is to the domestic price of the good and the domestic production of the good.

A)increase; decrease
B)decrease; decrease
C)increase; increase
D)decrease; increase
E)decrease; to leave unaffected

Question 43

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Continued tariff protection for industries that have already attained all the possible economies of scale will likely

A)maintain high prices to consumers of the products produced in the protected industries.
B)result in lower domestic prices for the products they produce.
C)reduce employment in the protected industries.
D)redistribute income away from the factors used in the protected industries.
E)reduce the stream of tariff revenue to the government.

Question 44

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
An agreement among a group of countries to eliminate trade barriers among themselves,to present a common trading front to the rest of the world in terms of common barriers to trade,and to permit free movement of factors of production among member countries is called a

A)common market.
B)reciprocity association.
C)customs union.
D)confederation.
E)free- trade area.

Question 45

Does free trade improve the living standards of all residents of a country?

A)Yes,because inefficient import- competing industries are replaced with efficient export industries.
B)Yes,definitely,because the gains from trade outweigh the losses in the import- competing industries.
C)Probably not - in principle,the net gains from trade could be divided such that every individual is better off,but in practice,some individuals are likely to be worse off.
D)No,because the losses in the import- competing industries outweigh the gains from trade in the new export industries.
E)No,because the benefits from free trade are only theoretical.

Question 46

If a tariff is imposed by a country that is large enough to have market power in global markets,the domestic consumer will face an autarkic price than the world price for the product,and this world price will be by the tariff.

A)higher; increased
B)lower; unaffected
C)higher; reduced
D)lower; reduced
E)lower; increased

Question 47

Suppose that a Canadian brewery sells beer in both Canadian and American markets and that all prices are in Canadian dollars.The Canadian domestic price is $17.00 per case while in the American market it sells the same case for $13.00.The average total cost of production is $11.50.This brewery could be accused of

A)dumping.
B)exploiting the Canadian beer drinkers.
C)bad management.
D)exchange- rate manipulation.
E)trying to reduce the American domestic price of beer.

Question 48

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
Refer to Figure 34- 4.Assume there is free trade in bicycles.If the world price of bicycles is $500,Canada's will be bicycles per year.

A)imports; 20 000
B)exports; 20 000
C)imports; 30 000
D)exports; 50 000
E)exports; 30 000

Question 49

When a country chooses to protect domestic industries from foreign competition,it will incur a cost in the form of

A)higher unemployment.
B)the loss of jobs in the protected industries.
C)the loss of those protected industries.
D)the loss of revenue from tariffs.
E)lower material living standards.

Question 50

A country can impose a tariff to improve its own terms of trade if it

A)constitutes a large fraction of the world demand for some commodity that it imports.
B)has a significant trade surplus.
C)has a high level of industrial diversification.
D)produces and exports a large fraction of the world's supply of some commodity.
E)imports mostly primary products.

Question 51

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Refer to Figure 34- 3.If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2),then the deadweight loss to the Canadian economy is shown by the area

A)B +D.
B)C + H.
C)H.
D)G + H + I.
E)B + C + D.

Question 52

Canada is a net importer of durable consumer goods (washing machines,refrigerators,etc.).If Canada initially has no tariffs and it then imposes a 10% tariff on these goods,we would expect to observe

A)a reduction in the production of the commodity in Canada.
B)an upward shift in the commodity's demand curve.
C)a downward shift in the commodity's demand curve.
D)an upward shift in the commodity's supply curve.
E)an increase in the tariff revenue collected by the Canadian government.

Question 53

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Refer to Figure 34- 2.If Canada were to engage in no international trade in denim jeans,then the quantity consumed and produced in Canada would be

A)Q1
B)Q2
C)Q3
D)Q4
E)Q5

Question 54

Consider the following statement: "Canada is unambiguously better off if it is exporting more,in dollar value,to the rest of the world than it is importing." This statement is because .

A)correct; exports are good and imports are bad
B)incorrect; imports improve Canada's terms of trade
C)incorrect; it fails to recognize that the gains from trade come from the volume rather than the balance of trade
D)incorrect; it does not recognize the operation of the foreign- exchange market
E)correct; it is based on the mercantilist doctrine

Question 55

Suppose Canada entered into a free- trade arrangement with China and,as a result,Canadian imports from India were replaced with imports from China.This would be an example of

A)trade expansion.
B)trade diversion.
C)trade creation.
D)countervailing trade.
E)dumping.

Question 56

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Refer to Figure 34- 3.If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2),then foreign producers' revenues from their sales in Canada will be equal to the area

A)C + H.
B)G + H + I.
C)B + C + D + G + H + I.
D)H.
E)B + C + D.

Question 57

Economists would tend to accept which of the following arguments in favour of tariffs?

A)Tariffs will stimulate the domestic economy.
B)Tariffs are needed to avoid exporting jobs.
C)Temporary tariff protection in some situations may help to generate an eventual comparative advantage in that product.
D)Tariffs are needed to limit imports and reduce the capital flow from the country.
E)Tariffs help to reduce inflation by reducing the price of domestic products.

Question 58

Suppose Canada eliminates a 15% tariff on foreign- made leather goods.There will be a in the Canadian price of leather goods,profits for domestic leather- goods producers,and in the deadweight loss associated with the tariff.

A)rise; increased; an increase
B)fall; decreased; an increase
C)fall; decreased; a decrease
D)rise; increased; a decrease
E)fall; increased; a decrease

Question 59

The diagram below shows the domestic demand and supply curves for denim jeans in Canada.The prevailing world price is PW.Assume that all jeans are identical.
FIGURE 34- 2
Refer to Figure 34- 2.In the presence of free international trade,Canada's production will be at the quantity:

A)Q1
B)Q2
C)Q3
D)Q4
E)Q5

Question 60

Canada is a net importer of durable consumer goods (washing machines,refrigerators,etc.).If Canada,a small country in global markets,imposes a 15% tariff on these goods,it will cause

A)a decrease in the price consumers pay for these goods in Canada.
B)a reduction in the consumption of these goods in Canada.
C)a reduction in tariff revenue collected by the Canadian government.
D)an increase in the quantity imported of these goods.
E)an upward shift in the demand curve for these goods.

Question 61

The concept of "trade creation" refers to

A)regional trade agreements.
B)inefficient trade that follows the establishment of a free- trade area.
C)trade based on comparative advantage that typically follows the reduction of trade barriers.
D)increased exports and reduced imports as a result of a high- tariff policy.
E)the opening up of new trading routes.

Question 62

The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical. $$\begin{array} { | l | c | c | } \hline \text { Producing Country } & \text { Canadian Price in } \$ & \text { C anadian Price in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Import Tariff } \\\hline \text { Canada } & 10.00 & \\\hline \text { United Kingdom } & 9.00 & \\\hline \text { United States } & 8.00 & \\\hline\end{array}$$ TABLE 34- 1

-Refer to Table 34- 1.If Canada has a 40% tariff in place on the import of cheddar cheese,the price per kilogram of cheese from Canada,United Kingdom and United States respectively,is

A)$14,$12.60 and $11.20.
B)$10,$12.60 and $11.20.
C)$10,$10 and $10.
D)$14,$9.00 and $8.00.
E)$10,$9.00 and $8.00.

Question 63

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
What is a tariff?

A)a tax imposed on exported goods
B)a tax imposed on domestically produced manufactured goods
C)a quota imposed on imported goods
D)an encouragement to worldwide specialization and division of labour
E)a tax imposed on imported goods

Question 64

The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical. $$\begin{array} { | l | c | c | } \hline \text { Producing Country } & \text { Canadian Price in } \$ & \text { C anadian Price in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Import Tariff } \\\hline \text { Canada } & 10.00 & \\\hline \text { United Kingdom } & 9.00 & \\\hline \text { United States } & 8.00 & \\\hline\end{array}$$ TABLE 34- 1

-A common argument for the use of tariffs when the objective is to maximize a country's national income would be to

A)increase the prices of domestic exports.
B)improve the country's terms of trade.
C)prevent learning- by- doing by potential trade partners.
D)enjoy the advantages of diversification.
E)subject infant industries to the discipline of the market.

Question 65

The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical. $$\begin{array} { | l | c | c | } \hline \text { Producing Country } & \text { Canadian Price in } \$ & \text { C anadian Price in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Import Tariff } \\\hline \text { Canada } & 10.00 & \\\hline \text { United Kingdom } & 9.00 & \\\hline \text { United States } & 8.00 & \\\hline\end{array}$$ TABLE 34- 1

-Suppose the Canadian government began subsidizing wheat farmers by paying them $25 per bushel of wheat produced.According to existing international trade agreements,other countries would be allowed to react to this subsidy by imposing a

A)countervailing duty.
B)VER.
C)trade diversion.
D)non- tariff barrier.
E)quota.

Question 66

Suppose Canada has a 20% tariff on the import of carpets,and Canada currently imports this product from India at a with- tariff price of $22.The with- tariff price of identical carpets from the United States is $24.Now suppose a free- trade agreement with the U.S.eliminates the tariff and so the no- tariff price from the U.S.is $20.Canada now purchases carpets from the U.S.This is an example of

A)specialization.
B)trade creation.
C)dumping.
D)trade diversion.
E)a countervailing duty.

Question 67

A business which contends that it needs temporary protection so that it can expand significantly and thereby reduce its costs so as to enable it to compete with foreign producers is using an argument known as the

A)infant- industry case for tariffs.
B)social advantages case for tariffs.
C)monopolistic competition case for tariffs.
D)strategic case for tariffs.
E)price fluctuations case for tariffs.

