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ECO 305 WEEK 4 QUIZ 3 CHAPTERS 5 AND 6

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ECO 305 WEEK 4 QUIZ 3 CHAPTERS 5 AND 6

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

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

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

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

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

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

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

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

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
d. None of the above

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

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

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

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

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

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

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

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

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