Chapters 8&9 MC-Tariffs and trade policy PDF

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Chapters 8&9 MC-Tariffs and trade policy HAIDEH...

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Practice Multiple Choice Questions Chapt er s 8 and 9: The I ns t r ument s and t he Pol i t i cal economyofTr adePol i cy 1.

Specific tariffs are A. import taxes stated in specific legal statutes. B. import taxes calculated as a fixed charge for each unit of imported goods. C. import taxes calculated as a fraction of the value of the imported goods. D. the same as import quotas. E. None of the above. Answer: B

2.

Ad-valorem tariffs are A. import taxes stated in ads in industry publications. B. import taxes calculated as a fixed charge for each unit of imported goods. C. import taxes calculated as a fraction of the value of the imported goods. D. the same as import quotas E. None of the above. Answer: C

3. If a good is imported into (large) country H from country F, then the imposition of a tariff in country H A. raises the price of the good in both countries ("the "Law of One Price"). B. raises the price in country H and cannot affect its price in country F. C. lowers the price of the good in both countries. D. lowers the price of the good in H and could raise it in F. E. raises the price of the good in H and lowers it in F. Answer: E 4. If a good is imported into (small) country H from country F, then the imposition of a tariff In country H A. raises the price of the good in both countries ("the "Law of One Price"). B. raises the price in country H and cannot affect its price in country F. C. lowers the price of the good in both countries. D. lowers the price of the good in H and could raise it in F. E. raises the price of the good in H and lowers it in F. Answer: B

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5. If a small country imposes a tariff, then A. the producers must suffer a loss. B. the consumers must suffer a loss. C. the government revenue must suffer a loss. D. the demand curve must shift to the left. E. None of the above. Answer: B

6. The imposition of tariffs on imports results in deadweight (triangle) losses. These are A. production and consumption distortion effects. B. redistribution effects. C. revenue effects D. efficiency improvement effects. E. None of the above. Answer: A 7. Suppose the United States eliminates its tariff on ball bearings. Ball bearing prices in the United States would be expected to A. increase, and the volume of imports into the US to increase B. decrease, and the volume of imports into the US to increase. C. increase, and volume of imports into the US to decrease. D. decrease, and volume of imports into the US to decrease.

Answer: B

8. A lower tariff on imported steel would most likely benefit A. foreign producers at the expense of domestic consumers. B. domestic manufacturers of steel. C. domestic consumers of steel. D. workers in the steel industry. E. None of the above. Answer: C not A because if country is small then it wouldn’t change anything in the other country

9. Of the many arguments in favor of tariffs, the one that has enjoyed significant economic justification has been the A. cheap foreign labor argument. B. infant industry argument. C. even playing field argument. D. balance of payments argument 2

E.

domestic living standard argument.

Answer: B 10. The main redistribution effect of a tariff is the transfer of income from A. domestic producers to domestic buyers. B. domestic buyers to domestic producers. C. domestic producers to domestic government. D. domestic government to domestic consumers. E. None of the above. Answer: B 11. The principle benefit of tariff protection goes to A. domestic consumers of the good produced. B. foreign consumers of the good produced. C. domestic producers of the good produced. D. foreign producers of the good produced. E. None of the above. Answer: C

12. A problem encountered when implementing an "infant industry" tariff is that A. domestic consumers will purchase the foreign good regardless of the tariff. B. the industry may never "mature". C. most industries require tariff protection when they are mature. D. the tariff may hurt the industry's domestic sales. E. None of the above. Answer: B 13. Which of the following is a fixed percentage of the value of an imported product? A. Specific tariff B. Ad valorem tariff C. Nominal tariff D. Effective protection tariff E. None of the above. Answer: B 14. A tax of 20 cents per unit of imported garlic is an example of a(n) A. specific tariff. B. ad valorem tariff. C. nominal tariff. D. effective protection tariff. E. None of the above. 3

Answer: A 16.

A tax of 20 percent per unit value of imported garlic is an example of a(n) A. specific tariff. B. ad valorem tariff. C. nominal tariff. D. effective protection tariff. E. None of the above. F. Answer: B

3. The deadweight loss of a tariff A. is a social loss because it promotes inefficient use of national resources. B. is a social loss because it reduces the revenue of the government. C. is not a social loss because it merely redistributes revenue from one sector to another. D. is not a social loss because it is paid for by rich corporations. E. None of the above. Answer: A 15. Tariffs are not usually 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 over-dependence of a country on only a few industries. E. None of the above. Answer: A

16. The most vocal political pressure for tariffs is generally made by A. consumers lobbying for export tariffs. B. consumers lobbying for import tariffs. C. consumers lobbying for lower import tariffs. D. producers lobbying for export tariffs. E. producers lobbying for import tariffs. Answer: E 17. A policy of tariff reduction in the computer industry is A. in the interest of the United States as a whole and in the interest of computer producing regions of the country. B. in the interest of United States as a whole but not in the interest of computer producing regions of the country. C. not in the interest of the United States as a whole but in the interests of computer producing regions of the country. 4

D. E.

not in the interest of the United States as a whole and not in the interests of computer consumers. None of the above.

Answer: B 21. If a large country (U.S.) imposes a tariff on its imported good, this will tend to A. have no effect on terms of trade. B. improve the terms of trade of all countries. C. improve the terms of trade of the United States. D. cause a deterioration of U.S. terms of trade. E. raise the world price of the good imported by the United States. Answer: C 22. Protectionism in the U.S. and EU tends to be concentrated in two sectors: A. agriculture and clothing. B. high tech and national security sensitive industries. C. capital and skill intensive industries. D. industries concentrated in the South and in the Midwest of the country. E. None of the above. Answer: A 3. The World Trade Organization (WTO) was organized as a successor to the A. IMF. B. UN. C. UNCTAD. D. GATT. E. The World Bank. Answer: D 18. The WTO was established by the ____________of multilateral trade negotiations. A. Kennedy Round B. Tokyo Round C. Uruguay Round D. Dillon Round E. None of the above. Answer: C 19. The Smoot-Hawley Tariff Act of 1930 has generally been associated with A. falling tariffs. B. free trade. C. intensifying the worldwide depression. D. recovery from the worldwide depression 5

E.

Non-tariff barriers.

Answer: C 20. The strongest political pressure for a trade policy that results in higher protectionism comes from A. domestic workers lobbying for import restrictions. B. domestic workers lobbying for export restrictions. C. domestic workers lobbying for free trade. D. domestic consumers lobbying for export restrictions. E. domestic consumers lobbying for import restrictions. Answer: A 21. The efficiency case made for free trade is that as trade distortions such as tariffs are dismantled and removed, A. government tariff revenue will decrease, and therefore national economic welfare will decrease. B. government tariff revenue will decrease, and therefore national economic welfare will increase. C. deadweight losses for producers and consumers will decrease, hence increasing national economic welfare. D. deadweight losses for producers and consumers will decrease, hence decreasing national economic welfare. E. None of the above. Answer: C 22. The opportunity to exploit economies of scale is one of the gains to be made from removing tariffs and other trade distortions. These gains will be found by a decrease in A. B. C. D.

the consumption distortion loss triangle. the production distortion loss triangle. Both A. and B. None of the above.

Answer: D It is argued that special interest groups are likely to take over and promote protectionist policies, which may lead to an increase in national economic welfare. This argument leads to A. a presumption that in practice a free trade policy is likely to be better than alternatives. B. a presumption that trade policy should be shifted to Non-Governmental Organizations, so as to limit taxpayer burden. C. a presumption that free trade is generally a second-best policy, to be avoided if feasible alternatives are available. D. a presumption that free trade is the likely equilibrium solution if the government allows special interest groups to dictate its trade policy. E. None of the above. 6

Answer: A The existence of marginal social benefits which are not marginal benefits for the industry producing the import substitutes (a) is an argument supporting free trade and non-governmental involvement. (b) is an argument supporting the use of an optimum tariff. (c) is an argument supporting the use of market failures as a trade-policy strategy. (d) is an argument rejecting free trade and supporting governmental involvement. (e) None of the above. Answer: D Among all the reasons and excuses put forward by policy makers against free trade, the only acceptable argument by an economist is that of a market failure (no. 3 above). As trade and exchange go synonymously with markets, if a market fails to provide the socially efficient level of output and a true evaluation (price) for the product, then some form of government intervention is necessary.

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