Exam 10: Arguments for and Against Protection

If Social Marginal Cost (SMC) > Price (P) = Buyer's Private Marginal Benefit (MB) = Seller's Private Marginal Cost (MC) = Social Marginal Benefit (SMB), it implies that:

In a "first-best" world:

Monopoly power can create distortions because a powerful seller can raise price and profits by restricting output.

According to the developing government argument, tariffs imposed by a developing country:

Which of the following asserts that import-competing firms that are struggling to stay in business should be provided protection in order to maintain jobs and continue domestic production?

Whenever the benefits of group effort fall on every member of a large dispersed group, regardless of individual contributions, there can be a:

Which of the following asserts that temporary protection from international competition is needed for a nascent industry that initially has high costs?

The infant industry argument is valid if the present value of the stream of national benefits is less than the present value of the stream of national costs.

The import tariff rates are typically higher on final consumption goods than on intermediate goods and raw materials sold to manufacturing firms. This tendency is known as:

Which of the following is an expected effect of a tariff or a nontariff barrier (NTB) on a product?

Tariffs and quotas are one-size-fits-all measures that work as tools to internalize external effects.

Which of the following is valid for a "first-best" world?

Instead of placing a tariff on the imports of steel, a government has decided to offer steel workers trade adjustment assistance which will allow them to pre-qualify for unemployment benefits. Such a policy is consistent with:

Suppose Russia can produce automobiles relatively cheaply, but they have poor gas mileage and create a great deal of air pollution. The U.S. government, concerned about the quality of air, would like to see fewer Russian automobiles and more cleaner-running American automobiles on the road. a.What is the nature of the market failure that would justify the U.S.government taking some action against the importation of Russian automobiles? b.Explain why imposing a tariff is a second best policy to employ in this case and what policy choice would be more efficient.

In a first-best world, for any commodity, the price of the commodity, the private marginal benefit, the private marginal cost of producing it, the social marginal benefit, and the social marginal cost are all equal at the margin.

If there is something extra bad about local consumption of a product, then a tariff can be good for the country because:

Suppose the government of a small country has to frame a policy which would promote the level of domestic production or employment of import-competing industries. It is left with a choice of either imposing a tariff on the foreign goods or providing production subsidies to the domestic firms. Which policy will the government choose and why? Explain with a diagram. Is there a particular principle that can guide the government's decision? If so, name and state it.

Import tariffs are efficient second-best policy solutions for many developing countries where government revenue is difficult to obtain by other means such as an income or sales tax.

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. If there is initially free trade, and then a $50 per unit subsidy is given to the domestic producers of mopeds, domestic production will increase by:

In second-best world, private actions will lead to the best possible outcomes for the society.