Study Questions (with Answers) Lecture 7 Reasons for Protection

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1 Stuy Questions (with Answers) Page 1 of 5 (6) Stuy Questions (with Answers) Leture 7 for Protetion Part 1: Multiple Choie Selet the best answer of those given. 1. The following inlue several reasons that government might give for using a tariff on imports? Whih is not vali, in the sense that the effet esribe will not happen. a. To raise government revenue. b. To help onsumers.. To raise inomes of prouers.. To respon to politial pressures from import ompeting inustries. e. To inrease national welfare at the expense of foreigners. b 2. For many purposes, the use of a tariff is sai by eonomists to be seon best. This means that a. The tariff annot be benefiial for the ountry as a whole. b. The tariff oes not help those with the highest inomes, but only those with the seon highest.. Another poliy exists that woul aomplish the same purpose as the tariff at lower eonomi ost.. The tariff benefits the ountry only by making other ountries worse off. e. The ountry shoul use a subsiy.

2 Stuy Questions (with Answers) Page 2 of 5 (6) 3. By restriting imports with a tariff, a large ountry will a. Improve its terms of trae. b. Inrease the welfare of other ountries.. Raise the prie of the importe goo on worl markets.. Cause omesti prouers of the importe goo to reue their output an raise their prie. e. Hurt itself, ompare to what it oul have aomplishe by subsiizing imports. a 4. Aoring to the infant-inustry argument for a tariff, a. Tariffs on baby lothes save hilren s lives. b. A small tariff must be benefiial for a small ountry.. A small tariff must be benefiial for a large ountry.. A tariff an protet a new inustry while it gains experiene an reues osts. e. Some inustries shoul be given tariff protetion inefinitely. 5. Those in high-wage ountries who fear trae with low-wage ountries are often forgetting that a. Pries of imports will fall ue to trae. b. Low wage ountries have lower proutivity.. Trae is not a zero-sum game.. People with low wages are happier than people with high wages. e. Proution auses pollution. b 6. Anti-umping laws a. Are use only by the Unite States an Europe, against unfairly prie imports from eah other. b. Are use only by the Unite States an Europe, against unfairly prie imports from less evelope ountries.. Are no longer as ommon as they were before the Worl Trae Organization provie alternative poliy tools.. Are being use against the Unite States toay onsierably more than they were fifteen years ago. e. Exist on the books of many ountries, but are selom use.

3 Stuy Questions (with Answers) Page 3 of 5 (6) 7. The politial-eonomy explanation of why ountries have positive tariffs, summarize in the phrase protetion for sale, says that a. Legislators provie tariff protetion to inustries in response to politial ampaign ontributions. b. Importers pay bribes to ustoms offiers to let them pay tariffs that are lower than legally require.. Protetion is provie by import quotas that are autione off to the highest bier.. Inustries seeking protetion from imports pay bribes to ustoms offiers to get them to harge tariffs higher than legally require. e. Insurane ompanies sell poliies that promise to pay any tariff harges on trae goos when requeste. a Part II: Short Answer Answer in the spae provie. P S 1. The figure at the right shows a ountry s omesti supply an eman urves, S an D, for a goo, as well as the worl prie, P w, for the goo that it faes, as a small ountry, on the worl market. Initially, the ountry is traing freely at that prie P P w e a b f g a. Ientify the following h i j k l D 0 Q 1 Q 2 Q 3 Q 4 Q 5 Q The quantity proue in free trae Q 1 The quantity onsume in free trae Q 5

4 Stuy Questions (with Answers) Page 4 of 5 (6) b. Suppose that the government of this ountry wants to inrease the inomes of the prouers of this goo an that, to aomplish this, it uses a tariff that raises the omesti prie to the level marke P. Ientify: The quantity proue with the tariff Q 2 The quantity onsume with the tariff Q 4 The benefit to the suppliers.. The loss to the emaners ++e+f+g The ea-weight loss to the ountry +g. Suppose instea, again starting from free trae, that the government were to pay a subsiy of P P w to suppliers for eah unit of output that they proue. What then woul be The quantity proue with the subsiy Q 2 The quantity onsume with the subsiy Q 5 The benefit to the suppliers.. The loss to the emaners 0 The ea-weight loss to the ountry

5 Stuy Questions (with Answers) Page 5 of 5 (6) 2. The assigne artile by Mastel, Keep Anti-Dumping Laws Intat, ientifies several praties in exporting ountries that, he says, justify the use of anti-umping uties. What are some of these praties, what ountries oes he ientify as using them, an in what setors? Praties: Countries: inustrial poliies, market ollusion, government priing, an santuary markets Japan, Korea, an Brazil Setors: primarily steel (also semionutors an autos) 3. Define the following terms: a. pauper labor Labor with very low wages. b. retaliation The use by a ountry of any poliy prompte by the harm one to it by another ountry s poliy, espeially in orer either to harm it in return, or to neutralize the amage.. eonomi santion The use of a trae restrition intene to put pressure on another ountry to hange their behavior.. politial eonomy The interation between politial proesses, suh as lobbying, an eonomi poliies suh as tariffs. 4. The following table lists six suggeste reasons why US tariffs are lower than politial-eonomy theories of protetion might lea one to expet. Iniate in the spaes provie (using a hek mark ) whih of these are mentione in the reaing

6 Stuy Questions (with Answers) Page 6 of 5 (6) on this topi by Magee, an whih he regars as in fat being part of the answer. Iniate with a triple hek mark ( ) the one that he views as most important. Mentione by Magee Viewe as vali A majority of the publi favors free trae. The GATT was suessful in restraining trae barriers. Politiians are not responsive to lobbying efforts. Tariffs are set by large orporations that want them low. Protetion is given through NTBs, whih are high. Free riing by firms hiners lobby organization.