Question 1

A major difference between tariffs and import quotas is that
A)tariffs create deadweight losses, but import quotas do not.
B)tariffs help domestic consumers, and import quotas help domestic producers.
C)tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import.
D)All of the above are correct.

Accepted Answer

Tariffs are taxes that are paid by consumers on imported goods, which creates deadweight losses and reduces efficiency. Import quotas, on the other hand, restrict the quantity of imported goods, leading to higher prices and profits for those who hold the licenses to import. The revenue from tariffs goes to the government, whereas the surplus from import quotas goes to the import license holders. Therefore, option C is the correct answer. Option B is not entirely accurate, as import quotas may also hurt domestic consumers by raising prices. Option A is incorrect, as import quotas may also lead to deadweight losses. Option D is incorrect, as options A and B are not entirely accurate.

Question 2

Figure 9-16. The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. 
-Refer to Figure 9-16. Government revenue raised by the tariff is represented by the area
A)E.
B)B + E.
C)D + E + F.
D)B + D + E + F.

Accepted Answer

The answer of Figure 9-16. The figure below illustrates a...

Question 3

Some goods can be produced at low cost only if they are produced in large quantities. This phenomenon is called
A)marginal cost of production.
B)marginal benefit of size.
C)economies of scale.
D)economies of production.

Accepted Answer

Economies of scale refer to the cost advantages that a firm experiences when it increases its level of output. This means that as the quantity of production increases, the cost of producing each unit decreases. This happens due to cost spreading, specialization of labor, and efficient use of equipment and other resources. Therefore, some goods can only be produced at low cost if they are produced in large quantities, and this is known as economies of scale.

Question 4

Import quotas and tariffs produce some common results. Which of the following is not one of those common results?
A)Total surplus in the domestic country falls.
B)Producer surplus in the domestic country increases.
C)The domestic country experiences a deadweight loss.
D)Revenue is raised for the domestic government.

Accepted Answer

The answer of Import quotas and tariffs produce some common...

Question 5

A quota is
A)a tax placed on imports.
B)a limit on the quantity of imports.
C)a tax on exports to other countries.
D)an excess of exports over imports.

Accepted Answer

A quota is a limit set by a country on the quantity of a particular good that can be imported. It is used to protect domestic industries from foreign competition or to reduce the trade deficit.

Question 6

Tariffs and quotas are different in the sense that
A)tariffs cause deadweight losses, while quotas do not cause deadweight losses.
B)tariffs raise revenue for the government, while quotas do not raise revenue for the government.
C)tariffs enhance the well-being of domestic consumers, while quotas diminish the well-being of domestic consumers.
D)tariffs enhance the well-being of domestic producers, while quotas diminish the well-being of domestic producers.

Accepted Answer

Tariffs are taxes on imports, so they raise revenue for the government. Quotas are physical limits on imports, and do not generate revenue. Option A is not correct as both tariffs and quotas can result in deadweight losses. Option C and D are also not correct, as the effects on domestic consumers and producers depend on the specific circumstances of each case.

Question 7

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing rice, exporting steel, and neither importing nor exporting TVs. We can conclude that producer surplus in Aquilonia is now
A)higher in the steel market, lower in the rice market, and unchanged in the TV market.
B)higher in the rice and steel markets, and unchanged in the TV market.
C)lower in the rice and TV markets, and higher in the steel market.
D)lower in the rice and steel markets, and the same in the TV market.

Accepted Answer

The answer of The nation of Aquilonia has decided to...

Question 8

Refer to Figure 9-15. For the saddle market, area E represents
A)government's revenue from the tariff.
B)producer surplus after the tariff becomes effective.
C)the decrease in consumer surplus, relative to the free-trade situation, as a result of the tariff.
D)the decrease in total surplus, relative to the free-trade situation, as a result of the tariff.

Accepted Answer

The answer of Refer to Figure 9-15. For the saddle...

Question 9

Refer to Figure 9-16. The deadweight loss created by the tariff is represented by the area
A)B.
B)D + F.
C)D + E + F.
D)B + D + E + F.

Accepted Answer

The answer of Refer to Figure 9-16. The deadweight loss...

Question 10

Refer to Figure 9-16. The tariff
A)decreases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
B)decreases producer surplus by the area C + D and decreases consumer surplus by the area D + E + F.
C)increases producer surplus by the area C and decreases consumer surplus by the area C + D + E + F.
D)increases producer surplus by the area B + C and decrease consumer surplus by the area D + E + F.

Accepted Answer

The answer of Refer to Figure 9-16. The tariff
A)decreases producer...

Question 11

Refer to Figure 9-16. The tariff
A)decreases producer surplus by the area C, decreases consumer surplus by the area C + D + E, and decreases total surplus by the area D + F.
B)increases producer surplus by the area C, decreases consumer surplus by the area C + D + E + F, and decreases total surplus by the area D + F.
C)creates government revenue represented by the area B + E and decreases total surplus by the area D + E + F.
D)increases producer surplus by the area C + G and creates government revenue represented by the area D + E + F.

Accepted Answer

The answer of Refer to Figure 9-16. The tariff
A)decreases producer...

Question 12

Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?
A)producers of incense and consumers of steel
B)consumers of all three goods
C)consumers of incense and producers of rugs
D)producers of steel and consumers of incense

Accepted Answer

When Zelzar ends its trade restrictions, it starts importing incense, which benefits consumers of incense due to likely lower prices or better quality from abroad. It exports steel, benefiting producers of steel as they gain access to larger markets. The situation with rugs does not directly benefit or harm producers or consumers since there is no change in their trade status. Therefore, producers of steel and consumers of incense are better off.

Question 13

Refer to Figure 9-15. As a result of the tariff, there is a deadweight loss that amounts to
A)B.
B)E.
C)D + F.
D)B + D + E + F.

Accepted Answer

The deadweight loss resulting from the tariff is equal to the area of the triangle formed between the original equilibrium quantity (Q1), the quantity demanded after the tariff (Q2), and the vertical distance between the supply and demand curves at the quantity demanded after the tariff (D-F). Therefore, the deadweight loss equals (1/2)(Q2-Q1)(D-F), which in this case is equal to (1/2)(60-40)(10-6) = 20. This deadweight loss is represented by the shaded area labeled "D + F."

Question 14

Refer to Figure 9-16. The area C + D + E + F represents
A)the decrease in consumer surplus caused by the tariff.
B)the decrease in total surplus caused by the tariff.
C)the deadweight loss of the tariff minus government revenue raised by the tariff.
D)the deadweight loss of the tariff plus government revenue raised by the tariff.

Accepted Answer

The answer of Refer to Figure 9-16. The area C...

Question 15

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that Aquilonia's new free-trade policy has
A)increased consumer surplus and producer surplus in the incense market.
B)increased consumer surplus in the steel market and left producer surplus in the rug market unchanged.
C)decreased consumer surplus in both the steel and rug markets.
D)decreased consumer surplus in the steel market and increased total surplus in the incense market.

Accepted Answer

The answer of The nation of Aquilonia has decided to...

Question 16

The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes
A)benefit the United States as a whole, because they generate revenue for the government. In addition, because the goods are priced below cost, the taxes do not harm domestic consumers.
B)benefit the United States as a whole, because they generate revenue for the government and increase producer surplus.
C)harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue.
D)harm the United States as a whole, because they reduce producer surplus by an amount that exceeds the gain in consumer surplus and government revenue.

Accepted Answer

Imposing taxes on imported goods that are sold below their cost of production, known as "dumping," may help protect domestic producers in the short run. However, in the long run, it harms the United States as a whole because it reduces consumer surplus by an amount greater than the gain in producer surplus and government revenue. Domestic consumers end up paying higher prices for the same goods, which reduces their enjoyment and purchasing power. This, in turn, can lead to reduced economic growth and job opportunities. Additionally, trade retaliation by other countries may hurt American exporters and increase the risk of trade wars.

Question 17

Both tariffs and import quotas
A)increase the quantity of imports and raise the domestic price of the good.
B)increase the quantity of imports and lower the domestic price of the good.
C)decrease the quantity of imports and raise the domestic price of the good.
D)decrease the quantity of imports and lower the domestic price of the good.

Accepted Answer

Both tariffs and import quotas are meant to restrict the quantity of imports coming into a country. Tariffs directly raise the cost of imported goods while import quotas limit the quantity of goods that can be imported. Both of these measures result in a decrease in the quantity of imports and therefore raise the domestic price of the good.

Question 18

Import quotas and tariffs produce similar results. Which of the following is not one of those results?
A)The domestic price of the good increases.
B)Consumer surplus of domestic consumers increases.
C)Producer surplus of domestic producers increases.
D)A deadweight loss is experienced by the domestic country.

Accepted Answer

While import quotas and tariffs both result in the domestic price of the good increasing, producer surplus of domestic producers increasing, and a deadweight loss being experienced by the domestic country, they do not necessarily result in consumer surplus of domestic consumers increasing. In fact, consumer surplus may decrease as a result of the higher prices caused by the import quota or tariff.

Question 19

Refer to Figure 9-15. For the saddle market, area B represents
A)government's revenue from the tariff.
B)the deadweight loss of the tariff.
C)the increase in producer surplus, relative to the free-trade situation, as a result of the tariff.
D)None of the above is correct.

Accepted Answer

The answer of Refer to Figure 9-15. For the saddle...

Question 20

An import quota
A)is preferable to a tariff since an import quota does not create a deadweight loss.
B)is a tax on imported goods.
C)reduces the welfare of domestic consumers.
D)reduces the welfare of domestic producers.

Accepted Answer

An import quota reduces the welfare of domestic consumers as it restricts their ability to purchase cheaper imported goods, leading to higher prices and reduced variety. It does not create a deadweight loss like a tariff, but it still reduces consumer surplus and raises producer surplus. Thus, option C is the correct choice.

Quiz 9: Application: International Trade

A major difference between tariffs and import quotas is that

Figure 9-16. The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price. -Refer to Figure 9-16. Government revenue raised by the tariff is represented by the area

Some goods can be produced at low cost only if they are produced in large quantities. This phenomenon is called

Import quotas and tariffs produce some common results. Which of the following is not one of those common results?

A quota is

Tariffs and quotas are different in the sense that

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing rice, exporting steel, and neither importing nor exporting TVs. We can conclude that producer surplus in Aquilonia is now

Refer to Figure 9-15. For the saddle market, area E represents

Refer to Figure 9-16. The deadweight loss created by the tariff is represented by the area

Refer to Figure 9-16. The tariff

Refer to Figure 9-16. The tariff

Zelzar has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. Which groups in Zelzar are better off as a result of the new free-trade policy?

Refer to Figure 9-15. As a result of the tariff, there is a deadweight loss that amounts to

Refer to Figure 9-16. The area C + D + E + F represents

The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and neither importing nor exporting rugs. We can conclude that Aquilonia's new free-trade policy has

The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes

Both tariffs and import quotas

Import quotas and tariffs produce similar results. Which of the following is not one of those results?

Refer to Figure 9-15. For the saddle market, area B represents

An import quota