Deck 34: Trade Policy

Question 1

The concept of "trade creation" refers to

A) increased exports and reduced imports as a result of a high- tariff policy.
B) trade based on comparative advantage that typically follows the reduction of trade barriers.
C) inefficient trade that follows the establishment of a free- trade area.
D) regional trade agreements.
E) the opening up of new trading routes.

Answer 1

B

Question 2

A common false argument for using tariffs to maximize national income and raise domestic living standards is to _.

A) encourage learning by doing
B) exploit economies of scale
C) create a strategic trade advantage
D) alter the terms of trade
E) protect declining industries

Answer 2

E

Question 3

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical. FIGURE 34- 3
Refer to Figure 34- 3. If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2), then foreign producers' revenues from their sales in Canada will be equal to the area

A) B + C + D.
B) C + H.
C) G + H + I.
D) H.
E) B + C + D + G + H + I.

Answer 3

B

Question 4

Many of the world's industrialized countries initially developed their industries with heavy tariff protection. In Canada's case, this was the basis for

A) reciprocity.
B) the National Policy of 1876.
C) the NAFTA.
D) the National Energy Program of the 1980s.
E) the Charlottetown Accord.

Question 5

The table below shows the prices in Canada of one kilogram of cheddar cheese from 3 different countries. Assume that all cheddar cheese is identical. $\begin{array}{|l|l|l|}\hline \text { Producing Country } & \text { C anadian Price in } \$ & \text { C anadian Pric e in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Tariff } \\\hline & & \\\hline \text { Canada } & 10.00 & -- \\\hline \text { United Kingdom } & 9.00 & -- \\\hline \text { United States } & 8.00 & -- \\\hline\end{array}$
$\text { TABLE 34-1 }$

-Refer to Table 34- 1. Assuming that a 40 percent tariff is in place and that Canadians buy only the lowest- priced cheddar cheese, from which country will Canada buy its cheese?

A) from Canada and United States
B) from United Kingdom and United States
C) all from the United States
D) all from United Kingdom
E) all from Canada

Question 6

The diagram below shows the domestic demand and supply curves for denim jeans in Canada. The prevailing world price is PW. Assume that all jeans are identical. FIGURE 34- 2
Refer to Figure 34- 2. Suppose that Canada imposes a tariff of $t per pair of jeans. Canada's consumption will then be at the quantity:

A) Q1
B) Q2
C) Q3
D) Q4
E) Q5

Question 7

The diagram below shows the domestic demand and supply curves for denim jeans in Canada. The prevailing world price is PW. Assume that all jeans are identical. FIGURE 34- 2
Refer to Figure 34- 2. Suppose that Canada imposes a tariff of $t per pair of jeans. Canada's production will then be at the quantity

A) Q1
B) Q2
C) Q3
D) Q4
E) Q5

Question 8

The diagram below shows the demand and supply curves for refrigerators in Canada. FIGURE 34- 1
Refer to Figure 34- 1. At the price P0, the quantity of refrigerators supplied to the Canadian market by domestic Canadian producers is

A) Q1.
B) Q2.
C) Q3.
D) Q4.
E) Q5.

Question 9

The final round of GATT talks, called the Uruguay Round, established GATT's successor, known as the

A) European Union (EU).
B) North American Free Trade Agreement (NAFTA).
C) Second General Agreement on Trade and Tariffs (GATT 2).
D) United Nations Council for Free and Fair Trade (UNCFFT).
E) World Trade Organization (WTO).

Question 10

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical. FIGURE 34- 4
Refer to Figure 34- 4. Assume there is free trade in bicycles. If the world price of bicycles is $500, Canada's will be bicycles per year.

A) imports; 30 000
B) exports; 20 000
C) exports; 50 000
D) exports; 30 000
E) imports; 20 000

Question 11

Over the long run, protecting a domestic industry using a high tariff is likely to new products and production methods, thus making it to compete in the global marketplace.

A) discourage it from developing; more able
B) discourage it from developing; less able
C) encourage it to develop; more able
D) discourage it from developing; more focused on investing in its ability
E) encourage it to develop; less able

Question 12

If Canada initially has no tariffs and it then imposes a 10 percent tariff on a specific commodity, we would expect to observe

A) an upward shift in the commodity's supply curve.
B) a reduction in the production of the commodity in Canada.
C) an increase in the tariff revenue collected by the Canadian government.
D) an upward shift in the commodity's demand curve.
E) a downward shift in the commodity's demand curve.

