Question 1

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.If there was no quota, how many kilograms of peanuts would domestic consumers purchase and what quantity would be imported?
A)28 thousand kilograms of which 18 thousand kilograms would be imported
B)40 thousand kilograms of which 12 thousand kilograms would be imported
C)40 thousand kilograms of which 30 thousand kilograms would be imported
D)40 thousand kilograms all of which would be imported

Accepted Answer

Without a quota, domestic consumers would purchase 40 thousand kilograms, and 30 thousand kilograms would be imported, as domestic production would only cover 10 thousand kilograms.

Question 2

Disagreements about whether the Canadian government should regulate international trade
A)began during the Great Depression.
B)began after World War I when government officials no longer believed in isolationism.
C)date back to before Canada was a country.
D)did not occur until the American War of Independence.

Accepted Answer

Disagreements about regulating international trade in Canada date back to before it became a country, as trade policies were a point of contention among the colonies and with Britain.

Question 3

A tariff is a numerical limit on the quantity of a good that can be imported.

Accepted Answer

A tariff is a tax on imported goods, not a limit on quantity. A quantitative limit on imports is called an import quota.

Question 4

The Canadian economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.

Accepted Answer

Eliminating tariffs and quotas would lower the cost of imported goods, which would benefit Canadian consumers and businesses. This could also lead to increased competition and efficiency within Canadian industries. Even if other countries do not reduce their tariffs and quotas, Canada would still benefit from lower prices and increased economic activity.

Question 5

The main purpose of most tariffs and quotas is to
A)raise revenue for the government.
B)reduce the prices consumers pay for goods and services.
C)reduce the foreign competition that domestic firms face.
D)improve the quality of goods and services imported into the country.

Accepted Answer

Tariffs and quotas are trade policies that are usually imposed to protect domestic producers from foreign competition by making imported goods more expensive or limiting the quantity that can be imported. This helps domestic firms compete with foreign producers and potentially increases local employment. Therefore, the main purpose of tariffs and quotas is to reduce the foreign competition that domestic firms face.

Question 6

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.What is the area of consumer surplus after the imposition of the quota?
A)A + G + H
B)G + H + E + I+ J + M
C)G + H
D)A

Accepted Answer

The answer of Figure 7.3
  
Assume that the Canadian...

Question 7

Figure 7.4
  
Suppose the Canadian government imposes a $0.50 per pound tariff on sugar imports. Figure 7.4 shows the demand and supply curves for sugar and the impact of this tariff.
-Use Figure 7.4 to answer questions a-i.
a.Following the imposition of the tariff, what is the price that domestic consumers must now pay and what is the quantity purchased?
b.Calculate the value of consumer surplus with the tariff in place.
c.What is the quantity supplied by domestic sugar producers with the tariff in place?
d.Calculate the value of producer surplus received by Canadian sugar producers with the tariff in place.
e.What is the quantity of sugar imported with the tariff in place?
f.What is the amount of tariff revenue collected by the government?
g.The tariff has reduced consumer surplus.Calculate the loss in consumer surplus due to the tariff.
h.What portion of the consumer surplus loss is redistributed to domestic producers? To the government?
i.Calculate the deadweight loss due to the tariff.

Accepted Answer

The answer of Figure 7.4
  
Suppose the Canadian government...

Question 8

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.What is the area of domestic producer surplus after the imposition of a quota?
A)B
B)B + C
C)B + E + I + J + M
D)E + I + J + M

Accepted Answer

After the imposition of a quota, the area of domestic producer surplus is B, which represents the area between the supply curve and the quota line, up to the quantity of domestic production allowed by the quota. This is because the quota limits the amount of foreign peanuts that can be imported into Canada, reducing competition for domestic producers and allowing them to charge a higher price for their peanuts, resulting in an increase in producer surplus. Therefore, the correct answer is B.

Question 9

Which of the following is the best example of a quota?
A)a limit imposed on the number of kilograms of cheese Canadians can import from Europe
B)a subsidy granted by the Canadian government to domestic dairy farmers so they can compete more effectively with foreign dairy farmers
C)a tax placed on all cheese sold in the domestic market
D)a $5,000 per-kilogram fee imposed on cheese imported into Canada

Accepted Answer

A quota is a limit on the quantity of goods that can be imported into a country. In this case, the limit is on the number of kilograms of cheese that Canadians can import from Europe. The other options are not examples of quotas. B is an example of a subsidy, C is an example of a tax, and D is an example of a tariff or duty.

