托马斯.A.普格尔_国际贸易_英语chap004

Answers to Even Problems for Thomas Pugel,International Economics Text (14th Edition)TRADE MODULEChapter 1International Economics Is DifferentOverviewThe introduction to the subject of international economics has three major purposes:1. Show that international economics addresses important and interesting current events and issues.2. Show why international economics is special.3. Provide a broad overview of the book.We begin with four controversies that show the importance of current issues addressed by international economics.The first is the rise of international outsourcing (or offshoring) of service activities and jobs from the United States and other industrialized countries to India and other developing countries. Here we introduce the idea that business activities that would be normal and almost unnoticed if they occur within a country can become prominent political issues when they cross national boundaries. A business is always looking for ways to lower costs, and buying inputs from outside suppliers rather than making the inputs itself is one of its standard choices. But buying business services such as telephone call centers and software development from India affects white-collar workers in the industrialized countries. Such a shift can lead to substantial media attention, even though the overall size of the outsourcing is not that large. Even though international outsourcing is just another form of international trade that generally brings national gains overall, political pressures push government officials to do something to defend local jobs. In this case the options for government policies that can reduce the outsourcing are limited, but there have been proposals to prohibit government contracts with private firms if they offshore some of the work.The second is international migration, especially the increasingly vehement complaints about immigrants in many of the major receiving countries. In these countries a rather large (10 percent or more) and rising percentage of the population is foreign-born, including many who are in their new countries illegally. Opponents accuse immigrants of causing general economic harm, imposing fiscal costs as immigrants use government services, and increasing crime. International economics is often about emotional issues like immigration, yet we do our best to use economic analysis to think objectively about actual economic effects. In a preview of the analysis of Chapter 15, we can reach two key conclusions about the effects of immigration on the receiving country. First, as with many issues in international economics, there are both winners and losers in the receiving country. Second, we can determine the net effect on the receiving country. Aswe often conclude when we examine freer international exchange, the net national effect of immigration is positive according to the basic economic model, in this case even if we ignore the gains to the immigrants themselves.The third controversy is the exchange rate value of the Chinese yuan. From the mid-1990s to 2005, the Chinese government maintained a fixed exchange rate of the yuan to the U.S. dollar. As China’s trade surplus increased and the Chinese government continually had to enter the foreign exchange market to buy dollars and sell yuan to keep the exchange rate steady, the United States and the European Union increasingly complained about the fixed rate and urged the Chinese government to allow the yuan to rise in value. In 2005 the Chinese government implemented a small revaluation of the yuan, and then it allowed gradual appreciation of the yuan. Yet, the trade surplus continued to increase into 2007, and foreign complaints grew.In the controversy over China’s exchange rate policy, we can see many of the issues that we will examine in Parts Three and Four of the book, including the measurement and meaning of a country’s balance of payments (including its trade balance), government policies toward the foreign exchange market and how a government defends a fixed exchange rate against market pressure for the exchange rate value to change, foreign financial investments and the role of currency speculators, political pressures that can place limits on how long a country with a fixed exchange rate and a trade surplus can maintain the fixed rate value, and how exchange rates affect not only a country’s trade balance, but also its national macroeconomic performance (including production, employment, and inflation).The fourth controversial development is the rising number and importance of sovereign wealth funds—vehicles for national governments to seek high returns on their foreign financial investments. For some countries that have sovereign wealth funds, the national wealth to invest internationally comes from general intervention in the foreign exchange market (example, China); for other countries the wealth comes from foreign sales of crude oil or other commodities. Controversy arises from the close link of national governments to the foreign investments. A government that has a sovereign wealth fund could alter its national economic policies to make larger financial gains on its investments, or it may use these investments to further its foreign political objectives or other nonfinancial objectives. These concerns have some plausibility, because a national government has the power to make decisions and take actions to pursue its national goals even if other countries view the effects of these decisions and actions as harmfulto their national economies or interests. There is little evidence that anything nefarious has actually occurred as sovereign wealth funds have made their foreign investments. Still, most of these funds are secretive, so the suspicions and controversy stay alive.These four controversies show that international economics addresses important current issues. They also can be used to show why international economics is special—why national boundaries matter in economics. The first reason that international economics is special is that some resources do not move freely between countries. Land is essentially immobile. There are substantial impediments to the movement of labor internationally, as we see in the analysis of international migration, because the personal and economic costs to people of moving from one country to another can be substantial, and because government policies often restrict international movements of labor. Financial capital moves more freely, but there still seems to be a home bias to many people’s financial investments.The second reason that international economics is special is that national government policies matter—in fact, they matter in two ways. One way is that national governments can adopt policies toward international transactions. This is seen in the discussion of political efforts to limit international outsourcing. The other way is that national governments adopt different economic policies. These national policies usually are designed to serve national interests, but they often have international effects. The tension between national interests and international effects is raised in the discussions of China’s exchange rate policy and sovereign wealth funds. Tips for teachingOne good way to begin the first class session is with a look at current events, even before the mechanics and requirements of th e course are presented. The instructor might use the day’s newspaper (for instance, the Financial Times or Wall Street Journal) or the week’s magazine (for instance, the Economist or Business Week) to highlight a few stories related to the content of the c ourse. We have found that this is good way to get the students’ attention and interest. Another good beginning would be to provide a discussion that updates one or more of the four controversies in Chapter 1. For example, the instructor could look at the most recent information on China’s trade balance and the exchange rate value of its yuan.You may want to consider beginning other class sessions of the course (not only the first class session) with a look at one or two stories in that day’s newspaper. The stories should relate in some way to the material covered in the course, but they do have to relate to the specific material covered in that day’s session. We have found that this look at current events reinforces the relevance of international economic analysis. It also encourages students to read a good newspaper or magazine and to keep up with current events. In addition, we can model critical reading, if we both summarize the article’s information and offer our own opinion or analysis (or ask the students for their opinions).The instructor may also point out that there is a lot of information on international issues available on the World Wide Web. Figure A.1 in Appendix A provides a list of some important sites.One issue in teaching is to get student s to “take ownership” of the learning of the material. One good way to accomplish this is to get them to teach some of the material. In doing so they gain greater understanding as well as appreciation for the applicability of what sometimes sound like dry concepts and abstract issues. You may want to consider an assignment like the one that Pugel (and others at New York University) have been using successfully. It asks students working in groups to choose a topic based on current and recent events or developments and prepare and make a brief presentation to the rest of the class, during the second half of the course term. The accompanying pages under the heading “Sample Assignment” show a version of this assignment. It is good to get such an assignment set up early in the term, so that students have enough time to gather information and prepare the talk. One more thought--In evaluating each presentation, you may want to get the students in audience involved by asking each to complete a brief evaluation form for each presentation.Sample assignmentNEW YORK UNIVERSITYPRIVATEStern School of BusinessThe Global EconomyGroup PresentationsEach group will give a presentation to the class from one of the topics listed below. Your presentation is an opportunity to hone your research and presentation skills, to apply concepts from this course (and possibly from other courses), to attack a real issue, and to show off your creativity.A presentation will last no longer than 14 minutes. In addition, you will have 3 minutes for questions from the class. I suggest you plan a talk that fills about 12 or 13 minutes to ensure that you finish within time. Going over the time limit for the presentation will result in a lower evaluation score for “style” and overall assessme nt.For the oral part of the presentation, all group members must be involved in speaking. One aspect of the presentation is the ability to transition from one group member to the next as eachin turn makes part of the presentation.Evaluation will be based on three criteria:Informativeness: How much did we learn from your presentation? Analysis and interpretation: Did you effectively analyze and/or interpret the information that you have on the topic? Did we gain novel insights into the topic? Style: Was your presentation clear and compelling? Were the slides effective? Did you keep within the time limit?Above all, keep your classmates interested. If you use PowerPoint, you should bring your presentation to class on a USB memory stick or CD with the presentation file.Presentation TopicsChoose your topic from the list below. Topics will be allocated on a first-come, first-served basis. If you prefer a topic of your own devising, let me know and we’ll discuss it.Each topic comes with a series of questions. There is some scope to modify the questions, if you think it would lead to a more interesting presentation. Just ask me first.After you know your topic, the group should search for information and start to plan the presentation. After you have an idea of what you will talk about, make an appointment to meet with me. You should come to speak with me at least once before giving your presentation. For many topics you can find much information on the Web. With Web research, it is up to you to verify that a source is credible and accurate.Here are the suggested topics.ASEANThe member countries of ASEAN have committed to forming a true free trade area. What are the goals for this AFTA? How much progress has been made? Why has progress not been faster? Are there important issues that seem to thwart or limit the effort? What will happen over the next five years or so?CAFTAThe United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic signed the Central American Free Trade Agreement in 2004. What are the key features of the agreement? Why did the various national governments push to reach the agreement? Why has ratification and implementation been rather slow? What will happen in the next three to five years?Byrd AmendmentDefine what this U.S. government policy is and how it works. Why did this policy lead to a dispute settlement case in the WTO? What did the WTO decide? What is the current state of the dispute? Should the United States have more forcefully resisted the WTO pressure to change thispolicy?CottonU.S. policies toward cotton have become globally controversial. What are these policies? What effects do they have on the global cotton market? Why have the policies become controversial? How has the WTO been involved in efforts to alter U.S. cotton policies? What is the outlook for the next several years?Russia and the WTORussia has been in negotiations to join the WTO. What is the process for Russia to accede to membership? How far along is the process? What are the major issues that have been resolved, and what major issues still must be resolved? What is your prediction for when Russia will join? Oil PricesCrude oil prices have increased dramatically since the late 1990s. Is this the reemergence of OPEC as an effective cartel? What is the evidence that OPEC has had an impact? What is the evidence that other factors matter? What do you think will happen to oil prices in the next five years?Malaysia: Did Capital Controls Work?Thailand and Malaysia followed different paths during the Asian crisis, with Malaysia imposing capital controls while Thailand maintained capital mobility. Which worked better? Did Malaysia benefit from reducing its “exposure” to international capital flows?EcuadorEcuador dollarized in 2000. Why did the Ecuadorian government choose this policy? In what ways does it seem to have helped the Ecuadorian economy? In what ways has it hurt or caused problems or costs? Do you think that it was a good or bad idea for Ecuador to dollarize? China’s Yuan Exchange RateThe United States and the European Union have been pressing China’s government to alter its exchange rate policy to allow more flexibility, presumably so that the yuan will appreciate by a substantial amount. What has been an d are China’s policies toward the foreign exchange market? From the point of view of China’s government and the well-being of the Chinese economy and people, what are the main reasons for the Chinese government to allow more flexibility and (probably) subs tantial yuan appreciation? What are the main reasons for China’s government to maintain its current exchange rate policy? What do you think will actually happen in the next two to three years?Euro Area ExpansionThe total number of euro-using countries is now fifteen. But that leaves twelve current EU members still using their national currencies. What is the process for gaining approval to adopt the euro? Which of these other twelve EU members will probably adopt the euro in the next five to ten years? Which will probably not? What are the reasons for these differences?Chapter 2The Basic Theory Using Demand and SupplyOverviewThis chapter indicates why we study theories of international trade and presents the basic theory using supply and demand curves. Trade is important to individual consumers, to workers and other factor owners, to firms, and therefore to the whole economy. The new box, “Trade: Increasingly Important,” provides useful data about the types of products traded and the relatively rapid growth of trade.Trade is also contentious, with perpetual battles over government policies toward trade. To understand the controversy, we need to develop theories of why people trade as they do.It is useful to organize the analysis of international trade by contrasting a world of no trade with a world of free trade, leaving analysis of intermediate cases (e.g., non-prohibitive tariffs) for Part Two. The analysis seeks to answer four key questions about international trade:1.Why do countries trade? What determines the pattern of trade?2.How does trade affect production and consumption in each country?3.What are the gains (or losses) for a country as a whole from trading?4.What are the effects of trade on different groups in a country? Are there groups thatgain and other groups that lose?Theories of international trade provide answers to these four questions.Basic demand and supply analysis can be used to provide early answers to these four questions, as well as to introduce concepts that can be used in more elaborate theories. Using motorbikes as an example, the chapter first reviews the basic analysis of both demand (the demand curve and the role of the product’s price, other influences on quantity demanded, movements along the demand curve and shifts in the demand curve, and the price elasticity of demand as a measure of responsiveness) and supply (the supply curve, the role of marginal cost, other influences on quantity supplied, movements along the supply curve and shifts in the supply curve, and the price elasticity of supply). It pays special attention to the meaning and measurement of consumer surplus and producer surplus. This section, which focuses on review and development of basic tools, ends with the picture of market equilibrium in a national market with no trade as the intersection of the domestic demand curve and the domestic supply curve.The remainder of the chapter examines the use of supply and demand curves to analyze international trade. If there are two national markets for a product and no trade between them, it is likely that the product’s price will differ between the two markets. Someone should notice the difference and try to profit by arbitrage between the two markets. If governments permit free trade, then the export supply from the initially low-priced market (the rest of the world in the textbook example) can satisfy the import demand in the initially high-priced market (the United States in the textbook example), and the world shifts to a free-trade equilibrium. We can show this free trade equilibrium by deriving the supply-of-exports curve for the rest of the world and the demand-for-imports curve for the United States. The international market for the product clears at the intersection of the export-supply and import-demand curves, indicating the equilibrium international or world price and the quantity traded. This equilibrium world price also becomes the domestic price in each country with free trade.The same set of three graphs (the two national markets and the international-trade market) is used to show the effects of the shift from no-trade to free-trade on different groups in each country and to show the net gains from trade for each nation. In the importing country consumers of the product gain consumer surplus and producers of the product lose producer surplus. Using the one-dollar, one-vote metric, the country as a whole gains, because the gain in consumer surplus is larger than the loss of producer surplus. In the exporting country producers of the product gain producer surplus and consumers of the product lose consumer surplus. The analysis shows that the country as a whole gains because the gain in producer surplus is larger than the loss of consumer surplus. Furthermore, the country that gains more from the shift to free trade is the country whose price changes more—the country with the less elastic trade curve (import demand or export supply).TipsWe believe that this chapter is an excellent way to introduce the analysis of trade. The four questions about trade focus student attention on key issues that are interesting to most of them. Students then get a quick payoff through the use of the familiar supply-demand framework. By the end of this short chapter we have preliminary answers to all four trade questions. We have also laid a solid foundation for the analysis of trade using supply and demand curves, the approach that will receive the most attention in Part Two on trade policies.In class presentations it may be useful to show the graphs in a sequence, perhaps using a series of slides. After presenting the review of demand and supply and the national market equilibrium with no trade, the following sequence works well.1.Two national market graphs with no trade, one with a high no-trade price (the United States),and one with a low no-trade price (the rest of the world, or ROW). Question to the class: “If you were the first person to notice this situation, could you make a profit?” This is a goodway to motivate international trade driven by arbitrage.The U.S. national market graph and the international market graph. Question to the class: “Let’s say that the United States is willing to open up to free trade and integrate into the world market. If it does this, the world price will also be the price within the United States. How much will the United States want to import?” It depends on what the world price is. The instructor can pick one or twohypothetical world price(s) (below the no-trade U.S. price), and measure the gap between domestic quantity demanded and domestic quantity supplied. This is the U.S. demand for imports, and these import quantity-price combinations can be used to plot the U.S. demand-for-imports curve in the international market.2. A graph of the international market and the ROW national market. A comparable discussionto item 2 above, to derive the supply-of-exports curve.3.Superimpose the graphs from item 2 on the graphs from item 3. Question to the class: “Whatwill happen with free trade? When there is ongoing free trade, what is the equilibrium world price?” This set of three graphs can be used to show the free-trade equilibrium: world price, quantity traded, and quantities produced and consumed in each country.4. A single graph showing the U.S. national market, to contrast no trade with free trade.Questions to the class: “What group is made happier by the shift from no trade to free trade?What group is a loser? Can we somehow say that the country gains from free trade?”5. A single graph showing the ROW national market, with the same questions in item 5. Subsequent chapters in Part I present additional theories of trade. The figure shown on the accompanying page provides a summary of the key features of these theories. It may be useful to copy and distribute this figure to your students. If it is distributed when the class begins to study the material, it can serve as a roadmap. If it is distributed when the class finishes the lectures on the material, it can serve as a summary and review.For instructors who want to begin with the discussion of absolute and comparative advantage rather than with the supply-and-demand framework that focuses on a single product, this should be possible. After covering the introductory material (the first two pages of Chapter 2, and, possibly, the box “Trade: Increasingly Important”), the course would skip to Chapter 3. The remaining material from Chapter 2 on the supply and demand analysis can be inserted right after Chapter 4’s section referring to analysis using supply and demand curves, or this material can be presented as a separate topic elsewhere in the course.Suggested answers to questions and problems(in the textbook)2. Producer surplus is the net gain to producers from being able to sell a product through amarket. It is the difference between the lowest price at which some producer is willing to supply each unit of the product and the actual market price that is paid, summed over all units that are produced and sold. The lowest price at which someone is willing to supply the unit just covers the extra (marginal) cost of producing that unit. To measure producer surplus for a product using real world data, three major pieces of information are needed. First, the market price. Second, the quantity supplied. Third, some information about the slope (or shape) of the supply curve. How would quantity supplied change if the market price decreased? Or, what are the extra costs of producing each unit up to the actualquantity supplied? Producer surplus could then be measured as the area below the market price line and above the supply curve.4. The country's demand for imports is the amount by which the country's domestic quantitydemanded exceeds the country's domestic quantity supplied. The demand-for-imports curve is derived by finding the difference between domestic quantity demanded anddomestic quantity supplied, for each possible market price for which quantity demanded exceeds quantity supplied. The demand-for-imports curve shows the quantity that the country would want to import for each possible international market price.6.If there were no exports of scrap iron and steel, the domestic market would clear at the price at which domestic quantity demanded equals domestic quantity supplied. But the United States does export scrap iron and steel. The extra demand from foreign buyers increases the market price of scrap iron and steel. Domestic users of scrap iron and steel pay a higher price than they would if there were no exports. Thus, some support aprohibition on these exports, in order to lower the market price of the scrap that they buy. 8. a. With free trade at $67 per barrel:Domestic production Q S : 67 = 0.5 + 35Q S , or Q s = 1.9 billion barrels.Domestic consumption Q D : 67 = 291 - 40Q D , or Q D = 5.6 billion barrels.b. With no imports, domestic quantity supplied must equal domestic quantity demanded Price ($/barrel) 67 1.9 5.6 Quantity (billions of barrels) S US D US(both equal to Q N ) at the domestic equilibrium price P N :291 - 40Q N = 0.5 + 35Q N , or Q N = 3.87 billion barrels produced and consumed.Using one of the equations, we can calculate that the domestic price would be about $136 per barrel.c. Domestic producers of oil would gain, receiving an increase of producer surplus shownas area o in the graph. Domestic consumers of oil would lose, experiencing a loss of consumer surplus shown as area o + i + l in the graph.10. The supply curve S US shifts down (or to the right). The U.S. demand-for-imports curveD m shifts to the left (or down). The equilibrium international price decreases below 1,000—it is shown by the intersection of the new U.S. D m curve and the original S x curve.12. a. In the graphs below, the free trade equilibrium price is P F , the price at which the quantityof exports supplied by Country I equals the quantity of imports demanded by Country II. (The quantity-of-imports demanded curve for country II is the same as the country's regular demand curve.) This world price is above the no-trade price in country I. The quantity traded with free trade is Q T .Price ($/barrel) 136 1.9 3.87 5.6 Quantity(billions of barrels)S US o i l D US 67P P P T T T。

题型：（范围2—8章）1填空：5题10分2选择：10题20分3判断：10题10分4简答：2题10分5计算：4题40分6论述：1题10分第二章 Payments among Nations 国际收支1.Accounting principles 记账原则A credit item (+)positive items: a country must be paid; payment by a foreigner into the country.包括：Exports of goodsPurchases by foreigners in this countryForeigners’ investing in the country’s bondsA debit item (-)negative items： a country must pay; payment by the country to a foreigner.包括：Imports of goodsPurchases by firms in this country from foreign countriesPurchases by investors in this country from foreigners2．Balance of Payments Statement国际收支平衡◆Current account（经常账户）:简CA（商品、服务的进出口、对外国金融资产的支付和收益、单方面转移）◆Financial account（金融账户）:简FA (直接投资、国际证券投资)◆Official international reserves（官方国际储备）:简OR（黄金、外汇资产、在国际货币基金的特别提款权）◆三个国际收支部分，根据Each transaction has two item, one positive and one negative, of equal value.—double-entry bookkeeping复式记账法有：positive items + negative items = 0positive balance: surplusnegative balance: deficit（1）Current account balance经常账户差额经常账户差额(CA) = 商品贸易差额 + 劳务差额加上收入净额 + 无偿转移收支净额之和。

Chapter 02The Basic Theory Using Demand and SupplyOverviewThis chapter indicates why we study theories of international trade and presents the basic theory using supply and demand curves. Trade is important to individual consumers, to workers and other factor owners, to firms, and therefore to the whole economy. The box “Trade Is Important” provides useful data about the types of products traded and the increasing role of trade in national economies.Trade is also contentious, with perpetual battles over government policies toward trade. To understand the controversy, we need to develop theories of why people trade as they do.It is useful to organize the analysis of international trade by contrasting a world of no trade with a world of free trade, leaving analysis of intermediate cases (e.g., non-prohibitive tariffs) for Part Two. The analysis seeks to answer four key questions about international trade:1.Why do countries trade? What determines the pattern of trade?2.How does trade affect production and consumption in each country?3.What are the gains (or losses) for a country as a whole from trading?4.What are the effects of trade on different groups in a country? Are there groups thatgain and other groups that lose?Theories of international trade provide answers to these four questions.Basic demand and supply analysis can be used to provide early answers to these four questions, as well as to introduce concepts that can be used in more elaborate theories. Using motorbikes as an example, the chapter first reviews the basic analysis of both demand (the demand curve and the role of the product’s price, other influences on quantity demanded, movements along the demand curve and shifts in the demand curve, and the price elasticity of demand as a measure of responsiveness) and supply (the supply curve, the role of marginal cost, other influences on quantity supplied, movements along the supply curve and shifts in the supply curve, and the price elasticity of supply). It pays special attention to the meaning and measurement of consumer surplus and producer surplus. This section, which focuses on review and development of basic tools, ends with the picture of market equilibrium in a national market with no trade as the intersection of the domestic demand curve and the domestic supply curve.The remainder of the chapter examines the use of supply and demand curves to analyze international trade. If there are two national markets for a product and no trade between them, it is likely that the product’s price will differ between the two markets. Someone should notice the difference and try to profit by arbitrage between the two markets. If governments permit free trade, then the export supply from the initially low-priced market (the rest of the world in the textbook example) can satisfy the import demand in the initially high-priced market (the United States in the textbook example), and the world shifts to a free-trade equilibrium. We can show this free trade equilibrium by deriving the supply-of-exports curve for the rest of the world and the demand-for-imports curve for the United States. The international market for the product clears at the intersection of the export-supply and import-demand curves, indicating the equilibrium international or world price and the quantity traded. This equilibrium world price also becomes the domestic price in each country with free trade.The same set of three graphs (the two national markets and the international-trade market) is used to show the effects of the shift from no-trade to free-trade on different groups in each country and to show the net gains from trade for each nation. In the importing country consumers of the product gain consumer surplus and producers of the product lose producer surplus. Using the one-dollar, one-vote metric, the country as a whole gains, because the gain in consumer surplus is larger than the loss of producer surplus. In the exporting country producers of the product gain producer surplus and consumers of the product lose consumer surplus. The analysis shows that the country as a whole gains because the gain in producer surplus is larger than the loss of consumer surplus. Furthermore, the country that gains more from the shift to free trade is the country whose price changes more—the country with the less elastic trade curve (import demand or export supply).TipsWe believe that this chapter is an excellent way to introduce the analysis of trade. The four questions about trade focus student attention on key issues that are interesting to most of them. Students then get a quick payoff through the use of the familiar supply-demand framework. By the end of this short chapter we have preliminary answers to all four trade questions. We have also laid a solid foundation for the analysis of trade using supply and demand curves, the approach that will receive the most attention in Part Two on trade policies.In class presentations it may be useful to show the graphs in a sequence, perhaps using a series of slides. After presenting the review of demand and supply and the national market equilibrium with no trade, the following sequence works well.1.Two national market graphs with no trade, one with a high no-trade price (the United States),and one with a low no-trade price (the rest of the world, or ROW). Question to the class: “If you were the first person to notice this situation, could you make a profit?” This is a good way to motivate international trade driven by arbitrage.2.The U.S. national market graph and the international market graph. Question to the class:“Let’s say that the United States is willing to open up to free trade and integrate into the world market. If it does this, the world price will also be the price within the United States.How much will the United States want to import?” It d epends on what the world price is. The instructor can pick one or two hypothetical world price(s) (below the no-trade U.S. price), and measure the gap between domestic quantity demanded and domestic quantity supplied.This is the U.S. demand for imports, and these import quantity-price combinations can be used to plot the U.S. demand-for-imports curve in the international market.3. A graph of the international market and the ROW national market. A comparable discussionto item 2 above, to derive the supply-of-exports curve.4.Superimpose the graphs from item 2 on the graphs from item 3. Question to the class: “Whatwill happen with free trade? When there is ongoing free trade, what is the equilibrium world price?” This set of three graphs can be used to show the free-trade equilibrium: world price, quantity traded, and quantities produced and consumed in each country.5. A single graph showing the U.S. national market, to contrast no trade with free trade.Questions to the class: “What group is made happier by the s hift from no trade to free trade?What group is a loser? Can we somehow say that the country gains from free trade?”6. A single graph showing the ROW national market, with the same questions in item 5.Subsequent chapters in Part I present additional theories of trade. The figure shown on the accompanying page provides a summary of the key features of these theories. It may be useful to copy and distribute this figure to your students. If it is distributed when the class begins to study the material, it can serve as a roadmap. If it is distributed when the class finishes the lectures on the material, it can serve as a summary and review.For instructors who want to begin with the discussion of absolute and comparative advantage rather than with the supply-and-demand framework that focuses on a single product, this should be possible. After covering the introductory material (the first two pages of Chapter 2, and, possibly, the two boxes in the chapter), the course would skip to Chapter 3. The remaining material from Chapter 2 on the supply and demand analysis can be inserted right after Chapter 4’s section referring to analysis using supply and demand curves, or this material can be presented as a separate topic elsewhere in the course.Chapter 2 has the first of six boxes about the global financial and economic crisis that began in 2007 and became dramatically worse in 2008. The box “The Trade Mini-Collapse of 2009” documents and discusses the sharp decline in global trade that began in late 2008 (and the bounce back that occurred in 2010). With the introduction of the global crisis in Chapter One and the series of six boxes, an instructor can weave discussions of the global crisis and its aftermath throughout a course.Suggested answers to questions and problems(in the textbook)2. Producer surplus is the net gain to producers from being able to sell a product through amarket. It is the difference between the lowest price at which some producer is willing to supply each unit of the product and the actual market price that is paid, summed over all units that are produced and sold. The lowest price at which someone is willing to supply the unit just covers the extra (marginal) cost of producing that unit. To measure producer surplus for a product using real world data, three major pieces of information are needed.First, the market price. Second, the quantity supplied. Third, some information about the slope (or shape) of the supply curve. How would quantity supplied change if the market price decreased? Or, what are the extra costs of producing each unit up to the actualquantity supplied? Producer surplus could then be measured as the area below the market price line and above the supply curve.4. The country's demand for imports is the amount by which the country's domestic quantitydemanded exceeds the country's domestic quantity supplied. The demand-for-importscurve is derived by finding the difference between domestic quantity demanded anddomestic quantity supplied, for each possible market price for which quantity demanded exceeds quantity supplied. The demand-for-imports curve shows the quantity that thecountry would want to import for each possible international market price.6. If there were no exports of scrap iron and steel, the domestic market would clear at theprice at which domestic quantity demanded equals domestic quantity supplied. But theUnited States does export scrap iron and steel. The extra demand from foreign buyersincreases the market price of scrap iron and steel. Domestic users of scrap iron and steel pay a higher price than they would if there were no exports. Thus, some support aprohibition on these exports, in order to lower the market price of the scrap that they buy.8. a. With free trade at $60 per barrel:Domestic production Q S: 60 = 2 + 29Q S, or Q s = 2.0 billion barrels.Domestic consumption Q D: 60 = 325 - 50Q D, or Q D = 5.3 billion barrels.b. With no imports, domestic quantity supplied must equal domestic quantity demanded(both equal to Q N ) at the domestic equilibrium price P N :325 - 50Q N = 2 + 29Q N , or Q N = 4.09 billion barrels produced and consumed.Using one of the equations, we can calculate that the domestic price would be almost$121 per barrel.c. Domestic producers of oil would gain, receiving an increase of producer surplusshown as area o in the graph. Domestic consumers of oil would lose, experiencing a loss of consumer surplus shown as area o + i + l in the graph. Price ($/barrel)60 2.0 5.3 Quantity S US D US Price ($/barrel) 1212.0 4.09 5.3 Quantity S US o ilD US6010. The supply curve S US shifts down (or to the right). The U.S. demand-for-imports curveD m shifts to the left (or down). The equilibrium international price decreases below1,000—it is shown by the intersection of the new U.S. D m curve and the original S x curve.12. a. In the graphs below, the free trade equilibrium price is P F, the price at which the quantityof exports supplied by Country I equals the quantity of imports demanded by Country II.(The quantity-of-imports demanded curve for country II is the same as the country'sregular demand curve.) This world price is above the no-trade price in country I. Thequantity traded with free trade is Q T.P PPT TTb. In Country I producer surplus increases by area a + b + c, and consumer surplus falls byarea a + b. The net national gain from free trade is area c. In country II consumer surplus increases by area e and this is also the net national gain from trade. Because there is nodomestic production in Country II with or without trade, there is no change in producersurplus.A guide to the trade theories of Part OneWhat Forces DetermineName of Theory Trade Flows? Some Key Assumptions A. The basic theory Productivities Competition in all markets(Chapters 2-5) Factor Supplies Constant or increasing costsProduct demands Any number of productionfactors (types of labor,land, etc.)B. Supply-oriented theories of trade(special cases of the basic theory,with the demand side neutral):1. Absolute Absolute Competition in all marketsadvantage productivities Constant marginal costs(in Chapter 3) Only one factor (labor)2. Comparative Relative Competition in all marketsadvantage productivities Constant marginal costs(in Chapter 3) Only one factor (labor)3. Factor proportions Relative factor Competition in all markets(Heckscher- endowments Increasing marginal costsOhlin theory, Small number of factorsin Chapters 4-5) Technology neutralC. Additional theories of trade:1. Monopolistic Product differentiation Imperfect competitioncompetition Moderate scale De-emphasize factor(Krugman and economies suppliesothers, in Chapter 6)2. Global oligopoly Substantial internal Imperfect competition(in Chapter 6) scale economies De-emphasize factorHistory, luck, or suppliesgovernment policy3. External economies Substantial external Competition(in Chapter 6) scale economies De-emphasize factorLarge home market, supplieshistory, luck, orgovernment policy4. Technology differences, Technological innovation Competitionincluding product Technological "age" of Importance ofcycle (Vernon and the industry research andothers, in Chapter 7) development。

CHAPTER 4—TARIFFSMULTIPLE CHOICE1. The imposition of tariffs on imports results in deadweight welfare losses for the home economy. Theselosses consist of the:a. Protective effect plus consumption effectb. Redistribution effect plus revenue effectc. Revenue effect plus protective effectd. Consumption effect plus redistribution effectANS: A PTS: 12. Suppose that the United States eliminates its tariff on steel imports, permitting foreign-produced steelto enter the U.S. market. Steel prices to U.S. consumers would be expected to:a. Increase, and the foreign demand for U.S. exports would increaseb. Decrease, and the foreign demand for U.S. exports would increasec. Increase, and the foreign demand for U.S. exports would decreased. Decrease, and the foreign demand for U.S. exports would decreaseANS: B PTS: 13. A $100 specific tariff provides home producers more protection from foreign competition when:a. The home market buys cheaper products rather than expensive productsb. It is applied to a commodity with many grade variationsc. The home demand for a good is elastic with respect to price changesd. It is levied on manufactured goods rather than primary productsANS: A PTS: 14. A lower tariff on imported aluminum would most likely benefit:a. Foreign producers at the expense of domestic consumersb. Domestic manufacturers of aluminumc. Domestic consumers of aluminumd. Workers in the domestic aluminum industryANS: C PTS: 15. When a government allows raw materials and other intermediate products to enter a country duty free,its tariff policy generally results in a:a. Effective tariff rate less than the nominal tariff rateb. Nominal tariff rate less than the effective tariff ratec. Rise in both nominal and effective tariff ratesd. Fall in both nominal and effective tariff ratesANS: B PTS: 16. Of the many arguments in favor of tariffs, the one that has enjoyed the most significant economicjustification has been the:a. Infant industry argumentb. Cheap foreign labor argumentc. Balance of payments argumentd. Domestic living standard argumentANS: A PTS: 17. The redistribution effect of an import tariff is the transfer of income from the domestic:a. Producers to domestic buyers of the goodb. Buyers to domestic producers of the goodc. Buyers to the domestic governmentd. Government to the domestic buyersANS: B PTS: 18. Which of the following is true concerning a specific tariff?a. It is exclusively used by the U.S. in its tariff schedules.b. It refers to a flat percentage duty applied to a good's market value.c. It is plagued by problems associated with assessing import product values.d. It affords less protection to home producers during eras of rising prices.ANS: D PTS: 19. The principal benefit of tariff protection goes to:a. Domestic consumers of the good producedb. Domestic producers of the good producedc. Foreign producers of the good producedd. Foreign consumers of the good producedANS: B PTS: 110. Which of the following policies permits a specified quantity of goods to be imported at one tariff rateand applies a higher tariff rate to imports above this quantity?a. Tariff quotab. Import tariffc. Specific tariffd. Ad valorem tariffANS: A PTS: 111. Assume the United States adopts a tariff quota on steel in which the quota is set at 2 million tons, thewithin-quota tariff rate equals 5 percent, and the over-quota tariff rate equals 10 percent. Suppose the U.S. imports 1 million tons of steel. The resulting revenue effect of the tariff quota would accrue to:a. The U.S. government onlyb. U.S. importing companies onlyc. Foreign exporting companies onlyd. The U.S. government and either U.S. importers or foreign exportersANS: A PTS: 112. When the production of a commodity does not utilize imported inputs, the effective tariff rate on thecommodity:a. Exceeds the nominal tariff rate on the commodityb. Equals the nominal tariff rate on the commodityc. Is less than the nominal tariff rate on the commodityd. None of the aboveANS: B PTS: 113. Developing nations often maintain that industrial countries permit raw materials to be imported at verylow tariff rates while maintaining high tariff rates on manufactured imports. Which of the following refers to the above statement?a. Tariff-quota effectb. Nominal tariff effectc. Tariff escalation effectd. Protective tariff effectANS: C PTS: 114. Should the home country be "large" relative to the world, its imposition of a tariff on imports wouldlead to an increase in domestic welfare if the terms-of-trade effect exceeds the sum of the:a. Revenue effect plus redistribution effectb. Protective effect plus revenue effectc. Consumption effect plus redistribution effectd. Protective effect plus consumption effectANS: D PTS: 115. Should Canada impose a tariff on imports, one would expect Canada's:a. Terms of trade to improve and volume of trade to decreaseb. Terms of trade to worsen and volume of trade to decreasec. Terms of trade to improve and volume of trade to increased. Terms of trade to worsen and volume of trade to increaseANS: A PTS: 116. A beggar-thy-neighbor policy is the imposition of:a. Free trade to increase domestic productivityb. Trade barriers to increase domestic demand and employmentc. Import tariffs to curb domestic inflationd. Revenue tariffs to make products cheaper for domestic consumersANS: B PTS: 117. A problem encountered when implementing an "infant industry" tariff is that:a. Domestic consumers will purchase the foreign good regardless of the tariffb. Political pressure may prevent the tariff's removal when the industry maturesc. Most industries require tariff protection when they are matured. Labor unions will capture the protective effect in higher wagesANS: B PTS: 118. Tariffs are not defended on the ground that they:a. Improve the terms of trade of foreign nationsb. Protect jobs and reduce unemploymentc. Promote growth and development of young industriesd. Prevent overdependence of a country on only a few industriesANS: A PTS: 119. The deadweight loss of a tariff:a. Is a social loss since it promotes inefficient productionb. Is a social loss since it reduces the revenue for the governmentc. Is not a social loss because society as a whole doesn't pay for the lossd. Is not a social loss since only business firms suffer revenue lossesANS: A PTS: 120. Which of the following is a fixed percentage of the value of an imported product as it enters thecountry?a. Specific tariffb. Ad valorem tariffc. Nominal tariffd. Effective tariffANS: B PTS: 121. A tax of 20 cents per unit of imported cheese would be an example of:a. Compound tariffb. Effective tariffc. Ad valorem tariffd. Specific tariffANS: D PTS: 122. A tax of 15 percent per imported item would be an example of:a. Ad valorem tariffb. Specific tariffc. Effective tariffd. Compound tariffANS: A PTS: 123. Which type of tariff is not used by the American government?a. Import tariffb. Export tariffc. Specific tariffd. Ad valorem tariffANS: B PTS: 124. Which trade policy results in the government levying a "two-tier" tariff on imported goods?a. Tariff quotab. Nominal tariffc. Effective tariffd. Revenue tariffANS: A PTS: 125. If we consider the impact on both consumers and producers, then protection of the steel industry is:a. In the interest of the United States as a whole, but not in the interest of the state ofPennsylvaniab. In the interest of the United States as a whole and in the interest of the state ofPennsylvaniac. Not in the interest of the United States as a whole, but it might be in the interest of thestate of Pennsylvaniad. Not in the interest of the United States as a whole, nor in the interest of the state ofPennsylvaniaANS: C PTS: 126. If I purchase a stereo from South Korea, I obtain the stereo and South Korea obtains the dollars. But ifI purchase a stereo produced in the United States, I obtain the stereo and the dollars remain in America.This line of reasoning is:a. Valid for stereos, but not for most products imported by the United Statesb. Valid for most products imported by the United States, but not for stereosc. Deceptive since Koreans eventually spend the dollars on U.S. goodsd. Deceptive since the dollars spent on a stereo built in the United States eventually wind upoverseasANS: C PTS: 127. The most vocal political pressure for tariffs is generally made by:a. Consumers lobbying for export tariffsb. Consumers lobbying for import tariffsc. Producers lobbying for export tariffsd. Producers lobbying for import tariffsANS: D PTS: 128. If we consider the interests of both consumers and producers, then a policy of tariff reduction in theU.S. auto industry is:a. In the interest of the United States as a whole, but not in the interest of auto-producingstatesb. In the interest of the United States as a whole, and in the interest of auto-producing statesc. Not in the interest of the United States as a whole, nor in the interest of auto-producingstatesd. Not in the interest of the United States as a whole, but is in the interest of auto-producingstatesANS: A PTS: 129. Free traders point out that:a. There is usually an efficiency gain from having tariffsb. There is usually an efficiency loss from having tariffsc. Producers lose from tariffs at the expense of consumersd. Producers lose from tariffs at the expense of the governmentANS: B PTS: 130. A decrease in the import tariff will result in:a. An increase in imports but a decrease in domestic productionb. A decrease in imports but an increase in domestic productionc. An increase in price but a decrease in quantity purchasedd. A decrease in price and a decrease in quantity purchasedANS: A PTS: 1Figure 4.1 illustrates the demand and supply schedules for pocket calculators in Mexico, a "small"nation that is unable to affect the world price.Figure 4.1. Import Tariff Levied by a "Small" Country31. Consider Figure 4.1. In the absence of trade, Mexico produces and consumes:a. 10 calculatorsb. 40 calculatorsc. 60 calculatorsd. 80 calculatorsANS: C PTS: 132. Consider Figure 4.1. In the absence of trade, Mexico's producer surplus and consumer surplusrespectively equal:a. $120, $240b. $180, $180c. $180, $320d. $240, $240ANS: B PTS: 133. Consider Figure 4.1. With free trade, Mexico imports:a. 40 calculatorsb. 60 calculatorsc. 80 calculatorsd. 100 calculatorsANS: D PTS: 134. Consider Figure 4.1. With free trade, the total value of Mexico's imports equal:a. $220b. $260c. $290d. $300ANS: D PTS: 135. Consider Figure 4.1. With free trade, Mexico's producer surplus and consumer surplus respectivelyequal:a. $5, $605b. $25, $380c. $45, $250d. $85, $195ANS: A PTS: 136. Consider Figure 4.1. With a per-unit tariff of $3, the quantity of imports decreases to:a. 20 calculatorsb. 40 calculatorsc. 50 calculatorsd. 70 calculatorsANS: B PTS: 137. According to Figure 4.1, the loss in Mexican consumer surplus due to the tariff equals:a. $225b. $265c. $285d. $325ANS: C PTS: 138. According to Figure 4.1, the tariff results in the Mexican government collecting:a. $100b. $120c. $140d. $160ANS: B PTS: 139. According to Figure 4.1, Mexican manufacturers gain ____ because of the tariff.a. $75b. $85c. $95d. $105ANS: A PTS: 140. According to Figure 4.1, the deadweight cost of the tariff totals:a. $60b. $70c. $80d. $90ANS: D PTS: 141. Consider Figure 4.1. The tariff would be prohibitive (i.e., eliminate imports) if it equaled:a. $2b. $3c. $4d. $5ANS: D PTS: 1Assume the United States is a large consumer of steel that is able to influence the world price. Its demand and supply schedules are respectively denoted by D U.S. and S U.S. in Figure 4.2. The overall (United States plus world) supply schedule of steel is denoted by S U.S.+W.Figure 4.2. Import Tariff Levied by a "Large" Country42. Consider Figure 4.2. With free trade, the United States achieves market equilibrium at a price of $____.At this price, ____ tons of steel are produced by U.S. firms, ____ tons are bought by U.S. buyers, and ____ tons are imported.a. $450, 5 tons, 60 tons, 55 tonsb. $475, 10 tons, 50 tons, 40 tonsc. $525, 5 tons, 60 tons, 55 tonsd. $630, 30 tons, 30 tons, 0 tonsANS: B PTS: 143. Consider Figure 4.2. Suppose the United States imposes a tariff of $100 on each ton of steel imported.With the tariff, the price of steel rises to $____ and imports fall to ____ tons.a. $550, 20 tonsb. $550, 30 tonsc. $575, 20 tonsd. $575, 30 tonsANS: A PTS: 144. Consider Figure 4.2. Of the $100 tariff, $____ is passed on to the U.S. consumer via a higher price,while $____ is borne by the foreign exporter; the U.S. terms of trade:a. $25, $75, improveb. $25, $75, worsenc. $75, $25, improved. $75, $25, worsenANS: C PTS: 145. Referring to Figure 4.2, the tariff's deadweight welfare loss to the United States totals:a. $450b. $550c. $650d. $750ANS: D PTS: 146. According to Figure 4.2, the tariff's terms-of-trade effect equals:a. $300b. $400c. $500d. $600ANS: C PTS: 147. According to Figure 4.2, the tariff leads to the overall welfare of the United States:a. Rising by $250b. Rising by $500c. Falling by $250d. Falling by $500ANS: C PTS: 148. Suppose that the production of $500,000 worth of steel in the United States requires $100,000 worth ofiron ore. The U.S. nominal tariff rates for importing these goods are 15 percent for steel and 5 percent for iron ore. Given this information, the effective rate of protection for the U.S. steel industry isapproximately:a. 6 percentb. 12 percentc. 18 percentd. 24 percentANS: C PTS: 149. Suppose that the production of a $30,000 automobile in Canada requires $10,000 worth of steel. TheCanadian nominal tariff rates for importing these goods are 25 percent for automobiles and 10 percent for steel. Given this information, the effective rate of protection for the Canadian automobile industry is approximately:a. 15 percentb. 32 percentc. 48 percentd. 67 percentANS: B PTS: 1Exhibit 4.1Assume that the United States imports automobiles from South Korea at a price of $20,000 per vehicle and that these vehicles are subject to an import tariff of 20 percent. Also assume that U.S. components are used in the vehicles assembled by South Korea and that these components have a value of $10,000.50. Refer to Exhibit 4.1. In the absence of the Offshore Assembly Provision of U.S. tariff policy, the priceof an imported vehicle to the U.S. consumer after the tariff has been levied is:a. $22,000b. $23,000c. $24,000d. $25,000ANS: C PTS: 151. Refer to Exhibit 4.1. Under the Offshore Assembly Provision of U.S. tariff policy, the price of animported vehicle to the U.S. consumer after the tariff has been levied is:a. $22,000b. $23,000c. $24,000d. $25,000ANS: A PTS: 152. Suppose an importer of steel is required to pay a tariff of $20 per ton plus 5 percent of the value ofsteel. This is an example of a (an):a. Specific tariffb. Ad valorem tariffc. Compound tariffd. Tariff quotaANS: C PTS: 153. A compound tariff is a combination of a (an):a. Tariff quota and a two-tier tariffb. Revenue tariff and a protective tariffc. Import tariff and an export tariffd. Specific tariff and an ad valorem tariffANS: D PTS: 1Table 4.1. Production Costs and Prices of Imported and Domestic VCRsImported VCRs Domestic VCRs Component parts $150 Imported component parts $150 Assembly cost/profit 50 Assembly cost 50 Nominal tariff 25 Profit 25____ ____ Import price Domestic priceafter tariff 225 after tariff 22554. Consider Table 4.1. Prior to the tariff, the total price of domestically-produced VCRs is:a. $150b. $200c. $225d. $250ANS: B PTS: 155. Consider Table 4.1. Prior to the tariff, the total price of imported VCRs is:a. $150b. $200c. $225d. $235ANS: B PTS: 156. Consider Table 4.1. The nominal tariff rate on imported VCRs equals:a. 11.1 percentb. 12.5 percentc. 16.7 percentd. 50.0 percentANS: B PTS: 157. Consider Table 4.1. Prior to the tariff, domestic value added equals:a. $25b. $50c. $75d. $100ANS: B PTS: 158. Consider Table 4.1. After the tariff, domestic value added equals:a. $25b. $50c. $75d. $100ANS: C PTS: 159. Consider Table 4.1. The effective tariff rate equals:a. 11.1 percentb. 16.7 percentc. 50.0 percentd. 100.0 percentANS: C PTS: 160. If the domestic value added before an import tariff for a product is $500 and the domestic value addedafter the tariff is $550, the effective rate of protection is:a. 5 percentb. 8 percentc. 10 percentd. 15 percentANS: C PTS: 161. When a tariff on imported inputs exceeds that on the finished good,a. The nominal tariff rate on the finished product would tend to overstate its protective effectb. The nominal tariff rate would tend to understate it's protective effectc. It is impossible to determine the protective effect of a tariffd. Tariff escalation occursANS: A PTS: 162. The offshore assembly provision in the U.S.a. Provides favorable treatment to U.S. trading partnersb. Discriminates against primary product importersc. Provides favorable treatment to products assembled abroad from U.S. manufacturedcomponentsd. Hurts the U.S. consumerANS: C PTS: 163. Arguments for U.S. trade restrictions include all of the following excepta. Job protectionb. Infant industry supportc. Maintenance of domestic living standardd. Improving incomes for developing countriesANS: D PTS: 164. For the United States, a foreign trade zone (FTZ) isa. A site within the United Statesb. A site outside the United Statesc. Always located in poorer developing countriesd. Is used to discourage tradeANS: A PTS: 1TRUE/FALSE1. To protect domestic producers from foreign competition, the U.S. government levies both importtariffs and export tariffs.ANS: F PTS: 12. With a compound tariff, a domestic importer of an automobile might be required to pay a duty of $200plus 4 percent of the value of the automobile.ANS: T PTS: 13. With a specific tariff, the degree of protection afforded domestic producers varies directly withchanges in import prices.ANS: F PTS: 14. During a business recession, when cheaper products are purchased, a specific tariff provides domesticproducers a greater amount of protection against import-competing goods.ANS: T PTS: 15. A ad valorem tariff provides domestic producers a declining degree of protection againstimport-competing goods during periods of changing prices.ANS: F PTS: 16. With a compound duty, its "specific" portion neutralizes the cost disadvantage of domesticmanufacturers that results from tariff protection granted to domestic suppliers of raw materials, and the "ad valorem" portion of the duty grants protection to the finished-goods industry.ANS: T PTS: 17. The nominal tariff rate signifies the total increase in domestic productive activities compared to whatwould occur under free-trade conditions.ANS: F PTS: 18. When material inputs enter a country at a very low duty while the final imported product is protectedby a high duty, the result tends to be a high rate of protection for domestic producers of the finalproduct.ANS: T PTS: 19. According to the tariff escalation effect, industrial countries apply low tariffs to imports of finishedgoods and high tariffs to imports of raw materials.10. Under the Offshore Assembly Provision of U.S. tariff policy, U.S. import duties apply only to thevalue added in the foreign assembly process, provided that U.S.-made components are used byoverseas companies in their assembly operations.ANS: T PTS: 111. Bonded warehouses and foreign trade zones have the effect of allowing domestic importers topostpone and prorate over time their import duty obligations.ANS: T PTS: 112. A nation whose imports constitute a very small portion of the world market supply is a price taker,facing a constant world price for its import commodity.ANS: T PTS: 113. Graphically, consumer surplus is represented by the area above the demand curve and below theproduct's market price.ANS: F PTS: 114. Producer surplus is the revenue producers receive over and above the minimum necessary forproduction.ANS: T PTS: 115. For a "small" country, a tariff raises the domestic price of an imported product by the full amount ofthe duty.ANS: T PTS: 116. Although an import tariff provides the domestic government additional tax revenue, it benefitsdomestic consumers at the expense of domestic producers.ANS: F PTS: 117. An import tariff reduces the welfare of a "small" country by an amount equal to the redistributioneffect plus the revenue effect.ANS: F PTS: 118. The deadweight losses of an import tariff consist of the protection effect plus the consumption effect.ANS: T PTS: 119. The redistribution effect is the transfer of producer surplus to domestic consumers of theimport-competing product.20. As long as it is assumed that a nation accounts for a negligible portion of international trade, itslevying an import tariff necessarily increases its overall welfare.ANS: F PTS: 121. Changes in a "large" country's economic conditions or trade policies can affect the terms at which ittrades with other countries.ANS: T PTS: 122. A "large" country, that levies a tariff on imports, cannot improve the terms at which it trades with othercountries.ANS: F PTS: 123. For a "large" country, a tariff on an imported product may be partially absorbed by the domesticconsumer via a higher purchase price and partially absorbed by the foreign producer via a lower export price.ANS: T PTS: 124. If a "large" country levies a tariff on an imported good, its overall welfare increases if the monetaryvalue of the tariff's consumption effect plus protective effect exceeds the monetary value of theterms-of-trade effect.ANS: F PTS: 125. If a "small" country levies a tariff on an imported good, its overall welfare increases if the monetaryvalue of the tariff's consumption effect plus protective effect is less than the monetary value of the terms-of-trade effect.ANS: F PTS: 126. A tariff on steel imports tends to improve the competitiveness of domestic automobile companies.ANS: F PTS: 127. If a tariff reduces the quantity of Japanese autos imported by the United States, over time it reduces theability of Japan to import goods from the United States.ANS: T PTS: 128. A compound tariff permits a specified amount of goods to be imported at one tariff rate while anyimports above this amount are subjected to a higher tariff rate.ANS: F PTS: 129. A tariff can be thought of as a tax on imported goods.30. Although tariffs on imported steel may lead to job gains for domestic steel workers, they can lead tojob losses for domestic auto workers.ANS: T PTS: 131. Relatively low wages in Mexico make it impossible for U.S. manufacturers of labor-intensive goods tocompete against Mexican manufacturers.ANS: F PTS: 132. According to the infant-industry argument, temporary tariff protection granted to an infant industrywill help it become competitive in the world market; when international competitiveness is achieved, the tariff should be removed.ANS: T PTS: 1Exhibit 4.2In the absence of international trade, assume that the equilibrium price and quantity of motorcycles in Canada is $14,000 and 10 units respectively. Assuming that Canada is a small country that is unable to affect the world price of motorcycles, suppose its market is opened to international trade. As a result, the price of motorcycles falls to $12,000 and the total quantity demanded rises to 14 units; out of this total, 6 units are produced in Canada while 8 units are imported. Now assume that the Canadiangovernment levies an import tariff of $1,000 on motorcycles.33. Refer to Exhibit 4.2. As a result of the tariff, the price of imported motorcycles equals $13,000 andimports total 4 cycles.ANS: T PTS: 134. Refer to Exhibit 4.2. The tariff leads to an increase in Canadian consumer surplus totaling $11,000.ANS: F PTS: 135. Refer to Exhibit 4.2. The tariff's redistribution effect equals $7,000.ANS: T PTS: 136. Refer to Exhibit 4.2. The tariff's revenue effect equals $6,000.ANS: F PTS: 137. Refer to Exhibit 4.2. All of the import tariff is shifted to the Canadian consumer via a higher price ofmotorcycles.ANS: T PTS: 138. Refer to Exhibit 4.2. The tariff leads to a deadweight welfare loss for Canada totaling $1,000.39. Unlike a specific tariff, an ad valorem tariff differentiates between commodities with different values.ANS: T PTS: 140. A limitation of a specific tariff is that it provides a constant level of protection for domesticcommodities regardless of fluctuations in their prices over time.ANS: F PTS: 141. A tariff quota is a combination of a specific tariff and an ad valorem tariff.ANS: F PTS: 142. A specific tariff is expressed as a fixed percentage of the total value of an imported product.ANS: F PTS: 143. The protective effect of a tariff occurs to the extent that less efficient domestic production issubstituted for more efficient foreign production.ANS: T PTS: 144. A tariff can increase the welfare of a "large" levying country if the favorable terms-of-trade effectmore than offsets the unfavorable protective effect and consumption effect.ANS: T PTS: 145. If the world price of steel is $600 per ton, a specific tariff of $120 per ton is equivalent to an advalorem tariff of 25 percent.ANS: F PTS: 146. An import tariff will worsen the terms of trade for a "small" country but improve the terms of trade fora "large" country.ANS: F PTS: 147. Suppose that the tariff on imported steel is 40 percent, the tariff on imported iron ore is 20 percent, and30 percent of the cost of producing a ton of steel consists of the iron ore it contains. The effective rateof protection of steel is approximately 49 percent.ANS: T PTS: 148. There is widespread agreement among economists that import tariffs increase overall employment inthe levying country.ANS: F PTS: 1。