1 The United States recently levied tariffs on tires imported from

what country?

 Japan (Incorrect)
 Brazil (Incorrect)
 Russia (Incorrect)
 China (True Answer Correct)

2 Import tariffs are ___________ on imports, and import quotas

are ____________ on imports.

 subsidies; taxes (Incorrect)

 limits; subsidies (Incorrect)
 taxes; limits (True Answer Correct)
 limits; taxes (Incorrect)

3 GATT is the acronym (or abbreviation) for the:

 General Agreement on Taxes and Tariffs. (Incorrect)

 General Agreement on Tariffs and Trade. (True Answer Correct)
 General Agreement on Trade and Taxes. (Incorrect)
 General Agreement on Trade. (Incorrect)

4 WTO is the acronym (or abbreviation) for the:

 World Traffic Organization. (Incorrect)

 World Trade Organization. (True Answer Correct)
 World Tariff Organization. (Incorrect)
 World Tax Organization. (Incorrect)

5 An international conference in Bretton Woods, New Hampshire,

in 1944 resulted in the formation of the:

 European Union in 1945. (Incorrect)

 Kyoto Agreement in 1971. (Incorrect)
 General Agreement on Tariffs and Trade (GATT) in 1947. (True
Answer Correct)
 International Red Cross in 1955. (Incorrect)

6 Which organization acts as a forum for countries to come to

agreement on trade policies and resolve trade policy disputes?

 the International Trade Organization (Incorrect)

  the United Nations (Incorrect)
 the World Trade Organization (True Answer Correct)
 the United Nations Conference on Trade and
Development (Incorrect)

7 The General Agreement on Tariffs and Trade focused on:

 raising tariffs on agricultural products. (Incorrect)

 lowering trade restrictions between countries. (True Answer
Correct)
 promoting full employment worldwide. (Incorrect)
 increasing trade restrictions between countries. (Incorrect)

8 Under the GATT framework, nations negotiated for up to 6

years, resulting in new trade agreements. These are known as:

 conferee sessions. (Incorrect)

 plenary meetings. (Incorrect)
 sesqui-sessions. (Incorrect)
 rounds. (True Answer Correct)

9 What organization emerged from the GATT, starting January 1,

1995, with expanded responsibilities and global interaction?

 the Doha round (Incorrect)

 the World Trade Organization (WTO) (True Answer Correct)
 the United Nations (Incorrect)
 the Institute for International Economics (Incorrect)

10 What is the most recent set of negotiations at WTO called?

 the Doha round (True Answer Correct)

 the Kyoto round (Incorrect)
 the Geneva accord (Incorrect)
 the Paris negotiation (Incorrect)

11 One feature of the GATT and now the WTO is that all member
nations get the same treatment from their trading partners in
terms of trade rules and restrictions. This provision is called:
 beggar thy neighbor. (Incorrect)
 the good neighbor policy. (Incorrect)
 rotating obligations. (Incorrect)
  normal trade relation (formerly, most favored nation) status. (True
Answer Correct)

12 Most favored nation status requires:

 a WTO member that reduces a tariff on imports from one WTO

trading partner to apply the lower tariff to imports from all other
WTO members. (True Answer Correct)
 a WTO member that reduces a tariff on imports from one WTO
trading partner to apply the lower tariff to imports from all other
countries. (Incorrect)
 a WTO member that increases a tariff on imports from one WTO
trading partner to raise the tariff on imports from all other WTO
members. (Incorrect)
 a WTO member that increases a tariff on imports from one WTO
trading partner to raise the tariff on imports from all other
countries. (Incorrect)

13 What is an “export subsidy”?

 a payment by one government to another for exports (Incorrect)

 a payment (or other benefit) to domestic firms by their
government to help them sell exports more cheaply (True Answer
Correct)
 the rule that says all exports must be taxed before they leave the
port (Incorrect)
 a provision that exporters must get their payments indirectly
through a third party (Incorrect)

14 The escape clause in U.S. trade law:

 enables the United States to withdraw from NAFTA. (Incorrect)

 permits the U.S. government to impose trade barriers if fairly
traded imports are the cause of significant injury to a U.S. industry
and its workers. (Incorrect)
 permits the government to impose trade remedies against nations
that unfairly subsidize their exports to the United States. (True
Answer Correct)
 enables immigrants to return to their home countries. (Incorrect)
15 What GATT provision did the United States use to justify
levying tariffs on tire imports in fall 2009?

 antidumping duties (Incorrect)

 export subsidization (Incorrect)
 safeguard clause (True Answer Correct)
 national security (Incorrect)

16 According to the GATT, a tariff applied under the safeguard

provision must:

 be temporary. (True Answer Correct)

 be permanent. (Incorrect)
 apply to all imports. (Incorrect)
 be no higher than 10%. (Incorrect)

17 Which of the following is an exception to the most favored

nation principle?

 trade in petroleum (Incorrect)

 trade with Japan (Incorrect)
 tariff concessions negotiated within a free-trade area or a customs
union (True Answer Correct)
 trade in services (Incorrect)

18 Under the WTO provision of Article XIX, countries can:

 never charge a tariff on an import. (Incorrect)

 always charge a tariff on imports. (Incorrect)
 temporarily charge a higher tariff on certain commodities. (True
Answer Correct)
 provide subsidies to all domestic producers of import competing
products. (Incorrect)

19 The safeguard provision or escape clause allows a country to:

 import products below cost from foreign countries. (Incorrect)

 export products by selling below cost to foreign
countries. (Incorrect)
 avoid tariffs in foreign countries temporarily. (Incorrect)
 temporarily increase tariffs on certain imported goods. (True
Answer Correct)
20 The GATT maintained a provision that nations could enact
temporary emergency tariffs or quotas if imports threatened the
existence of domestic producers. The WTO has not struck that
provision. Economists call this:
 the tariff bill. (Incorrect)
 the escape clause. (True Answer Correct)
 justifiable means. (Incorrect)
 domestic job security provision. (Incorrect)

21 To help its domestic producers, the United States unilaterally

raised tariffs on ____ in early 2002, but after a ruling against the
United States by the WTO, it was forced to rescind the tariff.
 autos (Incorrect)
 steel (True Answer Correct)
 oil (Incorrect)
 dairy products (Incorrect)

22 Normally the WTO does not allow discriminatory treatment in

trade of member nations, but it makes an exception for nations:

 that have a large trade surplus. (Incorrect)

 using environmentally harmful production techniques. (Incorrect)
 that cannot control drugs and other illegal activities. (Incorrect)
 engaging in regional free-trade agreements. (True Answer
Correct)

23 A free-trade area is defined as:

 a trading agreement that allows for free flow of

resources. (Incorrect)
 a trading agreement that binds member countries to have a
uniform tariff on other countries. (Incorrect)
 a trading agreement that lets countries rely on subsidies on
domestic production. (Incorrect)
 a trading agreement in which a group of countries voluntarily
agree to remove trade barriers between themselves. (True Answer
Correct)

24 A customs union is different from a free-trade area, in that:

 the latter allows for free movement of factors, whereas the former
does not. (Incorrect)
  the latter allows for uniform tariffs, whereas the former does
not. (Incorrect)
 the latter removes trade barriers between member countries,
whereas the former adopts identical tariffs with the rest of the
world. (True Answer Correct)
 the former removes trade barriers between member countries,
whereas the latter adopts identical tariffs with the rest of the
world. (Incorrect)

25 A country that becomes a member of the World Trade

Organization agrees to bind its tariffs. “Binding” means that the
country agrees not to increase existing tariffs and that it will not
introduce new tariffs. However, the GATT allows three
exceptions to binding. Which of the following is NOT an
exception to binding?
 antidumping duties against dumped imports (Incorrect)
 countervailing duties against subsidized imports (Incorrect)
 safeguard or escape clause tariffs (Incorrect)
 tariff reductions negotiated in free-trade areas (True Answer
Correct)

26 Which of the following is not an important provision of the

GATT?

 the most favored nation clause (Incorrect)

 the safeguard provision or escape clause (Incorrect)
 antidumping tariffs (Incorrect)
 approval of export subsidies (True Answer Correct)

27 China recently became a member of the World Trade

Organization. For China, one of the benefits of WTO
membership is:
 most favored nation treatment of its exports. (Incorrect)
 the right to increase tariffs on all its imports. (Incorrect)
 the right to subsidize all its exports. (Incorrect)
 the right to impose antidumping duties on its imports. (True
Answer Correct)