Question 13

Continued tariff protection for industries that have already attained all the possible economies of scale will likely

A) redistribute income away from the factors used in the protected industries.
B) increase prices to consumers of the products produced in the protected industries.
C) reduce employment in the protected industries.
D) reduce the stream of tariff revenue to the government.
E) result in lower domestic prices for the products they produce.

Question 14

Canada and the United States have been in a prolonged dispute about Canada's supply- managed agricultural industries, such as dairy and poultry. If the United States is successful in having Canada's "tariff equivalents" removed, who will lose and who will gain?

A) Canadian consumers lose and Canadian poultry and dairy producers gain.
B) Canadian poultry and dairy producers lose and Canadian consumers gain.
C) American consumers lose and American poultry and dairy producers gain.
D) American poultry and dairy producers lose and American consumers gain.
E) Canadian consumers gain and Canadian poultry and dairy producers gain.

Question 15

Suppose that at the current world price bananas are imported into Canada. Suppose also that domestic supply is perfectly inelastic and domestic demand has unit elasticity. If Canada were to place a tariff on imported bananas, the

A) price of bananas in Canada would rise, but total domestic expenditures would fall.
B) quantity imported would be unaffected.
C) quantity imported would rise.
D) price of bananas in Canada would rise, but total domestic expenditures would be unaffected.
E) revenues of the foreign exporters of bananas would rise.

Question 16

The diagram below shows the demand and supply curves for refrigerators in Canada. FIGURE 34- 1
Refer to Figure 34- 1. At the price P0, the quantity of refrigerators imported into the Canadian market is

A) Q2Q5.
B) Q2Q3.
C) Q1Q5.
D) Q3Q5.
E) Q2Q4.

Question 17

In international trade, "dumping" is defined as charging

A) a domestic retail price above the marginal cost faced by a firm importing the product at the wholesale level.
B) export prices below marginal cost for any period of time.
C) export prices below average cost for any period of time.
D) a lower price in foreign markets than in the domestic market.
E) export prices below average cost for a short period of time.

Question 18

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical. FIGURE 34- 3
Refer to Figure 34- 3. If Canada has free trade in cotton towels, foreign producers' revenues from their Canadian sales will be equal to the amount

A) E + F + G + H + I.
B) E + F.
C) A + B + E + F + G.
D) G + H + I.
E) E + F + G + H + I + J.

Question 19

Non- tariff barriers commonly used to achieve a "level playing field" are

A) system- wide subsidies to domestic consumers.
B) voluntary export restraints (VER).
C) countervailing duties.
D) quotas.
E) export taxes.

Question 20

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical. FIGURE 34- 3
Refer to Figure 34- 3. If Canada imposes a tariff of $t per cotton towel, the deadweight loss to the Canadian economy is shown by area

A) A + B + C + D.
B) C + H.
C) B + D.
D) C .
E) A + B + C.

Question 21

Economists would tend to accept which of the following arguments in favour of tariffs?

A) Tariffs are needed to limit imports and reduce the capital flow from the country.
B) Tariffs will stimulate the domestic economy.
C) Tariffs are needed to avoid exporting jobs.
D) Temporary tariff protection in some situations may help to generate an eventual comparative advantage in that product.
E) Tariffs help to reduce inflation by reducing the price of domestic products.

Question 22

If a country is small in world markets and imports some product at the world price, the country effectively faces a horizontal foreign supply curve for that product. If the country then restricts the volume of imports by imposing an import quota, the effect on the domestic market for that product is to

A) make the domestic demand curve a vertical line at the permitted quantity of imports.
B) make the domestic demand curve a horizontal line at the permitted quantity of imports.
C) shift the entire supply curve to the left.
D) make the foreign supply curve a horizontal line at the current price.
E) make the foreign supply curve a vertical line at the permitted quantity of imports.

Question 23

If a country is exporting more goods and services than it is importing, we should consider this to be "beneficial" only in the sense that it

A) increases the standard of living through a larger national income.
B) means that an economy is earning more than it is spending.
C) represents an accumulation of assets for the domestic economy that can be used in the future to finance consumption.
D) allows a country to add to its foreign- exchange reserves above the level needed to cope with fluctuations in private payments.
E) is a necessary condition to enable a country to take full advantage of scale economies.

Question 24

Suppose that a Canadian brewery sells beer in both Canadian and American markets and that all prices are in Canadian dollars. The Canadian domestic price is $17.00 per case while in the American market it sells the same case for $13.00. The average total cost of production is $11.50. This brewery could be accused of

A) exploiting the Canadian beer drinkers.
B) trying to reduce the American domestic price of beer.
C) dumping.
D) exchange- rate manipulation.
E) bad management.

Question 25

According to the principle of "national treatment" in the North American Free Trade Agreement, member countries

A) can establish new laws as they wish, as long as these laws apply equally to domestic and foreign- owned firms.
B) can establish specific subsidies to favour their own national firms over international firms, as long as it applies only to domestic operations.
C) must submit any new laws being considered to a cross- border judicial panel before the laws are enacted.
D) cannot establish new laws which harm the domestic environment.
E) have complete autonomy over their own laws and the way in which they are applied to any firm, domestic or foreign, operating on their soil.

Question 26

A 10 percent tariff on all wines imported into Canada will

A) create the incentive to produce better quality wines.
B) provide no protection at all to the Canadian wine industry.
C) protect the cheaper wines at the expense of the expensive wines.
D) protect the expensive wines more than the cheaper wines.
E) equally protect the production of all Canadian wines.

Question 27

The diagram below shows the domestic demand and supply curves for denim jeans in Canada. The prevailing world price is PW. Assume that all jeans are identical. FIGURE 34- 2
Refer to Figure 34- 2. If Canada imposes a tariff of $t per pair of jeans, Canada's jean- producing firms will gain producer surplus equal to the area

A) A.
B) A + B + C.
C) A + D.
D) D.
E) D + E + F + G + H.

Question 28

The table below shows the prices in Canada of one kilogram of cheddar cheese from 3 different countries. Assume that all cheddar cheese is identical. $\begin{array}{|l|l|l|}\hline \text { Producing Country } & \text { C anadian Price in } \$ & \text { C anadian Pric e in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Tariff } \\\hline & & \\\hline \text { Canada } & 10.00 & -- \\\hline \text { United Kingdom } & 9.00 & -- \\\hline \text { United States } & 8.00 & -- \\\hline\end{array}$
$\text { TABLE 34-1 }$

-Refer to Table 34- 1. Suppose Canada and the United Kingdom negotiate a free- trade agreement in cheese. But Canada has a 40 percent tariff on cheese imported from other countries. From which country will Canada now buy its cheese?

A) from United Kingdom and United States
B) all from United Kingdom
C) all from the United States
D) from Canada and United States
E) all from Canada

Question 29

Suppose Canada entered into a free- trade arrangement with China and, as a result, Canadian imports from India were replaced with imports from China. This would be an example of

A) trade diversion.
B) trade expansion.
C) trade creation.
D) dumping.
E) countervailing trade.

Question 30

The diagram below shows the domestic demand and supply curves for denim jeans in Canada. The prevailing world price is PW. Assume that all jeans are identical. FIGURE 34- 2
Refer to Figure 34- 2. In the presence of free international trade, Canada's consumption of denim jeans will be the quantity

A) Q1
B) Q2
C) Q3
D) Q4
E) Q5

Question 31

The diagram below shows the demand and supply curves for refrigerators in Canada. FIGURE 34- 1
Refer to Figure 34- 1. Suppose that P0 is the world price. If Canada imposes a tariff causing the price of refrigerators in Canada to rise from P0 to P1, the Canadian government will collect tariff revenues equal to

A) the new price, P1, multiplied by the total quantity of refrigerators purchased in Canada, Q4.
B) the original price P0, multiplied by the original quantity of refrigerators imported into Canada, Q1Q5.
C) (P1 - P0) multiplied by the tariff- induced quantity of refrigerators imported into Canada, Q1Q5.
D) (P1 - P0) multiplied by the tariff- induced quantity of refrigerators imported into Canada, Q2Q4.
E) the new price, P1, multiplied by the total quantity of refrigerators purchased in Canada, Q2.

Question 32

According to the infant- industry argument for protection, a new small industry

A) may need protection temporarily until it can exploit its economies of scale.
B) must be protected in order to provide a domestic supply of the product.
C) will need protection once it has exploited available economies of scale.
D) must be protected even if it will never have a comparative advantage.
E) must be protected permanently to provide for a diversified economy.

