International Economics 14th Edition Robert Carbaugh Test Bank 1

International Economics 14th Edition
Robert Carbaugh Solutions Manual

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CHAPTER 5—NONTARIFF TRADE BARRIERS
MULTIPLE CHOICE
1.
The imposition of a tariff on imported steel for the home country results in:
a. Improving terms of trade and rising volume of trade
b. Higher steel prices and falling steel consumption
c. Lower profits for domestic steel companies
d. Higher unemployment for domestic steel workers
ANS: B PTS: 1 DIF: Easy
NAT: BPROG: Reflective Thinking TOP: Absolute Import Quota
KEY: BLOOM'S: Comprehension
2. Which of the following refers to a market-sharing pact negotiated by trading partners to moderate the
intensity of international competition?
a. Orderly marketing agreement
b. Local content requirements
c. Import quota
d. Trigger price mechanism
ANS: A PTS: 1 DIF: Easy
NAT: BPROG: Reflective Thinking TOP: Export Quotas
KEY: BLOOM'S: Knowledge
3. Suppose the United States and Japan enter into a voluntary export agreement in which Japan imposes
an export quota on its automakers. The largest share of the export quota's "revenue effect" would tend
to be captured by:
a. The U.S. government
b. Japanese automakers
c. American auto consumers
d. American autoworkers
ANS: B PTS: 1 DIF: Easy
4. Suppose the government grants a subsidy to domestic producers of an import-competing good. The
subsidy tends to result in deadweight losses for the domestic economy in the form of the:
a. Consumption effect
b. Redistribution effect
c. Revenue effect
d. Protective effect
ANS: D PTS: 1 DIF: Moderate
NAT: BPROG: Reflective Thinking TOP: Subsidies KEY: BLOOM'S: Comprehension
5. Tariffs and quotas on imports tend to involve larger sacrifices in national welfare than would occur
under domestic subsidies. This is because, unlike domestic subsidies, import tariffs and quotas:
a. Permit less efficient home production
b. Distort choices for domestic consumers
c. Result in higher tax rates for domestic residents
d. Redistribute revenue from domestic producers to consumers
ANS: B PTS: 1 DIF: Challenging
6. Suppose the government grants a subsidy to its export firms that permits them to charge lower prices
on goods sold abroad. The export revenue of these firms would rise if the foreign demand is:
a. Elastic in response to the price reduction
b. Inelastic in response to the price reduction
c. Unit elastic in response to the price reduction
d. None of the above
ANS: A PTS: 1 DIF: Challenging
7. Because export subsidies tend to result in domestic exporters charging lower prices on their goods sold
overseas, the home country's:
a. Export revenues will decrease
b. Export revenues will rise
c. Terms of trade will worsen
d. Terms of trade will improve
ANS: C PTS: 1 DIF: Moderate
8. Which trade restriction stipulates the percentage of a product's total value that must be produced
domestically in order for that product to be sold domestically?
a. Import quota
b. Orderly marketing agreement
c. Local content requirement
d. Government procurement policy
ANS: C PTS: 1 DIF: Easy
NAT: BPROG: Reflective Thinking TOP: Domestic Content Requirements
9. The imposition of a domestic content requirement by the United States would cause consumer surplus
for Americans to:
a. Rise
b. Fall
c. Remain unchanged
ANS: B PTS: 1 DIF: Moderate
10. Domestic content legislation applied to autos would tend to:

a. Support wage levels of American autoworkers
b. Lower auto prices for American autoworkers
c. Encourage American automakers to locate production overseas
d. Increase profits of American auto companies
ANS: A PTS: 1 DIF: Moderate
11. Compared to an import quota, an equivalent tariff may provide a less certain amount of protection for
home producers since:
a. A tariff has no deadweight loss in terms of production and consumption
b. Foreign firms may absorb the tariff by offering exports at lower prices
c. Tariffs are effective only if home demand is perfectly elastic
d. Quotas do not result in increases in the price of the imported good
12. Empirical studies show that because voluntary export quotas are typically administered by exporting
countries, foreign exporters tend to:
a. Raise their export prices, thus capturing much of the quota's revenue effect
b. Lower their export prices, thus losing much of the quota's revenue effect
c. Raise their export prices, thus selling more goods overseas
d. Lower their export prices, thus selling fewer goods overseas
13. Concerning the restrictive impact of an import quota, assume there occurs an increase in the domestic
demand for the import product. As long as the quota falls short of what would be imported under free
market conditions, the economy's adjustment to the increase in demand would take the form of:
a. A decrease in domestic production of the import good
b. An increase in the amount of the good being imported
c. An increase in the domestic price of the import good
d. A decrease in domestic consumption of the import good
ANS: C PTS: 1 DIF: Challenging NAT: 6
TOP: Absolute Import Quota KEY: BLOOM'S: Comprehension
14. Assume the U.S. has a competitive advantage in producing calculators, while the rest of the world has
a competitive advantage in steel. Suppose the U.S. and the rest of the world enter into an agreement to
lower import quotas below existing levels on calculators and steel. Which of the following would least
likely occur for the U.S.? Rising levels of:
a. Consumer surplus for American buyers of steel
b. Producer surplus for American steelmakers
c. Production in the American calculator industry
d. Producer surplus for American calculator producers
15. A firm that faces problems of falling sales and excess productive capacity might resort to international
dumping if it:
a. Can charge higher prices in markets that are elastic to price changes
b. Earns revenues on foreign sales that at least cover variable costs
c. Can sell at that price where domestic and foreign demand elasticities equate
d. Is able to force foreign prices below marginal production costs
NAT: BPROG: Reflective Thinking TOP: Dumping KEY: BLOOM'S: Comprehension
16. A producer successfully practicing international dumping would charge:

a. A relatively higher price in the more inelastic market
b. A relatively higher price in the more elastic market
c. The same price in all markets, regardless of their elasticities
d. Different prices in all markets, regardless of their elasticities
17. The practice of Canadian firms dumping their products in Sweden poses a problem for economic
policymakers since dumping tends to:
a. Favor Swedish consumers over Canadian consumers
b. Favor Swedish producers over Canadian producers
c. Become widespread as firms operate at full productive capacity
d. Result in firms charging prices above the total costs of production
18. The United Auto Workers union attempted to win the approval of legislation that would moderate the
practice of foreign sourcing on the part of American auto manufacturers. Which of the following best
represents this legislation?
a. Voluntary export quotas
b. Trigger price mechanism
c. Tariff quotas
d. Local content laws
ANS: D PTS: 1 DIF: Easy
19. A main factor behind the president's decision to extend relief to steel firms in the form of trigger prices
was that:
a. Dumping complaints can be time consuming and expensive to implement
b. The Tokyo Round outlawed the granting of subsidies to steel firms
c. Trigger prices involve zero deadweight welfare loss for the economy
d. Orderly marketing agreements were too costly to administer
20. If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:
a. The quota results in efficiency reductions but the tariff does not
b. The tariff results in efficiency reductions but the quota does not
c. They have different impacts on how much is produced and consumed
d. They have different impacts on how income is distributed
ANS: D PTS: 1 DIF: Challenging
21. If a tariff and an import quota lead to equivalent increases in the domestic price of steel, then:
a. The quota results in efficiency reductions but the tariff does not
b. The tariff results in efficiency reductions but the quota does not
c. They have identical impacts on how much is produced and consumed
d. They have identical impacts on how income is distributed
22. From the perspective of the American public as a whole, export subsidies levied by overseas
governments on goods sold to the United States:
a. Help more than they hurt
b. Hurt more than they help
c. Are equivalent to an import quota
d. Are equivalent to an export quota
23. Export subsidies levied by foreign governments on products in which the United States has a
comparative disadvantage:
a. Lower the welfare of all Americans
b. Lead to increases in U.S. consumer surplus
c. Encourage U.S. production of competing goods
d. Encourage U.S. workers to demand higher wages
24. If import licenses are auctioned off to domestic importers in a competitive market, their scarcity value
(revenue effect) accrues to:
a. Foreign corporations
b. Foreign workers
c. Domestic corporations
d. The domestic government
ANS: D PTS: 1 DIF: Challenging
25. A specification of a maximum amount of a foreign produced good that will be allowed to enter the
country over a given time period is referred to as:
a. A domestic subsidy
b. An export subsidy
c. An import quota
d. An export quota
ANS: C PTS: 1 DIF: Moderate NAT: 6
26. Import quotas tend to lead to all of the following except:

a. Domestic producers of the imported good being harmed
b. Domestic consumers of the imported good being harmed
c. Prices increasing in the importing country
d. Prices falling in the exporting country
27. To maintain that South Koreans are dumping their VCRs in the United States is to maintain that:
a. Koreans are selling VCRs in the United States below their production cost
b. Koreans are selling VCRs in the United States above their production cost
c. The cost of manufacturing VCRs in Korea is lower in Korea than in the United States
since wages are lower in Korea
d. The cost of manufacturing VCRs in Korea is higher in Korea than in the United States
since wages are higher in Korea
28. If the home country's government grants a subsidy on a domestically produced good, domestic
producers tend to:
a. Capture the entire subsidy in the form of higher profits
b. Increase their level of production
c. Reduce wages paid to domestic workers
d. Consider the subsidy as an increase in production cost
29. For years the U.S. government levied quotas on inexpensive oil imported from the Middle East. The
quotas led to cost increases for U.S. consumers totaling $3 billion for oil products. An apparent
justification for this policy was that:
a. U.S. oil companies and workers deserved higher incomes
b. U.S. oil was of superior quality and merited higher prices
c. One should not be too dependent on foreign suppliers of crucial resources
d. The U.S. government needed the quota revenue to balance its budget
30. In certain industries, Japanese employers do not lay off workers. Therefore, they sometimes have
excess supplies of goods that they cannot sell on the home market without lowering prices. To hold
down losses, they sell goods in overseas markets at prices well beneath those in Japan. This practice is
best referred to as:
a. Orderly marketing
b. Trigger pricing
c. Domestic content pricing
d. Dumping
Figure 5.1 illustrates the steel market for Mexico, assumed to be a "small" country that is unable to
affect the world price. Suppose the world price of steel is given and constant at $200 per ton. Now
suppose the Mexican steel industry is able to obtain trade protection.
Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country

31. Consider Figure 5.1. With free trade, the quantity of steel imported by Mexico equals:
a. 2 tons
b. 4 tons
c. 6 tons
d. 8 tons
ANS: C PTS: 1 DIF: Challenging NAT: BPROG: Analytic
TOP: Subsidies KEY: BLOOM'S: Analysis
32. Consider Figure 5.1. With free trade, Mexico's consumer surplus and producer surplus respectively
equal:
a. $2000 and $1200
b. $3200 and $200
c. $3600 and $800
d. $4000 and $600
ANS: B PTS: 1 DIF: Challenging NAT: BPROG: Analytic
33. Referring to Figure 5.1, suppose the Mexican government imposes an import quota equal to 2 tons of
steel.
If Mexican steel importers behave as monopoly buyers and foreign exporters behave as competitive
sellers, the overall welfare loss of the quota to Mexico equals:
a. $200
b. $400
c. $600
d. $800
steel.
If foreign exporters behave as monopoly sellers, and Mexican importers behave as competitive buyers,
the overall welfare loss of the quota to Mexico equals:
a. $200
b. $400
c. $600
d. $800
ANS: D PTS: 1 DIF: Challenging NAT: BPROG: Analytic
steel.
If the Mexican government auctions import licenses to the highest foreign bidder, the overall welfare
loss of the quota to Mexico equals:
a. $200
b. $400
c. $600
d. $800
36. Consider Figure 5.1. Suppose the Mexican government provides a subsidy of $200 per ton to its steel
producers, as indicated by the supply schedule SM (with subsidy).
The quantity of imports equals:

a. 1 ton
b. 2 tons
c. 3 tons
d. 4 tons
The total cost of the subsidy to the Mexican government equals:

a. $200
b. $400
c. $600
d. $800
As a result of the subsidy Mexican steel producers gain ____ of producer surplus.
a. $200
b. $400
c. $600
d. $800
39. Consider Figure 5.1. Suppose instead that the Mexican government provides a subsidy of $200 per ton
to its steel producers, as indicated by the supply schedule SM (with subsidy).
As a result of the subsidy, the welfare loss to Mexico due to inefficient domestic production equals:
a. $200
b. $400
c. $600
d. $800
ANS: A PTS: 1 DIF: Challenging NAT: BPROG: Analytic
The overall deadweight welfare loss to Mexico equals:

a. $200
b. $400
c. $600
d. $800
41. Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to
Mexico vis-a-vis an export quota equal to 2 tons.
Assuming Mexican importers behave as competitive buyers while foreign exporters behave as
monopoly sellers, the overall welfare loss of the quota to Mexico is:
a. $200
b. $400
c. $600
d. $800
42. Consider Figure 5.1. Suppose the rest of the world voluntarily agrees to reduce steel shipments to
Mexico vis-a-vis an export quota equal to 2 tons.
Assuming Mexican importers behave as monopoly buyers while foreign exporters behave as
competitive sellers, the overall welfare loss of the quota to Mexico is:
a. $200
b. $400
c. $600
d. $800
Figure 5.2 illustrates the revenue and cost conditions of ABC Inc. which sells calculators in Canada
and France.
Figure 5.2. International Dumping
43. Consider Figure 5.2. In the absence of international dumping, ABC Inc. maximizes profits by selling
____ calculators at a price of $____; the firm realizes profits totaling $____.
a. 27, $5, $54
b. 27, $5, $36
c. 24, $4, $46
d. 24, $4, $28
ANS: A PTS: 1 DIF: 3 NAT: BPROG: Analytic
TOP: Dumping KEY: BLOOM'S: Analysis
44. Referring to Figure 5.2, consider if ABC Inc. sells 27 calculators at a price of $5 each, realizing profits
totaling $54. Of this quantity, ABC Inc. sells ____ calculators in Canada and realizes revenues totaling
$____; the firm sells ____ calculators in France and realizes revenues totaling $____.
a. 15, $35, 9, $45
b. 15, $45, 9, $35
c. 21, $105, 6, $30
d. 21, $30, 6, $105
45. Consider Figure 5.2. With international dumping, ABC Inc. sells ____ calculators to Canadian buyers
at a price of $____ and ____ calculators to French buyers at a price of $____.
a. 15, $4, 12, $7
b. 15, $7, 12, $4
c. 9, $5, 15, $6
d. 9, $6, 15, $5
46. Consider Figure 5.2. Compared with the total revenue and total profit that ABC Inc. realizes in the
absence of dumping, with dumping the firm attains a:
a. Fall in revenue of $18; fall in profits of $15
b. Fall in revenue of $18, fall in profits of $18
c. Rise in revenue of $18, rise in profits of $15
d. Rise in revenue of $18, rise in profits of $18
Figure 5.3 illustrates the apple market for Sweden, assumed to be a "small" country that is unable to
affect the world price. SSweden is the domestic supply and DSweden is the domestic demand. SSweden+Quota is
Sweden's supply schedule with an import quota.
Figure 5.3. Sweden's Apple Market

47. Consider Figure 5.3. In the absence of trade, Sweden's equilibrium price and quantity of apples would
be:
a. $0.60 and 22 pounds
b. $0.60 and 14 pounds
c. $1.00 and 18 pounds
d. $1.40 and 14 pounds
ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic
TOP: Absolute Import Quota KEY: BLOOM'S: Analysis
48. Consider Figure 5.3. Suppose the rest of the world can supply apples to Sweden at a price of $0.60 per
pound. With free trade, Sweden produces ____ pounds of apples and imports ____ pounds of apples.
a. 10, 8
b. 10, 18
c. 6, 22
d. 6, 16
ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic
49. Consider Figure 5.3. At the free-trade price of $0.60 per pound, Sweden's consumer surplus totals
$____ and producer surplus totals $____.
a. $10.80, $2.40
b. $14.60, $3.90
c. $24.20, $1.80
d. $32.40, $2.30
50. Consider Figure 5.3. If SSweden+Quota represents the supply schedule after a quota is levied, Sweden's
imports will equal:
a. 6 apples
b. 8 apples
c. 10 apples
d. 12 apples
ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic
51. Consider Figure 5.3. After the quota is levied, the price of apples in Sweden will equal:
a. $0.60 per pound
b. $1.00 per pound
c. $1.40 per pound
d. $1.80 per pound
ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic
52. Consider Figure 5.3. As a result of the quota, Sweden's consumer surplus:
a. Increases by $6
b. Increases by $8
c. Decreases by $6
d. Decreases by $8
53. Consider Figure 5.3. The quota leads to a deadweight welfare loss for Sweden of an amount equaling:
a. $0.80
b. $1.60
c. $2.40
d. $3.20
54. Consider Figure 5.3. The quota's revenue effect equals:

a. $1.60
b. $2.40
c. $3.20
d. $4.00
55. Consider Figure 5.3. Assume that Swedish import companies behave as competitive buyers while
foreign export companies behave as a monopoly seller. Compared to free trade, Sweden's import quota
results in domestic welfare:
a. Gains totaling $3.20
b. Gains totaling $4.80
c. Losses totaling $3.20
d. Losses totaling $4.80
56. Consider Figure 5.3. Assume that Swedish import companies behave as a monopoly buyer while
foreign export companies behave as competitive sellers. Compared to free trade, Sweden's import
quota results in domestic welfare:
a. Gains totaling $1.60
b. Gains totaling $3.20
c. Losses totaling $1.60
d. Losses totaling $3.20
57. Consider Figure 5.3. If the Swedish government auctions import licenses to the highest bidder in a
competitive market, it could realize revenues of up to:
a. $3.20
b. $4.00
c. $4.80
d. $5.60
Figure 5.4 illustrates the calculator market for Venezuela, assumed to be a "small" country that is
unable to affect the world price. SVenezuela is the domestic supply schedule and DVenezuela is the domestic
demand schedule.
Figure 5.4. Venezuelan Calculator Market

58. Consider Figure 5.4. Suppose the rest of the world supplies calculators to Venezuela at a price of $4
each. With free trade, Venezuelan imports total:
a. 8 calculators
b. 16 calculators
c. 20 calculators
d. 24 calculators
ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic
59. Consider Figure 5.4. Assume the Venezuelan government grants its manufacturers a production
subsidy of $4 per calculator. After the subsidy is granted, Venezuelan imports total:
a. 8 calculators
b. 12 calculators
c. 16 calculators
d. 20 calculators
60. Consider Figure 5.4. The cost of the production subsidy to the Venezuelan government totals:
a. $32
b. $40
c. $48
d. $54
ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic
61. Consider Figure 5.4. The increase in Venezuelan producer surplus under the production subsidy totals:
a. $16
b. $20
c. $24
d. $32
62. Consider Figure 5.4. The production subsidy results in an overall welfare loss for Venezuela totaling:
a. $8
b. $12
c. $16
d. $20
ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic
63. A voluntary export agreement

a. Typically applies only to the world's most important exporting nation(s)
b. Typically applies only to the world's least important exporting nation (s)
c. Is always more restrictive on trade than a tariff or import quota
d. All of the above
64. When voluntary export limits are imposed on the world's chief exporter
a. The exports of the non-restrained suppliers may be stimulated
b. A trade diversion effect may occur
c. Both a and b
65. Subsidies to domestic firms may lead to

