Question 1

Suppose that the world price of kiwi fruit ($10 per box) is below the domestic price ($12 per box).A tariff of $1 per box would:

Accepted Answer

A) cause foreign producers to be better off,because the price they charge is now higher by $1 per box. 
B) cause domestic producers to be worse off by $5 per box. 
C) allow domestic consumers to enjoy kiwi fruit for $5 more per box than the free trade price,but still $2 less than the domestic price. 
D) allow domestic consumers to enjoy kiwi fruit for $1 more per box than the free trade price,but still $1 less than the domestic price. 
E) cause domestic producers to be worse off by $10 per box. 
A) cause foreign producers to be better off,because the price they charge is now higher by $1 per box. 
B) cause domestic producers to be worse off by $5 per box. 
C) allow domestic consumers to enjoy kiwi fruit for $5 more per box than the free trade price,but still $2 less than the domestic price. 
D) allow domestic consumers to enjoy kiwi fruit for $1 more per box than the free trade price,but still $1 less than the domestic price. 
E) cause domestic producers to be worse off by $10 per box.

Question 2

If average costs of production decline with increases in output for a particular firm:

Accepted Answer

A) many small firms will be more efficient than a single large firm. 
B) one large producer will be more efficient than many small producers. 
C) product diversification is necessary to spread the overhead. 
D) diseconomies of scale become significant as output increases. 
E) the variable cost of production must exceed the fixed costs. 
A) many small firms will be more efficient than a single large firm. 
B) one large producer will be more efficient than many small producers. 
C) product diversification is necessary to spread the overhead. 
D) diseconomies of scale become significant as output increases. 
E) the variable cost of production must exceed the fixed costs.

Question 3

The figure below shows the demand (D) and supply (S) curves of corn syrups. Figure 21.3  
- In Figure 21.3,suppose an import quota of 30 gallons of corn syrup is imposed.If the world price per gallon is $4:

Accepted Answer

A) there will be an excess domestic demand of approximately 35 gallons. 
B) the domestic market will be in equilibrium. 
C) there will be an excess domestic demand for 10 gallons. 
D) there will be an excess supply of 20 gallons. 
E) there will be an excess domestic demand for 20 gallons. 
A) there will be an excess domestic demand of approximately 35 gallons. 
B) the domestic market will be in equilibrium. 
C) there will be an excess domestic demand for 10 gallons. 
D) there will be an excess supply of 20 gallons. 
E) there will be an excess domestic demand for 20 gallons.

Question 4

The figure below shows the demand (D) and supply (S) curves of a good produced domestically in an economy as well as traded in the international market. Figure 21.1   In the figure,
PS1U1B11S1U1B0: Price of the good in the international market.
PS1U1B12S1U1B0: Price of the good in the domestic market after the imposition of tariff by the government.
PS1U1B13S1U1B0: No-trade price of the good in the domestic market.
-Refer to Figure 21.1.If the government imposes a tariff such that the price of the good in the domestic market is P2 while the international price is P1,the dollar value of the tariff is equal to:

Accepted Answer

A) P3 - P1. 
B) P2 - P3. 
C) P2 - P1. 
D) P1 - P2. 
E) P1 - P3. 
A) P3 - P1. 
B) P2 - P3. 
C) P2 - P1. 
D) P1 - P2. 
E) P1 - P3.

Question 5

The figure below shows the demand (D) and supply (S) curves of corn syrups. Figure 21.3   
-In Figure 21.3,with an import quota of 30 gallons of corn syrup,what is the new equilibrium quantity demanded?

Accepted Answer

A) 35 gallons 
B) 50 gallons 
C) 20 gallons 
D) 65 gallons 
E) 5 gallons 
A) 35 gallons 
B) 50 gallons 
C) 20 gallons 
D) 65 gallons 
E) 5 gallons

Question 6

Which of the following statements about an increasing-returns-to-scale industry is not true?

Accepted Answer

A) It will tend to concentrate production in the hands of a very few large firms. 
B) Firms in the industry face higher costs per unit of production as their level of output increases. 
C) Opportunity costs may fall with the level of output. 
D) Proponents of strategic trade policy contend that tariffs can be used to stimulate production by a domestic industry capable of achieving increasing returns to scale. 
E) The costs of producing a unit of output fall as more output is produced. 
A) It will tend to concentrate production in the hands of a very few large firms. 
B) Firms in the industry face higher costs per unit of production as their level of output increases. 
C) Opportunity costs may fall with the level of output. 
D) Proponents of strategic trade policy contend that tariffs can be used to stimulate production by a domestic industry capable of achieving increasing returns to scale. 
E) The costs of producing a unit of output fall as more output is produced.

Question 7

Steel producers in the United States observe that foreign sales of U.S.steel has drastically declined due to stringent trade policies adopted by the foreign governments and unfair treatment of U.S.steel exports in foreign countries.The lobbying efforts of such loss making U.S.steel manufacturers induces the domestic government to restrict the entry of imported steel and help stimulate the sales of domestically produced steel.Which of the following is most similar to the example mentioned above?

Accepted Answer

A) A tariff imposed by the government to stimulate domestic production of a high-technology good with positive spillover effects 
B) A tariff imposed by the government on the import of cotton textiles because it is an infant industry in the domestic country 
C) An import tariff applied against a foreign monopoly supplying the domestic market 
D) Taxes imposed by the government on an import competing industry that generates a negative production externality 
E) Reciprocal tariffs introduced by the government of Mexico on tobacco imports from Brazil in retaliation to unfair treatment of Mexican tobacco exports to the latter 
A) A tariff imposed by the government to stimulate domestic production of a high-technology good with positive spillover effects 
B) A tariff imposed by the government on the import of cotton textiles because it is an infant industry in the domestic country 
C) An import tariff applied against a foreign monopoly supplying the domestic market 
D) Taxes imposed by the government on an import competing industry that generates a negative production externality 
E) Reciprocal tariffs introduced by the government of Mexico on tobacco imports from Brazil in retaliation to unfair treatment of Mexican tobacco exports to the latter

Question 8

The figure given below depicts the negatively sloped demand and positively sloped supply curves of wheat in a country. Figure 21.2  
- In Figure 21.2,if the world price of wheat is $25 and a $10 tariff is imposed:

Accepted Answer

A) imports will decrease from 300 to 200 bushels of wheat. 
B) imports will increase from 200 to 400 bushels of wheat. 
C) imports will remain unchanged. 
D) domestic production will decrease from 200 to 150 bushels of wheat. 
E) domestic production will remain unchanged. 
A) imports will decrease from 300 to 200 bushels of wheat. 
B) imports will increase from 200 to 400 bushels of wheat. 
C) imports will remain unchanged. 
D) domestic production will decrease from 200 to 150 bushels of wheat. 
E) domestic production will remain unchanged.

Question 9

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S. Figure 21.4  
- Refer to Figure 21.4.Assume that Ghana is the only cocoa exporter supplying cocoa in the world market at $6 per pound.If the U.S.enters into a free trade agreement (FTA) with Ghana,what would be its total cocoa imports?

Accepted Answer

A) 100 pounds 
B) 300 pounds 
C) 200 pounds 
D) 150 pounds 
E) 250 pounds 
A) 100 pounds 
B) 300 pounds 
C) 200 pounds 
D) 150 pounds 
E) 250 pounds

Question 10

Tariffs are considered to be a popular tax in the first world countries,who justify them on the basis of the revenue they generate for government spending.

Accepted Answer

A) True 
 B)False

Question 11

The trade-creation effect refers to:

Accepted Answer

A) a reduction in economic efficiency as a result of a preferential trade agreement. 
B) a production shift to a higher-cost producer as a result of a preferential trade agreement. 
C) the outcome of a preferential trade agreement that allows a country to obtain goods at a lower cost than is available at home. 
D) diversion of production from a country that has comparative advantage. 
E) a production shift to a country that does not have comparative advantage. 
A) a reduction in economic efficiency as a result of a preferential trade agreement. 
B) a production shift to a higher-cost producer as a result of a preferential trade agreement. 
C) the outcome of a preferential trade agreement that allows a country to obtain goods at a lower cost than is available at home. 
D) diversion of production from a country that has comparative advantage. 
E) a production shift to a country that does not have comparative advantage.

Question 12

Protecting infant industries from foreign competition may make sense,but only until the industry matures.

Accepted Answer

A) True 
 B)False

Question 13

When restrictions alter the pattern of international trade,the _____ benefit and the _____ suffer(s).

Accepted Answer

A) domestic consumers; domestic producers 
B) domestic consumers; government 
C) domestic producers; domestic consumers 
D) foreign producers; domestic producers 
E) foreign producers; domestic consumers 
A) domestic consumers; domestic producers 
B) domestic consumers; government 
C) domestic producers; domestic consumers 
D) foreign producers; domestic producers 
E) foreign producers; domestic consumers

Question 14

In the light of the infant industry argument,identify the industry which is likely to have substantially high initial costs.

Accepted Answer

A) Fashion designing 
B) Retail industry 
C) Iron and steel industry 
D) Dairy industry 
E) Software industry 
A) Fashion designing 
B) Retail industry 
C) Iron and steel industry 
D) Dairy industry 
E) Software industry

Question 15

Which of the following is true of a tariff?

Accepted Answer

A) It is a tax levied by the government on domestic production of goods and services. 
B) It is a quantitative restriction on imports imposed by the government. 
C) It is a monetary benefit received by exporters from the government. 
D) It is a monetary benefit received by importers from the government. 
E) It is a tax on import and export levied by the government. 
A) It is a tax levied by the government on domestic production of goods and services. 
B) It is a quantitative restriction on imports imposed by the government. 
C) It is a monetary benefit received by exporters from the government. 
D) It is a monetary benefit received by importers from the government. 
E) It is a tax on import and export levied by the government.

Question 16

Protection of an infant industry should be withdrawn once that industry:

Accepted Answer

A) charges the same price as foreign competitors. 
B) goes public on the stock exchange. 
C) raises a large amount of sales revenue. 
D) achieves sufficient size to compete with foreign firms. 
E) earns enough profit as a result of the subsidies to remain in business. 
A) charges the same price as foreign competitors. 
B) goes public on the stock exchange. 
C) raises a large amount of sales revenue. 
D) achieves sufficient size to compete with foreign firms. 
E) earns enough profit as a result of the subsidies to remain in business.

Question 17

Which of the following statements is true of the impact of trade restrictions on domestic employment?

Accepted Answer

A) Domestic firms will produce the goods that otherwise would have been produced abroad,thus employing foreign workers instead of domestic workers. 
B) Beside the protected industry,other industries will also benefit in terms of employment. 
C) Domestic consumers will be required to pay lower prices for the output of the protected industry. 
D) Restrictions imposed on trade simply redistribute jobs by creating employment in the protected industry and reducing employment elsewhere. 
E) If other countries retaliate by restricting the entry of the domestic exports,the output of domestic firms that produce for export will rise. 
A) Domestic firms will produce the goods that otherwise would have been produced abroad,thus employing foreign workers instead of domestic workers. 
B) Beside the protected industry,other industries will also benefit in terms of employment. 
C) Domestic consumers will be required to pay lower prices for the output of the protected industry. 
D) Restrictions imposed on trade simply redistribute jobs by creating employment in the protected industry and reducing employment elsewhere. 
E) If other countries retaliate by restricting the entry of the domestic exports,the output of domestic firms that produce for export will rise.

Question 18

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S. Figure 21.4  
- Refer to Figure 21.4.If cocoa sells for $6 per pound in the world market,determine the volume of U.S.cocoa imports.

Accepted Answer

A) 250 pounds 
B) 350 pounds 
C) 300 pounds 
D) 150 pounds 
E) 200 pounds 
A) 250 pounds 
B) 350 pounds 
C) 300 pounds 
D) 150 pounds 
E) 200 pounds

Question 19

Suppose the production of helicopters is an industry characterized by increasing returns to scale and an Argentine firm,Cicare,is the only player in this market.The firm caters to the global market and earns a profit of $10 million.Flettner,a German firm has been considering entering this market for a while,but it is aware that its entry will cause each firm to lose about $4 million.However,a government subsidy allows Flettner to enter the helicopter market and Cicare incurs a loss of $4 million due to its entry.Eventually,Flettner evolves as the monopoly supplier of helicopters while Cicare is forced to shut down.This conclusion rests on which of the following assumptions?

Accepted Answer

A) The German government was experiencing a budget surplus. 
B) There was low demand for Cicare automobiles in the world market. 
C) The German government was able to forecast accurately the subsidy required to induce Flettner to produce helicopters. 
D) The quality of Flettner's helicopters were inferior compared to that of Cicare's. 
E) Cicare diversified into the production of automobiles. 
A) The German government was experiencing a budget surplus. 
B) There was low demand for Cicare automobiles in the world market. 
C) The German government was able to forecast accurately the subsidy required to induce Flettner to produce helicopters. 
D) The quality of Flettner's helicopters were inferior compared to that of Cicare's. 
E) Cicare diversified into the production of automobiles.

Question 20

Nascent industries require adequate protection from foreign competition because:

Accepted Answer

A) they experience economies of scale. 
B) they experience diseconomies of scale. 
C) the quality of the products of such industries are comparatively inferior than the products of their foreign competitors. 
D) they do not have adequate resources to undertake research and development. 
E) their initial costs of production are considerably higher than the foreign firms. 
A) they experience economies of scale. 
B) they experience diseconomies of scale. 
C) the quality of the products of such industries are comparatively inferior than the products of their foreign competitors. 
D) they do not have adequate resources to undertake research and development. 
E) their initial costs of production are considerably higher than the foreign firms.

Suppose that the world price of kiwi fruit ($10 per box) is below the domestic price ($12 per box).A tariff of $1 per box would:

If average costs of production decline with increases in output for a particular firm:

The figure below shows the demand (D) and supply (S) curves of corn syrups. Figure 21.3 - In Figure 21.3,suppose an import quota of 30 gallons of corn syrup is imposed.If the world price per gallon is $4:

The figure below shows the demand (D) and supply (S) curves of corn syrups. Figure 21.3 -In Figure 21.3,with an import quota of 30 gallons of corn syrup,what is the new equilibrium quantity demanded?

Which of the following statements about an increasing-returns-to-scale industry is not true?

The figure given below depicts the negatively sloped demand and positively sloped supply curves of wheat in a country. Figure 21.2 - In Figure 21.2,if the world price of wheat is $25 and a $10 tariff is imposed:

Tariffs are considered to be a popular tax in the first world countries,who justify them on the basis of the revenue they generate for government spending.

The trade-creation effect refers to:

Protecting infant industries from foreign competition may make sense,but only until the industry matures.

When restrictions alter the pattern of international trade,the _ benefit and the _ suffer(s).

In the light of the infant industry argument,identify the industry which is likely to have substantially high initial costs.

Which of the following is true of a tariff?

Protection of an infant industry should be withdrawn once that industry:

Which of the following statements is true of the impact of trade restrictions on domestic employment?

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S. Figure 21.4 - Refer to Figure 21.4.If cocoa sells for $6 per pound in the world market,determine the volume of U.S.cocoa imports.

Nascent industries require adequate protection from foreign competition because:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

Filters

Exam 21: International Trade Restrictions

Suppose that the world price of kiwi fruit ($10 per box) is below the domestic price ($12 per box).A tariff of $1 per box would:

If average costs of production decline with increases in output for a particular firm:

The figure below shows the demand (D) and supply (S) curves of corn syrups. Figure 21.3 - In Figure 21.3,suppose an import quota of 30 gallons of corn syrup is imposed.If the world price per gallon is $4:

The figure below shows the demand (D) and supply (S) curves of corn syrups. Figure 21.3 -In Figure 21.3,with an import quota of 30 gallons of corn syrup,what is the new equilibrium quantity demanded?

Which of the following statements about an increasing-returns-to-scale industry is not true?

The figure given below depicts the negatively sloped demand and positively sloped supply curves of wheat in a country. Figure 21.2 - In Figure 21.2,if the world price of wheat is $25 and a $10 tariff is imposed:

Tariffs are considered to be a popular tax in the first world countries,who justify them on the basis of the revenue they generate for government spending.

The trade-creation effect refers to:

Protecting infant industries from foreign competition may make sense,but only until the industry matures.

When restrictions alter the pattern of international trade,the _____ benefit and the _____ suffer(s).

In the light of the infant industry argument,identify the industry which is likely to have substantially high initial costs.

Which of the following is true of a tariff?

Protection of an infant industry should be withdrawn once that industry:

Which of the following statements is true of the impact of trade restrictions on domestic employment?

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S. Figure 21.4 - Refer to Figure 21.4.If cocoa sells for $6 per pound in the world market,determine the volume of U.S.cocoa imports.

Nascent industries require adequate protection from foreign competition because:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

Filters

When restrictions alter the pattern of international trade,the _ benefit and the _ suffer(s).