Deck 13: The Instruments of Trade Policy

Question 1

Industries with the highest level of nominal tariff rates on their competing imports do not necessarily receive the greatest incentive to expand domestic production. Explain why this is so and how you might go about arriving at a more revealing measure of tariff-based incentives for expanding production.

Answer 1

not answered

Question 2

Which of the following is NOT an example of a nontariff barrier to the free flow of goods and services in accordance with comparative advantage?

A) import quotas
B) government procurement provisions that favor home products
C) specific duty of $1.00 per unit on each imported item
D) voluntary export quotas (VERs)

Answer 2

C

Question 3

Suppose that a country's nominal tariff rate on imports of good X is 20% and that the country's nominal tariff rate on good A [a raw material and the only input (an imported input) used in making good X] is 5%. In this situation, the Effective Rate of Protection (ERP or "effective tariff rate") for the country's domestic X industry will be __________, and this type of escalated tariff structure __________ the type of tariff structures that high-income, developed countries actually have in place on goods imported from low-income, developing countries.

A) less than 20%; characterizes
B) less than 20%; does not characterize
C) greater than 20%; characterizes
D) greater than 20%; does not characterize

Answer 3

C

Question 4

The situation in the United States (and other developed countries) whereby an import Good faces a lower tariff if the good comes from a developing country than if the good Comes from a developed country is known as __________.

A) GSP treatment
B) MFN (or NTR) treatment
C) OAP treatment
D) ERP treatment

Question 5

Suppose that the nominal tariff rate on final good X is 8 percent and that the weighted average of the nominal tariff rates on the inputs used in producing good X is 12 percent. In this situation, the effective rate of protection (ERP) for final good industry X

A) must be greater than 12 percent.
B) must be between 8 percent and 12 percent.
C) must be less than 8 percent and greater than zero percent.
D) must be less than 8 percent and can be negative.

Question 6

Suppose that a country has a nominal tariff rate of 10 percent on good A and imports $100,000 of good A, has a nominal rate of 5 percent on good B and imports $120,000 of good B, has a nominal rate of 12 percent on good C and imports $80,000 worth of good C, and has a prohibitive tariff rate of 50 percent on good D. These are the only four goods in existence. Calculate the country's unweighted-average nominal rate and its weighted-average nominal rate. Explain in economic terms the relationship you have found between the unweighted- and weighted-average rates.

Question 7

(a) Suppose that a country has a nominal tariff rate of 10 percent on good A and imports $1,000 of good A, has a nominal rate of 5 percent on good B and imports $1,400 of good B, and has a nominal tariff rate of 15 percent on good C and imports $600 of good C.These are the only three goods in existence. Calculate the country's unweighted-average nominal tariff rate and its weighted-average nominal tariff rate. Explain in economic terms the relationship you have found between the two rates.
(b) Suppose that, for a country, the free trade price of good X is $1,000 and the free trade prices of the only two inputs (both of which are imported) to the production process of good X are $400 for good W and $200 for good Y. Assume that one unit each of good W and good Y is necessary for the production of one unit of good X. Suppose now that the country, which is a "small" country, introduces a tariff structure that imposes a 20 percent nominal tariff on good X, an 8 percent tariff on good W, and a 6% tariff on good Y. Calculate the Effective Rate of Protection (ERP), or "effective tariff rate," that this tariff structure provides to the domestic producers of good X. Explain the economic meaning of your result. For what purpose might the ERP of an industry be more useful to an economist than the nominal tariff rate on imports of the industry's product?

Question 8

Suppose that the free-trade offer curve of country I is drawn with country I's exports of good A on the horizontal axis and country I's imports of good B on the vertical axis. If country I now places an import quota of 100 units of good B, country I's offer curve

A) will have its normal free-trade appearance up to 100 units on the vertical axis and then will become a horizontal line back to the vertical axis.
B) will have its normal free-trade appearance up to 100 units on the horizontal axis and then will become a vertical line going upward and parallel to the vertical axis.
C) will shift to the left or vertically upward by 100 units at each level of exports of good A.
D) will shift to the right or vertically downward by 100 units at each level of exports of good A.

Question 9

An import quota specifies the __________ amount of a good that can be imported into a country; a step to becoming more protectionist would involve __________ in the quota.

A) maximum; a reduction
B) maximum; an enlargement
C) minimum; a reduction
D) minimum; an enlargement

Question 10

The 2012 U.S. MFN/normal trade relations tariff on men's knitted wool blazers was 38.6¢ per kilogram of weight plus 10 percent of the value of the blazer. This is an example of __________.

A) a specific tariff
B) an ad valorem tariff
C) a combination of a specific tariff and an ad valorem tariff
D) a nontariff barrier

Question 11

The United States now gives China permanent most-favored-nation (MFN) treatment [or Normal trade relations (NTR)]. This means that the tariff schedules applicable to U.S. Imports from China

A) have lower tariff rates than the rates applicable to other countries to which the United States grants permanent MFN treatment.
B) have the same tariff rates as the rates applicable to other countries to which the United States grants permanent MFN treatment.
C) have lower tariff rates than the rates applicable to any other country sending goods to The United States.
D) have tariff rates of zero percent.

Question 12

If offshore assembly provisions were extended to include more goods, what would this do to the actual level of protection provided by a country's nominal tariff schedule? Explain. If the extension of the provisions is made to final goods but not to intermediate goods, what would this do to the effective rate of protection (ERP) for the country provided by its tariff schedule? Explain.

Question 13

Given the following information for industry X in country A, and assuming that input Y Is imported, that one unit of Y is required for each one unit of X, and that country A is a "small" country:
$\begin{array}{lcc}&\text { free trade price }&\text {nominal tariff rate }\\\text { final product X } & \$ 120 & 10 \% \\\text { input Y (only input to X) } & \$ 80 & 15 \%\end{array}$

The "effective tariff rate" or "Effective Rate of Protection (ERP)" for industry X in Country A is __________ percent.

A) 0
B) 10
C) 12.5
D) 25

Question 14

Given the following information for industry X in country A, and assuming that at least some of input Y is imported, that one unit of Y is required for each unit of X, and that country A is a "small" country:
$\begin{array}{lcc}&\text { free trade price }&\text {nominal tariff rate }\\\text { final product X } & \$ 100 & 19 \% \\\text { input Y (only input to X) } & \$ 70 & 10 \%\end{array}$
The effective rate of protection (ERP) for industry X is __________ percent.

A) 9
B) 19
C) 30
D) 40

Question 15

Other things equal, which one of the following will cause an increase in the effective rate of protection (ERP) in the automobile industry?

A) a decrease in the nominal tariff rate on automobiles
B) an increase in the nominal tariff rates on imported inputs used in making automobiles
C) an increase in the world price of imported inputs used in making automobiles
D) a decrease in the nominal tariff rates on imported inputs used in making automobiles

Question 16

Suppose that a country's "unweighted-average (nominal) tariff rate" (call it "t_U") and "weighted-average (nominal) tariff rate" (call it "t_W") are calculated both with and without the inclusion of prohibitive tariffs, and that the country does in fact have some prohibitive tariffs. In this situation, the t_U that includes the prohibitive tariffs __________ the same as the t_U that excludes the prohibitive tariffs, and the t_W that includes the prohibitive tariffs __________ the same as the t_W that excludes the prohibitive tariffs.

A) would not be; would not be
B) would not be; would be
C) would be; would not be
D) would be; would be

Question 17

In general, a country's unweighted-average nominal tariff rate tends to be __________ than the country's weighted-average nominal tariff rate. The difference between the two would be __________ if the goods with the highest tariffs became imported relatively more heavily.