Question 33

The main reasoning behind protectionist trade policies is to

A) to shield local producers from foreign competition.
B) promote exports.
C) maximize world production.
D) create a level playing field.
E) raise government revenues through tariffs.

Question 34

If Canada, a small country in global markets, imposes a 15 percent tariff on a specific commodity, it will cause

A) a reduction in tariff revenue collected by the Canadian government.
B) a decrease in the price consumers pay for the commodity in Canada.
C) a reduction in the consumption of the commodity in Canada.
D) an increase in the quantity imported of the commodity.
E) an upward shift in the commodity's demand curve.

Question 35

The table below shows the prices in Canada of one kilogram of cheddar cheese from 3 different countries. Assume that all cheddar cheese is identical. $\begin{array}{|l|l|l|}\hline \text { Producing Country } & \text { C anadian Price in } \$ & \text { C anadian Pric e in } \$ \\\hline & \text { Free Trade } & 40 \% \text { Tariff } \\\hline & & \\\hline \text { Canada } & 10.00 & -- \\\hline \text { United Kingdom } & 9.00 & -- \\\hline \text { United States } & 8.00 & -- \\\hline\end{array}$
$\text { TABLE 34-1 }$

-Refer to Table 34- 1. If Canada has a 40 percent tariff in place on the import of cheddar cheese, the price per kilogram of cheese from Canada, United Kingdom and United States respectively, is

A) $14, $9.00 and $8.00.
B) $14, $12.60 and $11.20.
C) $10, $12.60 and $11.20.
D) $10, $10 and $10.
E) $10, $9.00 and $8.00.

Question 36

Any policy designed to benefit domestic industries at the expense of foreign export industries is called

A) commercialization.
B) cartelization.
C) predatory practice.
D) protection.
E) monopolization.

Question 37

The diagram below shows the domestic demand and supply curves for denim jeans in Canada. The prevailing world price is PW. Assume that all jeans are identical. FIGURE 34- 2
Refer to Figure 34- 2. If Canada were to engage in no international trade in denim jeans, then the quantity consumed and produced in Canada would be

A) Q1
B) Q2
C) Q3
D) Q4
E) Q5

Question 38

The diagram below shows the domestic demand and supply curves for denim jeans in Canada. The prevailing world price is PW. Assume that all jeans are identical. FIGURE 34- 2
Refer to Figure 34- 2. If Canada imposes a tariff of $t per pair of jeans, the Canadian government's tariff revenues will be equal to

A) F + G + H.
B) E + F + G + H.
C) F + G.
D) B + C.
E) E + F.

Question 39

For most products, Canada is a small economy with no market power in the global market. If Canada imposed a tariff on imported goods from a low- wage foreign country, this would

A) increase wages in the low- wage foreign country.
B) equalize the costs of production between the two countries.
C) improve Canada's terms of trade.
D) increase the Canadian price of the imported good.
E) reduce the price of the imported good in Canada.

Question 40

Canadian governments (provincial and federal) currently provide enormous protection (through tariffs) to which of the following domestic industries?

A) lumber
B) dairy
C) electronic gaming
D) steel
E) textile

Question 41

If a tariff is imposed in a country that is too small to have global market power, the domestic consumer will face a price, and the price paid to foreign producers will .

A) higher; not change
B) lower; not change
C) higher; rise
D) higher; fall
E) lower; rise

Question 42

Consider the following statement: "Canada is unambiguously better off if it is exporting more, in dollar value, to the rest of the world than it is importing." This statement is because
.

A) incorrect; it fails to recognize that the gains from trade come from the volume rather than the balance of trade
B) correct; exports are good and imports are bad
C) incorrect; it does not recognize the operation of the foreign- exchange market
D) incorrect; imports improve Canada's terms of trade
E) correct; it is based on the mercantilist doctrine

Question 43

A business which contends that it needs temporary protection so that it can expand significantly and thereby reduce its costs so as to enable it to compete with foreign producers is using an argument known as the

A) infant- industry case for tariffs.
B) price fluctuations case for tariffs.
C) monopolistic competition case for tariffs.
D) strategic case for tariffs.
E) social advantages case for tariffs.

Question 44

Which of the following methods of import protection leads to the largest deadweight loss for the importing country?

