Use the following information to answer questions 21 thru 27.

A small country is considering imposing a $5 per bottle tariff on imported wine. Economists have estimated the following figures based on this tariff amount:

World price of wine (free trade): $20

Domestic production (free trade): 500,000

Domestic production (after tariff): 600,000

Domestic consumption (free trade): 750,000

Domestic consumption (after tariff): 650,000

21. With no tariff on imported wine, the country’s imports __________ bottles of wine, but after imposing the tariff the country will import __________ bottles of wine.

a. 100,000; 100,000

b. 250,000; 50,000

c. 150,000; 50,000

d. 750,000; 650,000

22. The imposition of the tariff on wine will cause domestic producer surplus to __________ by __________:

a. Rise; 100,000 bottles

b. Rise; $500,000

c. Fall; $2.5 million

d. Rise; $2.75 million

23. The imposition of the tariff on wine will cause domestic consumer surplus to __________ by __________:

a. Fall; 100,000 bottles

b. Fall; $250,000

c. Fall; $3.5 million

d. Rise; $3.5 million

24. The imposition of the tariff on wine will cause government tariff revenue to rise by how much?

a. $250,000

b. $1.25 million

c. $3.5 million

d. $500,000

25. The imposition of the tariff on wine will cause the country’s economic well-being to __________ by __________.

a. Fall; $0.5 million

b. Rise; $0.75 million

c. Fall; 100,000 bottles of wine

d. Fall; $0.75 million

26. What would be the production effect of the tariff on wine?

a. $250,000

b. $500,000

c. $2.5 million

d. $2.75 million

27. What would be the consumption effect of the tariff on wine?

a. $250,000

b. $500,000

c. $3.5 million

d. $2.75 million

28. Which of the following is a change in the ratio of international prices of a large country’s exports to the international price of the large country’s imports resulting from the imposition of a tariff in the country?

a. One-dollar, one-vote.

b. Production effect.

c. Consumption effect.

d. Terms-of-trade effect.

29. Which of the following refers to the percentage by which a nation’s trade barriers raise an industry’s value added per unit of output?

a. One-dollar, one-vote.

b. Optimal tariff.

c. Effective tariff.

d. Terms-of-trade effect.

30. Given the following information about domestic lamp production, what is the effective rate of protection afforded to the domestic lamp industry by a 20% tariff on lamps?

With free trade:

Unit value (price) of a lamp = $175.00

Unit cost of lamp inputs = $100.00

With 20% tariff on lamps:

Unit value (price) of a lamp = $210.00

Unit cost of lamp inputs = $100.00

a. 20%

b. 46?%

c. 110%

d. 102?%

Multiple Choice Questions

1. A tax on imports that is stipulated as a money amount per unit is called:

a. A specific tariff.

b. An ad valorem tariff.

c. An effective tariff.

d. An optimal tariff.

2. A tariff generally __________ domestic producers of import-competing products and ____ domestic consumers of imports and import-competing goods.

a. Helps; helps

b. Hurts; hurts

c. Helps; hurts

d. Hurts; helps

3. A tariff allows domestic producers of import-competing goods to:

I. Expand their own production and sales.

II. Raise the price they charge.

III. Begin to export their product.

a. I

b. I and II

c. I, II, and III

d. I and III

4. If a small country imposes a tariff on imported motorcycles, the world price of motorcycles will __________ and the domestic price of motorcycles will __________.

a. Rise; rise

b. Fall; rise

c. Stay constant; rise

d. Stay constant; fall

5. If a small country imposes a tariff on imported motorcycles, the surplus of domestic producers of motorcycles will __________ and the surplus of domestic consumers of motorcycles will __________.

a. Rise; rise

b. Fall; fall

c. Fall; rise

d. Rise; fall

6. Which of the following refers to the loss consumers in the importing country suffer based on their reduction in the consumption of a good after a tariff is imposed on that good?

a. Production effect.

b. Consumption effect.

c. Deadweight loss.

d. Consumer surplus.

7. Which of the following refers to the extra cost of shifting to more expensive home production following the imposition of a tariff?

a. Production effect.

b. Consumption effect.

c. Deadweight loss.

d. Producer surplus.

Figure 8.1: The U.S. Market for Shoes

Price

8. Referring to Figure 8.1, the impact of a tariff on shoes on the amount of domestic producer surplus is a __________ measured by area __________.

a. Gain; a

b. Loss; a

c. Gain; (a+b)

d. Loss; (a+b)

9. Referring to Figure 8.1, the impact of a tariff on shoes on the amount of domestic consumer surplus is a __________ measured by area __________.

a. Gain; d

b. Loss; d

c. loss; (a+b+c+d)

d. Loss; (b+d)

10. Referring to Figure 8.1, the revenue collected by the U.S. government as a result of the tariff on shoes is shown by area __________.

a. a

b. a + b

c. c

d. b + c + d