Question 1

Dumping is the sale of a product in a foreign market

Accepted Answer

Dumping is the sale of a product in a foreign market at a price below its domestic price or cost of production.

Question 2

Which of the following is a likely result of imposing tariffs to increase domestic employment?

Accepted Answer

Imposing tariffs to increase domestic employment is likely to cause other countries to impose retaliatory tariffs on the goods of the imposing country. This would result in a decrease in exports, lower production, and a possible loss of jobs in the long run.

Question 3

Common arguments often raised to present the case for protectionism include the following, except

Accepted Answer

Protectionism is intended to protect domestic industries from foreign competition. Although protectionism may result in reduced prices for certain products in the short-term due to restricted competition, it generally leads to higher prices for consumers in the long-term. Therefore, reducing the price of the product to consumers is not a common argument used to present the case for protectionism, and is not typically accepted as a valid reason for implementing protectionist policies.

Question 4

Which of the following is a valid counterargument to a call for higher tariffs "to save U.S. jobs"?

Accepted Answer

Higher tariffs may protect certain industries in the short term, but in the long term they can lead to retaliation from trading partners, higher prices for consumers, and potential job losses in industries that rely on exports. It is also important to recognize that imports create jobs in industries such as transportation and retail, and that focusing solely on protecting a certain industry can lead to inefficiencies and higher costs for consumers.

Question 5

The higher price of imported products due to trade barriers causes some consumers to shift their purchases to a domestically produced product that is now

Accepted Answer

Trade barriers reduce import competition, making domestically produced products relatively more attractive despite their higher prices compared to the now more expensive imports.

Question 6

Which of the following is a valid counterargument to the call for higher tariffs to save U.S. jobs?

Accepted Answer

While higher tariffs may protect U.S. jobs, they may also trigger retaliation from other countries in the form of their own tariffs or other trade barriers, harming U.S. exporters and potentially leading to a net loss of jobs. Additionally, it is unlikely that all nations will agree to restrict imports while maintaining exports, as this would lead to a breakdown in global trade and economic activity.

Question 7

The basic difference in the economic effects of a tariff compared with a quota is that a

Accepted Answer

A tariff allows for the possibility of increased imports if there is an increase in demand, as it is a tax on imports that can be surpassed if consumers are willing to pay the higher price. In contrast, a quota sets a hard limit on the amount that can be imported, regardless of demand changes.

Question 8

When a tariff or quota on a product is removed, this policy action

Accepted Answer

When a tariff or quota on a product is removed, it benefits consumers of the product as it makes the product cheaper due to increased competition from foreign producers. Domestic producers may face increased competition and may suffer in the short run, but in the long run, they may adjust their production strategies and become more competitive. The government does not directly benefit from this policy action, but it can benefit indirectly through increased tax revenue generated from increased economic activity. Nations exporting the product may lose in the short run due to increased competition, but in the long run, they may adjust their production strategies and become more competitive.

Question 9

The use of tariffs and quotas for trade protection results in

Accepted Answer

Tariffs and quotas lead to less efficiency in the economy as they distort the market forces and result in inefficient allocation of resources. Domestic producers may become complacent and less competitive due to lack of foreign competition. Moreover, the costs of production increase due to the higher prices of imported inputs. This ultimately results in higher prices for consumers and lower overall economic welfare. Thus, the use of tariffs and quotas for trade protection results in less efficiency in the economy.

Question 10

Which is a valid counterargument to the infant industry argument for protective tariffs?

Accepted Answer

The counterargument is that it is difficult to determine which infant industries will become mature industries with a comparative advantage. This means that even though some industries may need protection initially, it may not be worth it in the long run as they may not become competitive enough to survive without protection.

Question 11

What is one of the major shortcomings of using tariffs or quotas to "save American jobs"?

Accepted Answer

Tariffs or quotas may help protect certain industries or jobs, but they often have minimal effect on the overall level of domestic employment. By limiting imports, they may alter the composition of domestic employment, but they could also lead to retaliation from other countries that could harm American jobs in export industries. Additionally, consumers may have to pay higher prices for goods, which could affect their purchasing power and ultimately impact the economy.

Question 12

When tariffs on imported products are removed by a nation, it will result in

Accepted Answer

When tariffs on imported products are removed, it will lead to lower prices, making consumers in that nation more likely to purchase the imported products. As a result, there will be a higher quantity of imported products consumed in that nation.

Question 13

From an economic perspective, studies of the costs of trade barriers show that they

Accepted Answer

Studies have shown that the costs of trade barriers generally far exceed their benefits for society. While barriers may provide some benefits for domestic producers and workers in the short term, over time, the costs in terms of higher prices, reduced competition, and slower economic growth tend to outweigh those benefits.

Question 14

"The nation needs to prevent foreign nations from selling their excess goods in our nation at a price below cost so we can save American firms." This quotation would be most closely associated with which protectionist argument?

Accepted Answer

The quotation is most closely associated with the protectionist argument of protecting against dumping, as it refers to foreign nations selling their excess goods in our nation at a price below cost. Dumping is a form of predatory pricing in which foreign firms price their goods below cost in order to gain market share and drive domestic competitors out of business. The argument for protecting against dumping is that it unfairly harms domestic firms and can lead to job losses.

Question 15

Import quotas on products will reduce the quantity of the imported products and

Accepted Answer

When the quantity of the imported products is reduced due to import quotas, the demand for the domestic products in the market will increase. This increase in demand will lead to an increase in the price of the domestic products, which will ultimately lead to an increase in the price to the consumers.

Question 16

Tariffs and import quotas would benefit the following groups, except

Accepted Answer

Tariffs and import quotas would likely increase the price of the imported product, thus hurting consumers who have to pay more for the same product. However, domestic producers of the product would benefit from less competition and potentially higher profits. Workers in domestic firms producing the product would also benefit from increased employment opportunities. The government of the importing country may benefit from increased revenue from tariffs.

Question 17

Assume that a tariff is imposed on an imported product. The difference between the domestic price and the world price is captured by

Accepted Answer

The difference between the domestic price and the world price due to a tariff is captured by the government in the form of tariff revenue.

Question 18

Assume that a VER (voluntary export restraint) is imposed on an imported product. The difference between the domestic price and the world price is captured by

Accepted Answer

When a voluntary export restraint (VER) is imposed, the quantity of goods that can be imported is limited. This often leads to an increase in the domestic price of the imported product above the world price. The difference between these two prices, or the economic rent, is typically captured by foreign exporters because they can sell their products at a higher price in the market imposing the VER.

Question 19

The following are commonly used arguments for protection against imports, except

Accepted Answer

Self-sufficiency, diversification-for-stability, infant industry protection, and protection against dumping are commonly used arguments for protection against imports. However, price- and profit-maintenance is not a commonly used argument, as it is viewed as a distortion of market forces and can lead to inefficiencies.

Question 20

An export subsidy for a product will benefit

Accepted Answer

An export subsidy will lower the cost of production for domestic producers of the product, making it cheaper for them to export to foreign markets. This will benefit foreign consumers of the product as they will be able to purchase it at a lower price. However, it may harm domestic consumers of the product who may face higher prices due to the increase in demand for exports. Foreign producers of the product will not benefit from an export subsidy as it will make it harder for them to compete in the international market. Domestic taxpayers will bear the cost of the subsidy and may not necessarily benefit from it.

Quiz 26: International Trade