Deck 8: Analysis of a Tariff

Question 1

Which of the following correctly identifies the impact of tariffs on the producers of import-competing products in the imposing country?

A)They can price their products higher than the imported goods.
B)They can expand their production and sales.
C)They are forced to go out of business in the long run.
D)They are forced to charge a price equal to the average cost of production.

Answer 1

B

Question 2

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. Calculate the tariff revenue of the U.S. government.

A)$400,000
B)$40 million
C)$28 million
D)$76 million

Answer 2

C

Question 3

The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. The production effect of the tariff on shoes is measured by the area _____.

A)a
B)b
C)c
D)d

Answer 3

B

Question 4

The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. The imposition of a tariff on shoes caused economic welfare in the U.S. to _____ by an amount measured by the area _____.

A)fall; c
B)fall; (b + d)
C)rise; (b + c+ d)
D)rise; (a + c)

Question 5

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The imposition of a tariff on computers caused the surplus of the domestic producers to _____ by _____.

A)rise; $20 million
B)rise; $800,000
C)rise; $44 million
D)fall; $48 million

Question 6

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The imposition of a tariff on computers caused the surplus of the U.S. consumers to _____ by _____.

A)fall; $10 million
B)fall; $40million
C)rise; $76 million
D)fall; $78 million

Question 7

If a small country imposes a tariff on imported motorcycles:

A)the surplus of the domestic producers of motorcycles will decline, but the surplus of the domestic consumers will increase.
B)the surplus of both the domestic producers and consumers of motorcycles will decline.
C)the surplus of both the domestic producers and consumers of motorcycles will increase.
D)the surplus of the domestic producers of motorcycles will increase, but the surplus of the domestic consumers will decline.

Question 8

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The production effect of the tariff on computers is worth

A)$48 million.
B)$4 million.
C)$8 million.
D)$44 million.

Question 9

The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. The consumption effect of the tariff on shoes is measured by the area _____.

A)a
B)b
C)c
D)d

Question 10

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The imposition of a tariff on computers caused economic well-being in the U.S. to _____ by _____.

A)fall; $3 million
B)fall; $6 million
C)rise; $34 million
D)fall; $34 million

Question 11

Which of the following refers to the consumption effect of a tariff on imported automobiles?

A)The decline in the purchase of the imported product due to the increase in its price.
B)The net increase in the availability of the domestic automobiles for the consumers owing to higher prices.
C)The net increase in the government revenue by taxing the domestic consumers who buy the imported automobiles.
D)The net increase in the consumption of imported automobiles by the domestic consumers.

Question 12

The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. Following the imposition of tariff, the domestic consumer surplus _____ by the area _____.

A)increases; c + d
B)decreases; d
C)decreases; (a + b + c +d)
D)increases; (b + d)

Question 13

A(n)_____ is a tax on imports that is stipulated as a money amount per unit.

A)specific tariff
B)ad valorem tariff
C)effective tariff
D)optimal tariff

Question 14

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The consumption effect of the tariff on computers is worth

A)$2 million.
B)$4 million.
C)$76 million.
D)$78 million.

Question 15

If a small country imposes a tariff on imported motorcycles, the world price of motorcycles will _____ and the domestic price of motorcycles will _____.

A)rise; fall
B)fall; rise
C)remain constant; rise
D)remain constant; fall

Question 16

Which of the following is an impact of tariffs on the country imposing them?

A)The domestic producers of import-competing products are forced to charge a lower price for their products to retain market share.
B)The supply of the domestic import-competing products declines.
C)The domestic consumers pay a higher price for the imported products.
D)The demand for the imported goods by the domestic consumers increases.

Question 17

The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. The tariff revenue of the U.S. government is shown by area _____.

A)a
B)(a + b)
C)c
D)(b + c + d)

Question 18

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. Under free-trade the U.S. imported _____ computers, but following the imposition of the tariff the U.S. began to import _____ computers.

