One consequence of the imposition of tariffs or quotas on imported products is:
Answer(s): D
Tariffs lead to higher prices on imported products. Similarly, the imposition of quotas leads to higher prices through an artificial limitation on supply.
Which one of the following groups would be the primary beneficiary of a tariff?
Answer(s): B
Despite the advantages of free trade, nations often levy tariffs to discourage the importation of certain products. A tariff is a tax on imports intended to protect a domestic producer from foreign competition. For instance, a tariff on imported autos benefits domestic auto manufacturers because it is an additional cost imposed on domestic consumers of such products. The disadvantages of the tariff are that it may protect an inefficient domestic producer and increase prices paid by domestic consumers.
The graph depicts the domestic supply of and demand for a product that is also sold in the domestic market by foreign producers. The domestic producers are protected by a tariff of the amount Pt minus Pw. Bt is the domestic price including the tariff, and Rw is the world price for the product. The effect of the tariff is to:
Without the tariff, domestic production is determined by the intersection of the Pw line with the domestic supply curve at the quantity OA. Domestic production increases from Oa to Ob as a result of the introduction of the tariff. Supply intersects the Pt line at a higher price and at a greater domestic quantity, Ob.
Which of the following measures create the most restrictive barrier to exporting to a country?
Answer(s): C
An embargo is a total ban on some kinds of imports. It is an extreme form of the import quota. Embargoes have the effect of totally excluding the exporting entity from selling in that country and are the most restrictive type of import/export law.
Which of the following is an economic rationale for government intervention in trade?
The infant-industry argument contends that protective tariffs are needed to allow new domestic industries to become established. Once such industries reach a maturity stage in their life cycles, the tariffs can supp: - dry be removed.
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