A) lower; smaller
B) lower; larger
C) higher; smaller
D) higher; larger

Question 18

Although a given set of tariff rates exists for a given country, not all of its trading partners necessarily face the same tariff rate structure. Discuss several reasons why this is the case.

Question 19

There is often heated debate over what qualifies as a nontariff barrier to trade and how large any trade-distorting effects of NTBs are. Why might this be so? Why do you suppose such debate is less common for tariffs?

Question 20

How would you go about calculating an "implicit" or "equivalent" nominal tariff rate on an imported good that faces a nontariff barrier such as an import quota? What difficulties would you encounter?

Question 21

Given the following information for industry X in country A, and assuming that input Y is imported, that one unit of Y is required for each unit of X, and that country A is a "small" country:
$\begin{array}{lcc}&\text { free trade price }&\text {nominal tariff rate }\\\text { final product X } & \$200 & 25 \% \\\text { input Y (only input to X) } & \$ 100 & 15 \%\end{array}$

The effective rate of protection (ERP) for industry X is __________ percent. However, if The nominal tariff rate on input Y is eliminated (i.e., the 15% rate become 0%), the ERP For industry X would become __________ percent.

A) 20; 25
B) 35; 50
C) 40; 50
D) 35; 25

Question 22

The use of the most-favored-nation (MFN) principle [or normal trade relations (NTR)] is an attempt to attain __________ toward competing suppliers of imports to a country. Hence, the arrangement whereby developed countries permit duty-free entry on some goods coming from developing countries but levy tariffs on the same goods if coming from other developed countries is __________ the MFN [or NTR] principle.

A) discrimination; a departure from
B) discrimination; an example of
C) nondiscrimination; a departure from
D) nondiscrimination; an example of

Question 23

Suppose that the offshore assembly provisions (OAP) of a country A are extended to a final good X that is imported as well as produced domestically. This action will most likely

A) stimulate production in country A of components to final good X.
B) stimulate production in country A of final good X.
C) raise the price of imports of final good X to consumers in country A.
D) cause foreign assemblers of final good X to use relatively more components of X that Are supplied by countries other than country A.

Question 24

Which one of the following is NOT an example of making a trade instrument more Restrictive against imports, other things equal?

A) a decrease in the size of an import quota
B) a shifting of an import good from an administrative classification category with a high Tariff to an administrative classification category with a low tariff
C) a withdrawal of GSP treatment for goods from a particular country
D) a denial of most-favored-nation (MFN) treatment to a country that previously received such treatment

Question 25

Suppose that the nominal tariff rate on final good X is 7 percent and that the weighted average of the nominal tariff rates on the inputs used in producing good X is 10 percent. In this situation, the effective rate of protection (ERP) for final good industry X

A) will be greater than 10 percent.
B) will be less than 10 percent but must be greater than 7 percent.
C) will be less than 7 percent but must be greater than 0 percent.
D) can be negative.

Question 26

Suppose that the nominal tariff rate on final good X is 10 percent and that the weighted average of the nominal tariff rates on the inputs used in producing good X is 6 percent. In this situation, the effective rate of protection (ERP) for final good industry X

A) will be greater than 10 percent.
B) will be greater than 6 percent but less than 10 percent.
C) will be less than 6 percent but greater than zero percent.
D) can be negative.

Question 27

Given the following information for industry X in country A, and assuming that input Y Is imported, that one unit of Y is required for each unit of X, and that country A is a "small" country:
$\begin{array}{lcc}&\text { free trade price }&\text {nominal tariff rate }\\\text { final product X } & \$ 100 & 20 \% \\\text { input Y (only input to X) } & \$ 80 & 15 \%\end{array}$


The effective rate of protection (ERP), or "effective tariff rate," for industry X is __________ percent. However, if the nominal tariff rate on input Y is eliminated (i)e., the 15% rate becomes 0%), the ERP for industry X would become __________ percent.

A) 17½; 25
B) 35; 25
C) 40; 20
D) 40; 100