Question 1

If a country begins allowing free international trade in a good, and as a result, it increases imports of that good.

Accepted Answer

If a country increases imports of a good due to free international trade, domestic consumers gain more than domestic producers lose. This is because imports increase competition, leading to lower prices for consumers. Producers may face more competition and may have to lower their prices, but they also have access to larger markets for their goods. Overall, the gains for domestic consumers from lower prices outweigh the losses for domestic producers.

Question 2

Restrictions on the importation of tomatoes reduce the supply available to the U.S. domestic market. Studies indicate that the demand for tomatoes is elastic. Compared to a free-trade situation, the import restrictions cause

Accepted Answer

When import restrictions reduce the supply available to the US domestic market, the demand for tomatoes being elastic, the reduced supply would cause a rise in tomato prices. As the price of tomatoes increase, consumers would be discouraged from buying, leading to a reduction in consumer expenditure on tomatoes. Therefore, the import restrictions would cause higher tomato prices and a reduction in consumer expenditure on tomatoes in the United States.

Question 3

If opening up international trade resulted in the U.S. importing ballpoint pens, what would tend to happen to the U.S. price of ballpoint pens?

Accepted Answer

When the U.S. begins importing ballpoint pens due to international trade, the increased supply of pens on the market will cause the domestic price to fall. This is because there will be more competition and options for consumers, leading to lower prices.

Question 4

A tariff can be defined simply as a

Accepted Answer

A tariff is a tax on imports.

Question 5

A tariff differs from a quota in that a tariff is

Accepted Answer

A tariff is a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported. Therefore, D is the correct answer.

Question 6

Suppose the Swiss government subsidized its watch-making industry, enabling Swiss producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Swiss subsidization policy by

Accepted Answer

The law of comparative advantage suggests that each country should specialize in producing goods in which it has a comparative advantage and trade with other countries. In this case, the Swiss have a comparative advantage in watch-making, so they will be able to produce watches at a lower cost than other countries. If the Swiss government subsidizes its watch-making industry, it will make Swiss watches even more affordable for consumers in other countries. The importing countries should gladly accept the subsidy and make the appropriate adjustment in their own watch-making industry. This adjustment may involve temporarily shifting resources away from the domestic watch-making industry, but in the long run, the importing countries will benefit from access to cheaper Swiss watches. A tariff or quota would only make Swiss watches more expensive for consumers, which would be a less efficient outcome.

Question 7

Which of the following is the best example of a tariff?

Accepted Answer

A tariff is a tax on imported goods. Option D is the only example that fits this definition.

Question 8

Economically speaking, tariffs:

Accepted Answer

Tariffs limit voluntary exchanges by making imported goods more expensive, thereby reducing the amount of trade between countries. This can harm both foreign producers and domestic consumers. While tariffs may protect certain domestic producers of goods, they also harm others who rely on imported inputs and compete with foreign goods. Additionally, tariffs can lead to retaliation from other countries, which can harm exports and further limit economic growth.

Question 9

Which of the following is not an argument favoring tariffs?

Accepted Answer

Tariffs actually decrease consumer surplus for domestic consumers, as they result in higher prices for imported goods.

Question 10

Tariffs result in a decrease in consumer surplus because:

Accepted Answer

Tariffs result in an increase in the price of the protected good, which reduces the quantity demanded. As a result, consumers are worse off and consumer surplus decreases. Option A cannot be correct, as an increase in price should lead to a decrease in the quantity consumed, rather than an increase. Option B cannot be correct, as a decrease in price results in either an increase in quantity demanded or no change, but not a decrease. Option D cannot be correct as a decrease in price should lead to an increase in quantity demanded, which is contrary to what happens when tariffs are imposed.

Question 11

After the U.S. introduces of a tariff in the market for phones, the price of phones in the U.S. will

Accepted Answer

With the introduction of a tariff, the cost of importing phones from foreign countries will increase, making it expensive for phone companies to import their products. In order to cover their expenses, companies will raise the prices of the phones they sell in the U.S. to maintain their profit margins, resulting in an increase in the price of phones for consumers.

Question 12

Which of the following would be expected if the tariff on foreign-produced automobiles was increased?

Accepted Answer

If the tariff on foreign-produced automobiles is increased, the supply of foreign automobiles to the domestic market would be reduced, resulting in a decrease in the quantity of foreign-produced automobiles demanded by domestic consumers. As a result, the price of automobiles would increase, which can lead to a decline in the purchasing power of consumers. Moreover, consumers may shift towards domestically produced automobiles, which can lead to a rise in the demand for domestically produced automobiles. Nevertheless, this may not necessarily lead to a decrease in the price of automobiles. The number of unemployed workers in the domestic automobile industry may decrease as domestic production increases, and the demand for foreign-produced automobiles would likely decrease, as the cost of the automobiles would be higher due to the increased tariff.

Question 13

Which of the following is not a result we would expect to result from a tariff on leather shoes?

Accepted Answer

Tariffs on imported goods like leather shoes typically make these goods more expensive, which can lead to an increase in the price of leather shoes in the domestic market (A), a decline in the amount of shoes imported (B), and potentially fewer pairs of shoes being sold overall due to higher prices (C). However, domestic producers might actually sell more shoes at the higher prices because the tariff makes imported shoes less competitive, contradicting option (D).

Question 14

An import quota or tariff on French wine that raises the prices for wine will probably

Accepted Answer

An import quota or tariff on French wine would increase the price of imported wine, making domestic wine relatively cheaper or more attractive in comparison. This could hurt domestic wine drinkers due to higher prices overall but benefit domestic wineries by reducing competition from imported wines, potentially increasing their sales and market share.

Question 15

Tariffs and other trade restrictions increase the domestic scarcity of products from abroad. Such policies benefit domestic producers of the restricted products at the expense of domestic consumers. This statement:

Accepted Answer

Tariffs and other trade restrictions limit the quantity of goods from abroad that flow into the domestic market, which creates a scarcity of these products. Domestic producers who compete with foreign imports benefit from this policy because they now face less competition, allowing them to charge higher prices for their products. However, domestic consumers now face higher prices or reduced availability of products they may prefer over domestically made alternatives. Therefore, this statement is essentially correct.

Question 16

A tariff on shoes would lead to:

Accepted Answer

When a tariff is imposed on shoes, foreign shoes become more expensive due to the additional tax, so there will be a decrease in imports and an increase in the demand for domestic shoes. This creates an opportunity for domestic producers to increase their prices and sell more shoes at a higher price. Therefore, both A and B are correct. Additionally, with the increase in price of foreign shoes, there will be a decrease in sales of foreign shoes, leading to C being correct as well.

Question 17

If opening up international trade resulted in the U.S. becoming a wheat exporter, relative to the prior no-trade situation, the U.S. domestic price of wheat:

Accepted Answer

When a country becomes an exporter of a good, it means that the domestic price of that good was lower than the world price before trade. Opening up to international trade allows the country to sell the good at the higher world price, which increases the domestic price. As the domestic price rises, producers are incentivized to increase output to take advantage of the higher prices, leading to an increase in both the domestic price and output of wheat.

Question 18

A major difference between a tariff and a quota is that a tariff

Accepted Answer

Tariffs are taxes imposed on imported goods, which generate revenue for the government imposing them. Quotas, on the other hand, are limits on the quantity of goods that can be imported and do not generate tax revenue; they simply restrict the amount of goods that can enter a country.

Question 19

A tax levied on imported goods is called a(n)

Accepted Answer

A tax levied on imported goods is called a tariff.

Question 20

When both exports and imports are considered, the major advantage of international trade is that it allows us to:

Accepted Answer

International trade allows countries to specialize in producing the goods and services in which they have a comparative advantage, and to import the goods and services they cannot efficiently produce from other countries. This results in a larger, more diverse quantity of goods and services available at lower prices than would otherwise prevail.

Quiz 20: Economic Growth in the Global Economy