Deck 8: Tariffs, Quotas, and Other Trade Restr Ictions

Question 1

International trade policy is defined as:

A) all the rules, laws, and regulations that govern a country's trade with foreigners.
B) exclusively the set of international agreements that govern world trade.
C) the government's laws and regulations that govern how people exchange goods among themselves.
D) exclusively a country's laws that regulate its international trade.

Answer 1

all the rules, laws, and regulations that govern a country's trade with foreigners.

Question 2

In this chapter, a tariff is defined as:

A) a fee for performing a service.
B) a tax on imports.
C) a tax on any type of economic activity.
D) None of the above.

Answer 2

a tax on imports.

Question 3

An ad valorem tariff is:

A) a tax on exports given as a percentage of the quantity of exports.
B) a tax on imports given as a percentage of the quantity of imports.
C) a tax on imports that is specified as a percentage of the value of imports.
D) a fee specified in money terms.

Answer 3

a tax on imports that is specified as a percentage of the value of imports.

Question 4

A specific tariff is:

A) simply a specific money amount that is levied per unit of imports.
B) a tax on imports given as a specific percentage of the value of imports.
C) a fee on exports given as a specific money amount.
D) a tax levied on some specific type of good.

Question 5

Among the reasons why ad valorem tariffs may be preferable to specific tariffs are:

A) it is easier to set a single ad valorem tariff for a whole category of products that differ in their value than to set specific tariffs for each specific product within that category.
B) specific tariffs would have to be changed frequently as relative prices of different goods change in order to maintain the same level of protection.
C) ad valorem tariffs are more immune to inflation.
D) All of the above.
E) None of the above.

Question 6

A specific tariff on pineapples of $0.30, given that pineapples cost $1.50 each in the world market, is equivalent to an ad valorem tariff of:

A) 20%
B) 30%
C) 500%
D) 150%
E) None of the above.

Question 7

An importer of the luxury version of a certain type of product would:

A) prefer an ad valorem tariff.
B) prefer a specific tariff on the general product category.
C) be indifferent between ad valorem and specific tariffs.
D) prefer a combination specific/ad valorem tariff.

Question 8

According to the two-country partial equilibrium model of trade, the imposition of a tariff on imports by the importing country definitely:

A) reduces net welfare in the importing country.
B) reduces net welfare in the exporting country.
C) raises net welfare in the world as a whole.
D) raises net welfare in the exporting country.

Question 9

According to the two-country partial equilibrium model of trade, the imposition of a tariff on imports by the importing country, all other things equal:

A) may or may not raise net welfare in the importing country.
B) definitely reduces net welfare in the exporting country.
C) definitely reduces net welfare in the world as a whole.
D) All of the above.
E) None of the above.

Question 10

Relative to free trade, in the importing country an import tariff:

A) reduces producer surplus.
B) reduces consumer surplus.
C) reduces government revenue.
D) All of the above.

Question 11

The Lerner Symmetry Theorem says that:

A) any restraint on imports also effectively acts as a restraint on exports.
B) the promotion of exports will cause imports to decline as well.
C) any restraint on imports also causes exports to increase.
D) the promotion of exports causes gross domestic product to increase by an equal amount.

Question 12

The two-good general equilibrium model of a tariff shows that protection of the import-competing industry necessarily causes:

A) production in the other industry to expand as well.
B) production in the other industry to contract.
C) exports by the other industry to expand.
D) production in the protected industry to contract.

Question 13

The two-country model of a tariff shows that a tariff by one country causes:

A) a transfer of welfare from producers to consumers in the importing country.
B) the exporting country to lose less welfare than its deadweight losses because it gains some welfare at the expense of the importing country.
C) a reduction in net welfare in the world equal to the deadweight losses in all countries.
D) All of the above.
E) None of the above.

Question 14

An effective tariff is:

A) the portion of the tariff that is actually paid to the government.
B) the percentage by which a tariff causes the price of a good to rise.
C) the portion of the tariff effectively paid by foreigners.
D) the amount that a tariff raises the price of a good relative to the value added of the industry that produced the good on which the tariff is levied.

Question 15

An import quota is:

A) a tax on imports.
B) a limit on the quantity of a product that is permitted to enter the domestic market from abroad.
C) a system of tariffs according to the country that exports the good.
D) not used at all anymore although it used to be popular as a source of tax revenue.

Question 16

Relative to free trade, a quota on imports:

A) reduces producer surplus.
B) reduces consumer surplus.
C) reduces government revenue.
D) All of the above.
E) None of the above.

Question 17

A binding quota is:

A) a quota set at zero.
B) a quota set at a level that is below the quantity that would be imported under free trade.
C) a quota set at a level that is above the quantity that would be imported under free trade.
D) a quota set equal to the quantity that would be imported under free trade.

Question 18

The net national welfare decline from a quota is:

A) always less than the welfare decline from a tariff.
B) not comparable to the welfare decline from a tariff.
C) at least as large as the welfare decline from an equivalent tariff.
D) always identical to a VER.

Question 19

Voluntary export restraints are most like:

A) quotas
B) tariffs
C) export taxes
D) dumping

Question 20

Quotas and tariffs cause relative prices to change, which causes:

A) a transfer of welfare from consumers of imports to domestic producers of import-competing goods in the importing country.
B) a transfer of welfare from consumers to producers of export goods in the exporting country.
C) an effective payment of the quota rent or tariff by the government in the exporting country and import consumers in the importing country.
D) an increase in welfare in the exporting country but a reduction in the importing country.

Question 21

Economists often favor tariffs over quotas because:

A) quotas can never be "equivalent" to tariffs.
B) quotas tend to become more restrictive of trade than tariffs as demand grows.
C) quotas are more efficient in allocating restricted trade among those who gain from trade.
D) tariffs provide government revenue while quotas do not.

Question 22

"Buy Domestic" regulations:

A) have no trade implications.
B) restrict international trade.
C) protect domestic consumers.
D) are perfectly correct under international trade agreements.

Question 23

Auction quotas:

A) are frequently used by the United States.
B) would be fairer but necessarily much more costly in terms of national welfare than quotas allocated by administrative procedure.
C) would reduce the loss of consumer surplus as compared to identical quotas allocated by administrative procedure.
D) are seldom applied because they would eliminate the producer surplus gains provided by normal quotas while still causing the same consumer surplus losses.

Question 24

Rent seeking activities:

A) are likely to reduce the costs of protection.
B) are likely to increase the costs of protection.
C) are unlikely to have any effect on the costs of protection.
D) can only be carried out by producers in the importing country.

Question 25

Smuggling is:

A) criminal activity that causes net losses of welfare to society.
B) rent-evading activity intended to avoid the costs imposed as a result of rent-seeking behavior by producers.
C) an activity that was common in ancient times but is rare today.
D) All of the above.
E) None of the above.

Question 26

The protection from import competition may take the following form:

A) bureaucratic procedures that raise costs for importers.
B) health regulations that place extra burdens on foreign suppliers of food products.
C) requirements that domestic government buy domestic products only.
D) All of the above.
E) None of the above; only tariffs and quotas can restrict imports.

Question 27

The true costs of protection:

A) are probably less than suggested by the deadweight loss triangles from the partial equilibrium models of trade.
B) are probably greater than suggested by the deadweight loss triangles from the partial equilibrium models of trade.
C) are probably about as big as the deadweight loss triangles from the partial equilibrium models of trade.
D) are not in any way related to the deadweight loss triangles from the partial equilibrium models of trade; a completely different set of costs not captured by these models are all that matter.

Question 28

To successfully accuse a firm of predatory pricing in the United States under domestic competition laws requires proof that:

A) the alleged predator had no intent to drive out the competition and monopolize the market.
B) the predator would abandon the market after driving out the competition.
C) the increased price competition would cause actual damage to the economy.
D) the predator had a reasonable chance of succeeding in its attempt to drive out the competition.

Question 29

Antidumping duties:

A) were banned by the GATT after 1947.
B) were sanctioned by the GATT and continue to be allowed by the WTO.
C) have been used very little in recent years as other trade barriers have been erected in their place.
D) are very difficult to justify given the current GATT/WTO rules.

Question 30

Under the GATT, dumping is defined as:

A) selling a product overseas at a price lower than that product sells for in the home market.
B) selling a product below cost.
C) selling a product below the price of competing products in the foreign market.
D) both a and b

Question 31

An export tax tends to:

A) reduce the amount of exports.
B) drive a wedge between the prices of the export good in the home market and the foreign market.
C) cause a variety of gains and losses to different groups at home and abroad.
D) All of the above.

Question 32

An export tax tends to:

A) raise the amount of exports.
B) equalize the prices of the export good in the home market and the foreign market.
C) cause gains to any group in the exporting economy.
D) All of the above.
E) None of the above.

Question 33

Why does the United States not use export taxes?

A) The elasticities of demand for its exports are too high for an export tax to increase export earnings.
B) It feels that its international obligations require it to export as cheaply as possible.
C) The Constitution of the United States explicitly states that "No Tax or Duty shall be laid on Articles exported from any State."
D) All of the above.
E) None of the above.

Question 34

Brazil restricted the export of coffee in order to:

A) raise revenue.
B) keep the price of coffee low at home.
C) exploit low price elasticity of demand and get foreigners to pay a large portion of the export tax.
D) All of the above.
E) None of the above.

Question 35

Relative to free trade, an export subsidy on a certain product:

A) leaves its domestic price unchanged.
B) increases its foreign price.
C) decreases its domestic price.
D) increases its domestic price.

Question 36

Relative to free trade, an export tax on a certain product:

A) decreases its domestic price.
B) increases its domestic price.
C) leaves its domestic price unchanged.
D) decreases its foreign price.

Question 37

If a foreign government is subsidizing its exports to your national market, what is the best policy for your government if it wants to maximize your country's net national welfare?

A) Impose widespread tariffs or quotas on imports from the offending country.
B) Impose a countervailing duty exactly equal to the subsidy to restore the pre-subsidy import price.
C) Retaliate by subsidizing your exports to exactly the same degree.
D) Impose a quota so as to keep the trade volume at the free trade level.
E) Do nothing; let the subsidized foreign exports enter your market unrestricted.

Question 38

An export subsidy is nothing more than:

A) a negative export tax.
B) a general production subsidy.
C) an expensive way to increase domestic employment.
D) a way to increase the welfare of domestic consumers.