Question 1

Canada and the United States had a prolonged dispute about alleged government subsidies to the softwood lumber industry in Canada.Who loses and who gains from the situation in which Canadian governments impose taxes on Canadian exports of softwood lumber to the United States?

Accepted Answer

When Canadian governments impose taxes on Canadian exports of softwood lumber to the United States, the cost of Canadian lumber for U.S. users increases, which means they lose. On the other hand, Canadian producers of lumber benefit from the taxes as they can sell their products in the domestic market at a higher price, and U.S. producers of lumber also benefit as the taxes make Canadian lumber more expensive, giving them a competitive advantage. Therefore, U.S. users of lumber lose while U.S. producers of lumber gain.

Question 2

If a tariff is imposed in a country that is too small to have global market power,the domestic consumer will face a price,and the price paid to foreign producers will .

Accepted Answer

When a small country imposes a tariff, the domestic price increases by the amount of the tariff, but the price paid to foreign producers does not change because the country is too small to influence world prices.

Question 3

The diagram below shows the demand and supply curves for refrigerators in Canada.
  FIGURE 34- 1
-Mercosur is

Accepted Answer

Mercosur is a customs union between Argentina, Brazil, Paraguay, and Uruguay. It was established in 1991 to promote free trade between the member countries and to create a common market.

Question 4

If Canada reduces the tariff imposed on a commodity from 10% to 5%,we would expect to observe

Accepted Answer

Reducing the tariff makes imported goods cheaper, leading to increased imports and reduced domestic production.

Question 5

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
-If a country is exporting more goods and services than it is importing,we should consider this to be "beneficial" only in the sense that it

Accepted Answer

When a country exports more than it imports, it accumulates foreign assets, which can be used in the future to finance consumption or investment, representing a potential economic benefit.

Question 6

Canada is a net importer of durable consumer goods (washing machines,refrigerators,etc.).If Canada,a small country in global markets,imposes a 10% tariff on these goods,we would expect to observe

Accepted Answer

A tariff on imported goods generally leads to an increase in the price paid by consumers, as the cost of the tariff is often passed on to them.

Question 7

A $1 per- litre tariff on all wine imported into Canada will

Accepted Answer

A $1 per-litre tariff represents a higher percentage of the cost for cheaper wines than for expensive wines, thus providing more protection to the production of cheaper wines.

Question 8

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 supplied to the Canadian market by domestic Canadian producers is

Accepted Answer

At price P0, the quantity of refrigerators supplied by domestic Canadian producers is Q1, as indicated by the supply curve in Figure 34-1.

Question 9

Suppose five countries in Central America agree that products are to be freely traded across their borders,they will share a common set of import duties,and that the flow of people will continue to be restricted.This is an example of a

Accepted Answer

A customs union involves countries agreeing to free trade among themselves and adopting a common external tariff on imports from non-member countries, which matches the scenario described.

Question 10

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 consumption will then be at the quantity:

Accepted Answer

Before the imposition of the tariff, Canada's consumption was at point Q4, where the domestic demand curve intersects the world price line PW. When a tariff of t is imposed, the effective price to Canadian consumers increases from PW to PW+t. This results in a decrease in consumption to Q3. Therefore, the answer is D.

Question 11

The concept of "trade diversion" refers to

Accepted Answer

Trade diversion occurs when a country replaces a low-cost foreign supplier with a high-cost one based on membership in a trade agreement. This happens when a member country of a trade agreement imposes tariffs on goods from non-member countries, making them more expensive compared to the member countries' goods. As a result, trade is diverted from the low-cost non-member country to the high-cost member country.

Question 12

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 consumption of denim jeans will be the quantity

Accepted Answer

The answer of The diagram below shows the domestic demand...

Question 13

A country that implements a voluntary export restriction (VER)

Accepted Answer

A voluntary export restriction (VER) is an agreement between two countries in which the exporting country agrees to limit the amount of a commodity it sells to another country. This is often done to avoid anti-dumping measures or to protect domestic producers.

Question 14

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 Canadian government's tariff revenues will be equal to

Accepted Answer

The tariff revenue is calculated as the tariff rate ($t) multiplied by the quantity of imports after the tariff is imposed. In the context of the graph, this is represented by the area F + G.

Question 15

Which of the following methods of import protection leads to the largest deadweight loss for the importing country?

Accepted Answer

Quotas typically lead to the largest deadweight loss because they restrict the quantity of imports, leading to higher prices and reduced consumer surplus without generating government revenue, unlike tariffs.

Question 16

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market.Assume that all bicycles are identical.
  FIGURE 34- 4
-Suppose Canada has a 12% tariff on foreign- made cotton clothing.If the tariff is raised to 20%,there will be a in the Canadian price of cotton clothing,profits for domestic producers,and _ in deadweight loss.

Accepted Answer

Raising the tariff to 20% will increase the Canadian price of cotton clothing, increase profits for domestic producers due to reduced foreign competition, and increase deadweight loss due to inefficiencies introduced by the higher tariff.

Question 17

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
-Suppose Canada implements new border procedures that require goods arriving from Country X to be held for 60 days in a bonded warehouse.This new policy is and is likely to .

Accepted Answer

The new border procedures requiring goods from Country X to be held for 60 days in a bonded warehouse is a non-tariff barrier, as it is not a tax on imports but rather a regulation on the movement of goods across borders. This new policy is likely to reduce imports from Country X because it increases the cost and time required to bring in goods from that country, which will make imports less attractive to Canadian consumers and businesses.

Question 18

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 $500 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.

Accepted Answer

The answer of The diagram below shows supply and demand...

Question 19

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 there is free trade in bicycles and the world price is $200.If Canada then imposes a 50% import tariff on bicycles,domestic consumption will

Accepted Answer

The answer of The diagram below shows supply and demand...

Question 20

The final round of GATT talks,called the Uruguay Round,established GATT's successor,known as the

Accepted Answer

The final round of GATT talks, known as the Uruguay Round, established GATT's successor, called the World Trade Organization (WTO). Therefore, the correct answer is option B. Option A, C, D, and E are incorrect as they do not refer to the successor of GATT established in the Uruguay Round.

Quiz 34: Trade Policy

Canada and the United States had a prolonged dispute about alleged government subsidies to the softwood lumber industry in Canada.Who loses and who gains from the situation in which Canadian governments impose taxes on Canadian exports of softwood lumber to the United States?

If a tariff is imposed in a country that is too small to have global market power,the domestic consumer will face a price,and the price paid to foreign producers will .

The diagram below shows the demand and supply curves for refrigerators in Canada. FIGURE 34- 1 -Mercosur is