Question

Answer ALL of the questions below!

Circle the right expression in the parentheses.

Q1. Import tariff (a. raises, b. lowers, c, keeps constant) the domestic price and (a. always, b. sometimes, c. never) (a. raises, b lowers) the world price.

2. (Multiple choices.) A tariff in a large country tends to benefit (a. domestic producers/ b. foreign producers/ c. domestic consumers/ d. foreign consumers/ e. domestic government revenue) and hurt (a. domestic producers/ b. foreign producers/ c. domestic consumers/ d. foreign consumers/ e. domestic government revenue). Similarly, an export subsidy tends to benefit (a. domestic producers/ b. foreign producers/ c. domestic consumers/ d. foreign consumers/ e. domestic government revenue) and hurt (a. domestic producers/ b. foreign producers/ c. domestic consumers/ d. foreign consumers/ e. domestic government revenue).(4)

3. Trade policy (a. always/ b. sometimes/ c. never) generates an efficiency loss and (a. always/ b. sometimes/ c. never) improves the terms of trade. If the country is small, the (a. former/ b. latter) never holds true.(3)

4. Import quotas (a. always/ b. sometimes/ c. never) improve the terms of trade and (a. always/ b. sometimes/ c. never) generates gains in government revenue, and they also (a. benefit/ b. sacrifice) a (a. large/ b. small) number of domestic producers and (a. benefit/ b. sacrifice) a (a. large/ b. small) number of domestic consumers.(6)

Answer 1

Tariff and import quotas are tend to have different effect on the economy depending upon its size and its influence on the world economy. Tariff increases the price for domestic consumers and therefore decreases their welfare while improving the welfare of domestic producers. Most of the effects of import quota are similar to tariff but in this case government does not earn any revenue.

1. Import tariff a. raises the domestic price and b. sometimes the world price.

2. A tariff in a large country tends to benefit a. domestic producers and hurt c. domestic consumers. Similarly, an export subsidy tends to benefit c. domestic consumers and hurt a. domestic producers

3. Trade policy b. sometimes generates an efficiency loss and b. sometimes improves the terms of trade. If the country is small, the b. latter never holds true

4. Import quotas b. sometimes improve the terms of trade and c. never generates gains in government revenue, and they also a. benefit a b. small number of domestic producers and b. sacrifice a a. large number of domestic consumers