Question 1

Suppose the U.S. market for ethanol is in autarky (no trade). The equilibrium price is $$2.00 per gallon and the equilibrium quantity is 6 billion gallons. What is the effect on consumer and producer surplus if the U.S. opens to trade and the world price is 1.00 $$per gallon?

Accepted Answer

Consumer surplus increases, producer surplus decreases, and total economic surplus rises.

Question 2

If the U.S. imposes a $$0.50 per gallon tariff on imported ethanol, raising the domestic price to 1.50 $$per gallon, what is the effect on economic surplus?

Accepted Answer

Economic surplus falls by the deadweight loss, which is equal to the sum of areas $$C + D.$$

Question 3

Which of the following best describes the concept of comparative advantage?

Accepted Answer

A country should produce the good for which it has the lowest opportunity cost.

Question 4

What is the main economic argument against maintaining import quotas, such as the U.S. sugar quota?

Accepted Answer

Import quotas create deadweight loss and raise prices for consumers.

Question 5

If the U.S. sugar quota results in a loss of consumer surplus of $2.59 billion and saves 3,000 jobs, what is the cost per job saved?

Accepted Answer

$863,333

Question 6

Which of the following is NOT a typical argument used by protectionists to justify trade barriers?

Accepted Answer

Increasing consumer surplus

Question 7

What is the effect of a tariff on the domestic price and quantity of an imported good?

Accepted Answer

The domestic price rises and the quantity imported decreases.

Question 8

Which of the following best describes the deadweight loss from a tariff or quota?

Accepted Answer

It is the reduction in consumer surplus that is not offset by gains to producers or the government.

Question 9

Suppose the U.S. unilaterally eliminates all tariffs and quotas, but other countries do not. According to economic theory, what is the likely effect on the U.S. economy?

Accepted Answer

The U.S. economy will still gain from eliminating its own trade barriers.

Question 10

Which of the following is an example of a non-tariff barrier to trade?

Accepted Answer

A requirement that imported goods meet higher health and safety standards than domestic goods

Question 11

What is the main function of the World Trade Organization (WTO)?

Accepted Answer

To oversee international trade agreements and provide dispute resolution

Question 12

If a country is accused of 'dumping' its products in another country, what does this mean?

Accepted Answer

It is selling products below the cost of production in the foreign market.

Question 13

Which of the following best explains why special interest groups are often successful in lobbying for trade protection?

Accepted Answer

The benefits of protection are concentrated among a few, while the costs are spread across many.

Question 14

Which of the following is a normative statement about trade policy?

Accepted Answer

The government ought to protect domestic industries from foreign competition.

Question 15

If the U.S. government implements a voluntary export restraint (VER) on imported cars, what is the likely effect?

Accepted Answer

The quantity of imported cars will be limited, raising their price.

Question 16

Which of the following equations correctly represents the deadweight loss from a tariff, as shown in the diagrams?

Accepted Answer

$$C + D$$

Question 17

In the context of the U.S. sugar quota, who gains from the quota and who loses?

Accepted Answer

U.S. producers and foreign producers gain, U.S. consumers lose.

Question 18

Which of the following best describes the effect of globalization on low-income countries, according to the study materials?

Accepted Answer

It can increase trade and investment, but may raise concerns about regulations and cultural change.

Question 19

Which of the following is an example of positive analysis in the context of trade policy?

Accepted Answer

Tariffs increase the domestic price of imported goods.

Question 20

If the U.S. imposes a quota on sugar imports, what happens to the price and quantity of sugar in the U.S. market?

Accepted Answer

The price rises and the quantity consumed decreases.

International Trade, Comparative Advantage, and Trade Policy

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