invic

The primary benefits derived from tariffs usually accrue to:

A) domestic suppliers of goods protected by tariffs.

B) foreign producers of goods protected by tariffs.

C) domestic producers of export goods.

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Tariffs raise domestic prices, benefiting domestic suppliers.

invic

What is the difference between a tariff and a quota?

A) A tariff is a tax imposed on imports whereas a quota sets a limit on the amount of imports.

B) A tariff is a tax imposed on imports whereas a quota is a target goal for exports.

C) A quota is a tax imposed on imports whereas a tariff sets a limit on the amount of imports.

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Tariffs are taxes imposed on imports that benefit domestic producers because the higher import price due to the tax allows domestic producers to be more competitive in the local market. Governments also benefit because they collect the tax. Governments do not benefit from quotas because there is no tax involved just the supply of imports is reduced, which benefits domestic producers.

invic

Who benefits least from tariffs?

A) Foreign consumers.

B) Domestic consumers.

C) Domestic producers.

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A tax imposed on imports is called a tariff, which benefits domestic producers and domestic governments. Domestic consumers lose through higher prices, less choice of products, and lower quality products.

invic

Who benefits the most from a quota?

A) Domestic producers.

B) Foreign consumers.

C) Foreign producers.

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Quotas restrict the supply of imported goods, which increases the price domestically benefiting domestic producers. Some foreign producers also benefit from the higher prices created by the quota if they receive the revenue transfer (due to higher prices received for all goods sold under the import license). However, overall the foreign producers do not sell as much of their product and have lost revenues.

invic

Suppose the world price of Mercury tennis shoes is $60, but they sell in the U.S. for $75 due to a $15 import tariff. Who will most likely be negatively affected by the tariff?

A) Producers.

B) Foreign consumers.

C) U.S. consumers.

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Tariffs benefit domestic producers of products because the level of imports will be reduced due to an effective increase in the price of the goods. Consumers in the country lose due to higher prices

invic

Prior to the beginning of summer, the government of Japan places a 150 percent tariff on imported chain saws. Assume for this example that this tariff has a significant impact on the supply of chain saws. The government’s action:

A) benefits the Japanese government and domestic producers.

B) will protect the jobs and high wages of Japanese chain saw industry workers.

C) is more harmful than if the government had limited the amount of chain saws imported.

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The Japanese government’s action is an example of a tariff. A tariff is a tax imposed on imports and benefits the Japanese government because it collects the tariff. Domestic producers benefit because the reduction in the supply of imported goods means a higher domestic price.
The other choices are incorrect. A tariff is considered less harmful than a quota (an import quantity limitation) because under a quota, the domestic government does not receive any funds as it would under a tariff (the foreign producers receive the revenue transfer). In the long run, trade restrictions do not protect the net number of jobs in the country. The number of jobs protected by import restrictions will be offset by jobs lost in the import/export industry. Import/export firms will be unable to sell the overpriced domestic products abroad or import and sell the lower priced restricted foreign-made product.

invic

Trade agreements like the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) that lower trade barriers are least likely to:

A) increase competition worldwide.

B) cause a recession in the United States.

C) lead to economic growth.

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The lowering of trade barriers is hoped to lead to economic growth opportunities and increased competition worldwide.

invic

Prior to the beginning of the baseball season, the United States government places a tariff on imported bubble gum. Assume for this example that this tariff has a significant impact on the supply of bubble gum. Which of the following statements about the impact of this tariff is least valid? The tariff:

A) will prohibit foreign firms from dumping bubble gum on the U.S. market at below cost.

B) will protect the jobs of domestic bubble gum industry workers in the long run.

C) is not necessary to maintain the high wages of the U.S. bubble gum industry workers.

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In the long run, trade restrictions do not protect the net number of jobs in the country. The number of jobs protected by import restrictions will be offset by jobs lost in the import/export industry. Import/export firms will be unable to sell the overpriced domestic products abroad or import and sell the lower priced restricted foreign-made product.
The other statements are at least partially valid. Some reasons for trade restrictions that have some or partial validity are: national defense argument, infant industries argument, and anti-dumping argument. The assertion that trade with low-wage countries depresses wage rates in high-wage countries stems from a misunderstanding of comparative advantage. When each country produces goods for which it has a comparative advantage, both countries will benefit. High-wage countries likely have a comparative advantage in high tech manufacturing and low wage countries will have an advantage in labor-intensive goods.

invic

"Import quotas will create jobs, increasing the employment level of a nation." Economic analysis indicates that this statement is incorrect in:

A) the short run only.

B) the long run only.

C) both the long and short run.

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The argument that trade restrictions protect jobs is of questionable validity. First, trade restrictions prevent trading partners from developing the purchasing power needed to buy import goods from the protected country, thus depressing the country's own export industry. Second, the higher price of the protected domestic goods dampens domestic purchasing power, taking sales away from other domestic products. Third, the jobs that would have been created in the import industry are never created.

The number of jobs protected by import restrictions will be offset by jobs lost in the import/export industry.

invic

The anti-dumping argument in favor of trade restrictions is the argument that restrictions should be imposed to:

A) discourage foreign firms from engaging in price competition.

B) prevent foreign firms from dumping unwanted products in domestic markets.

C) prevent foreign firms from selling their product below cost.

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The anti-dumping argument is that restrictions should be used to prohibit foreign firms from increasing market share by selling products below cost.