Question 1

The imposition of a tariff on imported steel for the home country results in

Accepted Answer

The imposition of a tariff on imported steel for the home country will increase the price of imported steel, making it more expensive for domestic buyers. Higher steel prices will result in falling steel consumption as buyers look for alternatives or reduce their consumption. This might also result in retaliatory measures by other countries, reducing the volume of trade. However, there may be some short-term benefits to domestic steel companies, but in the long run, they may face lower demand due to higher prices. The tariff could lead to higher unemployment if steel-using industries, such as construction or automobile manufacturing, experience higher input costs, leading to lower productivity and job losses.

Question 2

Empirical studies show that because voluntary export quotas are typically administered by exporting countries, foreign exporters tend to

Accepted Answer

When voluntary export quotas are administered by exporting countries, they usually respond by raising their export prices. This is because the quota restricts the supply of goods in the market, creating a shortage and allowing exporters to charge higher prices. As a result, foreign exporters capture much of the quota's revenue effect by charging higher prices, thus reducing the impact of the quota on their sales volume.

Question 3

Assume the U.S.has a competitive advantage in producing calculators, while the rest of the world has a competitive advantage in steel.Suppose the U.S.and the rest of the world enter into an agreement to lower import quotas below existing levels on calculators and steel.Which of the following would least likely occur for the U.S.? Rising levels of

Accepted Answer

The U.S. has a competitive advantage in producing calculators, not steel. Lowering import quotas on steel would likely increase imports, benefiting consumers with lower prices and more choices but potentially harming domestic steelmakers due to increased competition. This makes a rise in producer surplus for American steelmakers the least likely outcome.

Question 4

The U.S.-Japanese agreement in 1981 to limit imports of small Japanese cars to the U.S.

Accepted Answer

The agreement resulted in a quota system that limited the number of Japanese cars that could be imported to the U.S. per year. This led to increased demand for Japanese cars in the U.S., allowing Japanese automakers to raise their prices. The extra cost was ultimately passed on to the U.S. consumer, costing around $660 or more per imported Japanese car. The agreement did not result in significant losses to the Japanese auto industry or save any U.S. jobs.

Question 5

Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur under domestic subsidies.This is because, unlike domestic subsidies, import tariffs and quotas

Accepted Answer

Import tariffs and quotas limit the choices available to domestic consumers, potentially forcing them to pay higher prices for goods that are available at lower prices from foreign producers. This results in a loss of welfare for the domestic economy, as consumers are worse off and less efficient home production is incentivized, leading to higher costs and potentially lower quality goods. In contrast, domestic subsidies may distort market prices and incentivize overproduction, but they do not directly limit consumer choice or harm the overall welfare of the economy as much as import tariffs and quotas.

Question 6

Domestic content legislation applied to autos would tend to

Accepted Answer

Domestic content legislation would require a certain percentage of the parts and labor used in the production of cars sold in the US to be sourced domestically. This would increase demand for American-made parts and labor, which would support wage levels of American autoworkers.

Question 7

A firm that faces problems of falling sales and excess productive capacity might resort to international dumping if it

Accepted Answer

Dumping involves selling goods in a foreign market at a price lower than the domestic market or below the cost of production. If the revenues from foreign sales cover at least the variable costs, the firm can still benefit from dumping by contributing to fixed costs and reducing losses associated with unsold inventory or underutilized productive capacity.

Question 8

Compared to an import quota, an equivalent tariff may provide a less certain amount of protection for home producers since

Accepted Answer

A tariff may not provide a certain amount of protection for home producers because foreign firms may absorb the tariff by offering exports at lower prices. This means that the price of the imported good may not increase as much as expected, and the protection offered to home producers may not be as effective as a quota.

Question 9

Which trade restriction stipulates the percentage of a product's total value that must be produced domestically in order for that product to be sold domestically?

Accepted Answer

A local content requirement is a trade restriction that stipulates the percentage of a product's total value that must be produced domestically in order for that product to be sold domestically.

