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Exam 4: Tariffs

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Question 31

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Should Canada impose a tariff on imports, one would expect Canada's:

A) Terms of trade to improve and volume of trade to decrease
B) Terms of trade to worsen and volume of trade to decrease
C) Terms of trade to improve and volume of trade to increase
D) Terms of trade to worsen and volume of trade to increase

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Question 32

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Exhibit 4.1 Assume 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. -Refer to Exhibit 4.1. In the absence of the Offshore Assembly Provision of U.S. tariff policy, the price of an imported vehicle to the U.S. consumer after the tariff has been levied is:

A) $22,000
B) $23,000
C) $24,000
D) $25,000

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Question 33

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Suppose that the production of a $30,000 automobile in Canada requires $10,000 worth of steel. The Canadian 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:

Which trade policy results in the government levying a "two-tier" tariff on imported goods?

Assume 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" Country -According to Figure 4.2, the tariff leads to the overall welfare of the United States:

Figure 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" Country -Consider Figure 4.1. With free trade, the total value of Mexico's imports equal:

When a tariff on imported inputs exceeds that on the finished good,

Can import duties have unintended side effects?

Exhibit 4.2 In 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 Canadian government levies an import tariff of $1,000 on motorcycles. -Refer to Exhibit 4.2. As a result of the tariff, the price of imported motorcycles equals $13,000 and imports total 4 cycles.

Assume 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" Country -Referring to Figure 4.2, the tariff's deadweight welfare loss to the United States totals:

Should the home country be "large" relative to the world, its imposition of a tariff on imports would lead to an increase in domestic welfare if the terms-of-trade effect $\underline { \text { exceeds } }$ the sum of the:

Unlike a specific tariff, an ad valorem tariff differentiates between commodities with different values.

A compound tariff permits a specified amount of goods to be imported at one tariff rate while any imports above this amount are subjected to a higher tariff rate.

A $\underline { \text { lower } }$ tariff on imported aluminum would most likely benefit:

If we consider the interests of both consumers and producers, then a policy of tariff reduction in the U.S. auto industry is:

Table 4.1. Production Costs and Prices of Imported and Domestic VCRs $\begin{array} { l c l c } & \text { Imparted VCRs } & { \text { Damestic VCRs } } \\\text { Campanent parts } & 4150 & \text { Imported campanent parts } & \$ 150 \\\text { Assembly cast/profit } & 50 & \text { Assembly cast } & 50 \\\text { Naminal tariff } & 25 & \text { Profit } & 25 \\&--- & &--- \\\text { Impart price } & & \text { Damestic price } & 225 \\\text { after tariff } &225&\text { after tariff } &225\\\hline\end{array}$ -Consider Table 4.1. The effective tariff rate equals:

A tariff can be thought of as a tax on imported goods.

A "large" country, that levies a tariff on imports, cannot improve the terms at which it trades with other countries.

A ad valorem tariff provides domestic producers a declining degree of protection against import-competing goods during periods of changing prices.

During a business recession, when cheaper products are purchased, a specific tariff provides domestic producers a greater amount of protection against import-competing goods.