Deck 4: Tariffs

Question 1

Tariffs are $\underline { \text { not } }$ defended on the ground that they:

A) Improve the terms of trade of foreign nations
B) Protect jobs and reduce unemployment
C) Promote growth and development of young industries
D) Prevent overdependence of a country on only a few industries

Answer 1

Improve the terms of trade of foreign nations

Question 2

A beggar-thy-neighbor policy is the imposition of:

A) Free trade to increase domestic productivity
B) Trade barriers to increase domestic demand and employment
C) Import tariffs to curb domestic inflation
D) Revenue tariffs to make products cheaper for domestic consumers

Answer 2

B

Question 3

A $100 specific tariff provides home producers $\underline { \text { more } }$ protection from foreign competition when:

A) The home market buys cheaper products rather than expensive products
B) It is applied to a commodity with many grade variations
C) The home demand for a good is elastic with respect to price changes
D) It is levied on manufactured goods rather than primary products

Answer 3

The home market buys cheaper products rather than expensive products

Question 4

Assume the United States adopts a tariff quota on steel in which the quota is set at 2 million tons, the within-quota tariff rate equals 5 percent, and the over-quota tariff rate equals 10 percent. Suppose the U.S. imports 1 million tons of steel. The resulting revenue effect of the tariff quota would accrue to:

A) The U.S. government only
B) U.S. importing companies only
C) Foreign exporting companies only
D) The U.S. government and either U.S. importers or foreign exporters

Question 5

The principal benefit of tariff protection goes to:

A) Domestic consumers of the good produced
B) Domestic producers of the good produced
C) Foreign producers of the good produced
D) Foreign consumers of the good produced

Question 6

Which of the following is a fixed percentage of the value of an imported product as it enters the country?

A) Specific tariff
B) Ad valorem tariff
C) Nominal tariff
D) Effective tariff

Question 7

A problem encountered when implementing an "infant industry" tariff is that:

A) Domestic consumers will purchase the foreign good regardless of the tariff
B) Political pressure may prevent the tariff's removal when the industry matures
C) Most industries require tariff protection when they are mature
D) Labor unions will capture the protective effect in higher wages

Question 8

When a government allows raw materials and other intermediate products to enter a country $\underline { \text { duty free } }$ , its tariff policy generally results in a:

A) Effective tariff rate less than the nominal tariff rate
B) Nominal tariff rate less than the effective tariff rate
C) Rise in both nominal and effective tariff rates
D) Fall in both nominal and effective tariff rates

Question 9

When the production of a commodity does $\underline { \text { not } }$ utilize imported inputs, the effective tariff rate on the commodity:

A) Exceeds the nominal tariff rate on the commodity
B) Equals the nominal tariff rate on the commodity
C) Is less than the nominal tariff rate on the commodity
D) None of the above

Question 10

Which of the following is $\underline { \text { true } }$ concerning a specific tariff?

A) It is exclusively used by the U.S. in its tariff schedules.
B) It refers to a flat percentage duty applied to a good's market value.
C) It is plagued by problems associated with assessing import product values.
D) It affords less protection to home producers during eras of rising prices.

Question 11

A $\underline { \text { lower } }$ tariff on imported aluminum would most likely benefit:

A) Foreign producers at the expense of domestic consumers
B) Domestic manufacturers of aluminum
C) Domestic consumers of aluminum
D) Workers in the domestic aluminum industry

Question 12

Of the many arguments in favor of tariffs, the one that has enjoyed the $\underline {\text { most } }$ significant economic justification has been the:

A) Infant industry argument
B) Cheap foreign labor argument
C) Balance of payments argument
D) Domestic living standard argument

Question 13

The imposition of tariffs on imports results in deadweight welfare losses for the home economy. These losses consist of the:

A) Protective effect plus consumption effect
B) Redistribution effect plus revenue effect
C) Revenue effect plus protective effect
D) Consumption effect plus redistribution effect

Question 14

Which of the following policies permits a specified quantity of goods to be imported at one tariff rate and applies a higher tariff rate to imports above this quantity?

A) Tariff quota
B) Import tariff
C) Specific tariff
D) Ad valorem tariff

Question 15

Suppose that the United States $\underline { \text { eliminates } }$ its tariff on steel imports, permitting foreign-produced steel to enter the U.S. market. Steel prices to U.S. consumers would be expected to:

A) Increase, and the foreign demand for U.S. exports would increase
B) Decrease, and the foreign demand for U.S. exports would increase
C) Increase, and the foreign demand for U.S. exports would decrease
D) Decrease, and the foreign demand for U.S. exports would decrease

Question 16

Should Canada impose a tariff on imports, one would expect Canada's:

A) Terms of trade to improve and volume of trade to decrease
B) Terms of trade to worsen and volume of trade to decrease
C) Terms of trade to improve and volume of trade to increase
D) Terms of trade to worsen and volume of trade to increase

Question 17

Developing nations often maintain that industrial countries permit raw materials to be imported at very low tariff rates while maintaining high tariff rates on manufactured imports. Which of the following refers to the above statement?

A) Tariff-quota effect
B) Nominal tariff effect
C) Tariff escalation effect
D) Protective tariff effect

Question 18

The deadweight loss of a tariff:

A) Is a social loss since it promotes inefficient production
B) Is a social loss since it reduces the revenue for the government
C) Is not a social loss because society as a whole doesn't pay for the loss
D) Is not a social loss since only business firms suffer revenue losses

Question 19

The redistribution effect of an import tariff is the transfer of income from the domestic:

A) Producers to domestic buyers of the good
B) Buyers to domestic producers of the good
C) Buyers to the domestic government
D) Government to the domestic buyers

Question 20

Should the home country be "large" relative to the world, its imposition of a tariff on imports would lead to an increase in domestic welfare if the terms-of-trade effect $\underline { \text { exceeds } }$ the sum of the:

A) Revenue effect plus redistribution effect
B) Protective effect plus revenue effect
C) Consumption effect plus redistribution effect
D) Protective effect plus consumption effect

Question 21

If I purchase a stereo from South Korea, I obtain the stereo and South Korea obtains the dollars. But if I purchase a stereo produced in the United States, I obtain the stereo and the dollars remain in America. This line of reasoning is:

A) Valid for stereos, but not for most products imported by the United States
B) Valid for most products imported by the United States, but not for stereos
C) Deceptive since Koreans eventually spend the dollars on U.S. goods
D) Deceptive since the dollars spent on a stereo built in the United States eventually wind up overseas

Question 22

Free traders point out that:

A) There is usually an efficiency gain from having tariffs
B) There is usually an efficiency loss from having tariffs
C) Producers lose from tariffs at the expense of consumers
D) Producers lose from tariffs at the expense of the government

Question 23

A tax of 20 cents per unit of imported cheese would be an example of:

A) Compound tariff
B) Effective tariff
C) Ad valorem tariff
D) Specific tariff

Question 24

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

According to Figure 4.1, the loss in Mexican consumer surplus due to the tariff equals:

A) $225
B) $265
C) $285
D) $325

Question 25

A tax of 15 percent per imported item would be an example of:

A) Ad valorem tariff
B) Specific tariff
C) Effective tariff
D) Compound tariff

Question 26

A decrease in the import tariff will result in:

A) An increase in imports but a decrease in domestic production
B) A decrease in imports but an increase in domestic production
C) An increase in price but a decrease in quantity purchased
D) A decrease in price and a decrease in quantity purchased

Question 27

The most vocal political pressure for tariffs is generally made by:

A) Consumers lobbying for export tariffs
B) Consumers lobbying for import tariffs
C) Producers lobbying for export tariffs
D) Producers lobbying for import tariffs

Question 28

Which type of tariff is not used by the American government?

A) Import tariff
B) Export tariff
C) Specific tariff
D) Ad valorem tariff

Question 29

If we consider the impact on both consumers and producers, then protection of the steel industry is:

A) In the interest of the United States as a whole, but not in the interest of the state of Pennsylvania
B) In the interest of the United States as a whole and in the interest of the state of Pennsylvania
C) Not in the interest of the United States as a whole, but it might be in the interest of the state of Pennsylvania
D) Not in the interest of the United States as a whole, nor in the interest of the state of Pennsylvania

Question 30

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

Consider Figure 4.1. With free trade, the total value of Mexico's imports equal:

A) $220
B) $260
C) $290
D) $300

Question 31

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

Consider Figure 4.1. With a per-unit tariff of $3, the quantity of imports decreases to:

A) 20 calculators
B) 40 calculators
C) 50 calculators
D) 70 calculators

Question 32

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

Consider Figure 4.1. With free trade, Mexico's producer surplus and consumer surplus respectively equal:

A) $5, $605
B) $25, $380
C) $45, $250
D) $85, $195

Question 33

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

Consider Figure 4.1. With free trade, Mexico imports:

A) 40 calculators
B) 60 calculators
C) 80 calculators
D) 100 calculators

Question 34

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

Consider Figure 4.1. In the absence of trade, Mexico's producer surplus and consumer surplus respectively equal:

A) $120, $240
B) $180, $180
C) $180, $320
D) $240, $240

Question 35

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

According to Figure 4.1, Mexican manufacturers gain ____ because of the tariff.

A) $75
B) $85
C) $95
D) $105

Question 36

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

According to Figure 4.1, the tariff results in the Mexican government collecting:

A) $100
B) $120
C) $140
D) $160

Question 37

Which trade policy results in the government levying a "two-tier" tariff on imported goods?

A) Tariff quota
B) Nominal tariff
C) Effective tariff
D) Revenue tariff

Question 38

If we consider the interests of both consumers and producers, then a policy of tariff reduction in the U.S. auto industry is:

A) In the interest of the United States as a whole, but not in the interest of auto-producing states
B) In the interest of the United States as a whole, and in the interest of auto-producing states
C) Not in the interest of the United States as a whole, nor in the interest of auto-producing states
D) Not in the interest of the United States as a whole, but is in the interest of auto-producing states

Question 39

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

According to Figure 4.1, the deadweight cost of the tariff totals:

A) $60
B) $70
C) $80
D) $90

Question 40

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

Consider Figure 4.1. In the absence of trade, Mexico produces and consumes:

A) 10 calculators
B) 40 calculators
C) 60 calculators
D) 80 calculators

Question 41

Table 4.1. Production Costs and Prices of Imported and Domestic VCRs

Consider Table 4.1. Prior to the tariff, the total price of domestically-produced VCRs is:

A) $150
B) $200
C) $225
D) $250

Question 42

Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by D_U.S. and S_U.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by S_U.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country

According to Figure 4.2, the tariff's terms-of-trade effect equals:

A) $300
B) $400
C) $500
D) $600

Question 43

Suppose that the production of a $30,000 automobile in Canada requires $10,000 worth of steel. The Canadian nominal tariff rates for importing these goods are 25 percent for automobiles and 10 percent for steel. Given this information, the effective rate of protection for the Canadian automobile industry is approximately:

A) 15 percent
B) 32 percent
C) 48 percent
D) 67 percent

Question 44

Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by D_U.S. and S_U.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by S_U.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country

Consider Figure 4.2. Of the $100 tariff, $____ is passed on to the U.S. consumer via a higher price, while $____ is borne by the foreign exporter; the U.S. terms of trade:

A) $25, $75, improve
B) $25, $75, worsen
C) $75, $25, improve
D) $75, $25, worsen

Question 45

Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by D_U.S. and S_U.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by S_U.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country

Referring to Figure 4.2, the tariff's deadweight welfare loss to the United States totals:

A) $450
B) $550
C) $650
D) $750

Question 46

Table 4.1. Production Costs and Prices of Imported and Domestic VCRs

Consider Table 4.1. Prior to the tariff, domestic value added equals:

A) $25
B) $50
C) $75
D) $100

Question 47

Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by D_U.S. and S_U.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by S_U.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country

Consider Figure 4.2. With free trade, the United States achieves market equilibrium at a price of $____. At this price, ____ tons of steel are produced by U.S. firms, ____ tons are bought by U.S. buyers, and ____ tons are imported.

A) $450, 5 tons, 60 tons, 55 tons
B) $475, 10 tons, 50 tons, 40 tons
C) $525, 5 tons, 60 tons, 55 tons
D) $630, 30 tons, 30 tons, 0 tons

Question 48

Table 4.1. Production Costs and Prices of Imported and Domestic VCRs

Consider Table 4.1. After the tariff, domestic value added equals:

A) $25
B) $50
C) $75
D) $100

Question 49

Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by D_U.S. and S_U.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by S_U.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country

According to Figure 4.2, the tariff leads to the overall welfare of the United States:

A) Rising by $250
B) Rising by $500
C) Falling by $250
D) Falling by $500

Question 50

Suppose an importer of steel is required to pay a tariff of $20 per ton plus 5 percent of the value of steel. This is an example of a (an):

A) Specific tariff
B) Ad valorem tariff
C) Compound tariff
D) Tariff quota

Question 51

Table 4.1. Production Costs and Prices of Imported and Domestic VCRs

Consider Table 4.1. The effective tariff rate equals:

A) 11.1 percent
B) 16.7 percent
C) 50.0 percent
D) 100.0 percent

Question 52

Table 4.1. Production Costs and Prices of Imported and Domestic VCRs

Consider Table 4.1. The nominal tariff rate on imported VCRs equals:

A) 11.1 percent
B) 12.5 percent
C) 16.7 percent
D) 50.0 percent

Question 53

Table 4.1. Production Costs and Prices of Imported and Domestic VCRs

Consider Table 4.1. Prior to the tariff, the total price of imported VCRs is:

A) $150
B) $200
C) $225
D) $235

Question 54

Exhibit 4.1
Assume that the United States imports automobiles from South Korea at a price of $20,000 per vehicle and that these vehicles are subject to an import tariff of 20 percent. Also assume that U.S. components are used in the vehicles assembled by South Korea and that these components have a value of $10,000.
Refer to Exhibit 4.1. In the absence of the Offshore Assembly Provision of U.S. tariff policy, the price of an imported vehicle to the U.S. consumer after the tariff has been levied is:

A) $22,000
B) $23,000
C) $24,000
D) $25,000

Question 55

If the domestic value added before an import tariff for a product is $500 and the domestic value added after the tariff is $550, the effective rate of protection is:

A) 5 percent
B) 8 percent
C) 10 percent
D) 15 percent

Question 56

Suppose that the production of $500,000 worth of steel in the United States requires $100,000 worth of iron ore. The U.S. nominal tariff rates for importing these goods are 15 percent for steel and 5 percent for iron ore. Given this information, the effective rate of protection for the U.S. steel industry is approximately:

A) 6 percent
B) 12 percent
C) 18 percent
D) 24 percent

Question 57

A compound tariff is a combination of a (an):

A) Tariff quota and a two-tier tariff
B) Revenue tariff and a protective tariff
C) Import tariff and an export tariff
D) Specific tariff and an ad valorem tariff

Question 58

Exhibit 4.1
Assume that the United States imports automobiles from South Korea at a price of $20,000 per vehicle and that these vehicles are subject to an import tariff of 20 percent. Also assume that U.S. components are used in the vehicles assembled by South Korea and that these components have a value of $10,000.
Refer to Exhibit 4.1. Under the Offshore Assembly Provision of U.S. tariff policy, the price of an imported vehicle to the U.S. consumer after the tariff has been levied is:

A) $22,000
B) $23,000
C) $24,000
D) $25,000

Question 59

Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by D_U.S. and S_U.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by S_U.S.+W.
Figure 4.2. Import Tariff Levied by a "Large" Country

Consider Figure 4.2. Suppose the United States imposes a tariff of $100 on each ton of steel imported. With the tariff, the price of steel rises to $____ and imports fall to ____ tons.

A) $550, 20 tons
B) $550, 30 tons
C) $575, 20 tons
D) $575, 30 tons

Question 60

Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small" nation that is unable to affect the world price.
Figure 4.1. Import Tariff Levied by a "Small" Country

Consider Figure 4.1. The tariff would be prohibitive (i.e., eliminate imports) if it equaled:

A) $2
B) $3
C) $4
D) $5

Question 61

During a business recession, when cheaper products are purchased, a specific tariff provides domestic producers a greater amount of protection against import-competing goods.

Question 62

With a compound tariff, a domestic importer of an automobile might be required to pay a duty of $200 plus 4 percent of the value of the automobile.

Question 63

A ad valorem tariff provides domestic producers a declining degree of protection against import-competing goods during periods of changing prices.

Question 64

To protect domestic producers from foreign competition, the U.S. government levies both import tariffs and export tariffs.

Question 65

When material inputs enter a country at a very low duty while the final imported product is protected by a high duty, the result tends to be a high rate of protection for domestic producers of the final product.

Question 66

With a compound duty, its "specific" portion neutralizes the cost disadvantage of domestic manufacturers that results from tariff protection granted to domestic suppliers of raw materials, and the "ad valorem" portion of the duty grants protection to the finished-goods industry.

Question 67

The offshore assembly provision in the U.S.

A) Provides favorable treatment to U.S. trading partners
B) Discriminates against primary product importers
C) Provides favorable treatment to products assembled abroad from U.S. manufactured components
D) Hurts the U.S. consumer

Question 68

For the United States, a foreign trade zone (FTZ) is

A) A site within the United States
B) A site outside the United States
C) Always located in poorer developing countries
D) Is used to discourage trade

Question 69

Figure 4.4 Market for Gasoline in a Small Nation

Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is $3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in consumer surplus would be

A) $15
B) $12.50
C) $27.50
D) $57.50

Question 70

Figure 4.3 Domestic Market for Gasoline in the United States

Figure 4.3 represents the domestic market for gasoline in the United States. What is the producer surplus in this market?

A) 60 gallons of gasoline
B) $120
C) $60
D) $3

Question 71

Figure 4.3 Domestic Market for Gasoline in the United States

Figure 4.3 represents the domestic market for gasoline in the United States. What is the consumer surplus in this market?

A) 60 gallons of gasoline
B) $120
C) $60
D) $3

Question 72

When a tariff on imported inputs exceeds that on the finished good,

A) The nominal tariff rate on the finished product would tend to overstate its protective effect
B) The nominal tariff rate would tend to understate it's protective effect
C) It is impossible to determine the protective effect of a tariff
D) Tariff escalation occurs

Question 73

Figure 4.4 Market for Gasoline in a Small Nation

Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is $3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in producer surplus would be

A) $15
B) $12.5
C) $47.50
D) $57.50

Question 74

Figure 4.4 Market for Gasoline in a Small Nation

Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is $3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in producer surplus would be

A) area a + b
B) area a
C) area a + b + f
D) area a + b + f + g + h

Question 75

According to the tariff escalation effect, industrial countries apply low tariffs to imports of finished goods and high tariffs to imports of raw materials.

Question 76

Figure 4.4 Market for Gasoline in a Small Nation

Figure 4.4 represents the market for gasoline in a small nation. The free trade world price of gasoline is $3.50. Suppose this small nation imposes a tariff on gasoline of $.50 per gallon. The change in consumer surplus would be

A) area a + b
B) area a
C) area a + b + c + d + e
D) area a + b + f + g + h

Question 77

The nominal tariff rate signifies the total increase in domestic productive activities compared to what would occur under free-trade conditions.

Question 78

Under the Offshore Assembly Provision of U.S. tariff policy, U.S. import duties apply only to the value added in the foreign assembly process, provided that U.S.-made components are used by overseas companies in their assembly operations.

Question 79

Arguments for U.S. trade restrictions include all of the following except

A) Job protection
B) Infant industry support
C) Maintenance of domestic living standard
D) Improving incomes for developing countries

Question 80

With a specific tariff, the degree of protection afforded domestic producers varies directly with changes in import prices.