A)100,000; 70,000
B)70,000; 100,000
C)200,000; 190,000
D)90,000; 100,000

Question 19

The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. Following the imposition of tariff, the domestic producer surplus _____ by the area _____.

A)increases; a
B)decreases; a
C)increases; (a + b)
D)decreases; (a + b)

Question 20

Which of the following refers to the extra cost of shifting to more expensive home production following the imposition of a tariff?

A)Production effect
B)Revenue effect
C)Deadweight loss
D)Producer surplus

Question 21

Suppose country A collectively enjoys monopsony power in good X. If country A imposes a tariff on the imports of good X, the world price of good X will:

A)fall.
B)rise.
C)remain unaffected.
D)become equal to the tariff-inclusive price in country A.

Question 22

Which of the following statements is NOT correct?

A)Tariffs are likely to decrease world economic well-being.
B)Tariffs can increase, decrease, or leave unchanged the economic well-being if imposed by a large country.
C)Tariffs always decrease economic domestic well-being if imposed by a small country.
D)Tariffs hurt producers and help consumers in the country imposing the tariff.

Question 23

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $$\begin{array} { l l } \text { World price of wine (free trade): } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade): } & 500,000 \text { bottles } \\\text { Domestic production (after tariff): } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade): } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff): } & 650,000 \text { bottles }\end{array}$$ Calculate the government revenue from the tariff.

A)$250,000
B)$1.25 million
C)$3.5 million
D)$500,000

Question 24

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $$\begin{array} { l l } \text { World price of wine (free trade): } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade): } & 500,000 \text { bottles } \\\text { Domestic production (after tariff): } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade): } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff): } & 650,000 \text { bottles }\end{array}$$ The imposition of the tariff on wine will cause the surplus of the domestic producers to _____ by _____.

A)rise; $1 million
B)rise; $500,000
C)fall; $2.5 million
D)rise; $2.75 million

Question 25

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $$\begin{array} { l l } \text { World price of wine (free trade): } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade): } & 500,000 \text { bottles } \\\text { Domestic production (after tariff): } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade): } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff): } & 650,000 \text { bottles }\end{array}$$ The consumption effect of the tariff on wine is worth

A)$250,000.
B)$500,000.
C)$3.5 million.
D)$2.75 million.

Question 26

At free-trade prices, a tennis racquet in country A, a small country, sells for $100 and contains $40 worth of aluminum inputs and $30 worth of plastic. In country A, the nominal tariff rates are 40% on tennis racquets, 20% on aluminum, and 10% on plastic. Based on this information, what is the effective rate of protection for the racquet industry in country A?

A)40%
B)63⅓%
C)10%
D)96⅔%

Question 27

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $$\begin{array} { l l } \text { World price of wine (free trade): } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade): } & 500,000 \text { bottles } \\\text { Domestic production (after tariff): } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade): } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff): } & 650,000 \text { bottles }\end{array}$$ Before the tariff is imposed, the country imports _____ bottles of wine, but following the imposition of the tariff, the country will import _____ bottles of wine.

A)100,000; 100,000
B)250,000; 50,000
C)150,000; 50,000
D)750,000; 650,000

Question 28

If the imposition of tariff on a commodity alters the relative prices of the imposing country's exports to its imports, it is referred to as the:

A)total price effect of the tariff.
B)production effect of the tariff.
C)consumption effect of the tariff.
D)terms-of-trade effect of the tariff.

Question 29

Under free trade, a large country produces 1 million leather bags per year and imports another 2 million bags per year at the world price of $60 per bag. Assume that the country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather bags decreases to $58 in the international market and the import of leather bags drops to 1.6 million. The domestic production, on the other hand, increases to 1.1 million. Calculate the tariff revenue collected by the domestic government.

A)$13.5 million
B)$4 million
C)$10 million
D)$8 million

Question 30

Which of the following is defined as the percentage by which the entire set of a nation's trade barriers raises an industry's value added per unit of output?

