International Economics, 7e (Husted/Melvin)Chapter 6 Tariffs Multiple-Choice Questions

1)

A country gains from international trade if its post-trade ________ point lies outside its production possibility frontier.

A)

production B)

autarky C)

consumption D)

All of the above Answer:

C

2)

________ gains from trade refer to the situation where, over time, international trade leads to an outward shift in a country's production possibility frontier.

A)

Static B)

Dynamic C)

Political D)

Outward Answer:

B

3)

Ad valorem tariffs are collected as 1

A)

fixed amounts of money per unit traded. B)

a percentage of the price of the product. C)

a percentage of the quantity of imports. D)

All of the above. Answer:

B

4)

Specific tariffs are collected as A)

fixed amounts of money per unit traded. B)

a percentage of the price of the product. C)

a percentage of the quantity of imports. D)

All of the above. Answer:

A

5)

Most tariffs have A)

only revenue effects. B)

only protective effects. C)

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both protective and revenue effects. D)

neither protective nor revenue effects. Answer:

C

6)

If Canada imposes a tariff on bananas and if none are grown in Canada, this tariff has A)

only revenue effects. B)

only protective effects. C)

both protective and revenue effects. D)

neither protective nor revenue effects. Answer:

A

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7)

A prohibitive tariff has A)

only revenue effects. B)

only protective effects. C)

both protective and revenue effects. D)

neither protective nor revenue effects. Answer:

B

Answer the question(s) below based upon the following diagram.

8)

Refer to the figure above. With free trade, the total quantity of imports would equal A)

10,000 units. B)

20,000 units. C)

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22,000 units. D)

30,000 units. Answer:

B

9)

Refer to the figure above. With free trade, the total value of imports would equal A)

$10. B)

$100,000. C)

$200,000 D)

$300,000. Answer:

C

10)

Refer to the figure above. With the tariff, the quantity of imports falls to A)

10,000 units. B)

12,000 units. C)

14,000 units. D)

22,000 units. Answer:

A 5

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11)

Refer to the figure above. With the tariff, the government collects A)

$50,000. B)

$60,000. C)

$100,000. D)

$220,000. Answer:

A

12)

Refer to the figure above. The deadweight cost of the tariff equals A)

$10,000. B)

$25,000. C)

$50,000. D)

cannot be calculated without further information. Answer:

B

13)

Refer to the figure above. Domestic producers gain ________ because of the tariff. A)

$15 B)

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$55,000 C)

$120,000 D)

$150,000 Answer:

B

14)

Refer to the figure above. A tariff of ________ would be prohibitive. A)

$0 B)

$5 C)

$8 D)

$10 Answer:

D

15)

The difference between what consumers have to pay for a particular and what they are willing to pay is known as

A)

consumer surplus. B)

producer surplus. C)

deadweight costs. D)

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deadweight surplus. Answer:

A

16)

A tariff can ________ raise a country's welfare. A)

never B)

sometimes C)

always Answer:

B

17)

If a tariff of $10 has no effect on the world price, the optimal tariff on that product A)

is $10. B)

is zero. C)

is higher than $10. D)

depends upon the amount of government revenue collected. Answer:

B

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18)

If Brazil imposes a 50% tariff on automobiles and a 25% tariff on motors, the effective rate of protection on autos is

A)

higher than the nominal rate of protection on autos. B)

need more information to answer. C)

lower than the nominal rate of protection on autos. D)

equal to the nominal rate of protection on autos. Answer:

C

19)

If a tariff on bikes causes domestic bike prices to rise by 20% and domestic value added in the domestic bike industry to rise by 30%, then

A)

the nominal rate of protection of bikes is 20%. B)

the effective rate of protection of bikes is 30%. C)

the effective rate of protection is higher than the nominal rate. D)

All of the above. Answer:

D

20)

In developed countries, tariffs on raw materials tend to be A)

highest of all. 10

B)

higher than on manufactured goods. C)

equal to tariffs on manufactured goods. D)

lower than on manufactured goods. Answer:

D

21)

In today's world, many countries impose tariffs A)

only on imports. B)

only on exports. C)

on both imports and exports. D)

on imports, exports, and nontraded goods. Answer:

C

22)

The United States imposes tariffs A)

only on imports. B)

only on exports. C)

on both imports and exports.