A) dumping
B) quota
C) countervailing duty
D) tariff
E) import duty

Question 45

If Canada reduces the tariff imposed on a commodity from 10 percent to 5 percent, we would expect to observe

A) a downward shift in the commodity's demand curve.
B) an increase in the amount of the commodity imported into Canada.
C) an upward shift in the commodity's demand curve.
D) an increase in Canada's terms of trade.
E) an increase in tariff revenue by the Government of Canada.

Question 46

If all countries try to expand their exports and restrict their imports through the use of export subsidies and import tariffs, the net effect will probably be

A) an increase in the volume of trade but little change in unemployment levels.
B) a fall in the volume of trade and an increase in the standard of living in each country.
C) no change in the volume of trade but less unemployment.
D) a fall in the volume of trade and a decline in the average living standards in each country.
E) no change in the volume of trade but an increase in the overall unemployment rates.

Question 47

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical. FIGURE 34- 4
Refer to Figure 34- 4. Suppose the world price of bicycles is $500 and Canada has in place a
50- percent tariff on this good. The deadweight loss to the Canadian economy resulting from this tariff is per year.

A) $0.5 million
B) $1.0 million
C) $0
D) $1.5 million
E) $2.0 million

Question 48

Suppose the Canadian government began subsidizing wheat farmers by paying them $25 per bushel of wheat produced. According to existing international trade agreements, other countries would be allowed to react to this subsidy by imposing a

A) quota.
B) non- tariff barrier.
C) trade diversion.
D) countervailing duty.
E) VER.

Question 49

A tariff is

A) a tax imposed on domestically produced manufactured goods.
B) a tax imposed on exported goods.
C) a tax imposed on imported goods.
D) an encouragement to worldwide specialization and division of labour.
E) a quota imposed on imported goods.

Question 50

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical. FIGURE 34- 4
Refer to Figure 34- 4. Suppose there is free trade in bicycles and the world price is $200. If Canada then imposes a 50- percent import tariff on bicycles, domestic consumption will

A) increase by 30 000.
B) increase by 20 000.
C) decrease by 10 000.
D) increase by 10 000.
E) decrease by 20 000.

Question 51

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical. FIGURE 34- 4
Refer to Figure 34- 4. Suppose the world price of bicycles is $200 and Canada has in place a
50- percent tariff on this good. The deadweight loss to the Canadian economy resulting from this tariff is per year.

A) $0.5 million
B) $1.5 million
C) $0
D) $2.0 million
E) $1.0 million

Question 52

A $1 per- litre tariff on all wine imported into Canada will

A) protect the production of low- quality wines more than high- quality wines.
B) protect the production of high- quality wines more than low- quality wines.
C) provide no protection at all to the Canadian wine industry.
D) create an incentive to produce better quality wines.
E) equally protect the production of all Canadian wines.

Question 53

The effect of imposing a tariff on a specific imported good is to the domestic price of the good and the domestic production of the good.

A) decrease; increase
B) increase; decrease
C) decrease; to leave unaffected
D) decrease; decrease
E) increase; increase

Question 54

Many people argue that the imposition of tariffs in industry X will increase factor incomes in that industry and therefore be good for the country as a whole. The counter- argument is that

A) factor incomes overall would increase, but wages in industry X would fall, which would hurt workers in that industry.
B) the increase in factor incomes would increase unemployment.
C) the increase in factor incomes in industry X would reduce profits to business owners by an equal amount.
D) the increase in industry X factor incomes would be more than offset by reductions in real incomes to all other domestic residents.
E) factor incomes would first rise and then decrease in industry X.

Question 55

Consider the following statement: "With unemployment at its highest level in years, Canada needs to protect domestic jobs by promoting a "Buy Canadian" policy." This statement is _ because _ .

A) incorrect; it will work against Canada's pattern of absolute advantage
B) correct; it recognizes that such a policy can sustain high levels of domestic employment
C) incorrect; it confuses the real and nominal gains from trade
D) correct; a "Buy Canadian" policy will take advantage of Canada's comparative advantage
E) incorrect; it fails to recognize that imports of foreign goods also help to encourage the export of domestic goods

Question 56

A country can impose a tariff to improve its own terms of trade if it

A) imports mostly primary products.
B) produces and exports a large fraction of the world's supply of some commodity.
C) constitutes a large fraction of the world demand for some commodity that it imports.
D) has a significant trade surplus.
E) has a high level of industrial diversification.

