Question 1

Tariffs result in a decrease in consumer surplus because:
A) the price and the quantity consumed of the protected good increases.
B) the price and the quantity consumed of the protected good decreases.
C) the price of the protected good increases and quantity consumed decreases.
D) the price of the protected good decreases and quantity consumed increases.

Accepted Answer

Tariffs result in an increase in the price of the protected good. As a result, consumers are willing to buy fewer units of the good, leading to a decrease in consumer surplus.

Question 2

A tariff differs from a quota in that a tariff is:
A) a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.
B) a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported.
C) levied on exports, whereas a quota is imposed on imports.
D) levied on imports, whereas a quota is imposed on exports.

Accepted Answer

A tariff is indeed a tax imposed on imports to make them more expensive and protect domestic industries, while a quota directly limits the quantity of a good that can be imported, not involving a tax but restricting volume.

Question 3

A rule that every imported product must be opened by hand and inspected with a magnifying glass, by one of just three government inspectors available at any given time might be referred to as _______.
A) a non-tariff barrier
B) a quota
C) a government bureaucracy
D) an import quota

Accepted Answer

This rule acts as a non-tariff barrier because it imposes additional conditions and procedures on imports without directly imposing tariffs, thereby potentially limiting the volume of imports through delays and increased costs.

Question 4

Import tariffs generally _______ the output of domestic producers of the affected products and also _______ the output of domestic exporters.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase

Accepted Answer

Import tariffs generally increase the output of domestic producers of the affected products because they make imported goods more expensive, thus reducing competition for domestic producers. However, tariffs can lead to retaliatory measures from other countries, potentially decreasing the output of domestic exporters as their goods become more expensive in foreign markets.

Question 5

A tariff differs from a quota in that a tariff is:
A) levied on imports, whereas a quota is imposed on exports.
B) levied on exports, whereas a quota is imposed on imports.
C) a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported.
D) a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

Accepted Answer

A tariff is a tax on imported goods, whereas a quota is a limit on the quantity of goods that can be imported. Therefore, D is the correct answer.

Question 6

After the USA introduces a tariff in the market for gigastraps, the price of gigastraps in the USA will:
A) decrease.
B) increase.
C) remain the same.
D) change in an indeterminate manner.

Accepted Answer

Tariffs are taxes imposed on imported goods, which increase the cost of those goods. When the USA introduces a tariff on gigastraps, the cost of importing them rises. Domestic sellers, facing less competition from cheaper imported goods, can raise their prices. Consequently, the price of gigastraps in the USA will increase.

Question 7

If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:
A) Japan will be able to consume a combination of rice and other goods beyond their domestic production possibilities curve.
B) the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.
C) the real incomes of Japanese rice consumers would rise, but the real incomes of Japanese rice producers would fall.
D) the price of rice in Japan will fall.

Accepted Answer

If Japan does not have a comparative advantage in producing rice and decides to reduce or eliminate rice imports, domestic rice producers may benefit from reduced competition, potentially increasing their real incomes. However, this policy would likely lead to higher rice prices domestically due to the reduced supply, negatively affecting real incomes of consumers who now have to pay more for rice.

Question 8

Tariffs are taxes imposed on _______.
A) imported products
B) exported products
C) hazardous goods
D) surplus goods

Accepted Answer

Tariffs are taxes imposed by a government on imported products to protect domestic industries, raise revenue, or both.

Question 9

An import quota does which of the following?
A) decreases the price of the imported goods to consumers
B) increases the price of the domestic goods to consumers
C) redistributes income away from domestic producers of those products toward domestic producers of exports
D) both a and c

Accepted Answer

An import quota limits the quantity of goods that can be imported, which typically reduces the supply of those goods in the domestic market. This can lead to an increase in the price of both the imported goods and the domestic goods that are substitutes, benefiting domestic producers by making their products more competitive against cheaper imports.

Question 10

The membership of the WTO includes about _______ nations.
A) 15
B) 150
C) 700
D) 1500

Accepted Answer

As of my last update in 2023, the World Trade Organization (WTO) has 164 member countries, which is closest to the option of 150 nations.

Question 11

An import quota or tariff on French wine that raises the prices for wine will probably:
A) hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.
B) hurt both domestic wine drinkers and domestic wineries, but this will be more than offset by a reduction in driving fatalities.
C) hurt both domestic wine drinkers and domestic wine producers because of a reduction in competition.
D) hurt domestic wineries, which will lose business as a result of the higher prices.

Accepted Answer

An import quota or tariff on French wine would likely increase the price of imported wine, making domestic wine relatively cheaper or more attractive in comparison. This could hurt domestic wine drinkers due to higher prices overall but benefit domestic wineries by potentially increasing their market share and allowing them to raise prices due to reduced competition from imported wines.

Question 12

A new American import quota on imported steel would be likely to:
A) increase the production of steel-using American firms.
B) increase American production of steel.
C) generate tax revenue to the government.
D) reduce the cost of production to steel-using American firms.

Accepted Answer

An import quota on steel would limit the amount of foreign steel entering the country, encouraging domestic production to meet the demand, thus increasing American production of steel.

Question 13

Which of the following is the best example of a tariff?
A) a tax placed on all small cars sold in the domestic market
B) a limit imposed on the number of small cars that can be imported from a foreign country
C) a subsidy from the American government to domestic manufacturers of small cars so they can compete more effectively with foreign producers of small cars
D) a $1000-per-car fee imposed on all small cars imported

Accepted Answer

A tariff is a tax or duty to be paid on a particular class of imports or exports. Option D, a $1000-per-car fee imposed on all small cars imported, directly fits the definition of a tariff as it is a fee charged on imported goods.

