Exam_2___Spring_2010_

Exam_2___Spring_2010_ - EC 340 Exam 2 Instructions Do not...

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EC 340 Exam 2 March 25, 2010 Instructions Do not open the exam until instructed to do so. Answer all 41 questions, each has equal weight. Circle the letter of the alternative that best answers the question. You may NOT use calculator, notes, book, or any outside source of information.

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1 Use the graph to the right along with the following information to answer questions 1 – 5. Costa Rica is a small importer of chicken. The world (free trade) price of chicken is \$6 per pound. Costa Rica levies a \$2 per pound import tariff. 1. How much tariff revenue does the Costa Rican government collect? a. \$20 b. \$30 c. \$80 d. \$100 e. \$130 f. \$150 2. What is the value of the loss to those Costa Rican consumers who continue to buy chicken? a. \$20 b. \$30 c. \$80 d. \$100 e. \$130 f. \$150 3. What is the value of the production distortion (sometimes called the production effect) created by the tariff? a. \$5 b. \$10 c. \$20 d. \$30 e. \$45 f. \$60
2 4. Relative to free trade, the \$2 tariff increases Costa Rican consumer surplus. a. True b. False 5. Relative to free trade, the \$2 tariff harms chicken producers in the rest of the world. a. True b. False The diagram to the right shows the U.S. market for clothes washing machines. Assume that the U.S. is a large country in the world market for washing machines, that the free trade price of washing machines is \$1,000, and the U.S. levies an import tariff of \$300 per machine. Further suppose that this tariff raises the price of machines in the U.S. to \$1,200. Use this information to answer questions 6-8 6. How many washing machines does the United States import in the tariff-distorted equilibrium? a. 400 b. 800 c. 1,200 d. 1,600 7. What is the size of the terms-of-trade gain due to this tariff? a. \$80,000 b. \$160,000 c. \$240,000 d. \$720,000 e. \$960,000

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3 8. How does the tariff change U.S. welfare relative to free trade? The tariff a. increases U.S. welfare by \$80,000. b. increases U.S. welfare by \$240,000. c. decreases U.S. welfare by \$80,000. d. decreases U.S. welfare by \$240,000. e. has no effect on net U.S. welfare. The diagram to the right shows the import demand and export supply curves for the world fish market. The importing country levies a tariff of \$6 per pound. Use the information in this diagram to answer questions 9 – 11. 9. The importing country illustrated in this diagram is “large” in the technical sense of the term. a. True
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Exam_2___Spring_2010_ - EC 340 Exam 2 Instructions Do not...

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