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International Economics 6th Edition James Gerber Test Bank Download
International Economics 6th Edition James Gerber Test Bank Download
1) In a small country, the net national cost of tariff protection is equal to the reduction in
consumer surplus minus
A) the gain to foreigners.
B) the increase in government revenue and the increase in producer surplus.
C) the increase in government revenue.
D) the increase in producer surplus.
E) the efficiency loss and the consumption side loss.
Answer: B
Topic: Introduction: Tariffs and Quotas
Scenario 6.1
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Suppose that United States furniture makers import $100 of wood and parts in order to make a
dining room table selling for $500. The imports have no tariff of quota restrictions.
3) Based on Scenario 6.1 above, if a tariff of 20 percent is placed on imports of dining room
tables, the effective rate of protection is
A) 20 percent.
B) 25 percent.
C) 30 percent.
D) 40 percent.
E) There is not enough information to tell.
Answer: B
Topic: Introduction: Tariffs and Quotas
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4) Based on Scenario 6.1 above, if a tariff of 20 percent is placed on imports of dining room
tables, and another tariff of 50 percent is placed on imports of wood and parts, then the effective
rate of protection on tables made in the United States is
A) 70 percent.
B) 50 percent.
C) 20 percent.
D) 12.5 percent.
E) 0 percent.
Answer: D
Topic: Introduction: Tariffs and Quotas
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8) The production side efficiency loss of a tariff is caused by
A) confusion about prices when a tariff is imposed.
B) higher profits gained by foreign producers.
C) the expansion of relative inefficient domestic production.
D) the contraction of domestic consumption.
E) the increase in government revenue.
Answer: C
Topic: Introduction: Tariffs and Quotas
10) Large countries can improve their welfare by levying a tariff only if it does not
A) encourage rent seeking elsewhere in the economy.
B) discourage innovation.
C) lead to retaliation by the nation's trading partners.
D) All of the above.
E) None of the above.
Answer: D
Topic: Introduction: Tariffs and Quotas
11) Suppose a manufacturer of software develops a new computer program that sells for $50.
The $50 cost includes $0.25 for the CD it is stored on, $5 for the labor of the company software
programmers, and $1.75 for packaging materials and transportation costs. Value added by the
software company is
A) $49.75.
B) $48.25.
C) $48.
D) $44.75.
E) $43.
Answer: C
Topic: Introduction: Tariffs and Quotas
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12) High tariffs on intermediate inputs
A) increase the effective rate of protection on final goods.
B) have no impact on the effective rate of protection on final goods.
C) decrease the effective rate of protection on final goods.
D) lower the nominal rate of protection on final goods.
E) raise the nominal rate of protection on final goods.
Answer: C
Topic: Introduction: Tariffs and Quotas
13) Which of the following is NOT correct about the effects of a tariff on an imported product?
A) Tariffs benefit domestic producers by raising price and domestic output.
B) Tariffs increase government revenue.
C) Tariffs mean higher prices and less consumption for consumers of the product.
D) Tariffs increase the efficiency of how resources are allocated.
Answer: D
Topic: Introduction: Tariffs and Quotas
16) In order for large countries to successfully use tariffs to increase well being,
A) they must have significant market power so that foreign firms will cut prices to preserve their
sales.
B) the deadweight loss created by the tariff must be greater than the government revenue the
tariff generates.
C) domestic production must increase more significantly than for the small country case.
D) domestic consumption and imports must decrease more significantly than in the small country
case.
Answer: A
Topic: Introduction: Tariffs and Quotas
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17) Nominal rates of protection
A) are always greater than effective rates of protection.
B) are always smaller than effective rates of protection.
C) refer to the tariffs placed on intermediate goods used to make the final good or service.
D) cannot be negative.
Answer: D
Topic: Introduction: Tariffs and Quotas
18) Which of the following is FALSE about issues/negotiations in the Doha Development
agenda?
A) It is intended to deal with economic development issues and trade barriers facing developing
countries that were not adequately addressed in the Uruguay Round.
B) Many developing countries are upset with the levels of tariffs and other barriers that
industrialized countries use to protect agriculture, clothing and textiles.
C) Industrialized countries want developing countries to reduce their tariffs, which on average
are higher than the rates of richer countries.
D) Developing countries don't use tariffs, and they want higher income countries to follow their
model.
Answer: D
Topic: Introduction: Tariffs and Quotas
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Use the graph below and the following information to answer the next question(s). The world
price of soybeans is $2.00 per bushel, and the importing country is small enough not to affect the
world price.
Figure 6.1
20) Based on Figure 6.1, suppose the government puts a tariff of $0.25 per bushel on soybean
imports. How much will the tariff reduce imports?
A) Imports will decrease by 10 million bushels.
B) Imports will decrease by 20 million bushels.
C) Imports will decrease by 60 million bushels.
D) Imports will not change after the tariff.
Answer: B
Topic: Introduction: Tariffs and Quotas
21) Based on Figure 6.1, given a tariff of $0.25 per bushel on soybean imports, how much will
domestic production increase?
A) Domestic firms will increase output by 10 million bushels.
B) Domestic firms will increase output by 20 million bushels.
C) Domestic firms will increase output by 70 million bushels.
D) Domestic firms' production will not be changed by the tariff.
Answer: A
Topic: Introduction: Tariffs and Quotas
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22) Based on Figure 6.1, how much revenue will the government raise from a $0.25 per bushel
tariff on soybean imports?
A) The government will raise $2.5 million.
B) The government will raise $5 million.
C) The government will raise $15 million.
D) The government will raise $32.5 million.
E) The government will see no increase in income; because the country is small, foreign firms
will simply not serve it after the tariff is imposed.
Answer: C
Topic: Introduction: Tariffs and Quotas
24) The new GATS and TRIPS are separate agreements negotiated within the WTO framework
as part of the Uruguay Round that apply to
A) services and aircraft.
B) services and transportation.
C) agriculture and textiles.
D) services and intellectual property.
E) textiles and transportation.
Answer: D
Topic: Introduction: Tariffs and Quotas
26) If the effective rate of protection is greater than the nominal rate of protection, there must be
tariffs on intermediate products.
Answer: FALSE
Topic: Introduction: Tariffs and Quotas
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27) Since the mid-1980s tariff rates in most nations have risen.
Answer: FALSE
Topic: Introduction: Tariffs and Quotas
28) Tariff revenue is an important source of operating revenue for many governments of high
income countries.
Answer: FALSE
Topic: Introduction: Tariffs and Quotas
29) Deadweight losses are the only potential cost associated with tariffs, which is why they are
preferred to quotas.
Answer: FALSE
Topic: Introduction: Tariffs and Quotas
30) The rules for respecting property rights as they relate to trade were negotiated during the
Uruguay Round (1986-1994) and culminated in the Trade Related Aspects Intellectual Property
Rights (TRIPS) agreement.
Answer: TRUE
Topic: Introduction: Tariffs and Quotas
31) Draw a graph showing the effects of imposing a tariff in the small country case. Describe the
results, using the concepts of producer surplus, consumer surplus and deadweight loss.
Specifically address the effects on consumers, producers, government revenue and overall
national well being, connecting those effects to areas of your graph.
Answer: I would expect my students to create a graph similar to Figure 6.3 and to describe
results similar to Table 6.1.
Topic: Introduction: Tariffs and Quotas
32) How is the Agreement on Textiles and Clothing impacting trade today?
Answer: It phased out quotas as of 2005, but allows for temporary restrictions which the U.S.
and EU have used regarding Chinese clothing exports.
Topic: Introduction: Tariffs and Quotas
33) Why is the Doha Round called the Doha Development Round?
Answer: Because it pays particular attention to the trade issues facing developing countries
Topic: Introduction: Tariffs and Quotas
34) What has been the most significant obstacle to progress in the Doha Round?
Answer: Agriculture and agricultural support policies
Topic: Introduction: Tariffs and Quotas
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36) Developing countries have identified which key issues as important to them in current trade
talks?
Answer: The costs and benefits to them of implementing the commitments they made in the
Uruguay Round; access to life-saving medicines under the terms of TRIPS is a problem;
industrialized countries' protection of sectors such as agriculture, clothing and textiles, that are
important to developing countries.
Topic: Introduction: Tariffs and Quotas
37) What do developing countries want regarding agriculture in the Doha Round?
Answer: To limit government practices that block their access to markets or that subsidize
production in high income countries
Topic: Introduction: Tariffs and Quotas
3) Which of the following is NOT an expected benefit of reducing nontariff barriers to trade?
A) Fewer firms to compete with
B) Lower prices for many goods
C) Increase in the volume of exports and imports
D) Increase in production levels
E) Improved overall economic welfare
Answer: A
Topic: Analysis of Quotas
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4) In economic terms, tariffs are preferred to quotas because
A) domestic manufacturers gain more producer surplus.
B) there is less loss of consumer surplus.
C) tariffs are easier to administer.
D) quotas create a greater production inefficiency.
E) given the way quotas are usually administered, tariffs cause a smaller net national welfare
loss.
Answer: E
Topic: Analysis of Quotas
5) A real cost of tariffs and quotas that is difficult to measure is that they
A) encourage rent seeking.
B) shift income from consumers to producers.
C) limit the quantity of imports.
D) reduce wages.
E) cause deflation.
Answer: A
Topic: Analysis of Quotas
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8) In the case of a small country, producer surplus
A) increases more with a tariff than with an equivalent quota.
B) increases more with a quota than with an equivalent tariff.
C) is not changed by tariffs or quotas.
D) increases the same with tariffs and equivalent quotas.
E) increases more with quotas.
Answer: D
Topic: Analysis of Quotas
9) Both tariffs and quotas lead to a decrease in imports, a decrease in domestic consumption, and
an increase in domestic production.
Answer: TRUE
Topic: Analysis of Quotas
11) Nontariff measures are generally much more difficult to eliminate than tariffs and quotas
because they are embedded more deeply in national economic policies.
Answer: TRUE
Topic: Analysis of Quotas
12) An increase in domestic demand for a product protected by a quota results in an increase in
producer surplus for domestic firms, while for a tariff it would result in more imports.
Answer: TRUE
Topic: Analysis of Quotas
13) Intellectual property rights protection is a critical issue for the pharmaceutical industry
among others.
Answer: TRUE
Topic: Analysis of Quotas
14) Internationally, the TRIPS agreement is uniformly regarded as a positive step for world
prosperity.
Answer: FALSE
Topic: Analysis of Quotas
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15) If politicians decide to proceed with protection, why might economists prefer tariffs to
quotas? Explain at least three reasons.
Answer: I would expect my students to address the following:
∙ The greater welfare loss from quotas since quota permits are not generally sold
∙ The inability of quotas to respond to increases in domestic demand except through higher
prices and increased producer surplus. With tariffs, the volume of imports simply adjusts to
changing market conditions and market prices are less volatile.
∙ Tariffs are more transparent and probably less costly to administer.
∙ Tariffs favor the most efficient foreign producers. They don't arbitrarily limit entry or
discourage innovation by foreign firms (but they do for domestic firms, meaning we are creating
a situation that rewards foreigners for being innovative and efficient, something not in the long
run best interests of domestic firms).
Topic: Analysis of Quotas
16) Describe intellectual property rights. What agreements have been reached regarding their
protection? What are the benefits and the costs of protecting intellectual property rights?
Answer: Intellectual property rights included copyright and related rights for literary and artistic
work as well as industrial property rights such as trademarks and patents. TRIPS is an
international agreement specifying the rules for respecting intellectual property rights as they
relate to trade and was reached as part of the Uruguay Round. If intellectual property rights are
not protected, it restricts trade flows. Exporters are reluctant to sell into a market if they know
their ideas or brand will be stolen or copied by local firms. Research and innovation are more
likely because protecting intellectual property gives financial incentives to firms and individuals
to do research and continue to innovate. But protecting intellectual property rights means that
high costs for enforcement are imposed on developing countries; it is not well established
empirically that the benefits of innovation outweigh the costs of access, especially for developing
countries that find access to new technology curtailed by having to pay royalties and fees.
Topic: Analysis of Quotas
18) When did intellectual property rights become part of trade agreements?
Answer: Uruguay Round
Topic: Analysis of Quotas
19) What is the name of the agreement related to intellectual property rights?
Answer: TRIPS, or Trade Related Intellectual Property Rights agreement
Topic: Analysis of Quotas
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20) Give an example of an industry that would seek intellectual property rights protection
because its product incorporates innovation and research.
Answer: Pharmaceuticals, computer hardware, telecommunications equipment, other high
technology products
Topic: Analysis of Quotas
21) What is Joseph Stiglitz' main criticism regarding intellectual property rights protection?
Answer: the enforcement costs it imposes on developing countries
Topic: Analysis of Quotas
22) Give an example from your text of a nontariff measure that could reduce the quantity of
imports or exports.
Answer: Special fees imposed on importers, burdensome and unnecessary customs procedures,
unreasonable technical standards, phony health and safety standards, state trading companies,
anticompetitive practices, restrictive government procurement rules, corruption
Topic: Analysis of Quotas
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