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Questions and Answers
A tariff is a tax levied when a good is ______.
A tariff is a tax levied when a good is ______.
imported
A ______ tariff is levied as a fixed charge for each unit of imported goods.
A ______ tariff is levied as a fixed charge for each unit of imported goods.
specific
An ______ tariff is levied as a fraction of the value of imported goods.
An ______ tariff is levied as a fraction of the value of imported goods.
ad valorem
An import demand curve is the difference between the quantity that Home consumers demand minus the quantity that Home ______ supply.
An import demand curve is the difference between the quantity that Home consumers demand minus the quantity that Home ______ supply.
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As price increases, the quantity of imports demanded ______.
As price increases, the quantity of imports demanded ______.
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An export supply curve is the difference between the quantity that Foreign producers supply minus the quantity that Foreign ______ demand.
An export supply curve is the difference between the quantity that Foreign producers supply minus the quantity that Foreign ______ demand.
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As the price of the good rises, Foreign producers supply ______ while Foreign consumers demand less.
As the price of the good rises, Foreign producers supply ______ while Foreign consumers demand less.
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The Home import demand curve intercepts the price axis at ______.
The Home import demand curve intercepts the price axis at ______.
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In equilibrium, import demand = export ______
In equilibrium, import demand = export ______
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A tariff acts like a transportation cost, making sellers unwilling to ship goods unless the Home price exceeds the Foreign price by the amount of the ______
A tariff acts like a transportation cost, making sellers unwilling to ship goods unless the Home price exceeds the Foreign price by the amount of the ______
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A tariff raises the price in Home while lowering the price in the ______
A tariff raises the price in Home while lowering the price in the ______
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Because the price in the Home market rises from PW under free trade to PT with the ______
Because the price in the Home market rises from PW under free trade to PT with the ______
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The quantity of Home imports demanded equals the quantity of Foreign exports supplied when PT − PT* = ______
The quantity of Home imports demanded equals the quantity of Foreign exports supplied when PT − PT* = ______
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When a country is 'small,' it has no effect on the foreign (world) price because its demand is an insignificant part of world ______
When a country is 'small,' it has no effect on the foreign (world) price because its demand is an insignificant part of world ______
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The volume traded thus ______ due to the effects of a tariff.
The volume traded thus ______ due to the effects of a tariff.
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Home producers supply more and Home consumers demand ______ when prices rise due to a tariff.
Home producers supply more and Home consumers demand ______ when prices rise due to a tariff.
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The price in the home market rises by the full amount of the ______.
The price in the home market rises by the full amount of the ______.
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When a country is small, a tariff it imposes cannot lower the foreign ______ of the good it imports.
When a country is small, a tariff it imposes cannot lower the foreign ______ of the good it imports.
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The price of the import rises from Pw to ______ + t.
The price of the import rises from Pw to ______ + t.
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The effective rate of protection measures how much protection a ______ provides.
The effective rate of protection measures how much protection a ______ provides.
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For example, the value added of the production process is $8,000 − ______ = $2,000.
For example, the value added of the production process is $8,000 − ______ = $2,000.
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The effective rate of protection for home auto assembly firms is the change in ______ added.
The effective rate of protection for home auto assembly firms is the change in ______ added.
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A tariff raises the price of a good in the importing country, so it hurts ______ and benefits producers.
A tariff raises the price of a good in the importing country, so it hurts ______ and benefits producers.
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Consumer surplus measures the amount that consumers gain from purchases by computing the difference in the price actually paid from the maximum price they would be willing to pay for each ______ consumed.
Consumer surplus measures the amount that consumers gain from purchases by computing the difference in the price actually paid from the maximum price they would be willing to pay for each ______ consumed.
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Tariffs can lead trading partners to retaliate with their own ______, thus hurting exporters.
Tariffs can lead trading partners to retaliate with their own ______, thus hurting exporters.
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The government gains at the expense of consumers and ______.
The government gains at the expense of consumers and ______.
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If the terms of trade gain exceed the efficiency loss, then national ______ will increase under a tariff.
If the terms of trade gain exceed the efficiency loss, then national ______ will increase under a tariff.
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Tariffs can induce producers to engage in ______ activities to avoid paying tariffs.
Tariffs can induce producers to engage in ______ activities to avoid paying tariffs.
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A tariff increases the home price and the quantity supplied but reduces the quantity demanded and the quantity ______.
A tariff increases the home price and the quantity supplied but reduces the quantity demanded and the quantity ______.
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Consumer surplus is the difference between the actual price and what consumers would have been willing to ______.
Consumer surplus is the difference between the actual price and what consumers would have been willing to ______.
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Consumer surplus is equal to the area under the demand curve and above the ______.
Consumer surplus is equal to the area under the demand curve and above the ______.
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Producer surplus measures the amount that producers gain from sales by computing the difference in the price received from the minimum price at which they would be willing to ______.
Producer surplus measures the amount that producers gain from sales by computing the difference in the price received from the minimum price at which they would be willing to ______.
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When price increases, the quantity supplied increases as well as the ______.
When price increases, the quantity supplied increases as well as the ______.
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A tariff raises the price in the importing country, leading to a decrease in ______ surplus.
A tariff raises the price in the importing country, leading to a decrease in ______ surplus.
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The government collects tariff revenue equal to the tariff rate times the quantity of ______ with the tariff.
The government collects tariff revenue equal to the tariff rate times the quantity of ______ with the tariff.
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The triangles b and d represent the ______ loss due to the tariff.
The triangles b and d represent the ______ loss due to the tariff.
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The rectangle e represents the terms of ______ gain from a tariff.
The rectangle e represents the terms of ______ gain from a tariff.
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Study Notes
Tariffs
- A tariff is a tax levied on imported goods.
- Specific tariffs are levied as a fixed charge per unit of imported goods.
- Ad valorem tariffs are levied as a fraction of the value of imported goods.
Supply, Demand, and Trade
- Tariffs affect single markets, such as wheat.
- Without trade, the price of wheat might be higher in one country (Home) than another (Foreign).
- Trade allows wheat to move from Foreign to Home until prices equalize.
Import Demand Curve
- The import demand curve shows the difference between the quantity of a good demanded by consumers and supplied by domestic producers at each price.
- Formula: MD = D – S
- The curve slopes downward; as price increases, the quantity of imports demanded decreases.
Export Supply Curve
- The export supply curve shows the difference between the quantity of a good supplied by exporters and demanded by consumers in the exporting country at each price.
- Formula: XS* = S* - D*
- The curve slopes upward; as price increases, the quantity of exports supplied increases.
Equilibrium
- In equilibrium, import demand equals export supply.
- Home demand minus home supply equals foreign supply minus foreign demand.
- Home demand plus foreign demand equals home supply plus foreign supply.
- World demand equals world supply.
Effects of a Tariff
- A tariff acts like a transportation cost, making it less attractive for sellers to export if the home price isn't high enough above the foreign price. Formula: P₁ - t = P₁*.
- Tariffs make prices higher in the importing country and lower in the exporting country.
- The volume of trade declines.
Effects of a Tariff (Small Country)
- In a small country, the imposition of a tariff does not affect the world price.
- The home price rises by the full amount of the tariff.
Measuring Protection
- The effective rate of protection measures the total amount of protection a tariff provides.
- Tariffs on intermediate goods have a larger impact on the final good than the tariff on the final good itself.
Costs and Benefits of Tariffs
- Tariffs raise prices for consumers in the importing country and benefit domestic producers.
- The government can collect revenue from the tariff.
- Welfare effects can be measured using consumer surplus, producer surplus, and government revenue. The change in welfare from imposition is represented by the formula: e − (b + d).
Consumer Surplus
- Consumer surplus is the difference between the maximum price consumers would pay and the actual price paid.
- Consumer surplus is reduced when tariffs raise prices.
Producer Surplus
- Producer surplus is the difference between the actual price received and the minimum price producers would accept.
- Producer surplus increases as tariffs raise domestic prices.
Summary
- A tariff increases the domestic price and reduces the imports and exports.
- Tariffs generate government revenue.
- Welfare effects include efficiency losses (distortions in production and consumption) and potential terms of trade gains or losses.
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Description
This quiz covers the concepts of tariffs, including specific and ad valorem tariffs, as well as the effects of supply and demand on trade. It explores the import demand curve and export supply curve, providing essential formulas and understanding of market dynamics. Test your knowledge on how tariffs influence domestic and international markets.
