Question 1

Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes an export quota on its automakers.The largest share of the export quota's "revenue effect" would tend to be captured by:

Accepted Answer

The largest share of the export quota's "revenue effect" would tend to be captured by Japanese automakers, as they are the ones directly affected by the quota and would have to adjust their production and pricing strategies accordingly. The other options (A, C, and D) may be indirectly affected, but would not capture the majority of the revenue effect.

Question 2

Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies.This is because,unlike domestic subsidies,import tariffs and quotas:

Accepted Answer

Import tariffs and quotas restrict competition and limit choices for domestic consumers, leading to distortions in the market. Meanwhile, domestic subsidies can be targeted and can potentially improve efficiency in domestic production, depending on the specific industry and subsidy program. Therefore, import tariffs and quotas tend to have a larger negative impact on national welfare compared to domestic subsidies. Choices A, C, and D are not applicable or accurate in this context.

Question 3

The imposition of a tariff on imported steel for the home country results in:

Accepted Answer

When a tariff is imposed on imported steel, the price of imported steel increases, making it less competitive with domestic steel. This leads to higher prices for steel in the home country and a decrease in steel consumption. Other countries may also retaliate with their own tariffs, which can lead to a decrease in overall trade. Choices A, C, and D are incorrect as they do not accurately reflect the impact of a tariff on imported steel.

Question 4

If a tariff and an import quota lead to equivalent increases in the domestic price of steel,then:

Accepted Answer

A tariff generates government revenue, while a quota can lead to increased profits for foreign producers or domestic importers, affecting income distribution differently.

Question 5

Concerning the restrictive impact of an import quota,assume there occurs an increase in the domestic demand for the import product.As long as the quota falls short of what would be imported under free market conditions,the economy's adjustment to the increase in demand would take the form of:

Accepted Answer

When the quota restricts imports below free market levels and demand increases, the domestic price of the import good rises due to limited supply.

Question 6

Suppose the government grants a subsidy to domestic producers of an import-competing good.The subsidy tends to result in deadweight losses for the domestic economy in the form of the:

Accepted Answer

The answer of Suppose the government grants a subsidy to...

Question 7

Compared to an import quota,an equivalent tariff may provide a less certain amount of protection for home producers since:

Accepted Answer

An equivalent tariff may provide a less certain amount of protection for home producers because foreign firms may be able to absorb the tariff by offering their exports at lower prices. In contrast, an import quota limits the quantity of imports that can enter the domestic market, which can result in a more certain amount of protection for home producers. Option A is incorrect because a tariff can still result in deadweight loss if it distorts production and consumption decisions. Option C is incorrect because tariffs can still be effective even with imperfectly elastic demand. Option D is incorrect because quotas can result in higher prices for the imported good due to limited supply.

Question 8

The U.S.-Japaneses agreement in 1981 to limit imports of small Japanese cars to the U.S.

Accepted Answer

The agreement led to a voluntary export restraint (VER) program that limited Japanese automakers to exporting no more than 1.68 million vehicles to the U.S. annually. This resulted in limited supply, which led to higher prices for consumers. It is estimated that the VERs cost American consumers an extra $660 per imported Japanese car purchased.

Question 9

Empirical studies show that because voluntary export quotas are typically administered by exporting countries,foreign exporters tend to:

Accepted Answer

Empirical studies have shown that foreign exporters tend to raise their export prices when faced with voluntary export quotas. This is because the quotas are typically administered by exporting countries, who may choose to allocate the quota to those exporters who are able to charge higher prices. As a result, foreign exporters are able to capture much of the quota's revenue effect and may even increase their profits.

Question 10

A producer successfully practicing international dumping would charge:

Accepted Answer

A producer practicing international dumping charges a higher price in the more inelastic market because consumers are less sensitive to price changes, allowing the producer to maximize profits.

Question 11

The United Auto Workers union attempted to win the approval of legislation that would moderate the practice of foreign sourcing on the part of American auto manufacturers.Which of the following best represents this legislation?

Accepted Answer

Local content laws would require that a certain percentage of the components used in the manufacturing of automobiles be domestically sourced. This would moderate the practice of foreign sourcing and give some protection to American auto manufacturers and their workers.

Question 12

A firm that faces problems of falling sales and excess productive capacity might resort to international dumping if it:

Accepted Answer

International dumping involves selling products in a foreign market at a price lower than in the domestic market or below the cost of production. The firm can resort to this strategy if it can cover its variable costs, as this would allow it to utilize excess capacity and mitigate losses from falling sales.

Question 13

Which trade restriction stipulates the percentage of a product's total value that must be produced domestically in order for that product to be sold domestically?

Accepted Answer

A local content requirement is a trade restriction that stipulates the minimum percentage of a product's total value that must be produced domestically in order for that product to be sold domestically. This policy is meant to protect domestic industries by encouraging local production and limiting imports.

Question 14

Domestic content legislation applied to autos would tend to:

Accepted Answer

Domestic content legislation would require a certain percentage of the car's components to be made in the domestic market, which would support wage levels of American autoworkers by increasing demand for domestic auto parts and labor. This would lead to higher job security and wages for American autoworkers.

Question 15

Suppose the government grants a subsidy to its export firms that permits them to charge lower prices on goods sold abroad.The export revenue of these firms would rise if the foreign demand is:

Accepted Answer

If the foreign demand is elastic, firms will sell more units of goods due to the price reduction, and the increase in export revenue will more than offset the cost of the subsidy. In contrast, if foreign demand is inelastic, firms will sell fewer units of goods due to the price reduction, and the increase in export revenue will be offset by the lower prices. Therefore, the subsidy will only be effective in increasing the export revenue of firms selling goods with elastic demand.

Question 16

The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to:

Accepted Answer

The imposition of a domestic content requirement would limit the variety of products available to consumers, leading to a reduction in consumer surplus as they will have to pay higher prices for the limited selection available. Thus, the consumer surplus for Americans would fall as a result of the domestic content requirement.

Question 17

Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold overseas,the home country's:

Accepted Answer

When export subsidies are offered, the domestic exporters charge lower prices on their goods, making them more competitive in foreign markets. This leads to an increase in export volume, but the lower prices reduce export revenues. Additionally, as the domestic currency becomes stronger due to higher export demand, the terms of trade worsen because the country can buy fewer imports for the same amount of export earnings.

Question 18

Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the intensity of international competition?

Accepted Answer

An orderly marketing agreement (OMA) is a market-sharing pact negotiated between trading partners to moderate the intensity of international competition. Under an OMA, each participating country agrees to limit the quantity of its exports to the other partner country or countries. This type of agreement aims to prevent the destabilization of markets, reduce price volatility, and protect the interests of both exporters and importers.

Question 19

Anti-dumping law has been called unfair for all of the following reasons EXCEPT:

Accepted Answer

The answer of Anti-dumping law has been called unfair for...

Question 20

Assume the U.S.has a competitive advantage in producing calculators,while the rest of the world has a competitive advantage in steel.Suppose the U.S.and the rest of the world enter into an agreement to lower import quotas below existing levels on calculators and steel.Which of the following would least likely occur for the U.S.? Rising levels of:

Accepted Answer

Lowering import quotas on steel would increase competition from foreign producers, likely reducing the producer surplus for American steelmakers.

Quiz 5: Nontariff Trade Barriers