a. An increase in prices
b. Higher volume of exports
c. Higher volume of imports
d. Increase in welfare of the trading partner
66. Concerning international dumping, many economists argue that "fair value" should be based on
a. Average variable cost
b. Average fixed cost
c. Marginal cost
d. Total cost
ANS: A PTS: 1 DIF: Challenging
Figure 5.6 Domestice Supply and demand for Wine - US
67. Consider Figure 5.6. In the global market for wine, the EU is willing to supply as much wine as the
US demands at $8 per bottle. How much will the US produce and import in these circumstances?
a. 5 bottles, 40 bottles
b. 40 bottles, 0 bottles
c. 5 bottles, 35 bottles
d. 5 bottles, 0 bottles
ANS: C PTS: 1 DIF: Easy
NAT: BPROG: Reflective Thinking TOP: Import Quota
KEY: BLOOM'S: Analysis
US demands at $8 per bottle. What will happen to the price of a bottle of wine in the US if a quota of
15 bottles of wine is imposed?
a. increase to $15
b. increase to $10
c. stay the same at $8
d. decrease to $5
US demands at $8 per bottle. IF the US imposes a quota of 15 bottles of wine, how much wine will
US consumers demand, how much wine will US producers produce and how much wine will be
imported?
a. 30 bottles, 20 bottles, 10 bottles
b. 40 bottles, 25 bottles, 15 bottles
c. 30 bottles, 30 bottles, 0 bottles
d. 30 bottles, 15 bottles, 15 bottles
US demands at $8 per bottle. IF the US imposes a quota of 15 bottles of wine what will happen to
consumer surplus?
a. decreases by $210
b. decreases by $245
c. stays the same
d. increases by $70
US demands at $8 per bottle. If the US imposes a quota of 15 bottles of wine , how much revenue
will the US government collect?
a. 0
b. $35
c. $70
d. $105
TRUE/FALSE
1. In the post-World War II era, Nontariff trade barriers have decreased in importance relative to tariff
barriers.
ANS: F PTS: 1 DIF: Moderate

2. An import quota is a physical restriction on the quantity of goods that may be imported during a
specified time period.
ANS: T PTS: 1 DIF: Easy

3. Today most industrial countries protect their industries via global import quotas rather than selective
import quotas.

4. A global import quota permits a specified number of goods to be imported each year, but does not
specify where the product is shipped from and who is permitted to import.
ANS: T PTS: 1 DIF: Moderate

5. Import tariffs and import quotas yield identical protection effects, consumption effects, redistribution
effects, and revenue effects.
ANS: F PTS: 1 DIF: Challenging

6. Import quotas can yield revenue for the domestic government if it auctions import licenses to the
highest bidder in a competitive market.
ANS: T PTS: 1 DIF: 1

7. To the extent that domestic importing companies organize as a monopoly buyer, and foreign exporting
companies behave as competitive sellers, the importing companies capture the revenue effect of a
quota.

8. An import quota tends to reduce the overall welfare of the importing nation by an amount equal to the
protective effect, consumption effect, and the portion of the revenue effect that is captured by the
domestic government.

9. The sugar import quotas of the U.S. government have tended to increase the market price of sugar,
thus reducing the costs to the government of maintaining sugar price supports for domestic growers.

NAT: BPROG: Reflective Thinking TOP: Tariff-Rate Quota: A Two Tier Tariff
10. During periods of growing demand, a tariff more effectively restricts the volume of imports than an
equivalent import quota.

11. With a quota placed on imported sugar, increased domestic demand leads to increased sugar imports
but not to higher sugar prices.

12. With a tariff on auto imports, increased domestic demand leads to a fall in the number of autos
imported and a rise in the number of autos produced domestically.

13. An orderly marketing agreement is a market-sharing pact negotiated by trading nations, and its effect
is to moderate the intensity of international competition.

14. An elimination of nontariff barriers on apples tends to increase apple imports, reduce profits of import-
competing apple producers, and generate job losses for domestic apple workers.

NAT: BPROG: Reflective Thinking TOP: Other Nontariff Trade Barriers
15. The distribution of an import quota's revenue effect depends on the relative concentration of
bargaining power between foreign exporters and domestic importers.

16. Voluntary export restraint agreements typically apply to all of the world's exporting nations rather than
only the most important exporting nations.

17. For an export quota applied to manufactured goods, foreign exporters tend to capture only a negligible
share of the quota's revenue effect.

18. When increases in nonrestraint supply offset part of the cutback in shipments that occur under an
export quota, the overall inefficiency loss for the importing country is less than that which would have
occurred in the absence of nonrestrained exports.

19. Export quotas, placed on Japanese auto shipments to the United States in the 1980s, led to rising prices
of both Japanese autos and U.S.-produced autos purchased by the U.S. consumer.

20. During the 1980s, U.S. steel-using companies (Caterpillar) actively supported the U.S. government's
negotiation of voluntary export agreements with foreign steel-exporting countries.

21. By limiting the amount of foreign sourcing, local content laws are viewed as a means of jobs
preservation for domestic workers.

22. Local content laws stipulate the maximum percentage of a product's total value that must be produced
domestically for that product to be sold domestically.

23. Local content laws are consistent with the principle of import substitution, in which domestic
production replaces the importation of goods from abroad.

24. To the extent that a local content requirement forces firms to locate production in a high-cost nation,
product price rises and consumer surplus falls.

25. A subsidy granted to import-competing producers results in a welfare loss to the economy by an
amount equal to the protective effect plus the consumption effect.

26. A subsidy granted to import-competing producers is intended to lead to increased domestic production
and decreased imports for the home country.

27. A subsidy granted to an import-competing producer shifts its supply schedule outward to the right.

28. A subsidy granted to an import-competing producer imposes a deadweight loss on the domestic
economy equal to the redistribution effect plus consumption effect.

29. A subsidy granted to import-competing producers reduces overall domestic welfare by the same
amount as would a tariff or quota that restricts imports by the same amount.

30. To the extent that subsidies granted to exporting firms reduce the foreign price of their goods, the
subsidizing country's terms of trade worsen.

31. If the U.S. demand for Korean steel is price elastic, an export subsidy granted to Korean steel firms
will increase Korea's export revenue.
ANS: T PTS: 1 DIF: Challenging

32. International dumping occurs when foreign buyers are charged higher prices than domestic buyers for
an identical product, after allowing for transportation costs and tariff duties.

33. Sporadic (distress) dumping would occur if domestic orange producers dispose of an excess quantity
of oranges, resulting from an abnormally large harvest, by selling them at lower prices abroad than at
home.

34. Predatory dumping would occur if Toyota Inc. of Japan sells autos to U.S. consumers at lower prices
than to Japanese consumers in order to put Chrysler Inc. out of business.

35. A firm would increase profits from dumping if it charges a lower price at home, where demand is
inelastic, and a higher price abroad where demand is elastic.

36. The purpose of international dumping is to decrease a firm's costs and increase its profits, compared to
what would be realized in the absence of dumping.

37. A firm granting lifetime employment to its workers has the incentive to engage in international
dumping during periods of business recession and excess production capacity.

38. A firm suffering idle plant capacity would minimize losses by selling its product abroad at a lower
price than at home, provided that the foreign price more than covers average variable cost.

39. Under U.S. antidumping law, an antidumping duty can be levied when the U.S. Commerce
Department determines that a foreign product is being sold in the United States at less than fair value
and the U.S. International Trade Commission determines that the dumped product is causing economic
harm to domestic producers.

NAT: BPROG: Reflective Thinking TOP: Antidumping Regulations
40. The margin of dumping equals the amount by which the foreign price is greater than the domestic
price, or the amount by which the foreign price exceeds the cost of production.

41. For most nations, the ratio of imports to total purchases in the public sector is much higher than in the
private sector.
ANS: F PTS: 1 DIF: Easy

42. According to the U.S. Buy American Act, federal government agencies cannot purchase materials and
products from U.S. suppliers if their prices are higher than those of foreign competitors.
ANS: F PTS: 1 DIF: Easy

43. For the United States, the Buy American Act has tended to increase consumer surplus for U.S. buyers
of protected merchandise.

44. An effective Buy American law would tend to increase U.S. producer surplus at the expense of U.S.
consumer surplus.

45. An effective Buy American law results in deadweight welfare losses for the United States in the form
of the protective effect and consumption effect.

46. Although the Tokyo Round of international trade negotiations reduced the Buy-American restrictions
of the U.S. government, many state governments have maintained restrictive Buy-American policies.

47. According to the cost-based definition of dumping, dumping begins to occur when a firm sells a
product at a price that is less than average variable cost.

48. If the Japanese demand for computers is elastic and the Canadian demand for computers is inelastic, a
profit-maximizing firm would charge a higher price to Canadian buyers than to Japanese buyers.

49. If the Australian government imposes a domestic content requirement of 75 percent on autos, at least
25 percent of an auto's value must be produced in a foreign country if that auto is to be sold in
Australia.

50. During the 1980s, the U.S. government imposed sugar import quotas in an attempt to reduce its costs
of maintaining price supports for U.S. sugar growers.

NAT: BPROG: Reflective Thinking TOP: Tariff-Rate Quota: A Two Tier Tariff
Figure 5.5 illustrates the television market for Mexico, assumed to be a small country that is unable to
affect the world price. SMexico is the domestic supply schedule and DMexico is the domestic demand
schedule. Suppose that Japan can supply televisions to Mexico at a price of $100 per set.
Figure 5.5. Mexico's Television Market
51. Consider Figure 5.5. With free trade, Mexicans produce 4 TVs, consume 24 TVs, and import 20 TVs.
52. Consider Figure 5.5. With free trade, Mexican producer surplus equals $2450 and Mexican consumer
surplus equals $200.

53. Consider Figure 5.5. Suppose that the governments of Mexico and Japan negotiate a voluntary export
agreement in which Japanese TV exports to Mexico are limited to 8 units. Under the quota, the price
of TVs in Mexico equals $250 while Mexicans produce 10 TVs and purchase 18 TVs.

54. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in
Mexican consumer surplus of $3150.

55. Consider Figure 5.5. Compared to free trade, the Japanese export quota leads to an increase in
Mexican producer surplus of $1050.

56. Consider Figure 5.5. The deadweight welfare loss to Mexico, as a result of the Japanese export quota,
totals $1200.

57. Consider Figure 5.5. The Japanese export quota's revenue effect totals $1200.

58. Consider Figure 5.5. The government of Mexico collects 50 percent of the export quota's revenue
effect, or $600, in the form of tax revenue.

59. Consider Figure 5.5. Assuming that the revenue effect of the export quota accrues to Japanese firms,
the overall welfare loss to Mexico equals $2100 as a result of the quota.

SHORT ANSWER
1. Is a tariff-rate quota a two-tier tariff? Why?
ANS:
Yes. It allows a specified number of goods to be imported at one tariff rate, whereas any imports above
this level face a higher tariff rate.
PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking

TOP: Tariff-Rate Quota: A Two Tier Tariff KEY: BLOOM'S: Comprehension
2. What is an OMA?
ANS:
An OMA involves limitations on export sales administered by one or more exporting nations.

TOP: Export Quotas KEY: BLOOM'S: Comprehension
ESSAY
1. Describe some of the differences between tariffs and quotas?
ANS:
Tariffs and quotas differ in their revenue effects and restrictive impacts on the volume of trade. While
quotas are easier to administer and manage, they do not provide the government with revenue.

2. What are the intent and impact of domestic content requirements?
ANS:
Domestic content requirements try to limit the practice of job outsourcing and also encourage the
development of domestic industry. They stipulate the minimum percentage of a product's value that
must be produced in the home country for that product to be sold there. Domestic content protection
tends to impose welfare losses on the domestic economy in the form of higher production costs and
higher-priced goods.

TOP: Domestic Content Requirements KEY: BLOOM'S: Comprehension

International Economics 14th Edition Robert Carbaugh Test Bank 1

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International Economics 14th Edition

Robert Carbaugh Solutions Manual

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CHAPTER 5—NONTARIFF TRADE BARRIERS

10. Domestic content legislation applied to autos would tend to:

16. A producer successfully practicing international dumping would charge:

26. Import quotas tend to lead to all of the following except:

Figure 5.1. Alternative Nontariff Trade Barriers Levied by a "Small" Country

The quantity of imports equals:

The total cost of the subsidy to the Mexican government equals:

The overall deadweight welfare loss to Mexico equals:

Figure 5.2. International Dumping

Figure 5.3. Sweden's Apple Market

54. Consider Figure 5.3. The quota's revenue effect equals:

Figure 5.4. Venezuelan Calculator Market

63. A voluntary export agreement

65. Subsidies to domestic firms may lead to

Figure 5.6 Domestice Supply and demand for Wine - US

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Easy

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Challenging

ANS: T PTS: 1 DIF: 1

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Challenging

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Easy

ANS: F PTS: 1 DIF: Easy

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate