Problem Set 3: Tariffs

1. As a government protects its producers from foreign competition, what does it

encourage its economy to do?
a. Move closer to a state of free trade.
b. Move closer to a state of autarky.
c. Move closer to a state of interdependence.
d. Move closer to a state of global flows.

2. How can ‘job protection’ be used as an argument for trade barriers?

a. Import restrictions create a level playing field.
b. Import reductions stimulate domestic activity.
c. Import reduce welfare for everyone.
d. Imports undercut domestic production.

3. How can ‘standards of living’ be used as an argument for trade barriers?

a. Import restrictions create a level playing field.
b. Import reductions stimulate domestic activity.
c. Import reduce welfare for everyone.
d. Imports undercut domestic production.

4. How can ‘fairness’ be used as an argument for trade barriers?

a. Import restrictions create a level playing field.
b. Import reductions stimulate domestic activity.
c. Import reduce welfare for everyone.
d. Imports undercut domestic production.

5. What is the correct terminology for a tax levied on an imported product?

a. Import tariff
b. Protective tariff
c. Revenue tariff
d. Export tariff

6. What is the correct terminology for a tax imposed on an exported product?

a. Import tariff
b. Protective tariff
c. Revenue tariff
d. Export tariff

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7. What is the correct terminology for a tax designed to reduce the amount of imports
entering a country?
a. Import tariff
b. Protective tariff
c. Revenue tariff
d. Export tariff

8. What is the correct terminology for a tax imposed for the purpose of generating tax
revenues?
a. Import tariff
b. Protective tariff
c. Revenue tariff
d. Export tariff

9. Which of the following is an advantage of specific tariffs?

a. Tends to maintain a constant degree of protection for domestic producers during
periods of changing prices.
b. The determination of duties is subject to administrative complexities.
c. The degree of protection it affords domestic producers varies inversely with
changes in import prices.
d. It provides domestic producers more protection during a business recession
when cheaper products are purchased.

10. Which of the following is an advantage of ad valorem tariffs?

a. Tends to maintain a constant degree of protection for domestic producers during
periods of changing prices.
b. The determination of duties is subject to administrative complexities.
c. The degree of protection it affords domestic producers varies inversely with
changes in import prices.
d. It provides domestic producers more protection during a business recession
when cheaper products are purchased.

11. Under which circumstances will a tariff have a greater protective effect?
a. It will have a greater protective effect if it is combined with a high tariff on
imported inputs.
b. It will have a greater protective effect if it is combined with a high tariff on
exported inputs.
c. It will have a greater protective effect if it is combined with a low tariff on
imported inputs.
d. It will have a greater protective effect if it is combined with a low tariff on
exported inputs.

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12. What is to be understood as tax escalation?
a. A decrease in the nominal and effective protection at each stage of production.
b. An increase in the nominal and effective protection at each stage of production.
c. A decrease in the nominal but increase in effective protection at each stage of
production.
d. An increase in the nominal but decrease in effective protection at each stage of
production.

Questions 13 to 16 refer to the following scenario: Assume that X imports Good A from Y at
P=350 and imposes an import tariff of n= 12%.

13. How much will the government generate from the import tariff?
a. 32
b. 42
c. 52
d. 62

14. How much does the consumer pay for the product?
a. 308
b. 350
c. 374
d. 392

15. Now X’s components worth 150 are used in the assembly of Good A. How much will the
consumer pay with OAP?
a. 308
b. 350
c. 374
d. 392

16. Why does a government have an interest in OAP?

a. Parts of the production remain at home – assembled abroad vs. produced
abroad.
b. The entire production will be outsourced, and the government does not have to
worry anymore.
c. The value added is generated 100% abroad.
d. They don’t.

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Questions 17 to 34 refer to the following scenario:

Conduct a welfare analysis for the domestic consumers and producers.

17. In the above market, the equilibrium price is

a. 5
b. 6
c. 7
d. 8

18. In the above market, the equilibrium quantity is

a. 5
b. 6
c. 7
d. 8

19. In the above market, consumer surplus is

a. 10.5
b. 12.5
c. 25
d. 50

20. In the above market, producer surplus is

a. 10.5
b. 12.5
c. 25
d. 50

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21. In the above market, total welfare is
a. 10.5
b. 12.5
c. 25
d. 50

Assume now the above market opens up to international trade. Domestic+World Supply is
at P = 4.

22. With international trade, the equilibrium price is

a. 2
b. 4
c. 6
d. 8

23. With international trade, the equilibrium quantity is

a. 2
b. 4
c. 6
d. 8

24. With international trade, the imported quantity is

a. 2
b. 4
c. 6
d. 8

25. With international trade, the consumer surplus is

a. 2
b. 12.5
c. 24.5
d. 32

26 With international trade, the producer surplus is

a. 2
b. 12.5
c. 24.5
d. 32

27. With international trade, total welfare is

a. 31
b. 32
c. 33
d. 34

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Assume now the above market opens up to international trade. Domestic+World Supply is
at P = 4. And the domestic government imposes an import tariff n=1.

28. With an import tariff, the equilibrium price is

a. 4
b. 5
c. 6
d. 7

29. With an import tariff, the equilibrium quantity is

a. 4
b. 5
c. 6
d. 7

30. With an import tariff, the imported quantity is

a. 4
b. 5
c. 6
d. 7

31. With an import tariff, the consumer surplus is

a. 4.5
b. 12.5
c. 24.5
d. 32

32. With an import tariff, the producer surplus is

a. 4.5
b. 12.5
c. 24.5
d. 32

33. With an import tariff, the government generates in revenue

a. 4
b. 5
c. 6
d. 7

34. With an import tariff, total welfare is

a. 31
b. 32
c. 33
d. 34

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