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Exam 8: Analysis of a Tariff

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Question 21

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The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The imposition of a tariff on computers caused economic well-being in the U.S. to _____ by _____.

A) fall; $3 million
B) fall; $6 million
C) rise; $34 million
D) fall; $34 million

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Question 22

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Under free trade, a large country produces 1 million leather bags per year and imports another 2 million bags per year at the world price of $60 per bag. Assume that the country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather bags decreases to $58 in the international market and the import of leather bags drops to 1.6 million. The domestic production, on the other hand, increases to 1.1 million. Following the imposition of the tariff, the domestic consumers pay a price of _____ for each bag.

A) $60
B) $70
C) $63
D) $65

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Question 23

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Firms in a given industry are affected by the tariff imposed on the product they sell, but not by the tariffs imposed on their purchased inputs.

Under free trade, a large country produces 1 million leather bags per year and imports another 2 million bags per year at the world price of $60 per bag. Assume that the country imposes a specific tariff of $5 per bag. As a result, the per-unit price of leather bags decreases to $58 in the international market and the import of leather bags drops to 1.6 million. The domestic production, on the other hand, increases to 1.1 million. As a result of the tariff being imposed:

"The higher the tariff, the more domestic production is increased. Thus, a prohibitive tariff is socially optimal." Explain the validity of this statement.

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

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. Under free-trade the U.S. imported _____ computers, but following the imposition of the tariff the U.S. began to import _____ computers.

A tax imposed on the exports of a small country usually drives down the domestic price of the exportable good.

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

An ad valorem tariff is formulated as a money amount per unit of import that is due when the good reaches the importing country.

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $\begin{array} { l l } \text { World price of wine (free trade) : } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade) : } & 500,000 \text { bottles } \\\text { Domestic production (after tariff) : } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade) : } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff) : } & 650,000 \text { bottles }\end{array}$ The imposition of the tariff on wine will cause the surplus of the domestic consumers to _____ by _____.

The figure given below shows the market for shoes in the U.S. The domestic price line with tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of shoes respectively. The imposition of a tariff on shoes caused economic welfare in the U.S. to _____ by an amount measured by the area _____.

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The consumption effect of the tariff on computers is worth

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. The production effect of the tariff on computers is worth

Calculate the effective rate of protection for the domestic MP3 player industry following the imposition of a 20 percent tariff on the imports of MP3 players. The cost of material inputs used in production of MP3 players in the country is $100 per unit and there is free trade in these material inputs. The world price of MP3 players is $175 per unit. Assume that the country is a small country.

The table given below shows the pre-tariff and post-tariff prices, domestic production and consumption of copper in the United States. Suppose the U.S. government imposes a specific tariff of $0.20 per pound on copper imports by the country. $\begin{array}{|l|l|l|} \hline& \text { Pre-tariff } & \text { Post-tariff } \\\hline \text { World price } & \$ 0.50 \text { per } \mathbb{b} . & \$ 0.40 \text { per } \mathbb{b} . \\\hline \text { U.S. domestic price } & \$ 0.50 \text { per } \mathbb{b} . & \$ 0.60 \text { per } \mathbb{b} \text {. } \\\hline \text { U.S. consumption } & 250 \text { million } \mathbb{b} . & 210 \text { million } \mathbb{b} . \\\hline \text { U.S. production } & 100 \text { million } \mathbb{b} . & 140 \text { million } \mathbb{b} . \\\hline\end{array}$ a.Calculate the welfare loss to U.S.consumers of copper from the tariff. b.Calculate the gain to U.S.producers of copper from the tariff. c.Calculate the revenue collected by the U.S.government from taxing copper imports. d.Calculate the net gain or loss to the U.S.economy as a whole from the tariff.

Compare and contrast the effects of a tariff on prices and national well-being imposed in a small country with the effects of a tariff imposed in a large country. Illustrate your answer with the help of suitable diagrams.

The consumption effect of a tariff indicates the welfare loss to a country resulting from the domestic consumers shifting from cheaper imports to more expensive local goods.

A small country is considering imposing a tariff on imported wine at the rate of $5 per bottle. Economists have estimated the following based on this tariff amount: $\begin{array} { l l } \text { World price of wine (free trade) : } & \$ 20 \text { per bottle } \\\text { Domestic production (free trade) : } & 500,000 \text { bottles } \\\text { Domestic production (after tariff) : } & 600,000 \text { bottles } \\\text { Domestic consumption (free trade) : } & 750,000 \text { bottles } \\\text { Domestic consumption (after tariff) : } & 650,000 \text { bottles }\end{array}$ Before the tariff is imposed, the country imports _____ bottles of wine, but following the imposition of the tariff, the country will import _____ bottles of wine.

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the international price line. D_d and S_d are the domestic demand and supply curves of computers respectively. Calculate the tariff revenue of the U.S. government.