28 The GATT/WTO allows nations to impose tariffs in response to

unfair trade practices such as:

 dumping. (True Answer Correct)

 transportation costs. (Incorrect)
 environmental degradation. (Incorrect)
  dumping and environmental degradation. (Incorrect)

29 Consumer surplus is:

 the difference between the price of a product and consumers'

valuation of the last unit of the product purchased. (Incorrect)
 the difference between the price of a product and what consumers
were willing to pay for the product. (True Answer Correct)
 the difference between the discounted price of a product and its
retail price. (Incorrect)
 the difference between the price paid by consumers and the price
required of producers. (Incorrect)

30 The difference between the price consumers are willing to pay

and the price that they actually pay is known as:

 price discrimination. (Incorrect)

 government surplus. (Incorrect)
 consumer surplus. (True Answer Correct)
 producer surplus. (Incorrect)

31 Figure: Consumer Surplus

Reference: Ref 7-1

(Figure: Consumer Surplus) When the price of the product is

$15, the consumer surplus is:
 $416. (Incorrect)
 $208. (True Answer Correct)
  $13. (Incorrect)
 $15. (Incorrect)

32 Figure: Consumer Surplus

Reference: Ref 7-1

(Figure: Consumer Surplus) If the price of the product

decreases to $10, the consumer surplus increases by:
 $378. (Incorrect)
 $208. (Incorrect)
 $420. (Incorrect)
 $170. (True Answer Correct)

33 When consumers are able to buy a product at a price lower than

its marginal value to them, it is called:

 consumer surplus. (True Answer Correct)

 consumer sovereignty. (Incorrect)
 producer surplus. (Incorrect)
 marginal utility. (Incorrect)

34 When firms are able to sell units of a good at a price higher than
the marginal cost of production, they are getting:

 consumer surplus. (Incorrect)

 higher efficiency. (Incorrect)
 producer surplus. (True Answer Correct)
 marginal utility. (Incorrect)
35 Suppose that consumer demand is given by this equation: P = 10
– Q. What is the value of consumer surplus when P = 5?

 $5 (Incorrect)
 $12.50 (True Answer Correct)
 $25 (Incorrect)
 $50 (Incorrect)

36 Producer surplus is:

 the difference between the price of a product and marginal cost of

producing the product. (True Answer Correct)
 the difference between the price of a product and what consumers
were willing to pay for the product. (Incorrect)
 the difference between the discounted price of a product and its
retail price. (Incorrect)
 the difference between the price of a product and its average cost
of production. (Incorrect)

37 Suppose that the supply curve for widgets is described by this

equation: P = 2Q. What is the value of producer surplus when P
= 5?
 $5 (Incorrect)
 $12.50 (Incorrect)
 $25 (True Answer Correct)
 $50 (Incorrect)

38 One interpretation of producer surplus is that it equals:

 the profits of a firm. (Incorrect)

 the return to the fixed factors of production in an industry. (True
Answer Correct)
 consumer surplus. (Incorrect)
 the difference between the price of a product and its average cost
of production. (Incorrect)

39 If we assume perfect competition in the product markets,

producer surplus is:

 maximized. (Incorrect)
 minimized. (Incorrect)
 equal to the firm's monopoly profits. (Incorrect)
  equal to the return to the fixed factors of production. (True
Answer Correct)

40 We can measure producer and consumer surplus by looking at

the supply and demand graphical representation. Consumer
surplus is:
 the area above the supply curve but below the equilibrium
price. (Incorrect)
 the area below the demand curve but greater than the equilibrium
price. (True Answer Correct)
 the area below the demand curve all the way down to the quantity
axis. (Incorrect)
 the combined triangular area below the demand curve and above
the supply curve. (Incorrect)

41 We can measure producer and consumer surplus by looking at

the supply and demand graphical representation. Producer
surplus is:
 the area above the supply curve but below the equilibrium
price. (True Answer Correct)
 the area below the demand curve but greater than the equilibrium
price. (Incorrect)
 the area below the demand curve all the way down to the quantity
axis. (Incorrect)
 the combined triangular area below the demand curve and above
the supply curve. (Incorrect)

42 We can measure producer and consumer gains by looking at the

supply and demand graphical representation. Total welfare in
the economy would be:
 the area above the supply curve but below the equilibrium
price. (Incorrect)
 the area below the demand curve but greater than the equilibrium
price. (Incorrect)
 the area below the demand curve all the way down to the quantity
axis. (Incorrect)
 the combined triangular area below the demand curve and above
the supply curve. (True Answer Correct)

43 How many units will a country import if S = 1P represents its

home supply curve, D = 100 – 1P represents its home demand
curve, and the world price is $25?
 25 (Incorrect)
  50 (True Answer Correct)
 75 (Incorrect)
 100 (Incorrect)

44 A small country in international trade faces a:

 perfectly elastic world supply curve. (True Answer Correct)

 perfectly inelastic world supply curve. (Incorrect)
 perfectly elastic world demand curve. (Incorrect)
 perfectly inelastic world demand curve. (Incorrect)

45 If there is free trade in a small economy, the nation will be able

to import unlimited quantities of the product at the:

 domestic price. (Incorrect)

 world price. (True Answer Correct)
 price measured in euros. (Incorrect)
 price determined after all tariffs are assessed. (Incorrect)

46 SCENARIO: PRODUCTION IN NORWAY

Suppose that Norway is a small country and currently produces
100,000 board feet of lumber at $600 per 1,000 board feet. Then it
begins to trade at the world price of $500 per 1,000 board feet. As a
result of trade, Norway's production falls to 50,000 board feet and
its consumption increases to 200,000 board feet.
Reference: Ref 7-2

(Scenario: Production in Norway) How many board feet of

lumber does Norway now import?
 250,000 board feet (Incorrect)
 200,000 board feet (Incorrect)
 150,000 board feet (True Answer Correct)
 100,000 board feet (Incorrect)

47 SCENARIO: PRODUCTION IN NORWAY

Suppose that Norway is a small country and currently produces
100,000 board feet of lumber at $600 per 1,000 board feet. Then it
begins to trade at the world price of $500 per 1,000 board feet. As a
result of trade, Norway's production falls to 50,000 board feet and
its consumption increases to 200,000 board feet.
Reference: Ref 7-2

(Scenario: Production in Norway) What is Norway's total gain

in consumer surplus once it begins to trade?
  $10,000 (Incorrect)
 $15,000 (True Answer Correct)
 $100,000 (Incorrect)
 $150,000 (Incorrect)

48 SCENARIO: PRODUCTION IN NORWAY

Suppose that Norway is a small country and currently produces
100,000 board feet of lumber at $600 per 1,000 board feet. Then it
begins to trade at the world price of $500 per 1,000 board feet. As a
result of trade, Norway's production falls to 50,000 board feet and
its consumption increases to 200,000 board feet.
Reference: Ref 7-2

(Scenario: Production in Norway) What is Norway's total

welfare gain once it begins to trade?
 $5,000 (Incorrect)
 $7,500 (True Answer Correct)
 $15,000 (Incorrect)
 $17,500 (Incorrect)

49 Figure: The Import-Competing Industry

Reference: Ref 7-3

(Figure: The Import-Competing Industry) The producer surplus

without trade in the figure is:
 $255. (True Answer Correct)
 $510. (Incorrect)
 $22. (Incorrect)
  $17. (Incorrect)

50 Figure: The Import-Competing Industry

Reference: Ref 7-3

(Figure: The Import-Competing Industry) If the demand for the

product increases and the new equilibrium price is 30 and
quantity is 50, what is the increase in producer surplus?
 $625 (Incorrect)
 $550 (Incorrect)
 $255 (Incorrect)
 $370 (True Answer Correct)

51 Figure: The Import-Competing Industry

 Reference: Ref 7-3

(Figure: The Import-Competing Industry) In the figure, with

free trade, if the world price of the product is $15, then the total
consumer surplus is:
 $1,395. (Incorrect)
 $697.50. (True Answer Correct)
 $22.50. (Incorrect)
 $2,250. (Incorrect)

52 Figure: The Import-Competing Industry

Reference: Ref 7-3

 (Figure: The Import-Competing Industry) In comparison to a
no-trade situation, with free trade, producer surplus __________
to _________.
 increases; $75 (Incorrect)
 decreases; $75 (True Answer Correct)
 increases; $150 (Incorrect)
 decreases; $150 (Incorrect)

53 Figure: Home's Import-Competing Industry

Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) What is the

domestic price before trade?
 $100 (True Answer Correct)
 $800 (Incorrect)
 $50 (Incorrect)
 $1,300 (Incorrect)

54 Figure: Home's Import-Competing Industry

 Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) What is the

domestic price after trade?
 $100 (Incorrect)
 $800 (Incorrect)
 $50 (True Answer Correct)
 $1,300 (Incorrect)

55 Figure: Home's Import-Competing Industry

Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) What is the

consumer surplus before trade?
 triangle ADB (True Answer Correct)
 triangle AEC (Incorrect)
  quadrangle DEBC (Incorrect)
 triangle EFG (Incorrect)

56 Figure: Home's Import-Competing Industry

Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) What is the

consumer surplus after trade?
 triangle ADB (Incorrect)
 triangle AEC (True Answer Correct)
 quadrangle DEBC (Incorrect)
 triangle EFG (Incorrect)

57 Figure: Home's Import-Competing Industry

Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) What is this

 nation's “welfare” before trade?

 triangle AFB (True Answer Correct)

 triangle AEC (Incorrect)
 quadrangle DEBC (Incorrect)
 triangle EFC (Incorrect)

58 Figure: Home's Import-Competing Industry

Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) What is this

nation's “welfare” after trade?
 triangle AFB (Incorrect)
 triangle AEC + triangle EFG (True Answer Correct)
 quadrangle DEBC (Incorrect)
 triangle EFG (Incorrect)

59 Figure: Home's Import-Competing Industry

 Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) How would we

measure the “gains” from trade in this diagram?
 triangle AFB (Incorrect)
 triangle AEC (Incorrect)
 quadrangle DECB (consumer gains) – DEBG (producer
losses) (True Answer Correct)
 triangle EFC (Incorrect)

60 Figure: Home's Import-Competing Industry

Reference: Ref 7-4

(Figure: Home's Import-Competing Industry) Based on the

figure, the Home import demand curve:
 shows total imports of the product at various world
 prices. (Incorrect)
 shows that at a world price of $100, this nation would import
none. (Incorrect)
 shows that at a world price of $50, this nation would import 900
units. (Incorrect)
 shows total imports of the product at various world prices; shows
that at a world price of $100, this nation would import none; and
shows that at a world price of $50, this nation would import 900
units. (True Answer Correct)

61 The Home import demand curve is downward sloping because:

 as the government forces the price down, the consumers buy

more. (Incorrect)
 foreign companies want to help domestic competitors. (Incorrect)
 as the price falls below domestic equilibrium, the shortage in
demand is filled by importing more quantity from abroad. (True
Answer Correct)
 consumers can control the price of the good. (Incorrect)

62 If S = 1P represents a country's home supply curve and D = 100

– 1P represents its home demand curve, then the equilibrium
price and quantity in autarky are:
 $100 and 0 units (Incorrect)
 $50 and 50 units. (True Answer Correct)
 $0 and 100 units (Incorrect)
 None of the answer choices are correct. (Incorrect)

63 If S = 1P represents a country's home supply curve and D = 100

– 1P represents its home demand curve, then the equation
representing its import demand curve is:
 100 – 2P. (True Answer Correct)
 50 – 1P. (Incorrect)
 100 – 1P. (Incorrect)
 50 – 2P. (Incorrect)

64 Suppose that the equations S = 2P and D = 6 – P represent a

small country's home supply and home demand curves. Find the
equilibrium price in autarky.
 $2 (True Answer Correct)
 $4 (Incorrect)
 $6 (Incorrect)
  $8 (Incorrect)

65 Suppose that the equations S = 2P and D = 6 – P represent a

small country's home supply and home demand curves. If the
world price is $1, what is the increase in the country's surplus
when it trades compared to autarky?
 $6.00 (Incorrect)
 $4.50 (Incorrect)
 $2.50 (True Answer Correct)
 $0.50 (Incorrect)

66 Suppose that the equations S = 2P and D = 6 – P represent a

small country's home supply and home demand curves. If the
government imposed a 50% tariff on imports, how much
revenue would it collect as a result of the tariff? (Note: It is
possible to consume partial units of this product, such as 2.5
units.)
 $1.50 (Incorrect)
 $2.75 (Incorrect)
 $0.50 (Incorrect)
 $0.75 (True Answer Correct)

67 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small country,
imposes a �60 per-ton specific tariff on imported steel. With the
tariff, Finland produces 300,000 tons of steel and consumes
600,000 tons of steel.
Reference: Ref 7-5

(Scenario: Finnish Steel) What is the purpose of this �60-per-

ton tariff?
 to protect Finnish steel consumers from foreign
competition (Incorrect)
 to protect Finnish steel producers and consumers from the World
Trade Organization (Incorrect)
 to protect Finnish steel producers from foreign competition (True
Answer Correct)
 to comply with provisions of the General Agreement on Tariffs
and Trade (Incorrect)
68 SCENARIO: FINNISH STEEL
Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small country,
imposes a �60 per-ton specific tariff on imported steel. With the
tariff, Finland produces 300,000 tons of steel and consumes
600,000 tons of steel.
Reference: Ref 7-5

(Scenario: Finnish Steel) What is likely to happen to Finnish

production of steel and the price of steel sold in Finland after the
�60-per-ton tariff is imposed?
 Finnish steel production will fall, and the Finnish price of steel
will fall. (Incorrect)
 Finnish steel production will rise, and the Finnish price of steel
will fall. (Incorrect)
 Finnish steel production will fall, and the Finnish price of steel
will rise. (Incorrect)
 Finnish steel production will rise, and the Finnish price of steel
will rise. (True Answer Correct)

69 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small country,
imposes a �60 per-ton specific tariff on imported steel. With the
tariff, Finland produces 300,000 tons of steel and consumes
600,000 tons of steel.
Reference: Ref 7-5

(Scenario: Finnish Steel) Who will gain and who will lose as a
result Finland's �60-per-ton tariff on imported steel?
 Both Finnish steel producers and steel consumers will be worse
off with the tariff than without it. (Incorrect)
 Finnish steel producers will be better off and Finnish steel
consumers will be worse off with the tariff than without it. (True
Answer Correct)
 Finnish steel producers will be worse off and Finnish steel
consumers will be better off with the tariff than without
it. (Incorrect)
 Both Finnish steel producers and steel consumers will be better
off with the tariff than without it. (Incorrect)
70 SCENARIO: FINNISH STEEL
Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small country,
imposes a �60 per-ton specific tariff on imported steel. With the
tariff, Finland produces 300,000 tons of steel and consumes
600,000 tons of steel.
Reference: Ref 7-5

(Scenario: Finnish Steel) Suppose that the �60-per-ton tariff

caused Finnish production of steel to increase by 100,000 tons
and Finnish consumption of steel to fall by 100,000 tons. What is
the value of Finland's welfare loss due to the tariff?
 200,000 tons (Incorrect)
 �6 million (True Answer Correct)
 �12 million (Incorrect)
 �15 million (Incorrect)

71 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small country,
imposes a �60 per-ton specific tariff on imported steel. With the
tariff, Finland produces 300,000 tons of steel and consumes
600,000 tons of steel.
Reference: Ref 7-5

(Scenario: Finnish Steel) How much total tariff revenue will the
Finnish government collect as a result of the �60-per-ton tariff?
 �6 million (Incorrect)
 �12 million (Incorrect)
 �18 million (True Answer Correct)
 �30 million (Incorrect)

72 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small country,
imposes a �60 per-ton specific tariff on imported steel. With the
tariff, Finland produces 300,000 tons of steel and consumes
600,000 tons of steel.
Reference: Ref 7-5

(Scenario: Finnish Steel) What is the value of the tariff revenue

from the �60-per-ton tariff?
  �6 million (Incorrect)
 �12 million (Incorrect)
 �18 million (True Answer Correct)
 �30 million (Incorrect)

73 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small country,
imposes a �60 per-ton specific tariff on imported steel. With the
tariff, Finland produces 300,000 tons of steel and consumes
600,000 tons of steel.
Reference: Ref 7-5

(Scenario: Finnish Steel) What will happen to the Finnish price

of steel if Finnish demand increases and the tariff remains at
�60-per-ton?
 It will not change. (True Answer Correct)
 It will increase. (Incorrect)
 It will decrease. (Incorrect)
 It will first increase, then decrease. (Incorrect)

74 SCENARIO: GUATEMALA'S TELEVISION MARKET

This table gives the hypothetical supply and demand of television
sets in Guatemala. Guatemala is a small country that is unable to
affect world prices. The world price (free-trade price) is $300 per
TV set.
Price Quantity Demanded Quantity Supplied
$100 3,200 200
$200 2,800 400
$300 2,400 600
$400 2,000 800
$500 1,600 1,000
$600 1,200 1,200
$700 800 1,400

Reference: Ref 7-6

(Scenario: Guatemala's Television Market) In the absence of

trade, how many TV sets will Guatemala produce?
 1,400 (Incorrect)
 1,200 (True Answer Correct)
  1,000 (Incorrect)
 800 (Incorrect)

75 SCENARIO: GUATEMALA'S TELEVISION MARKET

This table gives the hypothetical supply and demand of television
sets in Guatemala. Guatemala is a small country that is unable to
affect world prices. The world price (free-trade price) is $300 per
TV set.
Price Quantity Demanded Quantity Supplied
$100 3,200 200
$200 2,800 400
$300 2,400 600
$400 2,000 800
$500 1,600 1,000
$600 1,200 1,200
$700 800 1,400

Reference: Ref 7-6

(Scenario: Guatemala's Television Market) With free trade, how

many TV sets will Guatemala produce?
 800 (Incorrect)
 600 (True Answer Correct)
 400 (Incorrect)
 200 (Incorrect)

76 SCENARIO: GUATEMALA'S TELEVISION MARKET

This table gives the hypothetical supply and demand of television
sets in Guatemala. Guatemala is a small country that is unable to
affect world prices. The world price (free-trade price) is $300 per
TV set.
Price Quantity Demanded Quantity Supplied
$100 3,200 200
$200 2,800 400
$300 2,400 600
$400 2,000 800
$500 1,600 1,000
$600 1,200 1,200
$700 800 1,400

Reference: Ref 7-6

 (Scenario: Guatemala's Television Market) With free trade, how
many TV sets will Guatemala import?
 1,800 (True Answer Correct)
 1,200 (Incorrect)
 800 (Incorrect)
 600 (Incorrect)

77 SCENARIO: GUATEMALA'S TELEVISION MARKET

This table gives the hypothetical supply and demand of television
sets in Guatemala. Guatemala is a small country that is unable to
affect world prices. The world price (free-trade price) is $300 per
TV set.
Price Quantity Demanded Quantity Supplied
$100 3,200 200
$200 2,800 400
$300 2,400 600
$400 2,000 800
$500 1,600 1,000
$600 1,200 1,200
$700 800 1,400

Reference: Ref 7-6

(Scenario: Guatemala's Television Market) Suppose that

Guatemala now imposes a 100% tariff on imported TVs. How
many TVs will it now import?
 0 (True Answer Correct)
 200 (Incorrect)
 400 (Incorrect)
 600 (Incorrect)

78 SCENARIO: GUATEMALA'S TELEVISION MARKET

This table gives the hypothetical supply and demand of television
sets in Guatemala. Guatemala is a small country that is unable to
affect world prices. The world price (free-trade price) is $300 per
TV set.
Price Quantity Demanded Quantity Supplied
$100 3,200 200
$200 2,800 400
$300 2,400 600
 $400 2,000 800
$500 1,600 1,000
$600 1,200 1,200
$700 800 1,400

Reference: Ref 7-6

(Scenario: Guatemala's Television Market) How much total

tariff revenue will Guatemala collect when it imposes the 100%
tariff on imported TVs?
 $300 (Incorrect)
 $0 (True Answer Correct)
 $240,000 (Incorrect)
 $360,000 (Incorrect)

79 SCENARIO: GUATEMALA'S TELEVISION MARKET

This table gives the hypothetical supply and demand of television
sets in Guatemala. Guatemala is a small country that is unable to
affect world prices. The world price (free-trade price) is $300 per
TV set.
Price Quantity Demanded Quantity Supplied
$100 3,200 200
$200 2,800 400
$300 2,400 600
$400 2,000 800
$500 1,600 1,000
$600 1,200 1,200
$700 800 1,400

Reference: Ref 7-6

(Scenario: Guatemala's Television Market) What is the value of

the total welfare losses that Guatemala will suffer as a result of
the 100% tariff on imported TVs?
 $270,000 (True Answer Correct)
 $360,000 (Incorrect)
 $540,000 (Incorrect)
 $720,000 (Incorrect)

80 SCENARIO: GUATEMALA'S TELEVISION MARKET

This table gives the hypothetical supply and demand of television
sets in Guatemala. Guatemala is a small country that is unable to
 affect world prices. The world price (free-trade price) is $300 per
TV set.
Price Quantity Demanded Quantity Supplied
$100 3,200 200
$200 2,800 400
$300 2,400 600
$400 2,000 800
$500 1,600 1,000
$600 1,200 1,200
$700 800 1,400

Reference: Ref 7-6

(Scenario: Guatemala's Television Market) Who will benefit

from Guatemala's 100% tariff on imported TVs?
 Guatemala's consumers (Incorrect)
 Guatemala's TV producers (True Answer Correct)
 Guatemala's TV importers (Incorrect)
 foreign TV manufacturers (Incorrect)

81 In general, a tariff reduces the national welfare of the small

importing nation because:

 there is a fall in producer surplus. (Incorrect)

 there is a rise in consumer surplus. (Incorrect)
 the gain in consumer surplus is smaller than the loss in producer
surplus. (Incorrect)
 the gain in producer surplus is smaller than the loss in consumer
surplus. (True Answer Correct)

82 Which of the following is NOT an effect of an import tariff?

 It increases producer surplus by raising the market price and

allowing more production. (Incorrect)
 It raises government revenue. (Incorrect)
 It reduces consumer surplus by raising the market
price. (Incorrect)
 It improves efficiency in the economy overall because it saves
high-paying jobs. (True Answer Correct)
83 Figure: Home Market I

Reference: Ref 7-7

(Figure: Home Market I) The Home market shown in the figure

has imposed a _____ tariff.
 $3 (Incorrect)
 $16 (Incorrect)
 $6 (True Answer Correct)
 $22 (Incorrect)

84 Figure: Home Market I

Reference: Ref 7-7

(Figure: Home Market I) Under free trade, the Home country

will import:
 26. (Incorrect)
  22. (Incorrect)
 16. (True Answer Correct)
 10. (Incorrect)

85 Figure: Home Market I

Reference: Ref 7-7

(Figure: Home Market I) After the imposition of the tariff, the

producer surplus in the Home country:
 decreases by $84. (Incorrect)
 increases by $72. (True Answer Correct)
 increases by $84. (Incorrect)
 increases by $64. (Incorrect)

86 Figure: Home Market I

Reference: Ref 7-7

 (Figure: Home Market I) The government revenue due to the
tariff is:
 $84. (Incorrect)
 $14. (Incorrect)
 $48. (True Answer Correct)
 $8. (Incorrect)

87 Figure: Home Market I

Reference: Ref 7-7

(Figure: Home Market I) What is the deadweight loss because of

the tariff?
 $24 (True Answer Correct)
 $12 (Incorrect)
 $48 (Incorrect)
 $44 (Incorrect)

88 To measure the impact of a tariff on the total welfare of society,

we calculate the:
 rise in consumer surplus plus the rise in producer
surplus. (Incorrect)
 rise in producer surplus plus increase in tariff revenue going to the
government minus loss of consumer surplus. (True Answer Correct)
 rise in government revenues plus the rise in consumer
surplus. (Incorrect)
 total number of jobs saved by the tariff times the average
wage. (Incorrect)
89 When a tariff is imposed, there is always an additional loss. One
loss occurs when production moves from more efficient foreign
producers to less efficient domestic producers. This loss is the:
 consumption loss. (Incorrect)
 efficiency transfer. (Incorrect)
 production loss. (True Answer Correct)
 X-factor. (Incorrect)

90 When a tariff is imposed, there is always an additional loss. One

loss occurs when consumers purchase fewer units of the good
because prices have risen, so society loses the value of that
consumption. This loss is the:
 consumption loss. (True Answer Correct)
 efficiency transfer. (Incorrect)
 production loss. (Incorrect)
 X-factor. (Incorrect)

91 Which of the following taxes is easiest to collect?

 income taxes (Incorrect)

 wealth taxes (Incorrect)
 tariffs (True Answer Correct)
 value-added taxes (Incorrect)

92 Lower-income countries have reduced their dependence upon

_____________ over the past 20 to 30 years.

 income taxes (Incorrect)

 wealth taxes (Incorrect)
 tariffs (True Answer Correct)
 value-added taxes (Incorrect)

93 A country will impose a tariff because:

 it discourages domestic production. (Incorrect)

 it reduces the benefits for domestic producers. (Incorrect)
 it is a source of revenue for the government. (True Answer
Correct)
 it will encourage domestic consumers to buy foreign
goods. (Incorrect)
94 Tariffs are used to:

 collect government revenue. (Incorrect)

 manipulate world prices. (Incorrect)
 encourage domestic production. (Incorrect)
 collect government revenue, manipulate world prices, and
encourage domestic production. (True Answer Correct)

95 Why should small nations impose tariffs, even though they

reduce national welfare?
 Small, mostly poor, nations have no reliable means for collecting
taxes to run their governments. (Incorrect)
 Politicians like to build favor with industrial interests, especially
during political campaigns. (Incorrect)
 Congressional raises often hinge on whether or not enough tariff
revenue is collected by the treasury department. (Incorrect)
 Small, mostly poor, nations have no reliable means for collecting
taxes to run their governments and politicians like to build favor
with industrial interests, especially during political campaigns. (True
Answer Correct)

96 Why didn't U.S. tire producers support the recently enacted

tariff on imported Chinese tires?

 Many of them manufacture tires in China. (True Answer Correct)

 They were already earning monopoly profits. (Incorrect)
 Since the union supported the tariff, they naturally had to oppose
it. (Incorrect)
 They wanted the government to impose an import quota rather
than an import tariff. (Incorrect)

97 The politics behind tariff protection suggests that, other things

equal, tariffs are more likely to be imposed when the:
 benefits to consumers and producers are concentrated on specific
firms and states. (Incorrect)
 benefits to producers and their labor forces are concentrated on
specific firms and states. (True Answer Correct)
 benefits to producers and their labor forces are spread
nationwide (Incorrect)
 losses to consumers are concentrated on specific firms and
states. (Incorrect)
98 In 2002 the United States relied upon the GATT's ________ to
impose tariffs on imported steel.

 escape clause (True Answer Correct)

 antidumping clause (Incorrect)
 countervailing duty clause (Incorrect)
 most favored nation clause (Incorrect)

99 Section 421 of the amended Trade Act of 1974 allows tariffs to

be applied against:
 rising imports from China that cause ―market disruption‖ in a U.S.
industry. (True Answer Correct)
 any imports that cause market disruption in a U.S.
industry. (Incorrect)
 subsidized Chinese imports. (Incorrect)
 any imports from Canada or Mexico that violate NAFTA
provisions. (Incorrect)

100 When the United States imposed tariffs of 30% on many steel
imports in March 2002, the estimated total cost to the United
States over the period of March 2002 to December 2003 was:
 $1 million. (Incorrect)
 $3.32 for each job saved—certainly worth it. (Incorrect)
 $185 million. (True Answer Correct)
 too small to measure. (Incorrect)

101 One estimate of the deadweight losses of the 2002 U.S tariffs on
imported steel is:

 $185 trillion. (Incorrect)

 $185 billion. (Incorrect)
 $185 million. (True Answer Correct)
 $185,000. (Incorrect)

102 U.S. consumers were hurt by the 2002 steel tariff; U.S.
producers who use steel were also hurt, but the biggest outcry
came from:
 exporters of steel to the United States—Europe, Japan, and South
Korea. (True Answer Correct)
 the United Nations. (Incorrect)
 the big labor unions. (Incorrect)
 Ralph Nader, who is very opposed to restrictions on free
trade. (Incorrect)
103 The WTO reacted in what way to U.S. imposition of steel tariffs
in 2002?
 It said that even though the tariffs were high, it was OK because
of the escape clause. (Incorrect)
 It suspended the United States temporarily, stripping it of all its
rights in the organization. (Incorrect)
 It made the United States promise to repeal the tariff as soon as
possible. (Incorrect)
 It allowed other nations to impose tariffs on U.S. exports to
retaliate. (True Answer Correct)

104 When one country retaliates to a tariff with its own tariff, this is
a:

 tariff war. (True Answer Correct)

 tariff tiff. (Incorrect)
 tariff conflict. (Incorrect)
 tariff fight. (Incorrect)

105 One difference between the tariffs on steel imports levied in

2002 and the tariffs on Chinese tire imports levied in 2009 was
that:
 U.S. steel producers supported the steel tariff while U.S. tire
producers did not support the tire tariff. (True Answer Correct)
 U.S. tire producers supported the tire tariff while U.S. steel
producers did not support the steel tariff. (Incorrect)
 U.S. steel workers supported the steel tariff while U.S. tire
workers did not support the tire tariff. (Incorrect)
 U.S. tire workers supported the tire tariff while U.S. steel
workers producers did not support the steel tariff. (Incorrect)

106 U.S. tire producers did not support the recently enacted tariff
on imports of Chinese tires because U.S. producers that also
produce tires in China would have experienced a decline in
their ___________ earned in ___________ .
 consumer surplus; the United States (Incorrect)
 producer surplus; the United States (Incorrect)
 consumer surplus; China (Incorrect)
 producer surplus; China (True Answer Correct)

107 If a large country imposes a tariff, it may have a different

effect. What?
  If a large nation imposes a tariff, that government gets more
revenue. (Incorrect)
 Consumers in the nation have so many other choices, it may not
have any effect at all. (Incorrect)
 Because of the size of the nation, a tariff that decreases the
quantity demanded of the product may also reduce the world price
of the good. (True Answer Correct)
 The large nation can just buy up foreign producers if they don't
like having a tariff imposed. (Incorrect)

108 What is a difference between a tariff imposed by a large

country and a tariff imposed by a small country?
 A tariff imposed by a large country has no deadweight
consumption and production losses. (Incorrect)
 A tariff imposed by a large country has a terms-of-trade
effect. (True Answer Correct)
 A tariff imposed by a small country has a terms-of-trade
effect. (Incorrect)
 A tariff imposed by a large country has no deadweight
consumption loss. (Incorrect)

109 Foreign supply curves facing a large country differ from those
facing a small country. Large countries face _____________
foreign supply curves and small countries face ______________
foreign supply curves.
 perfectly price elastic; upward-sloping (Incorrect)
 upward-sloping; perfectly price elastic (True Answer Correct)
 downward-sloping; perfectly price elastic (Incorrect)
 upward-sloping; downward-sloping (Incorrect)

110 A large nation faces a(n) ____ foreign export supply curve,
rather than a(n) ____ foreign export supply curve.

 flat; upward-sloping (Incorrect)

 downward-sloping; upward-sloping (Incorrect)
 upward-sloping; flat (True Answer Correct)
 flat; downward-sloping (Incorrect)

111 When a large country imposes a tariff, the burden is often

shared by:

 foreign consumers and domestic producers. (Incorrect)

 domestic consumers and foreign producers. (True Answer
 Correct)
 all producers and consumers in each nation equally. (Incorrect)
 its government. (Incorrect)

112 If a large country imposes a tariff:

 its economic welfare may increase. (True Answer Correct)

 its economic welfare must always fall. (Incorrect)
 its economic welfare will increase if its deadweight losses exceed
gains from its terms-of-trade effect. (Incorrect)
 the tariff will have the same impact as an identical tariff imposed
by a small country. (Incorrect)

113 Who bears the burden of the terms-of-trade effect when a large
country imposes a tariff?

 foreign consumers. (Incorrect)

 foreign producers. (True Answer Correct)
 domestic producers (Incorrect)
 domestic consumers (Incorrect)

114 Because a large nation can force the exporting nation to pay a
substantial amount of the tariff, its _________ may improve
after the tariff is imposed.
 consumption (Incorrect)
 production (Incorrect)
 terms of trade (True Answer Correct)
 income tax collection rate (Incorrect)

115 If a large country imposes a tariff:

 the terms-of-trade effect may offset deadweight losses on its

economy. (True Answer Correct)
 the terms-of-trade effect can never offset deadweight losses on its
economy. (Incorrect)
 there will be no terms-of-trade effect. (Incorrect)
 the country will always be worse off. (Incorrect)

116 Suppose that the world price of resins is $100 per ton. Now
suppose that the United States imposes a 10% tariff on
imported resins. What is the U.S. domestic price of resins after
the 10% tariff is imposed (rounded to the nearest dollar) if
 exporters bear half of the tariff?

 $90 (Incorrect)
 $100 (Incorrect)
 $105 (True Answer Correct)
 $95 (Incorrect)

117 The United States applies a 25% tariff on imported pickup

trucks (mainly from Japan). If the United States is considered
to be a “large” country, then:
 the U.S. price of imported Japanese pickup trucks will increase
by 25%. (Incorrect)
 the U.S. price of imported Japanese pickup trucks will increase
by less than 25%. (True Answer Correct)
 the U.S. price of imported Japanese pickup trucks will increase
by more than 25%. (Incorrect)
 the U.S. price of imported Japanese pickup trucks will increase
by 35%. (Incorrect)

118 When a large nation imposes a tariff on a smaller nation and

causes its terms of trade to deteriorate, the tariff is sometimes
referred to as a:
 beggar-thy-neighbor tariff. (True Answer Correct)
 hate-thy-neighbor tariff. (Incorrect)
 love-thy-neighbor tariff. (Incorrect)
 aid-thy-neighbor tariff. (Incorrect)

119 Figure: Home Market II

 Reference: Ref 7-8

(Figure: Home Market II) For the large-country case in the

figure, the free-trade price of the product is ______ and the
amount imported is _________.
 $20; 30 (True Answer Correct)
 $25; 10 (Incorrect)
 $15; 30 (Incorrect)
 $15; 10 (Incorrect)

120 Figure: Home Market II

Reference: Ref 7-8

(Figure: Home Market II) The large country imposes a tariff

 of:

 $10. (True Answer Correct)

 $20. (Incorrect)
 $25. (Incorrect)
 $15. (Incorrect)

121 Figure: Home Market II

Reference: Ref 7-8

(Figure: Home Market II) The foreign producers in the figure

absorbed _____ of the overall tariff.
 $10 (Incorrect)
 $8 (Incorrect)
 $5 (True Answer Correct)
 10% (Incorrect)

122 Figure: Home Market II

 Reference: Ref 7-8

(Figure: Home Market II) The net welfare loss for the home
country because of the tariff is:
 $50. (Incorrect)
 $25. (Incorrect)
 $0. (True Answer Correct)
 $100. (Incorrect)

123 Suppose that the United States is a large country. In fall 2009,
the United States imposed tariffs on tires imported from China.
The deadweight losses of these tariffs were larger than the
terms-of-trade gains to the U.S. economy. Who was better off
and who was worse off as a result of these tariffs?
 U.S. tire producers were better off and U.S. consumers and
Chinese tire producers were worse off. (True Answer Correct)
 U.S. tire producers, U.S. consumers, and Chinese tire producers
were all worse off. (Incorrect)
 U.S. tire producers and Chinese tire producers were better off
and U.S. consumers were worse off. (Incorrect)
 U.S. tire producers and U.S. consumers were better off and
Chinese tire producers were worse off. (Incorrect)

124 Suppose that the U.S. government imposes a 20% tariff to

protect U.S. clothing manufacturers adversely affected by the
expiration of the Multifibre Agreement. Compared with a free-
trade situation, the price of clothing will ______ , and U.S.
clothing production will ________ .
 fall; fall (Incorrect)
  fall; rise (Incorrect)
 rise; rise (True Answer Correct)
 rise; fall (Incorrect)

125 Suppose that the world price of steel is $500 per ton. Now
suppose that the United States imposes a 20% tariff on
imported steel (as it did in 2002). What is the U.S. domestic
price of steel after the 20% tariff is imposed (rounded to the
nearest dollar) if exporters bear two-thirds of the tariff?
 $433 (Incorrect)
 $467 (True Answer Correct)
 $533 (Incorrect)
 $567 (Incorrect)

126 The United States applies a 25% tariff on imported pickup

trucks. If the United States is considered to be a large country,
then the U.S. price of an imported Toyota pickup with a CIF
price (price landed at the U.S. border) of $20,000 will be:
 $25,000. (Incorrect)
 $15,000. (Incorrect)
 between $15,000 and $25,000. (Incorrect)
 between $20,000 and $25,000. (True Answer Correct)

127 A tariff levied on a good produced in a small nation with an

inelastic supply that maximizes the gain to a large nation is
called a(n):
 retaliatory tariff. (Incorrect)
 prime tariff. (Incorrect)
 inelastic tariff. (Incorrect)
 optimal tariff. (True Answer Correct)

128 Table: Export Supply Elasticities

The supplied table gives the foreign elasticity of supply for several
types of U.S. steel imports.
Product Elasticity of Export Supply
Alloy Steel 0.27
Steel bars and rods 0.80
Steel tubes and pipes 90
Steel flat-rolled products 750

Reference: Ref 7-9

 (Table: Export Supply Elasticities) According to the table, for
which product is the United States' optimal tariff the largest?

 alloy steel (True Answer Correct)

 steel bars and rods (Incorrect)
 steel tubes and pipes (Incorrect)
 steel flat-rolled products (Incorrect)

129 Table: Export Supply Elasticities

The supplied table gives the foreign elasticity of supply for several
types of U.S. steel imports.
Product Elasticity of Export Supply
Alloy Steel 0.27
Steel bars and rods 0.80
Steel tubes and pipes 90
Steel flat-rolled products 750

Reference: Ref 7-9

(Table: Export Supply Elasticities) For which product is the

United States' optimal tariff the smallest?
 alloy steel (Incorrect)
 steel bars and rods (Incorrect)
 steel tubes and pipes (Incorrect)
 steel flat-rolled products (True Answer Correct)

130 Table: Export Supply Elasticities

The supplied table gives the foreign elasticity of supply for several
types of U.S. steel imports.
Product Elasticity of Export Supply
Alloy Steel 0.27
Steel bars and rods 0.80
Steel tubes and pipes 90
Steel flat-rolled products 750

Reference: Ref 7-9

(Table: Export Supply Elasticities) According to the table, the

United States can be considered a “small-country” importer of
which steel product?
  alloy steel (Incorrect)
 steel bars and rods (Incorrect)
 steel tubes and pipes (Incorrect)
 steel flat-rolled products (True Answer Correct)

131 Table: Export Supply Elasticities

The supplied table gives the foreign elasticity of supply for several
types of U.S. steel imports.
Product Elasticity of Export Supply
Alloy Steel 0.27
Steel bars and rods 0.80
Steel tubes and pipes 90
Steel flat-rolled products 750

Reference: Ref 7-9

(Table: Export Supply Elasticities) It is almost certain that the

2002 imposition of 13% to 15% tariffs on steel tubes and pipes
resulted in:
 terms-of-trade gains that were greater than deadweight
losses. (Incorrect)
 terms-of-trade gains that equaled deadweight losses. (Incorrect)
 deadweight losses that were greater than terms-of-trade
gains. (True Answer Correct)
 no deadweight losses. (Incorrect)

132 Suppose that the United States is a large country and it wishes
to impose optimal tariffs on its imports of avocados, bananas,
and cherries. The export supply elasticities of avocados,
bananas, and cherries are 1, 2, and 3, respectively. Rank the
products on the basis of their optimal tariffs from lowest to
highest tariff.
 cherries, bananas, avocados (Incorrect)
 avocados, cherries, bananas (Incorrect)
 bananas, avocados, cherries (Incorrect)
 avocados, bananas, cherries (True Answer Correct)

133 Why did the European Union put tariffs on some banana
exports and not others?

 to encourage organic farming in the Caribbean (Incorrect)

 to support former colonies in Africa (True Answer Correct)
  to discourage European banana consumption (Incorrect)
 to encourage European banana production (Incorrect)

134 In 2009, the European Union agreed to grant tariff-free access

to its former colonies and to reduce tariffs on imports by 35%
over seven years on _________, which finally ended a 15-year
feud between the European Union and the United States and
Latin American producers.
 pineapples (Incorrect)
 bananas (True Answer Correct)
 avocados (Incorrect)
 oranges (Incorrect)

135 When the Multifibre Arrangement was abolished,

____________ saw the largest increase in its exports to the
United States.
 Japan (Incorrect)
 India (Incorrect)
 Mexico (Incorrect)
 China (True Answer Correct)

136 Why does the United States maintain high sugar quotas?

 to fight the obesity problem in America (Incorrect)

 to punish sugar production in Communist nations (Incorrect)
 to support sugar producers in low-income countries (Incorrect)
 to avoid payouts to domestic sugar producers (True Answer
Correct)

137 Which of the following will occur when a small country imposes
a quota on imported sugar?

 The domestic price of sugar will fall. (Incorrect)

 Domestic sugar consumption will fall. (True Answer Correct)
 Domestic sugar production will fall. (Incorrect)
 The domestic price of sugar will fall and domestic sugar
consumption and production will fall. (Incorrect)

138 Which of the following is NOT an effect of an import quota

imposed by a small nation?

