International Economics, 7e (Husted/Melvin)

Chapter 7 Nontariff Barriers and Arguments for Protection

Multiple-Choice Questions
1)

Quotas are government imposed limits on the ________ of goods traded between countries.
A)

prices
B)

quantity
C)

value
D)

Either B or C
Answer:

2)

________ are quotas that lead to a complete elimination of trade.

A)

Embargoes
B)

Voluntary export restraints

C)

Nontariff barriers
D)

Orderly marketing agreements

Answer:

A
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 3)

Like tariffs, quotas tend to lead to

A)

higher prices and reduced imports.

B)

increased government revenue.

C)

increased consumer surplus.

D)

All of the above.

Answer:

4)

The welfare effects of a quota depend, to considerable extent, upon

A)

who has the quota license.

B)

the size of the quota.

C)

elasticities of domestic demand and supply.

D)

all of the above.

Answer:

5)

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________ are profits that accrue to whomever has the right to import the quota restricted good.
A)

Quota licenses
B)

Quota rents
C)

Quota prices
D)

None of the above.

Answer:

6)

Tariffs and quotas tend to be similar in their domestic welfare effects

A)

if quota licenses are given to foreigners.

B)

if quota license are auctioned.

C)

if quota licenses are given to domestic firms.

D)

Both B and C.
Answer:

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 7)

Governments around the world tend to auction quota licenses

A)

never.
B)

seldom.
C)

often.
D)

always.
Answer:

8)

A(n) ________ is an example of a quota where foreigners hold quota licenses.

A)

voluntary export restraint

B)

embargo
C)

auction quota
D)

All of the above

Answer:

Answer the question(s) below based on the following diagram.

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 9)

Refer to the figure above. The quota shown in the diagram equals
A)

200 units.
B)

500 units.
C)

1000 units.
D)

1200 units.
Answer:

10)

Refer to the figure above. The quota restricts trade by the same amount as a tariff of
A)

$20.
B)

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$30.
C)

$50.
D)

Cannot answer without more information.

Answer:

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 11)

Refer to the figure above. Quota rents equal

A)

$2000.
B)

$5000.
C)

$6000.
D)

$10000.
Answer:

12)

Refer to the figure above. If the government was to auction quota licenses competitively, it could earn up
to
A)

$2000.
B)

$5000.
C)

$6000.
D)

$10000.
Answer:

13)

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Refer to the figure above. The quota generates deadweight costs of
A)

$10,000.
B)

$12,000.
C)

$30,000.
D)

$50,000.
Answer:

14)

Refer to the figure above. If this were a voluntary restraint agreement, the welfare costs to the importing
country would be
A)

$14,000.
B)

$18,000.
C)

$38,000.
D)

$60,000.
Answer:

15)

Which of the following is true (assume the small country case)?

A)

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With a quota, an increase in demand leads to a higher price and more imports.
B)

With a tariff, an increase in demand leads to a higher price and more imports.
C)

With either a tariff or a quota, an increase in demand leads to a higher price and more imports.
D)

None of the above are true.

Answer:

16)

Which of the following is false?

A)

Tariffs and quotas are identical in their effects, if the protected industry is a monopoly.
B)

Quotas tend to breed graft.

C)

Welfare effects of quotas depend, in part, on who gets the quota rents.
D)

Quotas tend to be administrated in an arbitrary fashion.

Answer:

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 17)

Export subsidies lead to

A)

greater production of exportables and higher internal prices for these goods.
B)

greater production of exportables and lower internal prices for these goods.
C)

greater production of importables and higher internal prices for these goods.
D)

None of the above.

Answer:

18)

Countries like the United States use ________ to offset foreign export subsidies.
A)

quotas
B)

the escape clause

C)

countervailing duties
D)

government procurement
Answer:

19)

Which of the following are used as nontariff barriers?

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 A)

health and safety standards

B)

government procurement policies

C)

domestic content laws

D)

All of the above

Answer:

20)

Which of the following is a valid argument for protection?

A)

national defense
B)

fair trade
C)

creation of employment
D)

All of the above

Answer:

21)

Which of the following is an invalid argument for protection?

A)

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redistribution of income
B)

infant industry protection

C)

preservation of the home market

D)

All of the above

Answer:

22)

________ countries tend to depend on tariffs for a relatively large part of their government revenue.
A)

Developed
B)

Developing
C)

All
Answer:

23)

Tariffs can be used to redistribute income from

A)

abundant factors to scarce factors

B)

consumers to domestic producers

C)

12
from one country to another
D)

All of the above

Answer:

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 24)

In the case of national defense protection, ________ is a better policy than protection.
A)

a production subsidy combined with free trade

B)

an income tax
C)

direct government provision of infrastructure

D)

None of the above is better

Answer:

25)

A production subsidy combined with free trade

A)

has the same deadweight costs as a tariff.

B)

has only consumption deadweight costs.

C)

has only production deadweight costs.

D)

None of the above.

Answer:

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True or False Questions
1)

Higher protection raises the overall level of employment.

Answer:

False
Explanation:

Protection tends only to redistribute jobs.

2)

Tariffs and quotas are essentially identical in their effects.

Answer:

False
Explanation:

None Given

3)

While tariff levels have been falling over the past several decades, nontariff barriers have been used
increasingly.
Answer:

True

Explanation:

None Given
 4)

The welfare effects of quotas depend, to some extent, on who has the right to import the quota restricted
goods.
Answer:

True

Explanation:

None Given

5)

The most commonly expressed arguments for protection tend to be largely invalid.
Answer:

True

Explanation:

Consider patriotism, level playing fields, employment, etc.

6)

A less costly alternative to protection of national defense industries would be a production subsidy.
Answer:

True

Explanation:

This generates the production deadweight cost without the consumption deadweight cost.

7)
Quotas redistribute income from consumers to domestic producers.
Answer:

True

Explanation:

None Given
 8)

Export subsidies lead to lower prices of exportables for both domestic residents and foreigners.
Answer:

False
Explanation:

Domestic prices rise.

9)

Voluntary export restraints and quotas are essentially identical in their welfare effects.
Answer:

False
Explanation:

With VERs, foreigners earn the quota rents.

10)

Strategic trade policy considerations imply that free trade policies should never be pursued.
Answer:

False
Explanation:

Such policies are very difficult to implement without lowering welfare.

Essay Questions
 1)

Explain why each of the following is not a valid argument for protection.
(a) patriotism
(b) fair play (e.g. level international playing fields)
(c) preservation of jobs
Answer:

(a) Protection can lower welfare, which would be unpatriotic.

(b) The notion of fair play does not conform well to the real world. Fair play for producers would be
unfair for consumers, etc.
(c) Protection tends to redistribute jobs rather than create new ones.)

2)

Are tariffs and quotas equivalent in their economic effects? Demonstrate.

Answer:

No. There are government revenue differences. There are differences related to market dynamics,
industrial organization of the protected industry, administration, and the potential for corruption.

3)

Write an essay on the national defense argument for tariffs. Include in your discussion points in favor of
this idea as well as problems with its implementation. Is protection the best policy to achieve the stated
ends? Explain.
Answer:

The national defense argument is legitimate in those cases where domestic production is required.
Problems include use in inappropriate situations as well as deadweight costs. A better policy would be to
subsidize domestic production or subsidize imports during peace time.

4)

Why do countries impose protection even if it lowers economic welfare? Explain fully.
Answer:

Governments may not be interested in maximizing economic welfare. Instead they have need for
revenues, they may want to redistribute incomes, there may be second best considerations or national
defense reasons, etc.