Question 57

Mercosur is

A) the location of the WTO headquarters.
B) the location of the last GATT round of negotiations.
C) the first president of the World Trade Organization (WTO).
D) a customs union between Argentina, Brazil, Paraguay, and Uruguay.
E) a new trade agreement between the countries of Mexico, Canada, and Cuba.

Question 58

A common argument for the use of tariffs when the objective is to maximize a country's national income would be to

A) subject infant industries to the discipline of the market.
B) improve the country's terms of trade.
C) increase the prices of domestic exports.
D) prevent learning- by- doing by potential trade partners.
E) enjoy the advantages of diversification.

Question 59

The imposition of a tariff on an imported good causes consumer surplus

A) and producer surplus both to increase.
B) remain the same but decreases the producer surplus.
C) and producer surplus both to decrease.
D) to increase and producer surplus to decrease.
E) to decrease and producer surplus to increase.

Question 60

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical. FIGURE 34- 3
Refer to Figure 34- 3. If Canada imposes a tariff of $t per cotton towel, Canadian towel producers' revenues will be equal to the amount

A) A + B + E + F + G.
B) A + B + C + D.
C) A + B + C + E + F + G + H.
D) E + F + G.
E) E + F + G + H.

Question 61

Consider the following statement: "Without a doubt, free trade improves the lives of every Canadian citizen." This statement is because .

A) incorrect; it fails to recognize that the movement to free trade involves both winners and losers
B) correct; because Canada has long been a successful trading nation
C) correct; it is consistent with the idea of comparative advantage
D) correct; there are no net costs associated with the movement to free trade
E) incorrect; we do not know much about the benefits of free trade

Question 62

The effect of the imposition of a new tariff is to domestic production of the commodity and the domestic consumption of the commodity.

A) leave unaffected; decrease
B) increase; increase
C) increase; decrease
D) leave unaffected; decrease
E) decrease; increase

Question 63

When a country chooses to protect domestic industries from foreign competition, it will incur a cost in the form of

A) lower material living standards.
B) the loss of those protected industries.
C) the loss of jobs in the protected industries.
D) higher unemployment.
E) the loss of revenue from tariffs.

Question 64

A country that implements a voluntary export restriction (VER)

A) sets a countervailing duty.
B) agrees to limit the amount of a commodity it sells to another country.
C) sets a tariff to raise the price of an imported commodity.
D) employs the "escape clause".
E) sets a maximum on the quantity of some commodity that it may import each year.

Question 65

If wages in Mexico are lower than those in Canada,

A) Canadian consumers will benefit by purchasing some low- cost goods from Mexico.
B) Mexico may have a comparative advantage in all products.
C) Canada may have a comparative advantage in all products.
D) Mexico probably has an absolute advantage in all products due to its low labour costs.
E) Canadian living standards can be raised by imposing tariffs on imports from Mexico.

Question 66

If Canada, a small country in global markets, imposes a 10 percent tariff on a specific commodity, we would expect to observe

A) an increase in the quantity imported of the commodity.
B) an upward shift in the commodity's demand curve.
C) a decrease in the price paid by Canadian consumers.
D) a reduction in the production of the commodity in Canada.
E) an increase in the price paid by Canadian consumers.

Question 67

Which of the following policy objectives can sometimes lead a government of a small economy to rationally oppose free trade?

A) to protect against low- wage labour from abroad
B) to raise average living standards
C) to maximize national income
D) to diversify production in the domestic economy
E) to prevent domestic currency from going abroad

Question 68

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical. FIGURE 34- 4
Refer to Figure 34- 4. Assume there is free trade in bicycles. If the world price of bicycles is $500, domestic consumption is at a price of _ _.

A) 40 000; $500
B) 50 000; $300
C) 40 000; $400
D) 30 000; $300
E) 30 000; $500

Question 69

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical. FIGURE 34- 3
Refer to Figure 34- 3. If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2 ), then domestic towel producers' revenues will be equal to the area

A) E + F + G + H.
B) A + B + C + D.
C) E + F + G.
D) A + B + C + E + F + G + H.
E) A + B + E + F + G.

Question 70

Continued tariff protection for industries that have already attained all potential economies of scale and possibilities for learning by doing is likely to

A) increase employment in the protected industries.
B) reduce average real income for the country's residents.
C) decrease prices to consumers of the products produced in the protected industries.
D) redistribute income away from the factors used in the protected industries.
E) both A and B are correct.

Question 71

An agreement among a group of countries to eliminate trade barriers among themselves, to present a common trading front to the rest of the world in terms of common barriers to trade, and to permit free movement of factors of production among member countries is called a

A) common market.
B) reciprocity association.
C) free- trade area.
D) confederation.
E) customs union.

Question 72

The diagram below shows the demand and supply curves for refrigerators in Canada. FIGURE 34- 1
Refer to Figure 34- 1. If we compare the effect of an import tariff with the effect of an import quota, both of which cause the Canadian price to increase by the same amount, the major difference between the two policies is:

A) the quota does not directly reduce the quantity whereas the tariff does.
B) the tariff does not directly affect the price consumers pay whereas the quota does.
C) the tariff directly affects the price consumers pay whereas the quota has neither direct nor indirect price effects.
D) the tariff raises revenue for the protected producers whereas the quota benefits the government.
E) the tariff raises revenue for the government whereas the quota benefits foreign producers.

Question 73

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical. FIGURE 34- 4
Refer to Figure 34- 4. Assume there is free trade in bicycles. If the world price of bicycles is $200, domestic consumption is and domestic production is .

A) 30 000; 50 000
B) 20 000; 60 000
C) 50 000; 30 000
D) 60 000; 20 000
E) 40 000; 40 000

Question 74

Canada and the United States had a prolonged dispute about alleged government subsidies to the softwood lumber industry in Canada. Who loses and who gains from the situation in which Canadian governments impose taxes on Canadian exports of softwood lumber to the United States?

A) U.S. producers of lumber lose and U.S. users of lumber gain.
B) U.S. users of lumber gain and U.S. producers of lumber gain.
C) Canadian users of lumber lose and Canadian producers of lumber gain.
D) U.S. users of lumber lose and U.S. producers of lumber gain.
E) Canadian users of lumber lose and U.S. producers of lumber lose.

Question 75

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical. FIGURE 34- 3
Refer to Figure 34- 3. If Canada imposes a tariff of $t per cotton towel, the Canadian government's tariff revenues will be equal to the area

A) C + H.
B) C .
C) B + C + D.
D) A + B + C + D.
E) A + B + C.

Question 76

An agreement among a group of countries to eliminate trade barriers among themselves, to present a common trading front to the rest of the world in terms of common tariffs, but which does not permit free movement of factors of production among member countries, is called a

A) free- trade area.
B) reciprocity association.
C) common market.
D) customs union.
E) confederation.

Question 77

The diagram below shows supply and demand curves for bicycles in the domestic Canadian market. Assume that all bicycles are identical. FIGURE 34- 4
Refer to Figure 34- 4. Suppose the world price of bicycles is $200 and Canada has in place a
50- percent import tariff on this good. The Canadian government will collect tariff revenue in the amount of _ _ per year.

A) $1.5 million
B) $0.5 million
C) $2.5 million
D) $1.0 million
E) $2.0 million

Question 78

For most products, Canada is a small economy with no market power in the global market. If Canada imposed a tariff on imported goods from a low- wage foreign country, this would

A) reduce the advantages of specialization and trade.
B) increase national income in the low- wage country.
C) equalize the costs of production between the two countries.
D) reduce the price of the imported good in Canada.
E) increase the income of the foreign producer.

Question 79

Assume Canada is trading with a country that has lower costs of production for some good and can therefore sell that good at a lower price. If Canada imposes a tariff large enough to equalize the foreign country's price with ours, then

A) Canada would gain absolute advantage.
B) this tariff will eliminate exploitation of Canadian markets.
C) a "level playing field" will be created.
D) all Canadians would realize an increase in their standard of living.
E) the gains from international specialization would be reduced.

Question 80

The diagram below shows the domestic demand and supply curves for denim jeans in Canada. The prevailing world price is PW. Assume that all jeans are identical. FIGURE 34- 2
Refer to Figure 34- 2. If Canada initially has no tariff on denim jeans but then imposes a tariff of $t per pair of jeans, Canada's imports will

A) decrease from (Q5 - Q3) to (Q4 - Q2).
B) decrease from (Q5 - Q1) to (Q4 - Q2).
C) increase from (Q4 - Q2) to (Q5 - Q1).
D) increase from (Q4 - Q2) to (Q5 - Q3).
E) decrease from(Q5 - Q3) to (Q3 - Q1).