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D)

on imports, exports, and nontraded goods. Answer:

A

23)

Tariff levels in developing countries tend to be ________ tariff levels in developed countries. A)

lower than B)

about equal to C)

higher than D)

there is no general pattern Answer:

C

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24)

The United States charges A)

the same tariff rates on goods from all countries. B)

lower tariff rates on goods from countries with most favored nation status. C)

low or zero tariffs on goods from certain developing countries. D)

Both B and C. Answer:

D

25)

Following the imposition of the Smoot Hawley tariff A)

international trade continued to expand. B)

more than 40 countries imposed higher tariffs of their own. C)

employment in the United States expanded rapidly. D)

Two of the above. Answer:

B

True or False Questions 1)

Free trade is better than protection for a small country. Answer:

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True

Explanation:

None Given

2)

Free trade is better than autarky for a small country. Answer:

True

Explanation:

None Given

3)

A country can never raise its standard of living by imposing a tariff. Answer:

False Explanation:

Large countries can improve their terms of trade through tariffs. This can raise overall welfare, especially if there is no retaliation.

4)

Tariffs tend to escalate with stages of processing. Answer:

True

Explanation:

This can be explained by the notion that governments are acting to preserve effective levels of protection for all sectors of the economy.

5)

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An increase in the tariff on semiconductors lowers the effective rate of protection of computer producers.

Answer:

True

Explanation:

None Given

6)

Examples from the United States suggest that the cost to consumers per job saved in highly protected industries is low.

Answer:

False Explanation:

Consumer cost per job saved can be more than $225,000.

7)

Deadweight costs of tariffs equal the sum of net changes in consumer and producer surplus brought about by the tariff.

Answer:

False Explanation:

Changes in government revenue are also added to the calculation.

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8)

Static gains from trade come about because trade causes consumers and producers to face a different set of prices.

Answer:

True

Explanation:

None Given

9)

All countries tend to have about the same tariff levels. Answer:

False Explanation:

None Given

10)

In order to provide alternatives to drug-crop production, the Andean Trade Preference Act (ATPA) was created, providing Bolivia, Colombia, Ecuador, and Peru tariff free access to U.S. markets for many goods.

Answer:

True

Explanation:

None Given

Essay Questions1)

Using a demand and supply diagram, illustrate the effects of a tariff on imports. In particular, show the effects on domestic production, domestic consumption, imports, prices, consumer welfare, producer welfare, government revenue, and overall economic welfare.

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Answer:

Domestic production rises from Q1 to Q3Domestic consumption falls from Q2 to Q4Imports decline from Q2-Q1 to Q4-Q3Price rises from Pw to Pw+tConsumer welfare declines by a+b+c+dProducer welfare rises by aGovernment revenue from the tariff is cOverall economic value declines by b+d

2)

Write an essay on the gains from free international trade. Answer:

Static gains from tradetrade leads to a new set of relative prices which, in turn, imply new consumption levels and a redistribution of resources in favor of comparative advantage industries. The combination of effects leads, in a static environment, to an improved standard of living. Dynamic gains from tradetrade can lead to an outward expansion of a country's production possibility frontier.

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3)

Tariffs can never raise a country's standard of living. True or false? Explain carefully. Answer:

This statement is true for a small country and can be illustrated using standard welfare analysis. It is false for large countries as is illustrated in Figure 6.9 and Table 6.5.

4)

Compare and contrast nominal and effective rates of protection. Answer:

The nominal rate of protection measures the change in the price of final output that occurs because of the tariff structure. The effective rate of protection represents the percentage increase in domestic value added brought about by the change in the tariff structure. Effective rates can be negative even with positive nominal rates.

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