tbch09 - Chapter 9: The Political Economy of Trade Policy...

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Chapter 9: The Political Economy of Trade Policy Multiple Choice Questions 1. The efficiency case made for free trade is that as trade distortions such as tariffs are dismantled and removed, A. government tariff revenue will decrease, and therefore national economic welfare will decrease. B. government tariff revenue will decrease, and therefore national economic welfare will increase. C. deadweight losses for producers and consumers will decrease, hence increasing national economic welfare. D. deadweight losses for producers and consumers will decrease, hence decreasing national economic welfare. E. None of the above. Answer: C 2. The opportunity to exploit economies of scale is one of the gains to be made from removing tariffs and other trade distortions. These gains will be found by a decrease in A. world prices of imports. B. the consumption distortion loss triangle. C. the production distortion loss triangle. D. Both B and C. E. None of the above. Answer: E 3. It is argued that special interest groups are likely to take over and promote protectionist policies, which may lead to an increases in national economic welfare. This argument leads to A. a presumption that in practice a free trade policy is likely to be better than alternatives. B. a presumption that trade policy should be shifted to Non-Governmental Organizations, so as to limit taxpayer burden. C. a presumption that free trade is generally a second-best policy, to be avoided if feasible alternatives are available. D. a presumption that free trade is the likely equilibrium solution if the government allows special interest groups to dictate its trade policy. E. None of the above. Answer: A 108
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4. The optimum tariff is A. the best tariff a country can obtain via a WTO negotiated round of compromises. B. the tariff, which maximizes the terms of trade gains. C. the tariff, which maximizes the difference between terms of trade gains and terms of trade loses. D. not practical for a small country due to the likelihood of retaliation. E. not practical for a large country due to the likelihood of retaliation. Answer: E 5. The optimum tariff is most likely to apply to A. a small tariff imposed by a small country. B. a small tariff imposed by a large country. C. a large tariff imposed by a small country. D. a large tariff imposed by a large country. E. None of the above. Answer: B 6. The prohibitive tariff is a tariff that A. is so high that it eliminates imports. B. is so high that it causes undue harm to trade-partner economies. C. is so high that it causes undue harm to import competing sectors. D. is so low that the government prohibits its use since it would lose an important revenue source. E. None of the above. Answer: A
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tbch09 - Chapter 9: The Political Economy of Trade Policy...

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