Chapter 5 – Trade Restrictions: Tariffs
Multiple Choice
__________ constitute the regulations governing a nation’s international trade.
A)Tariff policies
B)Commercial policies
C)Non-tariff barriers
D)Globalization policies
Answer: B pg. 117
Since the restrictions and regulations that a nation imposes on international trade deal with the nation’s trade or commerce, they are generally known as _________________.
A)tariff policies
B)commercial policies
C)non-tariff barriers
D)globalization policies
Answer: B pg. 117
____________ have historically been the most important and most used type of trade restriction.
A)Quotas
B)Domestic content requirements
C)Import tariffs
D)Export tariffs
Answer: C pg. 117
A(n) __________ is a tax or duty levied on the traded commodity as it enters a nation.
A)ad valorem tariff
B)compound tariff
C)optimum tariff
D)import tariff
Answer: D pg .117
A(n) ____________ is a duty levied on a commodity as it leaves a nation and is transported to another nation..
A)specific tariff
B)import tariff
C)export tariff
D)ad valorem tariff
Answer: B pg. 117
A tax of 5% per unit of imported wine would be an example of a(n):
A)compound tariff
B)specific tariff
C)export tariff
D)ad valorem tariff
Answer: D pg. 117
What type of tariff is prohibited by the U.S. Constitution?
A)export tariff
B)ad valorem tariff
C)compound tariff
D)import tariff
Answer: A pg. 117
A tariff expressed as a fixed percentage of the value of a traded commodity is a(n):
A)export tariff
B)ad valorem tariff
C)compound tariff
D)import tariff
Answer: B pg. 117
The _______________ is expressed as a fixed sum per physical unit of the traded commodity.
A)ad valorem tariff
B)export tariff
C)specific tariff
D)compound tariff
Answer: C pg. 117
A tariff that is a combination of an ad valorem and a specific tariff is a(n):
A)import tariff
B)export tariff
C)compound tariff
D)optimum tariff
Answer: C pg. 117
A defining characteristic of a “small nation” relative to a “large nation” with respect to identifying the welfare effects of a tariff is that the:
A)small nation has less land mass than a large nation
B)small nation cannot influence world price of imported goods as much as a large nation can
C)small nation has a smaller trade deficit than the large nation
D)none of the above
Answer: B pg. 119
With free trade, the small nation will import all its commodities at what price level?
A)the world market price
B)the domestic price plus the compound tariff
C)the small nation’s autarky price
D)the large nation’s autarky price
Answer: A pg. 119
The reduction in domestic quantity demanded, and therefore reduction in consumer surplus, of a commodity resulting from the increase in its price due to a tariff is attributed to the:
A)production effect of a tariff
B)trade effect of a tariff
C)revenue effect of a tariff
D)consumption effect of a tariff
Answer: D pg. 119
The loss of surplus associated with the expansion of domestic production resulting from the tariff is attributed to the:
A)production effect of a tariff
B)terms of trade effect of a tariff
C)revenue effect of a tariff
D)consumption effect of a tariff
Answer: A pg. 120
Suppose, to produce $200,000 worth of finished cloth in the US, textile producers import $150,000 of raw materials. The raw materials are imported duty free. However, the US has imposed a 5% nominal tariff on imports of finished cloth. What is the effective rate of protection enjoyed by the domestic cloth producers in the US?
A)20%
B)10%
C)5%
D)6%
Answer: A pg. 129
The decline in import volumes as a result of the imposition of a tariff is attributed to the :
A)production effect of a tariff
B)trade effect of a tariff
C)revenue effect of a tariff
D)consumption effect of a tariff
Answer: B pg. 120
When a specific tariff is used instead of an ad valorem tariff:
A)higher priced goods enjoy a greater degree of protection than cheaper goods
B)domestic consumers are encouraged to purchase cheaper goods
C)cheaper goods enjoy a greater degree of protection than higher priced goods
D)domestic producers enjoy a greater degree of protection in periods of rising prices
Answer: C pg. 120
The revenue collected by the government as a result of an imposed tariff is attributed to the:
A)production effect of a tariff
B)trade effect of a tariff
C)revenue effect of a tariff
D)consumption effect of a tariff
Answer: C pg. 121
When a 10 percent tariff is imposed on commodity X, there is a(n) ____________ in consumer surplus and a(n) _________ in producer surplus.
A)decrease, increase
B)increase, decrease
C)decrease, decrease
D)increase, increase
Answer: A pg. 121
The difference between what consumers would be willing to pay for each unit of commodity and what they actually pay for that unit is called ____________.
A)producer surplus
B)consumer surplus
C)reservation price
D)import tariff
Answer: B pg. 122
Graphically, how is the consumer surplus measured?
A)the area above the demand curve
B)the area under the demand curve and above the market price
C)the area above the supply curve and below the market price
D)the area under the supply curve
Answer: B pg. 122
______________ represents payment that is made but not required in order for producers to be willing to supply a specific amount of a commodity to the market.
A)Producer surplus
B)Consumer surplus
C)Revenue effect
D)Import tariff
Answer: A pg. 122
The resulting increase in producer surplus made possible by the imposition of a tariff is often referred to as the:
A)tax effect of a tariff
B)revenue effect of a tariff
C)subsidy effect of a tariff
D)consumption effect of a tariff
Answer: C pg. 122
In a small nation, the portion of the loss in consumer surplus found by multiplying the tariff amount by the volume of imports is __________________.
A)Transferred to the foreign exporter of the good
B)earned by the producers
C)accrued by the government
D)not transferred to another party and therefore considered a loss to the nation.
Answer: C pg. 123
________________ refers to the real loss in a small nation’s welfare due to inefficiencies in production and distortions in consumption resulting from the imposition of a tariff.
A)Deadweight loss
B)Protection loss
C)Consumer loss
D)Economic loss
Answer: A pg. 124
The production component of the deadweight loss in a small nation arises with a tariff because
A)some domestic resources are transferred from the production of an import-competing commodity to the more efficient use in the production of an exportable good.
B)some domestic resources are transferred from a more efficient use to less efficient production of an importable commodity
C)domestic producers are unhappy with the imposition of the tariff, and therefore refuse to produce a higher level of output.
D)Domestic producers allocate fewer resources into the production of the import-competing good than they should based on their costs
Answer: B pg. 124
The consumption component of the deadweight loss in a small nation arises with a tariff because
A)the tariff causes consumers to consume less of the good than they normally would have without the tariff.
B)the tariff causes consumers to consume more of the good than they normally would have without the tariff.
C)consumers continue to consume the same quantity of the good as before the tariff, but they receive less utility than before the tariff
D)the marginal utility of the consumption of each good is less after the imposition of the tariff than before, resulting in a loss of consumer surplus
Answer: A pg. 124
A tariff redistributes income in a small nation from the _____________ to the _____________ of the commodity.
A)domestic producers, domestic consumers
B)government, domestic producers
C)domestic consumers, domestic producers
D)domestic consumers, government
Answer: C pg. 124
A defining characteristic of a “large nation” relative to a “small nation” with respect to identifying the welfare effects of a tariff is that the:
A)large nation is sufficiently powerful to influence the world market price of the imported commodity
B)large nation has a higher per capita income than the small nation
C)large nation is a monopsonist in the market for the imported commodity
D)large nation has a higher marginal rate of substitution for the imported commodity than the small nation
Answer: A pg. 124
The imposition of tariffs on imports results in deadweight losses for the home country. These losses consist of the:
A)Revenue effect and protective effect
B)Consumption effect and protective effect
C)Redistributive effect and consumption effect
D)Terms of trade effect and consumption effect
Answer: B pg. 124
In a large nation, who bears the burden of the import tariff?
A)domestic import-competing producers
B)foreign producers of the imported good
C)domestic consumers only
D)domestic consumers and foreign producers of the imported good
Answer: D pg. 124
The reduction in the price of the import commodity that results when a large nation imposes an import tariff is attributed to the ____________________ and constitutes a ________ of welfare for the nation.
A)consumption effect of the tariff, loss
B)terms of trade effect of the tariff, loss
C)protective effect, gain
D)terms of trade effect, gain
Answer: D pg. 127
The more _____________ the demand or supply curves of the imported commodity in the nation imposing the tariff, the more likely it is that a large nation will experience a net welfare gain from the tariff.
A)inelastic
B)elastic
C)linear
D)nonlinear
Answer: B pg. 127-128
When a large nation imposes an import tariff, the volume of trade will ___________, and the nation’s terms of trade will __________.
A)increase, improve
B)decline, deteriorate
C)decline, improve
D)increase, remain unchanged
Answer: C pg. 128
The effects attributed to the decline in the volume of trade in a large nation, considered independently of changes in terms of trade, will
A)reduce the nation’s welfare
B)increase the nation’s welfare
C)not change the nation’s welfare
D)have ambiguous outcomes with respect to gain or loss of welfare
Answer: A pg. 128
The change in welfare attributed to the terms of trade effect, when considered independently of changes in welfare associated with the decline in trade volume, will:
A)reduce the nation’s welfare
B)increase the nation’s welfare
C)not change the nation’s welfare
D)have ambiguous outcomes with respect to gain or loss of welfare
Answer: B pg. 128
The ______________ is the tariff that maximizes the positive difference between gains associated with improvement in terms of trade and the losses resulting from reduction in the volume of trade.
A)optimum tariff
B)prohibitive tariff
C)nominal tariff
D)absolute tariff
Answer: A pg. 128
A(n) _____________ is a tariff sufficiently high to stop all international trade so that the nation returns to autarky.
A)optimum tariff
B)prohibitive tariff
C)nominal tariff
D)ad valorem
Answer: B pg. 128
A(n) ______________ is a tariff calculated on the price of a final commodity.
A)optimum tariff
B)prohibitive tariff
C)nominal tariff
D)terms of trade effect on a tariff
Answer: C pg. 128
True/False
True or False? A quota is a tax imposed on a traded commodity when it crosses a national boundary.
Answer: False pg. 117
True or False? A specific tariff of $10 would provide the same level of protection for a $100 good as for a $200 good.
Answer: False pg. 117
True or False? A small nation is not large enough to affect the world price of the commodity it is importing
Answer: True pg. 119
True or False? Consumer surplus is the difference between what consumers are willing to pay for a commodity and the price they actually pay for the commodity.
Answer: True pg. 123
True or False? Graphically, consumer surplus is measured by the area between the supply curve and the market price.
Answer: False pg. 122
True or False? In a small nation, the revenue effect of a tariff accrues to the foreign producer of the imported good.
Answer: False pg. 121
True or False? The rate of effective protection is equal to the nominal tariff imposed on the imported product only if the domestic producer utilizes imported components in the production of the good.
Answer: False pg. 128
True or False? In industrialized nations, a lower tariff is often imposed on raw materials than the final commodity.
Answer: True pg. 128-129
True or False? The nominal tariff indicates how much the price of the final commodity decreases as a result of a tariff.
Answer: False pg. 129
True or False? The effective rate of protection of a tariff is important to producers because it indicates how much the domestic import-competing producer of the good can increase the value added portion of their final product.
Answer: True pg. 129
Essay
“Using international trade theory, we can unambiguously state that the imposition of a tariff imposes net losses to the imposing nation.” Is this statement true or false? Explain.
Answer: For a small nation, the tariff redistributes income from domestic consumers (who pay a higher price for the commodity) to domestic producers of the commodity (who receive the higher price). Also, the tariff redistributes the nation’s abundant factor (producing exportable) to the nation’s scare factor (producing importable). This process leads to inefficiencies, which is referred to as deadweight loss. Therefore, we can unambiguously state that a small nation loses welfare as the result of a tariff.
For a large nation, a tariff imposed by a large nation will have two parts. First, the tariff will fall on domestic consumers in the form of a higher price on the imported commodity. Secondly, the foreign producers will receive a lower price for the commodity, the reason being because the large nation is significant and leads to a reduction in the price that the foreign producers can charge for the commodity. The large nation may benefit from the tariff. If the large nation has a demand or supply curve that is elastic, they may have welfare gains from the tariff. Therefore, we cannot unambiguously state that the imposition of a tariff will harm a large nation.
Pg. 124-128
