Question

1.

If both China and Nigeria set a tariff of 10% per unit of soybeans imported from the US, what would be your expectation owith respect to the domestic price of soybeans in China and Nigeria?

Domestic price in China will rise by more than 10% while domestic price in Nigeria will rise by exactly 10%

Domestic price in China will rise by less than 10% while domestic price in Nigeria will rise by more than 10%

Domestic price in China will rise by less than 10% while domestic price in Nigeria will rise by less than 10%

Domestic price in China will rise by exactly 10% while domestic price in Nigeria will rise by exactly 10%

Domestic price in China will rise by less than 10% while domestic price in Nigeria will rise by exactly 10%

Both domestic prices will drop by less than 10%

Both domestic prices will rise by more than 10%

2.

Suppose after the imposition of tariff, Chinese and Nigerian soybean importers turn to Brazil to get their soybeans, thus increasing the elasticity of demand for US produced soybeans, what would happen to the domestic price of US soybeans in China and Nigeria?

Domestic price in China will fall while domestic price in Nigeria will fall

Domestic price in China will rise while domestic price in Nigeria will stay the same

Both domestic prices will fall

Domestic price in China will fall while domestic price in Nigeria will rise

Both domestic prices will rise

Domestic price in China will fall while domestic price in Nigeria will stay the same

Both domestic prices will stay the same

domestic price in China will stay the same and domestic price in Nigeria will fall

3.

Given the tariffs in China only, what market inefficiencies (or deadweight losses) can be expected?

Loss of production efficiency in the importing country only, and consumption loss in the exporting country only

Loss of production efficiency in the importing and exporting country, and consumption loss in the importing country and exporting country

Loss of production efficiency in the exporting country only, and consumption loss in the importing country

Loss of production efficiency in the exporting country only, and consumption loss in the exporting country only

Loss of production efficiency in the importing country only, and consumption loss in the importing country

Loss of production efficiency in the importing and exporting country, and consumption loss in the exporting country only

Loss of production efficiency in the importing and exporting country, and consumption loss in the importing country

4.

Given the tariffs in both China and Nigeria, which of these countries has the potential to benefit from the imposition of the tariff and why?

China benefits because of how much it depends on Soybeans

Nigeria only because it has a high level of demand elasticity

China only, if and only if the terms of trade effect outweigh the dead weight loss

Nigeria only, if and only if the terms of trade effect outweigh the dead weight loss

Both countries benefit because price of soybeans drop in both countries

China benefits because it has a low level of demand elasticity

Both countries benefit because the terms of trade effect outweighs the deadweight losses

neither country benefits because the tariffs will always raise prices in both countries

Nigeria only because it is not hit too much by the tariff given how small its purchasing quantity is

5.

Suppose China and Nigeria would like to use quotas instead of tariffs, which of the following implementations would be of benefit to your company and why?

Auctioning, because it is the most efficient way to generate revenue for the government

Awarding quota licenses to firms in Nigeria and China because who engage in rent seeking, as this will mean they have to pay your company more money so you can send your goods to them.

None because all implementations will yield the same outcome: a loss for your company

All implementations because your company will always make more profit from the quota

Voluntary export restraints because your company will be one of those that keeps the quota rents

None of the implementations will help as the results are not different from tariffs

Awarding quota licenses to firms in Nigeria and China because without rent seeking, this will be optimal for these countries

Answer 1

1. Tariff is a tax imposed by the government of a country on goods that are imported from other countries. When tariff is imposed the price of imported goods increase by the percentage of tariff. Then the domestic price increase and the increase in price will be equal to the percentage of tariff imposed.

Answer: Domestic price in China will rise by exactly 10% while domestic price in Nigeria will rise by exactly 10%.

2. A trade diversion from U.S to Brazil creates less demand for U S soybeans in Chinese and Nigerian domestic market. This fall in demand compels the U S exporters of soybean to reduce the supply price. Thus the price of U S soybean falls both in China and Nigeria.

Answer: Both domestic price will fall.

3. A tariff on soybean imported from China reduces the quantity of export from U S to China. This will reduce production of soybean in U S. This is loss of production efficiency in U S. The increased price after tariff in China reduce the consumption of imported soybean from U S. This cause consumption loss in China.

Answer: Loss of production efficiency in the exporting country only, and consumption loss in the importing country.

4. The success of the imposition of a tariff depends upon the relative elasticity of demand. If the demand for import is less elastic an imposition of tariff does not reduce the domestic demand and consumer welfare. The domestic production increase due to high price. Thus there will be no loss to consumer surplus and producer’s surplus increase due to high price and government also get substantial revenue.

Answer: China benefit because it has low level of demand elasticity.

5. If the government gives quota license without rent seeking, this will benefit the importing companies.

Answer: Awarding quota licenses to firms in Nigeria and China because without rent seeking, this will be optimal for these countries.