A)One-dollar, one-vote metric
B)Revenue effect
C)Effective rate of protection
D)Terms-of-trade effect

Question 31

Calculate the effective rate of protection for the domestic MP3 player industry following the imposition of a 20 percent tariff on the imports of MP3 players. The cost of material inputs used in production of MP3 players in the country is $100 per unit and there is free trade in these material inputs. The world price of MP3 players is $175 per unit. Assume that the country is a small country.

A)20%
B)46⅔%
C)90%
D)72⅔%

Question 32

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $$\begin{array} { l l } \text { World price of wine (free trade): } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade): } & 500,000 \text { bottles } \\\text { Domestic production (after tariff): } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade): } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff): } & 650,000 \text { bottles }\end{array}$$ The production effect of the tariff on wine is worth

A)$250,000.
B)$500,000.
C)$2.5 million.
D)$2.75 million.

Question 33

Under free trade, a large country produces 1 million leather bags per year and imports another 2 million bags per year at the world price of $60 per bag. Assume that the country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather bags decreases to $58 in the international market and the import of leather bags drops to 1.6 million. The domestic production, on the other hand, increases to 1.1 million. As a result of the tariff being imposed:

A)the country gains national well-being because the tariff increases domestic production.
B)the country loses national well-being because the tariff hurts the domestic consumers.
C)the country loses national well-being because the government revenue from tariff is insufficient to compensate for the losses arising from the production and consumption effects.
D)the country gains national well-being because the amount of the tariff revenue paid by the exporters more than offsets the consumption and the production effects.

Question 34

Under free trade, a large country produces 1 million leather bags per year and imports another 2 million bags per year at the world price of $60 per bag. Assume that the country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather bags decreases to $58 in the international market and the import of leather bags drops to 1.6 million. The domestic production, on the other hand, increases to 1.1 million. Following the imposition of the tariff, the domestic consumers pay a price of _____ for each bag.

A)$60
B)$70
C)$63
D)$65

Question 35

A large country can gain from imposing a tariff on the import of a good if:

A)the tariff drives the quantity imported to zero.
B)the tariff is high enough that the country becomes an exporter of the product.
C)the part of the tariff paid by the foreign exporters is greater than the losses arising from the production and consumption effects of the tariff in the domestic market
D)the tariff revenue collected by the domestic government is less than the losses caused by the production and consumption effects of the tariff.

Question 36

At free-trade prices, a bicycle in country X sells for $100 when the per-unit cost of material inputs is $90. Country X has a nominal tariff rate of 15% on bicycles, and 10% on the material inputs. Based on this information, calculate the effective rate of protection for the bicycle industry in country X. Assume that country X is a small country.

A)80%
B)60%
C)5%
D)15%

Question 37

The lower the price elasticity of foreign supply of a country's imports:

A)the lower will be the prohibitive tariff imposed by this country.
B)the lower will be tariff revenue of the government of the imposing country.
C)the higher will be the optimum tariff imposed by this country.
D)the higher will be the fluctuation in the availability of the imported goods in this country.

Question 38

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $$\begin{array} { l l } \text { World price of wine (free trade): } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade): } & 500,000 \text { bottles } \\\text { Domestic production (after tariff): } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade): } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff): } & 650,000 \text { bottles }\end{array}$$ The imposition of the tariff on wine will cause the surplus of the domestic consumers to _____ by _____.

A)fall; $10 million
B)fall; $250,000
C)fall; $3.5 million
D)rise; $3.5 million

Question 39

The nationally optimal tariff is the tariff for which:

A)the production effect is equal to the consumption effect of the tariff.
B)the government collects the highest tariff revenue.
C)the difference between the government tariff revenue and the sum of consumption and production effect is the highest.
D)the difference between the part of the tariff paid by the exporters and the welfare loss associated with the consumption and production effects is the highest.