Question 10

Suppose the government grants a subsidy to its export firms that permits them to charge lower prices on goods sold abroad.The export revenue of these firms would rise if the foreign demand is

Accepted Answer

If foreign demand is elastic in response to the price reduction, then the lower prices will lead to a greater increase in the quantity demanded, which will generate more export revenue for the firms that receive the subsidy. In contrast, if foreign demand is inelastic or unit elastic, then the lower prices will lead to a smaller increase or no change in the quantity demanded, respectively, which will limit the increase in export revenue for the firms. Therefore, the best choice is A.

Question 11

The imposition of a domestic content requirement by the United States would cause consumer surplus for Americans to

Accepted Answer

The imposition of a domestic content requirement would increase the cost of producing jetliners, which would likely lead to higher prices for consumers. This would cause consumer surplus for Americans to fall.

Question 12

Concerning the restrictive impact of an import quota, assume there occurs an increase in the domestic demand for the import product.As long as the quota falls short of what would be imported under free market conditions, the economy's adjustment to the increase in demand would take the form of

Accepted Answer

An import quota limits the quantity of goods that can be imported. If domestic demand increases but the quota remains unchanged and is less than the free market import level, domestic prices would increase due to the higher demand and limited supply.

Question 13

A producer successfully practicing international dumping would charge

Accepted Answer

A producer practicing international dumping would charge a higher price in the more inelastic market because consumers in that market are less sensitive to price changes and would still buy the product, allowing the producer to make more profit.

Question 14

The United Auto Workers union attempted to win the approval of legislation that would moderate the practice of foreign sourcing on the part of American auto manufacturers.Which of the following best represents this legislation?

Accepted Answer

The legislation described in the question is related to regulating the sourcing practices of American auto manufacturers. One way to moderate this practice is through local content laws, which require manufacturers to use a certain percentage of local or domestic components in their products. Choice A is incorrect because voluntary export quotas are typically applied by exporting countries to limit their own exports. Choice B is incorrect because the trigger price mechanism is typically used to prevent dumping. Choice C is incorrect because tariff quotas are typically used to manage the quantity of imports.

Question 15

Suppose the government grants a subsidy to domestic producers of an import-competing good.The subsidy tends to result in deadweight losses for the domestic economy in the form of the

Accepted Answer

The protective effect of the subsidy results in domestic producers being able to offer lower prices than foreign competitors, which can reduce imports and increase domestic production. However, this protection comes at a cost to domestic consumers who pay higher prices and may have reduced access to foreign goods. Additionally, the resources used to produce the subsidized good may not be the most efficient use of resources, resulting in deadweight losses for the economy.

Question 16

Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the intensity of international competition?

Accepted Answer

An orderly marketing agreement is a pact negotiated by trading partners to moderate the intensity of international competition and share the market. It can include agreements on production levels, pricing, and market share.

Question 17

Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold overseas, the home country's

Accepted Answer

When a country uses export subsidies, it leads to a decrease in the prices of its goods sold overseas, which ultimately reduces the terms of trade. Therefore, the correct answer is option C, i.e., the terms of trade will worsen.

Question 18

Antidumping law has been called unfair for all of the following reasons EXCEPT

Accepted Answer

The antidumping law is based on either average total cost or fair market value, not average variable cost. The other choices are valid criticisms of the antidumping law.

Question 19

If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then

Accepted Answer

Both a tariff and an import quota can lead to equivalent increases in the domestic price of steel, affecting the quantity produced and consumed similarly. However, the key difference lies in how they impact income distribution. A tariff generates revenue for the government (from the duties imposed on imported goods), while a quota typically transfers income from consumers to the foreign and domestic producers who receive the import licenses, without generating revenue for the government.

Question 20

Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes an export quota on its automakers.The largest share of the export quota's "revenue effect" would tend to be captured by

Accepted Answer

Japanese automakers would tend to capture the largest share of the export quota's "revenue effect" because the quota restricts supply, potentially allowing them to raise prices and capture additional revenue.

Quiz 5: Nontariff Trade Barriers