Question 68

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
For most products,Canada is a small economy with no market power in the global market.If Canada imposed a tariff on imported goods from a low- wage foreign country,this would

A)increase wages in the low- wage foreign country.
B)increase the Canadian price of the imported good.
C)improve Canada's terms of trade.
D)reduce the price of the imported good in Canada.
E)equalize the costs of production between the two countries.

Question 69

An example of the "infant industry" argument for trade protection is that

A)in the presence of unexploited scale economies,tariff protection may permit a country to develop future comparative advantage in certain products.
B)tariffs should be implemented in order to improve the terms of trade and thereby maximize the gains from trade.
C)"strategic" trade policy is helpful when other countries are also being strategic.
D)tariffs should not be imposed on countries that have democratic governments.
E)imports of certain products should be limited in the interests of national defence.

Question 70

An agreement among a group of countries to eliminate trade barriers among themselves,to present a common trading front to the rest of the world in terms of common tariffs,but which does not permit free movement of factors of production among member countries,is called a

A)common market.
B)reciprocity association.
C)confederation.
D)customs union.
E)free- trade area.

Question 71

The main objective of protectionist trade policies is to

A)create a level playing field.
B)shield local producers from foreign competition.
C)raise average real wages in the economy.
D)raise government revenues through tariffs.
E)maximize world production.

Question 72

If wages in Mexico are lower than those in Canada,

A)Canada may have a comparative advantage in all products.
B)Mexico probably has an absolute advantage in all products due to its low labour costs.
C)Canadian living standards can be raised by imposing tariffs on imports from Mexico.
D)Mexico may have a comparative advantage in all products.
E)Canadian consumers can benefit by purchasing some low- cost goods from Mexico.

Question 73

The effect of a tariff on a specific imported good on (domestic)consumer and producer surplus can be summarized as follows:

A)consumer surplus and producer surplus are both decreased.
B)consumer surplus is increased and producer surplus is decreased.
C)consumer surplus is decreased and producer surplus is increased.
D)there is no effect on either consumer or producer surplus.
E)consumer surplus and producer surplus are both increased.

Question 74

In international trade,"dumping" is defined as charging

A)export prices below average cost for any period of time.
B)a lower price in foreign markets than in the domestic market.
C)a domestic retail price above the marginal cost faced by a firm importing the product at the wholesale level.
D)export prices below marginal cost for any period of time.
E)export prices below average cost for a short period of time.

Question 75

The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is PW.Assume that all cotton towels are identical.
FIGURE 34- 3
Refer to Figure 34- 3.If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2 ),then domestic towel producers' revenues will be equal to the area

A)A + B + C + D.
B)A + B + C + E + F + G + H.
C)E + F + G + H.
D)E + F + G.
E)A + B + E + F + G.

Question 76

The table below shows the prices in Canada of one kilogram of cheddar cheese produced in three different countries.Assume that all cheddar cheese is identical. $$\begin{array} { | l | c | c | } \hline \text { Producing Country } & \text { Canadian Price in } \$ & \text { C anadian Price in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Import Tariff } \\\hline \text { Canada } & 10.00 & \\\hline \text { United Kingdom } & 9.00 & \\\hline \text { United States } & 8.00 & \\\hline\end{array}$$ TABLE 34- 1

-Refer to Table 34- 1.Assuming that a 40% tariff is in place and that Canadians buy only the lowest- priced cheddar cheese,from which country will Canada buy its cheese?

A)from United Kingdom and United States
B)all from Canada
C)all from the United States
D)all from United Kingdom
E)from Canada and United States

Question 77

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
Refer to Figure 34- 4.Assume there is free trade in bicycles.If the world price of bicycles is $200,domestic consumption is and domestic production is .

A)50 000; 30 000
B)30 000; 50 000
C)60 000; 20 000
D)20 000; 60 000
E)40 000; 40 000

Question 78

For most products,Canada is a small economy with no market power in the global market.If Canada imposed a tariff on imported goods from a low- wage foreign country,this would

A)reduce the advantages of specialization and trade.
B)reduce the price of the imported good in Canada.
C)increase national income in the low- wage country.
D)equalize the costs of production between the two countries.
E)increase the income of the foreign producer.

Question 79

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
Refer to Figure 34- 4.Suppose the world price of bicycles is $200 and Canada has in place a 50% import tariff on this good.The Canadian government will collect tariff revenue in the amount of per year.

A)$1.0 million
B)$1.5 million
C)$2.5 million
D)$2.0 million
E)$0.5 million

Question 80

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
FIGURE 34- 4
A 10% tariff on all wines imported into Canada will

A)protect the cheaper wines at the expense of the expensive wines.
B)protect the expensive wines more than the cheaper wines.
C)create the incentive to produce better quality wines.
D)equally protect the production of all Canadian wines.
E)provide no protection at all to the Canadian wine industry.