Question 40

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $$\begin{array} { l l } \text { World price of wine (free trade): } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade): } & 500,000 \text { bottles } \\\text { Domestic production (after tariff): } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade): } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff): } & 650,000 \text { bottles }\end{array}$$ The imposition of the tariff on wine will cause the country's economic well-being to _____ by _____.

A)fall; $0.5 million
B)rise; $0.75 million
C)fall; $100,000
D)fall; $0.75 million

Question 41

When a tariff is imposed on an imported good, the prices of the similar products produced within the country also increases.

Question 42

An ad valorem tariff is formulated as a money amount per unit of import that is due when the good reaches the importing country.

Question 43

The one-dollar, one-vote metric implies that every dollar of gain or loss is just as important as every other dollar of gain or loss, regardless of who the gainers or losers are.

Question 44

Country A is a large country that imports good-quality processed chicken from country B. Suddenly, country A's government decides to impose a tariff on this import. Who among the following will be adversely affected by this policy?

A)Consumers of chicken in country B
B)Consumers of ham in country B
C)Producers of chicken in country B
D)Suppliers of chicken in Country A

Question 45

A competitive producer supplies an additional unit of a good as long as the price is greater than the per unit cost.

Question 46

The production effect of a tariff measures the welfare gain of domestic producers who can sell their product at a higher price as a result of the tariff.

Question 47

When a small country imposes a tariff, the domestic price of the good increases. This causes a "production" and a "consumption" effect. Explain carefully these two effects, and discuss whether they increase or decrease the country's well-being.

Question 48

A country can actually improve its well-being if it is in a position to impose a non-zero "optimal tariff". Explain what an optimal tariff is, what conditions must be in place in order to implement an optimal tariff, and how such a tariff will increase national welfare. Assuming a country could impose an optimal tariff, would you suggest it do so? Justify your answer.

Question 49

Which of the following has overseen the global rules of government policy toward international trade since 1995?

A)The World Trade Organization
B)The General Agreement on Tariffs and Trade
C)The International Monetary Fund
D)The World Bank

Question 50

Firms in a given industry are affected by the tariff imposed on the product they sell, but not by the tariffs imposed on their purchased inputs.

Question 51

Suppose that the world price of automobiles is $20,000 and automobile manufacturers in country A use $10,000 worth of imported inputs and no domestic inputs. What is the effective rate of protection for the automobile industry in country A, if there is a tariff of 25 percent on imported automobiles and a tariff of 50 percent on imported inputs used in this industry?

Question 52

"The higher the tariff, the more domestic production is increased. Thus, a prohibitive tariff is socially optimal." Explain the validity of this statement.

Question 53

For a small country, the sum of the production and the consumption effects indicate the net loss in economic welfare due to the imposition of a tariff.

Question 54

A tax imposed on the exports of a small country usually drives down the domestic price of the exportable good.

Question 55

A tariff imposed by a small country hurts the tariff imposing country but the rest of the world gains.

Question 56

The table given below shows the pre-tariff and post-tariff prices, domestic production and consumption of copper in the United States. Suppose the U.S. government imposes a specific tariff of $0.20 per pound on copper imports by the country.
a.Calculate the welfare loss to U.S.consumers of copper from the tariff.
b.Calculate the gain to U.S.producers of copper from the tariff.
c.Calculate the revenue collected by the U.S.government from taxing copper imports.
d.Calculate the net gain or loss to the U.S.economy as a whole from the tariff.

Question 57

A tariff always lowers the well-being of each nation, including the nation imposing the tariff.

Question 58

Compare and contrast the effects of a tariff on prices and national well-being imposed in a small country with the effects of a tariff imposed in a large country. Illustrate your answer with the help of suitable diagrams.

Question 59

The consumption effect of a tariff indicates the welfare loss to a country resulting from the domestic consumers shifting from cheaper imports to more expensive local goods.

Question 60

Within a country, a tariff causes a redistribution of well-being only between the domestic producers and the government.