Question 10

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.What is the area of domestic producer surplus without a quota?
A)C
B)C + B
C)A + B + C
D)A + B + C + D

Accepted Answer

Without a quota, domestic producers can produce and sell as much as they want at the equilibrium price of P1. The area of domestic producer surplus is the triangle A, which is the difference between the price received by producers and the minimum amount they are willing to be paid to produce that quantity.

Question 11

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.Without the quota, the domestic price of peanuts equals the world price which is $2.00 per kilogram.What is the quantity of peanuts supplied by domestic producers in the absence of a quota?
A)10 thousand kilograms
B)28 thousand kilograms
C)30 thousand kilograms
D)40 thousand kilograms

Accepted Answer

The answer of Figure 7.3
  
Assume that the Canadian...

Question 12

An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called
A)a non-tariff trade barrier.
B)an export quota.
C)an import quota.
D)a voluntary export restraint.

Accepted Answer

The answer of An agreement negotiated by two countries that...

Question 13

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.What is the area that represents revenue to foreign producers who are granted permission to sell in the Canadian market when there is a quota?
A)I + J
B)E + I + J + M
C)I + J + K+ L
D)G + H + I + J

Accepted Answer

The area representing revenue to foreign producers who are granted permission to sell in the Canadian market when there is a quota is the sum of areas I, J, K, and L. This is because these areas represent the quantity of peanuts that foreign producers are permitted to sell in the Canadian market under the quota, multiplied by the price at which they can sell them. Areas E, G, and H represent revenue to domestic producers, while area M represents deadweight loss, which is a loss to society as a whole due to the reduction in total surplus caused by the quota.

Question 14

The Canadian government campaigned against increasing protectionism in the wake of the 2007-2009 global recession in order to
A)to speed the economic recovery.
B)solely to protect Canadian exporters.
C)to prevent American firms from gaining a comparative advantage over Canadian firms.
D)to limit the variety of goods and services available to Canadian consumers.

Accepted Answer

The Canadian government campaigned against increasing protectionism in order to speed up the economic recovery by allowing for the free flow of trade and investment, which would increase economic activity and create jobs. This approach was taken to avoid a repeat of the Great Depression, where countries turned to protectionism, contributing to a decline in international trade and worsening global economic conditions.

Question 15

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.With a quota in place, what is the quantity consumed in the domestic market and how much of this is supplied by domestic producers?
A)Domestic consumption equals 28 thousand kilograms of which 18 thousand kilograms are produced by domestic producers.
B)Domestic consumption equals 40 thousand kilograms of which 22 thousand kilograms are produced by domestic producers.
C)Domestic consumption equals 34 thousand kilograms of which 16 thousand kilograms are produced by domestic producers.
D)Domestic consumption equals 34 thousand kilograms of which 18 thousand kilograms are produced by domestic producers.

Accepted Answer

With a quota in place, the quantity consumed in the domestic market is the difference between the quantity supplied by domestic producers and the quantity imported. From the graph, we can see that the quantity supplied by domestic producers is 18 thousand kilograms, and the quantity imported is 16 thousand kilograms (the difference between the 34 thousand kilograms demanded and the 18 thousand kilograms supplied domestically). Therefore, the quantity consumed domestically is 18 thousand kilograms + 16 thousand kilograms = 34 thousand kilograms. Thus, the answer is D.

Question 16

Figure 7.3
  
Assume that the Canadian government limits the import of peanuts.
-Refer to Figure 7.3.What is the area that represents the deadweight loss as a result of the quota?
A)G + H
B)G + H + I + J
C)E + I + J + M
D)E + M

Accepted Answer

The answer of Figure 7.3
  
Assume that the Canadian...

Question 17

In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to voluntary export restraints.With voluntary export restraints, foreign producers
A)agree to meet specific quality standards required by the importing country.
B)limit their exports to a country.
C)pay a tax on all products they export.
D)must agree to import an equal quantity of products that they export.

Accepted Answer

Voluntary export restraints refer to a situation where a foreign producer agrees to limit the quantity of their exports to a particular country. This is done in order to avoid the imposition of other types of trade barriers such as tariffs or quotas. Therefore, option B is the correct choice.

Question 18

Under many trade agreements signed between countries, countries are allowed to impose tariffs on imports if foreign firms are selling products below their production cost.This is exactly what occurred when the United States raised the tariff on wire hangers imported from China.This tariff
A)increased wages in the Chinese wire hanger industry and increased imports of Chinese wire hangers to the United States.
B)decreased imports of chinese wire hangers to the United States and increased exports of U.S. wire hangers to China.
C)saved some jobs in the U.S. wire hanger industry, but increased costs and possibly cost jobs in the U.S. dry cleaning industry.
D)increased costs in the Chinese wire hanger industry and decreased costs in the U.S. wire hanger industry.

Accepted Answer

The tariff on wire hangers imported from China decreased imports of Chinese wire hangers to the United States and may have resulted in increased exports of U.S. wire hangers to China. This could have saved some jobs in the U.S. wire hanger industry, but it may have increased costs and potentially cost jobs in the U.S. dry cleaning industry. Additionally, the tariff may have increased costs in the Chinese wire hanger industry but decreased costs in the U.S. wire hanger industry.

Question 19

Figure 7.5
  
Bragabong currently both produces and imports almonds. The government of Bragabong decides to restrict international trade in almonds by imposing a quota that allows imports of only 10 million kilos each year. Figure 7.5 shows the estimated demand and supply curves for almonds in Bragabong and the results of imposing the quota.
-Use Figure 7.5 to answer questions a-j.
a.If there is no quota what is the domestic price of almonds and what is the quantity of almonds demanded by consumers?
b.If there is no quota how many kilos of almonds would domestic producers supply and what quantity would be imported?
c.If there is no quota what is the dollar value of consumer surplus?
d.If there is no quota what is the dollar value of producer surplus received by producers in Bragabong?
e.If there is no quota what is the revenue received by foreign producers who supply almonds to Bragabong?
f.With a quota in place what is the price that consumers of Bragabong must now pay and what is the quantity demanded?
g.With a quota in place what is the dollar value of consumer surplus? Are consumers better off?
h.With a quota in place what is the dollar value of producer surplus received by producers in Bragabong? Are domestic producers better off?
i.Calculate the revenue to foreign producers who are granted permission to sell in Bragabong after the imposition of the quota.
j.Calculate the deadweight loss as a result of the quota.

Accepted Answer

The answer of Figure 7.5
  
Bragabong currently both produces...

Question 20

Distinguish between a voluntary export restraint and a quota.

Accepted Answer

The answer of Distinguish between a voluntary export restraint and...

Quiz 7: Comparative Advantage and the Gains From International Trade

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.If there was no quota, how many kilograms of peanuts would domestic consumers purchase and what quantity would be imported?

Disagreements about whether the Canadian government should regulate international trade

A tariff is a numerical limit on the quantity of a good that can be imported.

The Canadian economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.

The main purpose of most tariffs and quotas is to

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.What is the area of consumer surplus after the imposition of the quota?

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.What is the area of domestic producer surplus after the imposition of a quota?

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

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.What is the area of domestic producer surplus without a quota?

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.Without the quota, the domestic price of peanuts equals the world price which is $2.00 per kilogram.What is the quantity of peanuts supplied by domestic producers in the absence of a quota?

An agreement negotiated by two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is called

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.What is the area that represents revenue to foreign producers who are granted permission to sell in the Canadian market when there is a quota?

The Canadian government campaigned against increasing protectionism in the wake of the 2007-2009 global recession in order to

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.With a quota in place, what is the quantity consumed in the domestic market and how much of this is supplied by domestic producers?

Figure 7.3 Assume that the Canadian government limits the import of peanuts. -Refer to Figure 7.3.What is the area that represents the deadweight loss as a result of the quota?

In order to avoid the imposition of other types of trade barriers, foreign producers will sometimes agree to voluntary export restraints.With voluntary export restraints, foreign producers

Under many trade agreements signed between countries, countries are allowed to impose tariffs on imports if foreign firms are selling products below their production cost.This is exactly what occurred when the United States raised the tariff on wire hangers imported from China.This tariff

Distinguish between a voluntary export restraint and a quota.