Question 1

Assume that the United States imposes an import quota on Italian shoes. Relative to the equilibrium world price that would exist in the absence of import quotas, the equilibrium price of shoes in the United States will most likely _____ and the equilibrium price of shoes in Italy will most likely _____.

Accepted Answer

The import quota will reduce the supply of Italian shoes in the US market, leading to an increase in the equilibrium price of shoes in the US. In Italy, the reduction in demand for shoes from the US market will lead to a decrease in the equilibrium price of shoes, as there is now a surplus of shoes available in the Italian market.

Question 2

A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country.

Accepted Answer

A tariff or quota will increase the prices of the protected goods in the importing country because there will be a limited supply of the goods available. This will decrease the consumption of the protected goods in the importing country because consumers will switch to cheaper alternatives.

Question 3

Which item is an example of an import quota?

Accepted Answer

An import quota is a limit set by a government on the quantity of a particular good that can be imported into a country during a specified period of time. The limit on the total number of shoes imported from Italy is an example of an import quota.

Question 4

In the case of U.S. trade protection, quota rents for the most important import licenses are earned by:

Accepted Answer

The answer of In the case of U.S. trade protection,...

Question 5

If the executives of the U.S. silicon chip industry lobby Congress for protection from imports on the grounds that theirs is a new industry that needs time to develop technological efficiency, they are using the _____ argument.

Accepted Answer

The argument presented is the infant industry argument, which states that a new industry needs protection from imports in order to establish technological efficiency and compete with established industries.

Question 6

The main difference between a tariff and an import quota is that:

Accepted Answer

A tariff generates tax revenue for the government, while an import quota generates rents to the license holders. Tariffs and quotas can both be used to reduce imports and protect domestic industries, but they work in different ways. A tariff is a tax on imported goods, which can raise the cost of the goods and reduce demand. An import quota, on the other hand, limits the quantity of a particular good that can be imported, creating an artificial shortage and potentially raising prices. However, the limited supply can also lead to profits for the license holders who are allowed to import goods up to the quota limit, as they can charge higher prices due to reduced competition.

Question 7

The infant industry argument for trade protection states that:

Accepted Answer

The infant industry argument for trade protection advocates for protecting new industries from foreign competition until they become established. This is because new industries may not have the capacity to compete with established foreign industries and may require some time to develop and become competitive. The argument suggests that such protection will enable the domestic industry to grow and become competitive in the long run, ultimately benefiting the economy.

Question 8

If quota rents do not accrue to the government, then the net loss to the government from an import quota is _____ the deadweight loss from an equivalent tariff.

Accepted Answer

The answer of If quota rents do not accrue to...

Question 9

Assume that the United States imposes an import quota on Columbian coffee. Relative to the equilibrium world price that would prevail in the absence of import quotas, it is likely that the equilibrium price of coffee in the United States will _____ and the equilibrium price of coffee in Columbia will _____.

Accepted Answer

When the United States imposes an import quota on Columbian coffee, the supply of coffee to the United States will decrease, causing a shift to the left in the supply curve. The new equilibrium will occur at a higher price and a lower quantity, causing the equilibrium price of coffee in the United States to increase. At the same time, the reduced demand from the United States will cause a surplus of coffee in Columbia, leading to a decrease in the equilibrium price of coffee in Columbia. Therefore, the equilibrium price of coffee in the United States will increase, and the equilibrium price of coffee in Columbia will decrease.

Question 10

If the United States imposes an import quota on French wines, the result in the short run is likely to be _____ profits for American wine producers and _____ profits for French wine producers.

Accepted Answer

If the United States imposes an import quota on French wines, it will reduce the supply of French wines in the country, leading to a decrease in competition for American wine producers. This will increase the demand for American wines, leading to higher profits for American wine producers. On the other hand, French wine producers will face a decrease in demand for their wines, leading to lower profits. Therefore, the correct answer is C.

Question 11

Assume that the United States imposes an import quota on Scottish wool suits. Relative to the equilibrium price that would prevail in the absence of quotas, the equilibrium price of suits in the United States will most likely _____ and the equilibrium price of suits in Scotland will most likely _____.

Accepted Answer

Imposing an import quota on Scottish wool suits means that the quantity of suits imported into the United States will be restricted, creating a shortage. As a result, the equilibrium price of suits in the United States will increase, while the equilibrium price of suits in Scotland will decrease as there is a surplus in the market. Therefore, the correct choice is D.

Question 12

According to the infant industry argument, import protection is needed because:

Accepted Answer

The infant industry argument suggests that import protection is needed to enable industries that are starting up in a country to achieve technical efficiency and be competitive with mature foreign industries. This is because these new industries are at a disadvantage due to lack of experience and investment, which can lead to higher costs of production. Protecting them from cheaper foreign competition for a period of time can allow them to develop and become competitive over time.

Question 13

Tariffs and import quotas tend to:

Accepted Answer

Tariffs and import quotas increase the cost of imports, reducing the quantity that is imported and increasing domestic production. This leads to a reduction in total surplus, as a higher price and lower quantity reduce both consumer surplus and producer surplus.

Question 14

If the United States removed the tariffs and quotas on sugar, in the U.S. market for sugar:

Accepted Answer

The answer of If the United States removed the tariffs...

Question 15

Which argument is one that is common for trade protection?

Accepted Answer

National security is a common argument for trade protection as it is believed that dependence on foreign goods and services can leave a country vulnerable to disruptions in the global market, which can impact national security.

Question 16

A direct restriction on the quantity of an import is called a(n):

Accepted Answer

An import quota is a direct restriction on the quantity of an import, meaning that there is a limit on how much of a certain product can be imported into a country. This is different from a tariff, which is a tax on imported goods, and an import subsidy, which is financial aid given to domestic producers to help them compete with foreign imports. An import restriction is a broad term that can refer to any policy that limits or regulates imports, but it does not specifically refer to a direct quantity restriction like an import quota.

Question 17

Suppose the United States auctioned off all import quotas, the auctions were perfectly competitive, and the government received the revenues from the auction. In this case, the deadweight loss from a quota would be _____ the deadweight loss from an equivalent tariff.

Accepted Answer

When the government auctions off import quotas in a perfectly competitive market and receives the revenues, the economic outcome is similar to that of an equivalent tariff. In both cases, the government collects revenue, and the distortions in the market are similar, leading to an equal deadweight loss.

Question 18

In 2002, the steel industry argued that higher tariffs on steel were necessary to help fight the war on terrorism. This is an example of the _____ argument.

Accepted Answer

The argument provided by the steel industry that higher tariffs on steel were necessary to help fight the war on terrorism falls under the national security argument. The industry is claiming that their product is essential for national security and therefore should be protected through tariffs.

Question 19

An example of an import quota is a:

Accepted Answer

An import quota is a limit placed on the quantity or monetary value of a particular good that can be imported into a country. Therefore, choice A, which specifies a limit on the total number of Honda automobiles imported from Japan, is the best example of an import quota. Choice B describes an environmental regulation, choice C describes a tariff or customs duty, and choice D describes a subsidy, which are not examples of import quotas.

Question 20

The MOST likely effects of tariffs and/or import quotas are to _____ prices and to _____ consumption of the protected goods in the importing country.

Accepted Answer

Tariffs and import quotas increase the cost of importing goods, which raises the price of the protected goods in the importing country because suppliers pass on some or all of the increased costs to consumers. This increase in price makes it less affordable for consumers to purchase those goods, leading to a decrease in consumption or demand. Thus, tariffs and import quotas typically raise prices and lower consumption of the protected goods in the importing country.

Quiz 5: International Trade

Assume that the United States imposes an import quota on Italian shoes. Relative to the equilibrium world price that would exist in the absence of import quotas, the equilibrium price of shoes in the United States will most likely _ and the equilibrium price of shoes in Italy will most likely _.

A tariff or quota will _ prices and _ the consumption of the protected goods in the importing country.