Question 1

A domestically produced DVD player sells for $500, including $250 of imported components. A tariff of 20% is imposed on the imported DVD player. What is the effective rate of protection?

Accepted Answer

The effective rate of protection is calculated by considering the value added domestically. The value added is $250 ($500 - $250). The tariff increases the cost of imported components by 20%, which is $50 (20% of $250). The effective protection is the tariff amount ($50) divided by the domestic value added ($250), which is 20%. Therefore, the effective rate of protection is 40% (50/250 * 100).

Question 2

A domestically produced DVD player sells for $500, including $250 of imported components. A tariff of 20% is imposed on the imported DVD player, and a tariff of 10% is imposed on the imported components. What is the effective rate of protection?

Accepted Answer

The answer of A domestically produced DVD player sells for...

Question 3

Which of the following components is not necessary to determine the effective rate of protection?

Accepted Answer

The effective rate of protection is a measure of the protection provided to a domestic industry by a tariff or other trade policy. It is calculated by comparing the price of the imported final product to the price of the domestic final product, taking into account the tariffs on the imported final product and the imported components. The percentage of imported components used in producing the final product is not necessary to determine the effective rate of protection.

Question 4

Tariff escalation encourages:

Accepted Answer

Tariff escalation refers to the practice of imposing higher tariffs on processed goods than on raw materials. This encourages the final processing of products in the home country to avoid higher import costs on processed goods.

Question 5

Tariff escalation results from:

Accepted Answer

Tariff escalation refers to the practice of imposing lower tariffs on raw materials and higher tariffs on finished products. This encourages domestic processing of raw materials and protects domestic industries.

Question 6

Which of the following is not a common argument for tariffs?

Accepted Answer

Senile government is not a common argument for tariffs.

Question 7

Which of the following is not a common argument for tariffs?

Accepted Answer

All of the options listed (increasing the number of jobs in the economy, national defense, infant industry, and senile industry) are common arguments for implementing tariffs.

Question 8

A production subsidy:

Accepted Answer

A production subsidy increases domestic output by making it cheaper for producers to produce, encouraging more production.

Question 9

Which method of valuation for tariffs includes transportation changes?

Accepted Answer

CIF is a trade term that means the seller pays for the cost of the goods, the marine insurance, and all transportation charges needed to bring the goods to the port of destination. In a CIF agreement, the seller is responsible for covering these costs, which are then factored into the price of the goods when calculating the value for tariff purposes. This valuation is important for determining customs duties and taxes upon the goods' arrival in the destination country.

Question 10

Which type of tariff is easiest to administer?

Accepted Answer

In contrast, ad valorem tariffs are based on the value of the goods, which can be more difficult to administer because they require accurate assessment of the market value of the imported products. Compound tariffs combine both specific and ad valorem elements, making them even more complex to administer. FAS (Free Alongside Ship) and FOB (Free On Board) are not types of tariffs, but rather terms used in international shipping to define at what point the responsibility and ownership of goods transfer from seller to buyer.
Therefore, the correct answer to the question "Which type of tariff is easiest to administer?" is:
a. specific

Question 11

A tariff is simply a tax on exported goods.

Accepted Answer

A tariff is primarily a tax on imported goods, not exported goods, imposed by a country to control trade balances, protect domestic industries, or generate revenue.

Question 12

A revenue tariff is a tax on goods that are not domestically produced.

Accepted Answer

A revenue tariff is a tax on imported goods, which are not domestically produced.

Question 13

In a developing country tariffs may be easier to collect than income or sales taxes.

Accepted Answer

In developing countries, administrative and institutional limitations often make it challenging to collect income or sales taxes effectively. Tariffs, on the other hand, are easier to administer because they are collected at the border on imported goods, requiring less extensive domestic tax collection infrastructure.

Question 14

During the nineteenth century, tariffs were the major source of revenue of the U.S. government.

Accepted Answer

During the nineteenth century, the U.S. government primarily relied on tariffs, or taxes on imported goods, as its main source of revenue, since there was no federal income tax until the 16th Amendment was ratified in 1913.

Question 15

Specific tariffs work best on products that essentially are homogeneous.

Accepted Answer

Specific tariffs, which are fixed fees charged per unit of an imported good, are most effective on homogeneous products because the value of the tariff does not need to vary with the price or quality of the product, making it simpler to administer and more predictable for traders.

Question 16

A constant 4-cent tariff on gasoline would be referred to as a specific tariff.

Accepted Answer

A specific tariff is a fixed fee imposed on each unit of imported goods, so a constant 4-cent tariff on each gallon of gasoline fits this definition.

Question 17

Ad valorem tariffs are a regressive form of taxation.

Accepted Answer

Ad valorem tariffs are based on the value of the goods being imported, not on the income or wealth of the importer, so they do not directly correlate with the regressive or progressive nature of taxation which is determined by how the tax rate affects individuals across different income brackets.

Question 18

A tariff levied as a percentage of the value of the imported item is known as an ad valorem tariff.

Accepted Answer

An ad valorem tariff is indeed a tax imposed on the value of an item, calculated as a percentage of the item's market price.

Question 19

Ad valorem tariffs are most useful if the product category is characterized by vertical product differentiation.

Accepted Answer

Ad valorem tariffs, which are based on the value of the goods, are more effective in markets with vertical differentiation where products vary in quality and price, as they adjust with the value of the product.

Question 20

A compound tariff is a theoretical possibility that never occurs in practice.

Accepted Answer

A compound tariff is a real type of tariff that combines both a specific tariff (a fixed fee based on the type or quantity of imported goods) and an ad valorem tariff (a percentage of the value of the goods). This approach is used by some countries in their trade policies.

Quiz 8: Tariffs

A domestically produced DVD player sells for $500, including $250 of imported components. A tariff of 20% is imposed on the imported DVD player. What is the effective rate of protection?

A domestically produced DVD player sells for $500, including $250 of imported components. A tariff of 20% is imposed on the imported DVD player, and a tariff of 10% is imposed on the imported components. What is the effective rate of protection?

Which of the following components is not necessary to determine the effective rate of protection?

Tariff escalation encourages:

Tariff escalation results from:

Which of the following is not a common argument for tariffs?

Which of the following is not a common argument for tariffs?

A production subsidy:

Which method of valuation for tariffs includes transportation changes?

Which type of tariff is easiest to administer?

A tariff is simply a tax on exported goods.

A revenue tariff is a tax on goods that are not domestically produced.

In a developing country tariffs may be easier to collect than income or sales taxes.

During the nineteenth century, tariffs were the major source of revenue of the U.S. government.

Specific tariffs work best on products that essentially are homogeneous.

A constant 4-cent tariff on gasoline would be referred to as a specific tariff.

Ad valorem tariffs are a regressive form of taxation.

A tariff levied as a percentage of the value of the imported item is known as an ad valorem tariff.

Ad valorem tariffs are most useful if the product category is characterized by vertical product differentiation.

A compound tariff is a theoretical possibility that never occurs in practice.