 It raises producer prices. (Incorrect)

 It generates revenue for the nation. (True Answer Correct)
  It causes more production by domestic industries. (Incorrect)
 It causes a reduction in imports of the product. (Incorrect)

139 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small
country, imposes a �60-per-ton specific tariff on imported steel.
With the tariff, Finland produces 300,000 tons of steel and
consumes 600,000 tons of steel.
Reference: Ref 7-10

(Scenario: Finnish Steel) Suppose that Finland decides to use an

import quota to achieve the same effects on domestic steel
production as the tariff. How large a quota must it use?
 �60 (Incorrect)
 100,000 tons (Incorrect)
 200,000 tons (Incorrect)
 300,000 tons (True Answer Correct)

140 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small
country, imposes a �60-per-ton specific tariff on imported steel.
With the tariff, Finland produces 300,000 tons of steel and
consumes 600,000 tons of steel.
Reference: Ref 7-10

(Scenario: Finnish Steel) What will happen to the Finnish price

of steel if Finnish demand increases and a 300,000-ton quota
remains unchanged?
 It will not change. (Incorrect)
 It will increase. (True Answer Correct)
 It will decrease. (Incorrect)
 It will first increase, then decrease. (Incorrect)

141 SCENARIO: FINNISH STEEL

Suppose that the free-trade price of a ton of steel is �500. (Note:
� is the symbol for the euro, a common currency used in 16
European countries, including Finland.) Finland, a small
country, imposes a �60-per-ton specific tariff on imported steel.
With the tariff, Finland produces 300,000 tons of steel and
consumes 600,000 tons of steel.
Reference: Ref 7-10
 (Scenario: Finnish Steel) What will happen to Finnish welfare
losses if Finnish demand for steel increases and the quota
remains unchanged?
 They will decrease. (Incorrect)
 They will not change. (Incorrect)
 They will increase. (True Answer Correct)
 They will first increase, then decrease. (Incorrect)

142 Suppose that:

(1) the United States has a comparative advantage in
producing chemicals;
(2) Costa Rica has a comparative advantage in producing
sugar; and
(3) the United States imposes a quota on its imports of
Costa Rican sugar.
Now suppose that the United States eliminates its import quotas
on Costa Rican sugar. Which of the following is most likely to
occur for the United States?
 Consumer surplus for American consumers of sugar products
will fall. (Incorrect)
 Producer surplus for American sugar producers will
rise. (Incorrect)
 Consumer surplus for American consumers of sugar products
will rise. (True Answer Correct)
 Tariff revenues for the U.S. government will rise. (Incorrect)

143 Figure: The Soybean Market

Reference: Ref 7-11

 (Figure: The Soybean Market) A quota generates a protective
effect just like a tariff. Use the figure to calculate the “equivalent
import tariff” that would produce the same result as an import
quota of 200 units.
 $1 (Incorrect)
 $2 (Incorrect)
 $3 (True Answer Correct)
 $4 (Incorrect)

144 Figure: The Soybean Market

Reference: Ref 7-11

(Figure: The Soybean Market) Because there is no government

revenue as a result of the quota, one of the parties in the trade
transaction makes a “return” equal to lost government revenue
(P – MC) × Qimports. This is called:
 a windfall profit. (Incorrect)
 a quota rent. (True Answer Correct)
 gains from trade. (Incorrect)
 unearned income. (Incorrect)

145 Quota rents are:

 the difference between the domestic price and world price

following imposition of a quota. (True Answer Correct)
 the extra return to land that occurs following imposition of a
quota. (Incorrect)
 the difference between imports with no quota and imports with
the quota. (Incorrect)
  the extra payment to labor that occurs following imposition of a
quota. (Incorrect)

146 Who collects quota rents when the government gives quota
licenses to domestic firms?

 domestic consumers (Incorrect)

 foreign suppliers (Incorrect)
 domestic producers (True Answer Correct)
 the government (Incorrect)

147 Rent-seeking activities are:

 landowners' efforts to receive higher returns for their

land. (Incorrect)
 bribery and lobbying activities to obtain quota licenses. (True
Answer Correct)
 foreign suppliers' efforts to reduce quotas. (Incorrect)
 domestic consumers' efforts to reduce tariffs. (Incorrect)

148 If rent-seeking occurs, then a country's welfare losses from

quotas will:

 increase. (True Answer Correct)

 decrease. (Incorrect)
 not change. (Incorrect)
 first increase, then decrease. (Incorrect)

149 If a quota license is awarded to a domestic firm without an

auction, it may generate bribes or lobbying spending to earn
this revenue. Economists call this a(n) ____ activity.
 efficient (Incorrect)
 unnecessary (Incorrect)
 wasteful rent-seeking (True Answer Correct)
 profit-maximizing (Incorrect)

150 Who collects quota rents when the government auctions quota
licenses?

 domestic consumers (Incorrect)

 foreign suppliers (Incorrect)
 domestic producers (Incorrect)
 the government (True Answer Correct)
151 One way to fairly distribute quotas, while getting revenue for
the government, is to:

 auction quotas in a public sale to the highest bidder. (True

Answer Correct)
 conduct a lottery for quotas for the lucky winner. (Incorrect)
 allow Congress to apportion quotas among their
constituents. (Incorrect)
 restrict quotas on the basis of handicap, gender, and other
protected status. (Incorrect)

152 When a nation agrees to limit its own exports by imposing

quotas on its own firms in order to keep revenue high, keep
from breaking WTO rules, and pacify protectionist interests in
the import nation, it is known as:
 lost profit opportunities. (Incorrect)
 reverse import restrictions. (Incorrect)
 a voluntary export restraint agreement. (True Answer Correct)
 deadweight welfare loss. (Incorrect)

153 An import quota is different from a voluntary export restraint

because:
 the former is imposed by the exporting country and the latter by
the home country. (Incorrect)
 the former is imposed by the home country and the latter by the
exporting country. (True Answer Correct)
 the latter is specified by domestic importers. (Incorrect)
 the former results in less gain for the country. (Incorrect)

154 What is the main difference between a quota and a voluntary

export restraint?
 There are no differences between a quota and a voluntary export
restraint. (Incorrect)
 The importing country administers a quota and the exporting
country administers a voluntary export restraint. (True Answer
Correct)
 A quota affects a country's imports while a voluntary export
restraint affects its exports. (Incorrect)
 A quota has deadweight losses while a voluntary export restraint
has no deadweight losses. (Incorrect)
155 In the 1980s the United States used _________ to restrict
imports of Japanese automobiles.

 quotas (Incorrect)
 tariffs (Incorrect)
 voluntary export restraints (True Answer Correct)
 antidumping duties (Incorrect)

156 In the 1980s the United States negotiated a voluntary export

agreement with Japan in which each Japanese auto producer
voluntarily agreed to reduce the number of its automobiles
exported to the United States. This voluntary export agreement
caused each Japanese auto producer to:
 raise the prices of their automobile exports to the United
States. (True Answer Correct)
 lower the prices of their automobile exports to the United
States. (Incorrect)
 not change the prices of their automobile exports to the United
States. (Incorrect)
 increase the number of automobiles exported to the United
States. (Incorrect)

157 Who captured the quota rents of the 1980s U.S.-Japanese

voluntary export agreement for automobiles?

 Japanese auto producers (True Answer Correct)

 U.S. consumers of Japanese automobiles (Incorrect)
 U.S. auto producers (Incorrect)
 the U.S. government (Incorrect)

158 Compared with a tariff, welfare losses will _______ when

voluntary export restraints are used to reduce imports.

 decrease (Incorrect)
 not change (Incorrect)
 increase (True Answer Correct)
 first increase, then decrease (Incorrect)

159 What is the major difference between a tariff and a quota that
have equivalent impacts upon domestic production?
 A quota does not lead to an increase in domestic prices while a
tariff does. (Incorrect)
 The government collects with a tariff; other domestic groups
(e.g., domestic producers, importers) may collect with a
 quota. (True Answer Correct)
 The government collects with a tariff; exporters collect with a
quota, thus leading to further deadweight losses for the quota-
imposing country. (Incorrect)
 The government collects with a tariff; importers collect with a
quota, offsetting consumption deadweight losses and leading to
lower deadweight losses for the quota-imposing
country. (Incorrect)

160 The elimination of the Multifibre Agreement in 2005 caused

welfare gains for the average U.S. household of approximately:

 $100. (Incorrect)
 $100 annually. (True Answer Correct)
 $1,000. (Incorrect)
 $1,000 annually. (Incorrect)

161 What happened to the price of U.S. clothing and U.S. clothing
production as a result of the expiration of the Multifibre
Agreement in 2005?
 The price of clothing in the United States fell, and U.S. clothing
production fell. (True Answer Correct)
 The price of clothing in the United States fell, and U.S. clothing
production rose. (Incorrect)
 The price of clothing in the United States rose, and U.S. clothing
production fell. (Incorrect)
 The price of clothing in the United States rose, and U.S. clothing
production rose. (Incorrect)

162 Suppose that the U.S. government imposes a 20% tariff to

protect U.S. clothing manufacturers adversely affected by the
expiration of the Multifibre Agreement. Compared with a free-
trade situation, what will happen to the price of clothing in the
United States and to U.S. production of clothing?
 The price of clothing will fall, and U.S. clothing production will
fall. (Incorrect)
 The price of clothing will fall, and U.S. clothing production will
rise. (Incorrect)
 The price of clothing will rise, and U.S. clothing production will
rise. (True Answer Correct)
 The price of clothing will rise, and U.S. clothing production will
fall. (Incorrect)
163 Suppose, instead, that the U.S. government imposes quotas to
replace the Multifibre Agreement. As U.S. demand for clothing
increases over time, U.S. clothing consumers will find that:
 the price of clothing in the United States will fall. (Incorrect)
 the price of clothing in the United States will rise. (True Answer
Correct)
 the price of clothing in the United States will not
change. (Incorrect)
 U.S. clothing production will fall. (Incorrect)

164 Downgrading is:

 the slope of the import demand curve. (Incorrect)

 the fall in tariffs. (Incorrect)
 a decline in average quality when protection is eliminated. (True
Answer Correct)
 the result of deadweight loss. (Incorrect)

165 The WTO allows no leeway in the ability of its members to raise
or apply tariffs.
 True ()
 False (True Answer )

166 There are exceptions, but the WTO says nations should not
place any restrictions on the quantity of a good that may be
imported.
 True (True Answer )
 False ()

167 Suppose that the U.S. ITC determines that Brazilian steel
exporters are guilty of dumping steel on the U.S. market. The
World Trade Organization then determines what tariffs the
United States can levy against imports of Brazilian steel.
 True ()
 False (True Answer )

168 The WTO was formed immediately following World War II.

 True ()
 False (True Answer )
169 “Dumping” is the sale of export goods in another country at a
price less than that charged at home, or alternatively, at a price
less than its costs of production plus shipping.
 True (True Answer )
 False ()

170 A customs union is a free-trade area in which member

countries also agree to the same tariffs against their imports.

 True (True Answer )

 False ()

171 Producers' surplus represents producers' monopoly profits.

 True ()
 False (True Answer )

172 If the United States is a small country and imposes a tariff on

imported T-shirts of 30% and the world price is $5 per T-shirt,
then the value of T-shirts once they have cleared U.S. customs is
$6.50.
 True (True Answer )
 False ()

173 Economic welfare always falls for a small country that imposes
a tariff.

 True (True Answer )

 False ()

174 Developing countries often use tariffs because they are easy to
collect.

 True (True Answer )

 False ()

175 The importance of tariffs in the government revenues of

developing countries has decreased during the past 20 years.

 True (True Answer )

 False ()

176 The data indicate that developing countries are shifting toward
taxing imports more than domestic tax bases.
 True ()
  False (True Answer )

177 Section 421 of the amended Trade Act of 1974 allows the United
States to impose tariffs in the case of exceptional surges in
imports from China.
 True (True Answer )
 False ()

178 If the United States is a large country and imposes a 30% tariff
on imported T-shirts that have a world price of $5 per T-shirt,
then the value of T-shirts once they have cleared U.S. customs is
$6.50.
 True ()
 False (True Answer )

179 A country's terms of trade improve whenever import prices are

rising faster than export prices.
 True ()
 False (True Answer )

180 Suppose that the Chinese import and export price indexes were
both 100 in 2000. In 2010, the import price index was 110 and
the export price index was 120. China's terms of trade
improved between 2000 and 2010.
 True (True Answer )
 False ()

181 An optimal tariff is an amount that leads to the maximum

increase in welfare for the importing country.

 True (True Answer )

 False ()

182 The optimal tariff for a small country is zero.

 True (True Answer )

 False ()

183 The optimal tariff increases as the foreign elasticity of supply

increases.
 True ()
 False (True Answer )
184 Analysis indicates that all U.S. tariffs on steel lowered U.S.
welfare.
 True ()
 False (True Answer )

185 Quota licenses are permits to import the quantity under the
quota system.

 True (True Answer )

 False ()

186 The government always collects the quota rent when it imposes
quotas on imports.
 True ()
 False (True Answer )

187 Welfare losses of a quota are the same as with a tariff when
quota licenses are given to domestic producers.

 True (True Answer )

 False ()

188 A quota's welfare losses will be the same as a tariff's welfare

losses if the government gives quota licenses to domestic
producers.
 True (True Answer )
 False ()

189 The government can collect quota rents if it auctions quota

licenses.
 True ()
 False (True Answer )

190 The exporting country administers quotas when voluntary

export restraints are used.

 True (True Answer )

 False ()

191 Most quota rents are captured by domestic producers

competing with imports.
 True ()
 False (True Answer )
19 The following equations represent a small country's home supply and demand
2 curves for widgets: S = 0 + 2P and D = 1,000 – 2P.
A) Find the equilibrium price and quantity for widgets in autarky.
B) Now let the world price be $200. Find domestic production, domestic consumption,
and the amount of imports.
C) Derive the country's import demand curve for widgets.
D) Let the country impose a 10% tariff. Calculate its deadweight losses.

 ()

193 Figure: The Soybean Market

Reference: Ref 7-12

(Figure: The Soybean Market) What is the price of U.S.

soybeans before trade?
 ()

194 Figure: The Soybean Market

 Reference: Ref 7-12

(Figure: The Soybean Market) What is the price of U.S.

soybeans after trade?
 ()

195 Figure: The Soybean Market

Reference: Ref 7-12

(Figure: The Soybean Market) After trade, what will be the

quantity of soybeans consumed in the United States?
 ()

196 Figure: The Soybean Market

 Reference: Ref 7-12

(Figure: The Soybean Market) After trade, how many tons will
be produced by the United States?
 ()

197 Figure: The Soybean Market

Reference: Ref 7-12

(Figure: The Soybean Market) Suppose the U.S. government

imposes a tariff of $3 per ton on imported soybeans. What will
be the new U.S. price?
 ()

198 Figure: The Soybean Market

 Reference: Ref 7-12

(Figure: The Soybean Market) Suppose the U.S. government

imposes a tariff of $3 per ton on imported soybeans. What is the
new U.S. quantity produced domestically?
 ()

199 Figure: The Soybean Market

Reference: Ref 7-12

(Figure: The Soybean Market) Suppose the U.S. government

imposes a tariff of $3 per ton on imported soybeans. What is the
new level of imports?
 ()

200 Figure: The Soybean Market

 Reference: Ref 7-12

(Figure: The Soybean Market) Suppose the U.S. government

imposes a tariff of $3 per ton on imported soybeans. How much
revenue is going to the U.S. government?
 ()

201 Figure: The Soybean Market

Reference: Ref 7-12

(Figure: The Soybean Market) Suppose the U.S. government

imposes a tariff of $3 per ton on imported soybeans. How much
would a prohibitive tariff have to be?
 ()

202 Which U.S. government agency did George W. Bush ask to

investigate the need for protection in the steel industry in 2001?
  ()

203 Why did Europe choose to use retaliatory tariffs on U.S.

exports of oranges, apples, and other agricultural goods?
 ()

204 The recently imposed 35% tariff on imported Chinese tires

initiated a small trade war between the United States and
China. Describe what happened following the imposition of
these tariffs.
 ()

205 The graph below gives the relationship between a large-country

importer of a good, say steel, and its tariff rate (in percentages).
Explain why the curve reaches maximum and then declines.

 ()

206 Explain why the exporting foreign country will always lose
when a large home country imposes a tariff.
 ()

20 A) Is a country a small or large country if it faces a perfectly price elastic foreign export
7 supply curve?
B) What is the optimal tariff for a country facing a perfectly price elastic foreign export
supply curve?
C) If the foreign export supply is less than the perfectly price elastic foreign export
supply curve, will the optimal tariff increase or decrease as the price elasticity of
demand increases?
D) What happens to the country's welfare if it applies a tariff higher than the optimal
tariff?

 ()
20 Rank the following in ascending order of an imposing small country's welfare. If
8 there are any two that are equivalent, explain their equivalencies.
A) A tariff of t in a small country resulting in imports of M units.
B) A quota of M units of imports with the government auctioning quota licenses to the
highest bidders.
C) A quota of M units of imports in which domestic firms engage in rent-seeking
activities.
D) An arrangement in which the exporting country voluntarily agrees to limit its
exports to M units.

 ()

209 Several instances of U.S. agreements with its trading partners

to limit their exports to the United States have come under the
category of “voluntary export restraint agreements.” What are
these and why do nations engage in them? Give at least one
example.
 ()