International Trade and Tariffs Quiz

The price of imports rises from $Pw to $Pw + t.

The effective rate of protection is calculated as the change in value added divided by the original value added.

The value added is $2,000, calculated as $8,000 (selling price) minus $6,000 (cost of production).

<p>Home auto assembly firms can charge up to $10,000 for each automobile.</p> Signup and view all the answers

<p>Tariffs hurt consumers by raising prices and benefit producers by increasing their market prices.</p> Signup and view all the answers

<p>As prices increase due to tariffs, the quantity demanded decreases, leading to a reduction in consumer surplus.</p> Signup and view all the answers

<p>The effective rate may exceed the tariff rate due to tariffs affecting other sectors, enhancing value added more than the tariff alone.</p> Signup and view all the answers

<p>The government benefits from tariffs by generating revenue from the taxes imposed on imported goods.</p> Signup and view all the answers

<p>A specific tariff is a fixed charge levied per unit of imported goods; for example, $3 per barrel of oil.</p> Signup and view all the answers

<p>An ad valorem tariff is a tax calculated as a percentage of the value of imported goods; for example, a 25% tariff on trucks.</p> Signup and view all the answers

<p>The import demand curve MD slopes downward, indicating that as prices increase, the quantity of imports demanded by Home consumers decreases.</p> Signup and view all the answers

<p>The equation MD = D - S represents the import demand curve as the difference between Home consumers' demand (D) and Home producers' supply (S) at each price.</p> Signup and view all the answers

<p>As prices increase, Home producers supply more, leading to a decline in the demand for imports.</p> Signup and view all the answers

<p>The export supply curve XS* is upward sloping, meaning that as prices increase, the quantity of exports supplied rises.</p> Signup and view all the answers

<p>The equation XS* = S* - D* indicates that the export supply is the difference between the quantity that Foreign producers supply (S*) and the quantity Foreign consumers demand (D*) at each price.</p> Signup and view all the answers

<p>With trade, wheat will be imported from Foreign to Home until the price difference is eliminated, resulting in lower prices in Home.</p> Signup and view all the answers

<p>Tariffs increase government revenue at the expense of consumer surplus by raising prices for domestic consumers.</p> Signup and view all the answers

<p>If terms of trade gains from tariffs exceed efficiency losses, national welfare can increase despite negative impacts on foreign countries.</p> Signup and view all the answers

<p>Retaliatory tariffs can hurt exporters in the original country, leading to an escalation of trade conflicts and reduced global trade.</p> Signup and view all the answers

<p>Tariffs increase the home price and quantity supplied while reducing the quantity demanded and the overall quantity traded, also lowering the world price.</p> Signup and view all the answers

<p>Larger tariffs may cause producers to engage in wasteful activities to avoid tariffs, such as modifying products or changing production methods.</p> Signup and view all the answers

<p>Import demand equals export supply.</p> Signup and view all the answers

<p>A tariff raises prices in the Home market and lowers prices in the Foreign market.</p> Signup and view all the answers

<p>The volume of trade declines.</p> Signup and view all the answers

<p>The foreign price remains unchanged at Pw.</p> Signup and view all the answers

<p>Consumer surplus is the difference between the price consumers actually pay and the maximum price they are willing to pay. It can be derived as the area under the demand curve and above the actual price.</p> Signup and view all the answers

<p>Home producers supply more and Home consumers demand less.</p> Signup and view all the answers

<p>Producer surplus is the difference between the price received and the minimum price at which producers are willing to sell. It is represented as the area above the supply curve and below the price.</p> Signup and view all the answers

<p>The quantity of Home imports equals the quantity of Foreign exports supplied when PT - PT* = t.</p> Signup and view all the answers

<p>A tariff decreases consumer surplus because it raises the price of imported goods. Consumers end up worse off as they pay higher prices.</p> Signup and view all the answers

<p>When a tariff is imposed, producer surplus increases as producers can charge higher prices due to reduced competition from imports. This benefits domestic producers.</p> Signup and view all the answers

<p>It indicates a movement from free trade conditions to a tariff-influenced market.</p> Signup and view all the answers

<p>Areas b and d represent the efficiency loss due to the tariff, indicating that producers overproduce and consumers underconsume. This distortion leads to an inefficient allocation of resources.</p> Signup and view all the answers

<p>Foreign producers supply less and Foreign consumers demand more.</p> Signup and view all the answers

<p>Area e represents the terms of trade gain, indicating that the tariff allows the home country to purchase imports at a lower foreign price. This gain compensates for some welfare losses.</p> Signup and view all the answers

<p>An increase in price leads to an increase in the quantity supplied as producers are incentivized to produce more. It also raises producer surplus since they receive higher prices for their goods.</p> Signup and view all the answers

<p>The ambiguous welfare effect of a tariff for a 'large' country arises because its imports and exports can influence world prices. The overall impact depends on the balance between trade restrictions and efficiency losses.</p> Signup and view all the answers

A tax levied on imported goods.

A tariff charged as a fixed amount for each unit of imported goods. Example: $3 per barrel of oil.

A tariff charged as a percentage of the value of imported goods. Example: 25% tariff on imported trucks.

The difference between the quantity of a good demanded by domestic consumers and the quantity supplied by domestic producers at each price.

Shows the relationship between the price of a good and the quantity of that good that a country is willing to export. It is the difference between the quantity supplied by foreign producers and the quantity demanded by foreign consumers.

The price at which the quantity of a good imported by a country equals the quantity exported by another country.

The difference between the domestic price of a good and the world price of that good in the absence of trade. It represents the potential gain from trade for the country.

It refers to the decrease in the quantity of imports demanded as the price of the imported good increases.

The point at which the quantity of imports demanded by a country equals the quantity of exports supplied by another country. It represents the equilibrium price for goods traded internationally.

The difference in price between the domestic market and the foreign market after a tariff is imposed. The tariff is the driving force behind this difference.

The situation where a country's demand for a good is so small that its import or export activity has no impact on the global price of the good.

A trade agreement where countries agree to remove or reduce tariffs and other barriers to trade between them.

The amount of imports or exports that decreases when a tariff is imposed. It represents the impact of tariffs on trade volume.

The situation where a country's demand for a good is significant enough to influence the world price of that good. This means that the country's import or export activity alters the global market.

The price of goods and services in a specific country. It is influenced by domestic factors like supply and demand, and global factors such as international tariffs.

The price increase in the domestic market resulting from a tariff, calculated as the world price plus the tariff amount.

The difference between the price a buyer is willing to pay for a product and the actual price they pay. It represents the consumer's net benefit from purchasing the good.

The difference between the actual price a producer receives for a good and the minimum price they are willing to accept. It represents the producer's net gain from selling the product.

The percentage increase in value added to a product due to a tariff, compared to the value added without the tariff. It reflects the overall protection offered to a domestic industry by the tariff.

The revenue generated by a tariff, collected by the government from the difference between the world price and the higher domestic price.

The reduction in consumer surplus caused by a tariff, as consumers buy less due to the higher price. It represents a cost of the tariff to consumers.

The increase in producer surplus caused by a tariff, as domestic producers benefit from the higher price of imports. It represents a benefit of the tariff to producers.

The overall net social cost or benefit of a tariff, taking into account the gains to some (e.g., producers, government) and the losses to others (e.g., consumers).

The government collects revenue from tariffs, but this gain comes at the expense of consumers and foreign producers.

When a country imposes a tariff, it can gain from improved terms of trade, but this benefit is often outweighed by efficiency losses.

Higher tariffs can lead to retaliation from trading partners, resulting in a trade war that hurts everyone involved.

Tariffs can create incentives for producers to engage in wasteful activities to avoid paying the tax, leading to inefficiency.

Tariffs can be difficult to remove once implemented, as they often benefit specific industries and create vested interests.

The area under the demand curve and above the market price. It represents the total benefit consumers receive from consuming a good.

The area above the supply curve and below the market price. It represents the total benefit producers receive from selling a good.

A tax imposed on imported goods. It raises the price of the imported good in the importing country.

When a tariff is imposed, it can lead to a decrease in consumer surplus (consumers are worse off) and an increase in producer surplus (producers are better off). The government also gains revenue from the tariff.

A situation where a country's imports and exports influence global prices. This makes the welfare effects of a tariff ambiguous.

Tariffs can lead to a loss of efficiency because they distort production and consumption decisions. This is represented by the triangles 'b' and 'd' in the welfare analysis. However, tariffs can also lead to a gain in terms of trade, represented by rectangle 'e' in the analysis. This is because the tariff lowers the foreign price, allowing the importing country to buy its imports cheaper.