Question 14

Despite interlocking import quotas, tariffs, and nontariff barriers, the share of apparel sold in the United States that is imported rose from about _______ in 1999 to about _______ today.
A) 10%; 25%
B) 25%; 50%
C) 50%; 75%
D) 75%; 90%

Accepted Answer

The correct answer is C) 50%; 75%. This reflects the significant increase in the proportion of apparel sold in the United States that is imported, despite various trade barriers. The increase from 50% to 75% indicates a growing reliance on imported apparel over the years.

Question 15

There are nontariff barriers in the form of _______regulations, in which certain textiles are made in the United States, shipped to other countries, combined in making apparel with textiles made in those other countries-and then re-exported back to the United States at a lower tariff rate.
A) import quota
B) export quota
C) "rules of origin"
D) dumping

Accepted Answer

The correct answer is "rules of origin" regulations. These regulations determine the country of origin of a product and can affect the tariff rate. In the scenario described, textiles made in the US are combined with textiles from other countries to make apparel, which is then re-exported back to the US. The "rules of origin" regulations are used to determine the tariff rate for these re-exported goods, often allowing them to benefit from lower tariffs.

Question 16

"Tariffs and other trade restrictions increase the domestic scarcity of products from abroad. Such policies benefit domestic producers of the restricted products at the expense of domestic consumers." This statement:
A) contains one error; the trade restraints do not increase the scarcity of foreign-produced goods.
B) contains one error; domestic producers gain at the expense of foreign producers rather than domestic consumers.
C) contains two errors; trade restraints do not increase the domestic scarcity of product and neither do they harm domestic consumers.
D) is essentially correct.

Accepted Answer

The statement is essentially correct because tariffs and other trade restrictions do indeed increase the domestic scarcity of products from abroad by making them more expensive or harder to obtain, which benefits domestic producers by reducing foreign competition. However, this is at the expense of domestic consumers, who face higher prices and less choice.

Question 17

Which of the following is the best example of a quota?
A) a tax placed on all small cars sold in the domestic market
B) a limit imposed on the number of men's suits that can be imported from a foreign country
C) a subsidy from the American government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits
D) a $100-per-car fee imposed on all small cars imported

Accepted Answer

A quota is a government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a particular time period. Choice B, which describes a limit imposed on the number of men's suits that can be imported from a foreign country, is the best example of a quota. Choices A, C, and D describe a tax, a subsidy, and a fee, respectively, which are different from a quota.

Question 18

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?
A) The domestic price of automobiles would fall.
B) The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.
C) The number of unemployed workers in the domestic automobile industry would rise.
D) The demand for foreign-produced automobiles would increase, causing the price of automobiles to increase in other nations.

Accepted Answer

Increasing tariffs on foreign-produced automobiles would likely reduce their supply in the domestic market, as the higher costs could lead to decreased imports. This reduction in supply, with demand remaining constant, would cause the prices of automobiles in the domestic market to rise.

Question 19

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:
A) firms will be protected from subsidized foreign competition.
B) domestic producers can attain the economies of scale to allow them to compete in world markets.
C) there will be adequate supplies of crucial resources in case they are needed for national defence.
D) it will not be subjected to a takeover from a foreign competitor.

Accepted Answer

The infant industry argument posits that new industries may initially be unable to compete with established foreign competitors due to a lack of economies of scale. Protectionism, in this view, allows these nascent industries to grow and achieve economies of scale, eventually enabling them to compete internationally without the need for protective tariffs or subsidies.

Question 20

Suppose the government of Taiwan subsidized its watch-making industry, enabling Taiwanese producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Taiwanese subsidization policy by:
A) setting a tariff high enough to just offset the subsidy granted to the Taiwanese watch-making industry.
B) setting a declining quota on the import of Taiwanese watches such that the nation's domestic watch-making industry would continue to grow at the same rate as the rest of the economy.
C) setting a tariff such that the prices of Taiwanese and domestic watches to the consumer are equal.
D) accepting the subsidy of the Taiwanese government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.

Accepted Answer

The law of comparative advantage suggests that countries benefit from specializing in the production of goods for which they have a comparative advantage and trading for others. Accepting the subsidy allows the importing nation to benefit from cheaper watches, and resources from the displaced domestic industry can be reallocated to sectors where the country has a comparative advantage.

Quiz 20: Globalization and Protectionism

Tariffs result in a decrease in consumer surplus because:

A tariff differs from a quota in that a tariff is:

A rule that every imported product must be opened by hand and inspected with a magnifying glass, by one of just three government inspectors available at any given time might be referred to as _______.

Import tariffs generally _ the output of domestic producers of the affected products and also _ the output of domestic exporters.

A tariff differs from a quota in that a tariff is:

After the USA introduces a tariff in the market for gigastraps, the price of gigastraps in the USA will:

If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:

Tariffs are taxes imposed on _______.

An import quota does which of the following?

The membership of the WTO includes about _______ nations.

An import quota or tariff on French wine that raises the prices for wine will probably:

A new American import quota on imported steel would be likely to:

Which of the following is the best example of a tariff?

Despite interlocking import quotas, tariffs, and nontariff barriers, the share of apparel sold in the United States that is imported rose from about _ in 1999 to about _ today.

There are nontariff barriers in the form of _______regulations, in which certain textiles are made in the United States, shipped to other countries, combined in making apparel with textiles made in those other countries-and then re-exported back to the United States at a lower tariff rate.

"Tariffs and other trade restrictions increase the domestic scarcity of products from abroad. Such policies benefit domestic producers of the restricted products at the expense of domestic consumers." This statement:

Which of the following is the best example of a quota?

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:

Suppose the government of Taiwan subsidized its watch-making industry, enabling Taiwanese producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Taiwanese subsidization policy by: