Question 1

Suppose that a foreign monopolist supplies the entire domestic market (there is no domestic production). The home country then applies a $10 tariff on imports from the foreign monopolist. The home country will be better off if:

Accepted Answer

In this scenario, since the foreign monopolist supplies the entire domestic market, it is likely that they have market power and can charge a higher price than they would in a competitive market. By placing a tariff on imports, the home country can reduce the market power of the foreign monopolist and potentially decrease the price of imports for domestic consumers. However, a tariff creates a deadweight loss due to the distortion of trade and reduced efficiency in the market. The home country will benefit if the gain from improved terms-of-trade (lower prices for imports) exceeds the deadweight loss from the tariff. Therefore, the best choice is D.

Question 2

When a firm sells products at lower prices to foreign purchasers, it is known as:

Accepted Answer

Selling products at lower prices to foreign purchasers is known as international dumping. This practice may give the selling firm an unfair advantage over domestic firms in the foreign market and can harm the domestic industry. As a result, many countries have imposed anti-dumping measures to protect their domestic industries.

Question 3

Suppose that there is no home production of a good (imports supply all home demand). If the home country then applies a tariff to this good exported by a foreign monopoly, the price net of the tariff received by the foreign monopolist is:

Accepted Answer

When a tariff is applied to a good exported by a foreign monopoly, the price net of the tariff received by the foreign monopolist is lower than under free trade. This is because the tariff effectively reduces the price that the monopolist can charge by increasing the cost to the consumer, leading to a lower net receipt for the monopolist.

Question 4

A country's net welfare will increase when it imposes a tariff on a foreign monopolist if its:

Accepted Answer

The answer of A country's net welfare will increase when...

Question 5

If a country imposes a $10 tariff on a foreign monopolist, the price set by the monopolist will:

Accepted Answer

The imposition of a $10 tariff on a foreign monopolist will increase the cost of production for the monopolist, which will cause the monopolist to raise the price of their product. However, since the monopolist has a monopoly on the product, there is no competition to drive the price down. Therefore, the price will not fall by $10, but by a smaller amount, resulting in option B being the correct answer.

Question 6

If a country imposes a $10 tariff on a foreign monopolist, the domestic price (including the tariff) will rise by:

Accepted Answer

The domestic price will rise by less than $10 because the foreign monopolist may decide to absorb some of the tariff in order to maintain market share, reducing the amount of price increase passed on to consumers.

Question 7

Antidumping duties are a type of:

Accepted Answer

Antidumping duties are a measure taken by a country to protect its domestic producers from dumping practices by foreign competitors. They are essentially a form of tariff, as they involve imposing an additional tax or fee on imported goods to make them more expensive and less competitive with domestically produced goods.

Question 8

If the marginal revenue curve is twice as steep as the demand curve, a tariff imposed on a foreign monopoly seller will raise the domestic price by _______________ of the tariff and lower the seller's net price by _______________ of the tariff.

Accepted Answer

The marginal revenue curve is twice as steep as the demand curve, so the elasticity of demand is -2. The tariff will raise the domestic price by 1/2 of the tariff and lower the seller's net price by 1/2 of the tariff.

Question 9

Monopolistic firms that practice international dumping:

Accepted Answer

Monopolistic firms that practice international dumping can maximize their profits by selling their products in foreign markets at a lower price than in their domestic market. This allows them to capture a larger share of the foreign market and demand, while still maintaining their dominant position in the domestic market. However, they may face legal action or antidumping taxes in their home country if their practices are deemed unfair or harmful to domestic producers.

Question 10

At one time, most compact trucks (like the Toyota Tacoma) were imported as cab and chassis with some final assembly needed. These were classified as ___________ with a tariff of ______.

Accepted Answer

These trucks were classified as "parts of trucks" to take advantage of a lower tariff rate, which was 4%. This classification allowed manufacturers to reduce costs associated with importing vehicles.

Question 11

The effect of a tariff on a foreign monopolist is similar to a large nation imposing a tariff on a small nation. What is the implication for the welfare of the home nation?

Accepted Answer

Small tariffs on the foreign monopolist can be beneficial to a certain point as they can help to reduce the market power of the monopolist and increase competition. However, if the tariff becomes too large, it may lead to retaliation by the foreign country and result in a loss of overall welfare for both nations due to deadweight losses. Therefore, small tariffs may be reasonable, but only up to a certain point.

Question 12

The U.S. Customs Service reclassified imports of compact trucks (like the Toyota Tacoma) from "parts of trucks" to "complete or unfinished trucks." As a result of this reclassification, a tariff of _____ was applied, and U.S. prices of Japanese compact trucks rose by _____.

Accepted Answer

The answer of The U.S. Customs Service reclassified imports of...

Question 13

Why did the U.S. price of imports of compact trucks (like the Toyota Tacoma) not increase by 25% when the U.S. Customs Service reclassified them as "complete or unfinished trucks" with a tariff of 25%?

Accepted Answer

Japanese truck manufacturers likely lowered their prices to maintain competitiveness in the U.S. market, absorbing part of the tariff cost themselves.

Question 14

When the United States imposed a 25% tariff on imported pickup trucks, the price of Japanese pickup trucks in the United States:

Accepted Answer

When a tariff is imposed on a foreign good, the price of that good in the importing country usually increases by less than the amount of the tariff. This is because the exporting country will absorb some of the cost of the tariff in order to remain competitive in the importing country's market. Therefore, the price of Japanese pickup trucks in the United States likely rose by less than 25% after the tariff was imposed.

Question 15

International dumping occurs when:

Accepted Answer

International dumping occurs when monopolistic firms charge a higher price in their domestic market and a lower price in foreign markets. This strategy is often used to gain market share abroad or to offload surplus production.

Question 16

A country is more likely to have net welfare gains when it imposes a tariff on a foreign monopolist if:

Accepted Answer

A small tariff on a foreign monopolist can increase domestic production and reduce imports, which can lead to net welfare gains for the country. A large tariff can lead to retaliation from the foreign country, decreasing overall welfare. The size of the tariff revenues and deadweight losses may not necessarily determine the net welfare gains for the country.

Question 17

Suppose that a foreign monopolist supplies the entire domestic market (there is no domestic production). The home country then applies a 5% tariff on imports from the foreign monopolist. How will the tariff affect the price in the home market?

Accepted Answer

The answer of Suppose that a foreign monopolist supplies the...

Question 18

Why does the United States impose a 25% tariff on pickup truck imports and only a 2.5% tariff on automobile imports?

Accepted Answer

The 25% tariff on pickup truck imports, known as the "chicken tax," was indeed a response to German tariffs on imported U.S. poultry in the 1960s. This was part of a larger trade dispute and was aimed at retaliating against European policies that affected U.S. agricultural exports.

Question 19

Suppose that there is no home production of a good (imports supply all home demand). If the home country then applies a tariff to this good exported by a foreign monopoly, the increase in the equilibrium home price is ________ the tariff applied.

Accepted Answer

When a tariff is applied to a good supplied entirely by imports from a foreign monopoly, the increase in the home price is typically less than the tariff. This is because the foreign monopoly, seeking to maximize profits, will absorb part of the tariff in the form of reduced profit margins to maintain its market share, rather than passing the full cost of the tariff onto consumers.

Question 20

Were the results of the U.S. tariff increase on imported small Japanese truck imports consistent with the predictions of the model of a tariff applied to a good exported by a foreign monopoly?

Accepted Answer

The rise in market price was less than the tariff imposed, implying that Japanese producers lowered their prices to maintain market share, which is consistent with the predictions of the model of a tariff applied to a good exported by a foreign monopoly. The fact that imports of trucks declined from 1980 to 2000 is not necessarily inconsistent with the model, as the decrease can be attributed to other factors besides the tariff. The comparison of trucks and SUVs is irrelevant and does not provide a clear conclusion.

Quiz 9: Import Tariffs and Quotas Under Imperfect Competition

Suppose that a foreign monopolist supplies the entire domestic market (there is no domestic production) . The home country then applies a $10 tariff on imports from the foreign monopolist. The home country will be better off if:

When a firm sells products at lower prices to foreign purchasers, it is known as:

Suppose that there is no home production of a good (imports supply all home demand) . If the home country then applies a tariff to this good exported by a foreign monopoly, the price net of the tariff received by the foreign monopolist is: