Question 1

When a tariff is imposed on an imported good, the prices of the similar products produced within the country also increases.

Accepted Answer

When a tariff is imposed on an imported good, the price of the imported good rises making it more expensive than the similar products produced within the country. As a result, the demand for the domestic product increases causing an increase in their price. This is known as the protection effect which allows domestic producers to sell their products at a higher price as they are protected from foreign competition.

Question 2

An ad valorem tariff is formulated as a money amount per unit of import that is due when the good reaches the importing country.

Accepted Answer

An ad valorem tariff is formulated as a percentage of the value of the imported good, not a money amount per unit.

Question 3

The one-dollar, one-vote metric implies that every dollar of gain or loss is just as important as every other dollar of gain or loss, regardless of who the gainers or losers are.

Accepted Answer

This metric assumes equal importance of every dollar, regardless of who benefits or suffers from the gain or loss.

Question 4

Country A is a large country that imports good-quality processed chicken from country B. Suddenly, country A's government decides to impose a tariff on this import. Who among the following will be adversely affected by this policy?

Accepted Answer

The tariff imposed by country A's government will make the imported processed chicken from country B more expensive, making it less competitive compared to locally produced chicken in country A. This can lead to a decrease in demand for imported chicken from country B, which negatively affects the producers of chicken in country B. Consumers in country B who consume chicken will not be affected, as the tariff is not imposed on them. Consumers of ham in country B and suppliers of chicken in country A are also not directly affected by the tariff.

Question 5

A competitive producer supplies an additional unit of a good as long as the price is greater than the per unit cost.

Accepted Answer

The answer of A competitive producer supplies an additional unit...

Question 6

The production effect of a tariff measures the welfare gain of domestic producers who can sell their product at a higher price as a result of the tariff.

Accepted Answer

The production effect of a tariff measures the welfare loss of domestic consumers who must pay a higher price for the product as a result of the tariff.

Question 7

When a small country imposes a tariff, the domestic price of the good increases. This causes a "production" and a "consumption" effect. Explain carefully these two effects, and discuss whether they increase or decrease the country's well-being.

Accepted Answer

The answer of When a small country imposes a tariff,...

Question 8

A country can actually improve its well-being if it is in a position to impose a non-zero "optimal tariff". Explain what an optimal tariff is, what conditions must be in place in order to implement an optimal tariff, and how such a tariff will increase national welfare. Assuming a country could impose an optimal tariff, would you suggest it do so? Justify your answer.

Accepted Answer

The answer of A country can actually improve its well-being...

Question 9

Which of the following has overseen the global rules of government policy toward international trade since 1995?

Accepted Answer

The World Trade Organization (WTO) has been overseeing global rules on government policy toward international trade since its establishment in 1995. The General Agreement on Tariffs and Trade (GATT) was the predecessor to the WTO, but it ceased to exist once the WTO was formed. The International Monetary Fund (IMF) and the World Bank focus more on international finance and economic development, respectively, than on international trade policy.

Question 10

Firms in a given industry are affected by the tariff imposed on the product they sell, but not by the tariffs imposed on their purchased inputs.

Accepted Answer

Firms in a given industry can be affected by the tariffs imposed on their purchased inputs, as it may increase the cost of production and ultimately affect the price of the product they sell.

Question 11

Suppose that the world price of automobiles is $20,000 and automobile manufacturers in country A use $10,000 worth of imported inputs and no domestic inputs. What is the effective rate of protection for the automobile industry in country A, if there is a tariff of 25 percent on imported automobiles and a tariff of 50 percent on imported inputs used in this industry?

Accepted Answer

The answer of Suppose that the world price of automobiles...

Question 12

"The higher the tariff, the more domestic production is increased. Thus, a prohibitive tariff is socially optimal." Explain the validity of this statement.

Accepted Answer

The answer of "The higher the tariff, the more domestic...

Question 13

For a small country, the sum of the production and the consumption effects indicate the net loss in economic welfare due to the imposition of a tariff.

Accepted Answer

A tariff is a tax imposed on imported goods, which can lead to a decrease in imports and an increase in domestic production. However, this can also lead to higher prices for consumers and reduced choice, leading to a decrease in overall economic welfare. The production effect refers to the increase in domestic production due to the tariff, while the consumption effect refers to the decrease in consumption due to higher prices. The net loss in economic welfare is the sum of these effects, indicating that for a small country, the loss is greater than any potential gain from the tariff.

Question 14

A tax imposed on the exports of a small country usually drives down the domestic price of the exportable good.

Accepted Answer

When a small country imposes a tax on its exports, the domestic price of the exportable good usually decreases as producers are forced to sell their goods at a lower price due to decreased demand in the international market. This can lead to higher production costs and decreased profitability for domestic producers.

Question 15

A tariff imposed by a small country hurts the tariff imposing country but the rest of the world gains.

Accepted Answer

A small country imposing a tariff creates higher prices for its own citizens and reduces demand for imports, hurting both domestic consumers and foreign producers. The rest of the world does not gain from the tariff.

Question 16

The table given below shows the pre-tariff and post-tariff prices, domestic production and consumption of copper in the United States. Suppose the U.S. government imposes a specific tariff of $0.20 per pound on copper imports by the country. $\begin{array}{|l|l|l|} 
\hline& \text { Pre-tariff } & \text { Post-tariff } \
\hline \text { World price } & \$ 0.50 \text { per } \mathbb{b} . & \$ 0.40 \text { per } \mathbb{b} . \
\hline \text { U.S. domestic price } & \$ 0.50 \text { per } \mathbb{b} . & \$ 0.60 \text { per } \mathbb{b} \text {. } \
\hline \text { U.S. consumption } & 250 \text { million } \mathbb{b} . & 210 \text { million } \mathbb{b} . \
\hline \text { U.S. production } & 100 \text { million } \mathbb{b} . & 140 \text { million } \mathbb{b} . \
\hline
\end{array}$ 
a.Calculate the welfare loss to U.S.consumers of copper from the tariff.
b.Calculate the gain to U.S.producers of copper from the tariff.
c.Calculate the revenue collected by the U.S.government from taxing copper imports.
d.Calculate the net gain or loss to the U.S.economy as a whole from the tariff.

Accepted Answer

The answer of The table given below shows the pre-tariff...

Question 17

A tariff always lowers the well-being of each nation, including the nation imposing the tariff.

Accepted Answer

Tariffs can protect domestic industries from foreign competition, potentially preserving jobs and promoting local economic growth in the imposing nation. However, they can also lead to higher prices for consumers and retaliatory measures from other countries.

Question 18

Compare and contrast the effects of a tariff on prices and national well-being imposed in a small country with the effects of a tariff imposed in a large country. Illustrate your answer with the help of suitable diagrams.

Accepted Answer

The answer of Compare and contrast the effects of a...

Question 19

The consumption effect of a tariff indicates the welfare loss to a country resulting from the domestic consumers shifting from cheaper imports to more expensive local goods.

Accepted Answer

The answer of The consumption effect of a tariff indicates...

Question 20

Within a country, a tariff causes a redistribution of well-being only between the domestic producers and the government.

Accepted Answer

A tariff affects not only domestic producers and the government but also consumers and potentially foreign producers. It can lead to higher prices for consumers and affect the overall economy, including impacts on employment and production in different sectors.

Quiz 8: Analysis of a Tariff