338x9921 11/18/99
R. E. Bove
ECO 338 INTERNATIONAL ECONOMICS
SECOND EXAM
NOVEMBER 29, 1999
NAME: __________________
Part I. Identify or Explain (18 Points maximum)
Offer curve (3)
Terms of Trade(2)
Autarky (1)
Predatory Dumping(2)
List three kinds of nontariff trade barriers (3)
Export credit subsidy (2)
VER (2)
Scientific argument for tariffs (2)
A prohibitive tariff (2)
Escalated tariff structure. (2)
Surrender requirement (1)
Distinguish the following:
Nominal tariff rate vs. effective tariff rate (3)
Specific tariff vs. ad valorem tariff (2)
Part II. Multiple Choice (12 Points)
1. (W-39) A nominal $1 tariff per pair of imported shoes is:
a. An export tariff
b. An ad valorem tariff
c. A specific tariff
d. An effective tariff rate
2. (I-56) The principle benefits of tariff protection go to:
a. Domestic consumers of the good on which the tariff is placed.
b. Domestic producers of the good on which the tariff is placed.
c. Foreign producers of the good on which the tariff is placed.
d. Foreign consumers of the good on which the tariff is placed.
3. (I-57) A beggar-thy-neighbor policy is the imposition of:
a. Free trade to increase domestic productivity.
b. Trade barriers to increase domestic demand and unemployment.
c. Import tariffs to curb domestic inflation.
d. Revenue tariffs to make products cheaper for domestic consumers.
4. (W-40) A tariff quota :
a. Establishes a lower tariff on an initial quantity of imports, and a higher tariff beyond that level.
b. Is a quantitative limit on the number of tariffs a country can impose on imports.
c. Raises domestic prices by less than would a simple tariff.
d. Generates no revenue for the government that imposes it..
5. (W-51) A nation that uses an import quota rather than an import tariff to protect its domestic industry will
find over time that as demand for the product on which the quota is imposed rises:
a. Price will rise less rapidly than with a tariff.
b. Price will rise more rapidly than with a tariff.
c. Price will not change, because a quota is not a tax.
d. Domestic output will rise more rapidly than with a tariff..
6. (W-51) A domestic subsidy to enable an industry to compete against imports:
a. Avoids the protective effect of a tariff .
b. Avoids the redistributive effect of a tariff.
c. Avoids the deadweight consumer surplus loss of a tariff because it does not distort domestic
prices.
d. Raises the domestic price of imported products.
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7. (W-50) The following is true:
a. Unlike a tariff, a quota does not cause the domestic price of an import to rise.
b. A voluntary export restraint avoids the domestic price increases and welfare losses caused by
tariffs and quotas.
c. Tariffs on imported steel will not only be likely to increase the number of jobs in the steel
industry, but are also likely to increase jobs in steel-using industries.
d. All of the above are false.
8. (I-76) In certain industries, Japanese employers do not lay off workers. Therefore, they sometimes have
excess supplies of goods that they cannot sell on home markets without lowering prices. To hold down
losses, they sell goods in overseas markets at prices well below those in Japan. This practice is referred to
as:
a. Orderly marketing.
b. Trigger pricing.
c. Domestic content pricing
d. Dumping
9. (I-73) Because export subsidies tend to result in domestic exporters charging lower prices on their goods
sold overseas, the home country’s :
a. Export revenues will decrease.
b. Export revenues will rise.
c. Terms of trade will worsen.
d. Terms of trade will improve.
10. (I-53) Of the many arguments for tariffs, the one which is considered most acceptable in economic
terms is:
a. Infant industry argument.
b. Cheap foreign labor argument.
c. Equalizing costs of production argument.
d. Job protection argument.
11. (W-51) An import quota that reduces imports to the same level as would an equivalent ad valorem tariff
will:
a. Raise domestic prices by less than would the tariff.
b. Avoid the redistributive effect of the tariff.
c. Have a lower protective effect than the tariff.
d. Probably generate less government revenue than a tariff.
12. (I-65) The following is true:
a. To protect domestic producers, the US levies both import and export tariffs.
b. For a small country, a tariff raises the domestic price of an imported product by the full amount
of the tariff.
c. A nominal tariff rate gives the total increase in domestic productive activities that would occur
under the tariff compared with free market conditions.
d. All of the above are false.
III (Extra Credit – do part III first)
Explain how a multiple exchange rate system works and how it can have the same effect
as a tariff. Why are multiple exchange rates among the least favorite of all tariff equivalents?
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Part III. Do the two following problems.(20 Points)
1. The formula relating effective tariffs and nominal tariffs is:
R
t  t r  
n  ab
 p
or e 
te 
1 a
R
1   
 p
Assume that the United States imposes a 10% tariff on imported clothing and that, before the tariff
was imposed, the cost of the raw materials in a $40 finished clothing item was $32 with the remainder
representing value-added by the manufacturer.
a. If there is no tariff on the imported materials, what is the rate of effective protection?
b. Using the formula, show what rate of tariff on the imported inputs would lead to a rate of
effective protection that would be the same as the nominal tariff rate.
c. Give an example of a tariff rate on the imported inputs that would result in a rate of effective
protection that is lower than the nominal rate of protection.
d. In general, if the nominal rate is t e or e (your choice) what rates of tariffs on the raw materials
lead to rates of effective protection that are higher or lower than the nominal rates?
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2. (I-59) Suppose that Mexico is a small country and that it imposes a $3 tariff on pocket calculators. The
world price is $3.
a. What is the quantity imported before and after the tariff is imposed?
b. Label revenue, protective, consumption and transfer effects of the tariff and explain
which of these would be dead-weight losses and why.
c. According to the diagram, how high would the tariff have to be to be prohibitive?
d. Show on the diagram, what quota would have about the same effects as the $3 tariff.
e. Explain, using a graph, why a tariff would be less damaging to local consumers if
Mexico were a large country.
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