Sample+Questions+for+Midterm2

Sample+Questions+for+Midterm2 - Econ 13/IS 13 Sample...

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Econ 13/IS 13 Sample Questions for Midterm 1. How does an import quota differ from an equivalent tariff? ANS: Both the import quota and the tariff raise the domestic price of the good, reduce the welfare of domestic consumers, increase the welfare of domestic producers, and cause deadweight losses. The only difference for the economy is that the tariff raises revenue for the government, while the import quota creates surplus for license holders. 2. What are the arguments in favor of trade restrictions, and what are the counterarguments? According to most economists, do any of these arguments really justify trade restrictions? Explain. ANS: Arguments in favor include the jobs argument, the national security argument, the infant industry argument, the unfair competition argument, and the protection-as-a-bargaining-chip argument. Most economists would dismiss the jobs argument, the infant industry argument, and the unfair competition argument on strictly economic grounds. The bargaining-chip argument carries high risks of economic harm if the threat doesn't work. The national-security argument balances economic loss from trade restriction against the benefit of long-term national survival, and is probably the argument that economists would most likely buy if it were clear that the industry being protected was clearly crucial to national security. 3. Explain how and why appreciation and depreciation of currencies can change trade patterns between countries. ANS: Appreciation of the domestic currency will cause exports to fall and imports to rise because domestically produced goods will be relatively more expensive to foreigners whereas foreign goods will be relatively cheaper to domestic consumers. Depreciation of the domestic currency will lead to exactly opposite results. 4. If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, a. the country will be an exporter of the good. b. the country will be an importer of the good. c. the country will be neither an exporter nor an importer of the good. d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. 5. If a small country imposes a tariff on an imported good, domestic sellers will gain producer surplus, the government will gain tariff revenue, and domestic consumers will gain consumer surplus. True or False ? 6. 6. Whereas free trade can in principle make everyone better off, in practice trade restrictions abound throughout the world. State and briefly discuss some of the reasons for the existence of so many trade restrictions. 1
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Below are several sets of reasons that help explain the prevalence of trade restrictions. A.
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Sample+Questions+for+Midterm2 - Econ 13/IS 13 Sample...

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