Question

1) The loss of consumer benefits when a tariff imposed on imported consumer good is called: a) Consumer surplus

b) Net-welfare gain

c) Consumer deadweight cost

d) Producer deadweight cost

2) Which one is not true about countries of the world?

a) Only large countries involve in an international trade

b) Openness of countries to international trade vary between countries

c) Countries produce, exchange, and consume goods and services

d) Economic development of countries is little affected by the extent of their engagement in international trade

e) a and d

3) Suppose that Company Z in UAE imports 10,000 metric tonnes of orange from USA at a price of 1,500 US$ per tonne. If company Z pays specific import tariff of 0.25 Dirham per kilogram of orange, how much total tariff duty does the company pay?

a) 2, 500,000 US$

b) 15,000,000 US$

c) 2,500,000 AED

d) No answer is given

4) Consider two countries: P and Q. Both countries produce Rice and Chocolates. Country P needs 6 labour hours to produce 1 unit of Rice and 10 labour hours to produce 1 unit of Chocolates. Country B needs 15 labour hours to produce 1 unit of Rice and 5 labour hours to produce 1 unit of Chocolates. Which statement is true?

a) Country P has absolute advantage in Chocolates

b) Country Q has absolute advantage in Rice

c) Country P must specialize in production of Rice while country B in Chocolates

d) Neither country P and nor country Q has absolute advantage in any of the two

products

5) When the supply of a product matches with or equals to its demand in the market, we call this market situation:

a) a consumer surplus

b) a producer surplus

c) a market equilibrium

d) all of the above

Answer 1

1.

The loss of consumer benefits when tariff is imposed on an imported consumer good is the part of dead weight loss that consumers bear and hence, is called consumer dead weight cost. (Option c)

2.

It is not true that only large countries involve in trade. A small country  may as well involve in trade so long as it has a comparative advantage over its trading partner on the good it exports. In addition, engaging in international trade is beneficial for the economic development to a large extent. The course of trade between two countries largely determines it's development. (option e )

3.

Company Z which is based out of UAE imports 10,000 metric tonnes of oranges from USA. The tariff is always imposed by the importing country, which here, is UAE. Given that the tariff is 0.25 per kilogram, it should be easy to arrive at the notion that the currency is AED (United Arab Emirates Dirham) since UAE is the importing country and it's government should collect this tariff in it's currency. Also, 1 metric tonne= 1000 kg. So, 10000*1000= 10000000 kg of oranges are imported and 0.25 AED per kg is paid. Thus, 10000000*0.25 = 2,500,000 AED is the correct answer. (Option c)

4.

Since country P takes lesser hours to produce Rice than country Q, it must specialize in production of Rice whereas country Q takes lesser hours than P to produce Chocolates and hence should go for specialization in chocolates. (option c)

5.

A market equilibrium is a situation where the quantity offered for sale by the supplier exactly equals the buyers willingness to buy. In other words, when the supply of a product matches with or equals to its demand in the market, we call this market situation a market equilibrium. (Option c)