Exam 10: Arguments for and Against Protection

The national defense argument advocates the use of import barriers on goods that would be important in the case of a military emergency.

Under which of the following situations will the infant industry argument for protection stand to be valid?

Tariffs are more likely to be imposed when:

Suppose that the training, skills, and attitudes received by employees in the computer gaming development industry have positive spillover effects as workers leave the industry and move to other jobs. The specificity rule suggests that the best way to achieve more employment in this industry is to:

Which of the following is a plausible solution to a distortion?

What is the dying industry argument for establishing barriers to imports? What are its merits and weaknesses? What measure(s) is/are more efficient than an import tariff if the intention is to help workers who would be displaced from a dying industry? Why? What measure(s) is/are more efficient than an import tariff if maintaining current production levels is the goal of government policy?

Which of the following statements is incorrect?

What is most likely to happen when firms in an import-competing infant industry are offered subsidies?

Government loans are more efficient than production subsidies if a young industry faces financial markets that are unwilling to provide funding to the industry due to the high risk.

If additional domestic production will lead to positive spillover effects, then an import tariff that increases domestic production would better adhere to the specificity rule than would a government subsidy to domestic production.

Which of the following statements reflects a situation in which there are external costs?

The _____ states that it is usually more efficient to use the government policy tool that acts as directly as possible on the source of the distortion separating private and social benefits or costs.

The figure given below shows the national market for mopeds in a country. D_d and S_d are the domestic demand and supply curves of mopeds respectively. The figure given below shows the marginal external benefit curve (MEB) of the country from the production of domestic mopeds. The overall impact of the tariff on the nation would be:

Which of the following refers to the net effects on parties who are not directly involved in a transaction?

The figure given below shows the national market for mopeds in a country. D_d and S_d are the domestic demand and supply curves of mopeds respectively. Calculate the welfare loss arising from the production effect of the tariff.

Direct democracy makes tariffs less likely to be voted into law because:

Too much of a good is produced if some external benefits of producing or consuming it are ignored by the private decision makers.

The United States could begin building a new type of flat panel 3-dimensional television (FP3D). However, Japanese firms have been producing such televisions for a couple of years and are already low-cost, high-quality producers. Should the United States impose temporary protection in the form of a tariff on this product to protect the domestic industry until it is mature enough to compete with the Japanese producers? Why or why not?

Suppose a recent study shows that in country A, consumers pay an average of about $169,000 per job per year maintained by import protection. Given that these employees earned much less than $169,000 per year, it would be much cheaper to simply pay these workers not to work and impose no import restrictions. Why do you think that, in spite of the fact that there is a net welfare loss, the government of country A has maintained these barriers?

The United States produces some of the electronic components used as inputs in its fighter planes. But due to the limited number of companies that produce these items, it is forced to import these parts from Japan as well. There is concern that in the case of a prolonged war, these important imports may not be available. Fearing that the air force may be unable to fulfill its tasks in the case of a prolonged war, the specificity rule suggests that the United States should: