T f 32 according to the infant industry argument

This preview shows 14 out of 16 pages.

T F 32. According to the infant-industry argument, temporary tariff protection granted to an infant industry will help it become competitive in the world market; when international competitiveness is achieved, the tariff should be removed. In the absence of international trade, assume that the equilibrium price and quantity of motorcycles in Canada is $14,000 and 10 units respectively. Assuming that Canada is a small country that is unable to affect the world price of motorcycles, suppose its market is opened to international trade. As a result, the price of motorcycles falls to $12,000 and the total quantity demanded rises to 14 units; out of this total, 6 units are produced in Canada while 8 units are imported. Now assume that the Canadian government levies an import tariff of $1,000 on motorcycles. Answer the next six questions on the basis of this information. T F 33. As a result of the tariff, the price of imported motorcycles equals $13,000 and imports total 4 cycles. T F 34. The tariff leads to an increase in Canadian consumer surplus totaling $11,000. T F 35. The tariff’s redistribution effect equals $7,000. T F 36. The tariff’s revenue effect equals $6,000. T F 37. All of the import tariff is shifted to the Canadian consumer via a higher price of motorcycles. T F 38. The tariff leads to a deadweight welfare loss for Canada totaling $1,000. T F 39. Unlike a specific tariff, an ad valorem tariff differentiates between commodities with different values. T F 40. A limitation of a specific tariff is that it provides a constant level of protection for domestic commodities regardless of fluctuations in their prices over time. T F 41. A tariff quota is a combination of a specific tariff and an ad valorem tariff. T F 42. A specific tariff is expressed as a fixed percentage of the total value of an imported product. T F 43. The protective effect of a tariff occurs to the extent that less efficient domestic production is substituted for more efficient foreign production. T F 44. A tariff can increase the welfare of a “large” levying country if the favorable terms-of-trade effect more than offsets the unfavorable protective effect and consumption effect. 14
Image of page 14

Subscribe to view the full document.

Chapter 5: Tariffs T F 45. If the world price of steel is $600 per ton, a specific tariff of $120 per ton is equivalent to an ad valorem tariff of 25 percent. T F 46. An import tariff will worsen the terms of trade for a “small” country but improve the terms of trade for a “large” country. T F 47. Suppose that the tariff on imported steel is 40 percent, the tariff on imported iron ore is 20 percent, and 30 percent of the cost of producing a ton of steel consists of the iron ore it contains. The effective rate of protection of steel is approximately 49 percent. T F 48. There is widespread agreement among economists that import tariffs increase overall employment in the levying country. T F 49. Assume that the United States imports VCRs from South Korea at a price of $200 per unit and that these VCRs are subject to an import tariff of 20 percent. Also assume that U.S.
Image of page 15
Image of page 16
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern