- Ch. 8 & 9
1. Ch. 8 - What is the primary cause of deadweight loss from a a tax?
: D. Market equilibrium
: B. Missed mutually beneficial trades
: Deadweight loss occurs because taxes prevent trades that would have benefited both buyers
and sellers.
2. Ch. 8 - The size of the deadweight loss depends primarily on:
: C. Government revenue
: B. Elasticities of supply and demand
: The more elastic supply and demand are, the more quantity responds to price changes,
increasing deadweight loss.
3. Ch. 8 - How does deadweight loss change when the size of a tax doubles?
: A. It doubles
: C. It quadruples
: Since DWL is a triangle, its area increases with the square of the tax size.
4. Ch. 9 - Who benefits from trade when a country becomes a textile exporter?
: B. Foreign consumers
: C. Domestic producers
: Exporting raises domestic prices, benefiting producers but harming consumers.
5. Ch. 9 - Comparative advantage is determined by:
: B. Absolute efficiency
: C. Lower opportunity cost
: A country has a comparative advantage if it can produce a good at a lower opportunity cost than
others.
6. Ch. 9 - The bargaining chip argument supports trade restrictions as a way to:
: B. Increase employment
: C. Influence foreign trade policies
: This argument supports using tariffs as leverage in trade negotiations.
7. Ch. 8 - Which scenario leads to the greatest DWL from a tax?
: A. Inelastic supply and inelastic demand
: C. Elastic supply and elastic demand
: Greater elasticity leads to greater reduction in quantity and thus more deadweight loss.
8. Ch. 8 - If a tax causes a market to shrink significantly, which of the following is most likely true?
: D. There is no deadweight loss
: A. Supply and demand are highly elastic
: High elasticity causes large changes in quantity, increasing market shrinkage.
9. Ch. 9 - If a country imposes a tariff and the world supply curve is perfectly elastic, what happens?
: D. Price and imports both increase
: A. Price increases, imports fall
: Tariffs raise prices and reduce imports when the world supply is perfectly elastic.
10. Ch. 9 - Long-run effect of removing trade barriers when lacking comparative advantage in
wheat?
: D. Becomes a major exporter
: C. Resources shift toward more efficient industries
: Trade liberalization reallocates resources toward industries with comparative advantage.
11. Ch. 9 - Result of removing a tariff in a previously protected industry?
: B. Consumer surplus falls
: D. Domestic producers may contract or exit the market
: Without protection, domestic producers may lose competitiveness and shrink.