Question 1

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

Accepted Answer

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

Question 2

If the U.S. government imposes a $$0.50 per gallon tariff on imported ethanol, raising the domestic price to 1.50 $$per gallon, what is the deadweight loss caused by the tariff?

Accepted Answer

Deadweight loss is represented by the areas $$C + D on $$the supply and demand diagram.

Question 3

Which of the following best describes the effect of an import quota on the U.S. sugar market?

Accepted Answer

The quota raises the U.S. price of sugar above the world price, increasing producer surplus and creating deadweight loss.

Question 4

What is the opportunity cost of producing a good, and why is it important for determining comparative advantage?

Accepted Answer

The opportunity cost is the value of the next best alternative foregone, and it determines comparative advantage.

Question 5

Suppose the U.S. eliminates all tariffs and quotas unilaterally, 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 would gain overall, even if other countries do not reduce their trade barriers.

Question 6

A common argument for maintaining import restrictions is to save domestic jobs. If the U.S. sugar quota costs $2.59 billion and saves 3,000 jobs, what is the cost per job saved?

Accepted Answer

$$863,333$$ per job

Question 7

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

Accepted Answer

Increasing consumer surplus

Question 8

What is the main difference between a tariff and a quota?

Accepted Answer

A tariff is a tax on imports, while a quota is a numerical limit on imports.

Question 9

If the U.S. imposes a quota on sugar imports, who are the main beneficiaries?

Accepted Answer

U.S. sugar producers and foreign producers who can sell at the higher U.S. price

Question 10

Which of the following best describes the concept of deadweight loss in the context of tariffs and quotas?

Accepted Answer

Deadweight loss is the loss of economic surplus that occurs when market output is restricted below the efficient level due to tariffs or quotas.

Question 11

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

Accepted Answer

A government imposes higher health and safety standards on imports than on domestic goods.

Question 12

What is 'dumping' in the context of international trade?

Accepted Answer

Selling a product for a price below its cost of production.

Question 13

Which of the following statements about the World Trade Organization (WTO) is correct?

Accepted Answer

The WTO oversees international trade agreements and provides a dispute resolution process.

Question 14

Suppose the U.S. imposes a tariff on imported tires, resulting in higher tire prices. What is a likely secondary effect according to the study materials?

Accepted Answer

Retail jobs may be lost because consumers have less money to spend on other goods.

Question 15

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

Accepted Answer

Free trade should be restricted to protect domestic jobs.

Question 16

Why are special interest groups often successful in lobbying for trade protection, such as sugar quotas?

Accepted Answer

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

Question 17

If the U.S. market for ethanol is opened to imports at a world price of $1.00 per gallon, and U.S. production falls to 3 billion gallons while consumption rises to 9 billion gallons, how many gallons are imported?

Accepted Answer

$$6$$ billion gallons

Question 18

Which of the following best explains why economists generally support free trade?

Accepted Answer

Free trade increases economic surplus, making nations better off overall.

Question 19

Which of the following is an example of a positive analysis statement about trade?

Accepted Answer

Eliminating tariffs will increase total economic surplus.

International Trade, Comparative Advantage, and Government Trade Policies

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